Document:

Exhibit 10.4

 

NEITHER
THIS NOTE NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED WITH THE
SECURITIES EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OF THE
UNITED STATED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGULATION S
THEREUNDER, AND, ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION THEREFROM, OR IN A TRANSACTION NOT SUBJECT TO THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE
TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.

 

CONVERTIBLE PROMISSORY NOTE

 

 

	
  $                  

  	
  February
  1, 2006

  
	
   

  	
  Seattle, Washington

  

 

For value received NEORX
CORPORATION, a Washington
corporation (“Payor”), promises to pay to                        or
its assigns (“Holder”) at its office at                               or
at such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of                           Dollars
($                ),
with interest on the outstanding principal balance hereof at the simple rate of
8% per annum, based on a 365 day year (the “Note
Rate”).  Interest shall
commence accruing on the date hereof and shall continue on the outstanding
principal balance hereof until paid in full or converted pursuant to the terms
set forth herein.  Interest shall be
computed on the basis of a year of 365 days for the actual number of days elapsed.

 

1.             This note (the “Note”) is issued as part of a series
of similar notes (collectively, the “Notes”) to
be issued pursuant to the terms of that certain Note and Warrant Purchase
Agreement (the “Agreement”) dated as of February
1, 2006 (the “Agreement Date”) to the
persons listed on the Schedule of Purchasers thereto (collectively, the “Holders”) and in connection with the
consummation of the transactions described in that certain Securities Purchase
Agreement dated as of February 1, 2006 (the “Securities
Purchase Agreement”).  Further,
this Note is one of the Notes referred to in and is executed and delivered in
connection with that certain Security Agreement dated as of the Agreement Date
and executed by Payor in favor of the Secured Parties set forth therein (as the
same may from time to time be amended, modified or supplemented or restated, the
“Securities Agreement”).  Each of the Agreement, the Securities
Purchase Agreement and the Security Agreement is hereinafter referred to as an “Operative Agreement” and
collectively, as the “Operative Agreements”.  All capitalized terms

 

 

not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.

 

2.             The outstanding
principal balance hereof together with all accrued and unpaid interest owing
hereunder shall be due and payable in full on the earliest to occur of  (i) May 31, 2006 (the “Term
Date”) (ii) the date of the closing of the sale of the Common
Stock and Warrants pursuant to the terms of the Securities Purchase Agreement
(the “Financing Closing”); and
(iii) the written election by the Holders of at least 60% in interest of the aggregate
principal amount of the Notes outstanding pursuant to the Agreement following
the occurrence of an Event of Default (each such date being referred to herein
as a “Maturity Date”).  All payments of interest and principal shall
be in lawful money of the United States of America and in immediately available
funds and shall be made pro rata among all Holders.  All payments received on this Note shall be
applied first to accrued and unpaid interest owing hereunder, and thereafter to
principal.

 

3.             Payor may not
prepay principal owing under this Note without the written consent of the
Holders of at least 60% in interest of the aggregate principal amount of the Notes
outstanding.

 

4.             Concurrently with
the Financing Closing, the outstanding principal balance of this Note and all
accrued and unpaid interest on the outstanding principal balance hereof shall, subject
to the limitation on conversion set forth in Section 6 below, automatically
convert into the number of shares of the Company’s Common Stock (the “Conversion Shares”) equal to the sum
of the outstanding principal balance of this Note plus all accrued and unpaid
interest owing under this Note, divided by $0.70 (the “Conversion
Price”).  In the event
this Note is converted pursuant to this Section 4, the holder of this Note
shall be treated for all purposes as the record holder of the Conversion
Shares. The Conversion Shares have the rights and obligations of the Shares
under the Securities Purchase Agreement and the holder thereof shall be deemed
to be a Purchaser thereunder.

 

5.             (i) In the event
the Financing Closing does not occur on or before May 31, 2006, (ii) if there
occurs an Event of Default or (iii) the Notes are outstanding after the Term
Date, then Holder thereafter may convert, at Holder’s option, by written notice
delivered to Payor, the outstanding principal balance of this Note and all
accrued and unpaid interest on the outstanding principal balance hereof into
Conversion Shares at the lesser of: (X) the Conversion Price or (Y) the greater
of (a) $0.45 per share or (b) the closing bid price per share of the Company’s
Common Stock on the date of the Event of Default or on the Term Date, as
applicable. In the event of such voluntary conversion, the Holder shall be
treated for all purposes as the record holder of such Conversion Shares. Holder
agrees that such conversion shall be subject to the limitation on conversion
set forth in Section 6 below and all of the applicable terms and conditions of
this Note and the Operative Agreements.

 

6.             Overall Cap on
Common Stock Issuable to Holder.

 

(a)           Notwithstanding anything herein or in the Related
Agreements to the contrary, if the rules of Nasdaq require, the Holder shall
not have the right to acquire the Notes and the Bridge Warrants or to convert
or exercise any portion thereof into shares of Common

 

2

 

Stock in accordance with their terms (such shares of
Common Stock being referred to herein as “Exercise Shares”),
to the extent that either (i) the aggregate number of Exercise Shares issued
and issuable by the Company pursuant to the Bridge Notes and the Bridge
Warrants exceeds 19.9% of the number of shares of Common Stock or the voting
power of the Company outstanding on the original date of issuance of the Bridge
Notes and the Bridge Warrants (the “Date of Original Issuance”),
or (ii) after giving effect to such acquisition, conversion or exercise, the
Holder (together with the Holder’s affiliates) would beneficially own in excess
of 19.9% of the number of shares of the Common Stock or the voting power of the
Company outstanding immediately after the closing of the Bridge Loan (the securities
issued and issuable up to and in compliance with the 19.9% thresholds described
in clauses (i) and (ii) above being referred to herein as the “Issuable Maximum”), unless the
issuance of securities in excess of the Issuable Maximum shall first be
approved by the Company’s shareholders in accordance with applicable law and
the Bylaws and Articles of Incorporation of the Company.  If, at the time of any potential of the Notes
and the Bridge Warrants, or any conversion or exercise thereof, the Exercise Shares
issued and issuable exceeds the Issuable Maximum (and if the Company has not
previously obtained the required shareholder approval), the Company shall issue
to the Holder a number of Notes, Bridge Warrants and Exercise Shares not
exceeding the Issuable Maximum, and the remainder of the Notes, Bridge Warrants
and Exercise Shares to be issued shall constitute “Excess
Shares” pursuant to Section 6(b) below.

 

(b)           In the event that the Holder’s receipt of Notes, Bridge
Warrants and Exercise Shares is restricted based on the Issuable Maximum, the
Company shall promptly call a shareholder’s meeting for the purpose of
obtaining shareholder approval of the issuance of the Excess Shares to the
Holder.  No Exercise Shares issued
pursuant to conversion or exercise of any Notes or Bridge Warrants shall be
entitled to vote to approve the issuance of the Excess Shares.

 

(c)           Neither the Company nor any Holder may waive the
provisions of this Section 6.

 

7.             Unless previously
converted pursuant to Section 5 or 6 hereof, the entire outstanding principal
balance and all accrued and unpaid interest thereon at the Note Rate is not repaid
in full on the Maturity Date, or if any payment of interest is not paid when
due,  the outstanding principal balance
of this Note thereafter shall bear interest until paid in full at an increased
rate per annum equal to five percent (5%) above the Note Rate from and after
the date of default to the date of the payment in full of such unpaid amount.

 

8.             Payor shall pay
to the Holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys’ fees,
expended or incurred by the Holder in connection with the enforcement of the
Holder’s rights and/or the collection of any amounts which become due to the
Holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by the Holder or any
other person) relating to Payor or any other person or entity.

 

3

 

9.             All indebtedness
owing under this Note is secured by the Collateral (as defined in the Security
Agreement) identified and described as security therefor in the Security
Agreement.  Payor shall not, directly or
indirectly, create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any Lien (as
defined in the Security Agreement) on or in the Collateral, or in any portion
thereof, except as permitted pursuant to the Security Agreement.

 

10.          If there shall be
any Event of Default hereunder, at the option and upon the written election by
the Holders of at least 60% in interest of the aggregate principal amount of
the Notes outstanding and upon written notice to the Payor (which election and
notice shall not be required and shall be automatic in the case of an Event of
Default under Section 10(e) or 10(f)), the Holder of this Note may declare all sums
of principal and interest outstanding hereunder to be immediately due and
payable without presentment, demand, notice of nonperformance, notice of
protest, protest or notice of dishonor, all of which are expressly waived by
Payor, and the obligation, if any, of the Holder to extend any further credit
hereunder shall immediately cease and terminate. The occurrence of any one or
more of the following shall constitute an Event of Default:

 

(a)           Payor fails to pay
any principal amount due under this Note on the date the same becomes due and
payable or any accrued and unpaid interest or other amounts due under this Note
or any of the Operative Agreements on the date the same becomes due and
payable;

 

(b)           Any financial
statement or certificate furnished to Holder or otherwise in connection with
any of the Operative Agreements or the transactions contemplated thereby, or
any representation or warranty made by Payor under any of the Operative
Agreements shall prove to be incorrect, false or misleading in any material
respect when furnished or made.

 

(c)           Payor shall default
in the performance of or compliance with any obligation, agreement or other
provision contained in this Note or in any Operative Agreement (other than
those referred to in subsections (a) and (b) above), and with respect to any
such default which by its nature can be cured, such default shall continue for
a period of fifteen (15) days from its occurrence;

 

(d)           There shall exist
or occur any event or condition which materially and adversely affects the Payor’s
business, prospects or financial condition or is substantially likely to impair
the business, prospects or financial condition of Payor or the Payor’s ability
to perform any of its obligations under any of the Operative Agreements.

 

(e)           Payor files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or makes any assignment for the benefit of
creditors or takes any corporate action in furtherance of any of the foregoing;
or

 

(f)            An involuntary
petition is filed against Payor under any bankruptcy or insolvency law or any
other law for the relief of, or relating to debtors, now or hereafter in
effect, unless such petition is dismissed or discharged within sixty (60) days,
or a custodian, receiver,

 

4

 

trustee, assignee for the
benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Payor.

 

11.          This Note shall be
governed by and construed under the laws of the State of California, without
giving effect to conflicts of laws principles.

 

12.          Except as otherwise
provided herein, any term of this Note may be amended or waived with the
written consent of Payor and Holders of at least 60% in interest of the
aggregate principal amount of Notes issued (or, if after the closing of the
Bridge Loan, by the Holders holding at least 60% in interest of the aggregate
principal amount of the Notes outstanding) pursuant to the Agreement; provided
that any such amendment or waiver is made with respect to all of the Notes.  Upon the effectuation of such waiver or
amendment in conformance with this Section 12, the Payor shall provide notice
thereof to the record holders of the Notes who have not previously consented
thereto.

 

13.          The Company and the
Holder each hereby acknowledges and agrees that the Note constitutes equity of
the Company for United States federal income tax purposes, and neither such
party shall take any position on any tax or information reporting return
inconsistent with such characterization.

 

14.          This Note may be
transferred only upon its surrender to the Company for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument
of transfer in form satisfactory to the Company and only to the extent
permitted by applicable law.  Thereupon,
this Note shall be reissued to, and registered in the name of, the transferee,
or a new Note for like principal amount and interest shall be issued to, and
registered in the name of, the transferee. 
Interest and principal shall be paid solely to the registered holder of
this Note.

 

[Signature Page Follows Immediately]

 

5

 

	
   

  	
  NEORX
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Gerald McMahon

  
	
   

  	
  Chairman and Chief
  Executive Officer

  

 

SIGNATURE PAGE TO
CONVERTIBLE PROMISSORY NOTEExhibit 10.5

 

BRIDGE WARRANT

 

NEITHER THIS WARRANT NOR
THE UNDERLYING SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”), OR REGULATION S THEREUNDER, AND,
ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SECURITIES UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.

 

NEORX CORPORATION

 

WARRANT TO PURCHASE COMMON STOCK

 

	
  No.
  W-    

  	
  February
  1, 2006

  
	
   

  
	
  Void After February
  1, 2011

  

 

THIS CERTIFIES THAT,
for value received,                                      ,
with its principal office at                                         ,
or assigns (the “Holder”),
is entitled to subscribe for and purchase at the Exercise Price (defined below)
from NeoRx Corporation, a Washington corporation, with its principal office at 300
Elliott Avenue West, Suite 500, Seattle, WA 98119-4114 (the “Company”) up to                      shares of the Common Stock of the Company (the “Common Stock”),
subject to adjustment as provided herein. 
This Warrant is one of a series of Warrants being issued pursuant to the
terms of the Note and Warrant Purchase Agreement (the “Agreement”)
dated as of February 1, 2006 (the “Agreement Date”)
to the persons listed on the Schedule of Purchasers thereto and in connection
with the consummation of the transactions described in that certain Securities
Purchase Agreement dated as of February 1, 2006 (the “Securities
Purchase Agreement”).  Capitalized terms not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Securities Purchase
Agreement.

 

1.             DEFINITIONS.  As used herein, the
following terms shall have the following respective meanings:

 

(a)           “Exercise Period” shall mean the
period commencing on the date hereof and ending February 1, 2011, unless sooner
terminated as provided below.

 

(b)           “Exercise Price” shall mean $0.77 per share, subject to adjustment
pursuant to Sections 5 and 6 below.

 

1

 

(c)           “Exercise Shares” shall mean the
shares of the Company’s Common Stock issued or issuable upon exercise of this
Warrant, subject to adjustment and limitation pursuant to the terms herein.

 

(d)           “Fundamental Transaction”
means any of the following: (1) the Company effects any merger or consolidation
of the Company with or into another Person pursuant to which the Common Stock
is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a change in the jurisdiction of
incorporation of the Company), (2) the Company effects any sale, exclusive
license or other conveyance of all or substantially all of its assets in one or
a series of related transactions pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property,
(3) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (4)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than a change in par
value, or from par value to no par value, or no par value to par value, or as a
result of a stock dividend, subdivision, split-up or combination of shares).

 

2.             EXERCISE OF WARRANT.

 

2.1          Method of Exercise. 
The rights represented by this Warrant may be exercised in whole or in
part at any time during the Exercise Period, by delivery of the following to
the Company at its address set forth above (or at such other address as it may
designate by notice in writing to the Holder):

 

(a)           An executed Notice
of Exercise in the form attached hereto;

 

(b)           Payment of the
Exercise Price either (i) in cash or by check or wire transfer of
immediately available funds, or (ii) pursuant to a Cashless Exercise, as
described below; and

 

(c)           This Warrant.

 

Immediately prior to the expiration of the Exercise Period, the portion
of this Warrant not exercised prior thereto shall automatically be deemed to be
exercised in full in the manner set forth in Section 2.2, without any further
action on behalf of the Holder; provided, however, that in the event that the
cashless exercise formula set forth in Section 2.2 yields a result that is less
than or equal to zero, then the unexercised portion of this Warrant shall
automatically terminate and become void. 
The Company may not call or redeem all or any portion of this Warrant
without the prior written consent of the affected Holder.

 

Upon the exercise of the rights represented by this Warrant, shares of
Common Stock shall be issued for the Exercise Shares so purchased, and shall be
registered in the name of the Holder or Persons affiliated with the Holder, if
the Holder so designates, as promptly as practicable, and in any event within
three (3) Business Days thereafter and shall be issued in certificate form and
delivered to the Holder.

 

2

 

The Person in whose name any Exercise Shares are to be issued upon
exercise of this Warrant shall be deemed to have become the holder of record of
such shares on the date on which this Warrant was surrendered and payment of
the Exercise Price was made, irrespective of the date of issuance of the shares
of Common Stock, except that, if the date of such surrender and payment is a
date when the stock transfer books of the Company are closed, such Person shall
be deemed to have become the holder of such shares at the close of business on
the next succeeding date on which the stock transfer books are open.

 

2.2          Cashless Exercise.  Notwithstanding
any provisions herein to the contrary, if, at any time during the Exercise
Period, the Current Market Price (as defined below) of one share of Common
Stock is greater than the Exercise Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant by payment of cash, the Holder
may exercise this Warrant by a cashless exercise by surrender of this Warrant
at the principal office of the Company, together with the properly endorsed
Notice of Exercise, and the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:

 

	
   

  	
   

  	
  X =

  	
   

  	
  Y (B-A)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  B

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Where:

  	
   

  	
  X =

  	
   

  	
  the number of shares of Common Stock to be issued to the Holder.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Y =

  	
   

  	
  the number of shares of Common Stock
  purchasable upon exercise of all of the Warrant or, if only a portion of the
  Warrant is being exercised, the portion of the Warrant being exercised.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A =

  	
   

  	
  the Exercise Price.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  B =

  	
   

  	
  the Current Market Price of one share of
  Common Stock.

  

 

“Current Market Price”
means on any particular date:

 

(a)           if the Common Stock
is traded on the Nasdaq Capital Market or the Nasdaq National Market, the
average of the closing prices of the Common Stock of the Company on such market
over the five (5) trading days ending immediately prior to the applicable date
of valuation;

 

(b)           if the Common Stock
is traded on any registered national stock exchange but is not traded on the
Nasdaq Capital Market or the Nasdaq National Market, the average of the closing
prices of the Common Stock of the Company on such exchange over the five (5) trading
days ending immediately prior to the applicable date of valuation;

 

(c)           if the Common Stock
is traded over-the-counter, but not on the Nasdaq Capital Market, the Nasdaq
National Market or a registered national stock exchange, the average of the
closing bid prices over the 30-day period ending immediately prior to the applicable
date of valuation; and

 

3

 

(d)           if there is no
active public market for the Common Stock, the value thereof, as determined in
good faith by the Board of Directors of the Company upon due consideration of
the proposed determination thereof by the Holder.

 

2.3          Partial Exercise.  If this Warrant is
exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver, within 10 days of the date of exercise, a new Warrant
evidencing the rights of the Holder, or such other Person as shall be
designated in the Notice of Exercise, to purchase the balance of the Exercise
Shares purchasable hereunder.  In no
event shall this Warrant be exercised for a fractional Exercise Share, and the
Company shall not distribute a Warrant exercisable for a fractional Exercise
Share.  Fractional Exercise Shares shall
be treated as provided in Section 7 hereof.

 

3.             COVENANTS OF THE COMPANY.

 

3.1          Covenants as to Exercise Shares.  The Company covenants and agrees that all
Exercise Shares that may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issuance thereof.  The Company further
covenants and agrees that the Company will at all times during the Exercise
Period, have authorized and reserved, free from preemptive rights, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant (taking into account any adjustments and
restrictions set forth in Sections 5, 6, 7, 8 and 9 hereof). .  If at any time during the Exercise Period the
number of authorized but unissued shares of Common Stock shall not be
sufficient to permit exercise of this Warrant, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock (or other
securities as provided herein) to such number of shares as shall be sufficient
for such purposes.

 

3.2          No Impairment.  Except and to the extent as waived or
consented to by the Holder or otherwise in accordance with Section 13 hereof,
the Company will not, by amendment of its Articles of Incorporation (as such
may be amended from time to time), or through any means, avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all commercially
reasonable actions as may be necessary in order to protect the exercise rights
of the Holder against impairment.

 

3.3          Notices of Record Date.  In the event of any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to the Holder, at least
twenty (20) days prior to the date specified herein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend
or distribution, provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not adversely affect the validity of
the dividend or distribution required to be specified in such notice.

 

4

 

3.4          Charges, Taxes and Expenses.  Issuance and delivery of Exercise Shares upon
exercise of this Warrant shall be made without charge to the Holder for any
issue or transfer tax, withholding tax, transfer agent fee or other incidental
tax or expense in respect of the issuance of such certificates, all of which
taxes and expenses shall be paid by the Company; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the registration of any certificates for Exercise
Shares or Warrants in a name other than that of the Holder.  The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Exercise Shares upon exercise hereof.

 

4.             REPRESENTATIONS
OF HOLDER.

 

4.1          Acquisition of Warrant for Personal
Account.  The Holder
represents and warrants that it is acquiring the Warrant and the Exercise
Shares solely for its account for investment and not with a present view toward
the public sale or distribution of said Warrant or Exercise Shares or any part
thereof and has no intention of selling or distributing said Warrant or
Exercise Shares or any arrangement or understanding with any other Persons
regarding the sale or distribution of said Warrant, or except in accordance
with the provisions of Article 6 of the Securities Purchase Agreement with
respect to the Exercise Shares, and except as would not result in a violation
of the Securities Act.  The Holder will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) the Warrant except in accordance with the Securities Act and will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) the Exercise Shares except in accordance with the provisions of
Article 6 of the Securities Purchase Agreement or pursuant to and in accordance
with the Securities Act.

 

4.2          Securities Are Not Registered.

 

(a)           The Holder
understands that the offer and sale of the Warrant and the Exercise Shares have
not been registered under the Securities Act on the basis of specific
exemptions from the registration provisions of the Securities Act, which
exemptions depend upon, among other things, the bona fide nature of the Holder’s
investment intent as expressed herein. 
The Holder realizes that the basis for such exemptions may not be
present if, notwithstanding its representations, the Holder has a present
intention of acquiring the securities for a fixed or determinable period in the
future, selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the securities.  Except in accordance with Article 6 of the Securities
Purchase Agreement, the Holder has no such present intention.

 

(b)           The Holder
recognizes that the Warrant and the Exercise Shares must be held indefinitely
unless they are subsequently registered under the Securities Act or an
exemption from such registration is available. 
The Holder recognizes that the Company has no obligation to register the
Warrant or, except as provided in the Purchase Agreement, the Exercise Shares,
or to comply with any exemption from such registration.

 

5

 

4.3          Disposition of Warrant and Exercise
Shares.

 

(a)           The Holder further
agrees not to make any disposition of all or any part of the Warrant or
Exercise Shares in any event unless and until:

 

(i)            The Company shall
have received a letter secured by the Holder from the SEC stating that no
action will be recommended to the SEC with respect to the proposed disposition;

 

(ii)           There is then in
effect a registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement; or

 

(iii)         The Holder shall have
notified the Company of the proposed disposition and shall have delivered to
the Company an opinion of counsel to the Holder reasonably satisfactory to the
Company to the effect that such disposition will not require registration of
such Warrant or Exercise Shares under the Securities Act or any applicable
state securities laws.

 

Notwithstanding the foregoing provisions of this Section 4.3 above, no
such restrictions shall apply to a transfer or assignment by a Holder that is:
(i) a partnership transferring to its partners or former partners in accordance
with partnership interests; (ii) a corporation transferring to a wholly-owned
subsidiary or a parent corporation that owns all of the capital stock of the
Holder; (iii) a limited liability company transferring to its members or former
members in accordance with their interest in the limited liability company;
(iv) an affiliated investment fund transferring to another affiliated
investment fund; or (v) an individual transferring to the Holder’s family
member or trust for the benefit of an individual Holder; provided that in each
case the transfer is effected in accordance with applicable securities laws,
including establishing that the transferee qualifies as an “accredited investor”
within the meaning of the Securities Act and the transferee agrees in writing
to be subject to the terms of this Warrant and the Securities Purchase Agreement
to the same extent as if the transferee were an original Holder hereunder and
thereunder.

 

(b)           The Holder
understands and agrees that all certificates evidencing the Exercise Shares to
be issued to the Holder may bear a legend in substantially the following form:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE OF THE UNITED STATES IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), OR REGULATION S THEREUNDER, AND ACCORDINGLY, MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, HYPOTHECATED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT

 

6

 

OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

 

5.             ADJUSTMENT
OF EXERCISE PRICE.  In
the event of changes in the outstanding Common Stock of the Company by reason
of a stock dividend or distribution, subdivision, split-up, or combination of
shares, the number of shares available under the Warrant in the aggregate and
the Exercise Price shall be correspondingly adjusted to give the Holder of the
Warrant, on exercise for the same aggregate Exercise Price, the total number of
shares as the Holder would have owned had the Warrant been exercised prior to
the event and had the Holder continued to hold such shares until after the
event requiring adjustment.  The form of
this Warrant need not be changed because of any adjustment in the Exercise
Price and/or number of shares subject to this Warrant.  The Company shall promptly provide a
certificate from the Company notifying the Holder in writing of any adjustment
in the Exercise Price and/or the total number of shares issuable upon exercise
of this Warrant, which certificate shall specify the Exercise Price and number of
shares under this Warrant after giving effect to such adjustment.

 

6.             OTHER
ACTION AFFECTING COMMON STOCK.  In
case at any time or from time to time the Company shall take any action in
respect of its Common Stock, other than any action described in Section 5,
then, if such action will materially adversely effect the rights of the holder
of this Warrant, the number of shares of Common Stock or other stock into which
this Warrant is exercisable and/or the purchase price thereof shall be adjusted
in such manner as may equitable in the circumstances; provided, that, the mere
authorization or issuance of additional shares of capital stock of the Company
(other than pursuant to a stock dividend) shall not be considered an action creating
any right to adjustment under this Section 6.

 

7.             FRACTIONAL
SHARES.  No
fractional shares shall be issued upon the exercise of this Warrant as a
consequence of any adjustment pursuant hereto. 
All Exercise Shares (including fractions) issuable upon exercise of this
Warrant may be aggregated for purposes of determining whether the exercise
would result in the issuance of any fractional share.  If, after aggregation, the exercise would
result in the issuance of a fractional share, the Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise entitled to such
fraction a sum in cash equal to the product resulting from multiplying the then
current fair market value of an Exercise Share by such fraction.

 

8.             OVERALL
CAP ON COMMON STOCK ISSUED AND ISSUABLE.

 

8.1          ISSUABLE
MAXIMUM.  Notwithstanding
anything herein or in the Related Agreements to the contrary, if the rules of
Nasdaq require, the Holder shall not have the right to acquire the Bridge Notes
and the Bridge Warrants or to convert or exercise any portion thereof into
shares of Common Stock in accordance with their terms (such shares of Common
Stock being referred to herein as “Conversion Shares”),
to the extent that either: (i) the aggregate number of Conversion Shares issued
and issuable by the Company pursuant to the Bridge Notes

 

7

 

and the Bridge Warrants exceeds
19.9% of the number of shares of Common Stock or the voting power of the
Company outstanding on the original date of issuance of the Bridge Notes and
the Bridge Warrants (“Date of Original Issuance”)
or (ii) after giving effect to such acquisition, conversion or exercise, the
Holder (together with the Holder’s affiliates) would beneficially own in excess
of 19.9% of the number of shares of the Common Stock or the voting power of the
Company outstanding immediately after closing of the Bridge Loan  (the securities issued and issuable up to and
in compliance with the 19.9% thresholds described in clauses (i) and (ii) above,
being referred to herein as the “Issuable Maximum”),
unless the issuance of securities in excess of the Issuable Maximum shall first
be approved by the Company’s shareholders in accordance with applicable law and
the Bylaws and Articles of Incorporation of the Company.  If, at the time of any potential issuance of
the Bridge Notes and the Bridge Warrants, or any conversion or exercise thereof,
the Conversion Shares issued and issuable exceed the Issuable Maximum (and if
the Company has not previously obtained the required shareholder approval), the
Company shall issue to the Holder a number of Bridge Notes, Bridge Warrants and
Conversion Shares not exceeding the Issuable Maximum, and the remainder of the Bridge
Notes, Bridge Warrants and Conversion Shares to be issued  shall constitute “Excess
Shares” pursuant to Section 8.2 below.

 

8.2          SHAREHOLDER
APPROVAL OF EXCESS SHARES.  In
the event than the Holder’s receipt of Bridge Notes, Bridge Warrants and
Conversion Shares is restricted based on the Issuable Maximum, the Company shall
promptly call a shareholder’s meeting for the purpose of obtaining shareholder
approval of the issuance of the Excess Shares to the Holder.  No Conversion Shares issued pursuant to conversion
or exercise of any Bridge Notes or Bridge Warrants shall be entitled to vote to
approve the issuance of the Excess Shares.

 

8.3          NO
WAIVER.  Neither
the Company nor any Holder may waive the provisions of this Section 8.

 

9.             CERTAIN
EVENTS.
  If, at any time while this Warrant is outstanding there is a
Fundamental Transaction, then the Holder shall have the right thereafter to
receive, upon exercise of this Warrant, the same amount and kind of securities,
cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such
Fundamental Transaction, the holder of the number of Exercise Shares then
issuable upon exercise in full of this Warrant (the “Alternate
Consideration”).  For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Transaction, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction.  At the Holder’s
sole option and request, any successor to the Company or surviving entity in
such Fundamental Transaction shall, either (1) issue to the Holder a new
warrant substantially in the form of this Warrant and consistent with the
foregoing provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof, or (2)
purchase the

 

8

 

Warrant from the Holder
for a purchase price, payable in cash within five trading days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the Black Scholes value of the remaining unexercised portion of this
Warrant on the date of such request.  The
terms of any agreement pursuant to which a Fundamental Transaction is effected
shall include terms requiring any such successor or surviving entity to comply
with the provisions of this Section 9 and insuring that the Warrant (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction. The Company shall provide
to the Holder ten days’ advance written notice of such  Fundamental Transaction, and the Holder shall
have the option, in its sole discretion, to allow any unexercised portion of
the Warrant to be deemed automatically exercised pursuant to Sections 2.1 and 2.2.
This Warrant will be binding upon the successors and assigns of the Company
upon a Fundamental Transaction.

 

10.          NO
SHAREHOLDER RIGHTS.  This
Warrant in and of itself shall not entitle the Holder to any voting rights or
other rights as a shareholder of the Company.

 

11.          TRANSFER
OF WARRANT.  Subject
to applicable laws and compliance with Section 4.3 hereof and the terms of the Securities
Purchase Agreement, this Warrant and all rights hereunder are transferable, by
the Holder in person or by duly authorized attorney, upon delivery of this
Warrant and the form of assignment attached hereto to any authorized transferee
designated by the Holder.  The authorized
transferee shall sign an investment letter in form and substance satisfactory
to the Company.

 

12.          LOST,
STOLEN, MUTILATED OR DESTROYED WARRANT.  If
this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such
terms as to indemnity or otherwise as it may reasonably impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof but shall not
include a surety bond), issue a new Warrant of like denomination and tenor as
the Warrant so lost, stolen, mutilated or destroyed.  Any such new Warrant shall constitute an
original contractual obligation of the Company, whether or not the allegedly
lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable
by anyone.

 

13.          MODIFICATIONS AND WAIVER.  Unless otherwise provided herein, this Warrant
and any provision hereof may be changed, waived, discharged or terminated only
by an instrument in writing signed by the Company and (i) Purchasers
holding Warrants representing at least 60% of the aggregate number of Exercise
Shares then issuable upon exercise of the Warrants issued under the Purchase
Agreement provided, however, that
such modification, amendment or waiver is made with respect to all Warrants
issued under the Purchase Agreement and does not adversely affect the Holder
without adversely affecting all holders of such Warrants in a similar manner;
or (ii) the Holder.

 

14.          NOTICES,
ETC.  All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified,
(b) when sent by confirmed email, telex or facsimile if sent during normal
business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. 
All communications shall be sent to the Company at the address listed on

 

9

 

the signature page and to the Holders at the addresses
on the Company records (as provided by the Holder to the Company), or at such
other address as the Company or Holder may designate by ten days’ advance
written notice to the other party hereto.

 

15.          ACCEPTANCE.  Receipt of this
Warrant by the Holder shall constitute acceptance of and agreement to all of
the terms and conditions contained herein and in the Agreement and the
Securities Purchase Agreement.

 

16.          GOVERNING
LAW.  This
Warrant and all rights, obligations and liabilities hereunder shall be governed
by the laws of the State of California without regard to the principles of
conflict of laws.

 

17.          DESCRIPTIVE HEADINGS.  The descriptive headings of the several paragraphs
of this Warrant are inserted for convenience only and do not constitute a part
of this Warrant. The language in this Warrant shall be construed as to its fair
meaning without regard to which party drafted this Warrant.

 

18.          SEVERABILITY.  The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction, or affect any other
provision of this Warrant, which shall remain in full force and effect.

 

19.          ENTIRE AGREEMENT.  This Warrant constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations, and
undertakings of the parties, whether oral or written, with respect to such
subject matter.

 

[Signature Page Follows]

 

10

 

IN WITNESS WHEREOF,
the Company has caused this Warrant to be executed by its duly authorized
officer as of February 1, 2006.

 

	
   

  	
  NEORX CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Gerald McMahon

  
	
   

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  300 Elliott Avenue West, Suite 500

  
	
   

  	
   

  	
  Seattle, WA 98119-4114

  
	
   

  	
   

  	
  Attention: Chief Financial Officer

  
	
   

  	
   

  	
  Facsimile: (206)
  286-2537

  

 

11

 

NOTICE OF EXERCISE

 

TO:  NEORX CORPORATION

 

(1)           The undersigned hereby elects to (check one box only):

 

o            purchase                 
shares of the Common Stock of NeoRx Corporation. (the “Company”)
pursuant to the terms of the attached Warrant, and tenders herewith payment of
the exercise price in full for such shares.

 

o            purchase the number of shares of
Common Stock of the Company by cashless exercise pursuant to the terms of the
Warrant as shall be issuable upon cashless exercise of the portion of the
Warrant relating to                
shares.

 

(2)           Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other
name as is specified below:

 

	
   

  	
   

  	
   

  
	
  (Name)

  
	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Address)

  
					

 

(3)           The undersigned represents that (i) the aforesaid shares
of Common Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares except pursuant to Article 6 of the
Purchase Agreement; (ii) the undersigned is aware of the Company’s business
affairs and financial condition and has acquired sufficient information about
the Company to reach an informed and knowledgeable decision regarding its
investment in the Company; (iii) the undersigned is experienced in making
investments of this type and has such knowledge and background in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment and protecting the undersigned’s own interests; and (iv)
the undersigned agrees not to make any disposition of all or any part of the
aforesaid shares of Common Stock unless and until there is then in effect a
registration statement under the Securities Act of 1933, as amended, covering
such proposed disposition and such disposition is made in accordance with said
registration statement, or the undersigned has provided the Company with an
opinion of counsel to the undersigned satisfactory to the Company, stating that
such registration is not required.

 

	
   

  	
   

  	
  Holder’s Name:

  	
   

  
	
  (Date) 

  	
   

  
	
   

  	
   

  
	
  NOTE:
  SIGNATURE MUST CONFORM IN ALL

  	
  (Authorized
  Signature) 

  
	
  RESPECTS
  TO THE NAME OF HOLDER AS

  	
   

  
	
  SPECIFIED
  ON THE FACE OF THE WARRANT.

  	
   

  
	
   

  	
  (Title)

  

 

 

ASSIGNMENT FORM

 

(To
assign the foregoing Warrant, subject to compliance with applicable law and the
terms of the Warrant, execute this form and supply required information.  Do not use this form to exercise the Warrant.)

 

FOR VALUE RECEIVED,
the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

	
  Name:

  	
   

  
	
  (Please Print)

  
	
   

  
	
  Address:

  	
   

  
	
  (Please Print) ,

  
	
   

  
	
  and 

  	
   

  	
   is hereby appointed attorney to transfer
  said

  
	
   rights on the books of NeoRx Corporation,
  with full power of substitution in the premises.

  
	
  Dated: , 

  	
   

  	
  20

  	
   

  	
   

  
	
   

  
	
  Holder’s Name: 

  	
   

  	
   

  
	
   

  
	
  Signature:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  Holder’s
  Address:

  	
   

  	
   

  
	
   

  
	
  Telephone:

  	
   

  	
   

  
	
   

  
	
  Facsimile: 

  	
   

  	
   

  
	
   

  
	
  Signature
  

  
	
  Guaranteed:

  	
   

  	
   

  
																				

 

NOTE:  The signature to this Assignment Form must
correspond with the name as it appears on the face of the Warrant, without
alteration or enlargement or any change whatever and must be guaranteed by a
bank or trust company.  Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

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