Exhibit 10.1


 


PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT


 


by and among


 


NeoRx Corporation, as Issuer
and Seller


 


and


 


BayStar Capital II, L.P. and
the other parties named herein, as Purchasers


 


with respect to Seller’s


 


Series B Convertible Preferred
Stock


 


and Warrants to Purchase Common
Stock


 


December 3, 2003


 

















 


Table of
Exhibits and Schedules


 


	
  Exhibit A

  	
   

  	
  Form of Certificate of Designations, Rights
  and Preferences of the Series B Convertible Preferred Stock

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Common Stock Purchase Warrant

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
   

  	
  Form of Investor Rights Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit D

  	
   

  	
  Form of Opinion of Seller’s Counsel

  
	
   

  	
   

  	
   

  
	
  Exhibit E

  	
   

  	
  Form of Closing Escrow Agreement

  
	
   

  	
   

  	
   

  
	
  Schedule 1

  	
   

  	
  Purchasers and Shares of Preferred Stock
  and Warrants Purchased

  
	
   

  	
   

  	
   

  
	
  Schedule 3

  	
   

  	
  Disclosure Schedules

  



 

















 


PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT (the “Agreement”) dated as of December 3, 2003, by and among
NeoRx Corporation, a Washington corporation (the “Seller”), and BayStar
Capital II, L.P. and each of the other persons listed on Schedule 1
hereto (each is individually referred to as a “Purchaser” and collectively,
the “Purchasers”).


 


RECITALS:


 


WHEREAS, each of the Purchasers is willing to
purchase from the Seller, and the Seller desires to sell to the Purchasers, up
to an aggregate of 2000 shares of its Series B Convertible Preferred Stock,
$10,000 stated value per share, par value $0.02 per share (the “Preferred
Stock”), and Common Stock Purchase Warrants (the “Warrants”)
entitling the holders thereof to purchase shares of the Seller’s common stock,
$0.02 par value (the “Common  Stock”) as more fully set forth herein.


 


NOW THEREFORE, in consideration of the mutual
promises and representations, warranties, covenants and agreements set forth
herein, the parties hereto, intending to be legally bound, hereby agree as
follows:


 


ARTICLE I - PURCHASE AND SALE


 


1.1          Purchase and Sale.


 


(a)           On the terms and subject to the conditions
set forth in this Agreement, at the Closing (as defined in Section 2.2),
the Seller will sell and each of the Purchasers will purchase the Preferred
Stock in the amounts set forth on Schedule 1 hereto.  In addition, the Seller will sell and each
Purchaser will purchase at the Closing Warrants to purchase the number of
shares of Common Stock set forth on Schedule 1 hereto.


 


(b)           The shares of Common Stock issuable upon
conversion of the Preferred Stock are referred to herein as the “Conversion
Shares,”
and the shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the “Warrant Shares.”


 


1.2          Terms of the Preferred Stock and
Warrants. The terms and provisions of the Preferred Stock are
set forth in the form of Designations of Rights and Preferences of Series B
Convertible Preferred Stock, attached hereto as Exhibit A (the “Certificate
of Designation”). The terms and provisions of the Warrants are more
fully set forth in the form of Common Stock Purchase Warrant, attached hereto
as Exhibit B.


 

















 


1.3          Transfers; Legends.


 


(a)           (i) Except as required by federal securities
laws and the securities law of any state or other jurisdictions, the Preferred
Stock, Conversion Shares, Warrants and Warrant Shares (collectively, the “Securities”)
may be transferred, in whole or in part, by any of the Purchasers at any
time.  In the case of Preferred Stock,
such transfer may be effected by delivering written transfer instructions to
the Seller, and the Seller shall reflect such transfer on its books and records
and reissue certificates evidencing the Preferred Stock upon surrender of
certificates evidencing the Preferred Stock being transferred. Any such
transfer shall be made by a Purchaser in accordance with applicable law.  Any transferee shall agree to be bound by
the terms of the Investor Rights Agreement and this Agreement. The Seller shall
reissue certificates evidencing the Securities upon surrender of certificates
evidencing the Securities being transferred in accordance with this
Section 1.3(a).


 


(ii)           In connection with any transfer of
Securities other than pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the “Securities Act”), or to the Seller, the
Seller may require the transferor thereof to furnish to the Seller an opinion
of counsel selected by the transferor, such counsel and the form and substance
of which opinion shall be reasonably satisfactory to the Seller and Seller’s
counsel, to the effect that such transfer does not require registration under
the Securities Act; provided, however, that in the case of a
transfer pursuant to Rule 144 under the Securities Act, no opinion shall be
required if the transferor provides the Company with a customary seller’s
representation letter, and if such sale is not pursuant to subsection (k)
of Rule 144, a customary broker’s representation letter and Form 144.   Notwithstanding the foregoing, the Seller
hereby consents to and agrees to register on the books of the Seller and with
any transfer agent for the securities of the Seller, without any such legal
opinion, any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser, provided that the transferee certifies to the Seller that it is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and
that it is acquiring the Securities solely for investment purposes (subject to
the qualifications hereof) and not with a view to, or for, resale, distribution
or fractionalization thereof in whole or in part in violation of the Securities
Act.


 


(iii)          An “Affiliate” means any Person (as such term
is defined below) that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser. A “Person”
means any individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision of any thereof) or other
entity of any kind.


 


(b)           The certificates representing the Preferred
Stock shall bear the following legends:


 

















 


“THE SHARES REPRESENTED BY, OR ISSUABLE UPON
CONVERSION OR EXERCISE OF SECURITIES EVIDENCED BY, THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY, SUCH REGISTRATION IS NOT REQUIRED.”


 


“THE SALE, TRANSFER OR ASSIGNMENT OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTOR RIGHTS AGREEMENT DATED AS OF DECEMBER 3, 2003, AS
AMENDED FROM TIME TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS
OUTSTANDING SECURITIES. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY.”


 


ARTICLE II - PURCHASE PRICE AND CLOSING


 


2.1          Purchase Price. The
aggregate purchase price (the “Purchase Price”) to be paid by the
Purchasers to the Seller to acquire the Preferred Stock and the applicable
Warrants shall be the total of the amounts payable by each Purchaser,
respectively, set forth beside the name of each Purchaser on Schedule 1
hereto.  The Purchase Price paid by each
Purchaser shall be placed in escrow pending the Closing as provided in
Article 6.1(b) hereof.


 


2.2          The Closing.  The closing of the transactions contemplated
under this Agreement (the “Closing”) will take place as promptly as
practicable, but no later than five (5) business days following satisfaction or
waiver of the conditions set forth in Article 6.1(a) and (b) and 6.2(a)
(other than those conditions which by their terms are not to be satisfied or
waived until the Closing), at the offices of Wiggin & Dana LLP, 400
Atlantic Street, Stamford, Connecticut 06901. 
The date on which the Closing occurs is the “Closing Date.”


 


ARTICLE III - REPRESENTATIONS AND
WARRANTIES OF THE SELLER


 


The Seller represents and warrants to the
Purchasers as follows:


 


3.1          Corporate Existence and Power;
Subsidiaries. The Seller and its Subsidiaries are corporations
duly incorporated, validly existing and in good standing under the laws of the
state in which they are incorporated, and have all corporate powers required to
carry on their business as now conducted. The Seller and its Subsidiaries are
duly qualified to do business as a foreign corporation and are in good standing
in each jurisdiction where the character of the property owned or leased by
them or the nature of their activities makes such qualification


 

















 


necessary, except for those jurisdictions where the failure to be so
qualified would not have a Material Adverse Effect on the Seller or any of its
Subsidiaries. For purposes of this Agreement, the term “Material Adverse Effect”
means, with respect to any person or entity, a material adverse effect on its
and its Subsidiaries’ condition (financial or otherwise), business, properties,
assets, liabilities (including contingent liabilities), results of operations
or current prospects, taken as a whole. True and complete copies of the
Seller’s Articles of Incorporation, as amended (the “Articles”), and Bylaws, as
amended (the “Bylaws”), as currently in effect and as will be in effect on
the Closing Date (collectively, the “Articles and Bylaws”), have previously
been provided to the Purchasers. For purposes of this Agreement, the term “Subsidiary”
or “Subsidiaries”
means, with respect to any entity, any corporation or other organization of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by such entity or of which such
entity is a partner or is, directly or indirectly, the beneficial owner of 50%
or more of any class of equity securities or equivalent profit participation
interests. The Seller has no Subsidiaries other than NeoRx Manufacturing Group,
a Washington corporation, which is wholly-owned by the Seller.


 


3.2          Corporate
Authorization. The execution, delivery and performance by the Seller of
this Agreement, and the Warrants, the Escrow Agreement (as defined below), the
Certificate of Designation, the Investor Rights Agreement, and each of the
other documents executed pursuant to and in connection with this Agreement
(collectively, the “Related Documents”), and the consummation
of the transactions contemplated hereby and thereby (including, but not limited
to, the sale and delivery of the Preferred Stock and the Warrants, and the
subsequent issuance of the Conversion Shares upon conversion of the Preferred
Stock and the Warrant Shares upon exercise of the Warrants) have been duly
authorized, and no additional corporate or shareholder action is required for
the approval thereof. The Conversion Shares and Warrant Shares have been duly
reserved for issuance by the Seller. This Agreement and the Related Documents
have been or, to the extent contemplated hereby or by the Related Documents,
will be duly executed and delivered and constitute the legal, valid and binding
agreement of the Seller, enforceable against the Seller in accordance with
their terms, except as may be limited by bankruptcy, reorganization,
insolvency, moratorium and similar laws of general application relating to or
affecting the enforcement of rights of creditors, and except as enforceability
of its obligations hereunder are subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).


 


3.3          Charter,
Bylaws and Corporate Records. Except as set forth in Schedule 3.3,
the minute books of the Seller and its Subsidiaries contain complete and
accurate records of all meetings and other corporate actions of the board of
directors, committees of the board of directors, incorporators and shareholders
of the Seller and its Subsidiaries to the date hereof. All material corporate
decisions and actions have been validly made or taken. All corporate books,
including without limitation the share transfer register, comply with
applicable laws and regulations and have been regularly updated. Such books
fully and correctly reflect all the decisions of the shareholders.


 

















 


3.4          Governmental
Authorization. Except as otherwise specifically contemplated in this
Agreement and the Related Documents, and except for: (i) the filings referenced
in Section 5.11; (ii) the filing of the Certificate of Designation; (iii)
the filing of a Form D with respect to the Preferred Stock and Warrants under
Regulation D under the Securities Act; (iv) the filing of the Registration Statement
with the Commission; (v) the application(s) to each trading market for the
listing of the Conversion Shares and the Warrant Shares for trading thereon;
and (vi) any filings required under state securities laws that are permitted to
be made after the date hereof, the execution, delivery and performance by the
Seller of this Agreement and the Related Documents, and the consummation of the
transactions contemplated hereby and thereby (including, but not limited to,
the sale and delivery of the Preferred Stock and Warrants and the subsequent
issuance of the Conversion Shares and Warrant Shares upon conversion of the
Preferred Stock or otherwise or exercise of the Warrants, as applicable) by the
Seller require no action (including, without limitation, shareholder approval)
by or in respect of, or filing with, any governmental or regulatory body,
agency, official or authority (including, without limitation, Nasdaq).


 


3.5          Non-Contravention.
The execution, delivery and performance by the Seller of this Agreement and the
Related Documents, and the consummation by the Seller of the transactions
contemplated hereby and thereby (including the issuance of the Conversion
Shares and the Warrant Shares) do not and will not (a) contravene or conflict
with the Articles (as amended by the Certificate of Designation) and Bylaws of
the Seller and its Subsidiaries or any material agreement to which the Seller
is a party or by which it is bound; (b) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to the Seller or its
Subsidiaries; (c) constitute a default (or would constitute a default with
notice or lapse of time or both) under or give rise to a right of termination,
cancellation or acceleration or loss of any benefit under any material
agreement, contract or other instrument binding upon the Seller or its
Subsidiaries or under any material license, franchise, permit or other similar
authorization held by the Seller or its Subsidiaries; or (d) result in the
creation or imposition of any Lien (as defined below) on any asset of the
Seller or its Subsidiaries. For purposes of this Agreement, the term “Lien”
means, with respect to any asset, any mortgage, lien, pledge, charge, security
interest, claim or encumbrance of any kind in respect of such asset.


 


3.6          SEC
Documents. The Seller is obligated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) to file reports pursuant to
Sections 13 or 15(d) thereof (all such reports filed or required to be filed by
the Seller, including all exhibits thereto or incorporated therein by
reference, and all documents filed by the Seller under the Securities Act
hereinafter called the “SEC Documents”). The Seller has filed all
reports or other documents required to be filed under the Exchange Act. All SEC
Documents filed by the Seller (i) were prepared in all material respects in
accordance with the requirements of the Exchange Act and (ii) did not at the
time they were filed (or, if amended or superseded by a filing prior to the
date hereof, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Seller has
previously delivered or made available to the Purchaser a correct and complete
copy of each


 

















 


proxy statement and report which the Seller filed with the Securities
and Exchange Commission (the “SEC” or the “Commission”) under the
Exchange Act for any period ending on or after December 31, 2002 (the
“Recent Reports”).
None of the information about the Seller or any of its Subsidiaries which has
been disclosed to the Purchasers herein or in the course of discussions and
negotiations with respect hereto which is not disclosed in the Recent Reports
is or was required to be so disclosed, and no material non-public information
has been disclosed to the Purchasers.


 


3.7          Financial
Statements. Each of the Seller’s (i) audited consolidated balance sheet
and related consolidated statements of income, cash flows and changes in
shareholders’ equity (including the related notes) as of and for the years
ended December 31, 2002 and December 31, 2001 and (ii) the Seller’s
unaudited consolidated balance sheet and related consolidated statements of
income, cash flows and changes in shareholders’ equity as of and for the nine
months ended September 30, 2003, as contained in the Recent Reports (both
of (i) and (ii), collectively, the “Seller’s Financial Statements” or the “Financial
Statements”) (x) present fairly in all material respects the
financial position of the Seller and its Subsidiaries on a consolidated basis
as of the dates thereof and the results of operations, cash flows and
shareholders’ equity as of and for each of the periods then ended, except that
the unaudited financial statements are subject to normal year-end adjustments,
and (y) were prepared in accordance with United States generally accepted
accounting principals (“GAAP”) applied on a consistent basis
throughout the periods involved, in each case, except as otherwise indicated in
the notes thereto.


 


3.8          Compliance
with Law. The Seller and its Subsidiaries are in compliance and have
conducted their business so as to comply with all laws, rules and regulations,
judgments, decrees or orders of any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, domestic
or foreign, applicable to their operations, the violation of which would
reasonably be expected to have a Material Adverse Effect. There are no
judgments or orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration), including any
such actions relating to affirmative action claims or claims of discrimination,
against the Seller or its Subsidiaries or against any of their properties or
businesses, the impact of which would reasonably be expected to have a Material
Adverse Effect.


 


3.9          No
Defaults. The Seller and its Subsidiaries are not, nor, to their
knowledge, would they be with the passage of time, giving of notice, or both,
(i) in violation of any provision of their Articles and Bylaws (ii) in default
or violation of any term, condition or provision of (A) any judgment, decree,
order, injunction or stipulation applicable to the Seller or its Subsidiaries
or (B) any material agreement, note, mortgage, indenture, contract, lease or instrument,
permit, concession, franchise or license to which the Seller or its
Subsidiaries are a party or by which the Seller or its Subsidiaries or their
properties or assets may be bound, and no circumstances exist which would
entitle any party to any material agreement, note, mortgage, indenture,
contract, lease or instrument to which such Seller or its Subsidiaries are a
party, to terminate such as a result of such Seller or its Subsidiaries, having
failed to meet any material provision thereof


 

















 


including, but not limited to, meeting any applicable milestone under
any material agreement or contract.


 


3.10        Litigation.
Except as disclosed in the Recent Reports or on Schedule 3.10,
there is no action, suit, proceeding, judgment, claim or investigation pending
or, to the best knowledge of the Seller, threatened against the Seller and its
Subsidiaries which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Seller and its Subsidiaries
taken as a whole or which in any manner challenges or seeks to prevent, enjoin,
alter or materially delay any of the transactions contemplated hereby, and to
the knowledge of the Seller or its Subsidiaries, there is no reasonable basis
for the assertion of any of the foregoing. 
There are no claims or complaints existing or, to the knowledge of the
Seller or its Subsidiaries, threatened for product liability in respect of any
product of the Seller or its Subsidiaries, and the Seller and its Subsidiaries
are not aware of any reasonable basis for the assertion of any such claim.


 


3.11        Absence
of Certain Changes. Since December 31, 2002, the Seller has
conducted its business only in the ordinary course and there has not occurred,
except as set forth in the Recent Reports or any exhibit thereto or
incorporated by reference therein:


 


(a)           Any event that would reasonably be expected
to have a Material Adverse Effect on the Seller and its Subsidiaries;


 


(b)           Any amendments or changes in the Articles or
Bylaws of the Seller and its Subsidiaries, other than on account of the filing
of the Certificate of Designation;


 


(c)           Any damage, destruction or loss, whether or
not covered by insurance, that would, individually or in the aggregate, have or
would reasonably be expected to have, a Material Adverse Effect on the Seller
and its Subsidiaries;


 


(d)           Except as set forth on Schedule 3.11,
any


 


(i)            incurrence, assumption
or guarantee by the Seller or its Subsidiaries of any debt for borrowed money
other than for equipment leases;


 


(ii)           issuance or sale of any
securities convertible into or exchangeable for securities of the Seller other
than to directors, employees and consultants pursuant to existing equity
compensation or stock purchase plans of the Seller;


 

















 


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


 


(iv)          issuance or sale of any
stock, bond or other corporate security;


 


(v)           discharge or
satisfaction of any material Lien, other than current liabilities incurred
since December 31, 2001 in the ordinary course of business;


 


(vi)          declaration or making
any payment or distribution to shareholders or purchase or redemption of any
share of its capital stock or other security other than pursuant to existing
equity compensation or stock purchase plans of the Seller and other than the
payment of mandatory dividends on the Seller’s $2.4375 Convertible Exchangeable
Preferred Stock, Series 1 (the “Series 1 Stock”);


 


(vii)         sale, assignment or
transfer of any of its intangible assets except in the ordinary course of
business, or cancellation of any debt or claim except in the ordinary course of
business;


 


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


 


(ix)           material change in
officer compensation except in the ordinary course of business and consistent
with past practices; or


 


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


 


(e)           Any creation, sufferance or assumption by
the Seller or any of its Subsidiaries of any Lien on any asset (other than
Liens in connection with equipment leases and working capital lines of credit
set forth on Schedule 3.11) or any making of any loan, advance or
capital contribution to or investment in any Person in an aggregate amount
which exceeds $25,000 outstanding at any time;


 


(f)            Any entry into, amendment of,
relinquishment, termination or non-renewal by the Seller or its Subsidiaries of
any material contract, license, lease, transaction, commitment or other right
or obligation, other than in the ordinary course of business; or


 

















 


(g)           Any transfer or grant of a right with
respect to the trademarks, trade names, service marks, trade secrets,
copyrights or other intellectual property rights owned or licensed by the
Seller or its Subsidiaries, except as among the Seller and its Subsidiaries.


 


3.12        No
Undisclosed Liabilities. Except as set forth in the Recent Reports, and
except for liabilities and obligations incurred in the ordinary course of
business since December 31, 2002, as of the date hereof, (i) the Seller
and its Subsidiaries do not have any material liabilities or obligations
(absolute, accrued, contingent or otherwise) which, and (ii) there has not been
any aspect of the prior or current conduct of the business of the Seller or its
Subsidiaries which may form the basis for any material claim by any third party
which if asserted could result in any such material liabilities or obligations
which, are not fully reflected, reserved against or disclosed in the balance
sheet of the Seller as at December 31, 2002.


 


3.13        Taxes.
All tax returns and tax reports required to be filed with respect to the
income, operations, business or assets of the Seller and its Subsidiaries have
been timely filed (or appropriate extensions have been obtained) with the appropriate
governmental agencies in all jurisdictions in which such returns and reports
are required to be filed, and all of the foregoing as filed are correct and
complete and, in all material respects, reflect accurately all liability for
taxes of the Seller and its Subsidiaries for the periods to which such returns
relate, and all amounts shown as owing thereon have been paid. All income,
profits, franchise, sales, use, value added, occupancy, property, excise,
payroll, withholding, FICA, FUTA and other taxes (including interest and
penalties), if any, collectible or payable by the Seller and its Subsidiaries
or relating to or chargeable against any of its material assets, revenues or
income or relating to any employee, independent contractor, creditor, shareholder
or other third party through the Closing Date, were fully collected and paid by
such date if due by such date or provided for by adequate reserves in the
Financial Statements as of and for the periods ended December 31, 2002
(other than taxes accruing after such date) and all similar items due through
the Closing Date will have been fully paid by that date or provided for by
adequate reserves, whether or not any such taxes were reported or reflected in
any tax returns or filings. No taxation authority has sought to audit the
records of the Seller or any of its Subsidiaries for the purpose of verifying
or disputing any tax returns, reports or related information and disclosures
provided to such taxation authority, or for the Seller’s or any of its Subsidiaries’
alleged failure to provide any such tax returns, reports or related information
and disclosure. Except as set forth in Schedule 3.13, no material claims
or deficiencies have been asserted against or inquiries raised with the Seller
or any of its Subsidiaries with respect to any taxes or other governmental
charges or levies which have not been paid or otherwise satisfied, including
claims that, or inquiries whether, the Seller or any of its Subsidiaries has
not filed a tax return that it was required to file, and, to the best of the
Seller’s knowledge, there exists no reasonable basis for the making of any such
claims or inquiries. Neither the Seller nor any of its Subsidiaries has waived
any restrictions on assessment or collection of taxes or consented to the
extension of any statute of limitations relating to taxation.


 

















 


3.14        Interests
of Officers, Directors and Other Affiliates. The description of any
interest held, directly or indirectly, by any officer, director or other
Affiliate of the Seller or its Subsidiaries (other than the interests of the
Seller and its Subsidiaries in such assets) in any property, real or personal,
tangible or intangible, used in or pertaining to Seller’s business, including
any interest in the Intellectual Property (as defined in Section 3.15
hereof), as set forth in the Recent Reports or any exhibit thereto or
incorporated by reference therein, is true and complete in all material
respects, and no officer, director or other Affiliate of the Seller or its Subsidiaries
has any interest in any property, real or personal, tangible or intangible,
used in or pertaining to the Seller’s business, including the Seller’s
Intellectual Property, other than as set forth in the Recent Reports or any
exhibit thereto or incorporated by reference therein.


 


3.15        Intellectual
Property. Other than as set forth in the Recent Reports or any exhibit
thereto or incorporated by reference therein:


 


(a)           the Seller or a Subsidiary thereof has the
right to use or owns all foreign and domestic patents, patent rights,
trademarks, service marks, trade names, brands and copyrights (whether or not
registered and, if applicable, including pending applications for registration)
that it uses for the conduct of the business now being conducted by the Seller
and its Subsidiaries (collectively, the “Intellectual Property”), in each case the
lack of which would be reasonably expected to have a Material Adverse Effect.
To the Seller’s knowledge and except as identified on Schedule 3.15, the
interest of the Seller or a Subsidiary in the Intellectual Property is not
subject to any Liens or rights of others;


 


(b)           no royalties or fees (license or otherwise)
are payable by the Seller or its Subsidiaries to any Person by reason of the
ownership or use of any of the Intellectual Property except as set forth on Schedule 3.15;


 


(c)           there have been no claims made against the
Seller or its Subsidiaries asserting the invalidity, abuse, misuse, or
unenforceability of any of the Intellectual Property, and, to its knowledge, there
are no reasonable grounds for any such claims;


 


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


 


(e)           neither the Seller nor its Subsidiaries have
received notice that it is in conflict with or infringing upon the asserted
rights of others in connection with the Intellectual Property.


 


3.16        Restrictions
on Business Activities. Other than as set forth in the Recent Reports
or any exhibit thereto or incorporated by reference therein, there is no
agreement, judgment, injunction, order or decree binding upon the Seller or its
Subsidiaries which has or could


 

















 


reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Seller or its Subsidiaries, any
acquisition of property by the Seller or its Subsidiaries or the conduct of
business by the Seller or its Subsidiaries as currently conducted or as
currently proposed to be conducted by the Seller.


 


3.17        Preemptive
Rights. None of the shareholders of the Seller possess any preemptive
rights in respect of the Preferred Stock or the Warrants, or the Conversion
Shares or the Warrant Shares to be issued to the Purchasers upon conversion of
the Preferred Stock or exercise of the Warrants, as applicable.


 


3.18        Insurance.
The insurance policies providing insurance coverage to the Seller or its
Subsidiaries including for product liability are adequate for the business
conducted by the Seller and its Subsidiaries (currently limited to the testing
phase) and are sufficient for compliance by the Seller and its Subsidiaries
with all requirements of law and all material agreements to which the Seller or
its Subsidiaries are a party or by which any of their assets are bound. All of
such policies are in full force and effect and are valid and enforceable in
accordance with their terms, and the Seller and its Subsidiaries have complied
with all material terms and conditions of such policies, including premium
payments. None of the insurance carriers has indicated to the Seller or its
Subsidiaries an intention to cancel any such policy.


 


3.19        Subsidiaries
and Investments. Except as set forth in the Recent Reports or any
exhibit thereto or incorporated by reference therein, the Seller has no
Investments. For purposes of this Agreement, the term “Investments” shall mean,
with respect to any Person, all advances, loans or extensions of credit to any
other Person, all purchases or commitments to purchase any stock, bonds, notes,
debentures or other securities of any other Person, and any other investment in
any other Person, including partnerships or joint ventures (whether by capital
contribution or otherwise) or other similar arrangement (whether written or
oral) with any Person, including but not limited to arrangements in which (i)
the Person shares profits and losses, (ii) any such other Person has the right
to obligate or bind the Person to any third party, or (iii) the Person may be
wholly or partially liable for the debts or obligations of such partnership,
joint venture or other arrangement.


 


3.20        Capitalization.
(a) The authorized capital stock of the Seller consists of 60,000,000 shares of
common stock, $0.02 par value per share, of which 27,960,632 shares are issued
and outstanding as of the date hereof, and 3,000,000 shares of preferred stock,
issuable in one or more classes or series, with such relative rights and
preferences as the Board of Directors may determine, none of which has been
authorized for issuance other than as follows:


 


(i)            1,120,000 shares have been
designated $2.4375 Convertible Exchangeable Preferred Stock, Series 1, $0.02
par value, of which 205,340 shares are outstanding and as to which there is no
obligation (including any contingent obligation) to issue any additional such
shares;


 

















 


(ii)         600,000 shares have been designated
Series A Junior Participating Preferred Stock, $0.02 pare value, of which no
shares are outstanding and as to which there is no obligation (including any
contingent obligation) to issue any such shares, other than in accordance with
the Rights Agreement between Seller and First Interstate Bank of Washington,
NA, as Rights Agent, dated as of April 10, 1996, as amended (the “Rights Plan”);
and


 


(iii)        A number of shares equal to the number
set forth on Schedule 1 hereto will be, immediately prior to the
Closing of this Agreement, designated as the Series B Convertible Preferred
Stock, $0.02 par value, of which no shares are issued and outstanding
immediately prior to the execution of this Agreement.


 


(b)           All shares of the Seller’s issued and
outstanding capital stock have been duly authorized, are validly issued and
outstanding, and are fully paid and nonassessable. No securities issued by the
Seller from the date of its incorporation to the date hereof were issued in
violation of any statutory or common law preemptive rights. There are no
dividends which have accrued or been declared but are unpaid on the capital
stock of the Seller. All taxes required to be paid by Seller in connection with
the issuance and any transfers of the Seller’s capital stock have been paid.
All permits or authorizations required to be obtained from or registrations
required to be effected with any Person in connection with any and all
issuances of securities of the Seller from the date of the Seller’s
incorporation to the date hereof have been obtained or effected, and all
securities of the Seller have been issued and are held in accordance with the
provisions of all applicable securities or other laws.


 


3.21        Options,
Warrants, Rights. Except as set forth in Section 3.20 or on Schedule 3.21,
there are no outstanding (a) securities, notes or instruments convertible into
or exercisable for any of the capital stock or other equity interests of the
Seller or its Subsidiaries; (b) options, warrants, subscriptions or other
rights to acquire capital stock or other equity interests of the Seller or its
Subsidiaries; or (c) commitments, agreements or understandings of any kind,
including employee benefit arrangements, relating to the issuance or repurchase
by the Seller or its Subsidiaries of any capital stock or other equity
interests of the Seller or its Subsidiaries, any such securities or instruments
convertible or exercisable for securities or any such options, warrants or
rights. Other than the rights of the Purchasers under the Preferred Stock and
the Warrants, and except as set forth on Schedule 3.21, neither the
Seller nor the Subsidiaries have granted anti-dilution rights to any person or
entity in connection with any outstanding option, warrant, subscription or any
other instrument convertible or exercisable for the securities of the Seller or
any of its Subsidiaries. Other than the rights granted to the Purchasers under
the Investor Rights Agreement, there are no outstanding rights which permit the
holder thereof to cause the Seller or the Subsidiaries to file a registration
statement under the Securities Act or which permit the holder thereof to
include securities of the Seller or any of its Subsidiaries in a registration
statement filed by the Seller or any of its Subsidiaries under the Securities
Act, and there are no outstanding agreements or other commitments which
otherwise relate to the


 

















 


registration of any securities of the Seller or any of its Subsidiaries
for sale or distribution in any jurisdiction, except as set forth on Schedule 3.21.


 


3.22        Employees,
Employment Agreements and Employee Benefit Plans. Except as set forth
in the Recent Reports or any exhibit thereto or incorporated by reference
therein or on Schedule 3.22, there are no employment, consulting,
severance or indemnification arrangements, agreements, or understandings
between the Seller and any officer, director, consultant or employee of the
Seller or its Subsidiaries (the “Employment Agreements”). No Employment
Agreement provides for the acceleration or change in the award, grant, vesting
or determination of options, warrants, rights, severance payments, or other contingent
obligations of any nature whatsoever of the Seller or its Subsidiaries in favor
of any such parties in connection with the transactions contemplated by this
Agreement. Except as disclosed in the Recent Reports or on Schedule 3.22,
the terms of employment or engagement of all directors, officers, employees,
agents, consultants and professional advisors of the Seller and its
Subsidiaries are such that their employment or engagement may be terminated
upon not more than two weeks’ notice given at any time without liability for
payment of compensation or damages and the Seller and its Subsidiaries have not
entered into any agreement or arrangement for the management of their business
or any part thereof other than with their directors or employees.


 


3.23        Absence
of Certain Business Practices. Neither the Seller, nor any Affiliate of
the Seller, nor to the knowledge of the Seller, any agent or employee of the
Seller, any other Person acting on behalf of or associated with the Seller, or
any individual related to any of the foregoing Persons, acting alone or
together, has: (a) received, directly or indirectly, any rebates, payments,
commissions, promotional allowances or any other economic benefits, regardless
of their nature or type, from any customer, supplier, trading company, shipping
company, governmental employee or other Person with whom the Seller has done
business directly or indirectly; or (b) directly or indirectly, given or agreed
to give any gift or similar benefit to any customer, supplier, trading company,
shipping company, governmental employee or other Person who is or may be in a
position to help or hinder the business of the Seller (or assist the Seller in
connection with any actual or proposed transaction) which (i) may subject the
Seller to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, may have had an
adverse effect on the Seller or (iii) if not continued in the future, may
adversely affect the assets, business, operations or prospects of the Seller or
subject the Seller to suit or penalty in any private or governmental litigation
or proceeding.


 


3.24        Products
and Services. To the knowledge of the Seller and except as disclosed in
the Recent Reports or any exhibit thereto or incorporated by reference therein,
there exists no set of facts (i) which could furnish a basis for the
withdrawal, suspension or cancellation of any registration, license, permit or
other governmental approval or consent of any governmental or regulatory agency
with respect to any product or service developed or provided by the Seller or
its Subsidiaries, (ii) which could furnish a basis for the withdrawal,
suspension or cancellation by order of any state, federal or foreign court of
law of any product or service, or (iii) which would be reasonably expected to
have a Material Adverse Effect on the continued operation of any


 

















 


facility of the Seller or its Subsidiaries or which could otherwise
cause the Seller or its Subsidiaries to withdraw, suspend or cancel any such
product or service from the market or to change the marketing classification of
any such product or service. Each product or service provided by Seller or its
Subsidiaries has been provided in accordance in all material respects with the
specifications under which such product or service normally is and has been
provided and the provisions of all applicable laws or regulations.


 


3.25        Environmental
Matters. None of the premises or any properties owned, occupied or
leased by the Seller or its Subsidiaries (the “Premises”) has been used by
the Seller or the Subsidiaries or, to the Seller’s knowledge, by any other
Person, to manufacture, treat, store, or dispose of any substance that has been
designated to be a “hazardous substance” under applicable
Environmental Laws (hereinafter defined) (“Hazardous Substances”) in violation of any
applicable Environmental Laws, violation of which would reasonable be expected
to have a Material Adverse Effect. To its knowledge, the Seller and its
Subsidiaries have not disposed of, discharged, emitted or released any
Hazardous Substances which would require, under applicable Environmental Laws,
remediation, investigation or similar response activity. Except as set forth in
the Recent Reports or Schedule 3.25, no Hazardous Substances are present
as a result of the actions of the Seller or its Subsidiaries or, to the
Seller’s knowledge, any other Person, in, on or under the Premises which would
give rise to any liability or clean-up obligations of the Seller or its
Subsidiaries under applicable Environmental Laws, the impact of which would
reasonably be expected to have a Material Adverse Effect. The Seller and, to
the Seller’s knowledge, any other Person for whose conduct it may be
responsible pursuant to an agreement or by operation of law, are in compliance
with all laws, regulations and other federal, state or local governmental
requirements, and all applicable judgments, orders, writs, notices, decrees,
permits, licenses, approvals, consents or injunctions in effect on the date of
this Agreement relating to the generation, management, handling,
transportation, treatment, disposal, storage, delivery, discharge, release or
emission of any Hazardous Substance (the “Environmental Laws”) the noncompliance
with which would reasonably be expected to have a Material Adverse Effect.
Neither the Seller nor, to the Seller’s knowledge, any other Person for whose
conduct it may be responsible pursuant to an agreement or by operation of law
has received any written complaint, notice, order, or citation of any actual,
threatened or alleged noncompliance with any of the Environmental Laws, the
violation of which would reasonably be expected to have a Material Adverse
Effect, and there is no proceeding, suit or investigation pending or, to the
Seller’s knowledge, threatened against the Seller or, to the Seller’s
knowledge, any such Person with respect to any violation or alleged violation
of such Environmental Laws, and, to the knowledge of the Seller, there is no
basis for the institution of any such proceeding, suit or investigation.


 


3.26        Licenses;
Compliance With FDA and Other Regulatory Requirements.


 


(a)           General.
Except as disclosed in the Recent Reports or any exhibit thereto or
incorporated by reference therein, the Seller holds all material
authorizations, consents, approvals, franchises, licenses and permits required
under applicable law or regulation for the operation of the business of the
Seller and its Subsidiaries as presently operated (the


 

















 


“Governmental
Authorizations”). All the Governmental Authorizations have been duly
issued or obtained and are in full force and effect, and the Seller and its
Subsidiaries are in material compliance with the terms of all the Governmental
Authorizations. The Seller and its Subsidiaries have not engaged in any
activity that, to their knowledge, would cause revocation or suspension of any
such Governmental Authorizations. The Seller has no knowledge of any facts
which could reasonably be expected to cause the Seller to believe that the
Governmental Authorizations will not be renewed by the appropriate governmental
authorities in the ordinary course. Neither the execution, delivery nor
performance of this Agreement shall adversely affect the status of any of the
Governmental Authorizations.


 


(b)           Regulatory
Authorities. Without limiting the generality of the representations and
warranties made in paragraph (a) above, the Seller represents and warrants that
(i) the Seller and each of its Subsidiaries is in material compliance with all
applicable provisions of the United States Federal Food, Drug, and Cosmetic Act
and the rules and regulations promulgated thereunder (the “FDC Act”) and equivalent
laws, rules and regulations in jurisdictions outside the United States in which
the Seller or its Subsidiaries do business, (ii) its products and those of each
of its Subsidiaries that are in the Seller’s control are not adulterated or
misbranded and are in lawful distribution, (iii) all of the products marketed
by and within the control of the Seller comply in all material respects with
any conditions of approval and the terms of the application by the Seller to
the appropriate Regulatory Authorities, (iv) to the knowledge of the Seller or
its Subsidiaries, no Regulatory Authority has initiated legal action with
respect to the manufacturing of the Seller’s products, such as seizures or
required recalls, and Seller uses best efforts to comply with applicable good
manufacturing practice regulations, (v) its products are labeled and promoted
by the Seller and its representatives in substantial compliance with the
applicable terms of the marketing applications submitted by the Seller to the
Regulatory Authorities and the provisions of the FDC Act and foreign
equivalents, (vi) all adverse events that were known to and required to be
reported by Seller to the Regulatory Authorities have been reported to the
Regulatory Authorities in a timely manner, (vii) neither the Seller nor any of
its Subsidiaries is, to their knowledge, employing or utilizing the services of
any individual who has been debarred under the FDC Act or foreign equivalents,
(viii) all stability studies required to be performed for products distributed
by the Seller or any of its Subsidiaries have been completed or are ongoing in
material compliance with the applicable Regulatory Authority requirements, (ix)
any products exported by the Seller or any of its Subsidiaries have been
exported in compliance with the FDC Act and (x) the Seller and its Subsidiaries
is in compliance in all material respects with all applicable provisions of the
Controlled Substances Act.  For purposes
of this Article 3.26, “Regulatory Authority” means any
governmental authority in a country or region that regulates the manufacture or
sale of Seller’s products, including, but not limited to, the United States
Food and Drug Administration.


 


3.27        Brokers.
No broker, finder or investment banker is entitled to any brokerage, finder’s
or other fee or commission in connection with the transactions contemplated by
this Agreement, based upon any arrangement made by or on behalf of the Seller,
which would make any Purchaser liable for any fees or commissions.


 

















 


3.28        Securities
Laws. Neither the Seller nor its Subsidiaries nor any agent acting on
behalf of the Seller or its Subsidiaries has taken or will take any action
which might cause this Agreement or the Preferred Stock or Warrants to violate
the Securities Act or the Exchange Act or any rules or regulations promulgated
thereunder, as in effect on the Closing Date. Assuming that all of the
representations and warranties of the Purchasers set forth in Article IV
are true, all offers and sales of capital stock, securities and notes of the
Seller were conducted and completed in compliance with the Securities Act. All
shares of capital stock and other securities issued by the Seller and its
Subsidiaries prior to the date hereof have been issued in transactions that
were either registered offerings or were exempt from the registration
requirements under the Securities Act and all applicable state securities or “blue sky”
laws and in compliance with all applicable corporate laws.


 


3.29        Disclosure.
No representation or warranty made by the Seller in this Agreement or the
Related Documents or in any Schedule or Exhibit hereto or thereto,
contains or will contain any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements or facts contained
herein or therein not misleading in light of the circumstances under which they
were furnished.


 


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


 


ARTICLE IV - REPRESENTATIONS AND
WARRANTIES OF THE

PURCHASERS


 


Each Purchaser, for itself only, hereby
severally and not jointly, represents and warrants to the Seller as follows:


 


4.1          Existence
and Power. The Purchaser, if not a natural person, is duly organized,
validly existing and in good standing under the laws of the jurisdiction of
such Purchaser’s organization. Such Purchaser has all powers required to bind
it to the representations, warranties and covenants set forth herein.


 


4.2          Authorization.
The execution, delivery and performance by the Purchaser of this Agreement, the
Related Documents to which such Purchaser is a party, and the consummation by
the Purchaser of the transactions contemplated hereby and thereby have been
duly authorized,


 

















 


and no additional action is required for the approval of this Agreement
or the Related Documents. This Agreement and the Related Documents to which the
Purchaser is a party have been or, to the extent contemplated hereby, will be
duly executed and delivered and constitute valid and binding agreements of the
Purchaser, enforceable against such Purchaser in accordance with their terms,
except as may be limited by bankruptcy, reorganization, insolvency, moratorium
and similar laws of general application relating to or affecting the
enforcement of rights of creditors and except that enforceability of their
obligations thereunder are subject to general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).


 


4.3          Investment.
The Purchaser is acquiring the securities described herein for its own account
and not with a view to, or for sale in connection with, any distribution
thereof, nor with the intention of distributing or reselling the same,
provided, however, that by making the representation herein, the Purchaser does
not agree to hold any of the securities for any minimum or other specific term
and reserves the right to dispose of the securities at any time in accordance
with or pursuant to a registration statement or an exemption under the Securities
Act. The Purchaser is aware that none of the securities has been registered
under the Securities Act or under applicable state securities or blue sky laws.
The Purchaser is an “Accredited Investor” as such term is
defined in Rule 501 of Regulation D, as promulgated under the Securities Act.


 


4.4          Reliance
on Exemptions. The Purchaser understands that the shares of Preferred
Stock and Warrants are being offered and sold to such Purchaser in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Seller is relying upon the truth
and accuracy of, and such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the securities.


 


4.5          Experience
of the Purchaser. The Purchaser, either alone or together with its
representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated the merits
and risks of such investment. The Purchaser is able to bear the economic risk
of an investment in the securities and, at the present time, is able to afford
a complete loss of such investment.


 


4.6          General
Solicitation. The Purchaser is not purchasing the securities as a
result of any advertisement, article, notice or other communication regarding
the securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.


 

















 


ARTICLE V - COVENANTS OF THE SELLER AND
PURCHASERS


 


5.1          Insurance.
The Seller and its Subsidiaries shall, from time to time upon the written
request of any Purchaser, promptly furnish or cause to be furnished to the
Purchaser evidence, in form and substance reasonably satisfactory to the
Purchaser, of the maintenance of all insurance maintained by it for loss or
damage by fire and other hazards, damage or injury to persons and property,
including from product liability, and under workmen’s compensation laws.


 


5.2          Reporting
Obligations. So long as any of the Preferred Stock is outstanding, and
so long as any Warrant has not been exercised and has not expired by its terms,
the Seller shall furnish to the Purchasers, or any other persons who hold any
of the Preferred Stock or Warrants (provided that such subsequent holders give
notice to the Seller that they hold Preferred Stock or Warrants and furnish
their addresses) promptly upon their becoming available one copy of (A) each
report, notice or proxy statement sent by the Seller to its shareholders
generally, and of each regular or periodic report (pursuant to the Exchange
Act) and (B) any registration statement, prospectus or written communication
pursuant to the Securities Act relating to the issuance or registration of Conversion
Shares and the Warrant Shares and filed by the Seller with the Commission or
any securities market or exchange on which shares of Common Stock are listed;
provided, however, that the Company shall have no obligation to deliver
periodic reports (pursuant to the Exchange Act) under this Section 5.2 to
the extent such reports are publicly available.


 


The Purchasers are hereby authorized to
deliver a copy of any financial statement or any other information relating to
the business, operations or financial condition of the Seller which may have
been furnished to the Purchasers hereunder, to any regulatory body or agency
having jurisdiction over the Purchasers or to any Person which shall, or shall
have right or obligation to succeed to all or any part of the Purchasers’
interest in the Seller or this Agreement.


 


5.3          Investigation.
The representations, warranties, covenants and agreements set forth in this
Agreement shall not be affected or diminished in any way by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties, covenants and agreements were made.
Without limiting the generality of the foregoing, the inability or failure of
the Purchasers to discover any breach, default or misrepresentation by the
Seller under this Agreement or the Related Documents (including under any
certificate furnished pursuant to this Agreement), notwithstanding the exercise
by the Purchasers or other holders of the Preferred Stock of their rights
hereunder to conduct an investigation shall not in any way diminish any
liability hereunder.


 


5.4          Further
Assurances. The Seller shall, at its cost and expense, upon written
request of the Purchasers, duly execute and deliver, or cause to be duly
executed and delivered, to the Purchasers such further instruments and do and
cause to be done such further acts as may be necessary, advisable or proper, in
the absolute discretion of the Purchasers, to carry out more effectually the
provisions and purposes of this Agreement. The parties shall use their best
efforts to timely satisfy each of the conditions described in Article VI
of this Agreement.


 

















 


5.5          Use
of Proceeds. The Seller covenants and agrees that the proceeds of the
Purchase Price shall be used by the Seller for working capital and general
corporate purposes; under no circumstances shall any portion of the proceeds be
applied to:


 


(i)            accelerated repayment
of debt existing on the date hereof;


 


(ii)           the payment of
dividends or other distributions on any capital stock of the Seller other than
the Preferred Stock and mandatory dividends payable on the Series 1 Stock;


 


(iii)          increased executive
compensation or loans to officers, employees, shareholders or directors, unless
approved by a disinterested majority of the Board of Directors;


 


(iv)          the purchase of debt or
equity securities of any person, including, without limitation, the Seller and
its Subsidiaries, except in connection with investment of excess cash in high
quality (A1/P1 or better) money market instruments having maturities of one
year or less; or


 


(v)           any expenditure not
directly related to the business of the Seller.


 


5.6          Corporate
Existence. So long as a Purchaser owns Preferred Stock, Warrants,
Conversion Shares or Warrant Shares, the Seller shall preserve and maintain and
cause its Subsidiaries to preserve and maintain their corporate existence and
good standing in the jurisdiction of their incorporation and the rights,
privileges and franchises of the Seller and its Subsidiaries (except, in each
case, in the event of a merger or consolidation in which the Seller or its
Subsidiaries, as applicable, is not the surviving entity) in each case where
failure to so preserve or maintain would reasonably be expected to have a
Material Adverse Effect on the financial condition, business or operations of
the Seller and its Subsidiaries taken as a whole.


 


5.7          Licenses.
The Seller shall, and shall cause its Subsidiaries to, maintain at all times
all material licenses or permits necessary to the conduct of its business and
as required by any governmental agency or instrumentality thereof, including
without limitation all FDA clearances and approvals.


 


5.8          Like
Treatment of Purchasers and Holders. 
Neither the Seller nor any of its affiliates shall, directly or
indirectly, pay or cause to be paid any consideration (immediate or
contingent), whether by way of interest, fee, payment for redemption,
conversion or exercise of the Securities, or otherwise, to any Purchaser or
holder of Securities, for or as an inducement to, or in connection with the
solicitation of, any consent, waiver or amendment to any terms or


 

















 


provisions of this Agreement or the Related Documents, unless such
consideration is required to be paid to all Purchasers or holders of Securities
bound by such consent, waiver or amendment. 
The Seller shall not, directly or indirectly, redeem any Securities
unless such offer of redemption is made pro rata to all Purchasers or holders
of Securities, as the case may be, on identical terms.


 


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


 


5.10        Perform
Covenants. The Seller shall (a) make full and timely payment of any and
all payments on the Preferred Stock, and all other obligations of the Seller to
the Purchasers in connection therewith, whether now existing or hereafter
arising, and (b) duly comply with all the terms and covenants contained herein
and in each of the instruments and documents given to the Purchasers in
connection with or pursuant to this Agreement, all at the times and places and
in the manner set forth herein or therein.


 


5.11        Additional
Covenants.


 


(a)           Except for transactions approved by a
majority of the disinterested directors of the Board of Directors, neither the
Seller nor any of its Subsidiaries shall enter into any transaction with any
director, officer, employee or holder of more than 5% of the outstanding
capital stock of any class or series of capital stock of the Seller or any of
its Subsidiaries, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person, is a director, officer, trustee, partner or holder
of more than 5% of the outstanding capital stock thereof, with the exception of
transactions which are consummated upon terms that are no less favorable than
would be available if such transaction had been effected at arms-length, in the
reasonable judgment of the Board of Directors.


 


(b)           The Seller shall timely prepare and file
with the Securities and Exchange Commission the form of notice of the sale of
securities pursuant to the requirements of Regulation D regarding the sale of
the Preferred Stock under this Agreement.


 


(c)           The Seller shall timely prepare and file
such applications, consents to service of process (but not including a general
consent to service of process) and similar documents and


 

















 


take such other steps and perform such further acts as shall be
required by the state securities law requirements of each jurisdiction where a
Purchaser resides as indicated on Schedule 1 with respect to the
sale of the Preferred Stock and Warrants under this Agreement.


 


(d)           Seller shall submit to Nasdaq an application
for listing or qualification of the Conversion Shares for trading or quotation
thereon in the time and manner required thereby, but, in any case, prior to the
Closing Date.


 


5.12        Securities
Laws Disclosure; Publicity. The Seller shall (i) on or promptly after
the Closing Date, issue a press release acceptable to BayStar Capital II, L.P.
disclosing the transactions contemplated hereby, and (ii) after the Closing
Date, file with the Commission a Report on Form 8-K disclosing the transactions
contemplated hereby. Except as provided in the preceding sentence, neither the
Company nor the Purchasers shall make any press release or other publicity
about the terms of this Agreement or the transactions contemplated hereby
without the prior approval of the other unless otherwise required by law or the
rules of the SEC or Nasdaq.


 


ARTICLE VI - CONDITIONS TO CLOSING


 


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


 


(a)           The Seller shall deliver or cause to be
delivered to each of the Purchasers the following:


 


1.             (i)            One or more certificates evidencing the
aggregate number of shares of the Preferred Stock, duly authorized, issued,
fully paid and non-assessable, as is indicated on Schedule 1 to be
purchased at the Closing by such Purchaser, registered in the name of such
Purchaser, in such denominations as is indicated on Schedule 1 for
such Purchaser; and


 


(ii)           One or more
certificates evidencing the Warrants, registered in the name of such Purchaser,
in such denominations as is indicated on Schedule 1 for such
Purchaser, pursuant to which such Purchaser shall be initially entitled to purchase
that number of shares of Common Stock as is indicated on Schedule 1.


 


2.             The Investor Rights
Agreement, in the form attached hereto as Exhibit C (the “Investor
Rights Agreement”), duly executed by the Seller.


 

















 


3.             A legal opinion of
Perkins Coie, LLP (“Seller’s Counsel”), counsel to the Seller,
in the form attached hereto as Exhibit D.


 


4.             A certificate of the
Secretary of the Seller (the “Secretary’s Certificate”), in form and
substance satisfactory to the Purchasers, certifying as follows:


 


(i)            that the Certificate
of Designation authorizing the Preferred Stock has been duly filed in the
office of the Secretary of State of the State of Washington, and that attached
to the Secretary’s Certificate is true and complete copy of the Articles of
Incorporation of the Seller, as amended, and the Certificate of Designation;


 


(ii)           that a true copy of the
Bylaws of the Seller, as amended to the Closing Date, is attached to the
Secretary’s Certificate;


 


(iii)          that attached thereto
are true and complete copies of the resolutions of the Board of Directors of
the Seller authorizing the execution, delivery and performance of this
Agreement and the Related Documents, instruments and certificates required to
be executed by it in connection herewith and approving the consummation of the
transactions in the manner contemplated hereby including, but not limited to,
the authorization and issuance of the Preferred Stock and Warrants;


 


(iv)          the names and true
signatures of the officers of the Seller signing this Agreement and all other
documents to be delivered in connection with this Agreement;


 


(v)           such other matters as
required by this Agreement; and


 


(vi)          such other matters as
the Purchasers may reasonably request.


 


5.             Wire transfers to (A)
Leerink Swann & Co. representing its fee for services rendered in
connection with this transaction and (B) Wiggin & Dana LLP representing the
Purchasers’ reasonable legal fees and other expenses as described in
Section 8.2 hereof; such fees may, at the election of the Purchasers, be paid
out of the funds due from the Purchasers at the Closing.


 


6.             Proof of due filing
with the Secretary of State of the State of Washington of the Certificate of
Designation authorizing the Preferred Stock.


 

















 


7.             Seller shall have
applied to each U.S. securities exchange, interdealer quotation system and
other trading market where its Common Stock is currently listed or qualified
for trading or quotation for the listing or qualification of the Conversion
Shares for trading or quotation thereon in the time and manner required
thereby.


 


8.             Such other documents
as the Purchasers shall reasonably request.


 


(b)           The Seller shall have entered into a Closing
Escrow Agreement with Wiggin & Dana LLP (the “Escrow Agent”) in the form
attached hereto as Exhibit E (the “Escrow Agreement”).


 


(c)           The staff of Nasdaq shall have verbally
confirmed to the Seller that (i) it has reviewed this Agreement, the form of
Certificate of Designation, the form of Warrant and form of Investor Rights
Agreement and (ii) on the basis of such review, (A) approval by the
shareholders of the Seller of the issuance of the Preferred Stock and the
Conversion Shares and the Warrants and the Warrant Shares is not required and
(B) the purchase and sale of the Preferred Stock and the Conversion Shares and
the Warrants and the Warrant Shares would not violate any Nasdaq rule or policy
or otherwise jeopardize the Seller’s qualification for listing of its
securities on Nasdaq.


 


6.2          Conditions
to Obligations of the Seller to Effect the Closing. The obligations of
the Seller to effect the Closing and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing, by
the Seller:


 


(a)           Each of the Purchasers shall deliver or
cause to be delivered to the Seller (i) payment of the portion of the Purchase
Price set forth opposite each Purchaser’s name on Schedule 1, in
cash by either (x) wire transfer of immediately available funds to an account
designated in writing by Seller prior to the date hereof, or (y) certified or
cashier’s check; (ii) an executed copy of this Agreement; (iii) an executed
copy of the Investor Rights Agreement; and (iv) such other documents as the
Seller shall reasonably request.


 


(b)           The staff of Nasdaq shall have verbally
confirmed to the Seller that (i) it has reviewed this Agreement, the form of
Certificate of Designation, the form of Warrant and form of Investor Rights
Agreement and (ii) on the basis of such review, (A) approval by the
shareholders of the Seller of the issuance of the Preferred Stock and the
Conversion Shares and the Warrants and the Warrant Shares is not required and
(B) the purchase and sale of the Preferred Stock and the Conversion Shares and the
Warrants and the Warrant Shares would not violate any Nasdaq rule or policy or
otherwise jeopardize the Seller’s qualification for listing of its securities
on Nasdaq.


 

















 


ARTICLE VII – INDEMNIFICATION,
TERMINATION AND DAMAGES


 


7.1          Survival
of Representations. Except as otherwise provided herein, the
representations and warranties of the Seller and the Purchasers contained in or
made pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the Closing Date and shall continue in full force and effect
for a period of two (2) years from the Closing Date; provided, however, that
the Seller’s warranties and representations under Sections 3.13 (Taxes), 3.19
(Subsidiaries and Investments), 3.20 (Capitalization), and 3.21 (Options,
Warrants, Rights), shall survive the Closing Date and continue in full force
and effect until the expiration of all applicable statutes of limitation; and
further provided that the Seller’s warranties and representations under
Section 3.25 (Environmental Matters) shall survive the Closing Date and
continue in full force and effect for a period of six (6) years from the
Closing Date. The Seller’s and the Purchasers’ warranties and representations
shall in no way be affected or diminished in any way by any investigation of
the subject matter thereof made by or on behalf of the Seller or the
Purchasers.


 


7.2          Indemnification.


 


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


 


(b)           The Purchasers, severally and not jointly,
agree to indemnify and hold harmless the Seller, its Affiliates, each of their
officers, directors, partners, employees and agents and their respective
successors and assigns, from and against any losses, damages, or expenses which
are caused by or arise out of (i) any breach or default in the performance by
the Purchasers of any covenant or agreement made by the Purchasers in this
Agreement or in any of the Related Documents; (ii) any breach of warranty or
representation made by the Purchasers in this Agreement or in any of the
Related Documents; and (iii) any and all third party actions, suits,
proceedings, claims, demands, judgments, costs and expenses (including
reasonable legal fees and expenses) incident to any of the foregoing; provided,
however, that a Purchaser’s liability under this Section 7.2(b) shall not
exceed the Purchase Price paid by such Purchaser hereunder.


 


7.3          Indemnity
Procedure. A party or parties hereto agreeing to be responsible for or
to indemnify against any matter pursuant to this Agreement is referred to
herein as the “Indemnifying Party” and the other party or parties claiming
indemnity is referred to as the “Indemnified Party”.  An Indemnified Party under this Agreement
shall, with respect to claims


 

















 


asserted against such party by any third party, give written notice to
the Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within sixty (60) business days of the receipt
of any written claim from any such third party, but not later than twenty (20)
days prior to the date any answer or responsive pleading is due, and with respect
to other matters for which the Indemnified Party may seek indemnification, give
prompt written notice to the Indemnifying Party of any liability which might
give rise to a claim for indemnity; provided, however, that any failure to give
such notice will not waive any rights of the Indemnified Party except to the
extent the rights of the Indemnifying Party are materially prejudiced.


 


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


 


With regard to claims of third parties for
which indemnification is payable hereunder, such indemnification shall be paid
by the Indemnifying Party upon the earlier to occur of: (i) the entry of a
judgment against the Indemnified Party and the expiration of any applicable
appeal period, or if earlier, five (5) days prior to the date that the judgment
creditor has the right to execute the judgment; (ii) the entry of an
unappealable judgment or final appellate decision


 

















 


against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, the reasonable expenses of counsel to the
Indemnified Party shall be reimbursed on a current basis by the Indemnifying
Party. With regard to other claims for which indemnification is payable
hereunder, such indemnification shall be paid promptly by the Indemnifying
Party upon demand by the Indemnified Party.


 


7.4          Liquidated
Damages.  (a)  The Seller and the Purchasers agree that the
Purchasers will suffer damages if a Breach Event (as defined below) occurs or
is ongoing. The Seller and the Purchasers further agree that it may not be
feasible to ascertain the extent of such damages with precision. If a Breach
Event (as defined below) occurs, then the Purchasers may elect, as liquidated
damages, and in addition to any other remedies legally available to such
Purchasers, to require that the Seller shall pay to the Purchasers liquidated
damages at a rate of 20% per annum of the aggregate Liquidation Amount of such
Purchasers’ outstanding Preferred Stock payable monthly in cash at the end of
each month in which the Breach Event is outstanding.


 


(b)           “Breach Event”
means either:


 


(i)            Any breach of any
material warranty or representation of the Seller as of the date made in this
Agreement or any agreement delivered herewith which breach, if capable of being
cured, has not been cured within ten (10) days after notice of such breach has
been given by the holders of a majority of Preferred Stock to the Seller (the “Breach Cure
Period”); or


 


(ii)           Any breach by the
Seller of any material covenant or other provision of this Agreement or any
agreement delivered herewith which is within the control of the Seller, and
which breach, if capable of being cured, has not been cured within the Breach
Cure Period.


 


(c)           The Seller and the Purchasers have
expressly negotiated this Section 7.4, and have agreed that in light of
the circumstances existing at the time of execution of this Agreement, the
liquidated damages expressed herein represent a reasonable estimate of the harm
likely to be suffered by the Purchasers upon the occurrence of a Breach Event.


 


ARTICLE VIII - MISCELLANEOUS


 


8.1          Further
Assurances. Each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements and to give
such further written assurances as may be reasonably requested by any other
party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement, and further agrees to take promptly, or cause to be taken,


 

















 


all actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable law to consummate and make
effective the transactions contemplated hereby, to obtain all necessary
waivers, consents and approvals, to effect all necessary registrations and
filings, and to remove any injunctions or other impediments or delays, legal or
otherwise, in order to consummate and make effective the transactions
contemplated by this Agreement for the purpose of securing to the parties
hereto the benefits contemplated by this Agreement.


 


8.2          Fees
and Expenses. The Seller shall be responsible for the payment of the
Purchasers’ reasonable legal fees and other third-party expenses relating to
the preparation and negotiation of this Agreement and the Related Documents and
the consummation of the transactions contemplated herein and therein, up to a
maximum of $50,000 (which amount may be increased with the approval of the
Seller).


 


8.3          Notices.
Any and all notices or other communications or deliveries required or permitted
to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this 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 notice or
communication is delivered via facsimile at the facsimile number specified in this
Section on a day that is not a business day or later than 5:00 p.m. (New
York City time) on any business day, or (c) the business day following the date
of mailing, if sent by U.S. nationally recognized overnight courier service
such as Federal Express. The address for such notices and communications shall
be as follows:


 


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


 


	
   

  	
  NeoRx Corporation

  
	
   

  	
   

  
	
   

  	
  300 Elliott Avenue West

  
	
   

  	
   

  
	
   

  	
  Seattle, Washington 98119

  
	
   

  	
   

  
	
   

  	
  Attention: 
  President

  
	
   

  	
   

  
	
   

  	
  Facsimile No.:  (206) 286-2537

  



 


or to such other address or addresses or
facsimile number or numbers as any such party may most recently have designated
in writing to the other parties hereto by such notice. Copies of notices to the
Seller shall be sent to Perkins Coie, LLP, 1201 Third Avenue, Suite 4800,
Seattle, Washington 98101, Attention: 
Faith M. Wilson, Esq., Facsimile No. (206) 359-4237. Copies of


 

















 


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


 


Unless otherwise stated above, such
communications shall be effective when they are received by the addressee
thereof in conformity with this Section. Any party may change its address for
such communications by giving notice thereof to the other parties in conformity
with this Section.


 


8.4          Governing
Law. All questions concerning the construction, validity, enforcement
and interpretation of this Agreement shall be governed by and enforced in
accordance with the laws of the State of New York without reference to the
conflicts of laws principles thereof.


 


8.5          Jurisdiction
and Venue. This Agreement shall be subject to the exclusive
jurisdiction of the Federal District Court, Southern District of New York and
if such court does not have proper jurisdiction, the State Courts of New York
County, New York. The parties to this Agreement agree that any breach of any
term or condition of this Agreement shall be deemed to be a breach occurring in
the State of New York by virtue of a failure to perform an act required to be
performed in the State of New York and irrevocably and expressly agree to
submit to the jurisdiction of the Federal District Court, Southern District of
New York and if such court does not have proper jurisdiction, the State Courts
of New York County, New York for the purpose of resolving any disputes among
the parties relating to this Agreement or the transactions contemplated hereby.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in New York County, New
York, and further irrevocably waive any claim that any suit, action or
proceeding brought in Federal District Court, Southern District of New York and
if such court does not have proper jurisdiction, the State Courts of New York
County, New York has been brought in an inconvenient forum. Each of the parties
hereto consents to process being served in any such suit, action or proceeding,
by mailing a copy thereof to such party at the address in effect for notices to
it under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof.  Nothing in this Section 8.5 shall affect or limit any right
to serve process in any other manner permitted by law.


 


8.6          Successors
and Assigns. This Agreement is personal to each of the parties and may
not be assigned without the written consent of the other parties; provided,
however, that any of the Purchasers shall be permitted to assign this Agreement
to any Person to whom it assigns or transfers securities issued or issuable
pursuant to this Agreement.  Any
assignee must be an “accredited investor” as defined in Rule
501(a) promulgated under the Securities Act.


 


8.7          Severability.
If any provision of this Agreement, or the application thereof, shall for any
reason or to any extent be invalid or unenforceable, the remainder of this
Agreement and


 

















 


application of such provision to other persons or circumstances shall
continue in full force and effect and in no way be affected, impaired or
invalidated.


 


8.8          Entire
Agreement. This Agreement and the other agreements and instruments
referenced herein constitute the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings.


 


8.9          Other
Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party shall be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law, or in equity on such
party, and the exercise of any one remedy shall not preclude the exercise of
any other.


 


8.10        Amendment
and Waivers. Any term or provision of this Agreement may be amended,
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the Seller and the holders of at
least a majority of the Preferred Stock then outstanding, and such waiver or
amendment, as the case may be, shall be binding upon all Purchasers. The waiver
by a party of any breach hereof or default in the performance hereof shall not
be deemed to constitute a waiver of any other default or any succeeding breach
or default. This Agreement may not be amended or supplemented by any party
hereto except pursuant to a written amendment executed by the Seller and the
holders of at least a majority of the Preferred Stock then outstanding.  No amendment shall be effected to impact a
holder of Preferred Stock in a disproportionately adverse fashion without the
consent of such individual holder of Preferred Stock.


 


8.11        No
Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.


 


8.12        Construction
of Agreement; Knowledge. For purposes of this Agreement, the term “knowledge,”
when used in reference to a corporation means the actual knowledge of the
directors and executive officers (including, if applicable, any person
designated as a chief scientific, medical or technical officer) of such
corporation (including, without limitation, knowledge deemed held pursuant to
the following sentence of this definition). 
Any director or executive officer or other person will be deemed to have
actual knowledge of a particular fact, circumstance, event or other matter if a
reasonable director or executive officer or other person who holds a comparable
position in a similarly situated cancer therapeutics development company would
have had knowledge of such fact, circumstance, event or other matter had it
occurred in or with respect to such a company and had such director or
executive officer made commercially reasonable inquiry with respect thereof.


 


8.13        Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original as against any party whose signature appears thereon and
all of


 

















 


which together shall constitute one and the same instrument. This
Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as signatories. In the event that any signature is delivered
by facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.


 


8.14        No
Third Party Beneficiary. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person other
than the parties hereto and their respective heirs, personal representatives,
legal representatives, successors and permitted assigns, any rights or remedies
under or by reason of this Agreement.


 


8.15        Waiver
of Trial by Jury.  THE PARTIES
HERETO IRREVOCABLY WAIVE TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.


 


8.16        Independent
Nature of Purchasers’ Obligations and Rights. 
The obligations of each Purchaser under this Agreement or any
Related Documents are several and not joint with the obligations of any other
Purchaser, and no Purchaser shall be responsible in any way for the performance
of the obligations of any other Purchaser under any such agreement. Nothing
contained herein or in any Related Documents, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
such agreement. Each Purchaser shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out of
this Agreement or out of the other Related Documents, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser represents that it has been
represented by its own separate legal counsel in its review and negotiation of
this Agreement and the Related Documents. For reasons of administrative
convenience only, the Purchasers acknowledge and agree that they and their respective
counsel have chosen to communicate with the Company through Wiggin & Dana
LLP, but Wiggin & Dana LLP represents only SDS Merchant Fund, LP, an
affiliate of BayStar Capital II, L.P.


 


8.17        Beneficial
Ownership Cap.  T.Rowe Price
Associates, Inc. and its designees (“T.Rowe Price”) hereby irrevocably notify
the Seller pursuant to Section 5(h)(iii) of the Certificate of Designation
that it chooses not to be governed by the Beneficial Ownership Cap (as defined
in the Certificate of Designation). This notice shall be deemed given in
writing to the Seller prior to the Date of Original Issue (as defined in the
Certificate of Designation).  T.Rowe
Price further irrevocably notifies the Seller pursuant to Section 2.4(i)
of the Warrant that such Section 2.4(i) shall not apply to it.  This notice shall be deemed given in writing
prior to the date of issuance of the Warrant.


 

















 


[Signature Page Follows]


 

















 


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


 


	
   

  	
  SELLER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  NEORX CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jack L. Bowman

  	
   

  
	
   

  	
  Name: Jack L. Bowman

  
	
   

  	
  Title: President and Chief Executive
  Officer

  



 

















 


OMNIBUS SIGNATURE PAGE TO


 


NEORX CORPORATION


 


PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT


 


The undersigned hereby executes and delivers the Preferred Stock and
Warrant Purchase Agreement to which this signature page is attached, which,
together with all counterparts of the Agreement and signature pages of the
other parties named in said Agreement, shall constitute one and the same
document in accordance with the terms of the Agreement.


 


	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telephone:

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
   

  
	
   

  	
   

  
	
   

  	
  SOC/EIN#:

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Shares of Series B Preferred

  Stock Purchased

  	
   

  
	
   

  	
   

  
	
   

  	
  Number of Warrants Purchased

  	
   

  
	
   

  	
   

  
	
   

  	
  Aggregate Purchase Price

  	
   

  
														



 


[See Schedule 1 for Purchaser
signatories]


 

















 


Schedule 1


 


NeoRx Corporation.


 


Preferred Stock and Warrant Purchase
Agreement

Purchasers and Shares of Preferred Stock and Warrants


 


	
  Name, Address
  and Fax Number

  of Purchaser

  	
   

  	
  Copies of Notices to

  	
   

  	
  Shares of

  Preferred Stock

  Purchased

  	
   

  	
  Common Stock

  Underlying Warrants

  	
   

  	
  Purchase Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BayStar
  Capital II, LLC

  53 Forest Avenue, Suite 203

  Old Greenwich, CT 06870

  

  Attn: Steve Derby

  

  Tel: (203) 967-5875

  Fax: (203) 967-5851

  	
   

  	
  Wiggin &
  Dana LLP

  400 Atlantic Street

  Stamford, CT 06901

  

  Telephone: (203) 363-7630

  Facsimile:  (203) 363-7676  

  

  Attn: Michael Grundei, Esq

  	
   

  	
  500

  	
   

  	
  200,000

  	
   

  	
  $

  	
  5,000,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Royal Bank
  of Canada

  1 Liberty Plaza, 2nd Floor

  165 Broadway

  New York, NY 10006

  

  Attn: Richard Tavoso

  Attn: Steven Milke

  

  Tel: (212) 858-7200

  	
   

  	
   

  	
   

  	
  1,000

  	
   

  	
  400,000

  	
   

  	
  $

  	
  10,000,000

  



 

















 


	
  Name,
  Address and Fax Number

  of Purchaser

  	
   

  	
  Copies of Notices to

  	
   

  	
  Shares of

  Preferred Stock

  Purchased

  	
   

  	
  Common Stock

  Underlying Warrants

  	
   

  	
  Purchase Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  T. Rowe
  Price Health Sciences Fund, Inc.

  

  Nominee Name: Lobstercrew & Co.

  

  Delivery Instructions:

  

  State Street Bank

  New York Settlements

  DTC/NY Window

  55 Water Street

  New York, NY 10041

  

  Attn: Robert Mendez

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  45

  	
   

  	
  18,000

  	
   

  	
  $

  	
  450,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TD Mutual
  Funds - TD Health Sciences Fund

  

  Nominee name: Mac & Co.

  

  Delivery Instructions:

  

  Physical Deliveries New York

  Mellon Securities Trust Co.

  120 Broadway, 13th Floor

  

  New York, NY 10271

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  13

  	
   

  	
  5,200

  	
   

  	
  $

  	
  130,000

  



 

















 


	
  Name,
  Address and Fax Number

  of Purchaser

  	
   

  	
  Copies of Notices to

  	
   

  	
  Shares of

  Preferred Stock

  Purchased

  	
   

  	
  Common Stock

  Underlying Warrants

  	
   

  	
  Purchase Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Valic
  Company I – Health Sciences Fund

  

  Nominee name: Squidrig & Co.

  

  Delivery Instructions:

  

  State Street Bank

  2 Avenue de Lafayette, 5 Northwest

  Boston, MA 02110

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  5

  	
   

  	
  2,000

  	
   

  	
  $

  	
  50,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Manufacturers
  Investment Trust – Health Sciences Trust

  

  Nominee name: Lamppost & Co.

  

  Delivery Instructions:

  

  State Street Bank

  2 Avenue de Lafayette, 5 Northwest

  Boston, MA 02110

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  6

  	
   

  	
  2,400

  	
   

  	
  $

  	
  60,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  IDEX Mutual
  Funds – IDEX T. Rowe Price Health Sciences

  Nominee name: Hare & Co.

  

  Delivery Instructions:

  

  Bank of New York

  One Wall Street

  Window A

  New York, NY 10286

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  3

  	
   

  	
  1,200

  	
   

  	
  $

  	
  30,000

  



 

















 


	
  Name,
  Address and Fax Number

  of Purchaser

  	
   

  	
  Copies of Notices to

  	
   

  	
  Shares of

  Preferred Stock

  Purchased

  	
   

  	
  Common Stock

  Underlying Warrants

  	
   

  	
  Purchase Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raytheon
  Company Combined DB/DC Master Trust – Health Sciences

  

  Nominee name: BOST & Co.

  

  Delivery Instructions:

  

  Mellon Securities Trust Co.

  120 Broadway, 13th Floor

  New York, NY 10271

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  1

  	
   

  	
  400

  	
   

  	
  $

  	
  10,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Raytheon
  Master Pension Trust – Health Sciences

  

  Nominee name: BOST & Co.

  

  Delivery Instructions:

  

  Mellon Securities Trust Co.

  120 Broadway, 13th Floor

  New York, NY 10271

  	
   

  	
  Darrell N.
  Braman

  Vice President

  T. Rowe Price Associates, Inc.

  100 E. Pratt Street

  Baltimore, MD 21202

  

  Tel: (410) 345-2013

  Fax: (410) 345-6575

  	
   

  	
  2

  	
   

  	
  800

  	
   

  	
  $

  	
  20,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Totals:

  	
   

  	
   

  	
   

  	
  1575

  	
   

  	
  630,000

  	
   

  	
  $

  	
  15,750,000