**Exhibit 3.1**

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**ARTICLES OFAMENDMENTOFNEORX CORPORATION**

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The following Articles of Amendment are executed by the undersigned, aWashington corporation:

 

1.             The name of thecorporation is NeoRx Corporation.

 

2.             Article V. CapitalStock, Subsection A, of the Amended and Restated Articles ofIncorporation of the corporation is amended to read as follows:

 

# **ARTICLE V.**         CAPITALSTOCK

# ** **

A.            AuthorizedCapital. The total number of shares which the corporation is authorized toissue is two hundred three million (203,000,000) shares of two cents ($.02) parvalue, consisting of two hundred million (200,000,000) shares of Common Stockof $.02 par value and three million (3,000,000) shares of Preferred Stock of$.02 par value. The Preferred Stock is senior to the Common Stock, and theCommon Stock is subject to the rights and preferences of the Preferred Stock ashereinafter set forth.

 

3.             The date of theadoption of the amendment by the shareholders of the corporation isApril 25, 2006. The amendment was duly approved by the shareholders of thecorporation in accordance with the provisions of RCW 23B.10.030 andRCW 23B.10.040.

 

Dated:  April 25, 2006

 

 
|   | NEORX CORPORATION  |
|--------|--------------------|
|   |               |
|   |               |
|   | /s/ Gerald McMahon |   |
|   | By:                | Gerald McMahon |
|   | Its:               | Chairman and Chief  Executive Officer |
|        |                    |  |  |

 

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**ARTICLES OFAMENDMENTOFNEORX CORPORATION**

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The following Articles of Amendment are executed by the undersigned, aWashington corporation:

 

1.             The name of thecorporation is NeoRx Corporation.

 

2.             Article V. CapitalStock, Subsection A, of the Amended and Restated Articles ofIncorporation of the corporation is amended to read as follows:

 

# **ARTICLE V.**         CAPITALSTOCK

# ** **

A.            AuthorizedCapital. The total number of shares which the corporation is authorized toissue is one hundred fifty three million (153,000,000) shares of two cents($.02) par value, consisting of one hundred fifty million (150,000,000) sharesof Common Stock of $.02 par value and three million (3,000,000) shares ofPreferred Stock of $.02 par value. The Preferred Stock is senior to the CommonStock, and the Common Stock is subject to the rights and preferences of thePreferred Stock as hereinafter set forth.

 

3.             The date of theadoption of the amendment by the shareholders of the corporation is June 15, 2005.The amendment was duly approved by the shareholders of the corporation inaccordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040.

 

4.             These Articles ofAmendment are effective on June 15, 2005.

 

Dated:  June 15, 2005

 

 
|   | NEORX CORPORATION |
|--------|-------------------|
|   |              |
|   |              |
|   | By:               | /s/ Gerald McMahon |   |
|   | Its:              | Chairman and Chief  Executive Officer |

 

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**AMENDED ANDRESTATEDARTICLES OF INCORPORATIONOFNEORX CORPORATION**

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Pursuant to RCW 23B.10.070 and 23B.10.020, the following constitutesAmended and Restated Articles of Incorporation of NeoRx Corporation, aWashington corporation, and correctly sets forth without change thecorresponding provisions of the Articles of Incorporation as previously statedand amended and supersede the original Articles of Incorporation and allamendments thereto.

 

# **ARTICLE I.**                           NAME

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The name of this corporation is NeoRx Corporation.

 

# **ARTICLE II.**         DURATION

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This corporation shall have perpetual existence.

 

# **ARTICLE III.**        PURPOSES

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The purposes for which this corporation is organized is to transact anyor all lawful business for which corporations may be incorporated under theWashington Business Corporation Act.

 

# **ARTICLE IV.**        POWERS

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The powers of this corporation shall be those powers granted by theWashington Business Corporation Act, as amended, including any additionalpowers granted by amendments to said Act after the formation of thiscorporation.

 

# **ARTICLE V.**         CAPITALSTOCK

# ** **

A.            Authorized Capital.The total number of shares which the corporation is authorized to issue issixty-three million (63,000,000) shares of two cents ($.02) par value,consisting of sixty million (60,000,000) shares of Common Stock of $.02 parvalue and three million (3,000,000) shares of Preferred Stock of $.02 par value.The Preferred Stock is senior to the Common Stock, and the Common Stock issubject to the rights and preferences of the Preferred Stock as hereinafter setforth.

 

B.            Issuance ofPreferred Stock in Series. The Preferred Stock may be issued from time totime in one or more series in any manner permitted by law and the provisions ofthe Articles of Incorporation of the corporation, as determined from time totime by the Board of Directors and stated in the resolution or resolutionsproviding for the issuances thereof, prior to the issuances of any sharesthereof. The Board of Directors shall have the authority to fix and determine,subject to the provisions hereof, the rights and preferences of the shares ofany series so established, including the rate of dividend, whether shares maybe redeemed and, if so, the redemption price and the terms and conditions ofredemption, the amount payable upon shares in event of voluntary andinvoluntary liquidation, sinking fund provisions, if any, for the redemption orpurchase of shares, the terms and conditions, if any, on which shares may beconverted, and voting rights, if any.

 

C.            Dividends. Theholders of shares of Preferred Stock shall be entitled to receive dividends,when and as declared by the Board of Directors, out of funds of the corporationlegally available therefor, at such rate, at such time or times and cumulativeor noncumulative, as may be provided by the Board of Directors in designating aparticular series of Preferred Stock.

 

D.            Redemption. ThePreferred Stock may be redeemable at such amount, and at such time or times asmay be provided by the Board of Directors in designating a particular series ofPreferred Stock. In any event, such Preferred Stock may be repurchased by thecorporation to the extent legally permissible.

 

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E.             Liquidation. Inthe event of any liquidation, dissolution, or winding up of the affairs of thecorporation, whether voluntary or involuntary, then, before any distributionshall be made to the holders of the Common Stock, the holders of the PreferredStock at the time outstanding shall be entitled to be paid the preferentialamount or amounts per share as may be provided by the Board of Directors indesignating a particular series of Preferred Stock, together with the amount ofany unpaid dividends accrued thereon, to the date of such payment. The holdersof the Preferred Stock shall not be entitled to receive any distributiveamounts upon the liquidation, dissolution, or winding up of the affairs of thecorporation other than the distributive amounts referred to in this section.

 

F.             Conversion. Sharesof Preferred Stock may be convertible to Common Stock of the corporation, atsuch rate and subject to such adjustments as may be provided by the Board ofDirectors in designating a particular series of Preferred Stock.

 

G.            Voting Rights. Eachoutstanding share of Common Stock shall be entitled to one vote on each mattersubmitted to a vote of the shareholders, except as may otherwise be provided inthese Articles of Incorporation. Holders of Preferred Stock shall have suchvoting rights as may be provided by the Board of Directors in designating aparticular series of Preferred Stock. At each election for directors, everyshareholder entitled to vote at such elections shall have the right to cumulatehis or her votes by giving one candidate as many votes as the number of suchdirectors multiplied by the number of his or her shares shall equal, or bydistributing such votes among any number of such candidates.

 

# **ARTICLE VI.**        NOPREEMPTIVE RIGHTS

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Except as may otherwise be provided by the Board of Directors, noholder of any shares of this corporation shall have any preemptive right topurchase, subscribe for or otherwise acquire any securities of this corporationof any class or kind now or hereafter authorized.

 

# **ARTICLE VII.**      REGISTEREDOFFICE AND REGISTERED AGENT

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A.            The current registeredagent of this corporation in the State of Washington is Corporation ServiceCompany.

 

B.            The location and postoffice address of the current registered agent and the current registeredoffice of this corporation in the State of Washington is 202 North PhoenixStreet, Olympia, WA  98506.

 

# **ARTICLE VIII.**     DIRECTORS

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A.            This corporation shallhave at least one (1) director, the actual number to be prescribed in theBylaws. The number of directors may be increased or decreased from time to timeby amendment of the Bylaws, but no decrease shall have the effect of shorteningthe term of any incumbent director. The current Board of Directors consists ofsix (6) directors.

 

B.            The names and postoffice addresses of the current Board of Directors of this corporation havebeen deleted pursuant to RCW 23B.10.020.

 

C.            The term of thecurrent directors shall be until the next annual meeting of the shareholders ofthe corporation and until their successors shall have been elected and arequalified, unless removed in accordance with the provisions of the bylaws.

 

D.            In evaluating an offerby another party to make a tender offer or exchange offer for securities of theCorporation, or to effect a merger or consolidation involving the Corporation,or to acquire all or substantially all the assets of the Corporation, orotherwise to acquire control of the Corporation, the Board of Directors, inconsidering the best interests of the Corporation, may consider the social,legal, economic or other effects of any such offer upon employees, customers,suppliers and other constituencies of the Corporation, communities in which theCorporation is located or operates, and all other relevant factors.

 

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E.             Advance notice ofnominations for the election of Directors, other than nominations by the Boardof Directors or a committee thereof, and advance notice of business to beconducted at any annual meeting of shareholders, other than business proposedby the Board of Directors or a committee thereof, shall be given within thetime and in the manner provided in the Bylaws.

 

# **ARTICLE IX.**        CONFLICTINGINTERESTS

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This corporation may enter into contracts and otherwise transactbusiness with its directors, officers and shareholders and with corporations,associations, firms and entities in which they are or may become interested asdirectors, officers, shareholders, members or otherwise, as freely as thoughsuch interests did not exist, even though the vote, action or presence of suchdirectors, officers or shareholders may be necessary to obligate thiscorporation upon such contracts or transactions. In the absence of fraud, nosuch contracts or transactions shall be void or voidable and no such directors,officers or shareholders shall be held liable to account to this corporationfor any profit or benefit realized by them through such contracts ortransactions despite such interests or their fiduciary relationship, if any, tothis corporation. In the case of directors and officers of this corporation(but not in the case of shareholders who are not directors or officers), forthe foregoing provisions to be available to such directors or officers thenature of the interest of such directors or officers (but not necessarily thedetails) must have been disclosed to the Board of Directors of the corporationat or prior to the meetings at which said contracts or transactions wereauthorized or confirmed. A general notice that directors or officers of thiscorporation are interested in any other corporation, association, firm orentity shall be sufficient disclosure with respect to all contracts andtransactions with such corporation, association, firm or entity.

 

# **ARTICLE X.**         RESERVEDRIGHTS

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This corporation reserves the right to amend, alter, change, or repealany provisions contained in its Articles of Incorporation in any manner now orhereafter prescribed or as permitted by statute. All rights of shareholders ofthis corporation are granted subject to this reservation.

 

# **ARTICLE XI.**        REDEMPTION

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This corporation shall have the right to purchase, take, receive orotherwise acquire, hold, own, pledge, transfer or otherwise dispose of its ownshares. Subject to the provisions of the Washington Business Corporation Act,purchases of its own shares, whether direct or indirect, may be made fromunreserved and unrestricted earned surplus and capital surplus availabletherefor.

 

# **ARTICLE XII.**      LIMITATIONON DIRECTOR LIABILITY

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To the fullest extent permitted by Washington law at the time thisArticle becomes effective or as may thereafter be in effect, a director of thiscorporation shall not be liable to this corporation or its shareholders formonetary damages for his or her conduct as a director. Any amendment to orrepeal of this Article XII shall not adversely affect any right of adirector of this corporation hereunder with respect to any acts or omissions ofsuch director occurring prior to such amendment or repeal.

 

# **ARTICLE XIII.**     INDEMNIFICATIONOF DIRECTORS

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To the fullestextent permitted by Washington law at the time this Article becomes effectiveor as may be thereafter in effect, this corporation is authorized to indemnifyany director of this corporation. The Board of Directors shall be entitled todetermine the terms of such indemnification, including advance of expenses, andto give effect thereto through the adoption of Bylaws, approval of agreements,or by any other manner approved by the Board of Directors. Any amendment to orrepeal of this Article XIII shall not adversely affect any right of adirector of this corporation hereunder with respect to any right toindemnification that arises prior to such amendment or repeal.

 

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**STATEMENT OFRIGHTS AND PREFERENCESOF THE $2.4375 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES 1($.02 Par Value)**

 

 

(i)            Designation. Thedesignation of such series of the Preferred Stock authorized shall be the “$2.4375Convertible Exchangeable Preferred Stock, Series 1” (the “ExchangeablePreferred Stock”). The maximum number of shares of Exchangeable Preferred Stockshall be 1,120,000.

 

(ii)           Dividends. Holdersof shares of Exchangeable Preferred Stock will be entitled to receive, when, asand if declared by the Board out of funds of the Corporation legally availabletherefor, an annual cash dividend of $2.4375 per share, payable in semi-annualinstallments on December 1 and June 1 commencing June 1, 1990(each a “dividend payment date”). Dividends on the Exchangeable Preferred Stockwill be cumulative from the date of initial issuance of shares of ExchangeablePreferred Stock. Dividends will be payable to holders of record as they appearon the stock books of the Corporation on such record dates, not more than60 days nor less than 10 days preceding the payment dates thereof, asshall be fixed by the Board (each a “dividend payment record date”). Ifdividends are not paid in full upon the Exchangeable Preferred Stock and anyother Parity Preferred Stock (as defined in paragraph (iii) below), alldividends paid and declared upon shares of Exchangeable Preferred-Stock andParity Preferred Stock will be paid and declared pro rata so that in all casesthe amount of dividends paid and declared per share on the ExchangeablePreferred Stock and such other Parity Preferred Stock shall bear to each otherthe same ratio that accumulated and unpaid dividends per share on the shares ofExchangeable Preferred Stock and such other Parity Preferred Stock bear to eachother. Except as set forth in the preceding sentence, unless full cumulativedividends on the Exchangeable Preferred Stock have been paid, dividends (otherthan in Common Stock of the Corporation (as defined insubparagraph (iv)(I) below), other stock ranking junior to theExchangeable Preferred Stock and rights to acquire the foregoing) may not bepaid or declared and set aside for payment and other distributions may not bemade upon the Common Stock or on any other stock of the Corporation rankingjunior to or on a parity with the Exchangeable Preferred Stock as to dividends,nor may any Common Stock or any other stock of the Corporation ranking juniorto or on a parity with the Exchangeable Preferred Stock as to dividends beredeemed, purchased or otherwise acquired for any consideration by theCorporation (except for repurchases from employees and consultants at cost andexcept by conversion into or exchange for stock of the Corporation rankingjunior to the Exchangeable Preferred Stock as to dividends). Dividends payablefor any partial dividend period shall be calculated on the basis of a 360-dayyear of 12 30-day months. Accrued but unpaid dividends shall not bear interest.

 

For the purpose of determining the legality of dividends or redemptionspursuant to Section 23A.08.420(2) (b) of the Revised Code of Washington,or any successor statute, dividends on or redemptions of the ExchangeablePreferred Stock may be paid or made without reference to the amount required tosatisfy the holders’ Liquidation Preference.

 

(iii)          Rank. The sharesof Exchangeable Preferred Stock shall rank prior to the shares of Common Stockand of any other class of stock of the Corporation ranking junior to theExchangeable Preferred Stock upon liquidation, so that in the event of anyliquidation, dissolution or winding up of the Corporation, whether voluntary orinvoluntary, the holders of the Exchangeable Preferred Stock shall be entitledto receive out of the assets of the Corporation available for distribution toits stockholders, whether from capital, surplus or earnings, before anydistribution is made to holders of shares of Common Stock or any other suchjunior stock, an amount equal to $25.00 per share (the “Liquidation Preference”of a share of Exchangeable Preferred Stock) plus an amount equal to alldividends (whether or not earned or declared) accumulated and unpaid on theshares of Exchangeable Preferred Stock to the date of final distribution. If,upon any liquidation, dissolution or winding up of the Corporation, the assetsof the Corporation, or proceeds thereof, distributable among the holders ofshares of Exchangeable Preferred Stock and Parity Preferred Stock shall beinsufficient to pay in full the preferential amount aforesaid, then suchassets, or the proceeds thereof, shall be distributable among such holdersratably in accordance with the respective amounts which would be payable onsuch shares if all amounts payable thereon were paid in full. After payment ofthe full amount of the Liquidation Preference and such dividends to whichholders of shares of Exchangeable Preferred Stock are

 

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entitled, the holders of shares of Exchangeable Preferred Stock willnot be entitled to any further participation in any distribution of assets bythe Corporation. For the purposes hereof, neither a consolidation or merger ofthe Corporation with any other corporation, nor a sale or transfer of all orany part of the Corporation’s assets for cash or securities shall be considereda liquidation, dissolution or winding up of the Corporation.

 

For the purposes of this statement of Rights andPreferences any stock of any class or series of the Corporation shall be deemedto rank:

 

(a)           prior to shares of the ExchangeablePreferred Stock, either as to dividends or upon liquidation, if the holders ofstock of such class or series shall be entitled by the terms thereof to thereceipt of dividends or of amounts distributable upon liquidation, dissolutionor winding up, as the case may be, in preference or priority to the holders ofshares of the Exchangeable Preferred Stock;

 

(b)           on a parity with shares of theExchangeable Preferred Stock, either as to dividends or upon liquidation,whether or not the dividend rates, dividend payment dates, or redemption orliquidation prices per share thereof be different from those of the Exchange-able Preferred Stock, if the holders of stock of such class or series shall beentitled by the terms thereof to the receipt of dividends or of amountsdistributable upon liquidation, dissolution or winding up, as the case may be,in proportion to their respective dividend rates or liquidation prices, withoutpreference or priority of one over the other as between the holders of suchstock and the holders of shares of Exchangeable Preferred Stock (the term “ParityPreferred Stock” being used to refer to any stock on a parity with the sharesof Exchangeable Preferred Stock, either as to dividends or upon liquidation asthe context may require); and

 

(c)           junior to shares of the ExchangeablePreferred Stock, either as to dividends or upon liquidation, if such classshall be Common Stock or if the holders of the Exchangeable Preferred Stockshall be entitled to the receipt of dividends or of amounts distributable uponliquidation, dissolution or winding up, as the case may be, in preference orpriority to the holders of stock of such class or series.

 

(iv)          Conversion.

 

(I)            Subject to and upon compliance with theprovisions of this paragraph (iv), the holder of a share of ExchangeablePreferred Stock shall have the right, at such holder’s option, at any time, toconvert such share into such number of fully paid and non-assessable shares ofCommon Stock (calculated as to each conversion to the nearest 1/100th of ashare) as the Liquidation Preference of such share surrendered for conversionis a multiple of the Conversion Price (as defined below) and by surrender ofsuch share so to be converted, such surrender to be made in the manner providedin subparagraph (II) of this paragraph (iv); provided, however,that the right to convert shares called for redemption pursuant to paragraph(viii) or for exchange pursuant to paragraph (vii) shall terminate atthe close of business on the date fixed for such redemption or exchange, as thecase may be, unless the Corporation shall default in making payment of theamount payable upon such redemption or in making the exchange and payment ofany amount payable upon such exchange. A holder of a share of ExchangeablePreferred Stock is not entitled to any rights of a holder of Common Stock untilsuch holder has converted such share of Exchangeable Preferred Stock.

 

The term “CommonStock” shall mean the Common Stock, $.02 par value, of the Corporation as thesame exists on the date of this statement of Rights and Preferences or as suchstock may be constituted from time to time, except that for the purpose ofsubparagraph (V) of this paragraph (iv) the term “Common Stock” shallalso mean and include stock of the Corporation of any class, whether now orhereafter authorized, which shall have the right to participate in thedistribution of either earnings or assets of the Corporation without limit asto amount or percentage.

 

The term “ConversionPrice” shall mean $5.50, as adjusted in accordance with the provisions of thisparagraph (iv).

 

The term “LiquidationPreference” shall have the meaning specified in paragraph (iii).

 

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(II)           In order to exercise the conversionprivilege, the holder of each share of Exchangeable Preferred Stock to beconverted shall surrender the certificate representing such share at the officeof the conversion agent for the Exchangeable Preferred Stock in the Borough ofManhattan, City of New York or Seattle, Washington, appointed for such purposeby the Corporation, with the Notice of Election to Convert on the back of saidcertificate completed and signed. Unless the shares issuable on conversion areto be issued in the same name as the name in which such share of ExchangeablePreferred Stock is registered, each share surrendered for conversion shall beaccompanied by instruments of transfer, in form satisfactory to theCorporation, duly executed by the holder or the holder’s duly authorizedattorney and an amount sufficient to pay any transfer or similar tax.

 

The holders ofshares of Exchangeable Preferred Stock at the close of business on a dividendpayment record date shall be entitled to receive the dividend payable on suchshares on the corresponding dividend payment date notwithstanding theconversion thereof after such dividend payment record date or the Corporation’sdefault in payment of the dividend due on such dividend payment date. However,shares of Exchangeable Preferred Stock surrendered for conversion during theperiod between the close of business on any dividend payment record date andthe opening of business on the corresponding dividend payment date (exceptshares called for redemption on a redemption date during such period) must beaccompanied by payment of an amount equal to the dividend payable on suchshares on such dividend payment date (the “dividend amount”). The dividend withrespect to a share of Exchangeable Preferred Stock called for redemption on aredemption date between the close of business on any dividend payment recorddate and the opening of business on the corresponding dividend payment dateshall be payable on such dividend payment date to the holder of such share onsuch dividend payment record date notwithstanding the conversion of such shareof Exchangeable Preferred Stock after such dividend payment record date andprior to such dividend payment date, and the holder converting such share ofExchangeable Preferred Stock need not include a payment of such dividend amountupon surrender of such share of Exchangeable Preferred Stock for conversion. Theholders of shares of Exchangeable Preferred Stock on a dividend payment recorddate who (or whose transferees) convert any of such shares on or after thecorresponding dividend payment date will receive the dividend payable by theCorporation on such shares of Exchangeable Preferred Stock on such dividendpayment date, and need not include payment of the dividend amount uponsurrender of such shares for conversion. Except as provided above, theCorporation shall make no payment or adjustment for accrued and unpaiddividends on shares of Exchangeable Preferred Stock, whether or not in arrears,on conversion of such shares or for dividends on the shares of Common Stockissued upon such conversion.

 

As promptly aspracticable after the surrender by a holder of the certificates for shares ofExchangeable Preferred Stock as aforesaid, the Corporation shall issue andshall deliver at the office of the conversion agent to such holder, or on theholder’s written order to the holder’s transferee, a certificate orcertificates for the number of full shares of Common Stock issuable upon theconversion of such shares in accordance with the provisions of thisparagraph (iv), and any fractional interest in respect of a share ofCommon Stock arising upon such conversion shall be settled as provided insubparagraph (III) of this paragraph (iv).

 

Each conversionshall be deemed to have been effected immediately prior to the close ofbusiness on the date on which the certificates for shares of ExchangeablePreferred Stock shall have been surrendered and such notice received by theCorporation as aforesaid, and the person or persons in whose name or names anycertificate or certificates for shares of Common Stock shall be issuable uponsuch conversion shall be deemed to have become the holder or holders of recordof the shares of Common Stock represented thereby at such time on such date andsuch conversion shall be at the Conversion Price in effect at such time on suchdate, unless the stock transfer books of the Corporation shall be closed onthat date, in which event such person or persons shall be deemed to have becomesuch holder or holders of record at the close of business on the nextsucceeding day on which such stock transfer books are open, but such conversionshall be at the Conversion Price in effect on the date upon which shares ofExchangeable Preferred Stock shall have been surrendered and such notice receivedby the Corporation. All shares of Common Stock delivered upon conversion of theExchangeable Preferred Stock will upon delivery be duly and validly issued andfully paid and non-assessable, free of all liens and charges and not subject toany preemptive rights. Upon the surrender of certificates representing sharesof Exchangeable Preferred Stock, such shares shall no longer be deemed to beoutstanding and all rights of a holder with respect to such shares surrenderedfor conversion shall immediately terminate except the right to receive theCommon Stock or other securities, cash or other assets as herein provided.

 

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(III)         Fractional Shares. No fractional shares or securitiesrepresenting fractional shares of Common Stock shall be issued upon conversionof the Exchangeable Preferred Stock. Any fractional interest in a share ofCommon Stock resulting from conversion of a share of Exchangeable PreferredStock shall be paid in cash (computed to the nearest cent) based on the lastreported sale price of the Common Stock (as defined insubparagraph (IV)(d) of this paragraph (iv)) on the business day nextpreceding the day of conversion. If more than one share shall be surrenderedfor conversion at one time by the same holder, the number of full shares ofCommon Stock issuable upon conversion thereof shall be computed on the basis ofthe aggregate Liquidation Preference of the shares of Exchangeable PreferredStock so surrendered.

 

(IV)         Adjustment. The Conversion Price shall be adjusted from time totime as follows:

 

(a)           In case the Corporation shall(i) pay a dividend or make a distribution on its Common Stock in shares ofits Common Stock, (ii) subdivide its outstanding Common Stock into agreater number of shares, or (iii) combine its outstanding Common Stockinto a smaller number of shares, the Conversion Price in effect immediatelyprior thereto shall be adjusted so that the holder of any share of ExchangeablePreferred Stock thereafter surrendered for conversion shall be entitled toreceive the number of shares of Common Stock of the Corporation which he wouldhave owned or have been entitled to receive after the happening of any of theevents described above had such share been converted immediately prior to thehappening of such event. An adjustment made pursuant to thissubparagraph (IV)(a) shall become effective immediately, except asprovided in subparagraph (IV)(g) below, after the record date in the caseof a dividend or distribution and shall become effective immediately after theeffective date in the case of subdivision or combination.

 

(b)           In case the Corporation shall issuerights or warrants to all holders of its Common Stock entitling them (for aperiod expiring within 45 days after the record date mentioned below) tosubscribe for or purchase Common Stock at a price per share less than thecurrent market price per share of Common Stock (as defined insubparagraph (IV)(d) below) at the record date for the determination ofstockholders entitled to receive such rights or warrants, the Conversion Pricein effect immediately prior thereto shall be adjusted so that the same shallequal the price determined by multiplying the Conversion Price in effectimmediately prior to the date of issuance of such rights or warrants by afraction of which the numerator shall be the number of shares of Common Stockoutstanding on the date of issuance of such rights or warrants plus the numberof shares of Common Stock which the aggregate offering price of the total numberof shares so offered for subscription or purchase would purchase at suchcurrent market price, and of which the denominator shall be the number ofshares of Common Stock outstanding on the date of issuance of such rights orwarrants plus the number of additional shares of Common Stock offered forsubscription or purchase. Such adjustment shall be made successively wheneverany such rights or warrants are issued, and shall become effective immediately,except as provided in subparagraph (IV)(g) below, after such record date. Indetermining whether any rights or warrants entitle the holders of the CommonStock to subscribe for or purchase shares of Common Stock at less than suchcurrent market price, and in determining the aggregate offering price of the sharesof Common Stock so offered, there shall be taken into account any considerationreceived by the Corporation for such rights or warrants, the value of suchconsideration, if other than cash, to be determined by the Board of Directors.

 

(c)           In case the Corporation shall distributeto all holders of its Common Stock any shares of capital stock of theCorporation (other than Common Stock) or evidences of indebtedness or assets(excluding cash dividends or other distributions paid from retained earnings ofthe Corporation) or rights or warrants to subscribe for or purchase any of itssecurities (excluding those referred to in subparagraph (IV)(b) above),then, in each such case, the Conversion Price shall be adjusted so that thesame shall equal the price determined by multiplying the Conversion Price ineffect immediately prior to the date of such distribution by a fraction ofwhich the numerator shall be the current market price per share of Common Stock(as defined in subparagraph (IV)(d) below) on the record date mentionedbelow less the then fair market value (as determined by the Board, whosedetermination shall, if made in good faith, be conclusive) of the portion ofthe capital stock or assets or evidences of indebtedness so distributed or ofsuch rights or warrants applicable to one share of Common Stock, and of whichthe denominator shall be

 

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the current market price per share (as defined insubparagraph (IV)(d) below) of the Common Stock. Such adjustment shallbecome effective immediately, except as provided in subparagraph (IV)(g)below, after the record date for the determination of shareholders entitled toreceive such distribution.

 

(d)           Definition of Current Market Price. For the purpose of any computationunder subparagraphs (IV)(b) and (c) above, the current market price per shareof Common Stock at any date shall be deemed to be the average of the lastreported sale prices for the ten consecutive Trading Days (as defined below)preceding the day before the record date with respect to any distribution,issuance or other event requiring such computation. The last reported saleprice for each day shall be (i) the last reported sale price of CommonStock on the National Market System of the National Association of SecuritiesDealers, Inc. Automated Quotation System, or any similar system of automateddissemination of quotations of securities prices then in common use, if soquoted, or (ii) if not quoted as described in clause (i), the meanbetween the high bid and low asked quotations for Common Stock as reported bythe National Quotation Bureau Incorporated if at least two securities dealershave inserted both bid and asked quotations for such class of stock on at leastfive of the ten preceding days, or (iii) if the Common Stock is listed oradmitted for trading on any national securities exchange, the last sale price,or the closing bid price if no sale occurred, of such class of stock on theprincipal securities exchange on which such class of stock is listed. If theCommon Stock is quoted on a national securities or central market system, inlieu of a market or quotation system described above, the last reported saleprice shall be determined in the manner set forth in clause (ii) of thepreceding sentence if bid and asked quotations are reported but actualtransactions are not, and in the manner set forth in clause (iii) of thepreceding sentence if actual transactions are reported. If none of theconditions set forth above is met, the last reported sale price of Common Stockon any day or the average of such last reported sale prices for any periodshall be the fair market value of such class of stock as determined by a memberfirm of the New York Stock Exchange, Inc. selected by the Company. As usedherein the term “Trading Days” with respect to Common Stock means (i) ifthe Common Stock is quoted on the National Market System of the NationalAssociation of securities Dealers, Inc. Automated Quotation system or anysimilar system of automated dissemination of quotations of securities prices,days on which trades may be made on such system, or (ii) if not quoted asdescribed in clause (i), days on which quotations are reported by theNational Quotation Bureau Incorporated, or (iii) if the Common Stock islisted or admitted for trading on any national securities exchange, days onwhich such national securities exchange is open for business.

 

(e)           No adjustment in the Conversion Priceshall be required unless such adjustment would require a change of at least 1%in such price; provided, however, that any adjustments which byreason of this subparagraph (IV)(e) are not required to be made shall becarried forward and taken into account in any subsequent adjustment; [andprovided, further, that adjustment shall be required and made in accordancewith the provisions of this paragraph (iv). All calculations under thisparagraph (iv) shall be made to the nearest cent or to the nearest onehundredth of a share, as the case may be. Anything in this subparagraph (IV)to the contrary notwithstanding, the Corporation shall be entitled to make suchreductions in the Conversion Price, in addition to those required by thissubparagraph (IV), as it in its discretion shall determine to be advisablein order that any stock dividends, subdivision or combination of shares,distribution of capital stock or rights or warrants to purchase stock orsecurities, or distribution of evidences of indebtedness or assets (other thancash dividends or distributions paid from retained earnings) hereafter made bythe Corporation to its stockholders shall not be taxable.

 

(f)            Notice of Adjustment. Whenever the Conversion Price isadjusted, as herein provided, the Corporation shall promptly file with theconversion agent an officers’ certificate setting forth the Conversion Priceafter such adjustment and setting forth a brief statement of the factsrequiring such adjustment, which certificate shall be conclusive evidence ofthe correctness of such adjustment. Promptly after delivery of such certificate,the Corporation shall prepare a notice of such adjustment of the ConversionPrice setting forth the adjusted Conversion Price and the date on which suchadjustment becomes effective and shall mail such notice of such adjustment ofthe Conversion Price to the holder of each share of Exchangeable PreferredStock at his last address as shown on the stock books of the Corporation.

 

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(g)           In any case in which thissubparagraph (IV) provides that an adjustment shall become effectiveimmediately after a record date for an event, the Corporation may defer untilthe occurrence of such event (i) issuing to the holder of any share ofExchangeable Preferred Stock converted after such record date and before theoccurrence of such event the additional shares of Common Stock issuable uponsuch conversion by reason of the adjustment required by such event over andabove the Common Stock issuable upon such conversion before giving effect tosuch adjustment and (ii) paying to such holder any amount in cash in lieuof any fraction pursuant to subparagraph (III) of thisparagraph (iv).

 

(V)           If:

 

(a)           the Corporation shall declare a dividend(or any other distribution) on the Common Stock (other than in cash out ofretained earnings); or

 

(b)           the Corporation shall authorize thegranting to the holders of the Common Stock of rights or warrants to subscribefor or purchase any shares of any class or any other rights or warrants; or

 

(c)           there shall be any reclassification ofthe Common Stock (other than a subdivision or combination of the outstandingCommon Stock and other than a change in the par value, or from par value to nopar value, or from no par value to par value), or any consolidation, merger, orstatutory share exchange to which the Corporation is a party and for whichapproval of any stockholders of the Corporation is required, or any sale ortransfer of all or substantially all the assets of the Corporation or anyChange in Control (as defined in paragraph (ix) below); or

 

(d)           there shall be a voluntary or aninvoluntary dissolution, liquidation or winding up of the Corporation;

 

thenthe Corporation shall cause to be filed with the conversion agent, and shallcause to be mailed to the holders of shares of the Exchangeable Preferred Stockat their addresses as shown on the stock books of the Corporation, at least15 days prior to the applicable date hereinafter specified, a noticestating (i) the date on which a record is to be taken for the purpose of suchdividend, distribution or rights or warrants, or, if a record is not to betaken, the date as of which the holders of Common Stock of record to beentitled to such dividend, distribution or rights or warrants are to bedetermined or (ii) the date on which such reclassification, consolidation,merger, statutory share exchange, sale, transfer, Change in Control,dissolution, liquidation or winding up is expected to become effective, and thedate as of which it is expected that holders of Common Stock of record shall beentitled to exchange their shares of Common Stock for securities or otherproperty deliverable upon such reclassification, consolidation, merger,statutory share exchange, sale, transfer, Change in Control, dissolution,liquidation or winding up. Failure to give such notice or any defect thereinshall not affect the legality or validity of the proceedings described insubparagraph (VIII) of this paragraph (iv) or insubparagraph (V)(a), (V)(b), (V)(c) or (V)(d) of this paragraph (iv).

 

(VI)         Reservation of Common Stock. The Corporation covenants that it willat all times reserve and keep available, free from preemptive rights, out ofthe aggregate of its authorized but unissued shares of Common Stock or itsissued shares of Common Stock held in its treasury, or both, for the purpose ofeffecting conversions of the Exchangeable Preferred Stock, the full number ofshares of Common Stock deliverable upon the conversion of all outstandingshares of Exchangeable Preferred Stock not theretofore converted. For purposesof this subparagraph (VI), the number of shares of Common Stock whichshall be deliverable upon the conversion of all outstanding shares ofExchangeable Preferred Stock shall be computed as if at the time of computationall such outstanding shares were held by a single holder.

 

Before taking anyaction which would cause an adjustment reducing the Conversion Price below thethen par value (if any) of the shares of Common Stock deliverable uponconversion of the Exchangeable Preferred Stock, the Corporation will take anycorporate action which may, in the opinion of its counsel, be necessary inorder that the Corporation may validly and legally issue fully paid andnon-assessable shares of Common Stock at such adjusted Conversion Price.

 

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The Corporationwill endeavor to list the shares of Common Stock required to be delivered uponconversion of the Exchangeable Preferred Stock prior to such delivery upon eachnational securities exchange, if any, upon which the outstanding Common Stockis listed at the time of such delivery.

 

Prior to thedelivery of any securities which the Corporation shall be obligated to deliverupon conversion of the Exchangeable Preferred Stock, the Corporation willendeavor to comply with all federal and state laws and regulations thereunderrequiring the registration of such securities with, or any approval of orconsent to the delivery thereof by, any governmental authority.

 

(VII)        Taxes. The Corporation will pay any and all documentarystamp or similar issue or transfer taxes payable in respect of the issue ordelivery of shares of Common Stock on conversion of the Exchangeable PreferredStock pursuant hereto; provided, however, that the Corporationshall not be required to pay any tax which may be payable in respect of anytransfer involved in the issue or delivery of shares of Common Stock in a nameother than that of the holder of the Exchangeable Preferred Stock to beconverted and no such issue or delivery shall be made unless and until theperson requesting such issue or delivery has paid to the Corporation the amountof any such tax or has established, to the satisfaction of the Corporation,that such tax has been paid.

 

(VIII)       Mergers or Other Combinations. In case of any reclassification orchange of outstanding shares of Common Stock (other than a change in par value,or as a result of a subdivision or combination), or in case of anyconsolidation of the Corporation with, or merger of the Corporation with orinto, any other Person, any merger of another Person into the Corporation(other than a merger which does not result in a reclassification, change,conversion, exchange or cancellation of outstanding shares of Common Stock) orany sale or transfer of all or substantially all of the assets of theCorporation, the holder of each share of Exchangeable Preferred Stock thenoutstanding shall have the right thereafter to convert such share ofExchangeable Preferred Stock into the kind and amount of securities, cash andother property which the holder would have been entitled to receive upon suchreclassification, change, consolidation, merger, sale or transfer if the holderhad held the Common Stock issuable upon the conversion of such share ofExchangeable Preferred Stock immediately prior to such reclassification,change, consolidation, merger, sale or transfer, assuming such holder of CommonStock of the Corporation (i) is not a Person with which the Corporationconsolidated or into which the Corporation merged or which merged into theCorporation or to which such sale or transfer was made, as the case may be (“constituentPerson”), or an Affiliate of a constituent Person and (ii) failed toexercise any rights of election as to the kind or amount of securities, cashand other property receivable upon such reclassification, change,consolidation, merger, sale or transfer (provided, that if the kind or amountof securities, cash and other property receivable upon such reclassification,change, consolidation, merger, sale or transfer is not the same for each shareof Common Stock of the Corporation held immediately prior to suchreclassification, change, consolidation, merger, sale or transfer by other thana constituent Person or an Affiliate thereof and in respect of which such rightsof election shall not have been exercised (“non-electing share”), then for thepurpose of this subparagraph VIII the kind and amount of securities, cashand other property receivable upon such reclassification, change,consolidation, merger, sale or transfer by each non-electing share shall bedeemed to be the kind and amount so receivable per share by a plurality of thenon-electing shares). The above provisions of this subparagraph VIII shallsimilarly apply to successive reclassifications, changes, consolidations,mergers, sales or transfers.

 

(v)           Status. Upon anyconversion, exchange or redemption of shares of Exchangeable Preferred Stock,the shares of Exchangeable Preferred Stock so converted, exchanged or redeemedshall have the status of authorized and unissued shares of preferred stock, andthe number of shares of preferred stock which the Corporation shall haveauthority to issue shall not be decreased by the conversion, exchange orredemption of shares of Exchangeable Preferred Stock.

 

(vi)          Voting Rights. Theholders of shares of Exchangeable Preferred Stock shall have no voting rightswhatsoever, except for any voting rights to which they may be entitled underthe laws of the State of Washington, and except as follows:

 

(I)            If and whenever at any time or timesdividends payable on the Exchangeable Preferred Stock or Parity Preferred Stockshall have been in arrears and unpaid in an aggregate amount equal to orexceeding

 

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the amount of dividends payable thereon for three semi-annual periods,then the holders of such Exchangeable Preferred Stock and Parity PreferredStock having similar voting rights then exercisable shall have the exclusiveright, voting as a single class without regard to series, to elect twodirectors of the Corporation, such directors to be in addition to the number ofdirectors constituting the Board of Directors immediately prior to the accrualof such right. The remaining directors shall be elected in accordance with theprovisions of the Corporation’s Restated Articles of Incorporation and Bylawsby the other class or classes of stock entitled to vote therefor at eachmeeting of stockholders held for the purpose of electing directors. Such votingright of the Exchangeable Preferred Stock shall continue until such time as allcumulative dividends accumulated on the Exchangeable Preferred Stock and ParityPreferred Stock having cumulative dividends shall have been paid in full atwhich time such voting right of the holders of the Exchangeable Preferred Stockshall terminate, subject to revesting in the event of each and every subsequentevent of default of the character indicated above.

 

Whenever suchvoting right shall have vested, such right may be exercised initially either ata special meeting of the holders of the Exchangeable Preferred Stock and ParityPreferred Stock having similar voting rights then exercisable, called ashereinafter provided, or at any annual meeting of stockholders held for thepurpose of electing directors, and thereafter at each successive annualmeeting.

 

At any time whensuch voting right shall have vested in the holders of the ExchangeablePreferred Stock, and if such right shall not already have been initiallyexercised, a proper officer of the Corporation shall, upon the written requestof the holders of record of 10% in number of shares of the ExchangeablePreferred Stock then outstanding, addressed to the Secretary of theCorporation, call a special meeting of the holders of the Exchangeable PreferredStock and Parity Preferred Stock having similar voting rights then exercisablefor the purpose of electing directors. Such meeting shall be held at theearliest practicable date upon the notice required for annual meetings ofstockholders at the place for holding of annual meetings of stockholders of theCorporation, or, if none, at a place designated by the Secretary of theCorporation. If such meeting shall not be called by the proper officers of theCorporation within 30 days after the personal service of such writtenrequest upon the Secretary of the Corporation, or within 30 days aftermailing the same within the United States of America, by registered mail,addressed to the Secretary of the Corporation at its principal office (suchmailing to be evidenced by the registry receipt issued by the postalauthorities), then the holders of record of 10% in number of shares of theExchangeable Preferred Stock then outstanding may designate in writing one oftheir number to call such meeting at the expense of the Corporation, and suchmeeting may be called by such person so designated upon the notice required forannual meetings of stockholders and shall be held at the same place as iselsewhere provided for in this subparagraph (I). Any holder of the ExchangeablePreferred Stock shall have access to the stock books of the Corporation for thepurpose of causing a meeting of stockholders to be called pursuant to theprovisions of this paragraph. Notwithstanding the provisions of this paragraph,however, no such special meeting shall be called during a period within 90 daysimmediately preceding the date fixed for the next annual meeting ofstockholders.

 

At any meetingheld for the purpose of electing directors at which the holders of theExchangeable Preferred Stock shall have the right to elect directors asprovided herein, the presence in person or by proxy of the holders of 33-1/3%of the then outstanding shares of the Exchangeable Preferred Stock and ParityPreferred Stock having similar voting rights then exercisable shall be requiredand be sufficient to constitute a quorum of such preferred stock for theelection of directors by such preferred stock. At any such meeting oradjournment thereof (A) the absence of a quorum of the holders of theExchangeable Preferred Stock and Parity Preferred Stock having similar votingrights then exercisable shall not prevent the election of directors other thanthose to be elected by the holders of such preferred stock, and the absence ofa quorum or quorums of the holders of other classes or series of capital stockentitled to elect such other directors shall not prevent the election ofdirectors to be elected by the holders of the Exchangeable Preferred Stock andParity Preferred Stock having similar voting rights then exercisable, and(B) in the absence of a quorum of the holders of Exchangeable PreferredStock and Parity Preferred Stock having similar voting rights then exercisable,a majority of the holders present in person or by proxy of such preferred stockshall have the power to adjourn the meeting, or appropriate portion thereof,for the election of directors which the holders of such preferred stock areentitled to elect, from time to time, without notice other than announcement atthe meeting, until a quorum shall be present.

 

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The directorselected pursuant to this subparagraph (I) shall serve until the nextannual meeting or until their respective successors shall be elected and shallqualify; provided, however, that when the right of the holders ofthe Exchangeable Preferred Stock to elect directors as herein provided shallterminate, the terms of office of all persons so elected by the holders of theExchangeable Preferred Stock shall terminate, and the number of directors ofthe Corporation shall thereupon be such number as may be provided in accordancewith the Restated Articles of Incorporation and Bylaws of the Corporationsirrespective of any increase made pursuant to this subparagraph (I).

 

So long as anyshares of Exchangeable Preferred Stock are outstanding, the Restated Articlesof Incorporation and Bylaws of the Corporation shall contain provisionsensuring that the number of Directors of the Corporation shall at all times besuch that the exercise by the holders of shares of Exchangeable Preferred Stockof the right to elect Directors under the circumstances provided in thissubparagraph (I) will not contravene any provisions of the Corporation’sRestated Articles of Incorporation or Bylaws.

 

(II)           So long as any shares of the ExchangeablePreferred Stock remain outstanding, the Corporation will not, either directlyor indirectly or through merger or consolidation with any other corporation,without the affirmative vote at a meeting or the written consent with orwithout a meeting of the holders of at least 66-2/3% in number of shares of theExchangeable Preferred Stock then outstanding, (A) create any class orclasses or series of stock ranking prior to, or on a parity with, theExchangeable Preferred Stock either as to dividends or upon liquidation orincrease the authorized number of shares of any class or classes or series ofstock ranking prior to, or on a parity with, the Exchangeable Preferred Stockeither as to dividends or upon liquidation, (B) amend, alter or repeal anyof the provisions of the Restated Articles of Incorporation (including thisStatement of Rights and Preferences) so as to affect adversely the preferences,special rights or powers of the Exchangeable Preferred Stock, (C) authorizeany reclassification of the Exchangeable Preferred Stock or (D) incur orsuffer to exist any Debt that, by its terms or the terms of the instrumentcreating or evidencing it, is pari passu with or subordinate in right ofpayment to the 9-3/4% Convertible Subordinated Debentures due 2014 issued bythe Company in May 1989 or the Debentures described in paragraph (vii)herein. “Debt” shall mean (i) all indebtedness and other obligations forthe payment of money of the Corporation, whenever created, incurred, orassumed, which is (a) for borrowed money, evidenced by a note or similarinstrument, or (b) for the payment of money relating to (x) anyobligations of the Corporation as lessee under leases of any type of propertyrequired to be capitalized on the balance sheet of the lessee under generallyaccepted accounting principles and leases of property or assets made as part ofany sale and lease-back transaction to which the Corporation is a party or(y) any other agreement to lease, or lease of, any real or personalproperty or mixture thereof, or (c) evidenced by a note or similarinstrument given by the Corporation in connection with the acquisition by theCorporation or any subsidiary of any businesses, properties or assets of anykind other than trade accounts payable or accrued liabilities arising in theordinary course of business, or (d) arising from letters of credit,bankers’ acceptances, currency agreements or interest rate swaps, or(e) relating to performance, completion or similar bonds of the Corporation;(ii) any liability of others described in the preceding clause which theCorporation has guaranteed or which is otherwise its legal liability; and(iii) any modification, amendment, renewal, extension or refunding of anysuch indebtedness or obligation.

 

(vii)         Exchange. TheExchangeable Preferred Stock is exchangeable in whole at the option of theCorporation on any dividend payment date beginning June 1, 1992, for theCorporation’s 9-3/4% Convertible Subordinated Debentures due 2014 (the “Debentures”)as described in the Corporation’s Registration Statement on Form S-4, asamended (Registration No. 33-33152), as filed with the Securities andExchange Commission. Holders of outstanding shares of Exchangeable PreferredStock will be entitled to receive $25.00 principal amount of Debentures inexchange for each share of Exchangeable Preferred Stock held by them at thetime of exchange; provided that the Debentures will be issuable indenominations of $25.00 and integral multiples thereof. The Corporation willmail to each record holder of the Exchangeable Preferred Stock written noticeof its intention to exchange not less than 30 nor more than 60 days priorto the date of exchange (the “Exchange Date”). The notice shall specify theeffective date of the exchange and the place where certificates for shares ofExchangeable Preferred Stock are to be surrendered for Debentures and shallstate that dividends on Exchangeable Preferred Stock will cease to accrue onsuch date of exchange. Prior to giving notice of intention to exchange, theCorporation shall execute and deliver with a bank or trust company selected bythe Corporation an Indenture substantially in the form filed as an Exhibit tosuch Registration Statement with such changes as may be required by law, stockexchange rule or

 

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usage. The Corporation will cause the Debentures to be authenticated onthe Exchange Date; at such time the rights of the holders of ExchangeablePreferred Stock as stockholders of the Corporation shall cease (except theright to receive accumulated and unpaid dividends to the Exchange Date) andsuch shares of Exchangeable Preferred Stock shall no longer be deemedoutstanding and shall represent only the right to receive the Debentures andsuch accumulated and unpaid dividends. Notwithstanding the foregoing, if noticeof exchange has been given pursuant to this paragraph (vii) and any holderof shares of Exchangeable Preferred Stock shall, prior to the close of businesson the Exchange Date, give written notice to the Corporation pursuant toparagraph (iv) of the conversion of any or all of the shares held by suchholder (accompanied by a certificate or certificates for such shares, dulyendorsed or assigned to the Corporation), then such exchange shall not becomeeffective as to such shares to be converted and such conversion shall becomeeffective as provided in paragraph (iv). The Debentures will be deliveredto the persons entitled thereto upon surrender to the Corporation or its agentappointed for that purpose of the certificates for the shares of ExchangeablePreferred Stock being exchanged therefor. If the Corporation has not paid fullcumulative dividends on the Exchangeable Preferred Stock to the Exchange Date(or set aside a sum therefor) the Corporation may not exercise its option toexchange the Debentures for the Exchangeable Preferred Stock.

 

(viii)        Redemption by theCorporation. The shares of the Exchangeable Preferred Stock may be redeemedat the option of the Corporation, as a whole, or from time to time, in part,upon not less than 30 nor more than 60 days’ prior notice mailed to theholders of the shares to be redeemed at their addresses as shown on the stockbooks of the Corporation, at the following redemption prices per share duringthe 12-month period beginning June 1:

 

| **Year** | ** ** | **Redemption Price** | ** ** | **Year**            | ** ** | **Redemption Price** | ** ** |
|----------|------------|---------------------------|------------|---------------------|------------|---------------------------|------------|
|     |       |                      |       |                |       |                      |       |
| 1989     |       | 27.43750                  |       | 1995                |       | 25.97500                  |       |
| 1990     |       | 27.19375                  |       | 1996                |       | 25.73125                  |       |
| 1991     |       | 26.95000                  |       | 1997                |       | 25.48750                  |       |
| 1992     |       | 26.70625                  |       | 1998                |       | 25.24375                  |       |
| 1993     |       | 26.46250                  |       | 1999 and thereafter |       | 25.00000                  |       |
| 1994     |       | 26.21875                  |       |                |       |                      |       |

 

togetherin each case with an amount equal to all dividends accumulated and unpaid tothe date fixed for redemption; provided that no such redemption shall beeffected on or before June 1, 1992 unless (i) the last reported saleprice of the Common Stock, as determined in subparagraph (iv)(IV)(d)herein, equals or exceeds 150% of the conversion price for at least20 Trading Days within a period of 30 consecutive Trading Days endingwithin five Trading Days prior to the date on which the notice of redemption isfirst mailed or (ii) the redemption is effected in connection with certaincircumstances involving a Change in Control (as defined below). If theExchangeable Preferred Stock is redeemed in connection with certaincircumstances involving a Change in Control prior to June 1, 1992 then, inaddition to the amounts payable as set forth above, the holders of redeemedshares of Exchangeable Preferred Stock shall also receive as an additionalpremium an amount equal to the dividends they would have received on the sharesof Exchangeable Preferred Stock redeemed from, and including, the date ofredemption to June 1, 1992. For the purposes of thisparagraph (viii), a “Change in Control” of the Corporation shall have thesame meaning as applicable to the holder’s optional repurchase right set forthin paragraph (ix)(ii)(f) hereof, except that the proviso shall not apply.

 

If full cumulative dividends on the ExchangeablePreferred Stock have not been paid, the Exchangeable Preferred Stock may not beredeemed in part and the Corporation may not purchase or acquire any shares ofthe Exchangeable Preferred Stock otherwise than pursuant to a purchase orexchange offer made on the same terms to all holders of the ExchangeablePreferred Stock. If less than all the outstanding shares of ExchangeablePreferred Stock are to be redeemed, the Corporation will select those to beredeemed by lot or a substantially equivalent method.

 

If a notice of redemption has been given pursuant tothis paragraph (viii) and if, on or before the date fixed for redemption,the funds necessary for such redemption shall have been set aside by theCorporation, separate and

 

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apart from its other funds, in trust for the pro rata benefit of theholders of the shares so called for redemption, then, notwithstanding that anycertificates for such shares have not been surrendered for cancellation, on theredemption date dividends shall cease to accrue on the shares of ExchangeablePreferred Stock to be redeemed, and at the close of business on the redemptiondate the holders of such shares shall cease to be stockholders with respect tosuch shares and shall have no interest in or claims against the Corporation byvirtue thereof and shall have no voting or other rights with respect to suchshares, except the right to receive the moneys payable upon such redemption andthe right to accumulated and unpaid dividends, without interest thereon, uponsurrender (and endorsement, if required by the Corporation) of theircertificates, and the shares evidenced thereby shall no longer be deemedoutstanding. Notwithstanding the foregoing, if notice of redemption has beengiven pursuant to this paragraph (viii) and any holder of shares ofExchangeable Preferred Stock shall, prior to the close of business on the datefixed for redemption, give written notice to the Corporation pursuant toparagraph (iv) of the conversion of any or all of the shares held by suchholder (accompanied by a certificate or certificates for such shares, dulyendorsed or assigned to the Corporation), then such redemption shall not becomeeffective as to such shares to be converted and such conversion shall become effectiveas provided in paragraph (iv). Subject to applicable escheat laws, anymoneys necessary for redemption set aside by the Corporation and unclaimed atthe end of two years from the redemption date shall revert to the general fundsof the Corporation, after which reversion the holders of such shares so calledfor redemption but not surrendered shall look only to the general funds of theCorporation for the payment of the amounts payable upon such redemption. Anyinterest accrued on funds so deposited shall be paid to the Corporation fromtime to time. Any funds which have been deposited by the Corporation, or on itsbehalf, with a paying agent or segregated and held in trust by the Corporationfor the redemption of shares converted into Common Stock on or prior to thedate fixed for such redemption shall (subject to any right of the holder ofsuch shares to receive the dividend payable thereon as provided inparagraph (iv)) immediately upon such conversion be returned to theCorporation or, if then held in trust by the Corporation, shall be dischargedfrom such trust.

 

(ix)           Repurchase by theHolder. In the event that, prior to June 1, 1994, there shall occur aChange in Control (as hereinafter defined) of the Corporation, then each holderof a share of Exchangeable Preferred Stock (“Holder”) shall have the right, atsuch Holder’s option, to require the Corporation to repurchase, and upon theexercise of such right the Corporation shall repurchase, all or any part ofsuch Holder’s shares of Exchangeable Preferred Stock that is an integralmultiple of $25.00, on a date that is forty-five days after the date of thenotice of the Corporation provided pursuant to subparagraph (I) hereof ata repurchase price equal to the aggregate Liquidation Preference of the sharesto be repurchased, plus dividends accumulated and unpaid to the repurchasedate. At the option of the Corporation, the repurchase price may be paid incash or by delivery of shares of Common Stock having a fair market value equalto the repurchase price, provided that payment may not be made in CommonStock unless at the time of payment such stock is listed on a nationalsecurities exchange or quoted on the automated quotation system of the NationalAssociation of Securities Dealers, Inc. (“NASDAQ”) or another comparablequotation system. For purposes of this paragraph (ix), the fair marketvalue of shares of Common Stock shall be equal to 95% of the average of thelast sale prices, as computed under paragraph (iv) (IV) (d), of such CommonStock for each of the five consecutive Trading Days ending on and including thethird Trading Day immediately preceding the repurchase date.

 

(I)            (a)           Unless the Corporation shall havetheretofore called for redemption all the outstanding shares of ExchangeablePreferred Stock pursuant to paragraph (viii) on or before the thirtiethday after the occurrence of a Change in Control, the Corporation or, at therequest of the Corporation, the paying, or transfer agent, if any, shall mail anotice of the occurrence of the Change in Control and of the repurchase rightset forth herein arising as a result thereof at least thirty and not more thansixty days prior to the date fixed for repurchase to the Holders of shares ofExchangeable Preferred Stock so to be repurchased at their last addresses asthe same appear on the registry books of the Company. Such mailing shall be byfirst class mail. The notice if mailed in the manner herein provided shall beconclusively presumed to have been duly given, whether or not the Holder receivessuch notice. The Corporation shall also deliver a copy of such notice of arepurchase right to the paying, or transfer agent, if any, and cause a copy ofsuch notice to be published in a newspaper of general circulation in theBorough of Manhattan, The City of New York.

 

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Each notice of a repurchase right shall state:

 

(l)            the repurchase date,

 

(2)           the date by which the repurchase rightmust be exercised,

 

(3)           the repurchase price,

 

(4)           a description of the procedure which aHolder of Exchangeable Preferred Stock must follow to exercise a repurchaseright, and

 

(5)           the Conversion Price then in effect, thedate on which the right to convert the shares of Exchangeable Preferred Stockto be repurchased will terminate and the place or places where such shares ofExchangeable Preferred Stock may be surrendered for conversion.

 

In addition, atleast two Trading Days preceding the repurchase date, the Corporation shallcause to be published, in a newspaper of general circulation in the Borough ofManhattan, The City of New York, a notice specifying whether the repurchaseprice will be payable in cash or in shares of Common Stock.

 

No failure of theCorporation to give the foregoing notices or defect therein shall limit anyHolder’s right to exercise a repurchase right or affect the validity of theproceedings for the repurchase of the shares of Exchangeable Preferred Stock.

 

(b)           To exercise a repurchase right, a Holdershall deliver to the Corporation or the paying or transfer agent, if any, asthe case may be, on or before the thirtieth day after the date of the notice bythe Corporation of a repurchase right (i) written notice of such Holder’sexercise of such right, which notice shall set forth the name of the Holder,the aggregate Liquidation Preference of the shares to be repurchased, astatement that an election to exercise the repurchase right is being madethereby, and, in the event that the repurchase price shall be paid in shares ofCommon Stock, the name or names (with addresses) in which the certificate orcertificates for shares of Common Stock shall be issued, and (ii) theshares of Exchangeable Preferred Stock with respect to which the repurchaseright is being exercised, duly endorsed for transfer to the Corporation. Suchwritten notice shall be irrevocable, except that the right of the Holder toconvert the shares of Exchangeable Preferred Stock with respect to which therepurchase right is being exercised shall continue until the close of business onthe repurchase date. If the repurchase date falls during the period from theclose of business on any dividend payment record date preceding any dividendpayment date to the opening of business on such dividend payment date, theshares of Exchangeable Preferred Stock to be repurchased must be accompanied bypayment in New York Clearing House or other funds acceptable to the Company ofan amount equal to the dividend payable on such dividend payment date on thenumber of shares being repurchased and, notwithstanding such repurchase, suchdividend payment will be made by the Company to the holder of such share onsuch dividend payment record date. Promptly thereafter, the paying, or transferagent, if any, shall deliver to the Corporation written notice of the aggregateLiquidation Preference of the shares to be repurchased, the name of each Holderwho exercised the repurchase right and the aggregate Liquidation Preference tobe repurchased with respect to each such Holder.

 

(c)           Upon receipt of the notice from thepaying or transfer agent, if any, or upon notice from each Holder, as the casemay be, and as described in subparagraph (I), the Corporation shall pay orcause to be paid the repurchase price in cash or shares of Common Stock, asprovided above, to the Holders on the repurchase date, together withaccumulated and unpaid dividends to the repurchase date payable with respect tothe shares of Exchangeable Preferred Stock as to which the repurchase right hasbeen exercised.

 

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(d)           Any issuance of shares of Common Stock inrespect of the repurchase price shall be deemed to have been effectedimmediately prior to the close of business on the repurchase date and thePerson or Persons in whose name or names any certificate or certificates forshares of Common Stock shall be issuable upon such repurchase shall be deemedto have become on the repurchase date the holder or holders of record of theshares represented thereby, provided that any surrender for repurchaseon a date when the stock transfer books of the Corporation shall be closedshall constitute the Person or Persons in whose name or names the certificateor certificates for such shares are to be issued as the recordholder or holdersthereof for all purposes at the opening of business on the next succeeding dayon which such stock transfer books are open. No payment or adjustment shall bemade for dividends or distributions on any Common Stock issued upon conversionof any share of Exchangeable Preferred Stock.

 

(e)           No fractions of shares or scriptrepresenting fractions of shares shall be issued upon repurchase of shares ofExchangeable Preferred Stock. If more than one share shall be repurchased fromthe same Holder and the repurchase price shall be payable in shares of CommonStock, the number of full shares which shall be issuable upon such repurchaseshall be computed on the basis of the aggregate Liquidation Preference of theshares so repurchased. Instead of any fractional share of Common Stock whichwould otherwise be issuable on the repurchase of any share or shares, theCorporation shall make payment in lieu thereof in an amount of United Statesdollars equal to the value of such fraction computed on the basis of the lastsale price of the Common Stock on the last Trading Day prior to the repurchasedate.

 

(f)            Any issuance and delivery of certificatesfor shares of Common Stock on repurchase of shares of Exchangeable PreferredStock shall be made without charge to the holder of shares being repurchasedfor such certificates or for any tax or duty in respect of the issuance ordelivery of such certificates or the securities represented thereby, providedthat the Corporation shall not be required to pay any tax or duty which may bepayable in respect of any transfer involved in the issue or delivery ofcertificates for shares of Common Stock in a name other than that of the holderof the shares of Exchangeable Preferred Stock being repurchased, and no suchissue or delivery shall be made unless and until the Person requesting suchissue or delivery has paid to the Corporation the amount of any such tax orduty or has established, to the satisfaction of the Corporation, that such taxor duty has been paid.

 

(g)           If any shares of Common Stock to beissued upon repurchase of shares of Exchangeable Preferred Stock hereunderrequire registration with or approval of any governmental authority under anyfederal or state law before such shares may be validly issued or delivered uponrepurchase, the Corporation covenants that it will in good faith and asexpeditiously as possible endeavor to secure such registration or approval, asthe case may be, provided that nothing in this subpart shall be deemedto affect in any way the obligations of the Corporation to repurchaseExchangeable Preferred Stock as provided in this paragraph (ix).

 

(h)           The Corporation covenants that any sharesof Common Stock which may be issued upon repurchase of Exchangeable PreferredStock will be issued from its authorized but unissued shares and upon issuewill be duly and validly issued and fully paid and non-assessable by theCorporation and free of preemptive rights and that the shares of Common Stockwhich may be issued upon repurchase of shares of Exchangeable Preferred Stockwill be listed on any national securities exchange on which the outstandingCommon Stock is listed at the time of such issuance.

 

(i)            If any share of Exchangeable PreferredStock surrendered for repurchase shall not be so paid on the repurchase date,the Liquidation Preference of such share shall, until paid, bear interest tothe extent permitted by applicable law from the repurchase date at 9-3/4% perannum and such share of Exchangeable Preferred Stock shall remain convertibleinto Common Stock until the principal of such share of Exchangeable PreferredStock shall have been paid or duly provided for.

 

(II)           For purposes of paragraph (ix):

 

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(a)           The term “Person” shall mean acorporation, an association, a partnership, an organization, an individual, agovernment or a political subdivision thereof or a governmental agency.

 

(b)           The term “Subsidiary” shall mean acorporation more than 50% of the outstanding voting stock of which is owned,directly or indirectly, by the Corporation or by one or more otherSubsidiaries, or by the Corporation and one or more other Subsidiaries. For thepurposes of this definition, “voting stock” means stock which ordinarily hasvoting power for the election of directors, whether at all times or only solong as no senior class of stock has such voting power by reason of anycontingency.

 

(c)           The term “Affiliate” of any specifiedPerson shall mean any other Person directly or indirectly controlling orcontrolled by or under direct or indirect common control with such specifiedPerson. For the purposes of this definition, “control” when used with respectto any specified Person means power to direct the management and policies ofsuch Person, directly or indirectly, whether through ownership of votingsecurities, by contract or otherwise; and the terms “controlling” and“controlled” have meanings correlative to the foregoing.

 

(d)           the term “Associate” of any Person, means(1) any corporation or organization (other than the Corporation or a Subsidiaryof the Corporation or any Person controlled directly or indirectly (as definedin the definition of Affiliate above) by the Corporation or a Subsidiary of theCorporation) of which such Person is an officer or general partner or is,directly or indirectly, the beneficial owner of ten percent or more of anyclass of equity securities, (2) any trust or other estate in which suchPerson serves as trustee or in a similar fiduciary capacity, and (3) anyrelative or spouse of such Person, or any relative of such spouse, who has thesame home as such Person or who is a director or officer of the Corporation orany of its parents or Subsidiaries;

 

(e)           the term “beneficial owner” shall bedetermined in accordance with Rule 13d-3 promulgated under the SecuritiesExchange Act of 1934, as amended, as in effect on the date of effectiveness ofthis Statement of Rights and Preferences; and

 

(f)            a “Change in Control” of the Corporationshall be deemed to have occurred at such time as any Person is or becomes thebeneficial owner, directly or indirectly, through a purchase, merger or otheracquisition transaction or series of transactions, of shares of capital stockof the Corporation entitling such Person to exercise seventy-five percent ormore of the total voting power of all shares of capital stock of theCorporation entitled to vote in elections of directors; provided that aChange in Control shall not be deemed to have occurred if either (i) thelast sale price of the Common Stock on any five Trading Days during the10 Trading Day period immediately preceding the date of the Change inControl shall equal or exceed 105% of the conversion price in effect on suchTrading Day or (ii) all of the consideration (excluding cash payments forfractional shares) to be paid for the Common Stock in the transaction ortransactions constituting the Change in Control consists of shares of commonstock traded on a national securities exchange or through NASDAQ or anothercomparable quotation system.

 

(x)            Consent.Subject to the provisions set forth in paragraph (vi), no consent of theholders of the Exchangeable Preferred Stock shall be required for (a) thecreation of any indebtedness of any kind of the Corporation, (b) thecreation, or increase or decrease in the amount, of any class or series ofstock of the Corporation not ranking prior to, or on a parity with, theExchangeable Preferred Stock either as to dividends or upon liquidation,(c) any increase or decrease in the amount of authorized Common Stock orany increase, decrease or change in the par value thereof or in any other termsthereof or (d) the creation, or any increase or decrease in the amount, ofauthorized preferred stock issuable by the Board of Directors in series.

 

(xi)           Number of Shares ofExchangeable Preferred Stock. Subject to the provisions ofparagraph (vi) hereof, the Board reserves the right by subsequentamendment of this resolution from time to time to increase or decrease thenumber of shares which constitute the Exchangeable Preferred Stock (but not belowthe number of shares thereof then outstanding) and in other respects to amendthis resolution within the limitations provided by law, this

 

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resolution and the Restated Articles of Incorporation.

 

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**DESIGNATION OFRIGHTS AND PREFERENCESOF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK**

 

 

# **Section 1.**              Designationof Series A Junior Participating Preferred Stock and Amount.

# ** **

The shares of such series shall be designated as“Series A Junior Participating Preferred Stock” (the “Series APreferred Stock”) and the number of shares constituting the Series APreferred Stock shall be 600,000, par value $.02 per share. Such number ofshares may be increased or decreased by resolution of the Board of Directors; provided,however, that no decrease shall reduce the number of shares ofSeries A Preferred Stock to a number less than the number of shares thenoutstanding plus the number of shares reserved for issuance upon the exerciseof Rights (the “Rights”) issued pursuant to the Rights Agreement dated as ofApril 10, 1996 between the Corporation and First Interstate Bank ofWashington, N.A., as Rights Agent (the “Rights Agreement”), and provided,further, that if  more than a total of600,000 shares of Series A Preferred Stock shall be issuable upon the exerciseof the Rights, the Board of Directors, pursuant to Section 23B.06.020 ofthe Washington Business Corporation Act, shall direct by resolution thatArticles of Amendment be properly executed and filed, in accordance with theprovisions thereof, providing for an increase in the authorized shares ofSeries A Preferred Stock to the largest number of whole shares issuable uponexercise of the Rights.

 

# **Section 2.**              Dividendsand Distributions.

# ** **

(A)          Subject tothe rights of the holders of any shares of any series of Preferred Stock (orany similar stock) ranking prior and superior to the Series A PreferredStock with respect to dividends, the holders of shares of Series APreferred Stock, in preference to the holders of Common Stock, par value $.02per share (the “Common Stock”), of the Corporation, and of any other juniorstock, shall be entitled to receive, when, as and if declared by the Board ofDirectors out of funds legally available for the purpose, quarterly dividendspayable in cash on the first day of March, June, September and December in eachyear (each such date being referred to herein as a “Quarterly Dividend PaymentDate”), commencing on the first Quarterly Dividend Payment Date after the firstissuance of a share or fraction of a share of Series A Preferred Stock, inan amount per share (rounded to the nearest cent) equal to the greater of(i) $1 and (ii) subject to the provision for adjustment hereinafterset forth, 100 times the aggregate per share amount of all cash dividends, and100 times the aggregate per share amount (payable in kind) of all noncashdividends or other distributions, other than a dividend payable in shares ofCommon Stock or a subdivision of the outstanding shares of Common Stock (byreclassification or otherwise), declared on the Common Stock since theimmediately preceding Quarterly Dividend Payment Date or, with respect to thefirst Quarterly Dividend Payment Date, since the first issuance of any share orfraction of a share of Series A Preferred Stock. In the event theCorporation shall at any time declare or pay any dividend on the Common Stockpayable in shares of Common Stock, or effect a subdivision or combination orconsolidation of the outstanding shares of Common Stock (by reclassification orotherwise than by payment of a dividend in shares of Common Stock) into agreater or lesser number of shares of Common Stock, then in each such case theamount to which holders of shares of Series A Preferred Stock wereentitled immediately prior to such event under clause (ii) of thepreceding sentence shall be adjusted by multiplying such amount by a fractionthe numerator of which is the number of shares of Common Stock outstandingimmediately after such event and the denominator of which is the number ofshares of Common Stock that were outstanding immediately prior to such event.

 

(B)           TheCorporation shall declare a dividend or distribution on the Series APreferred Stock as provided in paragraph (A) of this Section 2immediately after it declares a dividend or distribution on the Common Stock(other than a dividend payable in shares of Common Stock); provided,however, that, in the event no dividend or distribution shall have beendeclared on the Common Stock during the period between any Quarterly DividendPayment Date and the next subsequent Quarterly Dividend Payment Date, adividend of $1 per share on the Series A Preferred Stock shallnevertheless be payable on such subsequent Quarterly Dividend Payment Date.

 

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(C)           Dividendsshall begin to accrue and be cumulative on outstanding shares of Series APreferred Stock from the Quarterly Dividend Payment Date next preceding thedate of issue of such shares, unless the date of issue of such shares is priorto the record date for the first Quarterly Dividend Payment Date, in which casedividends on such shares shall begin to accrue from the date of issue of suchshares, or unless the date of issue is a Quarterly Dividend Payment Date or isa date after the record date for the determination of holders of shares ofSeries A Preferred Stock entitled to receive a quarterly dividend andbefore such Quarterly Dividend Payment Date, in either of which events suchdividends shall begin to accrue and be cumulative from such Quarterly DividendPayment Date. Accrued but unpaid dividends shall not bear interest. Dividendspaid on the shares of Series A Preferred Stock in an amount less than thetotal amount of such dividends at the time accrued and payable on such sharesshall be allocated pro rata on a share-by-share basis among all such shares atthe time outstanding. The Board of Directors may fix a record date for thedetermination of holders of shares of Series A Preferred Stock entitled toreceive payment of a dividend or distribution declared thereon, which recorddate shall be not more than 60 days prior to the date fixed for the paymentthereof.

 

# **Section 3.**              VotingRights.

# ** **

The holders of shares of Series A Preferred Stock shall have thefollowing voting rights:

 

(A)          Subject to the provisionfor adjustment hereinafter set forth, each share of Series A PreferredStock shall entitle the holder thereof to 100 votes on all matters submitted toa vote of the shareholders of the Corporation. In the event the Corporationshall at any time declare or pay any dividend on the Common Stock payable inshares of Common Stock, or effect a subdivision or combination or consolidationof the outstanding shares of Common Stock (by reclassification or otherwisethan by payment of a dividend in shares of Common Stock) into a greater orlesser number of shares of Common Stock, then in each such case the number ofvotes per share to which holders of shares of Series A Preferred Stock wereentitled immediately prior to such event shall be adjusted by multiplying suchnumber by a fraction the numerator of which is the number of shares of CommonStock outstanding immediately after such event and the denominator of which isthe number of shares of Common Stock that were outstanding immediately prior tosuch event.

 

(B)           Except asotherwise provided herein, in any other Certificate of Designations creating aseries of Preferred Stock or any similar stock, or by law, the holders ofshares of Series A Preferred Stock and the holders of shares of CommonStock and any other capital stock of the Corporation having general votingrights shall vote together as one class on all matters submitted to a vote ofshareholders of the Corporation.

 

(C)           Except asset forth herein, or as otherwise provided by law, holders of Series APreferred Stock shall have no special voting rights and their consent shall notbe required (except to the extent they are entitled to vote with holders ofCommon Stock as set forth herein) for taking any corporate action.

 

# **Section 4.**              CertainRestrictions.

# ** **

(A)          Wheneverquarterly dividends or other dividends or distributions payable on theSeries A Preferred Stock as provided in Section 2 are in arrears,thereafter and until all accrued and unpaid dividends and distributions,whether or not declared, on shares of Series A Preferred Stock outstandingshall have been paid in full, the Corporation shall not:

 

(i)            declare or pay dividends, or make anyother distributions, on any shares of stock ranking junior (either as todividends or upon liquidation, dissolution or winding up) to the Series APreferred Stock;

 

(ii)           declare or pay dividends, or make anyother distributions, on any shares of stock ranking on a parity (either as todividends or upon liquidation, dissolution or winding up) with theSeries A Preferred Stock, except dividends paid ratably on theSeries A Preferred Stock and all such parity stock on which dividends arepayable or in arrears in proportion to the total amounts to which the holdersof all such shares are then entitled;

 

(iii)          redeem or purchase or otherwise acquirefor consideration shares of any stock ranking junior (either as to dividends orupon liquidation, dissolution or winding up) to the Series A Preferred Stock,

 

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provided that the Corporation may at any time redeem,purchase or otherwise acquire shares of any such junior stock in exchange forshares of any stock of the Corporation ranking junior (either as to dividendsor upon dissolution, liquidation or winding up) to the Series A PreferredStock; or

 

(iv)          redeem or purchase or otherwise acquirefor consideration any shares of Series A Preferred Stock, or any shares ofstock ranking on a parity with the Series A Preferred Stock, except inaccordance with a purchase offer made in writing or by publication (asdetermined by the Board of Directors) to all holders of such shares upon suchterms as the Board of Directors, after consideration of the respective annualdividend rates and other relative rights and preferences of the respectiveseries and classes, shall determine in good faith will result in fair andequitable treatment among the respective series or classes.

 

(B)           TheCorporation shall not permit any subsidiary of the Corporation to purchase orotherwise acquire for consideration any shares of stock of the Corporationunless the Corporation could, under paragraph (A) of this Section 4,purchase or otherwise acquire such shares at such time and in such manner.

 

# **Section 5.**              ReacquiredShares.

# ** **

Any shares of Series A Preferred Stock purchasedor otherwise acquired by the Corporation in any manner whatsoever shall beretired and cancelled promptly after the acquisition thereof. All such sharesshall upon their cancellation become authorized but unissued shares ofPreferred Stock and may be reissued as part of a new series of Preferred Stocksubject to the conditions and restrictions on issuance set forth herein, in theCertificate of Incorporation of the Corporation (the “Certificate ofIncorporation”), or in any other Certificate of Designations creating a seriesof Preferred Stock or any similar stock or as otherwise required by law.

 

# **Section 6.**              Liquidation,Dissolution or Winding Up.

# ** **

Upon any liquidation, dissolution or winding up of theCorporation, no distribution shall be made (a) to the holders of shares ofstock ranking junior (either as to dividends or upon liquidation, dissolutionor winding up) to the Series A Preferred Stock unless, prior thereto, theholders of shares of Series A Preferred Stock shall have received $100 pershare, plus an amount equal to accrued and unpaid dividends and distributionsthereon, whether or not declared, to the date of such payment, provided thatthe holders of shares of Series A Preferred Stock shall be entitled toreceive an aggregate amount per share, subject to the provision for adjustmenthereinafter set forth, equal to 100 times the aggregate amount to bedistributed per share to holders of shares of Common Stock, or (b) to theholders of shares of stock ranking on a parity (either as to dividends or uponliquidation, dissolution or winding up) with the Series A Preferred Stock,except distributions made ratably on the Series A Preferred Stock and allsuch parity stock in proportion to the total amounts to which the holders ofall such shares are entitled upon such liquidation, dissolution or winding up.In the event the Corporation shall at any time declare or pay any dividend onthe Common Stock payable in shares of Common Stock, or effect a subdivision orcombination or consolidation of the outstanding shares of Common Stock (byreclassification or otherwise than by payment of a dividend in shares of CommonStock) into a greater or lesser number of shares of Common Stock, then in eachsuch case the aggregate amount to which holders of shares of Series APreferred Stock were entitled immediately prior to such event under the provisoin clause (a) of the preceding sentence shall be adjusted by multiplyingsuch amount by a fraction the numerator of which is the number of shares ofCommon Stock outstanding immediately after such event and the denominator ofwhich is the number of shares of Common Stock that were outstanding immediatelyprior to such event.

 

# **Section 7.**              Consolidation,Merger, etc.

# ** **

In case the Corporation shall enter into anyconsolidation, merger, combination or other transaction in which the shares ofCommon Stock are exchanged for or changed into other stock or securities, cashand/or any other property, then in any such case each share of Series APreferred Stock shall at the same time be similarly exchanged or changed intoan amount per share, subject to the provision for adjustment hereinafter setforth, equal to 100 times the aggregate amount of stock, securities, cashand/or any other property (payable in kind), as the case may be, into which orfor which each share of Common Stock is changed or exchanged. In the event theCorporation shall at any time declare or pay any dividend on the Common Stock payablein shares of Common

 

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Stock, or effect a subdivision or combination or consolidation of theoutstanding shares of Common Stock (by reclassification or otherwise than bypayment of a dividend in shares of Common Stock) into a greater or lessernumber of shares of Common Stock, then in each such case the amount set forthin the preceding sentence with respect to the exchange or change of shares ofSeries A Preferred Stock shall be adjusted by multiplying such amount by afraction the numerator of which is the number of shares of Common Stockoutstanding immediately after such event and the denominator of which is thenumber of shares of Common Stock that were outstanding immediately prior tosuch event.

 

# **Section 8.**              NoRedemption.

# ** **

The shares of Series A Preferred Stock shall notbe redeemable.

 

# **Section 9.**              Rank.

# ** **

The Series A Preferred Stock shall rank, withrespect to the payment of dividends and the distribution of assets, junior toall series of any other class of the Preferred Stock.

 

# **Section 10.**            Amendment.

# ** **

The Certificate of Incorporation shall not be amendedin any manner that would materially alter or change the powers, preferences orspecial rights of the Series A Preferred Stock so as to affect themadversely without the affirmative vote of the holders of at least two-thirds ofthe outstanding shares of Series A Preferred Stock, voting together as asingle class.

 

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**DESIGNATIONOF RIGHTS AND PREFERENCESofSERIES B CONVERTIBLE PREFERRED STOCKof****NEORX CORPORATION**

 

 

(1)           Pursuantto this Designation of Rights and Preferences of Series B ConvertiblePreferred Stock (this “*Certificate ofDesignation*”), a series of preferred stock of NeoRx Corporation(the “*Corporation*”) is herebydesignated as Series B Convertible Preferred Stock, which series shallconsist of 1,575 shares, $0.02 par value per share (the “*Convertible Preferred Stock*”), which shallhave the rights, preferences, privileges and limitations as set forth below:

 

1.             Dividends. The holders of the Convertible PreferredStock shall be entitled to receive dividends, when, if and as declared by theBoard of Directors of the Corporation (the “*Board*”),out of funds legally available therefor. Such dividends shall be payable onlywhen, as and if declared by the Board, acting in its sole discretion.

 

2.             VotingRights.  Except as otherwise providedherein or by law, the holders of the Convertible Preferred Stock shall havefull voting rights and powers, subject to the Beneficial Ownership Cap asdefined in Section 5(h) and the Maximum Common Stock Issuance asdefined in Section 5(i), equal to the voting rights and powers of holdersof the Corporation’s common stock, par value $0.02 per share (the “*Common Stock*”) and shall be entitled tonotice of any shareholders meeting in accordance with the Bylaws of theCorporation, and shall be entitled to vote, with respect to any question uponwhich holders of Common Stock have the right to vote, including, withoutlimitation, the right to vote for the election of directors, voting togetherwith the holders of Common Stock and any other capital stock of the Corporationentitled to vote together with the Common Stock, all as one class. To theextent permitted under the applicable rules of the NASD, each holder ofshares of Convertible Preferred Stock shall be entitled to the number of votesequal to the number of shares of Common Stock into which such shares ofConvertible Preferred Stock could be converted on the record date for thetaking of a vote, subject to the Beneficial Ownership Cap limitations set forthin Section 5(h) and the Maximum Common Stock Issuance as defined in Section 5(i),or, if no record date is established, at the day prior to the date such vote istaken or any written consent of shareholders is first executed; provided thatfor purposes of determining the number of votes to which a holder ofConvertible Preferred Stock is entitled, if the Conversion Value on the recorddate is less than the Current Market Price on the date of the Preferred StockPurchase Agreement (as defined below), then such determination shall be made asif the Conversion Value for such shares of Convertible Preferred Stock on therecord date were equal to the Current Market Price on the date of the PreferredStock Purchase Agreement, as adjusted pursuant to Section 5(f), butwithout any other adjustments thereto. Fractional votes shall not, however, bepermitted and any fractional voting rights resulting from the above formula(after aggregating all shares into which shares of Convertible Preferred Stockheld by each holder could be converted) shall be rounded to the nearest wholenumber (with one-half being rounded upward).

 

3.             Ranking;Rights on Liquidation.

 

(a)           The Convertible Preferred Stock shall rank, as toliquidation preference provided herein, (i) prior to (A) theCorporation’s Common Stock, (B) the Corporation’s Series A JuniorParticipating Preferred Stock, $.02 par value (the “*Series A Junior Preferred Stock*”), and (C) any class orseries of capital stock of the Corporation hereafter created (unless, withthe consent of the majority of the holders of the Convertible Preferred Stockobtained in accordance with Section 4(a)(iii) hereof, such series specifically,by its terms, ranks senior to the Convertible Preferred Stock) (collectively, “*Junior Stock*”); (ii) paripassuwith any other class or series of capital stock of the Corporationhereafter created specifically ranking, by its terms, on parity with theConvertible Preferred Stock (the “*Pari PassuSecurities*”); and (iii) junior to (X) the Corporation’s $2.4375Convertible Exchangeable Preferred Stock, Series 1, $.02 par value (the “*Series 1 Preferred Stock*”), and(Y) any class or series of capital stock

 

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of the Corporation hereafter created (with the writtenconsent of a majority of the holders of the Convertible Preferred Stockobtained in accordance with Section 4(a)(iii) hereof) specificallyranking, by its terms, senior to the Convertible Preferred Stock) (the “*Senior Stock*”).

 

(b)           In the event of any Liquidation (as defined below),before any distribution of assets of the Corporation shall be made to or set apart forthe holders of Junior Stock, but after any distribution to the holders of theSenior Stock of any liquidation preference to which they are entitled, theholders of Convertible Preferred Stock shall be entitled to receive payment outof such assets of the Corporation in an amount per share of Preferred Stockequal to the greater of (i) $10,000 or (ii), as applicable, either(x) in the case of a Liquidation as described in clause (iii) or(iv) of the definition thereof, the amount the holder would be entitled toreceive if such holder had converted such share of Convertible Preferred Stockimmediately prior to such Liquidation or (y) in all other cases, theCurrent Market Price on the date of Liquidation of the shares of Common Stockinto which a share of Convertible Preferred Stock is then convertible as setforth in Section 5 hereof (such applicable amount being referred to as the“*Liquidation Preference*” for theConvertible Preferred Stock), plus any declared and unpaid dividends on theConvertible Preferred Stock. The Liquidation Preference for the ConvertiblePreferred Stock shall be payable to the holders of the Convertible PreferredStock in the same form (e.g., securities, cash and/or property) as thatwhich would be offered or payable to the holders of Common Stock of theCorporation in connection with the Liquidation if they were entitled to suchpayment after satisfaction of all rights in preference thereto, and if theLiquidation occurs pursuant to clause (i) of the definition of “Liquidation”then such Liquidation Preference shall be immediately payable in shares ofCommon Stock. If the assets of the Corporation available for distribution tothe holders of Convertible Preferred Stock and holders of Pari PassuSecurities, if any, shall not be sufficient to make in full the payment to suchholders of the preferential amounts payable thereon, such assets shall bedistributed ratably among such shares in proportion to the ratio that theLiquidation Preference payable on each such share bears to the aggregate liquidationpreference payable on all such shares. The liquidation preference for any PariPassu Securities, if any, shall be as set forth in the designation of rightsand preferences filed in respect thereof.

 

(c)           If the assets of the Corporation available for distributionto shareholders, after any distribution to the holders of Senior Stock inrespect of any liquidation preference to which they are entitled, exceed theaggregate amount of the Liquidation Preferences payable with respect to allshares of Convertible Preferred Stock and Pari Passu Securities thenoutstanding, then, after the payment required by paragraphs 3(a) and (b) aboveshall have been made or irrevocably set aside, the holders of Junior Stockshall be entitled to receive with respect to each share of Junior Stock paymentfrom such remaining assets in accordance with the Articles of Incorporation ofthe Corporation (the “*Articles ofIncorporation*”).

 

(d)           A “*Liquidation*”shall mean (i) an acquisition (other than an acquisition covered byclause (iii) of this sentence) by an individual or legal entity orgroup (as set forth in Section 13(d) of the Exchange Act) of morethan 50% of the voting rights or equity interests in the Corporation, whetherin one transaction or in a series of related transactions approved by theBoard; (ii) the voluntary or involuntary liquidation, dissolution orwinding up of the Corporation; (iii) the acquisition of the Corporation byanother entity by means of a transaction or series of transactions(including any reorganization, merger, share exchange or consolidation otherthan one effected for the purpose of reincorporating the Corporation), as aresult of which the shareholders of the Corporation receive cash, securities orother property in exchange for their shares and the holders of the Corporation’sequity voting securities immediately prior to the transaction together own lessthan 80% of the outstanding voting power of the surviving or resultingcorporation; or (iv) the sale of all or substantially all of the assets ofthe Corporation such that a vote of the shareholders of the Corporation istaken pursuant to the law of the Corporation’s state of incorporation toapprove the sale. For avoidance of doubt, a “Liquidation” pursuant toclause (i) of the preceding sentence shall not include transactionsthat are strategic collaborations, development agreements, joint ventures orlicensing transactions, in each case, the terms of which are approved by theBoard.

 

(e)           After 5:00 p.m., New York time, on the tradingday immediately preceding the date of the consummation or occurrence of aLiquidation (unless such Liquidation is not actually consummated), all rightsof the holders of the shares of Convertible Preferred Stock (except the rightto receive the Liquidation Preference without interest upon surrender of theircertificate or certificates), including the right to convert pursuant to Section 5(a),shall cease with respect to such shares, and such shares of ConvertiblePreferred Stock shall not

 

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thereafter be transferred on the books of theCorporation or be deemed to be outstanding for any purpose whatsoever.

 

4.             ActionsRequiring the Consent of Holders of Convertible Preferred Stock.

 

(a)           As long as any shares of Convertible Preferred Stockare outstanding, the consent of the holders of at least a majority of theshares of Convertible Preferred Stock at the time outstanding, given inaccordance with the Articles of Incorporation and Bylaws of the Corporation, asamended, shall be necessary for effecting or validating any of the followingtransactions or acts or any agreement, understanding or arrangement to do anyof the following transactions or acts, in each case, whether directly orindirectly by the Corporation or any subsidiary of the Corporation:

 

(i)            Any amendment, alteration or repeal of any of theprovisions of this Certificate of Designation so as to materially and adverselyaffect the rights of the Convertible Preferred Stock;

 

(ii)           The authorization, designation, creation or issuanceby the Corporation of, or the increase in the number of authorized shares of,any stock of any class or series, or any security convertible into stockof any class or series (including, without limitation, theauthorization or creation of any new class of preferred stock or anyaction which would result in another series of preferred stock) ranking interms of liquidation preference, redemption rights or other rights,preferences, privileges or special powers, senior to the Convertible PreferredStock in any manner;

 

(iii)          The redemption, purchase or other acquisition,directly or indirectly, of any shares of capital stock or debt securities ofthe Corporation or any of its subsidiaries or any option, warrant or otherright to purchase or acquire any such shares or securities, other than:  (A) the shares of Series 1Preferred Stock provided that (x) the consideration paid upon suchrepurchase, redemption or acquisition shall, except where the Board hasapproved a Liquidation, be in the form of Common Stock of the Corporationand (y) that such shares of Series 1 Preferred Stock are immediatelyretired upon such repurchase, redemption or acquisition, it being expresslyagreed that, any time after the Board has approved a Liquidation, theCorporation shall have the right, without the consent of the holders ofConvertible Preferred Stock pursuant to this Section 4, to repurchase,redeem or acquire the shares of Series 1 Preferred Stock, in whole or inpart, for cash, (B) the redemption of Convertible Preferred Stock pursuantto the terms hereof, or (C) any securities of the Corporation pursuant tothe terms of an equity-based compensation plan or agreement approved by theBoard; or (D) the cashless exercise, pursuant to the terms thereof, of anyoption or warrant issued pursuant to an equity-based compensation plan oragreement adopted by the Board and approved by the shareholders of theCorporation after the Date of Original Issue; (E) Common Stock warrantsissued pursuant to the Asset Purchase Agreement dated March 20, 2001, asamended, between the Corporation and International Isotopes, Inc.outstanding on the Original Issuance Date; or (F) the Common StockWarrants issued pursuant to the Preferred Stock and Warrant Purchase Agreemententered into among the Corporation and the purchasers of the ConvertiblePreferred Stock on the Date of Original Issue (the “*Preferred Stock Purchase Agreement*”);and

 

(iv)          Any increase or decrease in the number of authorizedshares of Convertible Preferred Stock.

 

(b)           Notwithstanding the provisions of this Section 4or any other provision of this Certificate of Designation to the contrary, inreliance on and to the fullest extent permitted by Section  23B.11.035(4) ofthe Washington Business Corporation Act, as amended, the holders of ConvertiblePreferred Stock shall not be entitled to vote as a separate voting class onany transaction (or any actions necessary to consummate such a transaction)that is a Change of Control (the holders of the Convertible Preferred Stock insuch case being entitled to vote with the holders of Common Stock as a singlevoting class as provided in Section 2 above.)

 

Each of the following transactions shall constitute a “*Change of Control*” (without regard towhether such transaction also is deemed a Liquidation under Section 3):  (i) any voluntary or involuntary

 

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liquidation, dissolution or winding up of theCorporation; (ii) the acquisition of the Corporation by another entity bymeans of a transaction or series of transactions (including anyreorganization, merger, share exchange or consolidation other than one effectedfor the purpose of reincorporating the Corporation), as a result of which theshareholders of the corporation receive cash, securities or other property inexchange for their shares and the holders of the Company’s equity votingsecurities immediately prior to the transaction together own less than 80% ofthe outstanding voting power of the surviving or resulting corporation; (iii) thesale of all or substantially all of the assets of the Corporation; or (iv) theacquisition by an individual or legal entity or group (as set forth in Section 13(d) ofthe Exchange Act) of more than 50% of the voting rights or equity interests inthe Corporation, whether in one transaction or in a series of relatedtransactions.

 

(c)           Nothing in this Section 4 nor any other provisionof this Certificate of Designation shall in any manner, directly or indirectly,(i) impair or restrict any right of the Corporation under, or prohibit,restrict or require shareholder approval, including approval of the holders ofConvertible Preferred Stock, of any actions contemplated or permitted by, theRights Agreement between the Corporation and First Interstate Bank ofWashington, NA, as Rights Agent, dated as of April 10, 1996, as currentlyin effect and as may in the future be amended from time to time (the “*Rights Agreement*”), including but notlimited to, the issuance, redemption, conversion, exchange or cancellation ofany Rights, Common Shares or Preferred Shares (each as defined in the RightsAgreement), the supplementation or amendment of the Rights Agreement, andextension of the Final Expiration Date of the Rights (as defined in the RightsAgreement), or (ii) require shareholder approval, including approval ofthe holders of Convertible Preferred Stock, or directly or indirectly impair,restrict or prohibit the adoption of a new rights plan or arrangement in theevent of termination or expiration of the current Rights Agreement.

 

(d)           Any consent of the holders of the ConvertiblePreferred Stock pursuant to this Section 4 shall be in addition to theright of the holders of the Convertible Preferred Stock to vote with theholders of Common Stock as a single voting class as provided in Section 2above. The majority consent of the holders of the Convertible Preferred Stockrequired under this Section 4 shall, as and to the extent permitted bylaw, supersede any greater vote of the Convertible Preferred Stock otherwiseprovided by statute.

 

(e)           In reliance on and to the fullest extent permitted by Section 23B.10.040(4) ofthe Washington Business Corporation Act, as amended, the holders of ConvertiblePreferred Stock shall not be entitled to vote as a separate voting class onthe authorization, designation, creation or issuance by the Corporation of, orthe increase in the number of authorized shares of, any stock of any class orseries, or any security convertible into stock of any class or series (including,without limitation, the authorization or creation of any new class ofpreferred stock or any action which would result in another series ofpreferred stock) ranking in terms of liquidation preference, redemption rightsor other rights, preferences, privileges or special powers substantially equalto the Convertible Preferred Stock.

 

5.             Conversion.

 

(a)           Right to Convert.  Subject tothe limitations set forth in Sections 3(e), 5(h), 5(i) and 7(a) hereof,the holder of any share or shares of Convertible Preferred Stock shall have theright at any time, at such holder’s option, to convert all or any lesserportion of such holder’s shares of Convertible Preferred Stock into such numberof fully paid and non-assessable shares of Common Stock as is determined by dividing(i) $10,000 (the “*Stated Value*”)per share of Convertible Preferred Stock to be converted plus declared andunpaid dividends thereon by (ii) the Conversion Value (as defined below)then in effect for such Convertible Preferred Stock. No fractional shares orscrip representing fractional shares shall be issued upon the conversion of anyConvertible Preferred Stock. With respect to any fraction of a share of CommonStock called for upon any conversion, the Corporation shall pay to the holderan amount in cash equal to such fraction multiplied by the Current Market Priceper share of the Common Stock.

 

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

 

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(1)           if there shall not then be a public market for theCommon Stock, the higher of (a) the book value per share of Common Stockat such date, and (b) the Appraised Value (as hereinafter defined) pershare of Common Stock at such date, or

 

(2)           if there shall then be a public market for the CommonStock, the higher of (x) the book value per share of Common Stock at suchdate, and (y) the average of the daily market prices for the20 consecutive trading days immediately before such date (except thatwhere the Current Market Price is determined for purposes of Section 2,such average of the daily market prices shall be over 5 consecutivetrading days rather than 20). The daily market price for each such trading dayshall be (i) the closing bid price on such day on the principal stockexchange (including Nasdaq) on which such Common Stock is then listed oradmitted to trading, or quoted, as applicable, (ii) if no sale takes placeon such day on any such exchange, the last reported closing bid price on suchday as officially quoted on any such exchange (including Nasdaq), (iii) ifthe Common Stock is not then listed or admitted to trading on any stockexchange, the last reported closing bid price on such day in theover-the-counter market, as furnished by the National Association of SecuritiesDealers Automatic Quotation System or the National Quotation Bureau, Inc.,(iv) if neither such corporation at the time is engaged in the business ofreporting 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 theNational Association of Securities Dealers, Inc. (the “*NASD*”) selected mutually by holders of amajority of the Convertible Preferred Stock and the Corporation or, if theycannot agree upon such selection, as selected by two such members of the NASD,one of which shall be selected by holders of a majority of the ConvertiblePreferred Stock and one of which shall be selected by the Corporation (asapplicable, the “*Daily Market Price*”).

 

“*Appraised Value*” means,in respect of any share of Common Stock on any date herein specified, the fairsaleable value of such share of Common Stock (determined without giving effectto the discount for (i) a minority interest or (ii) any lack of liquidityof the Common Stock or to the fact that the Corporation may have no class ofequity registered under the Exchange Act of 1934, as amended (the “*Exchange Act*”)) as of the last day of themost recent fiscal month end prior to such date specified, based on the valueof the Corporation (assuming the conversion and exercise of all of theCorporation’s authorized and issued capital stock), as determined by anationally recognized investment banking firm selected by the Corporation’sBoard of Directors and having no prior relationship with the Corporation, andreasonably acceptable to not less than a majority in interest of the holders ofthe Convertible Preferred Stock then outstanding.

 

(b)           Mandatory Conversion.  Subject tothe limitations set forth in Section 5(h) and Section 5(i) hereof,at any time after the date that is 6 months after the original date of issuanceof the Convertible Preferred Stock (the “*Dateof Original Issue*”), the Corporation may elect, upon twentydays prior written notice to the holders of the Convertible Preferred Stock(the “*Corporation Conversion Notice*”),to have all (but not less than all) of the then outstanding shares ofConvertible Preferred Stock converted into Common Stock so long as a ConversionTriggering Event has occurred prior to the date of such conversion. In theevent of such election by the Corporation and delivery of the CorporationConversion Notice, each outstanding share of Convertible Preferred Stock shallbe converted, as of the Corporation Conversion Date (defined Section 5(c)(iv) below),into such number of fully paid and non-assessable shares of Common Stock as isdetermined by dividing (i) the aggregate Stated Value of the shares ofConvertible Preferred Stock to be converted plus declared and unpaid dividendsthereon by (ii) the Conversion Value (as hereinafter defined) then ineffect for such Convertible Preferred Stock. Following receipt of a CorporationConversion Notice, the holders of Convertible Preferred Stock may fromtime to time deliver Conversion Amount Notices (as defined below) to theCorporation.

 

“*Conversion Triggering Event*”means:

 

(A)          The Registration Statement (as hereinafter defined)covering all of the shares of Common Stock into which the Convertible PreferredStock is convertible is effective (or all of the shares of Common Stock intowhich the Convertible Preferred Stock is convertible may be sold withoutrestriction pursuant to Rule 144(k) promulgated by the Securities andExchange Commission under the Securities Act of 1933, as amended (the “*Securities Act*”)), the Common Stock shallthen be listed or admitted to trading,

 

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or quoted, as applicable on the New York StockExchange, the American Stock Exchange, the Nasdaq National Market or the NasdaqSmall Cap Market and the volume weighted average price (VWAP) of the CommonStock on the principal stock exchange (including Nasdaq) on which such CommonStock is then listed or admitted to trading, or quoted, as applicable, for eachtrading day over a period of twenty (20) consecutive trading days is equal toor greater than $8.00 per share (subject to adjustment for stock splits,reverse splits, stock dividends and the like); or

 

(B)           less than 20% of the shares of Convertible PreferredStock issued on the Date of Original Issue remain outstanding.

 

“*Registration Statement*”shall have the meaning established in the Investor Rights Agreement dated theDate of Original Issue by and among the Corporation and the other partiessignatory thereto.

 

(c)           Mechanics of Conversion.

 

(i)            Such right of conversion (other than mandatoryconversion) shall be exercised by the holder of shares of Convertible PreferredStock by delivering to the Corporation a conversion notice in the form attachedhereto as Exhibit A (the “*ShareholderConversion Notice*”), appropriately completed and duly signed andspecifying the number of shares of Convertible Preferred Stock that the holderelects to convert (the “*Converting Shares*”)into shares of Common Stock, and by surrender not later than two (2) businessdays thereafter of the certificate or certificates representing such ConvertingShares. The Shareholder Conversion Notice shall also contain a statement of thename or names (with addresses and tax identification or social securitynumbers) in which the certificate or certificates for Common Stock shall beissued, if other than the name in which the Converting Shares are registered. Promptlyafter the receipt of the Shareholder Conversion Notice, the Corporation shallissue and deliver, or cause to be delivered, to the holder of the ConvertingShares or such holder’s nominee, a certificate or certificates for the numberof shares of Common Stock issuable upon the conversion of such ConvertingShares. Such conversion shall be deemed to have been effected as of the closeof business on the date of receipt by the Corporation of the ShareholderConversion Notice (the “*Shareholder**Conversion Date*”), and the personor persons entitled to receive the shares of Common Stock issuable uponconversion shall be treated for all purposes as the holder or holders of recordof such shares of Common Stock as of the close of business on the ShareholderConversion Date.

 

(ii)           From time to time following receipt of a CorporationConversion Notice, holders may deliver to the Corporation a notice ornotices indicating the amount of Convertible Preferred Stock that may beconverted pursuant to Section 5(h) (each, a “*Conversion Amount Notice*” and such shares,in such case, also Converting Shares).

 

(iii)          The Corporation shall effect the issuance of CommonStock upon any conversion (and certificates for unconverted ConvertiblePreferred Stock) within three (3) trading days after the ShareholderConversion Date or the Corporation Conversion Date, as applicable, and shalltransmit the certificates by messenger or reputable overnight delivery serviceto reach the address designated by such holder within three (3) tradingdays after the receipt by the Corporation of the Shareholder Conversion Noticeor Conversion Amount Notice, provided, however, that if the Conversion AmountNotice is delivered prior to the Corporation Conversion Date, the Corporationshall so transmit the certificates within three (3) trading days after theCorporation Conversion Date. If certificates evidencing the Common Shares arenot received by the holder within five (5) trading days of the ShareholderConversion Notice, then the holder will be entitled to revoke and withdraw itsShareholder Conversion Notice, in whole or in part, at any time prior to itsreceipt of those certificates. In lieu of delivering physical certificatesrepresenting the Common Stock issuable upon conversion of Converting Shares orin payment of dividends hereunder, provided the Corporation’s transfer agent isparticipating in the Depository Trust Company (“*DTC*”) Fast Automated Securities Transfer (“*FAST*”) program, upon request of theholder, the Corporation shall use its commercially reasonable best efforts tocause its transfer agent to electronically transmit the Common Stock issuableupon conversion or dividend payment to the holder, by crediting the

 

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account of the holder’s prime broker with DTC throughits Deposit Withdrawal Agent Commission (“*DWAC*”)system. The time periods for delivery described above, and for delivery ofCommon Stock in payment of dividends hereunder, shall apply to the electronictransmittals through the DWAC system. The parties agree to coordinate with DTCto accomplish this objective. The person or persons entitled to receive theCommon Stock issuable upon such conversion shall be treated for all purposes asthe record holder or holders of such Common Shares at the close of business onthe Shareholder Conversion Date, the Corporation Conversion Date or such laterdate upon which conversion occurs following delivery to the Corporation of aConversion Amount Notice, as applicable. If the conversion has not beenrescinded in accordance with this paragraph and the Corporation fails todeliver to the holder such certificate or certificates (or shares through DTC)pursuant to this Section 5 (free of any restrictions on transfer orlegends, if such shares have been registered) in accordance herewith, prior tothe seventh trading day after the Shareholder Conversion Date, the CorporationConversion Date or such later date upon which conversion occurs followingdelivery to the Corporation of a Conversion Amount Notice, as applicable(assuming timely surrender of the Convertible Preferred Stock certificates),the Corporation shall pay to such holder, in cash, on a per diem basis, anamount equal to 2% of the Liquidation Preference of all Convertible PreferredStock held by such holder per month until such delivery takes place.

 

The Corporation’s obligation to issue Common Stock upon conversion ofConvertible Preferred Stock shall be absolute, is independent of any covenantof any holder of Convertible Preferred Stock, and shall not be subject to:  (i) any offset or defense; or (ii) anyclaims against the holders of Convertible Preferred Stock whether pursuant tothis Certificate of Designation, the Preferred Stock Purchase Agreement, theInvestor Rights Agreement or otherwise.

 

(iv)          Subject to the provisions of Section 5(h), in theevent that a Conversion Triggering Event has occurred and the Corporation hasthereafter elected to effect a mandatory conversion, all the shares ofConvertible Preferred Stock shall be converted on the effective date set forthin the Corporation Conversion Notice, which shall not be more than twenty (20)days following the date on which a Corporation Conversion Notice is deliveredto the holders (such date, the “*CorporationConversion Date*”) as if the holders thereof had delivered aShareholder Conversion Notice with respect to such shares on the CorporationConversion Date. Promptly thereafter, the holders of the Convertible PreferredStock shall deliver their certificates evidencing the Convertible PreferredStock to the Corporation or its duly authorized transfer agent, and uponreceipt thereof, the Corporation shall issue or cause its transfer agent toissue certificates evidencing the Common Stock into which the ConvertiblePreferred Shares have been converted. The delivery of a Corporation ConversionNotice and the election by the Corporation to exercise its mandatory conversionright shall not limit the right of the holders to convert at an earlier timeupon delivery of a Shareholder Conversion Notice prior to the CorporationConversion Date.

 

(d)           Beneficial Ownership Cap.  Tothe extent that any shares of Convertible Preferred Stock are not convertedupon the occurrence of the Corporation Conversion Date on account of theapplication of Section 5(h), such shares of Convertible Preferred Stockshall be deemed converted automatically under this Section 5 at the firstmoment after the Corporation Conversion Date when Section 5(h) wouldnot prevent such conversion. Notwithstanding the preceding sentence, upon theCorporation Conversion Date, the right to: (i) the liquidation preference of the Convertible Preferred Stock,including, without limitation, the right to be treated as holders ofConvertible Preferred Stock in the event of a merger, share exchange orconsolidation; (ii) the voting rights described in Section 4 hereof; (iii) theredemption rights in Section 12 hereof and (iv) all otherpreferential rights granted to holders of the Convertible Preferred Stock shallcease immediately. Nothing in this Section 5(d) shall limit therights described in Sections 5(f) and (g).

 

(e)           Conversion Value.  The initialconversion value for the Convertible Preferred Stock shall be $5.00 per shareof Common Stock, such value to be subject to adjustment in accordance with theprovisions of this Section 5. Such conversion value in effect from time totime, as adjusted pursuant to this Section 5, is referred to herein as a “*Conversion Value*.” All of the remainingprovisions of this Section 5 shall apply separately to each ConversionValue in effect from time to time with respect to Convertible Preferred Stock.

 

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(f)            Stock Dividends, Subdivisions and Combinations.  Ifat any time while the Convertible Preferred Stock is outstanding, theCorporation shall:

 

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

 

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

 

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

 

then in each such case the Conversion Value shall bemultiplied by a fraction of which the numerator shall be the number of sharesof Common Stock (excluding treasury shares, if any) outstanding immediatelybefore such event and of which the denominator shall be the number of shares ofCommon Stock outstanding immediately after such event. Any adjustment madepursuant to clause (i) of this Section 5(f) shall becomeeffective immediately after the record date for the determination ofshareholders entitled to receive such dividend or distribution, and anyadjustment pursuant to clauses (ii) or (iii) of this Section 5(f) shallbecome effective immediately after the effective date of such subdivision orcombination. If any event requiring an adjustment under this paragraph occursduring the period that a Conversion Value is calculated hereunder, then thecalculation of such Conversion Value shall be adjusted appropriately to reflectsuch event.

 

(g)           Certain Other Distributions.  Ifat any time while the Convertible Preferred Stock is outstanding theCorporation shall take a record of the holders of its Common Stock for thepurpose of entitling them to receive any dividend or other distribution of:

 

(i)            cash,

 

(ii)           any evidences of its indebtedness, any shares of stockof any class or any other securities or property or assets of any naturewhatsoever (other than cash or additional shares of Common Stock as provided inSection 5(f) hereof), or

 

(iii)          any warrants or other rights to subscribe for orpurchase any evidences of its indebtedness, any shares of stock of any class orany other securities or property or assets of any nature whatsoever (in eachcase set forth in subparagraphs 5(g)(i), 5(g)(ii) and 5(g)(iii) hereof,the “*Distributed Property*”),

 

then upon any conversion of Convertible PreferredStock that occurs after such record date, the holder of Convertible PreferredStock shall be entitled to receive, in addition to the shares of Common Stockotherwise issuable upon such conversion of the Convertible Preferred Stock (“*Conversion Shares*”), the DistributedProperty that such holder would have been entitled to receive in respect ofsuch number of Conversion Shares had the holder been the record holder of suchConversion Shares as of such record date. Such distribution shall be madewhenever any such conversion is made. In the event that the DistributedProperty consists of property other than cash, then the fair value of suchDistributed Property shall be as determined in good faith by the Board ofDirectors of the Corporation and set forth in reasonable detail in a writtenvaluation report (the “*Valuation Report*”)prepared by the Board of Directors. The Corporation shall give written noticeof such determination and a copy of the Valuation Report to all holders ofConvertible Preferred Stock, and if the holders of a majority of theoutstanding Convertible Preferred Stock object to such determination withintwenty (20) business days following the date such notice is given to all of theholders of the Convertible Preferred Stock, the Corporation shall submit suchvaluation to an investment banking firm of recognized national standingselected by not less than a majority of the holders of the ConvertiblePreferred Stock and acceptable to the Company in its reasonable discretion,whose opinion shall be binding upon the Corporation and the holders ofConvertible Preferred Stock. A reclassification of the Common Stock (other thana change in par value, or from par value to no par value or from no par valueto par value) into shares of Common Stock and shares of any other class ofstock shall be deemed a distribution by the Corporation to

 

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the holders of its Common Stock of such shares of suchother class of stock within the meaning of this Section 5(g) and,if the outstanding shares of Common Stock shall be changed into a larger orsmaller number of shares of Common Stock as a part of such reclassification,such change shall be deemed a subdivision or combination, as the case may be,of the outstanding shares of Common Stock within the meaning of Section 5(f).

 

(h)           Blocking Provision.

 

(i)            Except as provided otherwise in this Section 5(h)(i),the number of Conversion Shares that may be acquired by any holder, andthe number of shares of Convertible Preferred Stock that shall be entitled tovoting rights under Section 2 hereof, shall be limited to the extentnecessary to insure that, following such conversion (or deemed conversion forvoting purposes), the number of shares of Common Stock then beneficially ownedby such holder and its Affiliates and any other persons or entities whosebeneficial ownership of Common Stock would be aggregated with the holder’s forpurposes of Section 13(d) of the Exchange Act (including shares heldby any “group” of which the holder is a member, but excluding sharesbeneficially owned by virtue of the ownership of securities or rights toacquire securities that have limitations on the right to convert, exercise orpurchase similar to the limitation set forth herein) does not exceed 4.99% ofthe total number of shares of Common Stock of the Corporation then issued andoutstanding (the “*Beneficial Ownership Cap*”).For purposes hereof, “group” has the meaning set forth in Section 13(d) ofthe Exchange Act and applicable regulations of the Securities and ExchangeCommission, and the percentage held by the holder shall be determined in amanner consistent with the provisions of Section 13(d) of theExchange Act. As used herein, the term “*Affiliate*”means any person or entity that, directly or indirectly through one or moreintermediaries, controls or is controlled by or is under common control with aperson or entity, as such terms are used in and construed under Rule 144under the Securities Act. With respect to a holder of Convertible PreferredStock, any investment fund or managed account that is managed on adiscretionary basis by the same investment manager as such holder will be deemedto be an Affiliate of such holder. Each delivery of a Shareholder ConversionNotice or Conversion Amount Notice by a holder of Convertible Preferred Stockwill constitute a representation by such Holder that it has evaluated thelimitation set forth in this paragraph and determined, subject to the accuracyof information filed under the Securities Act and the Exchange Act by theCorporation with respect to the outstanding Common Stock of the Corporation,that the issuance of the full number of shares of Common Stock requested insuch Shareholder Conversion Notice or Conversion Amount Notice is permittedunder this paragraph and the Corporation shall have no obligations to suchholder to verify the Beneficial Ownership Cap. This paragraph shall be construedand administered in such manner as shall be consistent with the intent of thefirst sentence of this paragraph. Any provision hereof which would require aresult that is not consistent with such intent shall be deemed severed herefromand of no force or effect with respect to the conversion contemplated by aparticular Shareholder Conversion Notice or Conversion Amount Notice.

 

(ii)           In the event the Corporation is prohibited fromissuing shares of Common Stock as a result of any restrictions or prohibitionsunder applicable law or the rules or regulations of any stock exchange,interdealer quotation system or other self-regulatory organization, theCorporation shall as soon as possible seek the approval of its shareholders andtake such other action to authorize the issuance of the full number of sharesof Common Stock issuable upon the full conversion of the then outstandingshares of Convertible Preferred Stock, provided, however, that the Corporationshall not be required to call a special meeting for such purpose if theCorporation’s annual meeting is to take place within three months of the dateon which the Corporation becomes aware that such approval will be required andthe Corporation includes such approval for action at the annual meeting.

 

(iii)          Notwithstanding the foregoing provisions of Section 5(h),any holder of Convertible Preferred Stock shall have the right prior to theDate of Original Issue upon written notice to the Corporation, or after theDate of Original Issue upon 61 days prior written notice to theCorporation to choose not to be governed by the Beneficial Ownership Capprovided herein.

 

(iv)          Section 5(h) shall not apply in case of aLiquidation or Change of Control.

 

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(i)            Overall Cap on Common Stock Issuable.  Notwithstandinganything contained herein to the contrary, if the rules of Nasdaq require,the aggregate number of shares of Common Stock issued and issuable by theCorporation upon the conversion of the Convertible Preferred Stock shall notexceed 19.99% of the number of shares of Common Stock or 19.99% of the votingpower outstanding on the Date of Original Issue, subject to appropriateadjustment for stock splits, stock dividends, or other similarrecapitalizations affecting the Common Stock (the “*Maximum Common Stock Issuance*”), unless the issuance ofshares hereunder in excess of the Maximum Common Stock Issuance shall first beapproved by the Corporation’s shareholders in accordance with applicable lawand the By-laws and Articles of Incorporation of the Corporation. Each holderof Convertible Preferred Stock shall be entitled to receive the number ofshares of Common Stock equal to such holder’s pro rata share of the MaximumCommon Stock Issuance (based upon its aggregate purchase price paid under thePreferred Stock Purchase Agreement). If a holder has converted and exercisedall of its Convertible Preferred Stock, but has not depleted the total numberof pro rata shares allocated to it hereunder, its remaining pro rata sharesshall be reallocated amongst the other holders still holding ConvertiblePreferred Stock on a pro rata basis. If at any point in time and from time totime (each a “*Trigger Date*”) thenumber of shares of Common Stock issued pursuant to conversion of theConvertible Preferred Stock, together with the number of shares of Common Stockthat would then be issuable by the Corporation in the event of conversion ofall the Convertible Preferred Stock then outstanding, would exceed the MaximumCommon Stock Issuance but for this Section 5(i), then the Corporationshall promptly call a shareholders meeting to obtain shareholder approval forthe issuance of Common Stock hereunder in excess of the Maximum Common StockIssuance, provided, however, that the Corporation shall not be required to calla special meeting for such purpose if the Corporation’s annual meeting is totake place within three months of the date on which the Corporation becomesaware that such approval will be required and the Corporation includes suchapproval for action at the annual meeting.

 

(j)            Common Stock Reserved.  TheCorporation shall at all times reserve and keep available out of its authorizedbut unissued Common Stock, solely for issuance upon the conversion of shares ofConvertible Preferred Stock as herein provided, such number of shares of CommonStock as shall from time to time be issuable upon the conversion of all theshares of Convertible Preferred Stock at the time outstanding (without regardto any ownership limitations provided in Section 5(h)).

 

(k)           Adjustment Upon Issuance of Additional Shares ofCommon Stock.

 

(i)            Adjustment to Conversion Value.  Ifat any time while any Convertible Preferred Stock is outstanding theCorporation shall issue or sell any additional shares of Common Stock (“*Additional Common Stock*”) in exchange forconsideration in an amount per share of Additional Common Stock less than theConversion Value at the time the shares of Additional Common Stock are issuedor sold, then the Conversion Value immediately prior to such issue or saleshall be reduced to a price determined by dividing:

 

(1)           an amount equal to the sum of (a) the number ofshares of Common Stock outstanding immediately prior to such issue or sale (the“Common Stock Outstanding”) multiplied by the then existing Conversion Value,plus (b) the consideration, if any, received by the Company upon suchissue or sale of the Additional Common Stock; by

 

(2)           the total number of shares of Common Stock Outstandingimmediately prior to such issue or sale plus the number of shares of AdditionalCommon Stock so issued or deemed issued.

 

For purposes of this Section 5(k)(i), the number of shares of “CommonStock Outstanding” shall be deemed to include the Common Stock issuable uponconversion of all outstanding shares of preferred stock, upon conversion of allother outstanding securities convertible into Common Stock, and upon exerciseof all outstanding rights, options or warrants to acquire Common Stock orsecurities convertible into Common Stock (and assuming conversion ofconvertible securities issuable upon exercise of such rights, options orwarrants) where such rights,

 

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options or warrants are both vested at such time andthe strike price or exercise price thereof is below the Current Market Price ofthe Common Stock.

 

(ii)           Issuance of Common Stock Equivalents.  Ifat any time while the Convertible Preferred Stock is outstanding theCorporation shall issue or sell any warrants or other rights to subscribe foror purchase any additional shares of Common Stock or any securitiesconvertible, directly or indirectly, into shares of Common Stock (collectively,“*Common Stock Equivalents*”),whether or not the rights to exchange or convert thereunder are immediatelyexercisable, and the effective price per share for which Common Stock isissuable upon the exercise, exchange or conversion of such Common StockEquivalents shall be less than the current Conversion Value in effectimmediately prior to the time of such issue or sale, then the currentConversion Value shall be adjusted as provided in Section 5(k)(i) onthe basis that the maximum number of additional shares of Common Stock issuablepursuant to all such Common Stock Equivalents shall be deemed to have beenissued and outstanding and the Corporation shall have received all of theconsideration payable therefor, if any, as of the date of the actual issuanceof such Common Stock Equivalents. No further adjustments to the currentConversion Value shall be made under this Section 5(k) upon the actualissue of such Common Stock upon the exercise, conversion or exchange of suchCommon Stock Equivalents.

 

(iii)          Certain Issues of Common Stock Excepted.  Theprovisions of Section 5(k) shall not apply to any issuance of AdditionalCommon Stock for which an adjustment is provided under Section 5(f). TheCorporation shall not be required to make any adjustment of the ConversionValue pursuant to Section 5(k) in the case of (A) the issuance ofsecurities to employees, consultants, officers or directors of the Corporationpursuant to stock purchase or stock option plans or agreements approved by theBoard (including options issued prior to the Date of Original Issue); (B) theissuance of securities in connection with acquisition transactions approved bythe Board (including, but not limited to mergers, consolidations, shareexchanges and asset purchases); (C) the issuance of securities tofinancial institutions or lessors in connection with commercial creditarrangements, equipment financings, service agreements or similar transactionsapproved by the Board; (D) the issuance of Common Stock upon conversion ofthe Convertible Preferred Stock or the Series 1 Preferred Stock; (E) theissuance of Common Stock upon exercise of the Warrants (as defined in thePreferred Stock Purchase Agreement); (F) the issuance of securitiespursuant to options, warrants, notes, or other rights to acquire securities ofthe Corporation outstanding as of the Date of Original Issue; (G) theissuance of securities or rights to acquire securities in connection withstrategic collaborations, development agreements, joint ventures or licensingtransactions, the terms of which are approved by the Board; (H) securitiesissued or issuable with the affirmative vote of at least a majority of the thenoutstanding Convertible Preferred Stock; or (I) the issuance of securitiesin connection with the Rights Agreement or any successor rights plan, poisonpill or similar arrangement hereafter approved by the Board (collectively, “*Permitted Dilutive Issuances*”).

 

(iv)          Superseding Adjustment.  If, at anytime after any adjustment to the current Conversion Value shall have been madepursuant to Section 5(k) as the result of any issuance of Common StockEquivalents, (x) the right to exercise, exchange or convert all or aportion of the Common Stock Equivalents shall expire unexercised, or(y) the conversion rate or consideration per share for which shares ofCommon Stock are issuable pursuant to such Common Stock Equivalents shall beincreased solely by virtue of provisions therein contained for an automaticincrease in such conversion rate or consideration per share, as the case may be,upon the occurrence of a specified date or event, then any such previousadjustments to the Conversion Value shall be rescinded and annulled and theadditional shares of Common Stock which were deemed to have been issued byvirtue of the computation made in connection with the adjustment so rescindedand annulled shall no longer be deemed to have been issued by virtue of suchcomputation. Upon the occurrence of an event set forth in this Section 5(k)(iv) above,there shall be a recomputation made of the effect of such Common StockEquivalents on the basis of:  (i) treatingthe number of additional shares of Common Stock or other property, if any,theretofore actually issued or issuable pursuant to the previous exercise,exchange or conversion of any such Common Stock Equivalents, as having beenissued on the date or dates of any such exercise, exchange or conversion andfor the consideration actually received and receivable therefor, and (ii) treatingany such Common Stock

 

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Equivalents which then remain outstanding as havingbeen granted or issued immediately after the time of such increase of theconversion rate or consideration per share for which shares of Common Stock orother property are issuable under such Common Stock Equivalents; whereupon anew adjustment to the current Conversion Value shall be made, which newadjustment shall supersede the previous adjustment so rescinded and annulled.

 

(l)            Rights Distributed Under Rights Agreement.  Capitalizedterms used in this Section 5(l) and which are not otherwise definedherein, shall have the meanings ascribed to them in the Rights Agreement. Whilethe Rights Agreement or any other poison pill, rights plan or similararrangement (each, a “*Rights Plan*”)shall be in effect:

 

(i)            Holders who convert Convertible Preferred Stock beforethe Distribution Date or before any Right Certificates or similar right (each a“*Right*”) shall be evidenced by aseparate rights certificate or shall otherwise be transferable otherwise thanin connection with the transfer of the underlying shares of Common Stock (thedate of the occurrence of any of the foregoing being referred to herein as a “*Rights Distribution Date*”), will receive,in addition to shares of Common Stock issued on conversion, one Right for eachsuch share of Common Stock.

 

(ii)           Upon the occurrence of a Rights Distribution Date,each holder of Convertible Preferred Stock shall receive, without any furtheraction by the Corporation or the Board, such number of Rights equal to thenumber of Rights such Holder would have held if, immediately prior to the RightsDistribution Date, all of the shares of Convertible Preferred Stock had beenconverted into shares of Common Stock at the then current Conversion Value. TheCorporation shall issue to each holder of Convertible Preferred Stockcertificates evidencing such Rights, no later than five business days followingsuch Rights Distribution Date. In the event the applicable Rights Plan does notpermit such Rights to be granted to each holder of Convertible Preferred Stock,the Corporation shall promptly (i) amend the applicable Rights Plan topermit the Corporation to take the actions set forth in this Section 5(l),or (ii) issue to each holder of Convertible Preferred Stock an option,right or similar arrangement giving each such holder the same rights and benefitsas they would have held upon the receipt of the applicable number of Rights.

 

6.             OtherProvisions Applicable to Adjustments.  The following provisions shall be applicableto the making of adjustments of the number of shares of Common Stock into whichthe Convertible Preferred Stock is convertible and the current Conversion Valueprovided for in Section 5:

 

(a)           When Adjustments to Be Made.  Theadjustments required by Section 5 shall be made whenever and as often asany specified event requiring an adjustment shall occur, except that anyadjustment to the Conversion Value that would otherwise be required may bepostponed (except in the case of a subdivision or combination of shares of theCommon Stock, as provided for in Section 5(f)) up to, but not beyond theConversion Date if such adjustment either by itself or with other adjustmentsnot previously made adds less than 1% of the shares of Common Stock into whichthe Convertible Preferred Stock is convertible immediately prior to the makingof such adjustment. Any adjustment representing a change of less than suchminimum amount (except as aforesaid) which is postponed shall be carriedforward and made as soon as such adjustment, together with other adjustmentsrequired by Section 5 and not previously made, would result in a minimumadjustment or on the Conversion Date. For the purpose of any adjustment, anyspecified event shall be deemed to have occurred at the close of business onthe date of its occurrence.

 

(b)           Fractional Interests.  In computingadjustments under Section 5, fractional interests in Common Stock shall betaken into account to the nearest 1/100th of a share.

 

(c)           When Adjustment Not Required.  Ifthe Corporation undertakes a transaction contemplated under Section 5(g) andas a result takes a record of the holders of its Common Stock for the purposeof entitling them to receive a dividend or distribution or subscription orpurchase rights or other benefits contemplated under Section 5(g) andshall, thereafter and before the distribution to shareholders thereof, legallyabandon its plan

 

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to pay or deliver such dividend, distribution,subscription or purchase rights or other benefits contemplated under Section 5(g),then thereafter no adjustment shall be required by reason of the taking of suchrecord and any such adjustment previously made in respect thereof shall berescinded and annulled.

 

(d)           Escrow of Stock.  If after anyproperty becomes distributable pursuant to Section 5 by reason of thetaking of any record of the holders of Common Stock, but prior to theoccurrence of the event for which such record is taken, a holder of theConvertible Preferred Stock either converts the Convertible Preferred Stock orthere is a mandatory conversion during such period or such holder is unable toconvert shares pursuant to Section 5(h), such holder of ConvertiblePreferred Stock shall continue to be entitled to receive any shares of CommonStock issuable upon conversion under Section 5 by reason of suchadjustment (as if such Convertible Preferred Stock were not yet converted) andsuch shares or other property shall be held in escrow for the holder of theConvertible Preferred Stock by the Corporation to be issued to holder of theConvertible Preferred Stock upon and to the extent that the event actuallytakes place. Notwithstanding any other provision to the contrary herein, if theevent for which such record was taken fails to occur or is rescinded, then suchescrowed shares shall be canceled by the Corporation and escrowed propertyreturned to the Corporation.

 

7.             Adjustmentsfor Reorganization, Reclassification, Consolidation or Merger.

 

(a)           Consolidation or Merger Not Constituting a Liquidation

 

(i)            In the event of any consolidation or merger of theCorporation with any other entity (other than a merger in which the Corporationis the surviving or continuing entity and its capital stock is unchanged, amerger to effect a reincorporation of the Corporation, or a merger into orconsolidation with a wholly owned subsidiary of the Corporation), then, if suchconsolidation or merger is not a Liquidation within the meaning of Section 3(d) hereof,the holders of Convertible Preferred Stock shall immediately prior to theclosing of such consolidation or merger be entitled to receive an amount pershare equal to the greater of (i) $10,000 or (ii) the amount theholder would be entitled to receive if such holder had converted such share ofConvertible Preferred Stock immediately prior to such consolidation or merger(such greater amount being the “*ExchangeAmount*”). The Exchange Amount shall be paid in the same form (e.g.securities, cash or other property) as that offered or payable to the holdersof Common Stock in the consolidation or merger.

 

(ii)           After 5:00 p.m., New York time, on the tradingday immediately preceding the effective date of any merger or consolidation ofthe Corporation subject to Section 7(a) (unless such merger orconsolidation is not actually effected), all rights of the holders of the sharesof Convertible Preferred Stock (except the right to receive the Exchange Amountwithout interest upon surrender of their certificate or certificates),including the right to convert pursuant to Section 5(a), shall cease withrespect to such shares, and such shares of Convertible Preferred Stock shallnot thereafter be transferred on the books of the Corporation or be deemed tobe outstanding for any purpose whatsoever.

 

(b)           Reorganization or Reclassification Not Constituting aLiquidation

 

(i)            In the event of (A) any capital reorganization(other than a consolidation or merger of the Corporation) or (B) anyreclassification of the stock of the Corporation (other than a change in parvalue or from no par value to par value or from par value to no par value, oras a result of a stock dividend or subdivision, split up or combination ofshares, or a reclassification covered by Section 5(f) or a merger orconsolidation of the Corporation), then, if such event set forth inclause (A) or (B) of this Section 7(b)(i) is nota Liquidation within the meaning of Section 3(d) hereof (in suchcase, each event set forth in (A) and (B) being a “*Nonliquidation Event*”), the holders ofConvertible Preferred Stock shall after such Nonliquidation Event receive uponconversion, in lieu of the shares of Common Stock otherwise issuable, the kindand number of shares of stock or other securities or property as would havebeen issued or payable in such Nonliquidation Event with respect to or inexchange for the number of shares of Common Stock which would have beenissuable upon conversion immediately prior to the time of such NonliquidationEvent.

 

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(ii)           The provisions of this Section 7(b)shall similarly apply to successive reorganizations or reclassifications.

 

8.             Other ActionAffecting Common Stock. In case at any time or from time to time theCorporation shall take any action in respect of its Common Stock, other thanthe payment of dividends permitted by Section 5, any Permitted DilutiveIssuances, any Liquidation or any merger, consolidation, reorganization orreclassification covered by Section 7, then, if such action will have amaterially adverse effect upon the rights of the holders of ConvertiblePreferred Stock, the number of shares of Common Stock or other stock into whichthe Convertible Preferred Stock is convertible and/or the purchase pricethereof shall be adjusted in such manner as may be equitable in thecircumstances.

 

9.             CertainLimitations. Notwithstanding anything herein to the contrary, theCorporation agrees not to enter into any transaction which, by reason of anyadjustment hereunder, would cause the current Conversion Value to be less thanthe par value per share of Common Stock.

 

10.           Certificate as toAdjustments. Upon the occurrence of each adjustment or readjustment of theConversion Value, the Corporation, at its expense, shall promptly compute suchadjustment or readjustment in accordance with the terms hereof and prepare andfurnish to each holder of Convertible Preferred Stock a certificate settingforth such adjustment or readjustment and showing in detail the facts uponwhich such adjustment or readjustment is based. The Corporation shall, upon thewritten request at any time of any holder of Convertible Preferred Stock,furnish or cause to be furnished to such holder a like certificate settingforth (i) such adjustments and readjustments, (ii) the ConversionValue at the time in effect for the Convertible Preferred Stock and(iii) the number of shares of Common Stock and the amount, if any, orother property which at the time would be received upon the conversion ofConvertible Preferred Stock owned by such holder (without regard to theownership limitations set forth in Section 5(h)).

 

11.           Notices of RecordDate. In the event of any fixing by the Corporation of a record date forthe holders of any class of securities for the purpose of determining theholders thereof who are entitled to receive any dividend (other than a cashdividend) or other distribution, any shares of Common Stock or othersecurities, or any right to subscribe for, purchase or otherwise acquire, orany option for the purchase of, any shares of stock of any class or any othersecurities or property, or to receive any other right, the Corporation shallmail to each holder of Convertible Preferred Stock at least twenty (20) daysprior to the date specified therein, a notice specifying the date on which anysuch record is to be taken for the purpose of such dividend, distribution orrights, and the amount and character of such dividend, distribution or right.

 

12.           Redemption.

 

(a)           Redemption at the Holders’ Elections. If a Redemption Triggering Event (asdefined below) has occurred, and a holder has so elected, the Corporation shallredeem the Convertible Preferred Stock of any holder who gives a Demand forRedemption (as defined below). The Corporation shall, promptly thereafter,redeem the shares of Convertible Preferred Stock as set forth in the Demand forRedemption. The Corporation shall effect such redemption on the Redemption Dateby paying in cash for each such share to be redeemed an amount equal to thegreater of (i) the Redemption Price (as defined below) or (ii) thetotal number of shares of Common Stock into which such Convertible PreferredStock is convertible multiplied by the Current Market Price at the time of theRedemption Triggering Event. “*RedemptionTriggering Event*” means the Corporation’s failure or refusal toconvert any shares of Convertible Preferred Stock in accordance with the termshereof, or the providing of written notice to such effect. “Redemption Price”means (i) all declared but unpaid dividends as of the date of Demand forRedemption with respect to each share to be redeemed, plus (ii) 125% of theLiquidation Preference of each share to be redeemed.

 

(b)           Demand for Redemption. A holder desiring to elect a redemptionas herein provided shall deliver a notice (the “*Demand for Redemption*”) to the Corporation while suchRedemption Triggering Event continues specifying the following:

 

(i)            The approximate date and nature of theRedemption Triggering Event;

 

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(ii)           The number of shares of ConvertiblePreferred Stock to be redeemed; and

 

(iii)          The address to which the payment of theRedemption Price shall be delivered, or, at the election of the holder, wireinstructions with respect to the account to which payment of the RedemptionPrice shall be required.

 

A holder maydeliver the certificates evidencing the Convertible Preferred Stock to beredeemed with the Demand for Redemption or under separate cover. Payment of theRedemption Price shall be made not later than two (2) business days after thedate on which a holder has delivered a Demand for Redemption and thecertificates evidencing the shares of Convertible Preferred Stock to beredeemed.

 

(c)           Redemption at the Corporation’s Election. If the holders of the ConvertiblePreferred Stock, for any reason, whether by operation of law or otherwise, areor become entitled to a separate class vote on a Change of Control orLiquidation approved by the Board, or on or in connection with any document ortransaction necessary to accomplish a Change of Control or Liquidation approvedby the Board, then the Corporation may, at the option of the Board, elect toredeem all of the shares of Convertible Preferred Stock by giving notice ofsuch election pursuant to Section 12(d)(i) hereof to all holders ofConvertible Preferred Stock. The amount payable in redemption of each share ofConvertible Preferred Stock (the “*CorporationRedemption Price*”) shall be equal to the greater of $10,000 or theconsideration that the Convertible Preferred Stock holder would have receivedin the Change of Control or Liquidation if such share of Convertible PreferredStock had been converted immediately prior to the consummation of such Changeof Control or Liquidation. The redemption shall be effected in the mannerspecified in paragraph (d) below. The Corporation Redemption Price shallbe paid in the same form (e.g. securities, cash or other property) as thatoffered or payable to the holders of Common Stock in the Change of Control orLiquidation.

 

(d)           Redemption Mechanics. The Corporation shall effect aredemption made at the election of the Corporation as follows:

 

(i)            At least 15 but no more than 60 daysprior to the date fixed for any redemption of Convertible Preferred Stock (the“*Redemption Date*”), writtennotice shall be given to each holder of record of Convertible Preferred Stockto be redeemed, notifying such holder of the redemption to be effected,specifying the Redemption Date, the Corporation Redemption Price, the place atwhich payment may be obtained and calling upon such holder to surrender to theCorporation, in the manner and at the place designated, its certificate orcertificates representing the shares to be redeemed (the “*Redemption Notice*”). On or after theRedemption Date, each holder of Convertible Preferred Stock to be redeemedshall surrender to the Corporation the certificate or certificates representingsuch shares, in the manner and at the place designated in the RedemptionNotice, and thereupon the Corporation Redemption Price of such shares shall bepaid to the person whose name appears on such certificate or certificates asthe owner thereof, and upon such payment, each surrendered certificate shall becanceled.

 

(ii)           From and after the close of business onthe Redemption Date, unless there shall have been a default in payment of theCorporation Redemption Price, all rights of the holders of the shares ofConvertible Preferred Stock designated for redemption as holders of ConvertiblePreferred Stock (except the right to receive the Redemption Price withoutinterest upon surrender of their certificate or certificates), including theright to convert pursuant to Section 5(a), shall cease with respect tosuch shares, and such shares shall not thereafter be transferred on the booksof the Corporation or be deemed to be outstanding for any purpose whatsoever.

 

(iii)          At or as soon as practicable followingthe effective time of the Change of Control or Liquidation referred to inSection 12(c), the Corporation or the acquiror or successor thereof, asapplicable, shall deposit the Corporation Redemption Price of all outstandingshares of Convertible Preferred Stock designated for redemption in theRedemption Notice, and not yet redeemed, with a bank or trust company havingaggregate capital and surplus in excess of $50,000,000 as a trust fund for thebenefit of the respective holders of the shares designated for redemption andnot yet redeemed. Simultaneously,

 

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the Corporation or the acquiror or successor thereof,as applicable, shall deposit irrevocable instructions and authorize such bankor trust company to pay, on and after the date fixed for redemption or priorthereto, the Corporation Redemption Price of the Convertible Preferred Stock tothe holders thereof upon surrender of their certificates. The balance of anymonies, securities or other property deposited by the Corporation or theacquiror or successor thereof, as applicable, pursuant to this paragraphremaining unclaimed at the expiration of two years following the RedemptionDate shall thereafter be returned to the Corporation or the acquiror orsuccessor thereof, as applicable, provided that the stockholder to which suchmonies, securities or other property would be payable hereunder shall beentitled, upon proof of its ownership of the Convertible Preferred Stock, to receivesuch monies, securities or other property but without interest from theRedemption Date.

 

(e)           Status of Redeemed or Purchased Shares. Any shares of the Convertible PreferredStock at any time purchased, redeemed or otherwise acquired by the Corporationshall not be reissued and shall be retired.

 

13.           Observer Rights.

 

(a)           So long as at least 50% of the shares ofConvertible Preferred Stock issued on the Date of Original Issue remainoutstanding, the holders of a majority of the then-outstanding shares ofConvertible Preferred Stock shall have the right, on an annual basis, todesignate one nonvoting observer to attend meetings of the Board of Directorsof the Corporation and any subsidiaries of the Corporation (and any committeesthereof) (the “*Observer*”) exceptas set forth in Section 13(b). Prior to such designation, the Observernominee must be approved by the Board of Directors, such approval not to beunreasonably withheld or delayed. The Corporation (and each direct and indirectsubsidiary thereof) shall give the Observer written notice of each meeting ofthe Board of Directors and committees thereof that the Observer is entitled toattend pursuant to Section 13(b) at the same time and in the same manneras the members of the Board of Directors or such committee receive notice ofsuch meetings. Except as limited by Section 13(b), the Observer shall beentitled to receive all written materials and other information given to thedirectors in connection with such meetings at the same time such materials andinformation are given to the directors, and the Observer shall keep suchmaterials and information confidential. Except as limited bySection 13(b), if the Corporation or a subsidiary proposes to take anyaction by written consent in lieu of a meeting of its Board of Directors or acommittee thereof, the Corporation or such subsidiary shall give written noticethereof to the Observer prior to the effective date of such consent. Except aslimited by Section 13(b), the Corporation or such subsidiary shall provideto the Observer all written materials and other information given to thedirectors in connection with such action by written consent at the same timesuch materials and information are given to the directors.

 

(b)           The Observer shall be entitled to attendall general sessions of the Board of Directors and committees thereof, butshall not be permitted to attend executive sessions of the Board of Directorsand committees thereof. The Observer shall not be present at any discussions ofthe Board of Directors or receive written materials, communications or otherinformation given to the directors in connection with such discussions if, inthe reasonable opinion of Corporation’s counsel, the Observer’s presence atsuch discussions or receipt of such written materials, communications or otherinformation would jeopardize the Corporation’s attorney-client privilege. Priorto attendance of any meeting of the Board or Directors or any committee thereofand prior to receipt of any written materials, communications or otherinformation in connection with such meetings, the Observer shall enter into acustomary confidentiality agreement in form and substance acceptable in thereasonable judgment of the Corporation with respect to such meetings, writtenmaterials, communications and other information.

 

14.           Notices. Any andall notices or other communications or deliveries required or permitted to beprovided hereunder shall be in writing and shall be deemed given and effectiveon the earliest of (a) the date of transmission, if such notice orcommunication is delivered via facsimile at the facsimile number specified inthis Section prior to 5:00 p.m. (New York City time) on a business day,(b) the next business day after the date of transmission, if such noticeor communication is delivered via facsimile at the facsimile number specifiedin this Section on a day that is not a business day or later than5:00 p.m. (New York City time) on any business day, or (c) thebusiness day following the date of mailing, if sent by U.S. nationallyrecognized overnight courier service such as Federal Express. The address forsuch notices and communications shall be as follows:  (i) if to the Corporation, to

 

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300 Elliott Avenue West, Suite 500, Seattle, Washington98119, Attention:  President, FacsimileNo.: (206) 286-2537, or (ii) if to a holder of Convertible PreferredStock, to the address or facsimile number appearing on the Corporation’sshareholder records or, in either case, to such other address or facsimilenumber as the Corporation or a holder of Convertible Preferred Stock mayprovide to the other in accordance with this Section.

 

15.           Stock Transfer Taxes.The issue of stock certificates upon conversion of the Convertible PreferredStock shall be made without charge to the converting holder for any tax inrespect of such issue; provided, however, that the Corporation shall beentitled to withhold any applicable withholding taxes with respect to suchissue, if any. The Corporation shall not, however, be required to pay any taxwhich may be payable in respect of any transfer involved in the issue anddelivery of shares in any name other than that of the holder of any of theConvertible Preferred Stock converted, and the Corporation shall not berequired to issue or deliver any such stock certificate unless and until theperson or persons requesting the issue thereof shall have paid to theCorporation the amount of such tax or shall have established to thesatisfaction of the Corporation that such tax has been paid.

 

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**EXHIBIT A**

 

**FORM OFSHAREHOLDER CONVERSION NOTICE**

 

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

 

The undersigned hereby irrevocably elects to convert the number ofshares of Series B Convertible Preferred Stock (the “Convertible PreferredStock”) indicated below into shares of common stock, par value $0.02 per share(the “Common Stock”), of NeoRx Corporation, a Washington corporation (the“Corporation”), according to the Designation of Rights and Preferences of theConvertible Preferred Stock and the conditions hereof, as of the date writtenbelow. The undersigned hereby requests that certificates for the shares of CommonStock to be issued to the undersigned pursuant to this Shareholder ConversionNotice be issued in the name of, and delivered to, the undersigned or itsdesignee as indicated below. If the shares of Common Stock are to be issued inthe name of a person other than the undersigned, the undersigned will pay alltransfer taxes payable with respect thereto. A copy of the certificaterepresenting the Convertible Preferred Stock being converted is attachedhereto.

 

 

Date of Conversion(Date of Notice)

 

 

Number of sharesof Convertible Preferred Stock owned prior to Conversion

 

 

Number of sharesof Convertible Preferred Stock to be Converted

 

 

Stated Value ofConvertible Preferred Stock to be Converted

 

 

Amount ofaccumulated and unpaid dividends on shares of Convertible Preferred Stock to beConverted

 

 

Number of sharesof Common Stock to be Issued (including conversion of declared but unpaiddividends on shares of Convertible Preferred Stock to be Converted)

 

 

ApplicableConversion Value

 

 

Number of sharesof Convertible Preferred Stock owned subsequent to Conversion

 

ConversionInformation:  [NAME OF HOLDER]

 

 

Address of Holder:

 

 

 

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Issue Common Stockto (if different than above):

 

Name:

 

Address:

 

 

 

Tax ID #:

 

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The undersigned represents, subject to the accuracy ofinformation filed under the Securities Act and the Exchange Act by theCorporation with respect to the outstanding Common Stock of the Corporation, asof the date hereof that, after giving effect to the conversion of PreferredShares pursuant to this Shareholder Conversion Notice, the undersigned will notexceed the “Beneficial Ownership Cap” contained in Section 5(h) of theDesignation of Rights and Preferences of the Convertible Preferred Stock. 

 

 
|   |           |   |
|--------|----------------|--------|
|   | Name of Holder |
|   |           |
|   | By:            |   |   |
|   | Name:          |
|   |           |
|   | Its:           |   |   |

 

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These Amended and Restated Articles of Incorporation are executed byNeoRx Corporation by its duly authorized officer.

 

Dated:  March 16, 2005

 

 
|   | NEORX CORPORATION             |
|--------|-------------------------------|
|   |                          |
|   | By:                           | /s/ Susan D. Berland |   |
|   | Name: Susan D. Berland        |
|   | Its: Chief Financial  Officer |

 

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# **CERTIFICATE REGARDINGAMENDED AND RESTATED ARTICLES OF INCORPORATIONOFNEORX CORPORATION**

# ** **

The amendments included in the Restated Articles ofIncorporation were adopted by the Board of Directors on March 10, 2005.Shareholder action was not required pursuant to the provisions ofRCW 23B.10.020.

 

Dated:  March 16, 2005

 

 
|   | NEORX CORPORATION             |
|--------|-------------------------------|
|   |                          |
|   | By:                           | /s/ Susan D. Berland |   |
|   | Name: Susan D. Berland        |
|   | Its: Chief Financial  Officer |

 

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