10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

Commission File No. 0-16614

NEORX CORPORATION

(Exact name of Registrant as specified in its charter)

Washington	91-1261311
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

300 Elliott Avenue West, Suite 500, Seattle, Washington 98119-4114

(Address of principal executive offices)

Registrant’s telephone number, including area code: (206) 281-7001

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   o Accelerated filer   o Non-accelerated filer   ý

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

As of May 8, 2006 136,825,894 shares of the Registrant’s common stock, $.02 par value par share, were outstanding.

TABLE OF CONTENTS

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2006

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005 (unaudited)
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 (unaudited)
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 (unaudited)
	Notes to Condensed Consolidated Financial Statements (unaudited)
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II	OTHER INFORMATION
Item 1A.	Risk Factors
Item 6.	Exhibits
Signatures
Exhibit Index

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEORX CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share data)

	March 31			December 31
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	3,203		$	3,523
Cash - restricted	—			1,000
Prepaid expenses and other current assets	440			455
Assets held for sale	56			83
Total current assets	3,699			5,061
Facilities and equipment, at cost:
Equipment and furniture	875			829
	875			829
Less: accumulated depreciation and amortization	(581		)	(556		)
Facilities and equipment, net	294			273
Other assets	494			45
Assets held for sale	3,027			3,027
Licensed products, net of accumulated amortization of $333 and $292	1,667			1,708
Total assets	$	9,181		$	10,114
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,322		$	995
Accrued liabilities	2,431			2,078
Bank loan payable	2,734			3,868
Total current liabilities	6,487			6,941
Long-term liabilities:
Promissory notes payable, net of debt discount of $1,730	1,730			—
Shareholders’ equity:
Preferred stock, $.02 par value, 3,000,000 shares authorized:
Convertible preferred stock, Series 1, 205,340 shares issued and outstanding at March 31, 2006 and December 31, 2005 (entitled in liquidation to $5,300 and $5,175, respectively)	4			4
Convertible preferred stock, Series B, 1,575 shares issued and outstanding at March 31, 2006 and December 31, 2005 (entitled in liquidation to $15,750)	—			—
Common stock, $.02 par value, 200,000,000 shares authorized, 34,332,293 and 34,322,293 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively	686			686
Additional paid-in capital	261,998			258,283
Accumulated deficit, including other comprehensive loss of $0 and $0 at March 31, 2006 and December 31, 2005, respectively	(261,724		)	(255,800		)
Total shareholders’ equity	964			3,173
Total liabilities and shareholders’ equity	$	9,181		$	10,114

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATON AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except per share data)

	Three Months Ended March 31,
	2006			2005
Revenues	$	—		$	—
Operating expenses:
Research and development	2,523			3,345
General and administrative	1,513			1,761
Gain on sale of equipment	(37		)	—
Total operating expenses	3,999			5,106
Loss from operations	(3,999		)	(5,106		)
Other income (expense):
Interest income	38			93
Interest expense	(1,838		)	(63		)
Total other (expense) income	(1,800		)	30
Net loss	(5,799		)	(5,076		)
Preferred stock dividends	(125		)	(125		)
Net loss applicable to common shares	$	(5,924	)	$	(5,201	)
Loss per share applicable to common shares:
Basic and diluted	$	(0.17	)	$	(0.16	)
Shares used in calculation of loss per share:
Basic and diluted	34,327			31,794

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

	Three Months Ended March 31,
	2006			2005
Cash flows from operating activities:
Net loss	$	(5,799	)	$	(5,076	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	67			200
Amortization of discount on note payable	1,730			—
Gain on disposal of equipment	(37		)	—
Stock-based compensation	248			(12		)
Change in operating assets and liabilities:
Prepaid expenses and other assets	15			(7		)
Accounts payable	327			(591		)
Accrued liabilities	228			164
Net cash used in operating activities	(3,221		)	(5,322		)
Cash flows from investing activities:
Proceeds from sales and maturities of investment securities	—			1,500
Facilities and equipment purchases	(47		)	(42		)
Proceeds from sales of equipment	64			—
Net cash provided by investing activities	17			1,458
Cash flows from financing activities:
Repayment of bank note payable principal	(1,134		)	(56		)
Proceeds from bridge notes	3,460			—
Decrease in restricted cash	1,000			—
Payment of offering costs	(449		)	—
Proceeds from stock options and warrants exercised	7			—
Net proceeds from issuance of common stock and warrants	—			3,813
Net cash provided by financing activities	2,884			3,757
Net decrease in cash and cash equivalents	(320		)	(107		)
Cash and cash equivalents:
Beginning of period	3,523			16,254
End of period	$	3,203		$	16,147
Supplemental disclosure of non-cash financing activity:
Accrual of preferred dividend	$	125		$	125
Warrants and beneficial conversion feature	$	3,460		$	—
Supplemental disclosure of cash paid during the period for:
Cash paid for interest	$	62		$	59

See accompanying notes to the condensed consolidated financial statements.

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NEORX CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of NeoRx Corporation and subsidiary (the Company). All intercompany balances and transactions have been eliminated in consolidation.

The Company has historically suffered recurring operating losses and negative cash flows from operations. As of March 31, 2006, the Company had a negative net working capital of $2,788,000 and had an accumulated deficit of $261,724,000 with total shareholders’ equity of $964,000. On April 26, 2006, the Company received approximately $65,000,000 in gross proceeds from the issuance of shares of the Company’s common stock and the concurrent issuance of warrants for the purchase of additional shares of common stock (See Note 7). With the proceeds of the equity financing, management believes that current cash and cash equivalent balances and funds from the equity financing will provide adequate resources to fund operations at least until the end of 2007. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, assuming that the Company will continue as a going concern.

The accompanying condensed consolidated financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC and available on the SEC’s website, www.sec.gov.

The accompanying condensed consolidated financial statements are unaudited. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring accruals necessary to present fairly the Company’s financial position as of March 31, 2006 and the results of operations and cash flows for the periods ended March 31, 2006 and 2005.

The results of operations for the periods ended March 31, 2006 and 2005 are not necessarily indicative of the expected operating results for the full year.

Estimates and Uncertainties:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Note 2. Stock-Based Employee Compensation

At March 31, 2006, the Company’s 2004 Incentive Compensation Plan (the 2004 Plan) was the only compensation plan under which options were available for grant. The Company’s 1991 Stock Option Plan for Non-Employee Directors (the Directors Plan) was terminated on March 31, 2005, and no further options can be granted under that plan. The Company’s 1994 Stock Option Plan (the 1994 Plan) was terminated on February 17, 2004 and no further options can be granted under that plan. The 2004 Plan, as amended and restated in 2005, authorizes the Company’s board or a committee appointed by the board to grant options to purchase a maximum aggregate of 5,000,000 shares of common stock. The 2004 Plan allows for the issuance of incentive stock options and nonqualified stock options to employees, officers, directors, agents, consultants, advisors and independent contractors of the Company, subject to certain restrictions. All option grants expire ten years from the date of grant, except for certain grants to consultants, which have expirations based upon terms of service. Option grants for employees with at least one year of service become exercisable in monthly increments over a four-year period from the grant date. Option grants for employees with less than one year of service and employees receiving

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promotions become exercisable at a rate of 25% after one year from the grant date and then in monthly increments at a rate of 1/48th per month over the following three years. As of March 31, 2006, there were 2,533,163 shares of common stock available for issuance under the 2004 Plan. Although no Company securities are available for issuance under the Directors Plan or the 1994 Plan, options granted prior to termination of those plans continue in effect in accordance with their terms.

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payments,” which revises SFAS 123, “Accounting for Stock-Based Compensation.”  Prior to this, the Company accounted for its stock option plans for employees in accordance with the provisions of Accounting Principles Board Opinion (APBO) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Compensation expense related to employee stock options was recorded if, on the date of grant, the fair value of the underlying stock exceeded the exercise price. The Company applied the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” and related interpretations, which allowed entities to continue to apply the provisions of APBO No. 25 for transactions with employees and to provide pro forma results of operations disclosures for employee stock option grants as if the fair-value based method of accounting in SFAS No. 123 had been applied to these transactions. Stock compensation costs related to fixed employee awards with pro rata vesting were disclosed on a straight-line basis over the period of benefit, generally the vesting period of the options. For options and warrants issued to non-employees, the Company recognized stock compensation costs utilizing the fair value methodology prescribed in SFAS No. 123 over the related period of benefit.

Under SFAS 123R, the Company is required to select a valuation technique or option-pricing model that meets the criteria as stated in the standard, which includes a binomial model and the Black-Scholes model. At the present time, the Company is continuing to use the Black-Scholes model. The adoption of SFAS 123R, applying the “modified prospective application” transition method, as elected by the Company, requires the Company to value stock options prior to its adoption of SFAS 123 under the fair value method and expense these amounts over the stock options remaining vesting period. Under this transition method, compensation expense recognized during the three months ended March 31, 2006 included compensation expense for all share-based awards granted prior to, but not yet vested, as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. In accordance with the modified prospective transition method, the Company’s Consolidated Financial Statements for prior periods have not been restated to reflect the impact of SFAS 123R.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s loss from operations and net loss for the three months ended March 31, 2006 is $245,000 higher than if it had continued to account for share-based compensation under the recognition and measurement provisions of APBO No. 25, and related Interpretations, as permitted by SFAS 123. Basic and diluted net income per share for the three months ended March 31, 2006 would have been $0.17 if the Company had not adopted SFAS 123(R). SFAS 123R also requires the Company to estimate forfeitures in calculating the expense relating to stock-based compensation as opposed to only recognizing these forfeitures and the corresponding reduction in expense as they occur. When estimating forfeitures, the Company considered voluntary termination behavior as well as analysis of historical option forfeitures. The Company adjusted for this cumulative effect and recognized a reduction in stock-based compensation, which was recorded within Research and Development and General and Administrative expense on the Company’s condensed consolidated statement of operations. The adjustment was not recorded as a cumulative effect adjustment because the amount was not material to the condensed consolidated statement of operations.

Had compensation cost for these stock option plans for employees been determined prior to January 1, 2006 using the fair value based method of accounting under SFAS No. 123, the Company’s net loss applicable to common shares and loss per share would have been the pro forma amounts indicated below (in thousands, except per share data):

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	For the Three Months Ended March 31, 2005
Net loss applicable to common shares:
As reported	$	(5,201	)
Add: Stock-based employee compensation expense included in reported net loss	—
Deduct: Stock-based employee compensation determined under fair value based method for all awards	(382		)
Pro forma	$	(5,583	)
Loss per common share, basic and diluted:
As reported	$	(0.16	)
Pro forma	$	(0.18	)

Disclosures for the three months ended March 31, 2006 are not presented because stock-based payments were accounted for under SFAS 123(R)’s fair-value method during this period.

For the three months ended March 31, 2006 and 2005, the Company recognized employee stock compensation costs of $245,000 and $0, respectively. The remaining unrecognized compensation cost related to unvested awards at March 31, 2006, was approximately $1,405,000 and the weighted-average period of time over which this cost will be recognized is 2.1 years.

The Company did not grant any options during the quarter ended March 31, 2006. Accordingly stock-based employee compensation expense for the three months ended March 31, 2006 includes only the effect of the fair value of non-vested options granted prior to January 1, 2006, adjusted for estimated forfeitures.

The per share weighted-average fair value of stock options granted during the quarter ended March 31, 2005 was $1.20 on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

	Quarter ended March 31, 2005
Expected dividend rate	0.0	%
Risk-free interest rate	3.96	%
Expected volatility	122.0	%
Expected life in years	4.00

The Company issues new shares of common stock upon exercise of stock options. The following table summarizes the Company’s stock option activity for the three months ended March 31, 2006 (in thousands, except per share data):

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	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of quarter	4,324		$	2.69
Granted	—		—
Exercised	(10	)	0.68
Forefeited or expired	(59	)	2.29
Outstanding at end of quarter	4,255		$	2.70	7.2	$	925
Vested and expected to vest at March 31, 2006	3,985		$	2.79	7.2	$	841
Exercisable at end of quarter	2,407		$	3.72	5.9	$	298

Cash proceeds and intrinsic value related to total stock options exercised during the three months ended March 31, 2006 and 2005 are provided in the following table (dollars in thousands):

	Quarter Ended March 31,
	2006		2005
Proceeds from stock options exercised	$	7	$	44
Intrinsic value of stock options exercised	$	6	$	50

Note 3. Loss Per Common Share

Basic and diluted loss per share are based on net loss applicable to common shares, which is comprised of net loss and preferred stock dividends in all periods presented. Shares used to calculate basic loss per share are based on the weighted average number of common shares outstanding during the period. Shares used to calculate diluted loss per share are based on the potential dilution that would occur upon the exercise or conversion of securities into common stock using the treasury stock method. The calculation of diluted loss per share excludes the effect of the following stock options and warrants to purchase additional shares of common stock because the share increments would not be dilutive.

	Quarter Ended March 31,
	2006	2005
Common stock options	4,254,650	4,158,556
Common stock warrants	5,696,824	3,225,400

In addition, 234,088 shares of common stock that would be issuable upon conversion of the Company’s Series 1 preferred stock are not included in the calculation of diluted loss per share for the periods ended March 31, 2006 and 2005, respectively, and the 3,446,389 shares of common stock that would be issuable upon conversion of the Company’s Series B preferred stock are not included in the calculation of diluted loss per share for the periods ended March 31, 2006 and 2005, respectively, because the effect of including such shares would not be dilutive. Finally, 5,006,776 shares of common stock that would be issuable upon conversion of the bridge notes, including accrued interest thereon, are not included in the calculation of diluted loss per share for the period ended March 31, 2006 because the effect of including such shares would not be dilutive.

Note 4. Comprehensive Loss

The Company’s comprehensive loss for the quarters ended March 31, 2006 and 2005 was $5,799,000 and $5,075,000, respectively. The comprehensive loss for the quarters ended March 31,

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2006 and 2005 consisted of net loss of $5,799,000 and $5,076,000, respectively, and a net unrealized gain on investment securities of $0 and $1,000, respectively.

Note 5. Bridge Financing

On February 1, 2006, the Company received loan proceeds of $3,460,000 from private investors (the bridge financing) in connection with the $61,500,000 equity financing as discussed in Note 7. Pursuant the bridge financing, the Company issued convertible promissory notes in the principal amount of the loan and five-year warrants to purchase an aggregate of 2,471,424 shares of common stock at an exercise price of $0.77 per share. The fair value attributable to the warrants using the Black-Scholes option-pricing model was approximately $1,647,000 based upon assumptions of expected volatility of 114%, a contractual term of five years, an expected dividend rate of zero and a risk-free rate of interest of 4.5%. The Company recorded the warrants’ fair value as a discount to the promissory notes payable. The convertibility of the promissory notes gave rise to a beneficial conversion feature, which the Company recorded as additional discount on the promissory notes of approximately $1,813,000. The proceeds of the bridge loan were used for working capital pending receipt of shareholder approvals and satisfaction of other conditions to closing of the equity financing discussed Note 7. The convertible promissory notes provided for an interest rate of 8% per annum and, at the closing of the equity financing the principal amount of the notes, together with $64,000 of accrued interest thereon, automatically converted, at a conversion rate of $0.70 per share, into an aggregate of 5,033,860 shares of common stock. The notes were secured by a first lien on certain of the Company’s assets pursuant to a security agreement between the Company and the investors dated as of February 1, 2006. The security agreement and the related security interest terminated at the closing of the equity financing.

Note 6. Liquidity

The Company will need to raise additional capital or enter into strategic partnerships for the clinical development of its picoplatin platinum compound and other proposed product candidates.

The Company received approximately $61,912,000 in net proceeds from the sale of common stock and warrants in April 2006 (See Note 7). The Company issued $3,460,000 face amount of convertible promissory notes to investors in the bridge financing on February 1, 2006. The Company used the funds received in the bridge financing for working capital pending receipt of shareholder approvals and satisfaction of other conditions to closing the financing. Concurrently with the closing of the equity financing on April 26, 2006, the outstanding principal amount of the promissory notes and all accrued and unpaid interest thereon automatically converted, at a conversion price of $0.70 per share, into 5,033,860 shares of common stock.

The Company received approximately $9,000,000 in net proceeds from the sale of common stock and warrants in a private placement transaction in February 2004. The Company received approximately $3,800,000 in net proceeds from the sale of common stock and warrants in March 2005.

On January 30, 2006, the Company entered into a letter agreement with Texas State Bank, pursuant to which the Company agreed to change the maturity date of its promissory note with the Bank to June 5, 2006. The Texas State Bank loan, which is secured by the Company’s radiopharmaceutical plant and other STR assets located in Denton, Texas, had an interest rate of 7.75% on March 31, 2006. The interest rate, which is equal to the bank prime rate and is adjusted on the same date that the bank prime rate changes as reported in the Wall Street Journal, was 7.75% on May 8, 2006. The loan provides for a maximum annual interest rate of 18%. Principal and interest are payable in monthly installments. Principal and interest paid on the note during the quarters ended March 31, 2006 and 2005 totaled $1,196,000 and $115,000, respectively. As of March 31, 2006, the outstanding balance of the loan was $2,734,000. The fixed monthly payments on the note are recalculated in April of each year based on the then current bank prime interest rate and outstanding note balance. Based on an interest rate of 7.75%, the estimated principal balance payable at maturity would be $2,692,000.

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The terms of the Texas State Bank loan provide that an event of default may be deemed to occur if the Company abandons, vacates or discontinues operations on a substantial portion of the Denton facility or there is a material adverse change in the Company’s financial condition, results of operations, business or properties. If this were to occur, Texas State Bank could declare the entire outstanding amount of the loan ($2,734,000 at March 31, 2006) due and immediately payable. In such case, the Company’s cash resources and assets could be impaired depending on its ability to raise funds through a sale of the Denton facility or other means. As a result of its May 2005 restructuring, the Company has ceased manufacturing operations at the Denton facility and is actively working to sell the facility and other STR assets. The Company has listed the Denton facility for sale at a price of $3,300,000. Any sales of the Denton facility or other Denton assets are subject to approval of the Bank. As of March 31, 2006, the Company had received aggregate proceeds of $172,000 from the sale of equipment and other assets. These proceeds were applied to the outstanding principal balance of the loan. There can be no assurance that the Bank will approve the price or other terms of any offer received by the Company to buy the Denton facility or other STR assets, or that the sale proceeds, if any, received by the Company from such sales will be sufficient to satisfy the outstanding balance of the Bank loan.

In October 2005, the Company placed $1,000,000 cash in a restricted deposit account with the Bank as additional collateral to secure the payment of the loan. The Company agreed that if it did not obtain at least $15,000,000 in new financing on or before January 31, 2006, the Bank may apply the $1,000,000 cash deposit to the payment of the last maturing installments on the loan. In return, the Bank agreed that the Company’s cessation of operations at the Denton facility would not be declared an event of default under the loan as long as the Company continues to pay insurance and taxes on and otherwise maintains the facility. Additionally, the Bank agreed, prior to January 31, 2006, not to declare the loan in default on the basis that there has been a material adverse change in the Company’s financial condition, results of operations, business or properties. Pursuant to this agreement, the Bank, as of January 31, 2005, applied the $1,000,000 cash collateral and all interest accrued thereon to the outstanding balance of the Bank note. By letter agreement dated January 30, 2006, the Bank agreed, in exchange for the Company’s agreement to accelerate the maturity date of the note, to continue the forbearance under the October 2005 agreement until June 5, 2006.

On August 4, 2005, the Company entered into a research funding and option agreement with The Scripps Research Institute (TSRI). Under the agreement, the Company committed to provide TSRI an aggregate of $2,500,000 over a 26-month period to fund research relating to synthesis and evaluation of novel small molecule, multi-targeted protein kinase inhibitors as therapeutic agents, including for the treatment of cancer. The Company has the option to negotiate a worldwide exclusive license to use, enhance and develop any compounds arising from the collaboration. The research funding is payable by the Company to TSRI quarterly in accordance with a negotiated budget. On August 8, 2005, the Company made an initial funding payment to TSRI of $137,500. On April 28, 2006, the Company paid TSRI $487,500. The Company is obligated to pay TSRI $287,500 on July 1, 2006 and $237,500 on October 1, 2006. The agreement provides for additional aggregate funding payments of $1,350,000 in 2007.

On May 10, 2006, the Company announced plans to relocate its corporate headquarters to San Francisco by the beginning of the third quarter of 2006. The Company currently is in negotiations to lease facilities in San Francisco to accommodate its new executive offices and plans for growth, including potentially substantial new hires. The Company intends to maintain clinical development and support activities in Seattle and has no plans to relocate any of its 19 employees currently in Seattle. The addition of the San Francisco site will likely result in material new lease and operating costs connected with this facility, although the amount of these costs cannot currently be quantified.

With the proceeds of the bridge loan, the Company had cash and cash equivalents of $3,203,000 at March 31, 2006. With the proceeds of the equity financing, Company management believes that current cash and cash equivalent balances will provide adequate resources to fund operations at least until the end of 2007. The Company’s actual capital requirements will depend upon numerous factors, including:

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•the scope and timing of the Company’s picoplatin clinical program and other research and development efforts, including the progress and costs of the Company’s current Phase II trial of picoplatin in small cell lung cancer;

•the Company’s ability to obtain clinical supplies of picoplatin drug product in a timely and cost-effective manner;

•actions taken by the US Food and Drug Administration (FDA) and other regulatory authorities;

•the timing and amounts of proceeds from the sale of the Denton facility and assets;

•the timing and amount of any milestone or other payments the Company might receive from potential strategic partners;

•the Company’s degree of success in commercializing picoplatin or any other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments;

•the acquisition or in-licensing of other products or intellectual property;

•the costs, including lease and operating costs, incurred in connection with the Company’s relocation of its corporate headquarters to San Francisco and the potential expansion of its workforce;

•the costs of any research collaborations or strategic partnerships established; and

•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

The Company had net operating loss carryforwards of approximately $138 million as of December 31, 2005, which expire from 2006 through 2025. The closing of the equity financing resulted in a change of control, which may limit the Company’s ability to utilize these net operating loss carryforwards. If such limitation occurs, the Company may incur higher tax expense, which also would affect its capital requirements.

There can be no assurance that the Company will be able to raise additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. Conditions in the capital markets in general and the life science capital market specifically may affect the Company’s potential financing sources and opportunities for strategic partnering.

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Note 7. Subsequent Events

Equity Financing. On April 26, 2006, the Company received approximately $61,500,000 in gross proceeds, not reflecting placement fees, from the issuance of 92,948,146 shares of common stock to a group of institutional and other sophisticated investors. In connection with the equity financing, the outstanding principal balance and interest on the Company’s convertible promissory notes issued to the investors in the bridge financing on February 1, 2006, automatically converted, at a conversion price of $0.70 per share, into 5,033,860 shares of common stock. Investors in the equity financing also received five-year warrants to purchase an aggregate of 27,857,128 shares of common stock at an exercise price of $0.77 per share, including warrants to purchase an aggregate of 2,471,424 common shares issued on February 1, 2006, in connection with the bridge financing. At a special meeting of shareholders held on April 25, 2006, the Company’s shareholder’s approved an amendment of the Company’s articles of incorporation to increase the authorized common shares from 150,000,000 to 200,000,000. The Company intends to use the net proceeds of the financing of approximately $61,912,000 to support and expand its picoplatin development program and to pursue its strategic objective of building a diverse oncology pipeline. A portion of the proceeds will also be used to retire the Company’s outstanding indebtedness to Texas State Bank and for working capital.

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Conversion of Series B Preferred Stock. Concurrently with the closing of the equity financing, the holders of the Company’s 1,575 shares of Series B convertible preferred stock outstanding converted their Series B shares into an aggregate of 9,545,455 shares of common stock, reflecting an adjusted conversion rate of 6,060.61 common shares per Series B share.

Change of Control and Related Party Interests. As a result of the completion of the financing and the conversion of the Series B shares, the Company’s outstanding common stock at April 26, 2006, increased from 34,332,293 shares to 136,825,894 shares. Entities affiliated with MPM Capital (MPM) acquired beneficial ownership of 52,039,196 common shares, or approximately 35.0% of the Company’s common stock outstanding immediately following the financing. Entities affiliated with Bay City Capital Management IV LLC (BCC) acquired beneficial ownership of 27,878,143 common shares, or approximately 19.5% of the common shares outstanding immediately following the financing. Nicholas J. Simon III, a representative of MPM, was appointed to the Company’s board of directors on April 26, 2006, increasing the number of directors to nine. Mr. Simon was also appointed to the board compensation committee. Mr. Simon is a general partner of certain of the MPM entities that participated in the financing and possesses capital and carried interests in those entities. Two of the Company’s directors, Fred B. Craves and Carl S. Goldfischer, are managing directors of BCC and possess capital and carried interests in the BCC entities that participated in the financing.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Important Information Regarding Forward- Looking Statements

This Form 10-Q contains forward-looking statements. These statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “propose” or “continue,” the negative of these terms or other terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors described below in the section entitled “Risk Factors.” These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events.

NeoRx and STR are our trademarks or registered trademarks in the United States and/or foreign countries.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from those reported in our Annual Report on Form 10-K for the year ended December 31, 2005, except for our share-based compensation accounting policy, discussed below. For a more complete description, please refer to our Annual Report on Form 10-K.

Share-based Compensation - Beginning January 1, 2006, the Company accounts for share-based compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123R, “Share-Based Payments,” which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. The Company’s employee stock options, however, have characteristics significantly different from those of traded options. For example, employee stock options are generally subject to vesting restrictions and are generally not transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility, the expected life of an option and the number of awards ultimately expected to vest. Changes in subjective input assumptions can materially affect the fair value estimates of an option. Furthermore, the estimated fair value of an option does not necessarily represent the value that will ultimately be realized by an employee. The Company uses historical data, and other related information as appropriate, to estimate the expected price volatility, the expected option life and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of a grant. If actual results are not consistent with the Company’s assumptions and judgments used in estimating the key assumptions, the Company may be required to increase or decrease compensation expense, which could be material to its results of operations.

Results of Operations

Quarter ended March 31, 2006 compared to quarter ended March 31, 2005

We had no revenue for either of the first quarters of 2006 and 2005.

Total operating expenses for the first quarter of 2006 decreased 22% to $4.0 million, from $5.1 million for the first quarter of 2005.

R&D expenses decreased 25% to $2.5 million for the first quarter of 2006, from $3.3 million for the first quarter of 2005. Among the primary components of the decrease were $1.9 million decrease in costs related to the STR program, offset by $1.3 million increase in picoplatin development costs, and a $0.2 million decrease in patent maintenance costs.

General and administrative expenses decreased 14% to $1.5 million for the first quarter of 2006, from $1.8 million for the first quarter of 2005. The decrease in G&A costs for the first quarter of 2006 was due primarily to a decrease of $0.3 million for personnel related costs.

Total other expense increased to $1.8 million from $0 million due mostly to the amortization of discount on convertible promissory notes of $1.7 million for the first quarter of 2006.

Cash and cash equivalents as of March 31, 2006 were $3.2 million, compared with $3.5 million at December 31, 2005. On April 26, 2006, we completed an equity financing in which we raised approximately $61.9 million in net proceeds through the private sale to institutional and other sophisticated investors of an aggregate of 92.9 million shares of common stock. The purchasers in that offering also received five-year warrants to purchase an aggregate of 27.9 million shares of common stock at an exercise price of $0.77 per share. In connection with the equity financing, we issued $3.5 million face amount of convertible promissory notes to investors on February 1, 2006 (the bridge financing). The notes provided for an interest rate of 8% per annum. We used the funds received in the bridge financing for working capital pending receipt of required shareholder approvals and other conditions to completion of the equity financing. The outstanding principal amount of the notes, together with $64,000 of accrued interest, automatically converted, at a conversion price of $0.70 per share, into 5.0 million shares of common stock at closing of the equity financing. We will require substantial

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additional funding to support our picoplatin and other proposed clinical development programs. In the event that we do not obtain sufficient additional funds, we may be required to delay, reduce or curtain the scope of our picoplatin and other product development activities.

Major Research and Development Projects

Our major research and development project is picoplatin (NX 473), a new-generation platinum-based cancer therapy designed to overcome platinum resistance in the treatment of solid tumors. We initiated a Phase II clinical study of picoplatin in small cell lung cancer in June 2005 and enrolled the first patient in July 2005. As of March 31, 2006, we have incurred costs of approximately $6.5 million in connection with the entire picoplatin clinical program. In April 2006, we expanded our picoplatin Phase II clinical trial in small cell lung cancer to selected Eastern European countries by enrolling our first patients there. In May 2006, we treated our first patient in a Phase I/II study evaluating picoplatin in the front-line treatment of patients with advanced colorectal cancer. Total estimated costs to complete the picoplatin Phase II trial in small cell lung cancer are in the range of $9 to $11 million through 2007, including the cost of drug supply. Total estimated costs to complete the picoplatin Phase I/II trial in colorectal cancer are in the range of $4 to $6 million through 2007, including the cost of drug supply. The costs could be substantially higher if we have to repeat, revise or expand the scope of our trial. Material cash inflows relating to our picoplatin development will not commence unless and until we complete required clinical trials and obtain FDA marketing approvals, and then only if picoplatin finds acceptance in the marketplace. To date, we have not received any revenues from product sales of picoplatin.

The risks and uncertainties associated with completing the development of picoplatin on schedule or at all, include the following, as well as the other risk factors described in this report:

•we may not have adequate funds to complete the development of picoplatin;

•we may be unable to secure adequate supplies of picoplatin drug product in order to complete our clinical trials;

•picoplatin may not be shown to be safe and efficacious in clinical trials; and

•we may be unable to obtain regulatory approval of the drug or may be unable to obtain such approval on a timely basis.

If we fail to obtain marketing approval for picoplatin, are unable to secure adequate clinical and commercial supplies of picoplatin drug product, or do not complete development and obtain US and foreign regulatory approvals on a timely basis, our operations, financial position and liquidity could be severely impaired, including as follows:

•we would not earn any sales revenue from picoplatin, which would increase the likelihood that we would need to obtain additional financing for our other development efforts; and

•our reputation among investors might be harmed, which could make it more difficult for us to obtain equity capital on attractive terms or at all.

Because of the many risks and uncertainties relating to completion of clinical trials, receipt of market approvals and acceptance in the marketplace, we cannot predict the period in which material cash inflows from our picoplatin program will commence, if ever.

Summary of Research and Development Costs. Our development administration overhead costs, consisting of rent, utilities, consulting fees, patent costs and other various overhead costs, are included in total research and development expense for each period, but are not allocated among our various projects. Finally, our total development costs include the costs of various other research efforts directed toward the identification and evaluation of future product candidates. These other research

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projects are pre-clinical and not considered major projects. Our total research and development costs are summarized below:

Summary of Research and Development Costs

	Quarter Ended March 31,
	2006		2005
	(in thousands)
Picoplatin	$	1,802	$	487
Other overhead and research costs	721		2,858
Total research and development costs	$	2,523	$	3,345

Completion of Equity Financing

On April 26, 2006, we closed our previously announced equity financing pursuant to the securities purchase agreement dated as of February 1, 2006. The equity financing, from which we received gross proceeds of approximately $65 million, involved the private placement to accredited investors of an aggregate of 92.9 million shares of common stock at a cash purchase price of $0.70 per share, including shares of common stock received by investors upon automatic conversion of $3.5 million face amount of outstanding convertible promissory notes (the bridge notes) issued as part of the bridge financing on February 1, 2006. Investors in the financing also received five-year warrants to purchase an aggregate of 27.9 million shares of common stock at an exercise price of $0.77 per share, including warrants to purchase an aggregate of 2.5 million shares issued on February 1, 2006 in connection with the bridge loan. The fair value attributable to the warrants using the Black-Scholes option-pricing model was approximately $1,647,000 based upon assumptions of expected volatility of 114%, a contractual term of five years, an expected dividend rate of zero and a risk-free rate of interest of 4.5%. We recorded the warrants’ fair value as a discount to the promissory notes payable. The convertibility of the promissory notes gave rise to a beneficial conversion feature, which we recorded as additional discount on the promissory notes of approximately $1,813,000. At a special meeting of shareholders held on April 25, 2006, our shareholders approved an amendment of our articles of incorporation to increase the authorized common shares from 150,000,000 to 200,000,000. The placement agent in the financing, in addition to a cash fee of $1.8 million, received a five-year warrant to purchase 835,714 shares of common stock on the same terms as the investors. We intend to use the net proceeds of the financing of approximately $61.9 million to support and expand our picoplatin development program and to pursue our strategic objective of building a diverse oncology pipeline. A portion of the proceeds will also be used to retire our outstanding indebtedness to Texas State Bank and for working capital.

Concurrent with the closing of the equity financing, all holders of our outstanding shares of Series B convertible preferred stock (the Series B stock) converted their Series B shares into an aggregate of 9.5 million share of common stock, reflecting an adjusted conversion rate of 6060.6061 per share of Series B stock.

As a result of the completion of the financing and the conversion of our Series B stock, our outstanding common stock increased from 34.3 million shares to approximately 136.8 million shares. Entities affiliated with MPM Capital (MPM) acquired beneficial ownership of approximately 52.0 million shares of our common stock, or approximately 35.0% of the common shares outstanding immediately following the financing. Entities affiliated with Bay City Capital Management IV LLC (BCC) acquired beneficial ownership of approximately 27.9 million common shares, or approximately 19.5% of the common shares outstanding immediately following the financing.

Nicholas J. Simon III, a representative of MPM, was appointed to our board of directors on April 26, 2006, increasing the number of directors to nine. Mr. Simon was also appointed to the board compensation committee. Mr. Simon is a general partner of certain of the MPM entities that participated

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in the financing and possesses capital and carried interests in those entities. Two of our directors, Fred B. Craves and Carl S. Goldfischer, are managing directors of BCC and possess capital and carried interests in the BCC entities that participated in the financing.

Liquidity and Capital Resources

We have historically suffered recurring operating losses and negative cash flows from operations. As of March 31, 2006, we had net negative working capital of $2.8 million and had an accumulated deficit of $261.7 million with a shareholders’ equity of $1.0 million, which amount does not take into account the gross proceeds of the equity financing discussed above.

We have financed our operations primarily through the sale of equity securities, technology licensing, collaborative agreements and debt instruments. We invest excess cash in investment securities that will be used to fund future operating costs. Cash and cash equivalents totaled $3.2 million at March 31, 2006 compared to $3.5 million at December 31, 2005. We primarily fund current operations with our existing cash and investments. Cash used for operating activities for the three months ended March 31, 2006 totaled $3.2 million. Revenues and other income sources for the first quarter of 2006 were not sufficient to cover operating expenses during that quarter,

On February 1, 2006, we received a $3.5 million bridge loan from investors in the equity financing. Pursuant the bridge loan, we issued convertible promissory notes for the principal amount of the loan and five-year warrants to purchase an aggregate of 2.5 million shares of common stock at an exercise price of $0.77 per share. The proceeds of the bridge loan were used for working capital pending receipt of shareholder approvals and satisfaction of other conditions to closing the equity financing. The bridge notes had an interest rate of 8% per annum. At the closing of the equity financing, the outstanding principal amount of the bridge notes and all accrued and unpaid interest thereon automatically converted, at a conversion price of $0.70 per share, into 5.0 million shares of common stock. The notes were secured by a first lien on certain of our assets pursuant to a security agreement between us and the investors dated as of February 1, 2006. The security agreement and the related security interest terminated at the closing of the equity financing.

On January 30, 2006, we entered into a letter agreement with Texas State Bank, pursuant to which we agreed to change the maturity date of our promissory note with the Bank to June 5, 2006. The Texas State Bank loan, which is secured by our radiopharmaceutical plant and other STR assets located in Denton, Texas, had an interest rate of 7.75% on March 31, 2006. The interest rate, which is equal to the bank prime rate and is adjusted on the same date that the bank prime rate changes as reported in the Wall Street Journal, was 7.75% on May 8, 2006. The loan provides for a maximum annual interest rate of 18%. Principal and interest are payable in monthly installments. Principal and interest paid on the note during the quarters ended March 31, 2006 and 2005 totaled $1.2 million and $115,000, respectively. As of March 31, 2006, the outstanding balance of the loan was $2.7 million. The fixed monthly payments on the note are recalculated in April of each year based on the then current bank prime interest rate and outstanding note balance. Based on an interest rate of 7.75%, the estimated principal balance payable at maturity would be $2.7 million.

The terms of the Texas State Bank loan provide that an event of default may be deemed to occur if we abandon, vacate or discontinue operations on a substantial portion of the Denton facility or there is a material adverse change in our financial condition, results of operations, business or properties. If this were to occur, Texas State Bank could declare the entire amount of the loan ($2.7 million at May 8, 2006) due and immediately payable. In such case, our cash resources and assets could be impaired depending on our ability to raise funds through a sale of the Denton facility or other means. As a result of our May 2005 restructuring, we have ceased manufacturing operations at the Denton facility and are actively working to sell the facility and other STR assets. We have listed the Denton facility for sale at a price of $3.3 million. Any sales of the Denton facility or other Denton assets are subject to approval of the Bank. As of March 31, 2006, we had received aggregate proceeds of $172,000 from the sale of equipment and other assets. These proceeds were applied to the outstanding principal balance of the loan. There can be no assurance that the Bank will approve the price or other terms of any offer received by us to buy the Denton facility or other STR assets, or that the sale proceeds, if any, received by us from such sales will be sufficient to satisfy the outstanding balance of the Bank loan.

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In October 2005, we placed $1.0 million in cash in a restricted deposit account with the Bank as additional collateral to secure the payment of the loan. We further agreed that if we did not obtain at least $15.0 million in new financing on or before January 31, 2006, the Bank may apply the $1.0 million cash deposit to the payment of the last maturing installments on the loan. In return, the Bank agreed that our cessation of operations at the Denton facility would not be declared an event of default under the loan as long as we continue to pay insurance and taxes on and otherwise maintain the facility. Additionally, the Bank agreed, prior to January 31, 2006, not to declare the loan in default on the basis that there has been a material adverse change in our financial condition, results of operations, business or properties. Pursuant to this agreement, the Bank, as of January 31, 2005, applied the $1.0 million cash collateral and all interest accrued thereon to the outstanding balance of the Bank note. By letter agreement dated January 30, 2006, the Bank agreed, in exchange for our agreement to accelerate the maturity date of the note, to continue the forbearance under the October 2005 agreement until June 5, 2006.

On August 4, 2005, we entered into a Research Funding and Option Agreement with The Scripps Research Institute (TSRI). Under the agreement, we committed to provide TSRI an aggregate of $2.5 million over a 26-month period to fund research relating to synthesis and evaluation of novel small molecule, multi-targeted protein kinase inhibitors as therapeutic agents, including for the treatment of cancer. We have the option to negotiate a worldwide exclusive license to use, enhance and develop any compounds arising from the collaboration. The research funding is payable by us to TSRI quarterly in accordance with a negotiated budget. We made an initial funding payment to TSRI of $137,500 on August 8, 2005. On April 28, 2006, we paid TSRI $487,500. We are obligated to pay TSRI $287,500 on July 1, 2006 and $237,500 on October 1, 2006. The agreement provides for additional aggregate funding payments of $1.4 million in 2007.

With the proceeds from the bridge loan, we had cash and cash equivalents of $3.2 million at March 31, 2006. We received additional cash proceeds of $61.5 million upon completion of the equity financing on April 26, 2006. With these additional proceeds, we believe that our current cash and cash equivalent balances will provide adequate resources to fund operations at least until the end of 2007.

We acquired the worldwide exclusive rights, excluding Japan, to develop, manufacture and commercialize picoplatin from AnorMED, Inc. in April 2004. Under the terms of the agreement, we paid AnorMED a one-time upfront milestone payment of $1.0 million in common stock and $1.0 million in cash. The agreement also provides for additional milestone payments to AnorMED of up to $13 million, payable in cash or a combination of cash and common stock. Upon regulatory approval, AnorMED would receive royalty payments of up to 15% on product sales. We initiated our first picoplatin clinical trial, a Phase II study of picoplatin in small cell lung cancer, in July 2005, and it is unlikely that these milestones would be triggered during 2006. Because we cannot predict the length of time to completion of our Phase II study, the time of initiation and completion of a Phase III study or the time of submission of a New Drug Application for picoplatin, we are unable to predict when such milestones might be triggered after 2006.

Also in April 2004, we sold and transferred our Pretarget intellectual property to Aletheon Pharmaceuticals, Inc. Under the agreement, we could receive up to $6.6 million in milestone payments if Aletheon achieves certain development goals, plus royalties on potential future product sales. We did not receive any upfront consideration for the sale of the Pretarget property. We discontinued our clinical studies using the Pretarget technology in July 2002, and sought, both through targeted inquiries and a broad-based auction process, a buyer or licensee for the technology. The sale of the Pretarget intellectual property relieved us of the annual costs associated with maintaining the Pretarget patent estate. During 2003, we spent approximately $350,000 for the prosecution and maintenance of the Pretarget patents and trademarks. For 2004, these costs were approximately $70,000. Seattle-based Aletheon is a development stage biotherapeutics company founded by two former NeoRx employees. The timing and amount of milestone payments, if any, are uncertain. The terms of the transaction were determined through arms-length negotiation.

In April 2003, we received $10 million from the sale to Boston Scientific Corporation (BSC) of certain non-core patents and patent applications and the grant to BSC of exclusive license rights to certain patents and patent applications. BSC originally asserted four such patents in two lawsuits against Johnson & Johnson, Inc., its subsidiary, Cordis Corporation, and Guidant Corporation, alleging infringement of such patents. In both lawsuits, the defendants denied infringement and asserted invalidity and unenforceability of the patents. BSC subsequently withdrew three of the patents from the litigation,

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including the patents that were assigned to BSC. We understand that BSC is still asserting a licensed patent against the defendants, but has also agreed, in principle, to purchase Guidant. Although we are not currently a party to the lawsuits, our management and counsel have been deposed in connection with the lawsuits. It is possible that BSC, if it is unsuccessful or has limited success with its claims, may seek damages from us, including recovery of all or a portion of the amounts it paid to us in 2003. We cannot assess the likelihood of whether such claim will be brought against us or the extent of recovery, if any, on any such claim.

On May 10, 2006, we announced plans to relocate our corporate headquarters to San Francisco. We currently are in negotiations to lease facilities in San Francisco to accommodate our new executive offices and plans for growth, including potentially substantial new hires. We intend to maintain clinical development and support activities in Seattle and do not have plans to relocate any of our 19 employees currently in Seattle. The addition of the San Francisco site will likely result in material new lease and operating costs connected with this facility, although the amount of these costs cannot currently be quantified.

We will require substantial additional funding to develop and commercialize picoplatin and any other proposed products and to fund our operations.

Management is continuously exploring financing alternatives, including:

•raising additional capital through the public or private sale of equity or debt securities or through the establishment of credit or other funding facilities; and

•entering into strategic collaborations, which may include joint ventures or partnerships for product development and commercialization, merger, sale of assets or other similar transactions.

Our actual capital requirements will depend upon numerous factors, including:

•the scope and timing of our picoplatin clinical program and other research and development efforts, including the progress and costs of our Phase II trial of picoplatin in small cell lung cancer;

•our ability to obtain clinical supplies of picoplatin drug product in a timely and cost effective manner;

•actions taken by the FDA and other regulatory authorities;

•the timing and amounts of proceeds from any sale of the Denton facility and assets;

•the timing and amount of any milestone or other payments we might receive from or pay to potential strategic partners;

•our degree of success in commercializing picoplatin or any other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments;

•the acquisition or in-licensing of other products or intellectual property;

•the costs, including lease and operating costs, incurred in connection with the relocation of our corporate headquarters to San Francisco and the potential expansion of our workforce;

•the costs of any research collaborations or strategic partnerships established; and

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•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

We had net operating loss carryforwards of approximately $138 million as of December 31, 2005, which expire from 2006 through 2025. The closing of the equity financing resulted in a change of control, which may limit our ability to utilize these net operating loss carryforwards. If such limitation occurs, we may incur higher tax expense, which also would affect our capital requirements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to the impact of interest rate changes and changes in the market values of its investments.

Interest Rate Risk

The Company’s exposure to market rate risk for changes in interest rates relates primarily to the Company’s debt securities included in its investment portfolio. The Company does not have any derivative financial instruments. The Company invests in debt instruments of the US Government and its agencies and high-quality corporate issuers. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates decrease. Due in part to these factors, the Company’s future investment income may fall short of expectations due to changes in interest rates or the Company may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. At March 31, 2006, the Company owned no government debt instruments and no corporate debt securities.

The Company’s only outstanding debt is its note payable to Texas State Bank. The outstanding balance of the note was $2.7 million on March 31, 2006. The note, which matures June 5, 2006, bears interest equal to the bank prime rate. The interest rate on the note is adjusted on the same date that the bank prime rate changes. The maximum permitted interest rate on the loan is 18% per annum. Because the interest rate on the note varies, the Company’s interest expenses may increase as the bank prime interest rate increases. Extreme increases in the bank prime interest rate, up to the maximum interest rate permitted under the note, could materially affect the Company’s interest expense.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness and design of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)) as of March 31, 2006,to ensure that the information disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms. Based on this evaluation, the Chairman and Chief Executive Officer and the Chief financial Officer have concluded that, as of March 31, 2006, these disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness described below.

During the first quarter of 2006, management identified a material weakness regarding the Company’s preparation and review of its condensed consolidated financial statements for the three months ended March 31, 2006. Specifically, the Company did not have effective controls in place to ensure that the warrants issued with respect to the February 1, 2006 convertible promissory notes were properly accounted for. This control deficiency resulted in a $1.7 million adjustment to the Company’s condensed consolidated financial statementsfor the three months ended March 31, 2006, which was recorded prior to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. The Company has put new procedures in place in order to remediate this weakness and strengthen the control procedures surrounding the review and accounting treatment of non-routine debt and equity securities transactions during the quarterly closing process. These procedures include

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establishing additional levels of review and oversight with respect to certain non-recurring and/or unusual transactions, including consulting outside accounting experts as appropriate

Except as noted above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

Limitations on the Effectiveness of Controls

The Company’s management, including its Chairman and Chief Executive Officer and its Chief Financial Officer, does not expect that the Company’s disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of that control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of control must be considered relative to their costs. Because of the inherent limitation in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the reality that judgments in decision-making can be faulty, and breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time controls may become inadequate because of changes in conditions, of the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

Item 1A. Risk Factors

In addition to the other information contained in this report, the following factors could affect our actual results and could cause our actual results to differ materially from those achieved in the past or expressed or implied by our forward looking statements.

Risks Related to Our Business

We have a history of operating losses, we expect to continue to incur losses, and we may never become profitable.

We have not been profitable since our formation in 1984. As of March 31, 2006, we had an accumulated deficit of $261.7 million. Our net loss for the quarter ended March 31, 2006 was $5.8 million. We had net losses of $21.0 million for the year ended December 31, 2005 and $19.4 million for the year ended December 31, 2004. These losses resulted principally from costs incurred in our research and development programs and from our general and administrative activities. To date, we have been engaged only in research and development activities and have not generated any significant revenues from product sales. In May 2005, we announced the discontinuation of our skeletal targeted radiotherapy (STR) development program as part of a strategic plan to refocus our limited resources on the development of picoplatin (NX 473), a platinum-based cancer therapy. We do not anticipate that our picoplatin product candidate, or any other proposed products, will be commercially available for several years, if at all. We expect to incur additional operating losses in the future. These losses may increase significantly if we expand clinical development, manufacturing and commercialization efforts.

Our ability to achieve long-term profitability is dependent upon obtaining regulatory approvals for our picoplatin product candidate and any other proposed products and successfully commercializing our products alone or with third parties.

We will need to raise additional capital to develop and commercialize our product candidates and fund operations, and our future access to capital is uncertain.

It is expensive to develop cancer therapy products and conduct clinical trials for these products. We have not generated revenue from the commercialization of any product, and we expect to continue to incur substantial net operating losses and negative cash flows from operations for the future. On April 26, 2006, we completed a $65 million equity financing; however, we will require substantial additional funding to develop and commercialize picoplatin and any other proposed products and to fund our future operations.

Management is continuously exploring financing alternatives, including:

•raising additional capital through the public or private sale of equity or debt securities or through the establishment of credit or other funding facilities; and

•entering into strategic collaborations, which may include joint ventures or partnerships for product development and commercialization, merger, sale of assets or other similar transactions.

We may not be able to obtain the required additional capital or enter into relationships with corporate partners on a timely basis, on favorable terms, or at all. Conditions in the capital markets in general, and the life science capital market specifically, may affect our potential financing sources and opportunities for strategic partnering. If we raise additional funds by issuing common stock or securities convertible into or exercisable for common stock, our shareholders may experience substantial dilution, and new investors could have rights superior to current security holders. If we are unable to obtain sufficient additional cash when needed, we may be forced to reduce expenses though the delay, reduction or curtailment of our picoplatin and other development and commercialization activities.

The amount of additional financing we will require in the future will depend on a number of

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factors, including:

•the scope and timing of our picoplatin clinical program and other research and development efforts, including the progress and costs of our Phase II trial of picoplatin in small cell lung cancer;

•our ability to obtain clinical supplies of picoplatin drug product in a timely and cost effective manner;

•actions taken by the FDA and other regulatory authorities;

•the timing and proceeds from any sale of the Denton facility and assets;

•the timing and amount of any milestone or other payments we might receive from or pay to potential strategic partners;

•our degree of success in commercializing picoplatin or any other cancer therapy product candidates;

•the emergence of competing technologies and products, and other adverse market developments;

•the acquisition or in-licensing of other products or intellectual property;

•the costs, including lease and operating costs, incurred in connection with the relocation of our coporate headquarters to San Francisco and the potential expansion of our workforce;

•the costs of any research collaborations or strategic partnerships established; and

•the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights.

We had net operating loss carryforwards of approximately $138 million as of December 31, 2005, which expire from 2006 through 2025. The closing of the equity financing resulted in a change of control, which may limit our ability to utilize these net operating loss carryforwards. If such limitation occurs, we may incur higher tax expense, which also would affect our capital requirements.

Our potential products must undergo rigorous clinical testing and regulatory approvals, which could be costly, time consuming, and subject us to unanticipated delays or prevent us from marketing any products.

The manufacture and marketing of our picoplatin product candidate and our research and development activities are subject to regulation for safety, efficacy and quality by the FDA in the United States and by comparable authorities in other countries.

The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially depending on the type, complexity and novelty of the products involved.

We have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals. This may impede our ability to obtain timely approvals from the FDA or foreign regulatory agencies. We will not be able to commercialize our product candidates until we obtain regulatory approval, and consequently any delay in obtaining, or inability to obtain, regulatory approval could harm our business.

If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined, forced to remove a product from the market or experience other adverse

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consequences, including delay, which could materially harm our financial results. Additionally, we may not be able to obtain the labeling claims necessary or desirable for product promotion. In addition, if we or other parties identify serious side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products, and/or additional marketing applications may be required.

The requirements governing the conduct of clinical trials and manufacturing and marketing of our proposed products outside the United States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can involve additional testing. Foreign regulatory approval processes include all of the risks associated with the FDA approval processes. Also, approval of a product by the FDA does not ensure approval of the same product by the health authorities of other countries.

We may take longer to complete our clinical trials than we project, or we may be unable to complete them at all.

In June 2005, we initiated a Phase II clinical trial of picoplatin for the treatment of patients with small cell lung cancer in clinical sites in North America and enrolled our first patient in July 2005. In April 2006, we announced the expansion of this Phase II trial into Eastern Europe with the treatment of the first patients there. Our on-going Phase II study is a randomized trial comparing picoplatin to topotecan in patients with small cell lung cancer who are refractory or resistant to previous platinum-based therapy. Topotecan is an anti-tumor drug currently approved by the FDA as a treatment for small cell lung cancer sensitive disease after failure of first line chemotherapy. The endpoints of the picoplatin trial include survival, response rate (tumor shrinkage), duration of response and time to progression. We amended our Phase II clinical trial protocol in January 2006 from a two-arm study of picoplatin versus topotecan to a single arm study of picoplatin. We discontinued the topotecan arm of the study because patients and investigators often were unwilling to accept the topotecan arm of the two-arm study. The rationale for the amendment was that the dose and schedule of topotecan approved for use in patients with platinum-sensitive small cell lung cancer have minimal, if any, efficacy in patients with resistant or refractory small cell lung cancer and unacceptable toxicity, thus presenting a situation in which an ineffective but toxic treatment regimen was to be used as one arm of the randomized Phase II trial.

In May 2006, we treated our first patent in a Phase I/II study evaluating picoplating in the front-line treatment of patients with advanced colorectal cancer. This study is designed to determine the safety and efficacy of picoplatin when combined with fluorouracil and leucovorin to treat patients newly diagnosed with metastatic disease. We anticipate completing enrollment of the 30-patient Phase I component of the study later this year.

We also plan to undertake a Phase I/II trial of picoplatin in patients with prostate cancer. This Phase I/II study, in which we expect to initiate by the end of the second quarter of 2006, will evaluate picpolatin in the treatment of patients with newly diagnosed metastatic hormone refractory disease and is designed to determine the safety and efficacy of picoplatin when combined with docetaxel. Docetaxel (Taxotere®) is the current standard of care in the treatment of metastatic hormone refractory prostate cancer.

The actual time for initiation and completion of our picoplatin clinical trials depend upon numerous factors, including:

•approvals and other actions by the FDA and other regulatory agencies and the timing thereof;

•our ability to open clinical sites;

•our ability to enroll qualified patients into our studies;

•our ability to obtain sufficient, reliable and affordable supplies of the picoplatin drug product;

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•our ability to obtain adequate additional funding or enter into strategic partnerships;

•the extent of competing trials at the clinical institutions where we conduct our trials; and

•the extent of scheduling conflicts with participating clinicians and clinical institutions.

We may not initiate, advance or complete our picoplatin or any other proposed clinical studies as projected or achieve successful results.

We will rely on academic institutions and clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving picoplatin. Further, to the extent that we now or in the future participate in collaborative arrangements in connection with the development and commercialization of our proposed products, we will have less control over the timing, planning and other aspects of our clinical trials. If we fail to initiate, advance or complete, or experience delays in or are forced to curtail our current or planned clinical trials, our stock price and our ability to conduct our business could be materially negatively affected.

If testing of a particular product does not yield successful results, we will be unable to commercialize that product.

Our research and development programs are designed to test the safety and efficacy of our proposed products in humans through extensive preclinical and clinical testing. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of picoplatin or any other proposed products, including the following:

•the safety and efficacy results obtained in early human clinical trials may not be indicative of results obtained in later clinical trials;

•the results of preclinical studies may be inconclusive, or they may not be indicative of results that will be obtained in human clinical trials;

•after reviewing test results, we or any potential collaborators may abandon projects that we previously believed were promising;

•our potential collaborators or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; and

•the effects of our potential products may not be the desired effects or may include undesirable side effects or other characteristics that preclude regulatory approval or limit their commercial use if approved.

Clinical testing is very expensive, can take many years, and the outcome is uncertain. The data that we may collect from our picoplatin clinical trials may not be sufficient to support regulatory approval of our proposed picoplatin product. The clinical trials of picoplatin and any other proposed products may not be initiated or completed on schedule, and the FDA or foreign regulatory agencies may not ultimately approve any of our product candidates for commercial sale. Our failure to adequately demonstrate the safety and efficacy of a cancer therapy product under development would delay or prevent regulatory approval of the product, which would prevent us from marketing the proposed product.

Success in early clinical trials may not be indicative of results obtained in later trials.

Results of early preclinical and clinical trials are based on a limited number of patients and may, upon review, be revised or negated by authorities or by later stage clinical results. Historically, the results from preclinical testing and early clinical trials often have not been predictive of results obtained in later clinical trials. A number of new drugs and therapeutics have shown promising results in initial clinical trials, but subsequently failed to establish sufficient safety and effectiveness data to obtain necessary regulatory approvals. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval.

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We are dependent on suppliers for the timely delivery of materials and services and may experience future interruptions in supply.

For our picoplatin product candidate to be successful, we need sufficient, reliable and affordable supplies of the picoplatin drug product. Sources of picoplatin drug product may be limited, and third-party suppliers of picoplatin drug product may be unable to manufacture drug product in amounts and at prices necessary to successfully commercialize our picoplatin product. Moreover, third-party manufacturers must continuously adhere to current Good Manufacturing Practice (cGMP) regulations enforced by the FDA through its facilities inspection program. If the facilities of these manufacturers cannot pass a pre-approval plant inspection, the FDA will not grant a New Drug Application (NDA) for our proposed products. In complying with cGMP and foreign regulatory requirements, any of our third-party manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that our products meet applicable specifications and other requirements. If any of our third-party manufacturers fails to comply with these requirements, we may be subject to regulatory action.

We have a limited supply of picoplatin drug product that was manufactured by a prior licensee in September 2004 and earlier. The drug product has been demonstrated to be stable for 18 to 24 months from the date of manufacture, which time period is not sufficient to complete our current and proposed clinical trials of picoplatin. We have entered into an agreement with Hyaluron, Inc. to manufacture and supply additional picoplatin drug product on a purchase order, fixed fee basis, for our North American and Eastern European trials. The agreement will continue until April 15, 2010, subject to earlier termination by either party in the event of an uncured material breach or the liquidation or bankruptcy of the other party. We may terminate the agreement if we decide to no longer pursue manufacturing or distribution of picoplatin. There is no assurance that Hyaluron will be able to provide sufficient supplies of picoplatin drug product on a timely or cost-effective basis. There are in general relatively few manufacturers and suppliers of picoplatin drug product. If Hyaluron or an alternate manufacturer is unable or unwilling to manufacture and provide drug product at a cost and on other terms acceptable to us, we may suffer delays in, or be prevented from, initiating or completing our clinical trials of picoplatin.

In connection with our product development activities, we rely on third-party contractors to perform for us, or assist us with, certain specialized services, including drug manufacture and supply, dispensing, distribution and shipping, and clinical trial management. Because these contractors provide specialized services, their activities and quality of performance may be outside our direct control. If these contractors do not perform their obligations in a timely manner, or if we encounter difficulties with the quality of services we receive from these contractors, we may incur significant additional costs and delays in product development activities, which could have a material negative effect on our business.

If we cannot negotiate and maintain collaborative arrangements with third parties, our research, development, manufacturing, sales and marketing activities may not be cost-effective or successful.

Our success will depend in significant part on our ability to attract and maintain collaborative partners and strategic relationships to support the development, sale, marketing, distribution and manufacture of picoplatin and any other future product candidates and technologies in the US and Europe. At present, our only material collaborative agreement is the exclusive worldwide (except Japan) license granted to us by AnorMED, Inc. for the development and commercial sale of picoplatin. Under that license, we are solely responsible for the development and commercialization of picoplatin. AnorMED retains the right, at our cost, to prosecute patent applications and maintain all patents. The parties executed the license agreement in April 2004, at which time we paid AnorMED a one-time upfront milestone payment of $1.0 million in our common stock and $1.0 million in cash. The agreement also provides for additional milestone payments to AnorMED of up to $13.0 million, payable in cash or a combination of cash and our common stock. These milestones include our successful completion of a picoplatin Phase II study or initiation of a picoplatin Phase III study, submission to the FDA of a New Drug Application (NDA) for picoplatin, regulatory approval from the FDA of picoplatin and the attainment of certain levels of annual net sales of picoplatin. Upon regulatory approval, AnorMED also would receive royalty payments of up to 15% on product sales. We cannot be certain of the extent of our success, if any, in commercializing picoplatin and attaining established milestones. We initiated our first picoplatin trial, a Phase II study of picoplatin in small cell lung cancer in June 2005, and it is unlikely that these

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milestones will be triggered during 2006. Because we cannot predict the length of time to complete our Phase II study, the time or initiation and completion of a Phase III study or the time of submission of an NDA for picoplatin, we are unable to predict when such milestones may be triggered after 2006. The license agreement may be terminated by either party for breach if the other party files a petition in bankruptcy or insolvency or for reorganization or is dissolved, liquidated or makes assignment for the benefit of creditors. We can terminate the license at any time upon prior written notice to AnorMED. If not earlier terminated, the license agreement will continue in effect, in each country in the territory in which the licensed product is sold or manufactured, until the earlier of (i) expiration of the last valid claim of a pending or issued patent covering the licensed product in that country or (ii) a specified number of years after first commercial sale of the licensed product in that country. If AnorMED were to breach its obligations under the license, or if the license expires or is terminated and we cannot renew, replace, extend or preserve our rights under the license agreement, we would be unable to move forward with our current and planned picoplatin clinical studies.

On August 4, 2005, we entered into a research funding and option agreement with The Scripps Research Institute (TSRI). This collaboration is still at an early stage. Under the agreement, we will provide TSRI an aggregate of $2.5 million over a 26-month period to fund research relating to synthesis and evaluation of novel small molecule, multi-targeted protein kinase inhibitors as therapeutic agents, including for the treatment of cancer. We have the option to negotiate a worldwide exclusive license to use, enhance and develop any compounds arising from the collaboration. The research funding is payable by us to TSRI quarterly in accordance with a negotiated budget. We made an initial funding payment to TSRI of $137,500, on August 8, 2005. On April 28, 2006, we paid TSRI $487,500. We are obligated to pay TSRI $287,500 on July 1, 2006 and $237,500 on October 1, 2006. The agreement provides for additional aggregate funding payments of $1.4 million in 2007. We have no assurance that the research funded under this arrangement will be successful or ultimately will give rise to any viable product candidates. Further, there can be no assurance that we will be able to negotiate, on acceptable terms, a license with respect to any of the compounds arising from the collaboration.

None of our current employees has experience selling, marketing and distributing therapeutic products. To the extent we are successful in obtaining approval for the commercial sale of picoplatin or any other product candidate; we may need to secure one or more corporate partners to conduct these activities. We may not be able to enter into partnering arrangements in a timely manner or on terms acceptable to us. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive would depend upon the efforts of third parties, which efforts may not be successful. If we are not able to secure adequate partnering arrangements, we would have to hire additional employees or consultants with expertise in sales, marketing and distribution. Employees with relevant skills may not be available to us. Additionally, any increase in the number of employees would increase our expense level and could have a material adverse effect on our financial position.

We face substantial competition in the development of cancer therapies and may not be able to compete successfully, and our potential products may be rendered obsolete by rapid technological change.

The competition for development of cancer therapies is substantial. There are numerous competitors developing products to treat the cancers for which we are seeking to develop products. Our initial focus for picoplatin is small cell lung cancer, a disease for which there currently are limited effective therapeutic options. Numerous companies, including AstraZeneca PLC, Cell Therapeutics, Inc., Exelexis, Inc., ImClone Systems Incorporated, ImmunoGen, Inc., Sanofi-Aventis Group, Inex Pharmaceuticals Corporation, Ipsen Limited, The Menarini Group, OSI Genetics, Inc. and PharmaMar USA, Inc., also are developing and testing therapeutics for small cell lung cancer. These therapeutics include chemotherapy, inhibitors, monoclonal antibodies, antagonists and interferons. We cannot assure you that we will be able to effectively compete with these or future third party product development programs. Many of our existing or potential competitors have, or have access to, substantially greater financial, research and development, marketing and production resources than we do and may be better equipped than we are to develop, manufacture and market competing products. Further, our competitors may have, or may develop and introduce, new products that would render our picoplatin or any other proposed product candidates less competitive, uneconomical or obsolete.

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If we are unable to protect our proprietary rights, we may not be able to compete effectively, or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and our ability to avoid infringing the proprietary rights of others. The United States Patent and Trademark Office, or the USPTO, may not issue patents from the patent applications owned by or licensed to us. If issued, the patents may not give us an advantage over competitors with similar technologies.

The issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be given to our patents if we attempt to enforce them and they are challenged in court or in other proceedings, such as oppositions, which may be brought in foreign jurisdictions to challenge the validity of a patent. A third party may challenge the validity or enforceability of a patent after its issuance by the USPTO. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage. Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. Moreover, it is possible that competitors may infringe our patents or successfully avoid them through design innovation. We may need to file lawsuits to stop these activities. These lawsuits can be expensive and would consume time and other resources, even if we were successful in stopping the violation of our patent rights. In addition, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of our patents was upheld, a court would refuse to stop the other party on the ground that its activities do not infringe our patents.

In addition, the protection afforded by issued patents is limited in duration. With respect to picoplatin, in the United States we expect to rely primarily on US Patent Number 5,665,771 (expiring February 7, 2016), which is licensed to us by AnorMED, and additional licensed patents expiring in 2016 covering picoplatin in the European Union. The FDA has also designated picoplatin as an orphan drug for the treatment of small cell lung cancer under the provisions of the Orphan Drug Act, which entitles us to exclusive marketing rights for picoplatin in the United States for seven years following market approval. We may also be able to rely on the Hatch-Waxman Act to extend the term of a US patent covering picoplatin after regulatory approval, if any, of such product in the US.

Under our license agreement with AnorMED, AnorMED retains the right to prosecute patent applications and maintain all licensed patents, with NeoRx reimbursing such expenses. Under the AnorMED agreement, we have the right to sue any third party infringers of the picoplatin patents in the licensed territory (worldwide except Japan). If we do not file suit, AnorMED, in its sole discretion, has the right to sue the infringer at its expense.

In addition to the intellectual property rights described above, we rely on unpatented technology, trade secrets and confidential information. Therefore, others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. However, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, may not provide adequate remedies.

The use of our technologies could potentially conflict with the rights of others.

Our competitors or others may have or may acquire patent rights that they could enforce against us. In such case, we may be required to alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms.

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We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. If there is litigation against us, we may not be able to continue our operations. If third parties file patent applications, or are issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the USPTO to determine priority of invention. We may be required to participate in interference proceedings involving our issued patents and pending applications. We may be required to cease using the technology or license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party in that case may not offer us a license on commercially acceptable terms.

In April 2003, we received $10 million from the sale to Boston Scientific Corporation (BSC) of certain non-core patents and patent applications and the grant to BSC of exclusive license rights to certain patents and patent applications. BSC originally asserted four such patents in two lawsuits against Johnson & Johnson, Inc., its subsidiary, Cordis Corporation, and Guidant Corporation, alleging infringement of such patents. In both lawsuits, the defendants denied infringement and asserted invalidity and unenforceability of the patents. BSC subsequently withdrew three of the patents from the litigation, including the patents that were assigned to BSC. We understand that BSC is still asserting a licensed patent against the defendants, but has also agreed, in principle, to purchase Guidant. Although we are not currently a party to the lawsuits, our management and counsel have been deposed in connection with the lawsuits. It is possible that BSC, if it is unsuccessful or has limited success with its claims, may seek damages from us, including recovery of all or a portion of the amounts it paid to us in 2003. We cannot assess the likelihood of whether such claim will be brought against us or the extent of recovery, if any, on any such claim.

Product liability claims in excess of the amount of our insurance would adversely affect our financial condition.

The testing, manufacturing, marketing and sale of picoplatin and any other proposed cancer therapy products, including past clinical and manufacturing activities in connection with our terminated STR radiotherapeutic, may subject us to product liability claims. We are insured against such risks up to a $10 million annual aggregate limit in connection with clinical trials of our products under development and intend to obtain product liability coverage in the future. However, insurance coverage may not be available to us at an acceptable cost. We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could be material.

Our use of radioactive and other hazardous materials exposes us to the risk of material environmental liabilities, and we may incur significant additional costs to comply with environmental laws in the future.

Our research and development and manufacturing processes, as well as the manufacturing processes that may be used by our collaborators, involve the controlled use of hazardous and radioactive materials. As a result, we are subject to foreign, federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials and wastes in connection with our use of these materials. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by such laws and regulations, we may be required to incur significant costs to comply with environmental and health and safety regulations in the future. In the event that we discontinue operations in facilities that have had past research and manufacturing processes where hazardous or radioactive materials have been in use, we may have significant decommissioning costs associated with the termination of operation of these facilities. These potential decommissioning costs also may reduce the market value of the facilities and may limit our ability to sell or otherwise dispose of these facilities in a timely and cost-effective manner. We have terminated our STR manufacturing operations in Denton,

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Texas and are actively marketing the facility for sale. In 2005, we recorded costs associated with the closure of the Denton facility of $0.9 million. We estimate costs in 2006 related to these activities at $0.2 million. These costs could increase substantially, depending on actions of regulators or if we discover previously unknown contamination in or around the facility. In addition, the risk of accidental contamination or injury from hazardous or radioactive materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any resulting damages, and any such liability could exceed our resources. Our current insurance does not cover liability for the clean-up of hazardous waste materials or other environmental risks.

Even if we bring products to market, changes in healthcare reimbursement could adversely affect our ability to effectively price our products or obtain adequate reimbursement for sales of our products.

Potential sales of our products may be affected by the availability of reimbursement from governments or other third parties, such as insurance companies. It is difficult to predict the reimbursement status of newly approved, novel medical products. In addition, third-party payors are increasingly challenging the prices charged for medical products and services. If we succeed in bringing one or more products to market, we cannot be certain that these products will be considered cost-effective and that reimbursement to the consumer will be available or will be sufficient to allow us to competitively or profitably sell our products.

The levels of revenues and profitability of biotechnology companies may be affected by the continuing efforts of government and third-party payors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets, pricing or profitability of prescription pharmaceuticals is subject to governmental control. In the United States, there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental controls. It is uncertain what legislative proposals will be adopted or what actions federal, state or private payors for health care goods and services may take in response to any health care reform proposals or legislation. Even in the absence of statutory change, market forces are changing the health care sector. We cannot predict the effect health care reforms may have on the development, testing, commercialization and marketability of our proposed cancer therapy products. Further, to the extent that such proposals or reforms have a material adverse effect on the business, financial condition and profitability of other companies that are prospective collaborators for certain of our potential products, our ability to commercialize our products under development may be adversely affected.

The loss of key employees could adversely affect our operations.

As of March 31, 2006, we had a total work force of 20 full-time employees and 2 part-time employees. Our success depends, to a significant extent, on the continued contributions of our principal management and scientific personnel participating in our picoplatin development program. We have limited or no redundancy of personnel in key development areas, including finance, legal, clinical operations, regulatory affairs and quality control and assurance. The loss of the services of one or more of our employees could delay our picoplatin product development activities or any other proposed programs and research and development efforts. We do not maintain key-person life insurance on any of our officers, employees or consultants.

Competition for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense. Our future success depends upon our ability to attract, retain and motivate highly skilled employees and consultants. In order to commercialize our proposed products successfully, we will in the future be required to substantially expand our workforce, particularly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel.

On May 10, 2006, we announced that we are changing our corporate name to Poniard Pharmaceuticals, Inc. effective June 16, 2006, and that we plan to relocate our corporate headquarters to San Francisco by the beginning of the third quarter of 2006. We currently are in negotiations to lease facilities in San Francisco to accommodate our new executive offices and plans for growth, including potentially substantial new hires. We intend to maintain clinical development and support activities in

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Seattle and do not have plans to relocate any of our 19 employees currently in Seattle.

We have change in control agreements and severance agreements with all of our executive officers and consulting agreements with various of our scientific advisors. Our agreements with our executive officers provide for “at will” employment, which means that each executive may terminate his or her service with us at any time. In addition, our scientific advisors may terminate their services to us at any time.

Risks Related to Our Common Stock

Our common stock may be delisted from The Nasdaq Capital Market if we are unable to maintain compliance with Nasdaq Capital Market continued listing requirements.

Our common stock listing was transferred from The Nasdaq National Market to The Nasdaq Capital Market (formerly the Nasdaq SmallCap Market) on March 20, 2003. We elected to seek a transfer to The Nasdaq Capital Market because we had been unable to regain compliance with The Nasdaq National Market minimum $1.00 bid price requirement for continued listing. By transferring to The Nasdaq Capital Market, we were afforded an extended grace period in which to satisfy The Nasdaq Capital Market $1.00 minimum bid price requirement. On May 6, 2003, we received notice from Nasdaq confirming that we were in compliance with the $1.00 minimum bid price requirement. We will not be eligible to relist our common stock on The Nasdaq National Market unless and until our common stock maintains a minimum bid price of $5.00 per share for 90 consecutive trading days and we otherwise comply with the initial listing requirements for The Nasdaq National Market. Trading on the Nasdaq Capital Market may have a negative impact on the value of our common stock, because securities trading on the Nasdaq Capital Market typically are less liquid than those traded on The Nasdaq National Market.

On January 10, 2006, we received a notice from Nasdaq indicating that we are not in compliance with Nasdaq Marketplace Rule 4310(c)(8)(D) (the Minimum Bid Price Rule) because the closing bid price of our common stock had been below $1.00 per share for 30 consecutive trading days. In accordance with Nasdaq Marketplace Rules, we were provided 180 calendar days, or until, July 10, 2006, to regain compliance with the Minimum Bid Price Rule. To regain compliance, the closing bid price of our common stock had to remain at $1.00 per share or more for a minimum of ten consecutive trading days. On February 22, 2006, we received a notice from Nasdaq indicating that we had regained compliance with the Minimum Bid Price Rule. The closing bid price of our common stock may in the future fall below the Minimum Bid Price Rule or we may in the future fail to meet other requirements for continued listing on the Nasdaq Capital Market. If we are unable to cure any future events of noncompliance in a timely or effective manner, our common stock could be delisted from the Nasdaq Capital Market

If our common stock were to be delisted from The Nasdaq Capital Market, we may seek quotation on a regional stock exchange, if available. Such listing could reduce the market liquidity for our common stock. If our common stock is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. As a result, an investor would find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

If our common stock were to be delisted from The Nasdaq Capital Market, and our trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities exchange or quoted on Nasdaq that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of shareholders to borrow against or “margin” low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual shareholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to

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purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock.

Our stock price is volatile and, as a result, you could lose some or all of your investment.

There has been a history of significant volatility in the market prices of securities of biotechnology companies, including our common stock. In 2005, the high and low closing sale prices of our common stock were $2.34 and $0.47. In 2004, the high and low closing sale prices were $5.78 and $1.43. The high and low closing sale prices during the period from January 3, 2006 through May 8, 2006 were $1.57 and $0.72. Our stock price has been and may continue to be affected by this type of market volatility, as well as our own performance. Our business and the relative price of our common stock may be influenced by a large variety of factors, including:

•announcements by us or our competitors concerning acquisitions, strategic alliances, technological innovations, new commercial products or changes in product development strategies;

•the availability of critical materials used in developing our proposed picoplatin product;

•our ability to conduct our picoplatin clinical development program on a timely and cost-effective basis and the progress and results of our clinical trials and those of our competitors;

•developments concerning patents, proprietary rights and potential infringement;

•developments concerning potential agreements with collaborators;

•the expense and time associated with, and the extent of our ultimate success in, securing regulatory approvals;

•our available cash or other sources of funding; and

•future sales of significant amounts of our common stock by us or our shareholders.

In addition, potential public concern about the safety of our proposed picoplatin product and any other products we develop, comments by securities analysts, our ability to maintain the listing of our common stock on the Nasdaq system, and conditions in the capital markets in general and in the life science capital market specifically, may have a significant effect on the market price of our common stock. The realization of any of the risks described in this report, as well as other factors, could have a material adverse impact on the market price of our common stock and may result in a loss of some or all of your investment in our securities.

In the past, securities class action litigation often has been brought against companies following periods of volatility in their stock prices. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert our management’s time and resources, which could cause our business to suffer.

Certain provisions in our articles of incorporation and Washington state law could discourage a change of control.

Our articles of incorporation authorize our board of directors to issue up to 200 million shares of common stock and up to 3.0 million shares of preferred stock. With respect to preferred stock, our board has the authority to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by our shareholders. Our shareholder rights plan adopted on April 10, 1996 and the preferred stock purchase rights issued to each common shareholder thereunder expired, by their respective terms, on April 10, 2006.

Washington law imposes restrictions on certain transactions between a corporation and

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significant shareholders. Chapter 23B.19 of the Washington Business Corporation Act prohibits a target corporation, with some exceptions, from engaging in particular significant business transactions with an acquiring person, which is defined as a person or group of persons that beneficially owns 10% or more of the voting securities of the target corporation, for a period of five years after the acquisition, unless the transaction or acquisition of shares is approved by a majority of the members of the target corporation’s board of directors prior to the acquisition. Prohibited transactions include, among other things:

•a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from the acquiring person;

•termination of 5% or more of the employees of the target corporation; or

•receipt by the acquiring person of any disproportionate benefit as a shareholder.

A corporation may not opt out of this statute. This provision may have the effect of delaying, deterring or preventing a change in control of NeoRx or limiting future investment in NeoRx by significant shareholders and their affiliates and associates.

The provisions of our articles of incorporation and Washington law discussed above may have the effect of delaying, deterring or preventing a change of control of NeoRx, even if this change would be beneficial to our shareholders. These provisions also may discourage bids for our common stock at a premium over market price and may adversely affect the market price of, and the voting and other rights of the holders of, our common stock. In addition, these provisions could make it more difficult to replace or remove our current directors and management in the event our shareholders believe this would be in the best interests of the corporation and our shareholders.

As a result of the closing of the equity financing, the number of shares of our common stock outstanding increased substantially and certain investors beneficially own significant blocks of our common stock; upon registration, such common shares will be generally available for resale in the public market

Upon the closing of the equity financing on April 26, 2006, we issued to a small group of institutional and other accredited investors an aggregate of 92.9 million shares of common stock, plus warrants to purchase an aggregate of 25.4 million additional shares of common stock. These investors also have received warrants to purchase an aggregate of 2.5 million shares of common stock in connection with their participation in the bridge loan. Concurrently with the closing, we issued an aggregate of 9.5 million shares of common stock to the holders of our Series B preferred stock upon conversion of our outstanding Series B preferred shares. At the time of closing, the placement agent for the financing also received a five-year warrant to purchase, on the same terms as the investors, 835,714 common shares. The issuance of such shares and warrants resulted in substantial dilution to shareholders who held our common stock prior to the financing.

The equity financing was led by MPM Capital (MPM). Entities affiliated with MPM acquired beneficial ownership of approximately 52.0 million common shares, or approximately 35.0% of our common stock outstanding immediately following the financing. Entities affiliated with Bay City Capital Management IV LLC (BCC) acquired beneficial ownership of approximately 27.9 million common shares, or approximately 19.5% of the common shares outstanding immediately following the financing. Two of our directors, Fred B. Craves and Carl S. Goldfischer, are managing directors of BCC and possess capital and carried interests in the BCC entities that participated in the financing. We have agreed, for as long as MPM owns at least 10% of the shares of common stock and warrants purchased in the financing, to use our best efforts to cause one person designated by MPM and one person designated by mutual agreement of MPM and BCC to be nominated and elected to our board of directors. Nicholas J. Simon III, a representative of MPM, was appointed to our board of directors on April 26, 2006, increasing the number of directors to nine. Mr. Simon is a general partner of certain of the MPM entities that participated in the financing and possesses capital and carried interests in those entities. MPM and BCC have not yet recommended a second director designee.

Under the securities purchase agreement, we have agreed to file a registration statement with the SEC covering the resale of the 92.9 million shares of common stock issued in the equity financing and the

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27.9 million shares of common stock issuable upon exercise of the warrants issued in the bridge and the equity financings. Upon such registration, these shares will become generally available for immediate resale in the public market. In addition, the approximately 9.5 million shares of common stock issued upon conversion of the Series B preferred stock currently are available for immediate resale pursuant to a registration statement or an exemption from registration under Rule 144(k) of the Securities Act. The market price of our common stock could fall as a result of such resales due to the increased number of shares available for sale in the market.

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Item 6.Exhibits

(a) Exhibits – See Exhibit Index below.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NEORX CORPORATION
		(Registrant)
Date:	May 15, 2006	By:	/s/ SUSAN D. BERLAND
		Susan D. Berland
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit	Description
3.1	Amended and Restated Articles of Incorporation, as amended April 25, 2006	(W)
3.2	Restated Bylaws, as amended March 28, 2006	(W)
10.1	Restated 1994 Stock Option Plan (‡)	(F)
10.2	Lease Agreement for 410 West Harrison facility, dated March 1, 1996, between NeoRx Corporation and Diamond Parking, Inc	(H)
10.3	Amendment No. 1, dated August 14, 2000, to Lease Agreement between NeoRx Corporation and Dina Corporation	(J)
10.4	1991 Stock Option Plan for Non-Employee Directors, as amended (‡)	(E)
10.5	1991 Restricted Stock Plan (‡)	(D)
10.6	Indemnification Agreement (‡)	(H)
10.7	Stock Option Grant Program for Nonemployee Directors under the NeoRx 2004 Incentive Compensation Plan, as amended	(B)
10.8	Stock Option Agreement, dated December 19, 2000, between NeoRx Corporation and Carl S. Goldfischer (‡)	(I)
10.9	Stock Option Agreement, dated January 17, 2001, between NeoRx Corporation and Carl S. Goldfischer (‡)	(I)
10.10	License Agreement dated as of April 2, 2004, between the Company and AnorMED, Inc. Certain portions of the agreement have been omitted pursuant to a request for confidential treatment	(Q)
10.11	Stock Option Grant Program for Nonemployee Directors under the NeoRx Corporation 1994 Restated Stock Option Plan (‡)	(M)
10.12	Facilities Lease, dated February 15, 2002, between NeoRx Corporation and Selig Real Estate Holdings Six	(A)
10.13	Lease Termination/Continuation Agreement dated October 8, 2002, between NeoRx Corporation and Dina Corporation	(N)
10.14	Amended and Restated 2004 Incentive Compensation Plan (‡)	(G)
10.15	Manufacturing and Supply Agreement dated as of May 4, 2004, between Hyaluron, Inc. and the Company. Certain portions of the agreement have been omitted pursuant to a request for confidential treatment.	(T)
10.16	Key Executive Severance Agreement dated as of February 28, 2003, between the Company and Anna Wight (‡)	(C)
10.17	Amendment No. 1 dated as of March 30, 2005 to Key Executive Severance Agreement dated as of February 28, 2003, between the Company and Anna Wight (‡)	(L)

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10.18	Change of Control Agreement dated as of February 28, 2003, between the Company and Anna Wight (‡)	(C)
10.19	Key Executive Severance Agreement dated as of June 23, 2005, between the Company and David A. Karlin (‡)	(P)
10.20	Change of Control Agreement dated as of June 23, 2005, between the Company and David A. Karlin (‡)	(P)
10.21	Employment Letter dated as of April 26, 2004, between the Company and Gerald McMahon (‡)	(L)
10.22	Key Executive Severance Agreement dated as of May 11, 2004, between the Company and Gerald McMahon (‡)	(R)
10.23	Change of Control Agreement dated as of May 11, 2004, between the Company and Gerald McMahon (‡)	(R)
10.24	Key Executive Severance Agreement dated as of October 25, 2004, between the Company and Susan D. Berland (‡)	(S)
10.25	Amendment No. 1 dated as of March 30, 2005 to Key Executive Severance Agreement dated as of October 25, 3004, between the Company and Susan D. Berland (‡)	(L)
10.26	Change of Control Agreement dated as of October 25, 2004, between the Company and Susan D. Berland (‡)((S)
10.27	Form of Non-Qualified Stock Option Agreement under 2004 Incentive Compensation Plan (‡)	(O)
10.28	Form of Incentive Stock Option Agreement under 2004 Incentive Compensation Plan (‡)	(O)
10.29	Consulting Agreement between the Company and Alan B. Glassberg, M.D. (‡)	(T)
10.30	Letter Agreement dated October 14, 2005, between the Company and Texas State Bank	(U)
10.31	Letter Agreement dated January 30, 2006, between the Company and Texas State Bank	(V)
10.32	Research Funding and Option Agreement dated August 4, 2005, between the Company and The Scripps Research Institute. Certain portions of the agreement have been omitted pursuant to a request for confidential treatment	(U)
10.33	Form of Directors’ Indemnification Agreements (‡)	(K)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer	(W)
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	(W)
32.1	Section 1350 Certification of Chairman and Chief Executive Officer	(W)
32.2	Section 1350 Certification of Chief Financial Officer	(W)

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(‡)	Management contract or compensatory plan.
(A)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.
(B)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2005, and incorporated herein by reference.
(C)	Filed as an exhibit to the Company’s Registration Statement on Form S-3/A (Registration No. 333-111344) filed on February 23, 2004, and incorporated herein by reference.
(D)	Filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 1991, and incorporated herein by reference.
(E)	Incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed April 10, 1996.
(F)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.
(G)	Incorporated by reference to Exhibit A to the Company’s definitive proxy statement on Schedule 14A filed April 29, 2005.
(H)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 1996, and incorporated herein by reference.
(I)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
(J)	Filed as an exhibit to the Company’s Form 10-K for the fiscal year ended December 31, 1998, and incorporated herein by reference.
(K)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed on April 28, 2006, and incorporated herein by reference.
(L)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 2005, and incorporated herein by reference.
(M)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2002, and incorporated herein by reference.
(N)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2002, and incorporated herein by reference.
(O)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2004, and incorporated herein by reference.
(P)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed on June 29, 2005, and incorporated herein by reference.
(Q)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended March 31, 2004, and incorporated herein by reference.
(R)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2004,

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	and incorporated herein by reference.
(S)	Filed as an exhibit to the Company’s Current Report on Form 8-K filed October 19, 2004, and incorporated herein by reference.
(T)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2005, and incorporated herein by reference.
(U)	Filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended September 30, 2005, and incorporated herein by reference.
(V)	Filed as an exhibit to the Company’s Form 8-K filed on February 3, 2006 and incorporated herein by reference.
(W)	Filed herewith.

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EX-3.1

Exhibit 3.1

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 two hundred three million (203,000,000) shares of two cents ($.02) par value, consisting of two hundred million (200,000,000) 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 April 25, 2006. 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.

Dated:  April 25, 2006

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

1

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
Its:	Chairman and Chief Executive Officer

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.

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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.

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.

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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 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.

5

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.

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

6

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 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).

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(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).

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.

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(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 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

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the current market price per share (as defined in subparagraph (IV)(d) below) of the Common Stock. Such adjustment shall become effective immediately, except 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 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.

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(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 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.

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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.

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 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

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the amount of dividends payable thereon for three semi-annual periods, then the holders of such Exchangeable Preferred Stock and Parity 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 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.

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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).

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 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

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

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

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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 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 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.

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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 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.

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(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.

(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):

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(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.

(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 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

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resolution and the Restated Articles of Incorporation.

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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 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.

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(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 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,

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provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange 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

(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 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

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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.

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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 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

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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 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

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

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 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

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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.

(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:

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(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 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 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,

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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 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

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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 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 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.

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(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

(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

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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 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.

(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.

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(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)).

(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,

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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 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 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

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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:

(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

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to pay or deliver such dividend, distribution, subscription or purchase rights or other benefits contemplated under Section 5(g), then thereafter no adjustment shall be required by reason of the taking of 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.

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.

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(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 (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;

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(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 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,

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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 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 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

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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.

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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

Conversion Information:  [NAME OF HOLDER]

Address of Holder:

42

Issue Common Stock to (if different than above):

Name:

Address:

Tax ID #:

43

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:

44

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

Dated:  March 16, 2005

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

45

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

46

EX-3.2

Exhibit 3.2

Restated

BYLAWS OF

NEORX CORPORATION

(A corporation incorporated under the laws of the State of Washington)

SECTION 1

SHAREHOLDERS AND SHAREHOLDERS’ MEETINGS

1.1           Annual Meeting.  The annual meeting of the shareholders of the corporation for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held each year at the principal office of the corporation, or at some other place, either within or without the state of Washington as designated by the Board of Directors, on the day and at the time specified in Exhibit A which is attached hereto and incorporated herein by this reference (if such specified day is a legal holiday, then on the next business day at the same time), or on such other day and time as may be set by the Board of Directors.

1.2           Special Meetings.  Special meetings of the shareholders for any purpose or purposes may be called at any time by the Board of Directors to be held at such time and place as the Board of Directors may prescribe.

Upon the request of the Chairman of the Board, the President, the Board of Directors, or of any shareholder or shareholders holding in the aggregate one-tenth (1/10th) of the voting power of all shareholders, it shall be the duty of the Secretary to call a special meeting of the shareholders to be held at the principal office of the corporation or such other convenient place and at such time as the Secretary may fix, not less than ten (10) (or in the case of an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange, or other disposition of all or substantially all of the assets of the corporation other than in the usual or regular course of business, or the dissolution of the corporation, twenty (20)) nor more than sixty (60) days after the receipt of said request, and if said Secretary shall neglect or refuse to issue such call, those making the request may do so.

1.3           Notice of Meetings.  Written notice of the place, day and hour of the annual shareholders’ meeting and written notice of the day, place, hour and purpose or purpose of special shareholders’ meetings shall be delivered not less than ten (10) (or in the case of an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange, or other disposition of all or substantially all of the assets of the corporation other than in the usual or regular course of business, or the dissolution of the corporation, twenty (20)) nor more than sixty (60) days before the date of the meeting.  Notice may be transmitted by: Mail, private carrier, or personal delivery, telegraph or teletype, or facsimile of the notice, and shall be given by or at the direction of the President, the Secretary or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the stock transfer books of the corporation, with postage thereon prepaid.

1.4           Waiver of Notice.  Except where expressly prohibited by law or the Articles of Incorporation, notice of the day, place, hour and purpose or purposes of any shareholders’ meeting may be waived in writing by any shareholder at any time, either before or after the meeting, and attendance at the meeting in person or by proxy shall constitute a waiver of such notice of the meeting unless such person in attendance asserts, if prior to commencement of such meeting, in writing to the Secretary, or if at the commencement of such meeting, publicly to the Chairman, that proper notice was not given. A waiver must be in writing, be signed by the shareholder entitled to notice, and be delivered to the corporation for inclusion in the minutes or filing in the corporate records. Any shareholder so waiving shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

1.5           Shareholders’ Action Without a Meeting.  The shareholders may take any action which they could properly take at a meeting without a meeting if a consent in writing, setting forth the action so taken, is signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same effect as a unanimous vote. Action taken by unanimous written consent of the shareholders is effective when all consents are in possession of the corporation, unless the consent specifies a later effective date.

1.6           Telephone Meetings.  Shareholders may participate in a meeting of shareholders by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other participant, and participation by such means shall constitute presence in person at a meeting.

1.7           List of Shareholders.  After fixing a record date for a shareholders’ meeting, the corporation shall prepare an alphabetical list of the names of all shareholders on the record date who are entitled to notice of the shareholders’ meeting. The list shall be arranged by voting group, and within each voting group by class or series of shares, and show the address of and number of shares held by each shareholder. A shareholder, shareholder’s agent, or a shareholder’s attorney may inspect the shareholders’ list, beginning ten days prior to the shareholders’ meeting and continuing through the meeting, at the corporation’s principal office or at a place identified in the meeting notice in the city where the meeting will be held during regular business hours and be at the shareholder’s expense. The shareholders’ list shall be kept open for inspection during such meeting or any adjournment.

1.8           Quorum.  The holders of a majority of the shares entitled to vote at a meeting, present in person or by proxy, shall constitute a quorum of shareholders for the transaction of business and the act of a majority of the shares present in person or by proxy at a meeting at which there is a quorum, shall be the act of the corporation, except as otherwise provided herein, by law (including without limitation RCW 23B.08.730 relating to transactions in which a director or an officer has a conflicting interest) or by the Articles of Incorporation. The shareholders present at a duly organized meeting may continue to transact business at such meeting and at any adjournment of such meeting (unless a new record date is or must be set for the adjourned meeting), notwithstanding the withdrawal of enough shareholders from either meeting to leave less than a quorum.

1.9           Adjourned Meetings.  Whether for failure to obtain a quorum or otherwise, an adjournment or adjournments of any shareholders’ meeting may be taken to such time and place as the majority of those present may determine without any other notice than announcement at such meeting being given. Any meeting at which directors are to be elected shall be adjourned only from day to day until such directors are elected.

1.10         Proxies.  The holder of any proxy for a shareholder shall present evidence of his or her appointment by an instrument in writing signed by the shareholder or by his or her duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided in the proxy. Revocation of a shareholder’s proxy shall not be effective until written notice thereof has actually been received by the secretary of the corporation.

1.11         Director Nominations.  Nominations of candidates for election as directors at any meeting of shareholders may be made (a) by, or at the direction of, a majority of the Board of Directors or (b) by any shareholder entitled to vote at such a meeting. Only persons nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible for election as directors at such a meeting.

Nominations, other than those made by, or at the direction of, the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the corporation as set forth in this Section 1.11. To be timely a shareholder’s notice shall be delivered to, or mailed and received at, the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the date of a scheduled shareholders’ meeting, regardless of postponements, deferrals, or adjournments of that meeting to a later date; provided, however, that if less than seventy (70) days’ notice or prior public disclosure of the scheduled date of such a meeting is given or made, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the day on which such notice of the date of the scheduled meeting was mailed or the day on which such public disclosure was made. Such shareholder’s notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director and as to the shareholder giving the notice (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of stock of the corporation which are beneficially owned by such person on the date of such shareholder notice and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies with respect to nominees for election as directors, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, including, but not limited to, information required to be disclosed by Item 4(b) and Item 6 of Schedule A of Regulation 14A and information which would be required to be filed on Schedule B of Regulation 14A with the Securities and Exchange Commission; and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the corporation’s books, of such shareholder and any other shareholders known by such shareholder to be supporting such nominees and (ii) the class and number of shares of stock of the corporation which

are beneficially owned by such shareholder on the date of such shareholder notice and by any other shareholders known by such shareholder to be supporting such nominees on the date of such shareholder notice. At the request of the Board of Directors, any person nominated by, or at the direction of, the Board for election as a director at a meeting of the shareholders shall furnish to the secretary of the corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee.

No person shall be elected as a director of the corporation unless nominated in accordance with the procedures set forth in this Section 1.11. Ballots bearing the names of all the persons who have been nominated for election as directors at a meeting of the shareholders in accordance with the procedures set forth in this Section 1.11 shall be provided for use at the meeting.

The Board of Directors may reject any nomination by a shareholder not timely made in accordance with the requirements of this Section 1.11. If the Board of Directors, or a designated committee thereof, determines that the information provided in a shareholder’s notice does not satisfy the informational requirements of this Section 1.11 in any material respect, the secretary of the corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the secretary within such period of time, not to exceed five (5) days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee reasonably determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this Section 1.11 in any material respect, then the Board of Directors may reject such shareholder’s nomination. The secretary of the corporation shall notify a shareholder in writing whether his nomination has been made in accordance with the time and information requirements of this Section 1.11. Notwithstanding the procedure set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any nominations by a shareholder, the presiding officer of the meeting of the shareholders shall determine and declare at the meeting whether a nomination was made in accordance with the terms of this Section 1.11. If the presiding officer determines that a nomination was made in accordance with the terms of this Section 1.11, he shall so declare at the meeting and ballots shall be provided for use at the meeting with respect to such nominee. If the presiding officer determines that a nomination was not made in accordance with the terms of this Section 1.11, he shall so declare at the meeting and the defective nomination shall be disregarded.

1.12         New Business.  At an annual meeting of shareholders, only such new business shall be conducted, and only such proposals shall be acted upon as shall have been brought before the annual meeting (a) by, or at the direction of, the Board of Directors or (b) by any shareholder of the corporation who complies with the notice procedures set forth in this Section 1.12. For a proposal to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder’s notice must be delivered to, or mailed and received at, the principal executive offices of the corporation not less than sixty (60) days nor more than ninety (90) days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that, if less than seventy (70) days’ notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the shareholder to be timely must be so delivered or received not later than the close of business on the tenth (10th) day following the earlier of the date on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A shareholder’s notice to the secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation’s books, of the shareholder proposing such business and any other shareholders known by such shareholder to be supporting such proposal, (c) the class and number of shares of stock of the corporation which are beneficially owned by the shareholder on the date of such shareholder notice and by any other shareholders known by such shareholder to be supporting such proposal on the date of such shareholder notice, and (d) any financial interest of the shareholder in such proposal.

The Board of Directors may reject any shareholder proposal not timely made in accordance with the terms of this Section 1.12. If the Board of Directors, or a designated committee thereof, determines that the information provided in a shareholder’s notice does not satisfy the informational requirements of this Section 1.12 in any material respect, the secretary of the corporation shall promptly notify such shareholder of the deficiency in the notice. The shareholder shall have an opportunity to cure the deficiency by providing additional information to the secretary within such period of time, not to exceed five (5) days from the date such deficiency notice is given to the shareholder, as the Board of Directors or such committee shall reasonably determine. If the deficiency is not cured within such period, or if the Board of Directors or such committee determines that the additional information provided by the shareholder, together with information previously provided, does not satisfy the requirements of this

Section 1.12 in any material respect, then the Board of Directors may reject such shareholder’s proposal. The secretary of the corporation shall notify a shareholder in writing whether his proposal has been made in accordance with the time and informational requirements of this Section 1.12. Notwithstanding the procedure set forth in this paragraph, if neither the Board of Directors nor such committee makes a determination as to the validity of any shareholder proposal, the presiding officer of the annual meeting shall determine and declare at the annual meeting whether the shareholder proposal was made in accordance with the terms of this Section 1.12. If the presiding officer determines that a shareholder proposal was made in accordance with the terms of this Section 1.12, he shall so declare at the annual meeting and ballots shall be provided for use at the meeting with respect to any such proposal. If the presiding officer determines that a shareholder proposal was not made in accordance with the terms of this Section 1.12, he shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting.

This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors and committees of the Board of Directors, but, in connection with such reports, no new business shall be acted upon at such annual meeting unless stated, filed and received as herein provided.

SECTION 2

BOARD OF DIRECTORS

2.1           Number and Qualification.  All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, a Board of Directors, except as may be otherwise provided in these Bylaws, the Articles of Incorporation or the Washington Business Corporation Act, as amended. The Board of Directors shall be composed of not less than three nor more than twelve directors, the specific number to be set by resolution of the Board of Directors. The number of directors may be changed from time to time by amendment to these Bylaws, but no decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Directors need not be shareholders of the corporation or residents of the State of Washington and need not meet any other qualifications.

2.2           Election—Term of Office.  The directors shall be elected by the shareholders at each annual shareholders’ meeting, to hold office until the next annual shareholders’ meeting and until their respective successors are elected and qualified unless removed in accordance with the laws of Washington. In the event of failure to elect directors at any annual shareholders’ meeting, or in the event of failure to hold any annual shareholders’ meeting as provided by these Bylaws, directors may be elected at a special meeting of the shareholders called for that purpose.

2.3           Vacancies.  Except as otherwise provided by law, vacancies in the Board of Directors, whether caused by resignation, death, retirement, disqualification, removal or otherwise, may be filled for the remainder of the term by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, except that directors elected to fill vacancies occurring through an increase in the number of directors shall serve until the next election of directors by the shareholders.

2.4           Resignation.  Any director may resign at any time by delivering written notice to the Board of Directors, its Chairman, the President, or the Secretary of the corporation. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date.

2.5           Removal of Directors.  At a meeting of the shareholders called expressly for that purpose, the entire Board of Directors, or any member thereof, may be removed, with or without cause, by a vote of the holders of a majority of shares then entitled to vote at an election of such directors.

2.6           Quorum and Voting.  At any meeting of the Board of Directors, the presence in person of a majority of the authorized number of directors shall constitute a quorum for the transaction of business, and if a quorum is present, the act of a majority of the directors present at such meeting shall be the act of the Board of Directors and of this corporation except as may be otherwise specifically provided by statute (including without limitation RCW 23B.08.730 relating to transactions in which a director or an officer has a conflicting interest), by the Articles of Incorporation, or by these Bylaws. Abstention from voting on a motion by a director present at a meeting at which there is a quorum shall be counted as a vote against the motion.

A director of the corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless:

(a)  The director objects at the beginning of the meeting, or promptly upon the director’s arrival, to holding it or transacting business at the meeting;

(b)  The director’s dissent or abstention from the action taken is entered in the minutes of the meeting; or

(c)  The director delivers written notice of the director’s dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation within a reasonable time after adjournment of the meeting.

The right of dissent or abstention is not available to a director who votes in favor of the action taken.

2.7           Annual Meeting.  The first meeting of each newly elected Board of Directors shall be known as the annual meeting thereof, and shall be held immediately after the annual shareholders’ meeting or any special shareholders’ meeting at which a Board of Directors is elected. Said meeting shall be held at the same place as such shareholders’ meeting unless some other place shall be specified by resolution of the shareholders or the Board of Directors.

2.8           Regular Meetings.  Regular meetings of the Board of Directors shall be held at such place, day and hour as shall from time to time be fixed by resolution of the Board.

2.9           Special Meetings.  Special meetings of the Board of Directors may be held at any place at any time whenever called by the Chairman of the Board, the President, Vice President, Secretary or Treasurer, or any two or more directors.

2.10         Notice of Meetings.  No notice of the annual meeting of the Board of Directors shall be required. Notice of the time and place of all meetings of the Board of Directors other than the annual meeting shall be given by the Secretary, or by the person calling the meeting, at least seventy-two (72) hours, prior to the time of the meeting. Notice may be transmitted by: Mail, private carrier, or personal delivery, telegraph or teletype, or telephone, wire or wireless equipment which transmits a facsimile of the notice or otherwise. However, no notice of any regular meeting need by given, if the time and place thereof shall have been fixed by resolution of the Board of Directors and a copy of such resolution mailed to every director at least three (3) days before the first meeting held pursuant thereto. Notice of any meeting of the Board of Directors may be waived in writing by any director at any time, either before or after such meeting, and attendance at such meeting in person shall constitute a waiver of notice of the time, day, place and purpose of such meeting except where a director attends for the express purpose of objecting to the transaction of any business because the meeting was not lawfully convened.

2.11         Directors’ Action Without a Meeting.  The Board of Directors or a committee thereof may take any action which it could properly take at a meeting without such a meeting if a unanimous consent in writing setting forth the action so taken shall be signed by all the directors, or all of the members of the committee, as the case may be. Such consent shall have the same effect as a unanimous vote.

2.12         Committees of the Board.  The Board of Directors, by resolutions adopted by a majority of the entire Board of Directors, may designate from among its members an Executive Committee and one or more other committees. Each such committee may exercise the authority of the Board of Directors to the extent provided in such resolution and any subsequent resolutions pertaining thereto and adopted in like manner, provided that the authority of each such committee shall be subject to the limitations set forth in RCW 23B.03.250 as now or hereafter amended. Such committees shall keep regular minutes of their proceedings and report to the Board of Directors when requested to do so.

2.13         Telephone Meetings.  Members of the Board of Directors or any committee appointed by the Board of Directors may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other participant and participation by such means shall constitute presence in person at a meeting.

2.14         Compensation.  Directors as such shall receive no compensation for their services except such fees for attending meetings or a stated salary or such other consideration as may be authorized by a majority of the entire Board of Directors from time to time; provided, that this does not preclude any director from serving the corporation in any other capacity and receiving compensation therefor, nor does it preclude the Board of Directors from authorizing the reimbursement of expenses incurred by directors in attending meetings of the Board of Directors or of any committee created by the Board of Directors.

SECTION 3

OFFICERS

3.1           Officers Enumerated—Election.  The officers of the corporation shall be a President, one or more Vice Presidents, one or more Scientific Directors, a Secretary and a Treasurer (together with one or more Assistant Secretaries and Assistant Treasurers if such are desired by the Board of Directors), all of whom shall be elected by the Board of Directors, to hold office at the pleasure of the Board of Directors.

3.2           Qualifications.  None of the officers of the corporation need be a director. Any two or more corporate offices may be held by the same person.

3.3           The Chairman of the Board.  The Board of Directors may elect one of its members to the position of Chairman of the Board to act as moderator of meetings of the Board of Directors and shareholders. The position of Chairman of the Board shall not be deemed to be an executive office of the Corporation for any purpose.

3.4           The President and Chief Executive Officer.  The President and Chief Executive Officer shall exercise the usual executive powers pertaining to the office of President and shall be responsible for carrying out the plans and directives of the Board of Directors. In the absence of a Chairman of the Board, the President shall preside at meetings of the Board of Directors and of the shareholders and perform such other duties as the Board of Directors may from time to time designate.

3.5           The Vice President.  The Vice President shall act as President in the absence or disability of the President and shall perform such other duties as the directors may from time to time designate.

3.6           The Secretary.  The Secretary, personally or with the assistance of others, shall prepare and keep minutes of the directors’ and shareholders’ meetings; authenticate all records of the corporation; attest all certificates of stock in the name of the corporation; keep the corporate seal, if any, and affix the same to certificates of stock and other proper documents; keep a record of the issuance of certificates of stock and the transfers of the same; and perform such other duties as the Board of Directors may from time to time designate.

3.7           The Treasurer.  The Treasurer shall have the care and custody, and be responsible for, all funds and securities of the corporation, and shall cause to be kept regular books of the account. The Treasurer shall cause to be deposited all funds and other valuable effects in the name of the corporation in such depositories as may be designated by the Board of Directors. In general, the Treasurer shall perform all of the duties incident to the office of Treasurer, and such other duties as from time to time may be assigned by the Board of Directors.

3.8           Vacancies.  Vacancies in any office arising from any cause may be filled by the Board of Directors at any regular or special meeting.

3.9           Removal.  Any officer or agent may be removed by action of the Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create any contract rights.

3.10         Other Officers and Agents.  The Board of Directors may appoint such other officers and agents as it shall deem necessary or expedient, who shall hold their office for such terms, and shall exercise such powers and perform such duties, as shall be determined from time to time by the Board of Directors.

3.11         Compensation.  The compensation of all officers of the corporation shall be fixed by the Board of Directors.

SECTION 4

SHARES AND CERTIFICATES OF SHARES

4.1           Share Certificates.  Share certificates shall be issued in numerical order, and each shareholder shall be entitled to a certificate signed by the President or a Vice President, attested by the Secretary, or an Assistant Secretary, and sealed with the corporate seal, if any. Facsimiles of the signatures and seal may be used, as permitted by law. Every share certificate shall state:

(a)  The name of the corporation and that the corporation is organized under the laws of the State of Washington;

(b)  The name of the person to whom issued;

(c)  The number, class and series (if any) of shares which this certificate represents;

(d)  If the corporation is authorized to issue shares of more than one class, that upon request and without charge, the corporation will furnish any shareholder with a full statement of the designations, preferences, limitations and relative rights of the shares of each class.

4.2           Consideration for Shares.  Shares of this corporation may be issued for such consideration as shall be authorized by the Board of Directors. The consideration for the issuance of shares may be paid in whole or in part in cash, promissory notes, services performed, contracts for services to be performed, or other tangible or intangible property. The reasonable charges and expenses of organization or reorganization and the reasonable expenses of and compensation for the sale or underwriting of its shares may be paid or allowed by the corporation out of the consideration received by it in payment for its shares without rendering the shares not fully paid or assessable.

4.3           Transfers.  Shares may be transferred by delivery of the certificate, accompanied either by an assignment in writing on the back of the certificate, or by a written power of attorney to sell, assign and transfer the same, signed by the record holder of the certificate. Except as otherwise specifically provided in these Bylaws, no shares of stock shall be transferred on the books of the corporation until the outstanding certificate therefor has been surrendered to the corporation.

4.4           Loss or Destruction of Certificates.  In the event of the loss or destruction of any certificate, a new certificate may be issued in lieu thereof upon satisfactory proof of such loss or destruction, and upon the giving of security against loss to the corporation by bond, indemnity or otherwise, to the extent deemed necessary by the Board of Directors or the Secretary or Treasurer.

4.5           Fixing Record Date.  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days and, in case of a meeting of shareholders, not less than ten (10) (or in case of an amendment to the articles of incorporation, a plan of merger or share exchange, a proposed sale, lease, exchange, or other disposition of all or substantially all of the assets of the corporation other than in the usual or regular course of business, or the dissolution of the corporation, twenty (20)) days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the close of business on the day before the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof.

4.6           Shares Without Certificates.  Notwithstanding any other provisions herein, the Board of Directors may authorize the issuance of some or all of the shares of any or all of the corporation’s classes or series without certificates.  The authorization does not affect shares already represented by certificates until they are surrendered to the corporation.  Within a reasonable time after the issuance or transfer of shares without certificates, the corporation shall send the shareholder a complete record containing the information required on certificates by applicable Washington law.

SECTION 5

BOOKS. RECORDS AND REPORTS

5.1           Records of Corporate Meetings and Share Registers.  The corporation shall keep complete records of all proceedings of the Board of Directors and shareholders and shall keep at its registered office or principal place of business or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders, the number and class of shares held by each and the dates they acquired same.

5.2           Corporate Books and Records.  The corporation shall keep a copy of the following records at its principal office: (a) the Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (b) the Bylaws or Restated Bylaws, and all amendments to them currently in effect; (c) the minutes of all shareholders’ meetings, and records of all actions taken by shareholders without a meeting, for the past three (3) years; (d) its financial statements for the past three years (3), including balance sheets showing in reasonable detail the financial condition of the corporation as of the close of each fiscal year, and an income statement showing the results of its operations during each fiscal year prepared on a stated basis explained therein; (e) all written communications to shareholders generally within the past three (3) years; (f) a list of the names and business addresses of its current directors and officers; (g) its most recent annual report delivered to the Secretary of State, and (h) such other records as may be required under Washington law.

5.3           Copies of Resolutions.  Any person dealing with the corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the President, Vice President, Secretary or Assistant Secretary.

5.4           Books of Account.  The corporation shall keep appropriate and complete books of account.

5.5           Inspection of Records by Shareholders.

(a)  Any shareholder of the corporation may inspect and copy, during regular business hours at the corporation’s principal office, any of the following records of the corporation provided the shareholder gives the corporation written notice of the shareholder’s demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy such records: (i) the Articles or Restated Articles of Incorporation, and all amendments to them currently in effect; (ii) the Bylaws or Restated Bylaws, and all amendments to them currently in effect (iii) the minutes of all shareholder meetings, and records of all action taken by shareholders without a meeting for the past three (3) years; (iv) the financial statements for the corporation as required to be kept by the corporation under Washington law for the past three (3) years; (v) all written communications to shareholders generally within the past three (3) years; (vi) a list of the names and business addresses of its current directors and officers; and (vii) the corporation’s most recent annual report as delivered to the Secretary of State.

(b)  A shareholder of a corporation is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation provided the shareholder gives the corporation written notice of the shareholder’s demand at least five (5) business days before the date on which the shareholder wishes to inspect and copy such records and the shareholder’s demand is made in good faith and for a proper purpose, the shareholder describes with reasonable particularity the shareholder’s purpose and the records the shareholder desires to inspect, and the records are directly connected with the shareholder’s purpose: (i) Excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while exercising the authority of the Board of Directors, minutes of the shareholders, and records of action taken by the shareholders or the Board of Directors without a meeting; (ii) Accounting records of the corporation; and (iii) The record of shareholders.

SECTION 6

REGISTERED OFFICE AND REGISTERED AGENT

The registered office of the corporation shall be located in the state of Washington at such place as may be fixed from time to time by the Board of Directors upon filing of such notices as may be required by law, and the registered agent shall have a business office identical with such registered office. Any change in the registered agent or registered office shall be effective upon filing such change with the office of the Secretary of State of the state of Washington.

SECTION 7

FISCAL YEAR

The fiscal year of the corporation shall be as set forth in Exhibit A which is attached hereto and incorporated herein by this reference.

SECTION 8

CORPORATE SEAL

The corporate seal of the corporation shall be in the form shown on Exhibit A.

SECTION 9

LOANS TO DIRECTORS AND OFFICERS

No loans shall be made by the corporation to its officers or directors unless first approved in the manner required by RCW 23B.08.700 through .08.730 or other applicable law.

SECTION 10

MISCELLANEOUS PROCEDURAL PROVISIONS

The Board of Directors may adopt rules of procedure to govern any meetings of shareholders or directors to the extent not inconsistent with law, the Corporation’s Articles of Incorporation, or these Bylaws, as they are in effect from time to time. In the absence of any rules of procedure adopted by the Board of Directors, the Chairman shall make all decisions regarding such procedure for any meeting.

SECTION 11

AMENDMENT OF BYLAWS

The Board of Directors is expressly authorized to make, alter and repeal the Bylaws of the corporation, subject to the power of the shareholders of the corporation to change or repeal such Bylaws.

SECTION 12

INDEMNIFICATION OF DIRECTORS AND OFFICERS

12.1         Grant of Indemnification.  Subject to Section 12.2, each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any threatened, pending, or completed action, suit or proceedings, whether civil, criminal, administrative or investigative, whether formal or informal (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or officer of this corporation or who, while a director or officer of this corporation, is or was serving at the request of this corporation as a director, officer, employee or agent of this or another corporation or of a partnership, joint venture, trust, other enterprise, or employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by this corporation to the fullest extent permitted by applicable law, as then in effect, against all expense, liability and loss (including attorneys’ fees, costs, judgments, fines, ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably incurred or suffered by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators. Indemnification under this Section 12 shall be conditioned on approval of such indemnification by the shareholders or the Board of Directors, or a finding by independent legal counsel that such indemnification is consistent with the Washington Business Corporation Act and this Section 12, including but not limited to Section 12.2.

12.2         Limitations on Indemnification.  Notwithstanding Section 12.1, no indemnification shall be provided hereunder to any such person to the extent that such indemnification would be prohibited by the Washington Business Corporation Act or other applicable law as then in effect, nor, except as provided in Section 12.4 with respect to proceedings seeking to enforce rights to indemnification, shall this corporation indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person except where such proceeding (or part thereof) was authorized by the Board of Directors of this corporation.

12.3         Advancement of Expenses.  The right to indemnification conferred in this Section 12 shall include the right to be paid by this corporation the expenses incurred in defending any such proceeding in advance of its final disposition, except where the Board of Directors shall have adopted a resolution expressly disapproving such advance of expenses; provided, however, that the payment of such expenses in advance of the final disposition of a

proceeding shall be made only upon delivery to this corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise.

12.4         Right to Enforce Indemnification.  If a claim under Section 12.1 is not paid in full by this corporation within sixty (60) days after a written claim has been received by this corporation, or if a claim for expenses incurred in defending a proceeding in advance of its final disposition authorized under Section 12.3 is not paid within twenty (20) days after a written claim has been received by this corporation, the claimant may at any time thereafter bring suit against this corporation to recover the unpaid amount of the claim and, to the extent successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action with respect to expenses authorized under Section 12.3) that the claimant has not met the standards of conduct which make it permissible hereunder or under the Washington Business Corporation Act for this corporation to indemnify the claimant for the amount claimed. Neither the failure of this corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination prior to the commencement of such action that indemnification of or reimbursement or advancement of expenses to the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth herein or in the Washington Business Corporation Act nor (except as provided in section 12.3) an actual determination by this corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the claimant is not entitled to indemnification or to the reimbursement or advancement of expenses shall be a defense to the action or create a presumption that the claimant is not so entitled.

12.5         Nonexclusivity.  The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section 12 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or the Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.

12.6         Indemnification of Employees and Agents.  This corporation may, by action of its Board of Directors from time to time, provide indemnification and pay expenses in advance of the final disposition of a proceeding to employees and agents of this corporation on the same terms and with the same scope and effect as the provisions of this Section with respect to the indemnification and advancement of expenses of directors and officers of this corporation or pursuant to rights granted pursuant to, or provided by, the Washington Business Corporation Act or on such other terms as the Board may deem proper.

12.7         Insurance and Other Security.  This corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of this corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not this corporation would have the power to indemnify such person against such expense, liability or loss under the Washington Business Corporation Act. This corporation may enter into contracts with any director or officer of this corporation in furtherance of the provisions of this Section and may create a trust fund, grant a security interest or use other means (including without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Section.

12.8         Amendment or Modification.  This Section 12 may be altered or amended as provided in Section 11 at any time, but no such amendment shall have the effect of diminishing the rights of any person who is or was an officer or director as to any acts or omissions taken or omitted to be taken prior to the effective date of such amendment.

12.9         Effect of Section.  The rights conferred by this Section 12 shall be deemed to be contract rights between this corporation and each person who is or was a director or officer. This corporation expressly intends each such person to rely on the rights conferred hereby in performing his or her respective duties on behalf of this corporation.

SECTION 13

REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The President, or any Vice President, and the Secretary, or any Assistant Secretary, of the corporation are authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares of other corporations standing in the name of the corporation. Said authority may be exercised by such officers either in person or by proxy or power of attorney duly executed by any of said officers.

EXHIBIT A

1.1           Date and time of annual meeting:  third Tuesday in May

7              Fiscal year:  December 31

8              Corporate Seal

Date Bylaws Adopted: May 23, 1984
Bylaws Amended: September 24, 1984
Bylaws Amended: December 3, 1986
Bylaws Amended: February 27, 1987
Bylaws Amended: April 1, 1987
Bylaws Amended: September 25, 1987
Bylaws Amended: February 11, 1988
Bylaws Amended: March 3, 1988
Bylaws Amended: April 22, 1988
Bylaws Amended: February 27, 1989
Bylaws Amended: August 2, 1990
Bylaws Amended: November 15, 1990
Bylaws Amended: December 16, 1991
Bylaws Amended: September 10, 1992
Bylaws Amended: July 7, 1993
Bylaws Amended: August 4, 1993
Bylaws Amended: November 5, 1993
Bylaws Amended: August 15, 1994
Bylaws Amended: March 28, 2006

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Gerald McMahon, President and Chief Executive Officer of NeoRx Corporation certify that:

1.I have reviewed this quarterly report on Form 10-Q of NeoRx Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 15, 2006
		/s/ GERALD MCMAHON
		Gerald McMahon
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Susan D. Berland, Chief Financial Officer of NeoRx Corporation, certify that:

1.I have reviewed this quarterly report on Form 10-Q of NeoRx Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 15, 2006
		/s/ SUSAN D. BERLAND
		Susan D. Berland
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Quarterly Report

I, Gerald McMahon, President and Chief Executive Officer of NeoRx Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 that:

a.the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

b.the information contained in the Report 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2006	By:	/s/ GERALD MCMAHON
		Gerald McMahon

EX-32.2

Exhibit 32.2

Certification of Quarterly Report

I, Susan D. Berland, Chief Financial Officer of NeoRx Corporation (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350 that:

a.the Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

b.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2006	By:	/s/ SUSAN D. BERLAND
		Susan D. Berland