Document:

EXHIBIT 10.02

 

June 14, 2005

 

 

Mr. Lee McGrath

c/o Versant Corporation

6539 Dumbarton Circle

Fremont, CA 
94555

 

Re:                               Agreement
Regarding Terms of Your Separation and General Release

 

Dear Lee:

 

This
letter agreement confirms the agreement (this “Agreement”) between you and Versant
Corporation (“Versant”)
concerning the terms of your agreement to resign as an officer of Versant and
the termination of your employment with Versant and offers you the separation
compensation and other agreements set forth herein in exchange for a general
release of claims from you and your compliance with the other provisions of
this Agreement, including the terms on which you will provide consulting
services to Versant after termination of your employment.  This Agreement is intended to permanently
resolve any and all potential disputes which may arise concerning your
employment and relationship with Versant, and the termination of your
employment with Versant.

 

1.                                      Separation Date.  Versant and you have mutually agreed that
your employment with Versant in all capacities, positions and offices will be
terminated effective as of June 15, 2005 (the “Separation
Date”) and therefore you will cease to be an officer of Versant
or any subsidiary of Versant on the Separation Date.  If you are a member of the board of directors
of any subsidiary of Versant you also hereby agree that you are resigning from
such directorship effective as of the Separation Date.

 

2.                                      Payment of Wages;
Continuation of Health Benefits.  On
or before the Separation Date, Versant will deliver to you your final paycheck,
which will be for an amount not to exceed a maximum of $5,971.80 (the “Final Paycheck Amount”).  You agree that the Final Paycheck Amount
shall be equal to all your accrued salary, any reimbursable expenses, all your accrued but unused vacation pay and any similar
payments due and owing to you from Versant as of the Separation Date, net of
all tax withholdings and other required payroll deductions from these payments.
By signing below, you acknowledge and agree that, except for the Final Paycheck
Amount payable on the Separation Date, Versant does not owe you any bonus or
any other amounts except as expressly provided for in Section 4 of this
Agreement.  You will be eligible to
continue coverage under Versant’s group health plan under COBRA, with Versant
to pay for such continued coverage solely to the extent provided in Section 4
below, provided you timely request such continued coverage under COBRA
after receiving formal notice of your right to do so.

 

 

3.                                      Your Versant
Stock Options.  You acknowledge and
agree that, assuming no exercise by you of any Versant stock options now held
by you prior to the Separation Date, and assuming your continuous employment
with Versant through the Separation Date, on the Separation Date you will hold
the vested and unexercised options to purchase shares of Versant Common Stock
listed on Exhibit A attached hereto (“Exhibit A”)
and initialed by you (“your Versant options”),
which on the Separation Date will be vested and exercisable only to the extent
shown on such Exhibit A.  You
acknowledge and agree with Versant, and represent to Versant, that: (i) the
information in Exhibit A regarding your Versant options is correct and
complete; (ii) the stock options listed in Exhibit A are the only
options to purchase Versant stock that you hold; (iii) you hold no other
options, warrants or any other rights to purchase or otherwise acquire any
shares of the capital stock or any other securities of Versant, including any
such rights under Versant’s 1996 Employee Stock Purchase Plan, as amended (the “ESPP Plan”); and (iv) you are
not currently a participant, nor will you become a participant, in the ESPP
Plan.  You agree that, in accordance with
the terms of your Versant options, the vesting of the right to exercise your
Versant options will continue only through the Separation Date, at which time
and date vesting of the right to exercise your Versant options will immediately
cease and terminate.

 

In
consideration of your agreements and the releases granted by you under this
Agreement, and provided that (and for so long as) you comply with and do not
breach your consulting obligations under Section 5 hereof and the release
granted by you under Section 8 hereof, and subject to the provisions of Section 7
hereof, you will be given the right to exercise your Versant options that are
fully vested as of the Separation Date until February 28, 2006, the date
on which your consulting obligations under Section 5 of this Agreement
will terminate, at which time your Versant options will
expire and terminate and cease to be exercisable.  Except as expressly provided in this Section 3,
nothing in this Agreement will change any of the terms or conditions of
your Versant options or of any plan under which any of your Versant options
were granted.

 

4.                                      Severance
Compensation.  In exchange for your
agreement to the release and waiver of claims set forth in Section 8 below
and your other agreements herein, in addition to the payments referred to in Section 2
above, and subject to the provisions of Section 7 and Section 14
below and for so long as you continue to comply with all the provisions of this
Agreement, Versant agrees:  (a)  to
continue to pay you as a severance payment, until February 28, 2006 (the “Severance Expiration Date”) an
amount in cash each month (pro-rated for any partial month) at a rate equal to
your current monthly base salary of $16,666.66 (less applicable state and
federal tax and other payroll withholding deductions), payable in installments
on each of Versant’s regular payroll payment dates; (b) to pay for the
continuance of your existing coverage under Versant’s health and medical
insurance plans as permitted by COBRA until the Severance Expiration Date; (c) 
to buy out the lease on the laptop personal computer currently used by you
(which is an IBM Thinkpad personal computer, Serial No. FX05576) and
transfer ownership thereof to you as promptly as reasonably practicable after
the Separation Date, but only if such a buy out of the lease is permitted under
the terms of such lease and all confidential and proprietary information
regarding Versant is first removed from the hard drive of such computer; and (d) to
continue to provide you with the email and Blackberry messaging service you currently
receive from Versant until the Severance Expiration Date (the compensation
described in clause (a), (b), (c) and (d) of this Section 4
being collectively referred 

 

 

to in this Agreement as the “Severance”).

 

5.                                      Consulting
Obligation.  Subject to the terms and
conditions of this Section 5 and Section 14 below, in consideration
of the agreements of Versant under this Agreement, you hereby agree with
Versant that, from the Separation Date through the Severance Expiration Date,
you will make yourself available to, and will provide, consulting services and
advice to Versant as an independent consultant with respect to transition
matters concerning Versant’s business and operations (a) for up to forty
(40) hours per week as requested by Versant’s Chief Executive Officer until August 31,
2005 and (b) after August 31, 2005 until the Severance Expiration
Date, for up to ten (10) hours
per month as requested by Versant’s Chief Executive Officer (the “Consulting Services”).  You agree that the Severance and the
agreements of Versant under Section 3 will constitute the only
compensation that you will be entitled to receive for the Consulting Services.
You will not incur, nor be reimbursed for, any out-of-pocket or other expenses
in performing the Consulting Services unless Versant approves such expenses in
advance in a writing signed by Versant’s Chief Executive Officer.  You agree that your duties of confidentiality
under your Employee Invention Agreement (as defined below) and under Section 6
below will continue to apply to any Proprietary Information (as defined in that
agreement) or other confidential information of Versant which you learn or have
access to in the course of your providing the Consulting Services.

 

6.                                      Confidential
Information.  You hereby acknowledge
that you now are bound by, and after the Separation Date you will continue to
be bound by, your Employee Invention Assignment and Confidentiality Agreement
with Versant dated as of July 14, 2000 (the “Employee
Invention Agreement”), and that as a result of your employment
with Versant you have had access to Versant’s Proprietary Information (as
defined in the Employee Invention Agreement). You hereby confirm and agree that
you will hold in strictest confidence and not disclose all Proprietary Information
(including but not limited to any Proprietary Information which you learn or to
which you are provided access in the course of your providing the Consulting
Services pursuant to Section 5 above), and that you will not make use of
any such Proprietary Information on behalf of anyone.  You further confirm that you have delivered
to Versant all documents and data of any nature containing or pertaining to
such Proprietary Information and that you have not taken with you any such
documents or data or any reproduction thereof. 
Nothing herein will prevent Versant from disclosing this Agreement.

 

7.                                      Non-Competition
and Non-Solicitation.  As a material
consideration for the Severance, and in addition to any similar obligations you
have under the Employee Invention Agreement, you hereby specifically agree with
Versant that, during any period of time in which you are receiving Severance
from Versant under Section 4 hereof, you shall not, directly or
indirectly:  (a) engage in any
Competing Business (as defined below); or (b) solicit or induce any of the
employees, independent contractors or agents of Versant or any of its
subsidiaries to end or diminish their relationships with or services to Versant
or any of its subsidiaries, nor shall you solicit, recruit or otherwise induce
any such person to perform services for you or for any other person or entity.
The foregoing non-solicitation obligation extends to all employees, independent
contractors and agents of Versant and all Versant’s subsidiaries, business
units and/or divisions.  A “Competing Business” means the
business of developing, supporting, marketing, distributing, licensing, or
otherwise providing database management software or related maintenance,
support or consulting services.  You
agree with Versant that, before you commence any employment or 

 

 

other services for any company or business (other than
Versant) during any period of time in which you are receiving Severance from
Versant under Section 4 hereof, you will first notify Versant in writing
of the specific nature of such employment or other services and the identity of
the company or business for whom you will provide such services or be employed
by (the “Employment Notice”) so that
Versant may decide whether it believes that such services or employment will
constitute a Competing Business.  In the
event that you engage in a Competing Business, you will immediately cease to be
entitled to receive any further Severance and your right to exercise your
Versant options will immediately terminate. 
Provided you have complied with your obligation to give Versant the
Employment Notice, if you thereafter engage in a Competing Business described
in an Employment Notice you will not be deemed to be in breach of this Section 7
so long as you promptly reimburse Versant for any Severance you received to
which you are not entitled under this Section 7.  Nothing in this Section 7 is intended to
modify your consulting obligations under Section 5 hereof.  In addition, nothing in this Agreement is
intended to release you from any of your obligations under the Employee
Invention Agreement or from any other fiduciary or other duty (at law or
otherwise) to refrain from disclosing or using (or permitting others to use)
any confidential or proprietary information or technology of Versant or any
trade secrets of Versant.

 

8.                                      General
Release and Waiver of Claims.

 

(a)                                  Waiver
and General Release.  The payments
and promises of Versant set forth in this Agreement are being paid and made by
Versant in full satisfaction of all accrued salary, vacation pay, bonus pay,
profit-sharing, stock options, termination benefits or other compensation to
which you may be entitled by virtue of your employment with Versant or your
separation from and termination of employment with Versant.  In consideration of Versant’s agreements
under this Agreement, you hereby irrevocably release and discharge Versant, its
successors and assigns, subsidiaries, affiliates, and the past and present
employees, officers, directors, shareholders, agents, attorneys and
representatives of Versant and its subsidiaries and affiliates (Versant,
together with its successors, assigns, subsidiaries, affiliates, and such past
and present employees, officers, directors, shareholders, agents, attorneys and
representatives being collectively referred to as the “Releasees”) from all
claims, liabilities, demands and causes of action known or unknown, fixed or
contingent, which you have or may hereafter have arising out of or in any way
connected with your employment or other relationship with Versant, or the
termination of your employment with Versant; provided, however,
that notwithstanding the foregoing, the foregoing release and discharge will not
release or discharge Versant from: (i) any of its unperformed express
obligations to you under this Agreement; (ii) Versant’s obligations with
respect to your Versant options as provided in Section 3 of this
Agreement; or (iii) any rights you may have to indemnification or
advancement of expenses from Versant under Versant’s bylaws or under any
written indemnity agreement entered into by you and Versant that is in effect
on the Separation Date.  The claims you
are releasing under the foregoing release include, but are not limited to,
claims of unlawful discharge, breach of contract, breach of the covenant of
good faith and fair dealing, violation of public policy, defamation, physical
injury, emotional distress, claims for additional compensation or benefits
arising out of your employment or your separation of employment, claims under Title
VII of the 1964 Civil Rights Act, as amended, the California Fair Employment
and Housing Act, the California Family Rights Act, the Americans With
Disabilities Act, the Equal Pay Act of 1963, and any other laws and/or
regulations relating to employment or employment discrimination, including,
without limitation, 

 

 

claims based on age or under the
Age Discrimination in Employment Act or Older Workers Benefit Protection Act.

 

(b)                                 Civil Code 1542
Waiver.  By signing this Agreement
below, you expressly waive any benefits of Section 1542 of the Civil Code
of the State of California, which provides as follows:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME
OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.”

 

(c)                                  Acknowledgements
by You. You represent and agree that: 
(i) Versant has advised you to consult with an attorney regarding
this Agreement and that to the extent, if any, that you desired, you have has
availed himself of this right; (ii) you have carefully read and fully
understand all of the provisions of this Agreement (including but not limited
to the general release of claims set forth above, and that you are voluntarily
entering into this Agreement and making the general release of claims set forth
above; and (iii) you have not relied upon any representations or
statements, written or oral, not set forth in this Agreement.

 

9.                                      Arbitration;
Attorneys’ Fees.  Except for claims
for injunctive relief or the remedy of specific performance or other equitable
remedies arising out of the Employee Invention Agreement or this Agreement (for
which you or Versant may seek relief from a court of competent jurisdiction),
the parties agree to arbitrate any and all claims arising out of this Agreement
or your employment relationship with Versant, including the termination of your
employment with Versant.  Any such
arbitration shall be mandatory and shall be conducted in Santa Clara County,
California before a single arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator’s
decision shall be final and binding and may be enforced by any court of
competent jurisdiction.  If any action at
law or in equity is brought to enforce the terms of this Agreement, the
prevailing party will be entitled to recover its reasonable attorneys’ fees,
costs and expenses from the other party, in addition to any other relief to
which such prevailing party may be entitled.

 

10.                               No Admission of Liability.  This Agreement is not, and you may not
construe or contend it to be, an admission or evidence of wrongdoing or
liability on the part of Versant, its representatives, attorneys, agents,
officers, shareholders, directors, employees, subsidiaries, successors or
assigns. This Agreement will be given the maximum protection allowable under
California Evidence Code Section 1152 and/or any other state or Federal
provisions of similar effect.

 

11.                               Entire Agreement:
This Agreement, the Employee Invention Agreement and the terms of your Versant
options and the option plan or plans they were granted under together
constitute the entire agreement and understanding between you and Versant with
respect to the subject matter of this document and together supersede all prior
negotiations and agreements, written or oral, relating to this subject matter.
You acknowledge that neither Versant nor its agents or attorneys have promised
or represented, either expressly or impliedly, in writing or 

 

 

orally, anything not contained in
this Agreement for the purpose of inducing you to execute this Agreement. You
acknowledge that you have signed this Agreement relying only on the promises,
representations and warranties contained in this Agreement.

 

12.                               Modification.  This Agreement may not be amended or modified
in any respect except by another written agreement that specifically refers to
this Agreement, executed by an authorized representative of each of the
parties.

 

13.                               Period to Review
Agreement.  You acknowledge that this
Agreement was presented to you on June 14, 2005, and that you are entitled
to have up to twenty-one (21) days within which to consider this Agreement. You
acknowledge that you have been advised to consult with an attorney prior to
executing this Agreement. You further represent that if you sign this Agreement
before the expiration of the twenty-one (21) day period, you voluntarily waive
any remaining time period to review and consider this Agreement.

 

14.                               Revocation of Agreement;
Effective Date of Agreement. You understand that you may revoke this
Agreement within seven (7) days of your execution of this document. Any
such revocation must be in writing, and must be received by Versant within such
seven (7) day period.  You understand that the benefits to be provided to you under this
Agreement (including but not limited to the Severance payments described in Section 4
and any extension of time to exercise any of your Versant stock options under Section 3)
will be provided only after the revocation period has expired and you have not
revoked this Agreement. The Effective Date of this Agreement is therefore the
eighth (8th) day after you sign this Agreement, but no earlier than
your Separation Date, which is June 15, 2005.

 

15.                               Directors’
and Officers’ Liability Insurance. To the extent, and only for so long as,
Versant maintains directors’ and officers’ liability insurance (“D&O Insurance”) during the
Follow-on Period (as defined below), Versant will not affirmatively and
specifically exclude you from the definition of covered “directors and officers”
and/or “insured person” under such D&O Insurance, if any, that otherwise
covers Versant’s prior officers and/or directors generally except to the extent
that Versant determines that it is reasonably appropriate to do so in order to (i) obtain
such D&O Insurance and/or (ii) to obtain such D&O Insurance at
rates or premiums that are determined to be reasonable by Versant’s Board of
Directors.  The “Follow-on
Period” means that period of time beginning upon the date of
this Agreement and ending on the earlier of 
(i) two (2) years from the date of this Agreement or (ii) the
date on which (A) Versant is acquired in a merger or consolidation
transaction after which the shareholders of Versant immediately prior to such
transaction cease to own a majority of the voting power of the surviving entity
of such transaction, (B) Versant sells or otherwise disposes of all or
substantially all of its assets or (C) Versant liquidates or dissolves.

 

 

16.                               Section 16 Compliance. You acknowledge that you alone are
responsible for your compliance with Section 16 under the Securities
Exchange Act of 1934, as amended, and all regulations thereunder.  If you agree to the terms of this Agreement,
please sign the attached copy and return it to me on or before June 14,
2005.

 

PLEASE
REVIEW THIS AGREEMENT CAREFULLY. THIS AGREEMENT CONTAINS A WAIVER OF KNOWN AND
UNKNOWN CLAIMS.

 

	
  Very truly yours,

  
	
   

  
	
  VERSANT CORPORATION

  
	
   

  
	
  Name:

  	
   

  	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  READ, UNDERSTOOD AND AGREED TO:

  
	
   

  
	
   

  	
   

  
	
  Lee McGrath

  
						

 

 

Attachment:

 

Exhibit A:                                            Table
of Your Versant OptionsExhibit 10.2

 

AMENDED AND RESTATED

ARTICLES OF INCORPORATION

OF

NEORX CORPORATION

 

Pursuant to
RCW 23B.10.070 and 23B.10.020, the following constitutes Amended and
Restated Articles of Incorporation of NeoRx Corporation, a Washington
corporation, and correctly sets forth without change the corresponding
provisions of the Articles of Incorporation as previously stated and amended
and supersede the original Articles of Incorporation and all amendments
thereto.

 

ARTICLE I.     NAME

 

The name of
this corporation is NeoRx Corporation.

 

ARTICLE II.     DURATION

 

This
corporation shall have perpetual existence.

 

ARTICLE III.     PURPOSES

 

The purposes
for which this corporation is organized is to transact any or all lawful
business for which corporations may be incorporated under the Washington
Business Corporation Act.

 

ARTICLE IV.     POWERS

 

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

 

ARTICLE V.     CAPITAL STOCK

 

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

 

B.            Issuance of Preferred Stock in
Series.  The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of the Articles of Incorporation of the corporation, as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuances thereof, prior to the
issuances of any shares thereof.  The Board
of Directors shall have the authority to fix and determine, subject to the
provisions hereof, the rights and preferences of

 

 

the shares of any series so
established, including the rate of dividend, whether shares may be redeemed
and, if so, the redemption price and the terms and conditions of redemption,
the amount payable upon shares in event of voluntary and involuntary
liquidation, sinking fund provisions, if any, for the redemption or purchase of
shares, the terms and conditions, if any, on which shares may be converted, and
voting rights, if any.

 

C.            Dividends.  The holders of shares of Preferred Stock
shall be entitled to receive dividends, when and as declared by the Board of
Directors, out of funds of the corporation legally available therefor, at such
rate, at such time or times and cumulative or noncumulative, as may be provided
by the Board of Directors in designating a particular series of Preferred
Stock.

 

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

 

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

 

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

 

G.            Voting Rights.  Each outstanding share of Common Stock shall
be entitled to one vote on each matter submitted to a vote of the shareholders,
except as may otherwise be provided in these Articles of Incorporation.  Holders of Preferred Stock shall have such
voting rights as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.  At
each election for directors, every shareholder entitled to vote at such
elections shall have the right to cumulate his or her votes by giving one
candidate as many votes as the number of such directors multiplied by the
number of his or her shares shall equal, or by distributing such votes among
any number of such candidates.

 

ARTICLE VI.     NO
PREEMPTIVE RIGHTS

 

Except as may
otherwise be provided by the Board of Directors, no holder of any shares of
this corporation shall have any preemptive right to purchase, subscribe for or
otherwise acquire any securities of this corporation of any class or kind now
or hereafter authorized.

 

2

 

ARTICLE VII.     REGISTERED
OFFICE AND REGISTERED AGENT

 

A.            The current registered agent of this
corporation in the State of Washington is Corporation Service Company.

 

B.            The location and post office address
of the current registered agent and the current registered office of this
corporation in the State of Washington is 202 North Phoenix Street, Olympia, WA
98506.

 

ARTICLE VIII.     DIRECTORS

 

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

 

B.            The names and post office addresses
of the current Board of Directors of this corporation have been deleted
pursuant to RCW 23B.10.020.

 

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

 

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

 

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

 

ARTICLE IX.     CONFLICTING
INTERESTS

 

This
corporation may enter into contracts and otherwise transact business with its
directors, officers and shareholders and with corporations, associations, firms
and entities in which they are or may become interested as directors, officers,
shareholders, members or otherwise, as freely as though such interests did not
exist, even though the vote, action or presence of such directors, officers or
shareholders may be necessary to obligate this corporation upon such contracts
or transactions.  In the absence of
fraud, no such contracts or transactions shall be void or voidable and no such
directors, officers or shareholders shall be

 

3

 

held liable to account to this
corporation for any profit or benefit realized by them through such contracts
or transactions despite such interests or their fiduciary relationship, if any,
to this corporation.  In the case of
directors and officers of this corporation (but not in the case of shareholders
who are not directors or officers), for the foregoing provisions to be
available to such directors or officers the nature of the interest of such
directors or officers (but not necessarily the details) must have been
disclosed to the Board of Directors of the corporation at or prior to the
meetings at which said contracts or transactions were authorized or confirmed.  A general notice that directors or officers
of this corporation are interested in any other corporation, association, firm
or entity shall be sufficient disclosure with respect to all contracts and
transactions with such corporation, association, firm or entity.

 

ARTICLE X.     RESERVED RIGHTS

 

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

 

ARTICLE XI.     REDEMPTION

 

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

 

ARTICLE XII.     LIMITATION
ON DIRECTOR LIABILITY

 

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

 

ARTICLE XIII.   
INDEMNIFICATION OF DIRECTORS

 

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

 

4

 

STATEMENT OF RIGHTS AND PREFERENCES

OF THE $2.4375 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK,

SERIES 1

($.02 Par Value)

 

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

 

(ii)           Dividends.  Holders of shares of Exchangeable Preferred
Stock will be entitled to receive, when, as and if declared by the Board out of
funds of the Corporation legally available therefor, an annual cash dividend of
$2.4375 per share, payable in semi-annual installments on December 1 and
June 1 commencing June 1, 1990 (each a “dividend payment date”).  Dividends on the Exchangeable Preferred Stock
will be cumulative from the date of initial issuance of shares of Exchangeable
Preferred Stock.  Dividends will be
payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not more than 60 days nor less than
10 days preceding the payment dates thereof, as shall be fixed by the
Board (each a “dividend payment record date”). 
If dividends are not paid in full upon the Exchangeable Preferred Stock
and any other Parity Preferred Stock (as defined in paragraph (iii)
below), all dividends paid and declared upon shares of Exchangeable
Preferred-Stock and Parity Preferred Stock will be paid and declared pro rata
so that in all cases the amount of dividends paid and declared per share on the
Exchangeable Preferred Stock and such other Parity Preferred Stock shall bear
to each other the same ratio that accumulated and unpaid dividends per share on
the shares of Exchangeable Preferred Stock and such other Parity Preferred
Stock bear to each other.  Except as set
forth in the preceding sentence, unless full cumulative dividends on the
Exchangeable Preferred Stock have been paid, dividends (other than in Common
Stock of the Corporation (as defined in subparagraph (iv)(I) below), other
stock ranking junior to the Exchangeable Preferred Stock and rights to acquire
the foregoing) may not be paid or declared and set aside for payment and other
distributions may not be made upon the Common Stock or on any other stock of
the Corporation ranking junior to or on a parity with the Exchangeable
Preferred Stock as to dividends, nor may any Common Stock or any other stock of
the Corporation ranking junior to or on a parity with the Exchangeable
Preferred Stock as to dividends be redeemed, purchased or otherwise acquired
for any consideration by the Corporation (except for repurchases from employees
and consultants at cost and except by conversion into or exchange for stock of
the Corporation ranking junior to the Exchangeable Preferred Stock as to
dividends).  Dividends payable for any
partial dividend period shall be calculated on the basis of a 360-day year of
12 30-day months.  Accrued but unpaid
dividends shall not bear interest.

 

5

 

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

 

(iii)          Rank.  The shares of Exchangeable Preferred Stock
shall rank prior to the shares of Common Stock and of any other class of stock
of the Corporation ranking junior to the Exchangeable Preferred Stock upon
liquidation, so that in the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the
Exchangeable Preferred Stock shall be entitled to receive out of the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any distribution is made to holders of
shares of Common Stock or any other such junior stock, an amount equal to
$25.00 per share (the “Liquidation Preference” of a share of Exchangeable
Preferred Stock) plus an amount equal to all dividends (whether or not earned
or declared) accumulated and unpaid on the shares of Exchangeable Preferred
Stock to the date of final distribution. 
If, upon any liquidation, dissolution or winding up of the Corporation,
the assets of the Corporation, or proceeds thereof, distributable among the
holders of shares of Exchangeable Preferred Stock and Parity Preferred Stock
shall be insufficient to pay in full the preferential amount aforesaid, then
such assets, or the proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be payable on
such shares if all amounts payable thereon were paid in full.  After payment of the full amount of the
Liquidation Preference and such dividends to which holders of shares of
Exchangeable Preferred Stock are entitled, the holders of shares of
Exchangeable Preferred Stock will not be entitled to any further participation
in any distribution of assets by the Corporation.  For the purposes hereof, neither a
consolidation or merger of the Corporation with any other corporation, nor a
sale or transfer of all or any part of the Corporation’s assets for cash or securities
shall be considered a liquidation, dissolution or winding up of the
Corporation.

 

For the
purposes of this statement of Rights and Preferences any stock of any class or
series of the Corporation shall be deemed to rank:

 

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

 

(b)           on a parity with
shares of the Exchangeable Preferred Stock, either as to dividends or upon
liquidation, whether or not the dividend rates, dividend payment dates, or
redemption or liquidation prices per share thereof be different from those of
the Exchange- able Preferred Stock, if the holders of stock of such class or
series shall be entitled by the terms thereof to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in proportion to their respective dividend rates or liquidation prices,
without preference or priority of one over the other as between the

 

6

 

holders of such stock and the holders of
shares of Exchangeable Preferred Stock (the term “Parity Preferred Stock” being
used to refer to any stock on a parity with the shares of Exchangeable
Preferred Stock, either as to dividends or upon liquidation as the context may
require); and

 

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

 

(iv)          Conversion.

 

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

 

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

 

The term “Conversion Price” shall mean $5.50, as adjusted in accordance
with the provisions of this paragraph (iv).

 

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

 

7

 

(II)           In order to
exercise the conversion privilege, the holder of each share of Exchangeable
Preferred Stock to be converted shall surrender the certificate representing
such share at the office of the conversion agent for the Exchangeable Preferred
Stock in the Borough of Manhattan, City of New York or Seattle, Washington,
appointed for such purpose by the Corporation, with the Notice of Election to
Convert on the back of said certificate completed and signed.  Unless the shares issuable on conversion are
to be issued in the same name as the name in which such share of Exchangeable
Preferred Stock is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or the holder’s duly authorized
attorney and an amount sufficient to pay any transfer or similar tax.

 

The holders of shares of Exchangeable Preferred Stock at the close of
business on a dividend payment record date shall be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation’s default in payment of the dividend due on such dividend
payment date.  However, shares of
Exchangeable Preferred Stock surrendered for conversion during the period
between the close of business on any dividend payment record date and the
opening of business on the corresponding dividend payment date (except shares
called for redemption on a redemption date during such period) must be
accompanied by payment of an amount equal to the dividend payable on such
shares on such dividend payment date (the “dividend amount”).  The dividend with respect to a share of
Exchangeable Preferred Stock called for redemption on a redemption date between
the close of business on any dividend payment record date and the opening of
business on the corresponding dividend payment date shall be payable on such
dividend payment date to the holder of such share on such dividend payment
record date notwithstanding the conversion of such share of Exchangeable
Preferred Stock after such dividend payment record date and prior to such
dividend payment date, and the holder converting such share of Exchangeable
Preferred Stock need not include a payment of such dividend amount upon
surrender of such share of Exchangeable Preferred Stock for conversion.  The holders of shares of Exchangeable
Preferred Stock on a dividend payment record date who (or whose transferees)
convert any of such shares on or after the corresponding dividend payment date
will receive the dividend payable by the Corporation on such shares of
Exchangeable Preferred Stock on such dividend payment date, and need not
include payment of the dividend amount upon surrender of such shares for
conversion.  Except as provided above,
the Corporation shall make no payment or adjustment for accrued and unpaid
dividends on shares of Exchangeable Preferred Stock, whether or not in arrears,
on conversion of such shares or for dividends on the shares of Common Stock
issued upon such conversion.

 

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

 

8

 

Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Exchangeable Preferred Stock shall have been surrendered and such notice
received by the Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby at such
time on such date and such conversion shall be at the Conversion Price in
effect at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in effect on the
date upon which shares of Exchangeable Preferred Stock shall have been
surrendered and such notice received by the Corporation.  All shares of Common Stock delivered upon
conversion of the Exchangeable Preferred Stock will upon delivery be duly and
validly issued and fully paid and non-assessable, free of all liens and charges
and not subject to any preemptive rights. 
Upon the surrender of certificates representing shares of Exchangeable
Preferred Stock, such shares shall no longer be deemed to be outstanding and
all rights of a holder with respect to such shares surrendered for conversion
shall immediately terminate except the right to receive the Common Stock or
other securities, cash or other assets as herein provided.

 

(III)         Fractional Shares.  No fractional shares or securities
representing fractional shares of Common Stock shall be issued upon conversion
of the Exchangeable Preferred Stock.  Any
fractional interest in a share of Common Stock resulting from conversion of a
share of Exchangeable Preferred Stock shall be paid in cash (computed to the
nearest cent) based on the last reported sale price of the Common Stock (as
defined in subparagraph (IV)(d) of this paragraph (iv)) on the
business day next preceding the day of conversion.  If more than one share shall be surrendered
for conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate Liquidation Preference of the shares of Exchangeable Preferred
Stock so surrendered.

 

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

 

(a)           In case the
Corporation shall (i) pay a dividend or make a distribution on its Common
Stock in shares of its Common Stock, (ii) subdivide its outstanding Common
Stock into a greater number of shares, or (iii) combine its outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of any share of
Exchangeable Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock of the Corporation
which he would have owned or have been entitled to receive after the happening
of any of the events described above had such share been converted immediately
prior to the happening of such event.  An
adjustment made pursuant to this subparagraph (IV)(a) shall become

 

9

 

effective immediately, except as provided in
subparagraph (IV)(g) below, after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of subdivision or combination.

 

(b)           In case the
Corporation shall issue rights or warrants to all holders of its Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Stock at a price per share
less than the current market price per share of Common Stock (as defined in
subparagraph (IV)(d) below) at the record date for the determination of
stockholders entitled to receive such rights or warrants, the Conversion Price
in effect immediately prior thereto shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in effect
immediately prior to the date of issuance of such rights or warrants by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or warrants plus the number
of shares of Common Stock which the aggregate offering price of the total
number of shares so offered for subscription or purchase would purchase at such
current market price, and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase.  Such
adjustment shall be made successively whenever any such rights or warrants are
issued, and shall become effective immediately, except as provided in
subparagraph (IV)(g) below, after such record date.  In determining whether any rights or warrants
entitle the holders of the Common Stock to subscribe for or purchase shares of
Common Stock at less than such current market price, and in determining the
aggregate offering price of the shares of Common Stock so offered, there shall
be taken into account any consideration received by the Corporation for such
rights or warrants, the value of such consideration, if other than cash, to be
determined by the Board of Directors.

 

(c)           In case the
Corporation shall distribute to all holders of its Common Stock any shares of
capital stock of the Corporation (other than Common Stock) or evidences of
indebtedness or assets (excluding cash dividends or other distributions paid
from retained earnings of the Corporation) or rights or warrants to subscribe
for or purchase any of its securities (excluding those referred to in
subparagraph (IV)(b) above), then, in each such case, the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date of
such distribution by a fraction of which the numerator shall be the current
market price per share of Common Stock (as defined in subparagraph (IV)(d)
below) on the record date mentioned below less the then fair market value (as
determined by the Board, whose determination shall, if made in good faith, be
conclusive) of the portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants applicable to one
share of Common Stock, and of which the denominator shall be the current market
price per share (as defined in subparagraph (IV)(d) below) of the Common
Stock.  Such adjustment shall become
effective immediately, except

 

10

 

as provided in subparagraph (IV)(g)
below, after the record date for the determination of shareholders entitled to
receive such distribution.

 

(d)           Definition of
Current Market Price.  For the
purpose of any computation under subparagraphs (IV)(b) and (c) above, the
current market price per share of Common Stock at any date shall be deemed to
be the average of the last reported sale prices for the ten consecutive Trading
Days (as defined below) preceding the day before the record date with respect
to any distribution, issuance or other event requiring such computation.  The last reported sale price for each day
shall be (i) the last reported sale price of Common Stock on the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation System, or any similar system of automated dissemination of
quotations of securities prices then in common use, if so quoted, or
(ii) if not quoted as described in clause (i), the mean between the
high bid and low asked quotations for Common Stock as reported by the National
Quotation Bureau Incorporated if at least two securities dealers have inserted
both bid and asked quotations for such class of stock on at least five of the
ten preceding days, or (iii) if the Common Stock is listed or admitted for
trading on any national securities exchange, the last sale price, or the
closing bid price if no sale occurred, of such class of stock on the principal
securities exchange on which such class of stock is listed.  If the Common Stock is quoted on a national
securities or central market system, in lieu of a market or quotation system
described above, the last reported sale price shall be determined in the manner
set forth in clause (ii) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in the manner set
forth in clause (iii) of the preceding sentence if actual transactions are
reported.  If none of the conditions set
forth above is met, the last reported sale price of Common Stock on any day or
the average of such last reported sale prices for any period shall be the fair
market value of such class of stock as determined by a member firm of the New
York Stock Exchange, Inc. selected by the Company.  As used herein the term “Trading Days” with
respect to Common Stock means (i) if the Common Stock is quoted on the
National Market System of the National Association of securities Dealers, Inc.
Automated Quotation system or any similar system of automated dissemination of
quotations of securities prices, days on which trades may be made on such
system, or (ii) if not quoted as described in clause (i), days on which
quotations are reported by the National Quotation Bureau Incorporated, or
(iii) if the Common Stock is listed or admitted for trading on any
national securities exchange, days on which such national securities exchange
is open for business.

 

(e)           No adjustment in the
Conversion Price shall be required unless such adjustment would require a
change of at least 1% in such price; provided, however, that any
adjustments which by reason of this subparagraph (IV)(e) are not required
to be made shall be carried forward and taken into account in any subsequent
adjustment; [and provided, further, that adjustment shall be required and made
in accordance with the provisions of this paragraph (iv).  All calculations under this
paragraph (iv) shall be made to the nearest cent or to the nearest one
hundredth of a

 

11

 

share, as the case may be.  Anything in this subparagraph (IV) to
the contrary notwithstanding, the Corporation shall be entitled to make such
reductions in the Conversion Price, in addition to those required by this
subparagraph (IV), as it in its discretion shall determine to be advisable
in order that any stock dividends, subdivision or combination of shares,
distribution of capital stock or rights or warrants to purchase stock or
securities, or distribution of evidences of indebtedness or assets (other than
cash dividends or distributions paid from retained earnings) hereafter made by
the Corporation to its stockholders shall not be taxable.

 

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

 

(g)           In any case in which
this subparagraph (IV) provides that an adjustment shall become effective
immediately after a record date for an event, the Corporation may defer until
the occurrence of such event (i) issuing to the holder of any share of
Exchangeable Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable upon
such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in lieu
of any fraction pursuant to subparagraph (III) of this
paragraph (iv).

 

(V)           If:

 

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

 

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

 

(c)           there shall be any
reclassification of the Common Stock (other than a subdivision or combination
of the outstanding Common Stock and other than a change in the par value, or
from par value to no par value, or from no par value to par value), or any
consolidation, merger, or statutory share exchange to which the Corporation is
a party and for which approval of any stockholders of the Corporation

 

12

 

is required, or any sale or transfer of all
or substantially all the assets of the Corporation or any Change in Control (as
defined in paragraph (ix) below); or

 

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

 

then the Corporation shall cause to be filed with the conversion agent,
and shall cause to be mailed to the holders of shares of the Exchangeable
Preferred Stock at their addresses as shown on the stock books of the
Corporation, at least 15 days prior to the applicable date hereinafter
specified, a notice stating (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (ii) the date on which such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, Change in
Control, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, Change in
Control, dissolution, liquidation or winding up.  Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in subparagraph (VIII) of this paragraph (iv) or in
subparagraph (V)(a), (V)(b), (V)(c) or (V)(d) of this paragraph (iv).

 

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

 

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

 

The Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion of the Exchangeable Preferred Stock
prior to such delivery upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed at the time of such delivery.

 

13

 

Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Exchangeable Preferred Stock, the
Corporation will endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.

 

(VII)        Taxes.  The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on conversion of the Exchangeable
Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the holder of the Exchangeable Preferred
Stock to be converted and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Corporation
the amount of any such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.

 

(VIII)       Mergers or Other
Combinations.  In case of any
reclassification or change of outstanding shares of Common Stock (other than a
change in par value, or as a result of a subdivision or combination), or in
case of any consolidation of the Corporation with, or merger of the Corporation
with or into, any other Person, any merger of another Person into the
Corporation (other than a merger which does not result in a reclassification,
change, conversion, exchange or cancellation of outstanding shares of Common
Stock) or any sale or transfer of all or substantially all of the assets of the
Corporation, the holder of each share of Exchangeable Preferred Stock then
outstanding shall have the right thereafter to convert such share of
Exchangeable Preferred Stock into the kind and amount of securities, cash and
other property which the holder would have been entitled to receive upon such
reclassification, change, consolidation, merger, sale or transfer if the holder
had held the Common Stock issuable upon the conversion of such share of
Exchangeable Preferred Stock immediately prior to such reclassification,
change, consolidation, merger, sale or transfer, assuming such holder of Common
Stock of the Corporation (i) is not a Person with which the Corporation
consolidated or into which the Corporation merged or which merged into the
Corporation or to which such sale or transfer was made, as the case may be
(“constituent Person”), or an Affiliate of a constituent Person and
(ii) failed to exercise any rights of election as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale or transfer (provided, that if the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, sale or transfer is not the
same for each share of Common Stock of the Corporation held immediately prior
to such reclassification, change, consolidation, merger, sale or transfer by
other than a constituent Person or an Affiliate thereof and in respect of which
such rights of election shall not have been exercised (“non-electing share”),
then for the purpose of this subparagraph VIII the kind and amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale or transfer by each non-electing share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-electing shares). 
The above provisions of this subparagraph VIII

 

14

 

shall similarly apply to successive
reclassifications, changes, consolidations, mergers, sales or transfers.

 

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

 

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

 

(I)            If and whenever at
any time or times dividends payable on the Exchangeable Preferred Stock or
Parity Preferred Stock shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for three
semi-annual periods, then the holders of such Exchangeable Preferred Stock and
Parity Preferred Stock having similar voting rights then exercisable shall have
the exclusive right, voting as a single class without regard to series, to
elect two directors of the Corporation, such directors to be in addition to the
number of directors constituting the Board of Directors immediately prior to
the accrual of such right.  The remaining
directors shall be elected in accordance with the provisions of the
Corporation’s Restated Articles of Incorporation and Bylaws by the other class
or classes of stock entitled to vote therefor at each meeting of stockholders
held for the purpose of electing directors. 
Such voting right of the Exchangeable Preferred Stock shall continue
until such time as all cumulative dividends accumulated on the Exchangeable
Preferred Stock and Parity Preferred Stock having cumulative dividends shall
have been paid in full at which time such voting right of the holders of the
Exchangeable Preferred Stock shall terminate, subject to revesting in the event
of each and every subsequent event of default of the character indicated above.

 

Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of the
Exchangeable Preferred Stock and Parity Preferred Stock having similar voting
rights then exercisable, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at each successive annual meeting.

 

At any time when such voting right shall have vested in the holders of
the Exchangeable Preferred Stock, and if such right shall not already have been
initially exercised, a proper officer of the Corporation shall, upon the
written request of the holders of record of 10% in number of shares of the
Exchangeable Preferred Stock then outstanding, addressed to the Secretary of
the Corporation, call a special meeting of the holders of the Exchangeable
Preferred Stock and Parity Preferred Stock having similar voting rights then
exercisable for the purpose of electing directors.  Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of stockholders
at the place for

 

15

 

holding of annual meetings of stockholders of
the Corporation, or, if none, at a place designated by the Secretary of the
Corporation.  If such meeting shall not
be called by the proper officers of the Corporation within 30 days after the
personal service of such written request upon the Secretary of the Corporation,
or within 30 days after mailing the same within the United States of
America, by registered mail, addressed to the Secretary of the Corporation at
its principal office (such mailing to be evidenced by the registry receipt
issued by the postal authorities), then the holders of record of 10% in number
of shares of the Exchangeable Preferred Stock then outstanding may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of stockholders and shall be held at
the same place as is elsewhere provided for in this subparagraph (I).  Any holder of the Exchangeable Preferred
Stock shall have access to the stock books of the Corporation for the purpose
of causing a meeting of stockholders to be called pursuant to the provisions of
this paragraph.  Notwithstanding the
provisions of this paragraph, however, no such special meeting shall be called
during a period within 90 days immediately preceding the date fixed for the
next annual meeting of stockholders.

 

At any meeting held for the purpose of electing directors at which the
holders of the Exchangeable Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of 33-1/3% of the then outstanding shares of the Exchangeable Preferred Stock
and Parity Preferred Stock having similar voting rights then exercisable shall
be required and be sufficient to constitute a quorum of such preferred stock
for the election of directors by such preferred stock.  At any such meeting or adjournment thereof
(A) the absence of a quorum of the holders of the Exchangeable Preferred
Stock and Parity Preferred Stock having similar voting rights then exercisable
shall not prevent the election of directors other than those to be elected by
the holders of such preferred stock, and the absence of a quorum or quorums of
the holders of other classes or series of capital stock entitled to elect such
other directors shall not prevent the election of directors to be elected by
the holders of the Exchangeable Preferred Stock and Parity Preferred Stock
having similar voting rights then exercisable, and (B) in the absence of a
quorum of the holders of Exchangeable Preferred Stock and Parity Preferred
Stock having similar voting rights then exercisable, a majority of the holders
present in person or by proxy of such preferred stock shall have the power to
adjourn the meeting, or appropriate portion thereof, for the election of
directors which the holders of such preferred stock are entitled to elect, from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.

 

The directors elected pursuant to this subparagraph (I) shall
serve until the next annual meeting or until their respective successors shall
be elected and shall qualify; provided, however, that when the
right of the holders of the Exchangeable Preferred Stock to elect directors as
herein provided shall terminate, the terms of office of all persons so elected
by the holders of the Exchangeable Preferred Stock shall terminate, and the
number of directors of the Corporation shall thereupon be such number as may be
provided in accordance with the Restated Articles of Incorporation and Bylaws
of the Corporations irrespective of any increase made pursuant to this
subparagraph (I).

 

16

 

So long as any shares of Exchangeable Preferred Stock are outstanding,
the Restated Articles of Incorporation and Bylaws of the Corporation shall
contain provisions ensuring that the number of Directors of the Corporation
shall at all times be such that the exercise by the holders of shares of Exchangeable
Preferred Stock of the right to elect Directors under the circumstances
provided in this subparagraph (I) will not contravene any provisions of
the Corporation’s Restated Articles of Incorporation or Bylaws.

 

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

 

(vii)         Exchange.  The Exchangeable Preferred Stock is
exchangeable in whole at the option of the Corporation on any dividend payment
date beginning June 1, 1992, for the Corporation’s 9-3/4% Convertible
Subordinated Debentures due 2014 (the “Debentures”) as described in the
Corporation’s Registration Statement on Form S-4, as amended (Registration
No. 33-33152), as filed with the Securities and Exchange Commission.  Holders of

 

17

 

outstanding shares of
Exchangeable Preferred Stock will be entitled to receive $25.00 principal
amount of Debentures in exchange for each share of Exchangeable Preferred Stock
held by them at the time of exchange; provided that the Debentures will
be issuable in denominations of $25.00 and integral multiples thereof.  The Corporation will mail to each record
holder of the Exchangeable Preferred Stock written notice of its intention to
exchange not less than 30 nor more than 60 days prior to the date of exchange
(the “Exchange Date”).  The notice shall specify
the effective date of the exchange and the place where certificates for shares
of Exchangeable Preferred Stock are to be surrendered for Debentures and shall
state that dividends on Exchangeable Preferred Stock will cease to accrue on
such date of exchange.  Prior to giving
notice of intention to exchange, the Corporation shall execute and deliver with
a bank or trust company selected by the Corporation an Indenture substantially
in the form filed as an Exhibit to such Registration Statement with such
changes as may be required by law, stock exchange rule or usage.  The Corporation will cause the Debentures to
be authenticated on the Exchange Date; at such time the rights of the holders
of Exchangeable Preferred Stock as stockholders of the Corporation shall cease
(except the right to receive accumulated and unpaid dividends to the Exchange
Date) and such shares of Exchangeable Preferred Stock shall no longer be deemed
outstanding and shall represent only the right to receive the Debentures and
such accumulated and unpaid dividends. 
Notwithstanding the foregoing, if notice of exchange has been given
pursuant to this paragraph (vii) and any holder of shares of Exchangeable
Preferred Stock shall, prior to the close of business on the Exchange Date,
give written notice to the Corporation pursuant to paragraph (iv) of the
conversion of any or all of the shares held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to the
Corporation), then such exchange shall not become effective as to such shares
to be converted and such conversion shall become effective as provided in
paragraph (iv).  The Debentures will
be delivered to the persons entitled thereto upon surrender to the Corporation
or its agent appointed for that purpose of the certificates for the shares of
Exchangeable Preferred Stock being exchanged therefor.  If the Corporation has not paid full
cumulative dividends on the Exchangeable Preferred Stock to the Exchange Date
(or set aside a sum therefor) the Corporation may not exercise its option to
exchange the Debentures for the Exchangeable Preferred Stock.

 

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

 

	
  Year

  	
   

  	
  Redemption Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1989

  	
   

  	
  27.43750

  	
   

  
	
  1990

  	
   

  	
  27.19375

  	
   

  
	
  1991

  	
   

  	
  26.95000

  	
   

  
	
  1992

  	
   

  	
  26.70625

  	
   

  
	
  1993

  	
   

  	
  26.46250

  	
   

  
	
  1994

  	
   

  	
  26.21875

  	
   

  
	
  1995

  	
   

  	
  25.97500

  	
   

  
	
  1996

  	
   

  	
  25.73125

  	
   

  
	
  1997

  	
   

  	
  25.48750

  	
   

  
	
  1998

  	
   

  	
  25.24375

  	
   

  
	
  1999 and
  thereafter

  	
   

  	
  25.00000

  	
   

  

 

18

 

together in each case with an amount equal to all dividends accumulated
and unpaid to the date fixed for redemption; provided that no such
redemption shall be effected on or before June 1, 1992 unless (i) the
last reported sale price of the Common Stock, as determined in
subparagraph (iv)(IV)(d) herein, equals or exceeds 150% of the conversion
price for at least 20 Trading Days within a period of 30 consecutive
Trading Days ending within five Trading Days prior to the date on which the
notice of redemption is first mailed or (ii) the redemption is effected in
connection with certain circumstances involving a Change in Control (as defined
below).  If the Exchangeable Preferred Stock
is redeemed in connection with certain circumstances involving a Change in
Control prior to June 1, 1992 then, in addition to the amounts payable as
set forth above, the holders of redeemed shares of Exchangeable Preferred Stock
shall also receive as an additional premium an amount equal to the dividends
they would have received on the shares of Exchangeable Preferred Stock redeemed
from, and including, the date of redemption to June 1, 1992.  For the purposes of this
paragraph (viii), a “Change in Control” of the Corporation shall have the
same meaning as applicable to the holder’s optional repurchase right set forth
in paragraph (ix)(ii)(f) hereof, except that the proviso shall not apply.

 

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

 

If a notice of
redemption has been given pursuant to this paragraph (viii) and if, on or
before the date fixed for redemption, the funds necessary for such redemption
shall have been set aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares so called
for redemption, then, notwithstanding that any certificates for such shares
have not been surrendered for cancellation, on the redemption date dividends
shall cease to accrue on the shares of Exchangeable Preferred Stock to be
redeemed, and at the close of business on the redemption date the holders of
such shares shall cease to be stockholders with respect to such shares and
shall have no interest in or claims against the Corporation by virtue thereof
and shall have no voting or other rights with respect to such shares, except
the right to receive the moneys payable upon such redemption and the right to
accumulated and unpaid dividends, without interest thereon, upon surrender (and
endorsement, if required by the Corporation) of their certificates, and the
shares evidenced thereby shall no longer be deemed outstanding.  Notwithstanding the foregoing, if notice of
redemption has been given pursuant to this paragraph (viii) and any holder
of shares of Exchangeable Preferred Stock shall, prior to the close of business
on the date fixed for redemption, give written notice to the Corporation
pursuant to paragraph (iv) of the conversion of any or all of the shares
held by such holder (accompanied by a certificate or certificates for such
shares, duly endorsed or assigned to the Corporation), then such redemption
shall not become effective as to such shares to be converted and such
conversion shall become effective as provided in paragraph (iv).  Subject to applicable escheat laws, any

 

19

 

moneys necessary for redemption
set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption but not
surrendered shall look only to the general funds of the Corporation for the
payment of the amounts payable upon such redemption.  Any interest accrued on funds so deposited
shall be paid to the Corporation from time to time.  Any funds which have been deposited by the
Corporation, or on its behalf, with a paying agent or segregated and held in
trust by the Corporation for the redemption of shares converted into Common
Stock on or prior to the date fixed for such redemption shall (subject to any
right of the holder of such shares to receive the dividend payable thereon as
provided in paragraph (iv)) immediately upon such conversion be returned
to the Corporation or, if then held in trust by the Corporation, shall be
discharged from such trust.

 

(ix)           Repurchase
by the Holder.  In the event that,
prior to June 1, 1994, there shall occur a Change in Control (as
hereinafter defined) of the Corporation, then each holder of a share of
Exchangeable Preferred Stock (“Holder”) shall have the right, at such Holder’s
option, to require the Corporation to repurchase, and upon the exercise of such
right the Corporation shall repurchase, all or any part of such Holder’s shares
of Exchangeable Preferred Stock that is an integral multiple of $25.00, on a
date that is forty-five days after the date of the notice of the Corporation
provided pursuant to subparagraph (I) hereof at a repurchase price equal
to the aggregate Liquidation Preference of the shares to be repurchased, plus
dividends accumulated and unpaid to the repurchase date.  At the option of the Corporation, the
repurchase price may be paid in cash or by delivery of shares of Common Stock
having a fair market value equal to the repurchase price, provided that
payment may not be made in Common Stock unless at the time of payment such
stock is listed on a national securities exchange or quoted on the automated
quotation system of the National Association of Securities Dealers, Inc.
(“NASDAQ”) or another comparable quotation system.  For purposes of this paragraph (ix), the
fair market value of shares of Common Stock shall be equal to 95% of the
average of the last sale prices, as computed under paragraph (iv) (IV)
(d), of such Common Stock for each of the five consecutive Trading Days ending
on and including the third Trading Day immediately preceding the repurchase
date.

 

(I)            (a)           Unless the Corporation shall have
theretofore called for redemption all the outstanding shares of Exchangeable Preferred
Stock pursuant to paragraph (viii) on or before the thirtieth day after
the occurrence of a Change in Control, the Corporation or, at the request of
the Corporation, the paying, or transfer agent, if any, shall mail a notice of
the occurrence of the Change in Control and of the repurchase right set forth
herein arising as a result thereof at least thirty and not more than sixty days
prior to the date fixed for repurchase to the Holders of shares of Exchangeable
Preferred Stock so to be repurchased at their last addresses as the same appear
on the registry books of the Company. 
Such mailing shall be by first class mail.  The notice if mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives such notice.  The
Corporation shall also deliver a copy of such notice of a repurchase right to
the

 

20

 

paying, or transfer agent, if any, and cause
a copy of such notice to be published in a newspaper of general circulation in
the Borough of Manhattan, The City of New York.

 

Each notice of a repurchase right shall
state:

 

(l)            the
repurchase date,

 

(2)           the date by which
the repurchase right must be exercised,

 

(3)           the
repurchase price,

 

(4)           a
description of the procedure which a Holder of Exchangeable Preferred Stock
must follow to exercise a repurchase right, and

 

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

 

In addition, at least two Trading Days preceding the repurchase date,
the Corporation shall cause to be published, in a newspaper of general
circulation in the Borough of Manhattan, The City of New York, a notice
specifying whether the repurchase price will be payable in cash or in shares of
Common Stock.

 

No failure of the Corporation to give the foregoing notices or defect
therein shall limit any Holder’s right to exercise a repurchase right or affect
the validity of the proceedings for the repurchase of the shares of
Exchangeable Preferred Stock.

 

(b)           To exercise a
repurchase right, a Holder shall deliver to the Corporation or the paying or
transfer agent, if any, as the case may be, on or before the thirtieth day
after the date of the notice by the Corporation of a repurchase right
(i) written notice of such Holder’s exercise of such right, which notice
shall set forth the name of the Holder, the aggregate Liquidation Preference of
the shares to be repurchased, a statement that an election to exercise the
repurchase right is being made thereby, and, in the event that the repurchase
price shall be paid in shares of Common Stock, the name or names (with
addresses) in which the certificate or certificates for shares of Common Stock
shall be issued, and (ii) the shares of Exchangeable Preferred Stock with
respect to which the repurchase right is being exercised, duly endorsed for transfer
to the Corporation.  Such written notice
shall be irrevocable, except that the right of the Holder to convert the shares
of Exchangeable Preferred Stock with respect to which the repurchase right is
being exercised shall continue until the close of business on the repurchase
date.  If the repurchase date falls
during the period from the close of business on any dividend payment record

 

21

 

date preceding any dividend payment date to
the opening of business on such dividend payment date, the shares of
Exchangeable Preferred Stock to be repurchased must be accompanied by payment
in New York Clearing House or other funds acceptable to the Company of an
amount equal to the dividend payable on such dividend payment date on the
number of shares being repurchased and, notwithstanding such repurchase, such
dividend payment will be made by the Company to the holder of such share on
such dividend payment record date. 
Promptly thereafter, the paying, or transfer agent, if any, shall
deliver to the Corporation written notice of the aggregate Liquidation
Preference of the shares to be repurchased, the name of each Holder who
exercised the repurchase right and the aggregate Liquidation Preference to be
repurchased with respect to each such Holder.

 

(c)           Upon receipt of the
notice from the paying or transfer agent, if any, or upon notice from each
Holder, as the case may be, and as described in subparagraph (I), the
Corporation shall pay or cause to be paid the repurchase price in cash or
shares of Common Stock, as provided above, to the Holders on the repurchase
date, together with accumulated and unpaid dividends to the repurchase date
payable with respect to the shares of Exchangeable Preferred Stock as to which
the repurchase right has been exercised.

 

(d)           Any issuance of
shares of Common Stock in respect of the repurchase price shall be deemed to
have been effected immediately prior to the close of business on the repurchase
date and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such repurchase
shall be deemed to have become on the repurchase date the holder or holders of
record of the shares represented thereby, provided that any surrender
for repurchase on a date when the stock transfer books of the Corporation shall
be closed shall constitute the Person or Persons in whose name or names the
certificate or certificates for such shares are to be issued as the
recordholder or holders thereof for all purposes at the opening of business on
the next succeeding day on which such stock transfer books are open.  No payment or adjustment shall be made for
dividends or distributions on any Common Stock issued upon conversion of any
share of Exchangeable Preferred Stock.

 

(e)           No fractions of
shares or script representing fractions of shares shall be issued upon
repurchase of shares of Exchangeable Preferred Stock.  If more than one share shall be repurchased
from the same Holder and the repurchase price shall be payable in shares of
Common Stock, the number of full shares which shall be issuable upon such
repurchase shall be computed on the basis of the aggregate Liquidation
Preference of the shares so repurchased. 
Instead of any fractional share of Common Stock which would otherwise be
issuable on the repurchase of any share or shares, the Corporation shall make
payment in lieu thereof in an amount of United States dollars equal to the
value of such fraction computed on the basis of the last sale price of the
Common Stock on the last Trading Day prior to the repurchase date.

 

22

 

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

 

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

 

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

 

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

 

(II)           For purposes of
paragraph (ix):

 

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

 

23

 

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

 

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

 

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

 

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

 

(f)            a “Change in
Control” of the Corporation shall be deemed to have occurred at such time as
any Person is or becomes the beneficial owner, directly or indirectly, through
a purchase, merger or other acquisition transaction or series of transactions,
of shares of capital stock of the Corporation entitling such Person to exercise
seventy-five percent or more of the total voting power of all shares of capital
stock of the Corporation entitled to vote in elections of directors; provided
that a Change in Control shall not be deemed to have occurred if either
(i) the last sale price of the Common Stock on any five Trading Days
during the 10 Trading Day period immediately preceding the date of the
Change in Control shall equal or exceed 105% of the conversion price in effect
on such Trading Day or (ii) all of the consideration (excluding cash
payments for fractional shares) to be paid for the Common Stock in the
transaction or transactions constituting the Change in Control consists of
shares of

 

24

 

common stock traded on a national securities
exchange or through NASDAQ or another comparable quotation system.

 

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

 

(xi)           Number of Shares of Exchangeable
Preferred Stock.  Subject to the
provisions of paragraph (vi) hereof, the Board reserves the right by
subsequent amendment of this resolution from time to time to increase or
decrease the number of shares which constitute the Exchangeable Preferred Stock
(but not below the number of shares thereof then outstanding) and in other
respects to amend this resolution within the limitations provided by law, this
resolution and the Restated Articles of Incorporation.

 

25

 

DESIGNATION OF RIGHTS AND PREFERENCES

OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

 

Section 1.              Designation of Series A Junior
Participating Preferred Stock and Amount.

 

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

 

Section 2.              Dividends and Distributions.

 

(A)          Subject to the rights of the holders
of any shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in
preference to the holders of Common Stock, par value $.02 per share (the
“Common Stock”), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of March, June, September and December in each year (each such
date being referred to herein as a “Quarterly Dividend Payment Date”),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of (i) $1
and (ii) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all noncash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series A Preferred Stock. 
In the event the Corporation shall at any time

 

26

 

declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under clause (ii) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

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

 

(C)           Dividends shall begin to accrue and
be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to accrue
and be cumulative from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear
interest.  Dividends paid on the shares
of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding.  The Board of Directors may
fix a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.

 

Section 3.              Voting Rights.

 

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

 

(A)          Subject to the provision for
adjustment hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to 100 votes on all matters submitted to a
vote of the shareholders of the Corporation. 
In the event the Corporation shall at any

 

27

 

time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.

 

(B)           Except as otherwise provided herein,
in any other Certificate of Designations creating a series of Preferred Stock
or any similar stock, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any other capital
stock of the Corporation having general voting rights shall vote together as
one class on all matters submitted to a vote of shareholders of the
Corporation.

 

(C)           Except as set forth herein, or as
otherwise provided by law, holders of Series A Preferred Stock shall have
no special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.

 

Section 4.              Certain
Restrictions.

 

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

 

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

 

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

 

(iii)          redeem or purchase
or otherwise acquire for consideration shares of any stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in exchange
for shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or

 

28

 

(iv)          redeem or purchase
or otherwise acquire for consideration any shares of Series A Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good faith will result in
fair and equitable treatment among the respective series or classes.

 

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

 

Section 5.              Reacquired Shares.

 

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

 

Section 6.              Liquidation, Dissolution or
Winding Up.

 

Upon any
liquidation, dissolution or winding up of the Corporation, no distribution
shall be made (a) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received $100 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, provided that the holders of
shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be distributed per share
to holders of shares of Common Stock, or (b) to the holders of shares of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up.  In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate amount
to which holders of shares of Series A Preferred Stock were entitled immediately
prior to such event under the

 

29

 

proviso in clause (a) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

Section 7.              Consolidation, Merger, etc.

 

In case the
Corporation shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, then in any
such case each share of Series A Preferred Stock shall at the same time be
similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is changed or exchanged.  In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.

 

Section 8.              No Redemption.

 

The shares of
Series A Preferred Stock shall not be redeemable.

 

Section 9.              Rank.

 

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

 

Section
10.            Amendment.

 

The
Certificate of Incorporation shall not be amended in any manner that would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock, voting together as a single class.

 

30

 

DESIGNATION OF RIGHTS AND PREFERENCES

of

SERIES B CONVERTIBLE PREFERRED STOCK

of
NEORX
CORPORATION

 

(1)           Pursuant
to this Designation of Rights and Preferences of Series B Convertible
Preferred Stock (this “Certificate of
Designation”), a series of preferred stock of NeoRx Corporation (the
“Corporation”) is hereby
designated as Series B Convertible Preferred Stock, which series shall
consist of 1,575 shares, $0.02 par value per share (the “Convertible Preferred Stock”), which shall
have the rights, preferences, privileges and limitations as set forth below:

 

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

 

2.             Voting
Rights.  Except as otherwise provided
herein or by law, the holders of the Convertible Preferred Stock shall have
full voting rights and powers, subject to the Beneficial Ownership Cap as
defined in Section 5(h) and the Maximum Common Stock Issuance as defined
in Section 5(i), equal to the voting rights and powers of holders of the
Corporation’s common stock, par value $0.02 per share (the “Common Stock”) and shall be entitled to
notice of any shareholders meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote, with respect to any question upon
which holders of Common Stock have the right to vote, including, without
limitation, the right to vote for the election of directors, voting together
with the holders of Common Stock and any other capital stock of the Corporation
entitled to vote together with the Common Stock, all as one class.  To the extent permitted under the applicable
rules of the NASD, each holder of shares of Convertible Preferred Stock shall
be entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Convertible Preferred Stock could be converted
on the record date for the taking of a vote, subject to the Beneficial
Ownership Cap limitations set forth in Section 5(h) and the Maximum Common
Stock Issuance as defined in Section 5(i), or, if no record date is
established, at the day prior to the date such vote is taken or any written
consent of shareholders is first executed; provided that for purposes of
determining the number of votes to which a holder of Convertible Preferred
Stock is entitled, if the Conversion Value on the record date is less than the
Current Market Price on the date of the Preferred Stock Purchase Agreement (as
defined below), then such determination shall be made as if the Conversion
Value for such shares of Convertible Preferred Stock on the record date were
equal to the Current Market Price on the date of the Preferred Stock Purchase
Agreement, as adjusted pursuant to Section 5(f), but without any other
adjustments thereto.  Fractional votes
shall not, however, be permitted and any fractional voting rights

 

31

 

resulting from the above
formula (after aggregating all shares into which shares of Convertible
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).

 

3.             Ranking;
Rights on Liquidation.

 

(a)           The Convertible
Preferred Stock shall rank, as to liquidation preference provided herein,
(i) prior to (A) the Corporation’s Common Stock, (B) the
Corporation’s Series A Junior Participating Preferred Stock, $.02 par value
(the “Series A Junior Preferred Stock”),
and (C) any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the majority of the holders of the
Convertible Preferred Stock obtained in accordance with Section 4(a)(iii)
hereof, such series specifically, by its terms, ranks senior to the Convertible
Preferred Stock) (collectively, “Junior
Stock”); (ii) pari  passu with any other class or
series of capital stock of the Corporation hereafter created specifically
ranking, by its terms, on parity with the Convertible Preferred Stock (the “Pari Passu Securities”); and
(iii) junior to (X) the Corporation’s $2.4375 Convertible Exchangeable
Preferred Stock, Series 1, $.02 par value (the “Series 1 Preferred Stock”), and (Y) any class or
series of capital stock of the Corporation hereafter created (with the written
consent of a majority of the holders of the Convertible Preferred Stock
obtained in accordance with Section 4(a)(iii) hereof) specifically
ranking, by its terms, senior to the Convertible Preferred Stock) (the “Senior Stock”).

 

(b)           In the event of any
Liquidation (as defined below), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of Junior Stock, but
after any distribution to the holders of the Senior Stock of any liquidation
preference to which they are entitled, the holders of Convertible Preferred
Stock shall be entitled to receive payment out of such assets of the Corporation
in an amount per share of Preferred Stock equal to the greater of
(i) $10,000 or (ii), as applicable, either (x) in the case of a
Liquidation as described in clause (iii) or (iv) of the definition
thereof, the amount the holder would be entitled to receive if such holder had
converted such share of Convertible Preferred Stock immediately prior to such
Liquidation or (y) in all other cases, the Current Market Price on the
date of Liquidation of the shares of Common Stock into which a share of Convertible
Preferred Stock is then convertible as set forth in Section 5 hereof (such
applicable amount being referred to as the “Liquidation
Preference” for the Convertible Preferred Stock), plus any declared
and unpaid dividends on the Convertible Preferred Stock.  The Liquidation Preference for the
Convertible Preferred Stock shall be payable to the holders of the Convertible
Preferred Stock in the same form (e.g., securities, cash and/or property) as
that which would be offered or payable to the holders of Common Stock of the
Corporation in connection with the Liquidation if they were entitled to such
payment after satisfaction of all rights in preference thereto, and if the
Liquidation occurs pursuant to clause (i) of the definition of
“Liquidation” then such Liquidation Preference shall be immediately payable in
shares of Common Stock.  If the assets of
the Corporation available for distribution to the holders of Convertible
Preferred Stock and holders of Pari Passu Securities, if any, shall not be
sufficient to make in full the payment to such holders of the preferential
amounts payable thereon, such assets shall be distributed ratably among such

 

32

 

shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
liquidation preference payable on all such shares.  The liquidation preference for any Pari Passu
Securities, if any, shall be as set forth in the designation of rights and
preferences filed in respect thereof.

 

(c)           If the assets of the
Corporation available for distribution to shareholders, after any distribution
to the holders of Senior Stock in respect of any liquidation preference to
which they are entitled, exceed the aggregate amount of the Liquidation Preferences
payable with respect to all shares of Convertible Preferred Stock and Pari
Passu Securities then outstanding, then, after the payment required by
paragraphs 3(a) and (b) above shall have been made or irrevocably set
aside, the holders of Junior Stock shall be entitled to receive with respect to
each share of Junior Stock payment from such remaining assets in accordance
with the Articles of Incorporation of the Corporation (the “Articles of Incorporation”).

 

(d)           A “Liquidation” shall mean (i) an acquisition
(other than an acquisition covered by clause (iii) of this sentence) by an
individual or legal entity or group (as set forth in Section 13(d) of the
Exchange Act) of more than 50% of the voting rights or equity interests in the
Corporation, whether in one transaction or in a series of related transactions
approved by the Board; (ii) the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; (iii) the acquisition of the
Corporation by another entity by means of a transaction or series of
transactions (including any reorganization, merger, share exchange or
consolidation other than one effected for the purpose of reincorporating the
Corporation), as a result of which the shareholders of the Corporation receive
cash, securities or other property in exchange for their shares and the holders
of the Corporation’s equity voting securities immediately prior to the
transaction together own less than 80% of the outstanding voting power of the
surviving or resulting corporation; or (iv) the sale of all or
substantially all of the assets of the Corporation such that a vote of the
shareholders of the Corporation is taken pursuant to the law of the
Corporation’s state of incorporation to approve the sale.  For avoidance of doubt, a “Liquidation”
pursuant to clause (i) of the preceding sentence shall not include
transactions that are strategic collaborations, development agreements, joint
ventures or licensing transactions, in each case, the terms of which are
approved by the Board.

 

(e)           After 5:00 p.m.,
New York time, on the trading day immediately preceding the date of the
consummation or occurrence of a Liquidation (unless such Liquidation is not
actually consummated), all rights of the holders of the shares of Convertible
Preferred Stock (except the right to receive the Liquidation Preference without
interest upon surrender of their certificate or certificates), including the
right to convert pursuant to Section 5(a), shall cease with respect to
such shares, and such shares of Convertible Preferred Stock shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.

 

33

 

4.             Actions
Requiring the Consent of Holders of Convertible Preferred Stock.

 

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

 

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

 

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

 

(iii)          The redemption, purchase
or other acquisition, directly or indirectly, of any shares of capital stock or
debt securities of the Corporation or any of its subsidiaries or any option,
warrant or other right to purchase or acquire any such shares or securities,
other than:  (A) the shares of
Series 1 Preferred Stock provided that (x) the consideration paid upon
such repurchase, redemption or acquisition shall, except where the Board has
approved a Liquidation, be in the form of Common Stock of the Corporation and
(y) that such shares of Series 1 Preferred Stock are immediately
retired upon such repurchase, redemption or acquisition, it being expressly agreed
that, any time after the Board has approved a Liquidation, the Corporation
shall have the right, without the consent of the holders of Convertible
Preferred Stock pursuant to this Section 4, to repurchase, redeem or
acquire the shares of Series 1 Preferred Stock, in whole or in part, for
cash, (B) the redemption of Convertible Preferred Stock pursuant to the
terms hereof, or (C) any securities of the Corporation pursuant to the
terms of an equity-based compensation plan or agreement approved by the Board;
or (D) the cashless exercise, pursuant to the terms thereof, of any option
or warrant issued pursuant to an equity-based compensation plan or agreement
adopted by the Board and approved by the shareholders of the Corporation after
the Date of Original Issue; (E) Common Stock warrants issued pursuant to
the Asset Purchase Agreement dated March 20, 2001, as amended, between the
Corporation and International Isotopes, Inc. outstanding on the Original
Issuance Date; or (F) the Common Stock Warrants issued pursuant to the
Preferred Stock and Warrant Purchase Agreement entered into among the
Corporation and the purchasers

 

34

 

of the Convertible Preferred Stock on the
Date of Original Issue (the “Preferred Stock
Purchase Agreement”);and

 

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

 

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

 

Each of the following transactions shall constitute a “Change of Control” (without regard to
whether such transaction also is deemed a Liquidation under
Section 3):  (i) any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation;
(ii) the acquisition of the Corporation by another entity by means of a
transaction or series of transactions (including any reorganization, merger,
share exchange or consolidation other than one effected for the purpose of
reincorporating the Corporation), as a result of which the shareholders of the
corporation receive cash, securities or other property in exchange for their
shares and the holders of the Company’s equity voting securities immediately
prior to the transaction together own less than 80% of the outstanding voting
power of the surviving or resulting corporation; (iii) the sale of all or
substantially all of the assets of the Corporation; or (iv) the
acquisition by an individual or legal entity or group (as set forth in
Section 13(d) of the Exchange Act) of more than 50% of the voting rights
or equity interests in the Corporation, whether in one transaction or in a
series of related transactions.

 

(c)           Nothing in this
Section 4 nor any other provision of this Certificate of Designation shall
in any manner, directly or indirectly, (i) impair or restrict any right of
the Corporation under, or prohibit, restrict or require shareholder approval,
including approval of the holders of Convertible Preferred Stock, of any
actions contemplated or permitted by, the Rights Agreement between the
Corporation and First Interstate Bank of Washington, NA, as Rights Agent, dated
as of April 10, 1996, as currently in effect and as may in the future be
amended from time to time (the “Rights
Agreement”), including but not limited to, the issuance, redemption,
conversion, exchange or cancellation of any Rights, Common Shares or Preferred
Shares (each as defined in the Rights Agreement), the supplementation or
amendment of the Rights Agreement, and extension of the Final Expiration Date
of the Rights (as defined in the Rights Agreement), or (ii) require
shareholder approval, including approval of the holders of Convertible
Preferred Stock, or directly or indirectly impair, restrict or prohibit the
adoption of a new rights plan or arrangement in the event of termination or
expiration of the current Rights Agreement.

 

35

 

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

 

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

 

5.             Conversion.

 

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

 

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

 

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

 

(2)           if there shall then be
a public market for the Common Stock, the higher of (x) the book value per
share of Common Stock at such date, and (y) the average of the daily
market prices for the 20 consecutive trading days immediately before such
date (except that where the Current Market Price is determined for purposes of
Section 2, such average of the daily market prices shall be over

 

36

 

5 consecutive trading days rather than
20).  The daily market price for each
such trading day shall be (i) the closing bid price on such day on the
principal stock exchange (including Nasdaq) on which such Common Stock is then
listed or admitted to trading, or quoted, as applicable, (ii) if no sale
takes place on such day on any such exchange, the last reported closing bid
price on such day as officially quoted on any such exchange (including Nasdaq),
(iii) if the Common Stock is not then listed or admitted to trading on any
stock exchange, the last reported closing bid price on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation Bureau, Inc.,
(iv) if neither such corporation at the time is engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business, or (v) if there is no such firm, as furnished by any member of
the National Association of Securities Dealers, Inc. (the “NASD”) selected mutually by holders of a
majority of the Convertible Preferred Stock and the Corporation or, if they
cannot agree upon such selection, as selected by two such members of the NASD,
one of which shall be selected by holders of a majority of the Convertible
Preferred Stock and one of which shall be selected by the Corporation (as
applicable, the “Daily Market Price”).

 

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

 

(b)           Mandatory Conversion.  Subject to the limitations set forth in
Section 5(h) and Section 5(i) hereof, at any time after the date that
is 6 months after the original date of issuance of the Convertible Preferred
Stock (the “Date of Original Issue”),
the Corporation may elect, upon twenty days prior written notice to the holders
of the Convertible Preferred Stock (the “Corporation
Conversion Notice”), to have all (but not less than all) of the then
outstanding shares of Convertible Preferred Stock converted into Common Stock
so long as a Conversion Triggering Event has occurred prior to the date of such
conversion.   In the event of such
election by the Corporation and delivery of the Corporation Conversion Notice,
each outstanding share of Convertible Preferred Stock shall be converted, as of
the Corporation Conversion Date (defined Section 5(c)(iv) below), into
such number of fully paid and non-assessable shares of Common Stock as is
determined by dividing (i) the aggregate Stated Value of the shares of
Convertible Preferred Stock to be converted plus declared and unpaid dividends
thereon by (ii) the Conversion Value (as hereinafter defined) then in
effect for such Convertible Preferred Stock. 
Following receipt of

 

37

 

a Corporation Conversion Notice, the holders
of Convertible Preferred Stock may from time to time deliver Conversion Amount
Notices (as defined below) to the Corporation.

 

“Conversion Triggering Event”
means:

 

(A)          The Registration
Statement (as hereinafter defined) covering all of the shares of Common Stock
into which the Convertible Preferred Stock is convertible is effective (or all
of the shares of Common Stock into which the Convertible Preferred Stock is
convertible may be sold without restriction pursuant to Rule 144(k)
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the “Securities Act”)),
the Common Stock shall then be listed or admitted to trading, or quoted, as
applicable on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the Nasdaq Small Cap Market and the volume weighted
average price (VWAP) of the Common Stock on the principal stock exchange
(including Nasdaq) on which such Common Stock is then listed or admitted to
trading, or quoted, as applicable, for each trading day over a period of twenty
(20) consecutive trading days is equal to or greater than $8.00 per share
(subject to adjustment for stock splits, reverse splits, stock dividends and
the like); or

 

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

 

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

 

(c)           Mechanics of
Conversion.

 

(i)            Such right of
conversion (other than mandatory conversion) shall be exercised by the holder
of shares of Convertible Preferred Stock by delivering to the Corporation a
conversion notice in the form attached hereto as Exhibit A (the “Shareholder Conversion Notice”),
appropriately completed and duly signed and specifying the number of shares of
Convertible Preferred Stock that the holder elects to convert (the “Converting Shares”) into shares of Common
Stock, and by surrender not later than two (2) business days thereafter of the
certificate or certificates representing such Converting Shares.  The Shareholder Conversion Notice shall also
contain a statement of the name or names (with addresses and tax identification
or social security numbers) in which the certificate or certificates for Common
Stock shall be issued, if other than the name in which the Converting Shares
are registered.  Promptly after the
receipt of the Shareholder Conversion Notice, the Corporation shall issue and
deliver, or cause to be delivered, to the holder of the Converting Shares or
such holder’s nominee, a certificate or certificates for the number of shares
of Common Stock issuable upon the conversion of such Converting Shares.  Such conversion shall be deemed to have been
effected as of the close of business on the date of receipt by the Corporation
of the Shareholder Conversion

 

38

 

Notice (the “Shareholder
Conversion Date”), and the person
or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the holder or holders of record
of such shares of Common Stock as of the close of business on the Shareholder
Conversion Date.

 

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

 

(iii)          The Corporation shall
effect the issuance of Common Stock upon any conversion (and certificates for
unconverted Convertible Preferred Stock) within three (3) trading days after
the Shareholder Conversion Date or the Corporation Conversion Date, as
applicable, and shall transmit the certificates by messenger or reputable
overnight delivery service to reach the address designated by such holder
within three (3) trading days after the receipt by the Corporation of the
Shareholder Conversion Notice or Conversion Amount Notice, provided, however,
that if the Conversion Amount Notice is delivered prior to the Corporation
Conversion Date, the Corporation shall so transmit the certificates within
three (3) trading days after the Corporation Conversion Date.  If certificates evidencing the Common Shares
are not received by the holder within five (5) trading days of the Shareholder
Conversion Notice, then the holder will be entitled to revoke and withdraw its
Shareholder Conversion Notice, in whole or in part, at any time prior to its
receipt of those certificates.  In lieu
of delivering physical certificates representing the Common Stock issuable upon
conversion of Converting Shares or in payment of dividends hereunder, provided
the Corporation’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated
Securities Transfer (“FAST”)
program, upon request of the holder, the Corporation shall use its commercially
reasonable best efforts to cause its transfer agent to electronically transmit
the Common Stock issuable upon conversion or dividend payment to the holder, by
crediting the account of the holder’s prime broker with DTC through its Deposit
Withdrawal Agent Commission (“DWAC”)
system.  The time periods for delivery
described above, and for delivery of Common Stock in payment of dividends
hereunder, shall apply to the electronic transmittals through the DWAC
system.  The parties agree to coordinate
with DTC to accomplish this objective. 
The person or persons entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Common Shares at the close of business on the Shareholder
Conversion Date, the Corporation Conversion Date or such later date upon which
conversion occurs following delivery to the Corporation of a Conversion Amount
Notice, as applicable.  If the conversion
has not been rescinded in accordance with this paragraph and the Corporation
fails to deliver to the holder such certificate or certificates (or shares
through DTC) pursuant to this Section 5 (free of any restrictions on transfer
or legends, if such shares have been registered) in accordance herewith, prior
to the seventh trading day after the

 

39

 

Shareholder Conversion Date, the Corporation
Conversion Date or such later date upon which conversion occurs following
delivery to the Corporation of a Conversion Amount Notice, as applicable
(assuming timely surrender of the Convertible Preferred Stock certificates),
the Corporation shall pay to such holder, in cash, on a per diem basis, an
amount equal to 2% of the Liquidation Preference of all Convertible Preferred
Stock held by such holder per month until such delivery takes place.

 

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

 

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

 

(d)           Beneficial Ownership
Cap.  To the extent that any shares
of Convertible Preferred Stock are not converted upon the occurrence of the
Corporation Conversion Date on account of the application of Section 5(h),
such shares of Convertible Preferred Stock shall be deemed converted
automatically under this Section 5 at the first moment after the Corporation
Conversion Date when Section 5(h) would not prevent such conversion.  Notwithstanding the preceding sentence, upon
the Corporation Conversion Date, the right to: 
(i) the liquidation preference of the Convertible Preferred Stock,
including, without limitation, the right to be treated as holders of
Convertible Preferred Stock in the event of a merger, share exchange or
consolidation; (ii) the voting rights described in Section 4 hereof;
(iii) the redemption rights in Section 12 hereof and (iv) all
other preferential rights granted to holders of the Convertible Preferred Stock
shall cease 

 

40

 

immediately. 
Nothing in this Section 5(d) shall limit the rights described in
Sections 5(f) and (g).

 

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

 

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

 

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

 

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

 

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

 

then in each such case the Conversion Value shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding immediately before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. 
Any adjustment made pursuant to clause (i) of this
Section 5(f) shall become effective immediately after the record date for
the determination of shareholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clauses (ii) or (iii) of this
Section 5(f) shall become effective immediately after the effective date
of such subdivision or combination.  If
any event requiring an adjustment under this paragraph occurs during the period
that a Conversion Value is calculated hereunder, then the calculation of such
Conversion Value shall be adjusted appropriately to reflect such event.

 

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

 

(i)            cash,

 

(ii)           any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property or assets of any nature whatsoever (other than cash or additional
shares of Common Stock as provided in Section 5(f) hereof), or

 

41

 

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

 

then upon any conversion of Convertible Preferred Stock that occurs
after such record date, the holder of Convertible Preferred Stock shall be
entitled to receive, in addition to the shares of Common Stock otherwise issuable
upon such conversion of the Convertible Preferred Stock (“Conversion Shares”), the Distributed
Property that such holder would have been entitled to receive in respect of
such number of Conversion Shares had the holder been the record holder of such Conversion
Shares as of such record date.  Such
distribution shall be made whenever any such conversion is made.  In the event that the Distributed Property
consists of property other than cash, then the fair value of such Distributed
Property shall be as determined in good faith by the Board of Directors of the
Corporation and set forth in reasonable detail in a written valuation report
(the “Valuation Report”) prepared
by the Board of Directors.  The
Corporation shall give written notice of such determination and a copy of the
Valuation Report to all holders of Convertible Preferred Stock, and if the
holders of a majority of the outstanding Convertible Preferred Stock object to
such determination within twenty (20) business days following the date such notice
is given to all of the holders of the Convertible Preferred Stock, the
Corporation shall submit such valuation to an investment banking firm of
recognized national standing selected by not less than a majority of the
holders of the Convertible Preferred Stock and acceptable to the Company in its
reasonable discretion, whose opinion shall be binding upon the Corporation and
the holders of Convertible Preferred Stock. 
A reclassification of the Common Stock (other than a change in par
value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Corporation to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this
Section 5(g) and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Common Stock within the
meaning of Section 5(f).

 

(h)           Blocking Provision.

 

(i)            Except as provided
otherwise in this Section 5(h)(i), the number of Conversion Shares that
may be acquired by any holder, and the number of shares of Convertible
Preferred Stock that shall be entitled to voting rights under Section 2
hereof, shall be limited to the extent necessary to insure that, following such
conversion (or deemed conversion for voting purposes), the number of shares of
Common Stock then beneficially owned by such holder and its Affiliates and any
other persons or entities whose beneficial ownership of Common Stock would be
aggregated with the holder’s for purposes of Section 13(d) of the Exchange
Act (including shares held by any “group” of which the holder is a member, but
excluding shares beneficially owned by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to

 

42

 

the limitation set forth herein) does not
exceed 4.99% of the total number of shares of Common Stock of the Corporation
then issued and outstanding (the “Beneficial
Ownership Cap”).  For purposes
hereof, “group” has the meaning set forth in Section 13(d) of the Exchange
Act and applicable regulations of the Securities and Exchange Commission, and
the percentage held by the holder shall be determined in a manner consistent
with the provisions of Section 13(d) of the Exchange Act.  As used herein, the term “Affiliate” means any person or entity
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a person or entity, as such terms
are used in and construed under Rule 144 under the Securities Act.  With respect to a holder of Convertible
Preferred Stock, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such holder will be
deemed to be an Affiliate of such holder. 
Each delivery of a Shareholder Conversion Notice or Conversion Amount
Notice by a holder of Convertible Preferred Stock will constitute a
representation by such Holder that it has evaluated the limitation set forth in
this paragraph and determined, subject to the accuracy of information filed
under the Securities Act and the Exchange Act by the Corporation with respect
to the outstanding Common Stock of the Corporation, that the issuance of the
full number of shares of Common Stock requested in such Shareholder Conversion
Notice or Conversion Amount Notice is permitted under this paragraph and the
Corporation shall have no obligations to such holder to verify the Beneficial
Ownership Cap.  This paragraph shall be
construed and administered in such manner as shall be consistent with the
intent of the first sentence of this paragraph. 
Any provision hereof which would require a result that is not consistent
with such intent shall be deemed severed herefrom and of no force or effect
with respect to the conversion contemplated by a particular Shareholder
Conversion Notice or Conversion Amount Notice.

 

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

 

43

 

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

 

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

 

(i)            Overall Cap on
Common Stock Issuable. 
Notwithstanding anything contained herein to the contrary, if the rules
of Nasdaq require, the aggregate number of shares of Common Stock issued and
issuable by the Corporation upon the conversion of the Convertible Preferred
Stock shall not exceed 19.99% of the number of shares of Common Stock or 19.99%
of the voting power outstanding on the Date of Original Issue, subject to
appropriate adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock (the “Maximum Common Stock Issuance”), unless the issuance of
shares hereunder in excess of the Maximum Common Stock Issuance shall first be
approved by the Corporation’s shareholders in accordance with applicable law
and the By-laws and Articles of Incorporation of the Corporation.  Each holder of Convertible Preferred Stock
shall be entitled to receive the number of shares of Common Stock equal to such
holder’s pro rata share of the Maximum Common Stock Issuance (based upon its
aggregate purchase price paid under the Preferred Stock Purchase
Agreement).  If a holder has converted
and exercised all of its Convertible Preferred Stock, but has not depleted the
total number of pro rata shares allocated to it hereunder, its remaining pro
rata shares shall be reallocated amongst the other holders still holding
Convertible Preferred Stock on a pro rata basis.  If at any point in time and from time to time
(each a “Trigger Date”) the
number of shares of Common Stock issued pursuant to conversion of the
Convertible Preferred Stock, together with the number of shares of Common Stock
that would then be issuable by the Corporation in the event of conversion of
all the Convertible Preferred Stock then outstanding, would exceed the Maximum
Common Stock Issuance but for this Section 5(i), then the Corporation
shall promptly call a shareholders meeting to obtain shareholder approval for
the issuance of Common Stock hereunder in excess of the Maximum Common Stock
Issuance, provided, however, that the Corporation shall not be required to call
a special meeting for such purpose if the Corporation’s annual meeting is to
take place within three months of the date on which the Corporation becomes
aware that such approval will be required and the Corporation includes such
approval for action at the annual meeting.

 

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

 

44

 

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

 

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

 

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

 

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

 

For purposes of this Section 5(k)(i), the number of shares of
“Common Stock Outstanding” shall be deemed to include the Common Stock issuable
upon conversion of all outstanding shares of preferred stock, upon conversion
of all other outstanding securities convertible into Common Stock, and upon
exercise of all outstanding rights, options or warrants to acquire Common Stock
or securities convertible into Common Stock (and assuming conversion of
convertible securities issuable upon exercise of such rights, options or
warrants) where such rights, options or warrants are both vested at such time
and the strike price or exercise price thereof is below the Current Market
Price of the Common Stock.

 

(ii)           Issuance of Common
Stock Equivalents.  If at any time
while the Convertible Preferred Stock is outstanding the Corporation shall
issue or sell any warrants or other rights to subscribe for or purchase any
additional shares of Common Stock or any securities convertible, directly or
indirectly, into shares of Common Stock (collectively, “Common Stock Equivalents”), whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the effective price per share for which Common Stock is issuable upon the
exercise, exchange or conversion of such Common Stock Equivalents shall be less
than the current Conversion Value in effect immediately prior to the time of
such issue or sale, then the current Conversion Value shall be adjusted as
provided in Section 5(k)(i) on the basis that the maximum number of
additional shares of Common Stock issuable pursuant to all such Common Stock
Equivalents shall be deemed to have been issued and outstanding and the
Corporation shall have received all of the consideration payable therefor, if
any, as of the date of the actual issuance of such Common Stock

 

45

 

Equivalents. 
No further adjustments to the current Conversion Value shall be made
under this Section 5(k) upon the actual issue of such Common Stock upon
the exercise, conversion or exchange of such Common Stock Equivalents.

 

(iii)          Certain
Issues of Common Stock Excepted.  The
provisions of Section 5(k) shall not apply to any issuance of Additional
Common Stock for which an adjustment is provided under Section 5(f).  The Corporation shall not be required to make
any adjustment of the Conversion Value pursuant to Section 5(k) in the
case of (A) the issuance of securities to employees, consultants, officers
or directors of the Corporation pursuant to stock purchase or stock option
plans or agreements approved by the Board (including options issued prior to
the Date of Original Issue); (B) the issuance of securities in connection
with acquisition transactions approved by the Board (including, but not limited
to mergers, consolidations, share exchanges and asset purchases); (C) the
issuance of securities to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings, service agreements or
similar transactions approved by the Board; (D) the issuance of Common
Stock upon conversion of the Convertible Preferred Stock or the Series 1
Preferred Stock; (E) the issuance of Common Stock upon exercise of the
Warrants (as defined in the Preferred Stock Purchase Agreement); (F) the
issuance of securities pursuant to options, warrants, notes, or other rights to
acquire securities of the Corporation outstanding as of the Date of Original
Issue; (G) the issuance of securities or rights to acquire securities in
connection with strategic collaborations, development agreements, joint
ventures or licensing transactions, the terms of which are approved by the Board;
(H) securities issued or issuable with the affirmative vote of at least a
majority of the then outstanding Convertible Preferred Stock; or (I) the
issuance of securities in connection with the Rights Agreement or any successor
rights plan, poison pill or similar arrangement hereafter approved by the Board
(collectively, “Permitted Dilutive Issuances”).

 

(iv)          Superseding
Adjustment.  If, at any time after
any adjustment to the current Conversion Value shall have been made pursuant to
Section 5(k) as the result of any issuance of Common Stock Equivalents,
(x) the right to exercise, exchange or convert all or a portion of the
Common Stock Equivalents shall expire unexercised, or (y) the conversion
rate or consideration per share for which shares of Common Stock are issuable
pursuant to such Common Stock Equivalents shall be increased solely by virtue
of provisions therein contained for an automatic increase in such conversion
rate or consideration per share, as the case may be, upon the occurrence of a
specified date or event, then any such previous adjustments to the Conversion
Value shall be rescinded and annulled and the additional shares of Common Stock
which were deemed to have been issued by virtue of the computation made in
connection with the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation.  Upon the occurrence of an event set forth in
this Section 5(k)(iv) above, there shall be a recomputation made of the
effect of such Common Stock Equivalents on the basis of:  (i) treating the number of additional
shares of Common Stock or other property, if any, theretofore

 

46

 

actually issued or issuable pursuant to the
previous exercise, exchange or conversion of any such Common Stock Equivalents,
as having been issued on the date or dates of any such exercise, exchange or
conversion and for the consideration actually received and receivable therefor,
and (ii) treating any such Common Stock Equivalents which then remain
outstanding as having been granted or issued immediately after the time of such
increase of the conversion rate or consideration per share for which shares of
Common Stock or other property are issuable under such Common Stock
Equivalents; whereupon a new adjustment to the current Conversion Value shall
be made, which new adjustment shall supersede the previous adjustment so
rescinded and annulled.

 

(l)            Rights Distributed
Under Rights Agreement.  Capitalized
terms used in this Section 5(l) and which are not otherwise defined
herein, shall have the meanings ascribed to them in the Rights Agreement.  While the Rights Agreement or any other
poison pill, rights plan or similar arrangement (each, a “Rights Plan”) shall be in effect:

 

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

 

(ii)           Upon the occurrence of
a Rights Distribution Date, each holder of Convertible Preferred Stock shall
receive, without any further action by the Corporation or the Board, such
number of Rights equal to the number of Rights such Holder would have held if,
immediately prior to the Rights Distribution Date, all of the shares of
Convertible Preferred Stock had been converted into shares of Common Stock at
the then current Conversion Value.  The
Corporation shall issue to each holder of Convertible Preferred Stock
certificates evidencing such Rights, no later than five business days following
such Rights Distribution Date.  In the
event the applicable Rights Plan does not permit such Rights to be granted to
each holder of Convertible Preferred Stock, the Corporation shall promptly
(i) amend the applicable Rights Plan to permit the Corporation to take the
actions set forth in this Section 5(l), or (ii) issue to each holder
of Convertible Preferred Stock an option, right or similar arrangement giving
each such holder the same rights and benefits as they would have held upon the
receipt of the applicable number of Rights.

 

6.             Other
Provisions Applicable to Adjustments. 
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock into which the Convertible Preferred
Stock is convertible and the current Conversion Value provided for in
Section 5:

 

47

 

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

 

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

 

(c)           When Adjustment Not
Required.  If the Corporation
undertakes a transaction contemplated under Section 5(g) and as a result
takes a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase rights
or other benefits contemplated under Section 5(g) and shall, thereafter
and before the distribution to shareholders thereof, legally abandon its plan
to pay or deliver such dividend, distribution, subscription or purchase rights
or other benefits contemplated under Section 5(g), then thereafter no
adjustment shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be rescinded and
annulled.

 

(d)           Escrow of Stock.  If after any property becomes distributable
pursuant to Section 5 by reason of the taking of any record of the holders
of Common Stock, but prior to the occurrence of the event for which such record
is taken, a holder of the Convertible Preferred Stock either converts the Convertible
Preferred Stock or there is a mandatory conversion during such period or such
holder is unable to convert shares pursuant to Section 5(h), such holder
of Convertible Preferred Stock shall continue to be entitled to receive any
shares of Common Stock issuable upon conversion under Section 5 by reason
of such adjustment (as if such Convertible Preferred Stock were not yet
converted) and such shares or other property shall be held in escrow for the
holder of the Convertible Preferred Stock by the Corporation to be issued to
holder of the Convertible Preferred Stock upon and to the extent that the event
actually takes place.  Notwithstanding
any other provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares shall be
canceled by the Corporation and escrowed property returned to the Corporation.

 

48

 

7.             Adjustments
for Reorganization, Reclassification, Consolidation or Merger.

 

(a)           Consolidation
or Merger Not Constituting a Liquidation

 

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

 

(ii)           After 5:00 p.m.,
New York time, on the trading day immediately preceding the effective date of
any merger or consolidation of the Corporation subject to Section 7(a)
(unless such merger or consolidation is not actually effected), all rights of
the holders of the shares of Convertible Preferred Stock (except the right to
receive the Exchange Amount without interest upon surrender of their
certificate or certificates), including the right to convert pursuant to
Section 5(a), shall cease with respect to such shares, and such shares of
Convertible Preferred Stock shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever.

 

(b)           Reorganization or
Reclassification Not Constituting a Liquidation

 

(i)            In the event of
(A) any capital reorganization (other than a consolidation or merger of
the Corporation) or (B) any reclassification of the stock of the Corporation
(other than a change in par value or from no par value to par value or from par
value to no par value, or as a result of a stock dividend or subdivision, split
up or combination of shares, or a reclassification covered by Section 5(f)
or a merger or consolidation of the Corporation), then, if such event set forth
in clause (A) or (B) of this Section 7(b)(i) is not a
Liquidation within the meaning of Section 3(d) hereof (in such case, each
event set forth in (A) and (B) being a “Nonliquidation
Event”), the holders of Convertible Preferred Stock shall after such
Nonliquidation Event receive upon conversion, in lieu of the shares of Common
Stock otherwise issuable, the kind and number of shares of stock or other
securities or property as would have been issued or payable in such
Nonliquidation Event with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion immediately prior
to the time of such Nonliquidation Event.

 

49

 

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

 

8.             Other
Action Affecting Common Stock.  In
case at any time or from time to time the Corporation shall take any action in
respect of its Common Stock, other than the payment of dividends permitted by
Section 5, any Permitted Dilutive Issuances, any Liquidation or any
merger, consolidation, reorganization or reclassification covered by
Section 7, then, if such action will have a materially adverse effect upon
the rights of the holders of Convertible Preferred Stock, the number of shares
of Common Stock or other stock into which the Convertible Preferred Stock is
convertible and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances.

 

9.             Certain
Limitations.  Notwithstanding
anything herein to the contrary, the Corporation agrees not to enter into any
transaction which, by reason of any adjustment hereunder, would cause the
current Conversion Value to be less than the par value per share of Common
Stock.

 

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

 

11.           Notices
of Record Date.  In the event of any
fixing by the Corporation of a record date for 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) or other distribution, any
shares of Common Stock or other securities, or any right to subscribe for,
purchase or otherwise acquire, or any option for the purchase of, any shares of
stock of any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Convertible Preferred Stock
at least twenty (20) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or rights, and the amount and character of such
dividend, distribution or right.

 

12.           Redemption.

 

(a)           Redemption at the
Holders’ Elections.  If a Redemption
Triggering Event (as defined below) has occurred, and a holder has so elected,
the Corporation shall redeem the Convertible Preferred Stock of any holder who
gives a Demand for Redemption

 

50

 

(as defined below).  The Corporation shall, promptly thereafter,
redeem the shares of Convertible Preferred Stock as set forth in the Demand for
Redemption.  The Corporation shall effect
such redemption on the Redemption Date by paying in cash for each such share to
be redeemed an amount equal to the greater of (i) the Redemption Price (as
defined below) or (ii) the total number of shares of Common Stock into
which such Convertible Preferred Stock is convertible multiplied by the Current
Market Price at the time of the Redemption Triggering Event.  “Redemption
Triggering Event” means the Corporation’s failure or refusal to
convert any shares of Convertible Preferred Stock in accordance with the terms
hereof, or the providing of written notice to such effect.  “Redemption Price” means (i) all
declared but unpaid dividends as of the date of Demand for Redemption with
respect to each share to be redeemed, plus (ii) 125% of the Liquidation
Preference of each share to be redeemed.

 

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

 

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

 

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

 

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

 

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

 

(c)           Redemption at the
Corporation’s Election.  If the
holders of the Convertible Preferred Stock, for any reason, whether by
operation of law or otherwise, are or become entitled to a separate class vote
on a Change of Control or Liquidation approved by the Board, or on or in
connection with any document or transaction necessary to accomplish a Change of
Control or Liquidation approved by the Board, then the Corporation may, at the
option of the Board, elect to redeem all of the shares of Convertible Preferred
Stock by giving notice of such election pursuant to Section 12(d)(i)
hereof to all holders of Convertible Preferred Stock.  The amount payable in redemption of each
share of Convertible Preferred Stock (the “Corporation
Redemption Price”) shall be equal to the greater of $10,000 or the
consideration that the Convertible Preferred Stock holder would have received
in the Change of Control or Liquidation if such share of Convertible Preferred
Stock had been converted immediately prior to the consummation of such Change
of Control or Liquidation.  The redemption
shall be effected in the manner specified in paragraph (d) below.   The Corporation Redemption Price shall be
paid in the same form (e.g. securities, cash or other

 

51

 

property) as that offered or payable to the
holders of Common Stock in the Change of Control or Liquidation.

 

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

 

(i)            At
least 15 but no more than 60 days prior to the date fixed for any redemption of
Convertible Preferred Stock (the “Redemption
Date”), written notice shall be given to each holder of record of
Convertible Preferred Stock to be redeemed, notifying such holder of the
redemption to be effected, specifying the Redemption Date, the Corporation
Redemption Price, the place at which payment may be obtained and calling upon
such holder to surrender to the Corporation, in the manner and at the place
designated, its certificate or certificates representing the shares to be
redeemed (the “Redemption Notice”).  On or after the Redemption Date, each holder
of Convertible Preferred Stock to be redeemed shall surrender to the
Corporation the certificate or certificates representing such shares, in the
manner and at the place designated in the Redemption Notice, and thereupon the
Corporation Redemption Price of such shares shall be paid to the person whose
name appears on such certificate or certificates as the owner thereof, and upon
such payment, each surrendered certificate shall be canceled.

 

(ii)           From and after the
close of business on the Redemption Date, unless there shall have been a
default in payment of the Corporation Redemption Price, all rights of the
holders of the shares of Convertible Preferred Stock designated for redemption
as holders of Convertible Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates), including the right to convert pursuant to Section 5(a),
shall cease with respect to such shares, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding
for any purpose whatsoever.

 

(iii)          At or as soon as
practicable following the effective time of the Change of Control or Liquidation
referred to in Section 12(c), the Corporation or the acquiror or successor
thereof, as applicable, shall deposit the Corporation Redemption Price of all
outstanding shares of Convertible Preferred Stock designated for redemption in
the Redemption Notice, and not yet redeemed, with a bank or trust company
having aggregate capital and surplus in excess of $50,000,000 as a trust fund
for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed.  
Simultaneously, the Corporation or the acquiror or successor thereof, as
applicable, shall deposit irrevocable instructions and authorize such bank or
trust company to pay, on and after the date fixed for redemption or prior
thereto, the Corporation Redemption Price of the Convertible Preferred Stock to
the holders thereof upon surrender of their certificates.   The balance of any monies, securities or
other property deposited by the Corporation or the acquiror or successor thereof,
as applicable, pursuant to this paragraph remaining unclaimed at the expiration
of two years following the Redemption Date shall thereafter be returned to the
Corporation

 

52

 

or the acquiror or successor thereof, as
applicable, provided that the stockholder to which such monies, securities or
other property would be payable hereunder shall be entitled, upon proof of its
ownership of the Convertible Preferred Stock, to receive such monies,
securities or other property but without interest from the Redemption Date.

 

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

 

13.           Observer
Rights.

 

(a)           So long as at least 50%
of the shares of Convertible Preferred Stock issued on the Date of Original
Issue remain outstanding, the holders of a majority of the then-outstanding
shares of Convertible Preferred Stock shall have the right, on an annual basis,
to designate one nonvoting observer to attend meetings of the Board of
Directors of the Corporation and any subsidiaries of the Corporation (and any
committees thereof) (the “Observer”)
except as set forth in Section 13(b). 
Prior to such designation, the Observer nominee must be approved by the
Board of Directors, such approval not to be unreasonably withheld or
delayed.  The Corporation (and each
direct and indirect subsidiary thereof) shall give the Observer written notice
of each meeting of the Board of Directors and committees thereof that the
Observer is entitled to attend pursuant to Section 13(b) at the same time
and in the same manner as the members of the Board of Directors or such
committee receive notice of such meetings. 
Except as limited by Section 13(b), the Observer shall be entitled
to receive all written materials and other information given to the directors
in connection with such meetings at the same time such materials and
information are given to the directors, and the Observer shall keep such
materials and information confidential. 
Except as limited by Section 13(b), if the Corporation or a
subsidiary proposes to take any action by written consent in lieu of a meeting
of its Board of Directors or a committee thereof, the Corporation or such
subsidiary shall give written notice thereof to the Observer prior to the
effective date of such consent.  Except
as limited by Section 13(b), the Corporation or such subsidiary shall
provide to the Observer all written materials and other information given to
the directors in connection with such action by written consent at the same
time such materials and information are given to the directors.

 

(b)           The Observer shall be
entitled to attend all general sessions of the Board of Directors and committees
thereof, but shall not be permitted to attend executive sessions of the Board
of Directors and committees thereof.  The
Observer shall not be present at any discussions of the Board of Directors or
receive written materials, communications or other information given to the
directors in connection with such discussions if, in the reasonable opinion of
Corporation’s counsel, the Observer’s presence at such discussions or receipt
of such written materials, communications or other information would jeopardize
the Corporation’s attorney-client privilege. 
Prior to attendance of any meeting of the Board or Directors or any
committee thereof and prior to receipt of any written materials, communications
or other information in connection with such meetings, the Observer shall

 

53

 

enter into a customary confidentiality
agreement in form and substance acceptable in the reasonable judgment of the
Corporation with respect to such meetings, written materials, communications
and other information.

 

14.           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: 
(i) if to the Corporation, to 300 Elliott Avenue West,
Suite 500, Seattle, Washington 98119, Attention:  President, Facsimile No.:
(206) 286-2537, or (ii) if to a holder of Convertible Preferred
Stock, to the address or facsimile number appearing on the Corporation’s
shareholder records or, in either case, to such other address or facsimile
number as the Corporation or a holder of Convertible Preferred Stock may
provide to the other in accordance with this Section.

 

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

 

54

 

EXHIBIT A

 

FORM OF SHAREHOLDER CONVERSION NOTICE

 

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

 

The
undersigned hereby irrevocably elects to convert the number of shares of
Series B Convertible Preferred Stock (the “Convertible Preferred Stock”)
indicated below into shares of common stock, par value $0.02 per share (the
“Common Stock”), of NeoRx Corporation, a Washington corporation (the
“Corporation”), according to the Designation of Rights and Preferences of the
Convertible Preferred Stock and the conditions hereof, as of the date written
below.  The undersigned hereby requests
that certificates for the shares of Common Stock to be issued to the
undersigned pursuant to this Shareholder Conversion Notice be issued in the
name of, and delivered to, the undersigned or its designee as indicated
below.  If the shares of Common Stock are
to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.  A copy of the certificate representing the
Convertible Preferred Stock being converted is attached hereto.

 

	
   

  	
   

  
	
  Date of Conversion (Date
  of Notice)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Number of shares of
  Convertible Preferred Stock owned prior to Conversion

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Number of shares of
  Convertible Preferred Stock to be Converted

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Stated Value of
  Convertible Preferred Stock to be Converted

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Amount of accumulated and
  unpaid dividends on shares of Convertible Preferred Stock to be Converted

  	
   

  
	
   

  	
   

  
	
   

  	
   

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

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Applicable Conversion
  Value

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Number of shares of
  Convertible Preferred Stock owned subsequent to Conversion

  	
   

  

 

55

 

	
  Conversion
  Information: [NAME OF HOLDER]

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address of
  Holder:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Issue Common
  Stock to (if different than above):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Tax ID #:

  	
   

  	
   

  	
   

  
						

 

The
undersigned represents, subject to the accuracy of information filed under the
Securities Act and the Exchange Act by the Corporation with respect to the
outstanding Common Stock of the Corporation, as of the date hereof that, after
giving effect to the conversion of Preferred Shares pursuant to this
Shareholder Conversion Notice, the undersigned will not exceed the “Beneficial
Ownership Cap” contained in Section 5(h) of the Designation of Rights and
Preferences of the Convertible Preferred Stock. 

 

	
   

  	
   

  
	
  Name of Holder

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  
	
  Its:

  
			

 

56

 

CERTIFICATE REGARDING

AMENDED AND RESTATED ARTICLES OF INCORPORATION

OF

NEORX CORPORATION

 

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

 

Dated:  March 16, 2005

 

	
   

  	
  NEORX CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Susan D. Berland

  	
   

  
	
   

  	
  Name: Susan D. Berland

  
	
   

  	
  Its: Chief Financial
  Officer

  

 

57

 

ARTICLES OF AMENDMENT

OF

NEORX CORPORATION

 

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

 

1.             The name of the corporation is
NeoRx Corporation.

 

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

 

ARTICLE V.     CAPITAL STOCK

 

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

 

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

 

4.             These Articles of Amendment are
effective on June 15, 2005.

 

Dated:  June 15, 2005

 

 

	
   

  	
  NEORX CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Gerald McMahon

  	
   

  
	
   

  	
  Name:  Gerald McMahon

  
	
   

  	
  Its:  Chairman and Chief Executive Officer

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