<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1996.
REGISTRATION NO. 333-03592
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TARGETED GENETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
WASHINGTON 2836 91-1549568
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1100 OLIVE WAY, SUITE 100
SEATTLE, WASHINGTON 98101
(206) 623-7612
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. STEWART PARKER
CHIEF EXECUTIVE OFFICER
1100 OLIVE WAY, SUITE 100
SEATTLE, WASHINGTON 98101
(206) 623-7612
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN M. GRAHAM CHARLES W. MULANEY, JR.
STEPHANIE G. DALEY-WATSON SKADDEN, ARPS, SLATE, MEAGHER & FLOM
PERKINS COIE 333 WEST WACKER DRIVE
1201 THIRD AVENUE, 40TH FLOOR CHICAGO, ILLINOIS 60606
SEATTLE, WASHINGTON 98101-3099 (312) 407-0700
(206) 583-8888
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS, DATED MAY 30, 1996
PROSPECTUS
3,500,000 SHARES
[TARGETED GENETICS LOGO]
COMMON STOCK
All of the 3,500,000 shares of Common Stock offered hereby are being sold
by Targeted Genetics Corporation ("Targeted Genetics" or the "Company"). The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
"TGEN." On May 24, 1996, the last reported sale price for the Common Stock was
$5.75 per share. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
==================================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $350,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
525,000 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
---------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made at the
offices of the agent of Vector Securities International, Inc., in New York, New
York, on or about , 1996.
---------------------------
Vector Securities International, Inc. Genesis Merchant Group
Securities
, 1996
<PAGE> 3
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" and elsewhere in this Prospectus
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions; competition; technological
advances; ability to obtain rights to technology; ability to obtain and enforce
patents; ability to commercialize and manufacture products; results of clinical
studies; results of research and development activities; business abilities and
judgment of personnel; availability of qualified personnel; changes in, or
failure to comply with, governmental regulations; ability to obtain adequate
financing in the future; and other factors referenced in this Prospectus. See
"Risk Factors."
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET-MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus,
including information under "Risk Factors." Except as otherwise noted, all
information in this Prospectus, including financial information and share and
per share data, assumes no exercise of the Underwriters' over-allotment option.
See "Underwriting." Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of the Reform Act. See "Special
Note Regarding Forward-Looking Statements" on page 2 for additional factors
relating to such statements.
THE COMPANY
Targeted Genetics is focused on the development of gene and cell therapies
for the treatment of certain acquired and inherited diseases. The Company is
developing a broad base of core technologies that it believes will allow it to
address a variety of such diseases. These technologies include proprietary viral
and non-viral gene delivery systems as well as novel techniques for cytotoxic T
lymphocyte ("CTL") immunotherapy. In order to expand its technology base with
respect to non-viral gene delivery systems and to enhance its product
development programs, the Company recently agreed to acquire RGene Therapeutics,
Inc. ("RGene"), a privately held company focused on the development and use of
non-viral gene delivery systems. The Company is using its core technology
platform to develop potential products for the treatment of various genetic
disorders, cancer and infectious diseases, and is currently conducting clinical
trials in certain of these indications.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the target
cell to be modified, the duration of gene expression required and the need for
ex vivo or in vivo delivery. Accordingly, the Company is developing multiple
gene delivery systems based on three different vector technologies:
adeno-associated viral ("AAV"), retroviral and non-viral. The Company believes
these systems may provide it with the flexibility necessary to develop gene
therapies for a broader range of diseases than would be possible using a single
gene delivery system. Targeted Genetics was the first company to initiate
clinical trials using AAV vectors and is not aware of any other company
conducting clinical trials using these vectors. In addition, the Company has
exclusive rights to an improved type of retroviral vector which has been shown
in preclinical experiments to be more efficient than earlier retroviral vectors
at delivering genes into certain types of blood cells. The Company also is
developing non-viral gene delivery systems which may provide greater flexibility
relative to the size and sequence of transferred genes and allow targeted
delivery in vivo.
Through its pending acquisition of RGene (the "RGene Acquisition"), the
Company will acquire rights to proprietary non-viral gene delivery technology
based on the use of cationic lipids that promote the uptake of DNA into cells.
This technology includes several formulations with the potential for increased
stability and improved transduction efficiency, as well as the potential ability
to deliver genes to specific target cells. The Company will also acquire rights
to the E1A tumor suppressor gene which is currently in clinical trials for the
treatment of ovarian and breast cancer.
In the area of cell therapy, the Company's expertise with CTLs enables it
to isolate from patients and efficiently multiply antigen-specific CTLs, which
are immune cells that target and kill specific diseased cells. This expertise
forms the basis for a series of potential immunotherapies for the treatment of
cancer and infectious diseases. The CTL immunotherapy program is based on the
Company's proprietary Rapid Expansion Method ("REM") technology, which is used
to grow CTLs ex vivo prior to infusion into the patient. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' specific disease-fighting
capabilities in vitro. Other methods of expanding CTL clones generally require
several months.
Targeted Genetics is currently conducting multiple clinical trials
utilizing its viral gene delivery systems as well as its CTL immunotherapy
technology. Following the completion of the RGene Acquisition, the Company also
will have a clinical trial using a non-viral gene delivery system. The
3
<PAGE> 5
Company is currently conducting a Phase I and a Phase I/II clinical trial
examining the use of AAV vectors to deliver in vivo the cystic fibrosis
transmembrane regulator ("CFTR") gene for the treatment of cystic fibrosis. The
Phase II part of the latter trial is expected to begin in late 1996. RGene has
initiated a Phase I clinical trial of a non-viral system to deliver in vivo the
E1A tumor suppressor gene to patients with ovarian or breast cancer. In
addition, the Company is conducting a Phase I clinical trial examining the use
of HIV-specific CTLs to prevent the onset of full-blown AIDS in HIV-infected
patients. The Company also is collaborating on two physician-sponsored Phase I
clinical trials examining gene therapies for the treatment of Gaucher disease
and melanoma. Patient accrual for all these Phase I clinical trials is expected
to be completed by the end of 1996.
The Company was incorporated in Washington in 1989 as a wholly owned
subsidiary of Immunex Corporation ("Immunex"), and commenced operations in 1992.
The Company's headquarters are located at 1100 Olive Way, Suite 100, Seattle,
Washington 98101. Its telephone number is (206) 623-7612.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................................. 3,500,000 shares
Common Stock to be outstanding after the Offering..... 19,533,848 shares (1)
Nasdaq National Market symbol......................... TGEN
Use of proceeds....................................... For research and development;
clinical testing; capital
expenditures, including expansion of
existing facilities; working capital;
and general corporate purposes.
</TABLE>
- ---------------
(1) Based on shares outstanding as of March 31, 1996. Includes 3,636,364 shares
to be issued to RGene stockholders upon completion of the RGene Acquisition.
Excludes (i) 1,177,014 shares issuable upon exercise of options outstanding
at March 31, 1996, with a weighted average exercise price of $3.20 per
share; (ii) 831,614 shares issuable upon exercise of warrants outstanding at
March 31, 1996, with a weighted average exercise price of $4.78 per share;
(iii) 281,686 shares reserved for issuance under the Company's stock option
plans at March 31, 1996; and (iv) an indeterminate number of additional
shares of Common Stock that may be issued to RGene stockholders in the event
certain milestones are achieved before December 31, 1998. See
"Management -- Benefit Plans" and "RGene Acquisition."
4
<PAGE> 6
SUMMARY ACTUAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------------- -------------------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1995 (1) 1995 1996 1996 (2)
------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 412 $ 449 $ 842 $ 1,195 $ 132 $ 183 $ 2,706
Expenses:
Research and
development........ 4,261 6,763 8,195 11,268 1,978 2,366 4,636
General and
administrative..... 1,217 1,892 2,267 3,020 701 617 888
Interest............. -- 193 302 302 75 92 92
------- ------- ------- -------- ------- ------- -------
Total expenses... 5,478 8,848 10,764 14,590 2,754 3,075 5,616
------- ------- ------- -------- ------- ------- -------
Net loss............... $(5,066) $(8,399) $(9,922) $(13,395) $(2,622) $(2,892) $ (2,910)
======= ======= ======= ======== ======= ======= =======
Net loss per share..... $ (0.94) $ (0.95) $ (0.29) $ (0.23) $ (0.18)
======= ======== ======= ======= =======
Shares used in
computation of net
loss per share....... 10,533 14,169 8,966 12,343 15,979
Pro forma, assuming
conversion of
Preferred Stock to
Common Stock (3):
Net loss per share... $ (1.03)
=======
Shares used in
computation of net
loss per share..... 8,152
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (5)
-------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available for sale.............. $ 11,878 $ 14,105 $ 32,622
Working capital....................................................... 10,408 11,017 29,534
Total assets.......................................................... 17,381 19,930 38,447
Long-term obligations................................................. 2,634 2,634 2,634
Deficit accumulated during development stage.......................... (30,481) (44,550) (44,550)
Total shareholders' equity............................................ 13,119 13,904 32,421
</TABLE>
- ------------------
(1) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1995. See "Unaudited Pro Forma Consolidated Financial Statements."
(2) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(3) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(4) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(5) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996, the sale by the Company of the 3,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $5.75 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
5
<PAGE> 7
RGENE ACQUISITION
In keeping with its strategy of building a broad-based technology platform,
in April 1996, the Company entered into a definitive merger agreement (the
"Merger Agreement") with RGene pursuant to which the Company has agreed to
acquire RGene by merging a wholly owned subsidiary of the Company formed to
facilitate the transaction with and into RGene. The Merger Agreement provides
that, in exchange for all of the issued and outstanding shares of capital stock
of RGene, Targeted Genetics will issue 3,636,364 shares of the Common Stock
(representing an aggregate value of $18.7 million, assuming a price of $5.13 per
share, the closing price of the Common Stock on the date of execution of the
Merger Agreement) to the RGene stockholders upon closing of the RGene
Acquisition. In addition, the RGene stockholders would have the right to receive
up to an additional $5 million of the Common Stock if certain milestones
relating to RGene's potential products and technology are achieved prior to
December 31, 1998. The first such milestone (the "First Milestone") relates to
the enrollment of at least one patient in a Phase II clinical trial for RGene's
E1A tumor suppressor gene therapy in the United States and the enrollment of at
least one patient in a similar clinical trial in a member country of the
European Economic Union. Achievement of the First Milestone would result in the
issuance of $1 million, $2 million or $3 million of the Common Stock, depending
upon whether the First Milestone is achieved on or before December 31, 1997 or
December 31, 1998, and depending upon whether the First Milestone is achieved in
the United States only or in the United States and Europe, as set forth in the
following table:
<TABLE>
<CAPTION>
MILESTONE ACHIEVEMENT
GEOGRAPHIC TERRITORY DEADLINE COMMON STOCK ISSUABLE
- ---------------------------- ---------------------------- ----------------------------
<S> <C> <C>
United States only December 31, 1997 $2 million
Europe only December 31, 1997 $0
United States and Europe December 31, 1997 $3 million
United States only December 31, 1998 $1 million
Europe only December 31, 1998 $1 million(1)
United States and Europe December 31, 1998 $2 million(2)
</TABLE>
- ---------------
(1) To be issued only if the First Milestone is achieved in the United States
during calendar year 1998. If the First Milestone is achieved in the United
States prior to January 1, 1998, or if it is not achieved at all in the
United States, then no Common Stock will be issued for achieving the First
Milestone in Europe during 1998.
(2) The maximum amount of Common Stock that may be issued in the event that the
First Milestone is not achieved in the United States until 1998 is $2
million.
The second milestone (the "Second Milestone") is the execution on or before
December 31, 1997 of a definitive collaboration agreement with a third party for
the development of genetic vaccines using RGene's technology, which
collaboration agreement must provide minimum revenue to the Company of $2
million during the first year following its execution, of which at least $1.5
million may not be subject to any specific funding commitment under any license
or research agreement. Achievement of the Second Milestone would result in the
issuance of $2 million of the Common Stock.
The aggregate number of shares of Common Stock issued upon achievement of a
milestone will equal the applicable aggregate value of such shares issuable upon
achievement of such milestone divided by the milestone average trading price,
which is the average closing sale price for the Common Stock for the 30 trading
days preceding the date of achievement of the milestone. Such shares will be
issued pro rata, based upon the number of shares of RGene capital stock
outstanding on the closing of the RGene Acquisition, to the former RGene
stockholders as promptly as practicable, but in no event later than 20 days
after the achievement of the applicable milestone.
Assuming the milestone average trading price equals $5.75 (the closing sale
price per share of Common Stock as reported on the Nasdaq National Market on May
24, 1996), achievement of both milestones would result in the issuance of a
maximum of 869,565 shares of Common Stock. Based upon the number of shares
outstanding as of May 24, 1996, and assuming the issuance of 3,636,364
6
<PAGE> 8
shares of Common Stock at the closing of the RGene Acquisition, upon issuance,
such shares representing the additional consideration would represent
approximately 6% of the outstanding Common Stock. The shares of Common Stock
issued to RGene stockholders are subject to certain limitations on transfer and
are covered by certain registration rights. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights" and "Description of Capital
Stock -- Registration Rights."
For a period of one year after completion of the RGene Acquisition, the
Company will hold in escrow 363,636 of the shares issued to RGene stockholders
upon the closing of the RGene Acquisition in order to satisfy potential claims
made by the Company against the former RGene stockholders in connection with any
breach of any representation or warranty, or any failure to comply with any
covenant or agreement, contained in the Merger Agreement.
Promptly following the closing of the RGene Acquisition, the Targeted
Genetics Board of Directors will appoint Austin M. Long, III and Martin P.
Sutter as RGene's designees to the Targeted Genetics Board of Directors. Messrs.
Long and Sutter will stand for election at the next annual meeting of
shareholders.
Completion of the RGene Acquisition is subject to the approval of the
shareholders of both companies and the satisfaction of customary conditions,
such as no material adverse change in the condition of either company. Holders
of a number of RGene shares sufficient to approve the RGene Acquisition have
agreed to vote their shares in favor of the transaction. Because Targeted
Genetics will be issuing shares of Common Stock to the RGene stockholders in an
amount in excess of 20% of the shares of Common Stock outstanding prior to the
RGene Acquisition, the Company's shareholders must approve the issuance of such
shares under applicable provisions of Schedule D to the Bylaws of the National
Association of Securities Dealers, Inc. The approval required is a majority of
the total votes cast on the proposal in person or by proxy at a special meeting
called for the purpose of approving such issuance. Subject to receipt of
shareholder approval and satisfaction or waiver of the conditions precedent, the
Company anticipates that the RGene Acquisition will be completed before the end
of the second quarter of 1996. The Company does not intend to complete the
Offering until the RGene Acquisition is consummated.
7
<PAGE> 9
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information in this Prospectus. Special
Note: Certain statements set forth below constitute "forward-looking statements"
within the meaning of the Reform Act. See "Special Note Regarding
Forward-Looking Statements" on page 2 for additional factors relating to such
statements.
EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY. The Company
has no commercial products and all of its potential products are in research,
development or early-stage clinical trials. As such, the Company cannot predict
when or if any of its products under development will be commercialized.
Products, if any, resulting from the Company's research and development programs
are not expected to be commercially available for a number of years, if at all,
even if they are successfully developed and proven safe and effective.
While many approaches to gene therapy and cell therapy are being pursued by
pharmaceutical and biotechnology companies, there are currently no marketed gene
therapies and a limited number of marketed cell therapies. Existing preclinical
and clinical data relating to the Company's specific gene and cell therapy
approaches are very limited. Prior to any commercial use, the products and
technologies currently under development by the Company will require significant
additional research and development efforts, extensive preclinical and clinical
testing and regulatory approval. Clinical trials in humans are necessary to
determine product safety and efficacy. Product development involving new
therapies is highly uncertain and unanticipated developments, clinical and
regulatory delays, adverse or unexpected side effects or immune responses or
inadequate therapeutic efficacy could slow or prevent the successful completion
of the Company's product and technology development efforts and have a material
adverse effect on the Company's business, financial condition and results of
operations.
In addition, gene and cell therapy products are subject to the risks of
failure inherent in the development of products based on innovative
technologies. There can be no assurance that Targeted Genetics will be permitted
to undertake additional or complete ongoing clinical trials of its potential
products within the time periods indicated in this Prospectus or otherwise, that
sufficient numbers of patients can be accrued for such trials or that clinical
trials will demonstrate that the products tested are safe and effective. Even if
clinical trials are successful, there can be no assurance that the Company will
obtain regulatory approval for any indication, that an approved product can be
produced in commercial quantities at reasonable costs or gain acceptance for use
by physicians and healthcare providers or that any potential products will be
successfully marketed at prices that would permit the Company to operate
profitably, any of which would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Development Programs."
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS. Targeted Genetics is
a development stage company and has generated minimal revenues since inception.
At March 31, 1996, the Company had an accumulated deficit of approximately $30.5
million. On a pro forma basis, giving effect to the RGene Acquisition as if it
had occurred on March 31, 1996, the accumulated deficit would have been
approximately $44.6 million. Losses have resulted from expenses incurred in the
Company's research and development programs and, to a lesser extent, from
general and administrative and interest expenses. The Company expects to incur
substantial additional losses over at least the next several years and expects
cumulative losses to increase substantially as it continues or expands its
research and development activities. Payments from collaborative partners, if
any, and investment income are expected to be the only sources of revenue for
the foreseeable future and revenues from commercial sales of products are not
expected for a number of years, if at all. To achieve profitable operations,
Targeted Genetics, alone or with corporate collaborative partners, must
successfully develop, manufacture, obtain regulatory approvals and market
potential products, of which there can be no assurance. The time required to
reach sustained profitability is highly uncertain and there can be no assurance
that the Company will be able to achieve profitability on a sustained basis, if
at all. Moreover, if
8
<PAGE> 10
profitability is achieved, the level of profitability cannot be predicted and it
may vary significantly from quarter to quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
UNCERTAINTIES RELATING TO CLINICAL TRIALS AND PRODUCT
DEVELOPMENT. Existing data on the safety and efficacy of gene and cell therapy
treatments are very limited. The Company has performed only limited preclinical
and clinical testing of certain of its product candidates and technologies under
development. Preclinical studies of product candidates may not predict and do
not ensure safety or efficacy in humans and are not necessarily indicative of
the results that may be achieved in clinical trials with humans. Possible
serious side effects of retroviral vector-based gene transfer include viral
infections resulting from contamination with replication-competent retroviruses.
In addition, the development of cancer in a patient is theoretically a possible
side effect of all methods of gene transfer. Furthermore, as with most other
biopharmaceutical products, there is also a possibility of toxicity or decreased
efficacy associated with a host immune response toward any vector used in the
Company's treatments. The possibility of such response may be increased if there
is a need to deliver the vector frequently. There can be no assurance that
unacceptable side effects will not be discovered during preclinical and clinical
testing of the Company's potential products. Even after being cleared by the
United States Food and Drug Administration (the "FDA") or the regulatory
authorities of other countries, a product may later be shown to be unsafe or to
not have its purported effect, thereby preventing its widespread use or
requiring its withdrawal from the market. The rate of completion of the
Company's clinical trials depends on, among other factors, the rate of patient
enrollment. Patient enrollment is a function of many factors, including the size
of the patient population, the nature of the clinical protocol, the proximity of
patients to clinical sites and the eligibility criteria for the trial. Delays in
planned patient enrollment may result in increased costs, delays or termination
of clinical trials, which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
Company has a limited clinical staff and, as a result, will rely on third
parties to assist it in overseeing and monitoring clinical trials, which may
result in delays in completing, or failure to complete, clinical trials if such
third parties fail to perform under their agreements with the Company or fail to
meet regulatory standards in the performance of their obligations under such
agreements. See "Business -- Governmental Regulation."
NEED FOR ADDITIONAL CAPITAL. The Company expects negative cash flow from
operations to continue and to increase for the foreseeable future. The Company
will require substantial additional funds to continue research and development;
to conduct further preclinical studies and clinical trials; to establish
pilot-scale and commercial-scale manufacturing processes and facilities; and to
expand or establish quality-control, regulatory, marketing, sales and
administrative capabilities. The Company's future capital requirements will
depend on numerous factors, including the successful consolidation of RGene with
the Company; continued scientific progress in the Company's research and
development programs; the results of research and development activities;
preclinical studies and clinical trials; acquisition of products or technology,
if any; relationships with corporate collaborators, if any; competing
technological and market developments; the time and costs involved in obtaining
regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; the time and costs of manufacturing scale-up and
commercialization activities; and other factors. The Company estimates that, at
its planned rate of spending, adjusted to reflect the increased expenses
expected to result from the RGene Acquisition, its existing cash, cash
equivalents and securities available for sale, together with the projected
amount of cash or investments expected to be obtained as a result of the RGene
Acquisition, the net proceeds of the Offering and the interest income thereon,
will be sufficient to meet its capital requirements until late 1997. There can
be no assurance that the underlying assumed levels of revenue and expense will
prove to be accurate. Whether or not these assumptions prove to be accurate, the
Company will need to raise substantial additional capital to fund operations.
The Company intends to seek additional funding through public or private
financing, including equity financing, and through collaborative arrangements.
Adequate funds for these purposes, whether obtained through financial markets or
from collaborative or other arrangements with corporate partners or other
sources, may not be available when needed or may not be available on terms
favorable to
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the Company. If additional funds are raised by issuing equity securities,
dilution to existing shareholders may result. In addition, in the event that
additional funds are obtained through arrangements with collaborative partners,
such arrangements may require the Company to relinquish rights to certain of its
technologies or potential products that it would otherwise seek to develop or
commercialize itself. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
EFFECT OF FAILURE TO OBTAIN ADEQUATE FUNDING. If funding is insufficient
at any time in the future, the Company may be required to delay, scale back or
eliminate some or all of its research and development programs or to license
third parties to commercialize products or technologies that the Company would
otherwise seek to develop itself. Furthermore, the terms of any such license
agreements might be less favorable than if the Company were negotiating from a
stronger position. Moreover, if funding is insufficient at any time in the
future, and the Company's existing funds are depleted, the Company may be
required to cease operations.
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS; ACCESS TO
PROPRIETARY GENES. The Company's success will depend in part on the ability of
the Company and its licensors to obtain and maintain patent protection for the
Company's technology and to preserve its trade secrets and operate without
infringing on the proprietary rights of others, both in the United States and in
other countries. The failure of the Company or its licensors to obtain and
maintain patent protection for the Company's technology could have a material
adverse effect on the Company. Patent positions in the biotechnology field are
highly uncertain and involve complex legal, scientific and factual questions. To
date, there has emerged no consistent policy regarding the breadth of claims
allowed in biotechnology patents, particularly in regard to human therapeutic
uses. There can be no assurance that patent applications relating to the
technology used by the Company will result in patents being issued or that, if
issued, the patent will not be subjected to further proceedings limiting the
scope of the rights under the patent or that such patent will provide a
competitive advantage or will afford protection against competitors with similar
technology, or will not be challenged successfully, invalidated or circumvented
by competitors. Moreover, because patent applications in the United States are
maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of discoveries in scientific or patent
literature often lags behind actual discoveries, the Company cannot be certain
that it or any licensor was the first creator of inventions covered by pending
patent applications or that it or such licensor was the first to file patent
applications for such inventions. The Company is currently involved in one
patent interference proceeding declared by the United States Patent and
Trademark Office (the "USPTO") to determine priority of invention relating to
certain components that may be useful in retroviral vectors, and may have to
participate in additional interference proceedings. Although the Company does
not anticipate that material expenditures will be made in connection with such
proceedings, participation could result in substantial cost to the Company, even
if the eventual outcome were favorable to it. In addition, although the Company
believes that the technology which is the subject of the current patent
interference proceeding is not material to its current product development
programs, there can be no assurance that such technology will not become
material in the future. If the outcome of the current or any additional
interference proceeding were unfavorable, the Company may be unable to obtain
rights to the invention involved. With respect to the lipid DC cholesterol ("DC
Chol") technology to be acquired through the RGene Acquisition, the Company will
become involved in an opposition proceeding in Australia concerning an issued
patent and also must defend an application pending in Europe against an opposer.
In addition, the Company may become involved in further proceedings before the
USPTO concerning RGene's issued DC Chol patent. The costs associated with such
proceedings or an unfavorable outcome in any such proceedings may have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's processes and potential products may conflict with patents
that have been or may be granted to competitors, universities or others. For
example, a U.S. patent directed to ex vivo gene therapy using human cells has
been issued to other parties. As the biotechnology industry expands
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<PAGE> 12
and more patents are issued, the risk increases that the Company's processes and
potential products may give rise to claims that they infringe the patents of
others. Such other persons could bring legal actions against the Company
claiming damages and seeking to enjoin clinical testing, manufacturing and
marketing of the affected product or use of the affected process. Litigation may
be necessary to enforce patents issued to the Company, to protect trade secrets
or know-how owned by the Company or to determine the enforceability, scope and
validity of proprietary rights of others. If the Company becomes involved in
such litigation, it could result in substantial expense to the Company and
significant diversion of effort by the Company's technical and management
personnel. In addition to any potential liability for significant damages, the
Company could be required to obtain a license to continue to manufacture or
market the affected product or use the affected process. Costs associated with
any licensing arrangement may be substantial and could include ongoing
royalties. There can be no assurance that any license required under any such
patent would be made available to the Company on acceptable terms, if at all. If
such licenses could not be obtained on acceptable terms, the Company could be
prevented from manufacturing and marketing its potential products. Accordingly,
an adverse determination in such litigation could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company also relies upon unpatented proprietary technology. There can
be no assurance that the Company can meaningfully protect its rights in such
unpatented proprietary technology, that any obligation to maintain the
confidentiality of such proprietary technology will not be breached by
employees, consultants, advisors or others, or that others will not
independently develop substantially equivalent technology.
The genes that the Company expects to deliver as part of any gene therapy
products are generally the subject of issued patents or patent applications. The
Company has entered into licenses granting it certain rights to the use of
certain genes currently required in the Company's product development programs.
Failure by the Company to obtain or maintain in effect a license to any genes it
may require to commercialize its potential products may have a material adverse
effect on its business, financial condition and results of operations.
Some of the vectors the Company currently produces for its product
development programs are based on technology in the public domain, as well as
nonexclusive licenses to patented technology. In addition, disputes may arise as
to the ownership of proprietary rights to the extent that outside collaborators
apply technological information developed independently by them or by others to
Company projects or apply Company technology to other projects. See
"Business -- Patents and Proprietary Rights" and "-- Research Collaborations and
Licensing Agreements."
UNCERTAINTY OF GOVERNMENTAL REGULATORY REQUIREMENTS; LENGTHY APPROVAL
PROCESS. The Company's potential products are subject to extensive regulation
by the FDA and foreign governmental authorities. The process of obtaining
regulatory approvals for clinical trials or for the manufacturing or marketing
of the Company's potential products is costly and time-consuming and is subject
to unanticipated delays. Because gene and cell therapy are relatively new
technologies and have not been extensively tested in humans, the regulatory
requirements governing gene and cell therapy products and related clinical
procedures are uncertain and are likely to be modified. There can be no
assurance as to the length of the clinical trial period or the number of
patients required to be enrolled in clinical trials in order to establish the
safety, efficacy and potency of therapeutic products. Accordingly, delays,
rejections or unexpected costs may be encountered based on changes in the policy
or regulations of the FDA or foreign governmental authorities during the period
of product development and regulatory review, which changes may result in
limitations or restrictions on the Company's ability to utilize its technology
or develop its product candidates. Regulatory requirements ultimately imposed
could also adversely affect the ability of the Company to clinically test,
manufacture or market products. In addition, many academic institutions and
companies conducting research in the gene and cell therapy fields are using a
variety of approaches and technologies. Any adverse results obtained by such
researchers in preclinical studies or clinical trials could materially adversely
affect the regulatory environment for gene and cell therapy products generally,
possibly leading to delays in the regulatory
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review and approval process for the Company's potential products. Furthermore,
the Company or governmental authorities may suspend clinical trials at any time
if it is determined that the subjects participating in such trials are exposed
to unacceptable health risks. There can be no assurance that the Company will
not encounter these or other problems in clinical trials that will cause the
Company or governmental authorities to delay or suspend such trials. Even if
regulatory approval of a potential product is obtained, such approval may entail
limitations on the indicated uses for which such product may be marketed, which
may restrict the patient population for which any product may be prescribed. In
addition, a marketed product is subject to continual FDA review. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in restrictions on marketing a product or
withdrawal of the product from the market, as well as possible criminal or civil
sanctions.
To commercialize any product and prior to submitting the application for
marketing approval in the United States, the Company must sponsor and file an
Investigational New Drug application ("IND") for each proposed product and must
be responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of such
product. Certain of the Company's current and planned Phase I clinical trials
are under investigator-sponsored INDs. Although the Company expects to be able
to use data from such clinical trials in proceeding with clinical trials in the
United States and in Europe, there can be no assurance that the FDA or foreign
governmental authorities will permit the Company to rely on such data. In
addition, there can be no assurance that the Company will be able to obtain the
necessary clearances for clinical trials or approvals for manufacturing or
marketing any of its product candidates.
After completion of clinical trials of a new product, FDA marketing
approval must be obtained. At that time, the Company must submit relevant data,
including the results of product development activities, preclinical studies and
clinical trials, in addition to detailed manufacturing information.
Notwithstanding the submission of relevant data, the FDA may withhold marketing
approval and may require additional clinical trials. All manufacturing
operations also are subject to the FDA's current Good Manufacturing Practice
("cGMP") requirements on an ongoing basis. There can be no assurance that the
Company will be able to attain or maintain compliance with cGMP requirements.
The Company is similarly subject to regulation by foreign governmental
authorities.
Failure to obtain regulatory approvals for its product candidates or to
either attain or maintain compliance with cGMP or other manufacturing
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Governmental
Regulation."
INTENSE COMPETITION. The Company is experiencing intense competition from
companies developing gene and cell therapy technologies as well as those using
more traditional approaches to treating human diseases. The Company is aware of
a number of companies and institutions that are developing or considering the
development of potential gene and cell therapy treatments, including early-stage
gene therapy companies, fully integrated pharmaceutical companies, universities,
research institutions, governmental agencies and other healthcare providers. In
addition, the Company's potential products will be required to compete with
existing pharmaceutical products, or products developed in the future, that are
based on established technologies. Many of the Company's competitors have
substantially more financial and other resources, larger research and
development staffs, and more experience and capabilities in researching,
developing and testing products in clinical trials, in obtaining FDA and other
regulatory approvals, and in manufacturing, marketing and distribution than the
Company. In addition, the competitive positions of other early-stage companies
may be enhanced significantly through their collaborative arrangements with
large pharmaceutical companies or academic institutions. The Company's
competitors may succeed in developing, obtaining patent protection for,
receiving FDA and other regulatory approvals for, or commercializing products
more rapidly than the Company. If the Company is successful in commercializing
its products, it will be required to compete with respect to manufacturing
efficiency and marketing capabilities, areas in which it has no experience. The
Company also competes with others in acquiring products or technology from re-
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search institutions or universities. The Company's competitors may develop new
technologies and products that are available for sale prior to the Company's
potential products or that are more effective than the Company's potential
products. In addition, competitive products may be manufactured and marketed
more successfully than the Company's potential products. Such developments could
render the Company's potential products less competitive or obsolete, and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RAPID TECHNOLOGICAL CHANGE. Gene and cell therapy are new and rapidly
evolving fields, and are expected to continue to undergo significant and rapid
technological change. Considerable experimentation and clinical testing must be
completed successfully before gene and cell therapies are used in practice.
Rapid technological development could result in actual and proposed
technologies, products or processes of the Company becoming obsolete prior to
successful commercialization. There can be no assurance that the Company's
research and development efforts will be successful.
DEPENDENCE ON REIMBURSEMENT. Successful commercial sales of the Company's
potential products will depend in part on the availability of reimbursement from
third-party payors, such as government and private insurance plans. There is
significant uncertainty concerning the reimbursement status of newly approved
healthcare products, and third-party payors are increasingly challenging the
prices charged for medical products and services. There can be no assurance that
adequate third-party reimbursement will be available for the Company's potential
products, or that any third-party reimbursement that is obtained will be
adequate to enable the Company to maintain price levels sufficient to realize an
adequate return on its investments in manufacturing and product development. If
adequate reimbursement is not provided by government and third-party payors for
the Company's potential products, the Company's business, financial condition
and results of operations would be materially adversely affected.
HEALTHCARE REFORM. The healthcare industry in the United States and in
Europe is undergoing fundamental changes as the result of political, economic
and regulatory influences. Reforms proposed from time to time include mandated
basic healthcare benefits, controls on healthcare spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups and fundamental
changes to the healthcare delivery system. The Company anticipates that
alternative healthcare delivery systems and methods of payment will continue to
be reviewed and assessed, and public debate of these issues will likely
continue. The Company cannot predict whether any reform initiatives will result
or, if adopted, what impact they might have on the Company, and there can be no
assurance that the adoption of reform proposals will not have a material adverse
effect on the Company's business, financial condition and results of operations.
Announcements of reform proposals and the investment community's reaction to
such proposals, announcements by competitors and payors of their strategy in
responding to reform initiatives, and general industry conditions could produce
volatility in the trading and market price of the Common Stock.
DEPENDENCE ON KEY PERSONNEL AND SCIENTIFIC COLLABORATORS. The Company is
highly dependent on the principal members of its scientific and management
staff. Loss of any of these persons could materially adversely affect the
Company's business, financial condition and results of operations. The Company
does not have any employment contracts or key person life insurance. The
Company's success will depend in large part on its ability to attract and retain
key employees and scientific advisors. Competition among biotechnology and
pharmaceutical companies for highly skilled scientific and management personnel
is intense. There can be no assurance that the Company will be successful in
retaining its existing personnel or advisors, or in attracting additional
qualified employees. The Company's anticipated expansion of existing functions
and entry into new areas and activities requiring additional expertise, such as
clinical testing, regulatory compliance, manufacturing, marketing and
distribution, are expected to place increased demands on the Company's
resources. These activities are expected to require the addition of new
personnel with expertise in these areas and the development of additional
expertise by existing personnel. The failure to attract and retain such
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personnel, loss of existing personnel or failure to develop such expertise could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company also depends on the continued availability of outside
scientific collaborators who perform research, which may be funded by the
Company, in certain areas relevant to the Company's research. The Company's
scientific collaborators are not employees of the Company and generally may
terminate their relationship with the Company at any time. In addition, certain
of the Company's collaborators have consulting or other advisory relationships
with other entities that may conflict with their obligations to the Company. As
a result, the Company has limited control over their activities and can expect
that only limited amounts of their time will be dedicated to Company activities.
For these reasons, there can be no assurance that inventions or processes
developed by the Company's collaborators will become the property of the
Company. Although certain of the Company's scientific collaborators have agreed
not to engage in activities that would involve a conflict of interest with the
Company, there can be no assurance that this will not occur. The Company has
relied upon scientific, technical, clinical, commercial and other data supplied
and disclosed by outside collaborators and will rely in part on such data in
support of INDs and subsequent clinical trials for its potential products. There
can be no assurance that such information will not contain errors or omissions
of fact or will not otherwise prove inadequate to support the Company's research
and development efforts.
NO COMMERCIAL MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY. The
Company's current facilities and staff will need to be expanded or supplemented
for large-scale clinical or commercial production of its potential products.
Large-scale manufacturing of gene and cell therapy products has not been
demonstrated by any third party. The Company will be required to contract with
others or to construct a production facility in order to complete all the
clinical trials necessary for product commercialization. Certain of the
Company's products under development may be delivered through the processing of
patient cells in specialized laboratories. The Company will be required to
construct its own commercial-scale laboratories or contract with others for such
processing. In addition, the Company has no experience in sales and marketing.
To market any products that may result from its development programs, Targeted
Genetics will have to develop marketing and sales capabilities, either on its
own or in conjunction with others. The Company will depend to a significant
extent on collaborative partners, licensees or other entities for development,
manufacturing and commercialization of its potential products. There can be no
assurance that the Company will be able to enter into any such arrangements on
acceptable terms, if at all. If the Company is unable to obtain or retain third-
party manufacturing on commercially acceptable terms, its ability to
commercialize potential products may be delayed or foreclosed. The Company's
dependence upon third parties for the manufacture, marketing and sale of its
potential products may materially adversely affect the Company's ability to
develop and deliver products on a timely and competitive basis. If the Company
chooses in the future to directly engage in commercial-scale manufacturing and
marketing of its potential products, it will require substantial additional
funds, personnel and production facilities. See "-- Need for Additional Capital"
and "-- Dependence on Corporate Collaborators."
UNCERTAINTY ASSOCIATED WITH INTEGRATION. Immediately after the RGene
Acquisition, integration of the operations of RGene into the operations of
Targeted Genetics will require dedication of significant management resources.
Although RGene has only seven employees, its operations are limited and its
assets consist primarily of intellectual property and contract rights,
successful integration with Targeted Genetics will distract Targeted Genetics'
management from the day-to-day business of the Company. Accordingly, any delays
in achieving integration may have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON CORPORATE COLLABORATORS. The Company expects to rely in the
future on corporate collaborative partners to conduct clinical trials, obtain
regulatory approvals and manufacture and market any resulting products. Although
the Company believes that such collaborative partners would have an economic
motivation to commercialize products that result from the Company's research and
development efforts, the amount and timing of resources devoted to these
activities by such parties could depend on the achievement of technical and
research goals by the Company and
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generally would be controlled by such partners. The sale of products may depend
on the successful completion of arrangements with future partners, licensees or
distributors in each territory. There can be no assurance that the Company will
be successful in establishing any such collaborative arrangements or that any
such future partner would be successful in commercializing products. RGene has
entered into a nonbinding letter of intent with a pharmaceutical company for the
development in Europe of RGene's E1A tumor suppressor product candidate.
Although negotiations are underway to enter into a definitive agreement, there
can be no assurance that a definitive agreement will be executed. See
"Business -- Research Collaborations and Licensing Agreements."
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development activities involve the controlled use of hazardous materials,
chemicals, biological materials and radioactive compounds. The Company is
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain waste
products. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by such
laws and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such liability
could exceed the Company's resources. The Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. Current or future environmental laws or regulations may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Governmental Regulation."
PRODUCT LIABILITY. The testing, manufacture, marketing and sale of human
healthcare products entail the inherent risk of liability claims or product
recalls and associated adverse publicity. The Company currently has a limited
amount of product liability insurance. Such insurance is expensive and there can
be no assurance that it will continue to be available in sufficient amounts and
on acceptable terms, if at all. A product liability claim or product recall
could inhibit or prevent commercialization of products being developed by the
Company. Any product liability claim or product recall could have a material
adverse effect on the Company's business, financial condition and results of
operations.
POTENTIAL VOLATILITY OF STOCK PRICE; ABSENCE OF DIVIDENDS. Since the
Company's initial public offering, the market price of the Common Stock has
fluctuated significantly. The stock market has experienced significant price and
volume fluctuations that are often unrelated to the operating performance of
particular companies. In addition, the market price of the Common Stock, similar
to that of securities of other biotechnology companies, may, at times, be highly
volatile. Factors such as the results of preclinical studies and clinical trials
by the Company or its competitors, other evidence of the safety or efficacy of
products of the Company or its competitors, announcements of technological
innovations or new products by the Company or its competitors, changes in
governmental regulation, developments in patent or other proprietary rights of
the Company or its competitors, including litigation, fluctuations in the
Company's operating results and changes in general market conditions for
biotechnology stocks could have a significant impact on the future price of the
Common Stock. The Company has never paid cash dividends on the Common Stock and
does not anticipate paying cash dividends in the foreseeable future. See "Price
Range of Common Stock" and "Dividend Policy."
CONCENTRATION OF OWNERSHIP AND ANTITAKEOVER CONSIDERATIONS. As of May 24,
1996, the Company's directors, executive officers and principal shareholders
owned beneficially approximately 50% of the outstanding shares of Common Stock.
In particular, Immunex owned beneficially approximately 21% of such outstanding
shares. Accordingly, these shareholders have significant influence over the
election of the Company's directors and most other shareholder actions. The
Company has the authority to issue up to 6,000,000 shares of Preferred Stock in
one or more series and to fix the powers, designations, preferences and relative
rights thereof without any further vote or action by the Company's shareholders.
The issuance of Preferred Stock could dilute the voting power of holders of
Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company. Certain provisions of the Company's Restated
Articles of Incorporation (the "Articles of Incorporation"), the Amended and
Restated Bylaws (the "Bylaws") and employee benefit plans, as
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<PAGE> 17
well as Washington law, may operate in a manner that could discourage or render
more difficult a takeover of the Company, the removal of directors or the
ability to call a special meeting of the shareholders, or may limit the price
certain investors may be willing to pay in the future for shares of Common
Stock. See "Management -- Benefit Plans," "Principal Shareholders" and
"Description of Capital Stock -- Certain Charter Provisions and Washington Law."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of shares of
Common Stock in the public market following the Offering or the perception that
such sales could occur could have a material adverse effect on the price of the
Common Stock. Upon completion of the Offering, the Company will have 19,537,248
shares of Common Stock outstanding (assuming no exercise of the Underwriters'
over-allotment option), including the 3,636,364 shares of Common Stock issuable
in connection with the RGene Acquisition. Of these shares, the 3,500,000 shares
to be sold in the Offering and, as of May 24, 1996, approximately 8,309,573
additional shares of Common Stock (as well as an additional 769,598 shares
issuable upon exercise of warrants to purchase Common Stock) will be or are
freely tradable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 7,727,675 outstanding shares of Common
Stock (including the 3,636,364 shares issuable in connection with the RGene
Acquisition) are restricted shares ("Restricted Shares") under the Securities
Act and may only be sold if they are registered or qualify for an exemption from
registration under Rule 144 of the Securities Act ("Rule 144"). The Company's
current directors and executive officers and certain shareholders, who
immediately after the Offering will hold in the aggregate 4,088,850 shares of
Common Stock (all of which are Restricted Shares), have agreed not to sell any
of these shares for 90 days after the date of this Prospectus without the prior
written consent of Vector Securities International, Inc. Commencing 91 days from
the date of this Prospectus, all the shares of Common Stock subject to such
agreements will be available for immediate sale in the public market, subject to
certain volume, manner of sale and other limitations under Rule 144. In
addition, it is a condition to closing the RGene Acquisition that the RGene
stockholders, who will hold 3,636,364 shares of Common Stock, agree not to sell
any such shares (or shares issued in connection with the milestone payments) for
a period of 30 months following the closing of such transaction, subject to the
release of such shares from the lock-up agreements in increments of 20% at the
end of each six-month period following the closing of the RGene Acquisition.
Prior to the one-year anniversary of the closing of the RGene Acquisition, the
Company is obligated to file a registration statement under the Securities Act
in order to register for sale in the public market 50% of the 3,636,364 shares
of Common Stock issuable to the RGene stockholders, as well as shares issued in
connection with the milestone payments. The Company has agreed to cause such
registration statement, which the Company may defer under certain circumstances,
to remain effective for a period ending 24 months after the completion of the
RGene Acquisition. Following the closing of the Offering, the holders of
3,806,775 shares of Common Stock (as well as 62,016 shares issuable upon
exercise of outstanding warrants) will be entitled to certain rights with
respect to registration of such shares for sale in the public market. See
"Description of Capital Stock -- Registration Rights."
DILUTION. The assumed public offering price in the Offering is
substantially higher than the book value per share of Common Stock. Investors
purchasing shares of Common Stock in the Offering will incur immediate and
substantial dilution. Additional dilution is likely to occur upon the exercise
of outstanding warrants and stock options. See "Dilution."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby (after deducting the underwriting discounts and
commissions and estimated offering expenses) at an assumed public offering price
of $5.75 per share are estimated to be approximately $18,517,000 ($21,347,000 if
the Underwriters' over-allotment option is exercised in full). The Company
anticipates that the net proceeds of the Offering will be used principally to
fund research and development; clinical testing; capital expenditures, including
expansion of existing facilities; working capital; and for general corporate
purposes. Research and development activities to be funded by the net proceeds
will involve hiring additional scientific staff and conducting clinical trials.
Net proceeds may also be used to acquire technology, products or businesses that
complement the Company's business. No such transactions involving a material
amount of cash consideration are being negotiated as of the date of this
Prospectus. The amounts actually expended for each purpose will depend on
numerous factors, including the successful consolidation of RGene with the
Company; continued scientific progress in the Company's research and development
programs; the results of research and development; preclinical studies and
clinical trials; acquisition of products or technology, if any; relationships
with corporate collaborators, if any; competing technological and market
developments; the time and costs involved in obtaining regulatory approvals; the
costs involved in filing, prosecuting and enforcing patent claims; the time and
costs of manufacturing scale-up and commercialization activities; and other
factors. The Company estimates that, at its planned rate of spending, adjusted
to reflect the increased expenses expected to result from the RGene Acquisition,
the net proceeds of the Offering and the interest income thereon, together with
existing cash, cash equivalents, securities available for sale and the projected
amount of cash or investments expected to be obtained as a result of the RGene
Acquisition, will be sufficient to meet its capital requirements until late
1997. In the event that all outstanding warrants with an exercise price of $4.68
per share and expiring in July 1997 are exercised, the Company will receive an
additional $3.6 million, which amount should enable the Company to fund its
capital requirements until early 1998. There can be no assurance that the
underlying assumed levels of revenue and expense will prove to be accurate or
that any warrants will in fact be exercised. If the Company is successful in its
efforts to establish one or more collaborative research and development
arrangements with corporate partners, funding received under such arrangements
would extend the period during which the net offering proceeds, together with
existing resources, would fund the Company's capital requirements. See "Risk
Factors -- History of Losses and Uncertainty of Future Results" and "-- Need for
Additional Capital" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Pending the above uses, the net proceeds of the Offering will be invested
in investment grade, interest-bearing securities.
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PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering on May 20, 1994. The
Common Stock is quoted on the Nasdaq National Market under the symbol "TGEN." On
May 24, 1996, the last reported sale price for the Common Stock on the Nasdaq
National Market was $5.75 per share. The following table sets forth, for the
periods indicated, the high and low sale prices for the Common Stock as reported
by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
Second Quarter (beginning May 20, 1994).................. $7.13 $5.63
Third Quarter............................................ 6.13 3.81
Fourth Quarter........................................... 5.75 3.75
1995
First Quarter............................................ $6.38 $3.88
Second Quarter........................................... 5.63 3.50
Third Quarter............................................ 6.50 3.63
Fourth Quarter........................................... 5.63 3.75
1996
First Quarter............................................ $7.25 $4.00
Second Quarter (through May 24, 1996).................... 6.25 5.00
</TABLE>
As of May 24, 1996, there were approximately 1,500 holders of the Common
Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and therefore does not anticipate paying cash
dividends on the Common Stock in the foreseeable future.
18
<PAGE> 20
DILUTION
At March 31, 1996, the Company had a pro forma net tangible book value of
approximately $13,679,000, or $0.85 per share of Common Stock. Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities divided by the number of shares of Common Stock
outstanding and gives effect to the RGene Acquisition. Without taking into
account any other changes in pro forma net tangible book value after March 31,
1996, other than to give effect to the receipt of the estimated net proceeds
from the sale of the 3,500,000 shares of Common Stock offered hereby at an
assumed public offering price of $5.75 per share, the pro forma net tangible
book value of the Company at March 31, 1996 would have been approximately
$32,196,000, or $1.65 per share. This represents an immediate increase in pro
forma net tangible book value of $0.80 per share to existing shareholders and an
immediate dilution of $4.10 per share to purchasers of shares of Common Stock in
the Offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share.............................. $5.75
Pro forma net tangible book value per share at March 31, 1996...... $0.85
Increase per share attributable to new investors................... 0.80
-----
Pro forma net tangible book value per share after the Offering....... 1.65
-----
Dilution per share to new investors.................................. $4.10
=====
</TABLE>
The foregoing table assumes no exercise of outstanding stock options or
warrants. The Company has reserved 1,520,000 shares of Common Stock for issuance
pursuant to its stock option plans, 1,177,014 of which were issuable upon the
exercise of stock options outstanding as of March 31, 1996, at exercise prices
ranging from $0.50 to $6.25 per share, with a weighted average exercise price of
$3.20 per share. In addition, the Company has reserved 831,614 shares of Common
Stock for issuance upon exercise of outstanding warrants, at exercise prices
ranging from $4.68 to $8.75 per share, with a weighted average exercise price of
$4.78 per share. To the extent these options or warrants are exercised, there
will be further dilution to new investors. The table does not take into account
the issuance of an indeterminate number of shares of Common Stock that may be
issued to RGene stockholders in the event certain milestones are achieved by
December 31, 1998. See "Management -- Benefit Plans," "Description of Capital
Stock -- Warrants," "RGene Acquisition" and Note 6 of Notes to Targeted Genetics
Financial Statements.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of March 31, 1996; (ii) such capitalization after giving pro forma effect to
the RGene Acquisition; and (iii) such pro forma capitalization as adjusted to
reflect the receipt of the estimated net proceeds from the sale of the 3,500,000
shares of Common Stock offered hereby, based on an assumed offering price of
$5.75 per share. The information set forth in this table should be read in
conjunction with the Company's Financial Statements and Notes thereto included
elsewhere herein. See "Unaudited Pro Forma Consolidated Financial Statements."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL(1) PRO FORMA(2) AS ADJUSTED(3)
--------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations................................. $ 2,634 $ 2,634 $ 2,634
Shareholders' equity:
Preferred Stock, $.01 par value; 6,000,000 shares
authorized: no shares outstanding................ -- -- --
Common Stock, $.01 par value; 40,000,000 shares
authorized: 12,397,484 shares issued and
outstanding, actual; 16,033,848 shares issued and
outstanding, pro forma; and 19,533,848 shares
issued and outstanding, pro forma as adjusted.... 43,605 58,459 76,976
Unrealized losses on securities available for
sale............................................. (5) (5) (5)
Deficit accumulated during development stage........ (30,481) (44,550) (44,550)
-------- -------- --------
Total shareholders' equity....................... 13,119 13,904 32,421
-------- -------- --------
Total capitalization........................... $ 15,753 $ 16,538 $ 35,055
======== ======== ========
</TABLE>
- ------------------
(1) Excludes 1,177,014 shares issuable upon exercise of options outstanding at
March 31, 1996, with a weighted average exercise price of $3.20 per share,
and 831,614 shares issuable upon exercise of warrants outstanding at March
31, 1996, with a weighted average exercise price of $4.78 per share. See
"Management -- Benefit Plans," "Description of Capital Stock -- Warrants"
and Note 6 of Notes to Targeted Genetics Financial Statements.
(2) Includes the 3,636,364 shares to be issued upon completion of the RGene
Acquisition. Excludes an indeterminate number of shares of Common Stock to
be issued to RGene stockholders in the event certain milestones are achieved
before December 31, 1998. See "RGene Acquisition."
(3) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996, the sale by the Company of the 3,500,000 shares of Common Stock
offered hereby at an assumed public offering price of $5.75 per share and
the receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
20
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data presented below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1995 and balance sheet at December 31, 1994 and 1995 are derived
from the Company's financial statements that have been audited by Ernst & Young
LLP, independent auditors, which are included elsewhere herein, and are
qualified by reference to such Financial Statements and Notes related thereto.
The selected financial data with respect to the Company's statements of
operations for the years ended December 31, 1991 and 1992 and the balance sheets
at December 31, 1992 and 1993 are derived from the audited financial statements
of the Company that have been audited by Ernst & Young LLP, independent
auditors, which are not included herein. The financial data at March 31, 1996
and for the three months ended March 31, 1995 and 1996 are derived from
unaudited financial statements. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. The selected financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and Notes
thereto included elsewhere in this Prospectus. The pro forma financial statement
data at March 31, 1996 and for the year ended December 31, 1995 and the three
months ended March 31, 1996 are unaudited.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------------- -------------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995 (1) 1995 1996 1996(2)
-------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ -- $ 549 $ 412 $ 449 $ 842 $ 1,195 $ 132 $ 183 $ 2,706
Expenses:
Research and
development.......... 1,084 1,477 4,261 6,763 8,195 11,268 1,978 2,366 4,636
General and
administrative....... 299 466 1,217 1,892 2,267 3,020 701 617 888
Interest............... -- -- -- 193 302 302 75 92 92
------- ------- ------- ------- ------- -------- ------- ------- -------
Total expenses..... 1,383 1,943 5,478 8,848 10,764 14,590 2,754 3,075 5,616
------- ------- ------- ------- ------- -------- ------- ------- -------
Net loss................. $(1,383) $(1,394) $(5,066) $(8,399) $(9,922) $(13,395) $(2,622) $(2,892) $(2,910)
======= ======= ======= ======= ======= ======== ======= ======= =======
Net loss per share....... $(0.94) $ (0.95) $ (0.29) $ (0.23) $ (0.18)
======= ======== ======= ======= =======
Shares used in
computation of net loss
per share.............. 10,533 14,169 8,966 12,343 15,979
Pro forma, assuming
conversion of Preferred
Stock to Common Stock
(3):
Net loss per share..... $ (1.03)
=======
Shares used in
computation of net
loss per share....... 8,152
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, ---------------------
------------------------------------------- PRO FORMA
1992(4) 1993 1994 1995 1996 1996(5)
-------- ------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available for
sale.................................................. $ 15,266 $ 6,797 $ 11,475 $ 14,443 $ 11,878 $ 14,105
Working capital......................................... 14,776 6,021 10,178 12,856 10,408 11,017
Total assets............................................ 15,877 12,115 17,046 19,960 17,381 19,930
Long-term obligations................................... 15 1,015 2,253 2,405 2,634 2,634
Deficit accumulated during development stage............ (4,202) (9,267) (17,667) (27,589) (30,481) (44,550)
Total shareholders' equity.............................. 15,297 10,231 13,242 15,773 13,119 13,904
</TABLE>
- ------------------
(1) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1995. See "Unaudited Pro Forma Consolidated Financial Statements."
(2) Gives effect to the RGene Acquisition as if it had occurred on January 1,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
(3) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(4) Prior to 1992, the Company was a wholly owned subsidiary of Immunex and,
accordingly, balance sheet data did not exist.
(5) Gives effect to the RGene Acquisition as if it had occurred on March 31,
1996. See "Unaudited Pro Forma Consolidated Financial Statements."
21
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Pro Forma Consolidated Financial Statements as of March 31,
1996, for the year ended December 31, 1995 and for the three months ended March
31, 1996 are unaudited. The Unaudited Pro Forma Consolidated Balance Sheet was
prepared as if the RGene Acquisition was effective at March 31, 1996. The
Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1995 was prepared as if the RGene Acquisition was effective as of
January 1, 1995. The Unaudited Pro Forma Statement of Operations for the three
months ended March 31, 1996 was prepared as if the RGene Acquisition was
effective as of January 1, 1996. The Unaudited Pro Forma Consolidated Financial
Statements do not purport to represent what the Company's financial position or
results of operations would actually have been if the RGene Acquisition had in
fact occurred on such dates or to project the Company's financial position or
results of operations as of any future date or for any future period. The
Unaudited Pro Forma Consolidated Financial Statements are based on the
historical financial statements of the Company and RGene and give effect to the
RGene Acquisition under the purchase method of accounting. The Unaudited Pro
Forma Consolidated Balance Sheet, as adjusted, reflects the application of the
net proceeds from the sale of 3,500,000 shares of Common Stock offered by the
Company hereby (after deducting the underwriting discounts and commissions and
estimated offering expenses) at an assumed offering price of $5.75 per share.
The Unaudited Pro Forma Consolidated Financial Statements should be read in
conjunction with the Targeted Genetics and RGene audited Financial Statements
and Notes thereto included elsewhere herein.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
TARGETED PRO FORMA ADJUSTMENTS PRO FORMA,
GENETICS RGENE ADJUSTMENTS PRO FORMA FOR OFFERING AS ADJUSTED
-------- ------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 1,526 $1,677 $ 550(1) $ 3,753 $ 18,517(6) $ 22,270
Securities available for sale........... 10,352 -- -- 10,352 -- 10,352
Deposits, prepaid expenses and other.... 158 146 -- 304 -- 304
-------- ------- ------- -------- -------- --------
Total current assets.................. 12,036 1,823 550 14,409 18,517 32,926
Property, plant and equipment, net........ 4,991 176 -- 5,167 -- 5,167
In-process research and development....... -- -- 14,069(1) -- -- --
(14,069)(2)
Other assets.............................. 354 -- -- 354 -- 354
-------- ------- ------- -------- -------- --------
$17,381 $1,999 $ 550 $ 19,930 $ 18,517 $ 38,447
======== ======= ======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 403 $ 264 $ -- $ 667 $ -- $ 667
Notes payable to related parties........ -- 1,000 (1,000)(3) -- -- --
Accrued payroll and other liabilities... 229 -- -- 229 -- 229
Payable to related parties.............. -- 1,500 -- 1,500 -- 1,500
Current portion of long-term
obligations........................... 996 -- -- 996 -- 996
-------- ------- ------- -------- -------- --------
Total current liabilities............. 1,628 2,764 (1,000) 3,392 -- 3,392
Long-term obligations..................... 2,634 -- -- 2,634 -- 2,634
Shareholders' equity (deficit):
Preferred stock......................... -- 4,000 (4,000)(4) -- -- --
Common stock............................ 43,605 360 1,000(3) 58,459 18,517(6) 76,976
(1,360)(4)
14,854(5)
Unrealized losses on securities
available for sale.................... (5) -- -- (5) -- (5)
Deficit accumulated during development
stage................................. (30,481) (5,125) (14,069)(2) (44,550) -- (44,550)
5,125(4)
-------- ------- ------- -------- -------- --------
Total shareholders' equity
(deficit)........................... 13,119 (765) 1,550 13,904 18,517 32,421
-------- ------- ------- -------- -------- --------
$17,381 $1,999 $ 550 $ 19,930 $ 18,517 $ 38,447
======== ======= ======= ======== ======== ========
</TABLE>
22
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TARGETED PRO FORMA
GENETICS RGENE ADJUSTMENTS PRO FORMA
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Investment income................................... $ 668 $ 53 $ -- $ 721
Other............................................... 174 300 -- 474
------- ------- ---- --------
Total revenues................................... 842 353 -- 1,195
------- ------- ---- --------
Expenses:
Research and development............................ 8,195 3,073 -- 11,268
General and administrative.......................... 2,267 753 -- 3,020
Interest............................................ 302 22 (22)(3) 302
------- ------- ---- --------
Total expenses................................... 10,764 3,848 (22) 14,590
------- ------- ---- --------
Net loss.............................................. $(9,922) $(3,495) $ 22 $(13,395)
======= ======= ==== ========
Net loss per share.................................... $ (0.94) $ (0.95)
======= ========
Shares used in computation of net loss per share...... 10,533(7) 14,169 (8)
======= ========
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TARGETED PRO FORMA
GENETICS RGENE ADJUSTMENTS PRO FORMA
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License and other fees.............................. $ -- $ 2,500 $ -- $ 2,500
Investment income................................... 183 23 -- 206
------- ------- ---- --------
Total revenues................................... 183 2,523 -- 2,706
------- ------- ---- --------
Expenses:
Research and development............................ 2,366 2,270 -- 4,636
General and administrative.......................... 617 271 -- 888
Interest............................................ 92 32 (32)(3) 92
------- ------- ---- --------
Total expenses................................... 3,075 2,573 (32) 5,616
------- ------- ---- --------
Net loss.............................................. $(2,892) $ (50) $ 32 $ (2,910)
======= ======= ==== ========
Net loss per share.................................... $ (0.23) $ (0.18)
======= ========
Shares used in computation of net loss per share...... 12,343(7) 15,979 (8)
======= ========
</TABLE>
23
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Unaudited Pro Forma Consolidated Financial Statements give
effect to the RGene Acquisition using the purchase method of accounting. The
allocation of the purchase price in the accompanying Unaudited Pro Forma
Consolidated Financial Statements is based on the Company's estimates. Amounts
allocated to RGene assets and liabilities will be based on the estimated fair
values at the actual time of the RGene Acquisition. The consideration to be paid
for RGene consists of 3,636,364 shares of Common Stock. These shares are
unregistered and, accordingly, cannot be freely traded until such shares are
registered or an exemption from registration is available. The Company is
obligated to register 50% of such shares for resale under the Securities Act
prior to the one-year anniversary of the effective date of the RGene
Acquisition. Additionally, all of such shares are restricted pursuant to lock-up
agreements under which the shares are released in 20% increments every six
months beginning six months after the effective date of the RGene Acquisition.
For purposes of the Unaudited Pro Forma Consolidated Financial Statements, the
shares have been valued at an average price of approximately $4.08 per share.
This valuation was calculated using the closing price of the Common Stock on
April 16, 1996, the date the Merger Agreement was signed, discounted at rates
that reflect the varying periods of restriction. The resulting total
consideration of $16,618,000 includes liabilities assumed totaling $1,764,000.
Such liabilities include $1.5 million payable to related parties under the
existing terms of certain license agreements. Under the terms of the Merger
Agreement, prior to the closing of the RGene Acquisition, RGene is required to
negotiate changes to a license agreement such that this liability and future
payments under the agreement will be substantially reduced. The amount of the
reduction cannot be estimated at this time. The total consideration does not
reflect the additional $5 million of Common Stock which may be issuable to RGene
stockholders upon the achievement of certain milestones. At the time any such
Common Stock becomes issuable, the Company will be required to record additional
noncash expense, representing in-process research and development, equal to the
value of such Common Stock. See "RGene Acquisition."
The pro forma adjustments are described in the following notes:
(1) Allocates the estimated purchase price to identifiable assets acquired
and liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
TOTAL RGENE BALANCE SHEET
PURCHASE PRICE BALANCE SHEET ADJUSTMENTS
-------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 2,227 $ 1,677 $ 550
Deposits, prepaid expenses and other.......... 146 146 --
Property, plant and equipment, net............ 176 176 --
In-process research and development........... 14,069 -- 14,069
------- ----- -------
$ 16,618 $ 1,999 $14,619
======= ===== =======
</TABLE>
The amount allocated to cash and cash equivalents reflects $550,000 of
additional capital being contributed by RGene's existing investors under the
terms of the Merger Agreement.
(2) Records the write-off of in-process research and development acquired
by the Company. This adjustment has not been reflected in the Unaudited Pro
Forma Statement of Operations as the charge is considered nonrecurring.
(3) Reflects the conversion of notes payable into shares of RGene common
stock prior to the merger and eliminates interest expense thereon.
(4) Eliminates the historical stockholders' equity accounts of RGene.
(5) Reflects the issuance of 3,636,364 shares of Common Stock to the
stockholders of RGene, valued as described above.
(6) Reflects the receipt of the estimated net proceeds of the Offering. See
"Use of Proceeds."
(7) Computed on the basis described in Note 2 of Notes to Targeted Genetics
Financial Statements.
(8) Reflects the issuance of 3,636,364 shares of Common Stock to the
stockholders of RGene.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include the factors discussed below as well as the factors discussed
in "Risk Factors" and elsewhere in this Prospectus. Special Note: Certain
statements set forth below constitute "forward-looking statements" within the
meaning of the Reform Act. See "Special Note Regarding Forward-Looking
Statements" on page 2 for additional factors relating to such statements.
OVERVIEW
Targeted Genetics, a development stage company, was incorporated in March
1989 as a wholly owned subsidiary of Immunex. The Company's activities were
carried out as a project within Immunex through December 31, 1991. In 1992, the
Company began to operate independently of Immunex and raised $16.6 million, net
of expenses, in a private placement of Preferred Stock. The Company subsequently
raised an additional $23.8 million in two public offerings of Common Stock.
Currently, the Company has no significant revenue sources other than interest
income earned on investments, and it has generated an accumulated deficit of
approximately $30.5 million through March 31, 1996.
It is not anticipated that the Company will have any product-related
revenues for a number of years. Accordingly, the Company expects to generate
substantial additional losses in the future attributable to the continuation of
preclinical and clinical research programs, development of manufacturing
capabilities and the preparation for commercialization of its products under
development. The Company's ability to achieve profitability depends in part on
its ability alone and/or with others to complete the development of product
candidates, obtain regulatory approvals, comply with applicable regulatory
requirements and manufacture and market such products, of which there can be no
assurance.
In April 1996, the Company entered into the Merger Agreement with RGene,
another development stage company, pursuant to which it agreed to complete the
RGene Acquisition, subject to, among other things, final approval of the
shareholders of both companies. The effect of the RGene Acquisition on the
Company's results of operations is discussed in "-- Results of
Operations -- RGene Acquisition." The effect of the RGene Acquisition on the
Company's liquidity and capital resources is also discussed below. See
"Unaudited Pro Forma Consolidated Financial Statements."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 and 1996
Over the past several years, the Company's net loss has grown, consistent
with the growth in the Company's scope and size of operations. In the near term,
the Company plans additional moderate growth in employee headcount necessary to
address increasing requirements in the areas of manufacturing, quality control,
clinical and regulatory affairs. Assuming capital is available to finance such
growth, the Company's operating expenses will continue to increase as a result.
At least until such time as the Company enters into an arrangement providing
research and development funding, the net loss will continue to increase as
well.
For the three months ended March 31, 1996, interest income increased to
$183,000 compared to $132,000 during the three months ended March 31, 1995. The
increase was attributable to a higher average investment balance and higher
rates of return on those balances compared to the same period in 1995.
Research and development expenses were $1,978,000 and $2,366,000 for the
three-month periods ended March 31, 1995 and 1996, respectively. Factors that
contributed to this increase were: additional employees and related expenses in
preclinical immunology and clinical affairs; a moderate increase in
25
<PAGE> 27
the level of expenses related to development, manufacturing, quality control and
regulatory activities; and increased employee benefits costs.
General and administrative expenses were $701,000 and $617,000 for the
three months ended March 31, 1995 and 1996, respectively. The decrease reflects
a one-time expense of $185,000 related to certain corporate development
activities in the quarter ended March 31, 1995. Otherwise, during the first
quarter of 1996, higher expenses related to corporate communications,
shareholder reporting and employee benefits contributed to the increase compared
to the first quarter of 1995.
Interest expense was $75,000 and $92,000 for the three months ended March
31, 1995 and 1996, respectively. The increase was attributable to additional
equipment leases entered into by the Company.
Years Ended December 31, 1993, 1994 and 1995
Revenues were $412,000, $449,000 and $842,000 for the years ended December
31, 1993, 1994 and 1995, respectively. The significant increase in 1995 was
attributable to a higher average investment balance during the year and higher
rates of return on those balances. In 1995, the Company earned other income of
$175,000 from research and development arrangements.
Research and development expenses were $4,261,000, $6,763,000 and
$8,195,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
For the year ended December 31, 1994, the increase in research and development
expenses was largely due to the increased emphasis on supporting the advancement
of clinical, manufacturing process development and regulatory programs. The
increase in research and development expenses in 1995 was largely attributable
to the continued expansion of manufacturing process development expertise and
other nominal increases in research, clinical and regulatory expenses, including
staffing. Research and development expenses will continue to increase in the
future, especially as related to clinical trials. Continued growth in expenses,
however, is dependent on the availability of capital.
General and administrative expenses were $1,217,000, $1,892,000 and
$2,267,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The increase in general and administrative expenses in 1994 was attributable to
the addition of administrative staff in the areas of business development,
finance, human resources and facility management to support research and
development activities. During 1994, the Company also experienced an increase in
expenses associated with being a publicly traded company. For the year ended
December 31, 1995, the Company experienced modest growth in general and
administrative expenses compared with 1994. The growth was related to an
increase in corporate development activities and, to a lesser extent, additional
administrative staffing. Over the three years presented, the increase in general
and administrative expenses has roughly tracked the rate of increase in research
and development spending. The Company expects this relationship to continue in
future years.
The Company began incurring interest expense in 1994 related to equipment
financing transactions. The substantial increase for the year ended December 31,
1995 versus 1994 is due to an increased level of equipment financing. It is
expected that the Company will continue to finance equipment purchases if
favorable terms are available.
RGene Acquisition
On a pro forma basis, after giving effect to the RGene Acquisition as if it
had occurred on January 1, 1995, the net loss for the year ended December 31,
1995 would have been $13.4 million. The increase over the Company's actual net
loss of $9.9 million for such period is primarily attributable to added research
and development expenses of $3.1 million and general and administrative expenses
of $753,000, offset by $300,000 of license fee revenues. The Company expects
that such 1995 expense additions are generally indicative of the increases in
the Company's operating expenses that, going forward, will result from the RGene
Acquisition, in that (i) RGene's research and clinical programs,
26
<PAGE> 28
and the related costs, are expected to be maintained and (ii) there are no
significant savings expected from the elimination of duplicative expenses. There
can be no assurance, however, that future expenses will be consistent with 1995
expenses. The pro forma results of operations for the three months ended March
31, 1996 reflect operating expense levels higher than what are expected to
result from the RGene Acquisition due to the inclusion of (i) $157,000 of
noncash compensation expense related to RGene stock purchase agreements and
stock options, all of which will be exercised prior to the closing of the RGene
Acquisition, and (ii) $1.5 million payable to related parties related to option
fees received by RGene during the quarter. Additional payments to related
parties are only anticipated to be payable in the future in the event RGene or
the Company receives additional license-related fees. Furthermore, the amount of
any such payments is expected to be substantially reduced as a result of
provisions in the Merger Agreement requiring RGene to negotiate changes to an
existing license agreement. For both the year ended December 31, 1995 and the
three months ended March 31, 1996, the pro forma results of operations include
revenues from license and option fees. Future license and related milestone
revenues under an existing RGene license agreement or any other agreements under
negotiation cannot be predicted.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash, cash equivalents and securities
available for sale totaling $14.4 million, compared to $11.5 million at December
31, 1994. The increase was primarily attributable to the completion of a
self-managed stock and warrant offering, which resulted in net proceeds of $12.2
million in July 1995. The Company also completed equipment financing
transactions totaling $1.1 million during 1995. Offsetting these increases, the
Company used $8.5 million to fund its operations, $1.4 million for purchases of
equipment, laboratory expansion and acquisition of technology and patent rights
and $657,000 for payments under equipment leases and notes.
The Company had cash, cash equivalents and securities available for sale
totaling $11.9 million at March 31, 1996, compared to $14.4 million at December
31, 1995. The decrease was primarily attributable to the Company's use of $2.6
million to fund its operations during the first three months of 1996.
The Company expects that its cash needs will continue to increase in future
periods, in part because of the RGene Acquisition, due to expansion of research
and development programs, increased clinical trial activity, growth of
administrative staff and expansion of its facilities to accommodate increased
numbers of employees. Accordingly, the Company will need to raise substantial
additional funds to continue development and commercialization of its products.
The Company's future cash requirements will depend on many factors, including
the successful consolidation of RGene with the Company; continued scientific
progress in its research and development programs; the results of research and
development, preclinical studies and clinical trials; acquisition of products or
technology, if any; relationships with corporate collaborators; competing
technological and market developments; the time and costs involved in obtaining
regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; the time and costs of manufacturing scale-up and
commercialization activities; and other factors.
The Company estimates that, at its planned rate of spending, adjusted to
reflect the increased expenses expected to result from the RGene Acquisition,
its existing cash, cash equivalents and securities available for sale, together
with the projected amount of cash or investments expected to be obtained as a
result of the RGene Acquisition, the net proceeds of the Offering and the
interest income thereon will be sufficient to meet its capital requirements
until late 1997. In the event that all outstanding warrants with an exercise
price of $4.68 per share and expiring in July 1997 are exercised, the Company
will receive an additional $3.6 million, which amount should enable the Company
to fund its capital requirements until early 1998. There can be no assurance
that the underlying assumed levels of revenue and expense will prove to be
accurate or that any warrants will in fact be exercised. In order to further
strengthen its cash position, the Company is aggressively pursuing agreements
with corporate partners that would provide research and development funding and
equity investment. If the Company is successful in these efforts, funding
received under such arrangements could extend the
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period during which the aforementioned resources would fund the Company's
capital requirements. The Company also intends to seek additional funding
through public or private financing, including equity financing. There can be no
assurance, however, that adequate funds will be available when needed or will be
available on terms favorable to the Company. See "Risk Factors -- Effect of
Failure to Obtain Adequate Funding."
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BUSINESS
Targeted Genetics is focused on the development of gene and cell therapies
for the treatment of certain acquired and inherited diseases. The Company is
developing a broad base of core technologies that it believes will allow it to
address a variety of such diseases. These technologies include proprietary viral
and non-viral gene delivery systems as well as novel techniques for cytotoxic T
lymphocyte ("CTL") immunotherapy. In order to expand its technology base with
respect to non-viral gene delivery systems and to enhance its product
development programs, the Company recently agreed to acquire RGene Therapeutics,
Inc. ("RGene"), a privately held company focused on the development and use of
non-viral gene delivery systems. The Company is using its core technology
platform to develop potential products for the treatment of various genetic
disorders, cancer and infectious diseases, and is currently conducting clinical
trials in certain of these indications.
The Company believes that in the area of gene therapy, different disease
targets will require different methods of gene delivery, depending on the target
cell to be modified, the duration of gene expression required and the need for
ex vivo or in vivo delivery. Accordingly, the Company is developing multiple
gene delivery systems based on three different vector technologies:
adeno-associated viral ("AAV"), retroviral and non-viral. The Company believes
these systems may provide it with the flexibility necessary to develop gene
therapies for a broader range of diseases than would be possible using a single
gene delivery system. Targeted Genetics was the first company to initiate
clinical trials using AAV vectors and is not aware of any other company
conducting clinical trials using these vectors. In addition, the Company has
exclusive rights to an improved type of retroviral vector which has been shown
in preclinical experiments to be more efficient than earlier retroviral vectors
at delivering genes into certain types of blood cells. The Company also is
developing non-viral gene delivery systems which may provide greater flexibility
relative to the size and sequence of transferred genes and allow targeted
delivery in vivo.
Through its pending acquisition of RGene (the "RGene Acquisition"), the
Company will acquire rights to proprietary non-viral gene delivery technology
based on the use of cationic lipids that promote the uptake of DNA into cells.
This technology includes several formulations with the potential for increased
stability, and improved transduction efficiency as well as the potential ability
to deliver genes to specific target cells. The Company will also acquire rights
to the E1A tumor suppressor gene which is currently in clinical trials for the
treatment of ovarian and breast cancer.
In the area of cell therapy, the Company's expertise with CTLs enables it
to isolate from patients and efficiently multiply antigen-specific CTLs, which
are immune cells that target and kill specific diseased cells. This expertise
forms the basis for a series of potential immunotherapies for the treatment of
cancer and infectious diseases. The CTL immunotherapy program is based on the
Company's proprietary Rapid Expansion Method ("REM") technology, which is used
to grow CTLs ex vivo prior to infusion into the patient. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' specific disease-fighting
capabilities in vitro. Other methods of expanding CTL clones generally require
several months.
Targeted Genetics is currently conducting multiple clinical trials
utilizing its viral gene delivery systems as well as its CTL immunotherapy
technology. Following the completion of the RGene Acquisition, the Company also
will have a clinical trial using a non-viral gene delivery system. The Company
is conducting a Phase I and a Phase I/II clinical trial examining the use of AAV
vectors to deliver in vivo the cystic fibrosis transmembrane regulator ("CFTR")
gene for the treatment of cystic fibrosis. The Phase II part of the latter trial
is expected to begin in late 1996. RGene has initiated a Phase I clinical trial
of a non-viral system to deliver in vivo the E1A tumor suppressor gene to
patients with ovarian or breast cancer. In addition, the Company is conducting a
Phase I clinical trial examining the use of HIV-specific CTLs to prevent the
onset of full-blown AIDS in HIV-infected patients. The Company also is
collaborating on two physician-sponsored Phase I clinical trials examining gene
therapies for the treatment of Gaucher disease and melanoma. Patient accrual for
all these Phase I clinical trials is expected to be completed by the end of
1996. There can be no assurance that these clinical trials will proceed or will
be completed as indicated or that any products or technologies being
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<PAGE> 31
tested will prove safe and effective, meet applicable regulatory standards or be
successfully marketed. See "Risk Factors -- Early Stage of Product Development;
Technological Uncertainty" and "-- Uncertainties Relating to Clinical Trials and
Product Development."
DEVELOPMENT PROGRAMS
Targeted Genetics is utilizing its core technologies to develop potential
products for the treatment of single-gene disorders, cancer and infectious
diseases. As part of its product development strategy, Targeted Genetics is
using early clinical trials to assess product opportunities and determine the
effectiveness of using its vector technologies to administer genes to patients,
as well as to support its overall development activities. The most advanced
product-directed development programs are the AAV gene therapy for the treatment
of cystic fibrosis, the E1A non-viral gene therapy for the treatment of ovarian
and breast cancer and CTL immunotherapy for HIV infection. The following table
summarizes the Company's and RGene's development programs and related
technologies:
<TABLE>
<CAPTION>
TECHNOLOGY
----------------------------------------------------
DEVELOPMENT PROGRAM TYPE OF THERAPY DELIVERY SYSTEM GENE STATUS
- -------------------- --------------------- ----------------- ---------- -----------
<S> <C> <C> <C> <C>
SINGLE-GENE
DISORDERS
Cystic Fibrosis Gene Therapy AAV Vector CFTR Phase I/II
Gaucher Disease Stem Cell Gene Retroviral Vector GC Phase I
Therapy
CANCER
Ovarian/Breast* Gene Therapy Non-Viral Vector E1A Tumor Phase I
Suppressor
Melanoma Tumor Vaccine Retroviral Vector IL-7 Phase I
Breast/Colon CTL Immunotherapy -- -- Preclinical
(Tumor-Specific CTLs)
INFECTIOUS DISEASES
HIV CTL Immunotherapy -- -- Phase I
(HIV-Specific CTLs)
</TABLE>
- ------------------
* To be acquired through the RGene Acquisition.
SINGLE-GENE DISORDERS
CYSTIC FIBROSIS. Cystic fibrosis is the most common single-gene deficiency
affecting the Caucasian population, afflicting approximately 30,000 people in
the United States and 60,000 people worldwide. The disease is caused by a
dysfunctional CFTR gene, which results in a build up of mucus in the lungs,
infections and early death. Current treatments for cystic fibrosis offer only
symptomatic relief and cannot cure or halt the progression of the disease.
Based on preclinical findings by the Company and its scientific
collaborators, the Company believes that the persistence of expression and lack
of toxicity obtained with its AAV-based gene delivery vector potentially make it
better suited for delivery of the CFTR gene to the lung than other vectors. In
preclinical studies in rabbits, the Company and its collaborators at The Johns
Hopkins University ("Johns Hopkins") were able to detect expression of the CFTR
gene for periods of up to six months with no observed side effects when single
doses of an AAV-CFTR vector were instilled directly into the right lower lobe of
the rabbit lung with a bronchoscope. These results were confirmed in similar
studies in rhesus monkeys, in which gene transfer occurred in up to 50% of
target airway cells, and gene expression, which was confirmed in all animals,
persisted for up to six months. In these
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studies, there was no evidence of toxicity, as indicated by the absence of any
significant changes in clinical parameters and levels of inflammatory cytokines.
Furthermore, histopathology examination showed no evidence of any cellular
immune response. In addition, the monkeys used in the study were seropositive
for AAV, and thus a preexisting humoral immune response did not prevent gene
transfer. The studies compare favorably to preclinical studies known to the
Company with other delivery systems in which only short-term gene expression was
observed in the lung. Based on these preclinical data, the Company began two
clinical trials in late 1995 to evaluate the safety and feasibility of in vivo
gene therapy for the treatment of cystic fibrosis by direct delivery of the CFTR
gene using an AAV vector.
The first clinical trial, which began in November 1995, is a Phase I
clinical trial at Johns Hopkins in which an AAV vector containing the CFTR gene
is being delivered to the nose and lung of adult cystic fibrosis patients having
mild lung disease. The trial is designed as an interpatient dose escalation
trial and will enroll a total of 12 patients. Two patients are being treated at
each of six escalating dose levels. An AAV-CFTR vector will be administered in
an open-label single dose to the right lower lobe of the lung via bronchoscopy.
Additionally, each patient will be randomized to receive a single dose of an
AAV-CFTR vector administered to one nostril and a placebo to the other. Patients
will be monitored for, among other things, safety and assessment of gene
transfer and expression. The nasal administration is intended to determine if
physiologic measurement of CFTR function can be obtained in the nasal
epithelium. The Company expects to complete this clinical trial in late 1996. If
the results of the trial confirm the Company's preclinical findings of safety
and gene transfer, the Company intends to conduct subsequent clinical trials in
1997 involving aerosol delivery of an AAV-CFTR vector to the whole lung. The
Company is currently developing aerosol formulations for testing in preclinical
models.
The second clinical trial began in December 1995 at Stanford University.
This trial is designed as a Phase I/II trial, pursuant to which an AAV-CFTR
vector will be administered to the maxillary sinuses of cystic fibrosis patients
with chronic sinusitis. The Phase I part of this trial is designed as a dose
escalation study. Six patients will be enrolled, and each patient will initially
receive one dose in one maxillary sinus and a subsequent dose in the
contralateral maxillary sinus approximately one to two months later. The trial
will assess safety and efficacy of gene transfer and also may provide an initial
assessment of the effect of repeat delivery on gene transfer and expression.
Additionally, the dose level will be established for the Phase II part of the
trial, in which up to 50 patients will receive an AAV-CFTR vector in one sinus
and a placebo in the other. Patients in the Phase II trial will be monitored to
assess the ability of an AAV-CFTR vector to prevent the relapse of chronic
sinusitis. The Company expects to complete patient accrual for the Phase I trial
in mid-1996 and to initiate the Phase II trial in late 1996.
There can be no assurance that clinical trials will proceed or be completed
as indicated, or that the AAV-CFTR gene therapy will prove safe and effective,
receive applicable regulatory approvals or be successfully developed or
marketed. See "Risk Factors -- Early Stage of Product Development; Technological
Uncertainty" and "-- Uncertainties Relating to Clinical Trials and Product
Development."
GAUCHER DISEASE. Gaucher disease results from the deficiency of a gene
that produces an enzyme called glucocerebrosidase ("GC"), which normally
metabolizes a lipid called glucocerebroside. The enzyme deficiency results in
accumulation of this lipid in cells in the spleen, liver and bone marrow.
Symptoms of the disease include hematologic disorders, enlargement of the liver
and spleen, bone erosion and pain. The estimated annual incidence of Gaucher
disease in the United States is 5,000 severe cases and 15,000 mild to moderate
cases. Current therapies for Gaucher disease include bone marrow transplantation
from sibling-matched donors and enzyme replacement therapy. Only 25% of patients
are candidates for bone marrow transplantation due to lack of appropriate
donors. Furthermore, the risk of transplant-related morbidity and mortality
restricts this therapy to severely affected individuals. Although enzyme
replacement therapy appears to be effective, this therapy is currently extremely
expensive.
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Targeted Genetics selected Gaucher disease as an initial disease target for
the assessment of its stem cell gene therapy technology based on the scientific
theory that genetic correction in as little as 5% of a Gaucher disease patient's
blood cells may be adequate to achieve reversal of the disease. The Company
believes that although stem cell transduction techniques, including its own, may
not provide adequate levels of gene transfer and expression, current clinical
trials will provide baseline data that are necessary to facilitate the
development of improved methods for stem cell transduction. The Company is
collaborating on a physician-sponsored Phase I clinical trial at the Fred
Hutchinson Cancer Research Center (the "Hutchinson Center") in which peripheral
blood stem cells are being reinfused into Gaucher disease patients after ex vivo
transduction with a retroviral vector containing the GC gene. Patients
undergoing this therapy will be monitored for safety and long-term persistence
of the genetically modified cells. The Company believes that a series of Phase I
trials to test potentially improved techniques for stem cell gene transfer will
be required prior to initiation of a Phase II Gaucher disease clinical trial.
See "-- Core Technologies -- Retroviral Vectors."
CANCER
Cancer is the second leading cause of death in the United States, with over
one million new cases diagnosed each year. The Company is pursuing two primary
approaches for the treatment of cancer. In the first approach, the Company and
its collaborators are investigating the uses of CTL-based immunotherapy to
enhance the immune system's natural ability to eliminate cancer cells
selectively. The second approach, which will be acquired by the Company through
the RGene Acquisition, will utilize RGene's proprietary non-viral system to
deliver in vivo an E1A tumor suppressor gene to cancer cells.
E1A TUMOR SUPPRESSOR GENE THERAPY. This program is designed to test the
feasibility of treating certain cancers by introducing the proprietary E1A tumor
suppressor gene into cancer cells using RGene's proprietary non-viral delivery
system. Overexpression of the Her-2/neu oncogene occurs in approximately 30% of
a number of cancers, including ovarian, breast, head and neck, stomach,
pancreatic, liver, cervical and prostate cancer, and has been associated with
enhanced metastatic potential, drug resistance and poor survival rates. The E1A
tumor suppressor gene has been shown to inhibit the overexpression of the
Her-2/neu oncogene in certain tumor cells in vitro. In addition, in preclinical
mouse studies the E1A tumor suppressor gene was shown to inhibit the
intraperitoneal growth of ovarian cancer cells that were overexpressing the
Her-2/neu oncogene, and significantly increase the long-term survival of the
mice. A Phase I clinical trial of the E1A tumor suppressor gene therapy in
patients with metastatic ovarian or breast cancer that overexpresses the
Her-2/neu oncogene is now open for enrollment at M.D. Anderson Cancer
Center/University of Texas ("M.D. Anderson").
In the Phase I trial, 12 patients with ovarian cancer and 12 patients with
breast cancer that overexpress the Her-2/neu oncogene will be administered
weekly doses of the E1A tumor suppressor gene for a six-month period. The doses
will be administered using RGene's proprietary non-viral delivery system. This
trial will be conducted as an interpatient, ascending dose study with doses of
the E1A tumor suppressor gene delivered intraperitoneally in the ovarian cancer
patients and intrapleurally in the breast cancer patients. The objectives of the
trial are to assess safety, levels of gene transfer and expression and tumor
response. It is expected that this clinical trial will be completed in mid-1997.
There can be no assurance that the clinical trials of the E1A tumor
suppressor gene will proceed or be completed as indicated or that the E1A tumor
suppressor gene therapy will prove safe and effective, receive applicable
regulatory approvals or be successfully developed or marketed. See "Risk
Factors -- Early Stage of Product Development; Technological Uncertainty" and
"-- Uncertainties Relating to Clinical Trials and Product Development."
CTL IMMUNOTHERAPY. The objective of the Company's cancer CTL immunotherapy
program is to restore an effective immune response through the infusion of large
numbers of antigen-specific CTLs, immune cells that target and kill specific
tumor cells. The CTL immunotherapy program is based on the Company's proprietary
REM technology, which is used to grow CTLs prior to infusion. The
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<PAGE> 34
program involves isolating antigen-specific CTLs, multiplying them ex vivo and
reinfusing them into the patient. The Company believes that therapies based on
antigen-specific CTLs may be more effective and have fewer side effects than
other types of cell therapies that utilize broader classes of T cells or
lymphocytes.
The first clinical trial using antigen-specific CTLs was conducted by the
Company's scientific collaborators at the Hutchinson Center in an examination of
a CTL immunotherapy for the prevention of cytomegalovirus ("CMV") disease in
patients undergoing bone marrow transplants for the treatment of certain
cancers. CMV is a virulent infection that occurs frequently in immunocompromised
patients and causes severe illness that may lead to death. In this trial, 14
patients were administered donor-derived CMV-specific CTLs. None of the patients
who received the CTLs developed CMV viremia or disease. Based on this Hutchinson
Center trial, the Company believes that CTL immunotherapy may be useful in
treating or preventing a number of diseases, such as cancer, that may occur due
to a lack of adequate T cell response.
The Company is conducting preclinical studies directed to the isolation and
ex vivo multiplication of tumor-specific CTLs against certain types of cancer,
including breast and colon cancers. The Company plans to use the data generated
by these preclinical studies to design clinical trials of CTL immunotherapy for
the treatment of these cancers. To date, the Company has been able to generate
CTLs specific to peptides associated with human prostate and melanoma tumors,
multiply these CTLs in the REM process and use them to kill cancer cells in
vitro.
IL-7 TUMOR VACCINE. The Company is collaborating with clinicians at the
University of California at Los Angeles on an investigator-sponsored Phase I
clinical trial involving the administration of an IL-7 gene to nine patients
with metastatic melanoma in an attempt to stimulate CTL responses against the
tumor. The Company is collaborating in this investigator-sponsored study to
determine whether antigen-specific CTLs can be isolated and then multiplied
using the Company's REM process and retain their potency. IL-7 is an
immunomodulatory protein that has been demonstrated to activate antigen-specific
CTLs in in vivo preclinical studies and cause them to infiltrate tumor cells. In
connection with this trial, a melanoma tumor cell line was genetically modified
to produce IL-7. These modified cells are mixed with the patient's own tumor
cells and the cell mixture is injected into the patient. These modified tumor
cells may act to enhance the immune system's ability to recognize cancer cells
as foreign and to generate a potent CTL response against the tumor. As part of
this trial the Company has been able to isolate melanoma-specific CTLs from
blood samples of patients who have received the therapy and is currently
examining these CTLs to assess their ability to kill cancer cells.
INFECTIOUS DISEASES: HUMAN IMMUNODEFICIENCY VIRUS ("HIV")
CTL IMMUNOTHERAPY. HIV is a retrovirus that is the cause of AIDS, a
condition that is characterized by loss of CD4 cells and progressive immunologic
impairment and death. Currently there is no effective treatment for AIDS, and no
effective way to prevent an HIV-infected person from developing AIDS. According
to the Centers for Disease Control and Prevention, approximately one million
people in the United States have been infected with HIV. The World Health
Organization estimates that approximately 17 million people worldwide have been
infected with HIV and projects that the worldwide incidence of HIV infection
will grow to 30 million to 40 million people by the end of the century.
The Company and certain other researchers believe that the key to
successful HIV therapy may lie in manipulating and harnessing the cell-mediated
arm of the immune response. Researchers have found that HIV-infected people who
remain symptom-free for prolonged periods have high levels of CTLs that suppress
viral proliferation in CD4 cells. In addition, uninfected partners of
HIV-infected people, and uninfected infants born to HIV-infected mothers, have
been found to have high levels of HIV-specific CTLs, which appear to have kept
them HIV-free. The Company believes that the provision of large quantities of
cloned HIV-specific CTLs may provide a means of allowing HIV-infected people to
maintain an effective immune response, thereby delaying the onset of full-blown
AIDS.
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In 1995, the Company completed a Phase I clinical trial of HIV-specific
CTLs modified with a HyTK safety gene at the Hutchinson Center. Individual
clones of these CTLs specific for the HIV gag protein were isolated, modified
with a retroviral vector containing the HyTK gene and multiplied to more than
one billion cells. The HyTK gene was used to mark the cells and allow for
ablation of the cells by administration of ganciclovir if undesirable side
effects resulted from the therapy. After ex vivo expansion, the autologous
HyTK-transduced gag-specific CTL clones were reinfused intravenously in four
ascending doses administered at 14-day intervals. Based on the six patients
tested, the CTLs were shown to engraft, and the therapy appeared to be safe and
well tolerated, with no significant side effects. No patients required ablation
with ganciclovir. Once reinfused, the HIV-specific CTLs did not persist as long
as anticipated, apparently because of a primary CTL response directed against
the HyTK gene. Since the CTL immunotherapy appears to be safe, the use of the
HyTK gene for the original reason of safety will no longer be required.
In early 1996, the Company began a follow-up Phase I clinical trial, also
at the Hutchinson Center, in which up to eight HIV-infected patients are being
administered five escalating doses of HIV gag-specific CTLs. The first three
doses will consist of unmarked cells and the last two will consist of cells
modified with a retroviral vector containing the neo gene, a marking gene that
has not been shown to be immunogenic. Patients in the trial will be monitored
for safety, persistence of the infused CTLs and changes in viral burden. Patient
accrual in this trial is expected to be complete in late 1996.
There can be no assurance that the clinical trials will proceed or be
completed as indicated or that the CTL immunotherapy will prove safe and
effective, receive applicable regulatory approvals, or be successfully developed
or marketed. See "Risk Factors -- Early Stage of Product Development;
Technological Uncertainty" and "-- Uncertainties Relating to Clinical Trials and
Product Development."
INTRACELLULAR VACCINE IN CD4 CELLS. As a complementary approach to its CTL
immunotherapy for the treatment of HIV, the Company is collaborating on the
preclinical and clinical development of intracellular vaccines for HIV with Dr.
Philip Greenberg of the Hutchinson Center. In the planned physician-sponsored
Phase I trial, HIV-infected patients will be treated with genetically modified
CD4 helper cells. Two subgroups of these CD4 cells will be modified with
retroviral vectors expressing two different intracellular vaccine candidates for
which preclinical data indicate potential utility as protective agents against
HIV replication. These candidates are genes that express RNA molecules that can
act as decoys to bind HIV proteins essential for HIV replication. A third
subgroup of CD4 cells will be unmodified except for a marking gene. The trial's
goal is to provide general safety data and comparative data as to which of the
intracellular vaccine constructs may be more promising, based on length of cell
persistence in vivo versus the marked cells.
Since only a small fraction of the patient's CD4 cells will be modified to
resist HIV in this trial, it is unlikely that long-term therapeutic benefit will
result. To generate larger numbers of HIV-resistant CD4 cells, it will be
necessary to introduce the intracellular vaccine gene into stem cells from which
CD4 cells are derived. The Company believes that continued improvement in the
efficiency of stem cell gene transfer and expression will be necessary to
provide the rationale for future clinical testing of intracellular vaccines for
HIV in stem cells. See "-- Core Technologies -- Gene Therapy -- Retroviral
Vectors."
OTHER THERAPEUTIC AREAS
In addition to the development program for cystic fibrosis, the Company is
conducting research to assess the potential for delivery of genes to other
target cells using AAV vectors. Also, upon completion of the RGene Acquisition,
the Company expects to begin investigating the treatment of cancer using
antisense molecules to inhibit the activity of certain oncogenes.
CARDIOVASCULAR. The Company is collaborating with researchers at the
Bowman Gray School of Medicine in Winston-Salem, North Carolina to examine, in
animal models, the ability of AAV vectors to deliver genes in vivo to certain
cardiovascular cells. These studies are investigating in vivo delivery of AAV
vectors in monkeys exhibiting arteriosclerotic disease. AAV vectors are being
used to deliver
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genes via a balloon catheter inserted into a monkey artery. To date, these
studies have demonstrated that certain vascular endothelial cells can be
targeted for gene expression with AAV vectors, indicating that AAV vectors may
be feasible delivery systems for gene therapy treatments directed at various
cardiovascular disorders, including the inhibition of cell growth associated
with restenosis or the treatment of vascular disease with angiogenic factors.
MUCOSAL IMMUNITY. The Company is evaluating the feasibility of using AAV
vectors to deliver genes for applications relating to mucosal immunity. Certain
inflammatory and immune-related diseases may be treated by delivery of
anti-inflammatory or immune stimulating genes to mucosal surfaces such as the
gastrointestinal tract. In initial studies using in vivo animal models, the
Company is assessing the ability of AAV vectors to deliver genes directly to
cells of the intestinal epithelium.
ANTISENSE OLIGONUCLEOTIDES. RGene is investigating the potential treatment
of cancer by using antisense molecules to inhibit the activity of certain
oncogenes. Antisense molecules can prevent expression of the protein product of
a gene by binding to the messenger RNA copied from the DNA coding for that gene.
These antisense molecules are composed of oligonucleotides, which are short
pieces of DNA. Antisense molecules can be incorporated into liposomes for
delivery to target cells.
Chronic myelogenous leukemia ("CML") is a cancer associated with the
presence of an aberrant chromosome, the Philadelphia chromosome, which results
in generation of an oncogene, the bcr-abl fusion gene. The protein product of
the bcr-abl oncogene is believed to be involved in the pathogenesis of CML by
promoting selective proliferation of myeloid cells. The bcr-abl gene is present
only in leukemia cells and may be specifically targeted with antisense
oligonucleotides.
RGene plans to test a proprietary liposomal anti-bcr-abl oligonucleotide
for treatment of CML, in collaboration with Dr. Gabriel Lopez-Berestein at M.D.
Anderson. In in vitro experiments this formulation was shown to selectively
inhibit proliferation of the cancer cells. An initial Phase I/II dose escalation
study to test the safety and efficacy of repeated intravenous injections of the
liposomal/antisense complex is being planned in chronic-phase CML patients who
are not candidates for bone marrow transplants and who have received no benefit
from standard therapy. There can be no assurance that these clinical trials will
proceed or will be completed as indicated or that any products or technologies
being tested will prove safe and effective, meet applicable regulatory standards
or be successfully marketed. See "Risk Factors -- Early Stage of Product
Development; Technological Uncertainty" and "-- Uncertainties Relating to
Clinical Trials and Product Development."
CORE TECHNOLOGIES
The Company is developing a broad range of core technologies that it
believes will allow it to address issues specific to a variety of diseases. The
Company believes that in the area of gene therapy, different disease targets
will require different methods of gene delivery, depending on the target cell to
be modified, the duration of gene expression required and the need for ex vivo
or in vivo delivery. Accordingly, the Company is developing multiple gene
delivery systems based on three different vector technologies: AAV, retroviral
and non-viral. In certain treatments, for which in vivo modification of slowly
dividing or nondividing target cells is required or preferred, such as
modification of lung cells to treat cystic fibrosis, the Company is utilizing
its AAV vector technology. The Company uses its retroviral vector technology in
therapeutic areas where permanent modification of rapidly dividing cells may be
necessary. In therapeutic indications where the use of AAV and retroviral
vectors is not desirable or feasible, the Company is utilizing its non-viral
delivery systems. The Company believes that non-viral vectors may provide
greater flexibility relating to the size and sequence of transfer genes and may
also allow targeted delivery in vivo. The Company's non-viral technology
platform will be significantly enhanced as a result of the RGene Acquisition.
In the area of cell therapy, the Company's CTL immunotherapy expertise
enables it to efficiently isolate and multiply CTLs, immune cells that target
and kill only specific diseased cells, and forms the basis for a series of
potential immunotherapies.
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GENE THERAPY
OVERVIEW. Gene therapy is an approach to the treatment and prevention of
genetic and acquired diseases that involves the insertion of genetic information
into target cells to produce specific proteins needed to correct or modulate
disease conditions. Proteins are the fundamental components of all living cells
and are essential to cellular structure, growth and function. Proteins are
produced by cells from a set of genetic instructions encoded in DNA, which
contains all the information necessary to control cellular biological processes.
DNA is organized into segments called genes, with each gene containing the
information required to express, or produce, a specific protein.
An alteration in the function of, or absence of, specific genes is
responsible for causing some diseases, including inherited diseases such as
cystic fibrosis and Gaucher disease and certain types of cancer. Gene therapy
may be used to treat such diseases by replacing a missing or defective gene to
facilitate the normal protein production capabilities of cells. In addition,
gene therapy may be used to enable cells to perform additional roles in the
body, such as enhancing the function of the immune system to fight infectious
diseases or cancer. Gene therapy may also be used to inhibit production of
undesirable proteins or viruses within cells.
A key factor in the progress of gene therapy is the development of safe and
efficient methods of transferring genes into cells. For transfer into cells, the
gene is incorporated into a delivery system called a vector. Vectors may be
derived from either viral or non-viral systems. The most common gene delivery
approach to date relies on viral gene transfer, whereby modified viruses are
used to transfer the desired genetic material into host cells. The process of
gene transfer can be accomplished ex vivo (outside the body), in which cells are
removed from the patient, genetically modified, and then reinfused into the
patient, or in vivo (inside the body), in which vectors are introduced directly
into the patient's body.
The use of viruses takes advantage of their natural ability to introduce
genes into host cell and use the host's metabolic machinery to produce proteins
essential for the survival and function of the virus. In gene therapy
applications, viruses are genetically modified to contain the desired genes and
to inhibit the ability of the virus to reproduce. Successful application of
viral gene transfer to indications requiring long-term gene expression entails a
number of essential technical requirements, including the ability of the viral
vector to carry desired segments of genes, to transfer genes into a sufficient
number of target cells and to enable genes contained in the viral vector to
persist in the host cell. A number of different viral vectors, including AAV and
retroviral vectors, are being used for potential gene therapy applications
requiring long-term gene expression.
Current non-viral vector systems generally consist of DNA incorporating the
desired gene, combined with various compounds aimed at enabling the DNA to be
taken up by the host cell. These in vivo gene delivery approaches include
encapsulating genes into lipid carriers such as liposomes, which facilitate the
entry of DNA into cells; ionically binding negatively charged DNA to the surface
of cationic lipids which are positively charged prior to infusion; injecting
pure plasmid or "naked" DNA in an aqueous solution; and directing DNA to
receptors on target cells by combining the gene with protein carriers that are
taken up by the cell.
AAV VECTORS. Targeted Genetics and its scientific collaborators have
developed significant expertise with respect to the design and use of AAV
vectors in gene therapy. The Company believes that certain features of AAV
vectors make them particularly well suited for the treatment of a number of
diseases: (i) AAV has never been associated with causing any human disease; (ii)
AAV generally cannot replicate without the presence of a helper virus; (iii) AAV
vectors contain no viral genes that, if present, might produce unwanted immune
responses leading to side effects or reduced efficacy; (iv) unlike some other
types of viral systems, AAV vectors can introduce genes into nondividing or
slowly dividing cells, such as cells lining the airway of the lung; (v) AAV
vectors may persist in the host cell to provide relatively long-term expression;
and (vi) AAV vectors can be purified and concentrated, and thereby may allow for
more efficient manufacturing.
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The Company is building a proprietary position in AAV through the
development or acquisition of exclusive rights to inventions that (i) provide
important enhancements to AAV vectors; (ii) demonstrate novel approaches to the
use of AAV vectors for gene therapy; and (iii) establish new and improved
methods for large-scale production of AAV vectors. The Company has exclusive
rights from the National Institutes of Health (the "NIH") to a patent for use of
a novel AAV vector for cystic fibrosis. Notice of allowance has been granted
with respect to this patent. See "-- Patents and Proprietary Rights" and "Risk
Factors -- Uncertainty of Patent Position and Proprietary Rights; Access to
Proprietary Genes."
NON-VIRAL VECTORS. As a result of the RGene Acquisition, the Company will
acquire rights to a significant body of non-viral gene delivery technology based
on the use of cationic lipids to promote the uptake of DNA into cells. The
Company believes that non-viral vectors may have several characteristics that
may make them particularly well suited for the treatment of certain diseases,
including (i) the ability to target such vectors to a specific cell type; (ii)
relative ease of manufacture; and (iii) the ability to transfer relatively large
segments of DNA in a single vector. RGene's vectors are formulated by complexing
negatively charged DNA with cationic lipids which are positively charged to
promote DNA uptake by cells. Such complexes appear to have good safety profiles
and can be used ex vivo as well as in vivo. For in vivo use, these complexes can
potentially be delivered topically, intravenously, intraperitoneally,
intrapleurally or by aerosol.
The Company will be utilizing a series of these non-viral delivery
technologies developed by Dr. Leaf Huang of the University of Pittsburgh. His
original DC Chol system, which appears to have a favorable clinical toxicity
profile, has been used in two previous clinical trials by other unaffiliated
investigators for other disease indications and is now being used in the E1A
tumor suppressor gene clinical trial. The Company will be acquiring an exclusive
license to an issued U.S. patent for the original DC Chol system for the
treatment of certain cancers, including, among others, breast, ovarian and lung
cancers. Dr. Huang is developing a series of non-viral delivery systems for
which RGene has exclusive worldwide rights in the field of cancer. RGene is
currently engaged in negotiations with the University of Pittsburgh of the
Commonwealth System of Higher Education ("Pittsburgh") to expand the license to
additional fields and technologies. See "-- Research Collaborations and
Licensing Agreements -- RGene Agreements -- University of Pittsburgh." One type
of system under development employs additional analogs of DC Chol that may have
a more favorable toxicity profile. In another system, the DNA is condensed into
particles of defined size that have transduction efficiency that is fifty- to
eighty-fold higher than the original DC Chol system. An alternate version of
this system is being developed that includes specific ligands to enhance
delivery to specific target cells and to increase stability when delivered
intravenously. An additional system being developed also has increased
efficiency of gene transduction and higher stability in serum for intravenous
delivery. Specific formulations will be chosen for various applications based on
the type of target cell, desired mode of administration and biology of the
disease.
RETROVIRAL VECTORS. The Company is using retroviral vectors to modify T
cells and stem cells. These cells multiply to generate large numbers of progeny
(daughter) cells and are well suited as targets for retroviral vectors that can
modify only rapidly dividing cells. The Company believes that it has positioned
itself at the forefront of retroviral gene delivery technology through its
exclusive relationship with Dr. A. Dusty Miller, a leader in the development of
packaging cell lines for retroviral vectors. One of Dr. Miller's more recent
inventions in this area is a new type of retroviral vector packaging cell line
called PG13, which the Company has licensed exclusively from the Hutchinson
Center. Vectors produced in this cell line have been shown to have improved
efficiency for ex vivo transduction of human blood cells such as T cells and
stem cells. Hematopoietic stem cells are the progenitor cells from which all
circulating blood cells are derived. Thus, a large number of genetic diseases
might be treated using stem cell gene therapy. However, Targeted Genetics
believes that many of these diseases cannot be successfully treated using
currently available gene delivery technologies. Increased efficiency of gene
transfer and expression will be required to achieve the level of genetically
modified cells necessary to result in modulation of many such diseases.
Accordingly, the Company's effort in stem cell gene therapy is directed to
improving the efficiency of gene transfer and
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expression in stem cells using the PG13 retroviral vector together with an
internally developed proprietary stem cell transduction protocol.
CTL IMMUNOTHERAPY
OVERVIEW. The immune system is the body's major defense mechanism
responsible for protecting against disease. It functions through a complex
interplay of components and allows the body to detect foreign agents and thereby
defend against infections and diseases. The immune system recognizes parts of
proteins called antigens that are present on the surface of diseased cells but
are not present on normal cells. The immune response to an antigen involves the
integrated action of various classes of white blood cells, including
lymphocytes. Lymphocytes comprise two major classes: B cells, which produce
antibodies that mediate humoral immunity, and T cells, which direct
cell-mediated immunity.
T cells direct cell-mediated immunity by recognizing antigens on diseased
cells. The two main classes of T cells are CD4 cells and CD8 cells. In general,
CD8 cells are CTLs that recognize, contact and kill the diseased cells. CD4
cells are primarily helper cells that coordinate the function of other immune
cells, including CTLs, by secreting growth factors known as cytokines. CTLs are
disease-specific, i.e., they individually recognize and bind to only a single,
specific antigen. Furthermore, only in the presence of CD4 helper cells do these
specific CTLs proliferate to produce the large population of antigen-specific
CTLs required to elicit an effective immune response.
In some disease states, the immune system fails to mount or maintain an
effective immune response. For certain diseases, including HIV and cancer, it is
believed such failure may be associated with an inadequate CTL response. For
example, HIV infects and kills CD4 cells, which leads to subsequent loss of CTL
function and, thus, to destruction of the immune system by the virus. One
approach to the treatment of immune deficiencies, adoptive immunotherapy, has
been demonstrated in animal models to be effective against certain cancers and
infectious diseases. Adoptive immunotherapy is designed to harness and bolster
the body's natural immune capabilities to fight or prevent disease. In adoptive
immunotherapy, cells are harvested from the patient, multiplied ex vivo and
reinfused. However, the efficacy of adoptive immunotherapies has been limited to
date, due in part to the lack of uniform antigen specificity in the expanded
cell population and side effects resulting from the activation of a broad-based
immune response. Targeted Genetics believes that the more uniform specificity
obtained by expanding individual clones of antigen-specific CTLs may potentially
enhance the efficacy and reduce the side effects of adoptive immunotherapies.
THE COMPANY'S CTL IMMUNOTHERAPY PROGRAM. Targeted Genetics is working to
develop a highly targeted form of cell therapy, which is intended to produce a
powerful, disease-specific immune response through the infusion of large numbers
of antigen-specific CTLs. The Company's CTL immunotherapy program involves
isolating antigen-specific CTLs from a small sample of the patient's blood,
multiplying them to large numbers ex vivo and reinfusing them into the patient.
In essence, the Company's CTL immunotherapy is intended to amplify the natural
disease-fighting function of the immune system relating to specific infected or
cancerous cells.
The Company believes that its CTL immunotherapy represents an improvement
over other approaches to immunotherapy because it is based on cloned,
antigen-specific CTLs. The Company believes that the efficacy of its CTL
immunotherapy may be more effective than other immunotherapy approaches because
virtually all of the reinfused cells will be CTLs targeting the specific
diseased cells. The Company also believes that the safety and side effect
profile may be improved over other immunotherapy approaches because of the
uniformity and consistency of the reinfused cells.
The Company's focus on antigen-specific CTLs as a basis for immunotherapy
originated from research conducted by its collaborators at the Hutchinson
Center, Drs. Philip Greenberg and Stanley Riddell. These researchers conducted a
Phase I clinical trial to evaluate the safety of infusing donor-derived,
CMV-specific CTLs to bone marrow transplant patients, and the potential of this
approach for providing an immune response against CMV during the short period in
which transplant patients
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have a high probability of developing CMV. This trial, which was published in
The New England Journal of Medicine in October 1995, was the first clinical
trial in which cloned, antigen-specific CTLs had been used in a clinical trial.
None of the 14 patients receiving the CTLs developed CMV viremia or disease. See
"-- Development Programs -- Cancer -- Infectious Diseases: Human
Immunodeficiency Virus ("HIV") -- CTL Immunotherapy."
RAPID EXPANSION METHOD. The CTL immunotherapy program is based on the
Company's proprietary REM technology, which is used to rapidly grow CTLs prior
to infusion into the patient. REM represents a significant improvement over
other methods of multiplying T cell clones. Using REM, CTL clones can be
multiplied over a thousandfold in less than two weeks. The Company has
demonstrated that REM enables it to grow billions of CTLs from individual cloned
cells over several weeks, while preserving the cells' disease-fighting
capabilities in vitro. The Company has seen consistent results from REM in both
CD8 and CD4 T cells and for all disease specificities tested to date. The
Company has shown that REM is effective for growing CTLs specific for HIV, CMV,
malignant melanoma and prostate tumor peptides. Clinical testing will be
required to determine whether cloned cells maintain their disease-fighting
capabilities and are effective after being reinfused into humans, as to which
there can be no assurance. See "-- Development Programs -- Cancer -- CTL
Immunotherapy" and "-- Development Progams -- Infectious Diseases: Human
Immunodeficiency Virus ("HIV") -- CTL Immunotherapy." The Company has filed
patent applications, on a worldwide basis, relating to the original process and
to process improvements. See "-- Patents and Proprietary Rights" and "Risk
Factors -- Uncertainty of Patent Position and Proprietary Rights; Access to
Proprietary Genes."
GENETIC MODIFICATION OF CTLS. The Company believes that, on a long-term
basis, the effectiveness of CTL immunotherapy may be further improved through
genetic modification of the CTL clones. Currently, the Company is developing
methods to genetically modify CTLs to give them the capability of producing
their own cytokines, which are required for CTL proliferation and activation.
TUMOR SUPPRESSOR GENES
Many pathways of gene regulation control cell growth and division, and
cancer arises from disruption of these pathways. Certain of these pathways are
regulated by cellular oncogenes or tumor suppressor genes. Cancer may result
from the structural alteration and abnormal expression of cellular oncogenes or
from mutation or deletion of tumor suppressor genes. Certain genes, including
Her-2/neu, abl, bcr, crkl, and bcl-2, function as parts of signal transduction
pathways that promote cell growth and division. Tumor suppressor genes function
by inhibiting cell growth and the expression of cellular growth factors.
Malfunctioning oncogenes and tumor suppressor genes represent targets through
which the growth of malignant cancer cells may be regulated. Thus, introduction
of tumor suppressor genes may be a viable approach to down-regulate the
expression of oncogenes or to replace functions lost by mutation or deletion of
a tumor suppressor gene.
Some viruses have evolved genes that may mimic functions normally exhibited
by cellular genes. One such example is the E1A gene of the adenovirus type 5.
The E1A gene was shown by Dr. Mien-Chie Hung, in experiments conducted at M.D.
Anderson, to function as a tumor suppressor and to suppress expression of the
Her-2/neu oncogene, which is known to be overexpressed in certain cancers. As a
result of the RGene Acquisition, the Company will have worldwide rights to use
the E1A gene as a tumor suppressor. An open Phase I clinical trial is evaluating
the ability of the E1A tumor suppressor gene to down-regulate the Her-2/neu
oncogene in ovarian and breast cancers. Preclinical research is also being
conducted to assess the feasibility of using non-viral delivery systems to
deliver a variety of other cellular tumor suppressor genes to treat certain
cancers. See "-- Development Programs -- Cancer -- E1A Tumor Suppressor Gene
Therapy."
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RESEARCH COLLABORATIONS AND LICENSING AGREEMENTS
Targeted Genetics and RGene have entered into a number of research
collaboration and licensing agreements. Generally, under the license agreements,
the Company and RGene have agreed to pay (i) an initial fee upon execution of
the agreement; (ii) annual maintenance or royalty fees; (iii) milestone payments
upon realization of certain benchmarks; and (iv) royalties on sublicense fees
and sales of products, if any, incorporating the underlying technology. Under
the research collaboration agreements, the companies are generally obligated to
pay research fees, and receive options to obtain exclusive licenses to
technology developed under these agreements. There can be no assurance that any
of the research collaborations and licensing agreements will result in the
Company's acquisition of valuable rights. In addition, RGene has entered into a
licensing agreement with Pasteur Merieux Serums & Vaccins S.A. ("Pasteur
Merieux") in which RGene has received a development fee and an upfront license
fee. RGene has also entered into a nonbinding letter of intent with a
pharmaceutical company for the development in Europe of RGene's E1A tumor
suppressor product candidate. In connection with the execution of this letter of
intent, RGene has received an upfront $2.5 million nonrefundable option fee.
Negotiations are underway to enter into a definitive agreement. There can be no
assurance, however, that a definitive agreement will be executed. The following
is a summary of the principal agreements of both Targeted Genetics and RGene.
TARGETED GENETICS AGREEMENTS
FRED HUTCHINSON CANCER RESEARCH CENTER -- ADOPTIVE TRANSFER OF IMMUNE
CELLS. Between January 1994 and February 1995, Targeted Genetics entered into
research and license agreements with the Hutchinson Center and the University of
Washington in connection with the Company's CTL-based immunotherapy product
development program. The Company agreed to pay the Hutchinson Center and the
University of Washington annual research support until December 1996 and July
1996, respectively, for research to be conducted by Drs. Philip Greenberg and
Stanley Riddell at the University of Washington and the Hutchinson Center,
respectively, in the area of methods of conferring immunity in humans by
adoptive transfer of genetically modified CTLs. These agreements replaced other
contractual arrangements that had been entered into by Targeted Genetics with
the Hutchinson Center and the University of Washington between 1991 and 1993 in
this area. Pursuant to these agreements, Targeted Genetics has acquired an
exclusive worldwide license to inventions previously licensed by Targeted
Genetics or developed under these prior agreements, and has a continuing right,
effective until termination of this program, to incorporate and add new
inventions arising from this program to the research and license agreements.
FRED HUTCHINSON CANCER RESEARCH CENTER -- RETROVIRAL VECTORS. In November
1991, the Company entered into an agreement with the Hutchinson Center pursuant
to which the Company obtained a nonexclusive license to develop and market
products utilizing the PG13 packaging cell line technology for retroviral
vectors. In addition, in March 1994, Targeted Genetics entered into an agreement
with the Hutchinson Center pursuant to which the Company obtained an exclusive
license to develop and market products utilizing a second packaging cell line
technology for retroviral vectors. A patent covering this technology was issued
by the USPTO in November 1995.
THE JOHNS HOPKINS UNIVERSITY. In April 1993, Targeted Genetics entered
into a sponsored research agreement with Johns Hopkins pursuant to which the
Company agreed to pay Johns Hopkins an annual fee for a one-year period for
research to be conducted under the direction of Dr. Terence Flotte in the area
of developing AAV vectors for in vivo gene delivery. In March 1994, Targeted
Genetics entered into an agreement with Johns Hopkins for technology relating to
methods for producing AAV vectors co-invented by scientists at Johns Hopkins and
Targeted Genetics under this research program, pursuant to which Johns Hopkins
granted the Company an exclusive license to its interest in such technology.
MEDICAL COLLEGE OF OHIO. In March 1994, Targeted Genetics entered into an
agreement with the Medical College of Ohio pursuant to which the Company
obtained an exclusive worldwide license to develop and market products utilizing
technology relating to methods for producing AAV vectors.
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NATIONAL INSTITUTES OF HEALTH. In March 1994, Targeted Genetics entered
into an agreement with the NIH pursuant to which the Company obtained an
exclusive worldwide license to a patent application covering an AAV vector
capable of expression from a novel promoter for the field of viral vector-based
gene therapy for the treatment of cystic fibrosis. In February 1996, the USPTO
issued a notice of allowance for this patent application.
UNIVERSITY OF MICHIGAN. In March 1994, the Company entered into a
nonexclusive license agreement with the University of Michigan and HSC (Hospital
for Sick Children) Research and Development Limited Partnership for a patent
application covering the CFTR gene used in the Company's AAV therapy for the
treatment of cystic fibrosis.
RGENE AGREEMENTS
Following the RGene Acquisition, the Company will assume all the rights and
obligations of the following agreements previously entered into by RGene.
ARONEX PHARMACEUTICALS, INC. In April 1994, RGene and Argus
Pharmaceuticals, Inc. (now Aronex Pharmaceuticals, Inc. ("Aronex")) entered into
a Development Agreement, an Assignment and Assumption Agreement and a Sublicense
Agreement. As part of the exchange for 642,307 shares of RGene's common stock,
Aronex licensed to RGene, on a nonexclusive, royalty-free basis, certain of
Aronex's technology, including technology in the area of liposomal drug delivery
and manufacturing, which may be useful or necessary in the development of
certain products. Aronex also assigned to RGene certain rights in an exclusive
license agreement between the University of Texas Board of Regents, M.D.
Anderson and Aronex for a patent relating to liposomal methylphosphonate
oligonucleotides for the treatment of cancer. In addition, Aronex granted to
RGene an exclusive worldwide sublicense to patent applications and technology
relating to delivery of genes into cells using novel cationic cholesterol
derivatives for use in certain fields, including lung, colon, breast, ovarian
and hematological cancers. This technology was licensed exclusively by Aronex
from the University of Tennessee Research Corporation ("UTRC") for use in
certain fields in November 1993.
Under the Development Agreement, Aronex and RGene agreed to conduct certain
research and experiments and to develop certain products incorporating Aronex
technology, the costs of which are borne by RGene. The patent rights to jointly
conduct research are governed by the Assignment and Assumption Agreement and the
Sublicense Agreement. The Development Agreement expires in April 1997, and can
be extended by mutual agreement of the parties.
M.D. ANDERSON CANCER CENTER/UNIVERSITY OF TEXAS. In March 1994, RGene
entered into a license agreement with the University of Texas Board of Regents
and M.D. Anderson pursuant to which RGene obtained an exclusive worldwide
license to develop and market products utilizing the E1A tumor suppressor gene
for Her-2/neu targeted cancer therapy. This agreement was amended in December
1994 to provide RGene an exclusive worldwide license to develop and market
products utilizing lipid technology to deliver oligonucleotides for the
treatment of CML.
In addition to the license agreement, in March 1994, RGene entered into a
sponsored research agreement with M.D. Anderson pursuant to which RGene agreed
to pay M.D. Anderson an annual fee for three years for research to be performed
under the supervision of Dr. Mien-Chie Hung in the area of Her-2/neu targeted
cancer therapy. RGene entered into a second sponsored research agreement with
M.D. Anderson in March 1994 pursuant to which RGene agreed to pay M.D. Anderson
an annual fee for two years for research to be performed under the supervision
of Dr. Lopez-Berestein in the area of targeting and delivery of oligonucleotides
to leukemic cells.
UNIVERSITY OF TENNESSEE RESEARCH CORPORATION. In October 1995, RGene
entered into an agreement with UTRC pursuant to which RGene obtained an
exclusive worldwide license to develop and market products utilizing technology
relating to delivery of genes into cells using DC Chol for certain cancers,
including, among others, breast, ovarian and lung cancer.
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UNIVERSITY OF PITTSBURGH. In October 1994, RGene entered into an exclusive
worldwide license agreement with Pittsburgh to develop and market products
utilizing technology related to non-viral delivery systems for cancer treatment
(the "Field of Research") developed by Dr. Leaf Huang. Also in October 1994,
RGene entered into a sponsored research agreement with Pittsburgh pursuant to
which RGene agreed to pay Pittsburgh an annual fee for four years for research
to be performed under the supervision of Dr. Huang in the area of developing
gene therapy products to treat cancer. Dr. Huang's research program includes
developing novel cationic lipids and the bacteriophage T-7-based expression
system. Any inventions made under this agreement in the Field of Research will
be incorporated into the October 1994 exclusive license agreement. In addition,
RGene has a right of first refusal to acquire an exclusive license to any
inventions developed under the sponsored research agreement outside of the Field
of Research. RGene is currently engaged in negotiations with Pittsburgh to
expand the Field of Research to other areas of interest to RGene. There can be
no assurance that such negotiations will be successful. See "-- Core
Technologies -- Non-Viral Vectors."
PASTEUR MERIEUX. In December 1995, RGene entered into an agreement with
Pasteur Merieux pursuant to which RGene granted to Pasteur Merieux an exclusive
worldwide license and sublicense to certain technology and patent rights
relating to DC Chol as an immunoadjuvant in traditional vaccines. In
consideration of such grant, RGene was paid a process development fee and an
upfront license fee. In addition, it may receive milestone payments upon
realization of certain benchmarks and a royalty on sales of the products, if
any, incorporating the underlying technology.
PATENTS AND PROPRIETARY RIGHTS
Patents and licenses are important to the Company's business. The Company's
policy is to file patent applications to protect technology, inventions and
improvements to inventions that are considered important to the development of
its business. The Company also relies on trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. To date, the Company has filed or exclusively licensed
24 patent applications relating to its product and vector development programs
with the USPTO, as well as foreign counterparts of certain of these applications
in Europe, Japan and certain other countries, as follows: CTL immunotherapy
program, nine; AAV vector program, seven; other vector development programs,
eight. Of the 24 patent applications, four patents licensed exclusively to the
Company have been issued or allowed by the USPTO. No U.S. or foreign patent has
been issued directly to the Company to date. One of the issued patents, in the
CTL immunotherapy field, covers a method for generating helper-independent CTLs.
With respect to the Company's AAV program, a notice of allowance has been
received for the patent application covering the vector being used in the
Company's cystic fibrosis program. Two patents have issued relating to Targeted
Genetics' other vector development programs, including one covering PG13, the
novel retrovirus packaging cell line exclusively licensed from the Hutchinson
Center.
Among Targeted Genetics' 24 patent applications relating to development
programs are three key patent applications relating to the Company's proprietary
REM technology. In addition, the Company has filed or exclusively licensed three
patent applications relating to proprietary methods for manufacturing AAV
vectors. A patent application has also been filed by Targeted Genetics relating
to an improved method of delivering genes to hematopoietic stem cells.
In addition to the intellectual property that Targeted Genetics owns or has
exclusively licensed, the Company has licensed several issued and pending
patents that relate to its development programs on a nonexclusive basis. Among
these are the two key patents that relate to the use of AAV vectors for gene
therapy licensed from the NIH and the University of Florida Research Foundation.
In addition, the Company has acquired nonexclusive rights to the cystic fibrosis
gene being delivered in an AAV vector.
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Through the RGene Acquisition, Targeted Genetics will acquire rights and an
exclusive license with respect to eight patent applications filed with the
USPTO, as well as foreign counterparts of certain of these applications. Five of
these patent applications, two of which have issued, relate to non-viral gene
delivery technology covering the use of DC Chol and other cholesterol-based
systems for delivering genes into cells and the use of liposomal antisense
oligonucleotides. In regard to one of the issued patents, prior art has been
brought to the attention of the Company, which may result in further proceedings
in the USPTO with respect to one or more claims. Three patent applications
related to the E1A tumor suppressor gene are currently pending.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to human therapeutic uses. In addition, the coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, the Company does not know whether any patent applications will
result in the issuance of patents or, if any patents are issued, whether the
patents will be subjected to further proceedings limiting their scope, whether
they will provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications in the United States are maintained in
secrecy until patents issue and patent applications in certain other countries
generally are not published until more than 18 months after they are filed, and
since publication of discoveries in scientific or patent literature often lags
behind actual discoveries, the Company cannot be certain that it or any licensor
was the first creator of inventions covered by pending patent applications or
that it or such licensor was the first to file patent applications for such
inventions. Moreover, the Company is currently involved in one patent
interference proceeding declared by the USPTO to determine priority of invention
relating to certain components that may be useful in retroviral vectors, and may
have to participate in additional interference proceedings. Although the Company
does not anticipate that material expenditures will be made in connection with
such proceedings, participation could result in substantial cost to the Company,
even if the eventual outcome were favorable to it. In addition, although the
Company believes that the technology which is the subject of the current patent
interference proceeding is not material to its current product development
programs, there can be no assurance that such technology will not become
material in the future. If the outcome of the current or any additional
interference proceeding were unfavorable, the Company may be unable to obtain
rights to the invention involved. There can be no assurance that the Company's
patents, if issued, would be held valid or enforceable by a court or that a
competitor's technology or product would be found to infringe such patents.
Litigation, which could result in substantial cost to the Company, may be
necessary to enforce the Company's patents or to determine the scope and
validity of other parties' proprietary rights. If the outcome of any such
litigation were adverse, the Company's business could be materially adversely
affected. The Company is unable to predict how courts will resolve any future
issues relating to the validity and scope of its patents should they be
challenged.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in denial of the Company's patent applications. In addition, if patents that
cover the Company's activities are issued to other companies, there can be no
assurance that the Company would be able to develop or obtain alternative
technology.
Furthermore, as the biotechnology industry expands and more patents are
issued, the risk increases that the Company's processes and potential products
may give rise to claims that they infringe the patents of others. Such other
persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Com-
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pany's technical and management personnel. If there were an adverse outcome of
any such litigation, the Company's business could be materially adversely
affected. In addition to any potential liability for significant damages, the
Company could be required to obtain a license to continue to manufacture or
market the affected product or use the affected process. Costs associated with
any licensing arrangement may be substantial and could include ongoing
royalties. There can be no assurance that any license required under any such
patent would be made available to the Company on acceptable terms, if at all.
In addition to patent protection, the Company also relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology. To protect its trade secrets, the
Company requires its employees, consultants, scientific advisors and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, the consulting relationship or the collaboration
with the Company. In the case of employees, the agreements also provide that all
inventions resulting from work performed by them while in the employ of the
Company will be the exclusive property of the Company. There can be no
assurance, however, that these agreements will provide meaningful protection of
the Company's trade secrets or adequate remedies in the event of unauthorized
use or disclosure of such information. See "Risk Factors -- Uncertainty of
Patent Position and Proprietary Rights; Access to Proprietary Genes."
COMPETITION
The Company is aware of a number of companies and institutions that are
developing or considering the development of potential gene therapy and cell
therapy treatments, including early-stage gene therapy companies, fully
integrated pharmaceutical companies, universities, research institutions,
governmental agencies and other healthcare providers. In addition, the Company's
potential products will be required to compete with existing pharmaceutical
products, or products developed in the future, that are based on established
technologies. Many of the Company's competitors have substantially more
financial and other resources, larger research and development staffs, and more
experience and capabilities in researching, developing and testing products in
clinical trials, in obtaining FDA and other regulatory approvals, and in
manufacturing, marketing and distribution than the Company. In addition, the
competitive positions of other early-stage companies may be enhanced
significantly through their collaborative arrangements with large pharmaceutical
companies or academic institutions. The Company's competitors may succeed in
developing, obtaining patent protection for, receiving FDA and other regulatory
approvals for, or commercializing products more rapidly than the Company. If the
Company is successful in commercializing its products, it will be required to
compete with respect to manufacturing efficiency and marketing capabilities,
areas in which it has no experience. The Company also competes with others in
acquiring products or technology from research institutions or universities. The
Company's competitors may develop new technologies and products that are
available for sale prior to the Company's potential products or that are more
effective than the Company's potential products. In addition, competitive
products may be manufactured and marketed more successfully than the Company's
potential products. Such developments could render the Company's potential
products less competitive or obsolete, and could have a material adverse effect
on the Company's business, financial condition and results of operations.
GOVERNMENTAL REGULATION
All of the Company's potential products will require regulatory approval by
U.S. and foreign governmental agencies prior to commercialization in such
countries. Human therapeutic products are subject to rigorous preclinical and
clinical testing and other premarket approval procedures administered by the FDA
and similar authorities in foreign countries. The FDA exercises regulatory
authority over the development, testing, formulation, manufacture, labeling,
storage, record keeping, reporting, quality control, advertising, promotion,
export and sale of the Company's potential products. Similar requirements are
imposed by foreign regulators. In some cases, state requirements also apply. See
"Risk Factors -- Uncertainty of Governmental Regulatory Requirements; Lengthy
Approval Process."
44
<PAGE> 46
Gene therapy and cell therapy are relatively new technologies and have not
been extensively tested in humans. The regulatory requirements governing gene
and cell therapy products and related clinical procedures are uncertain and are
subject to change. Obtaining approval from the FDA and other regulatory
authorities for a new therapeutic product is likely to take several years, if
ever, and involve substantial expenditures. Moreover, ongoing compliance with
applicable requirements can entail the expenditure of substantial resources.
Difficulties or unanticipated costs may be encountered by the Company in its
efforts to secure necessary governmental approvals, which could delay or
preclude the Company from marketing its products.
The activities required before a new therapeutic agent may be marketed in
the United States begin with preclinical testing. Preclinical tests include
laboratory evaluation and may require animal studies to assess the product's
potential safety and efficacy. Animal safety studies must be conducted in
accordance with the FDA's Good Laboratory Practice regulations. The results of
these studies must be submitted to the FDA as part of an IND, which must be
reviewed and cleared by the FDA before proposed clinical testing can begin.
Clinical trials must be conducted in accordance with Good Clinical Practices
under protocols that detail the objectives of the trial, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. The FDA's review or approval of
a study protocol does not necessarily mean that, if the trial is successful, it
will constitute proof of efficacy or safety. Further, each clinical trial must
be approved by and conducted under the auspices of an independent Institutional
Review Board ("IRB") at the institution at which the trial will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution. The IRB is also
responsible for continuing oversight of the approved protocols in active trials.
An IRB may require changes in a protocol, and there can be no assurance that an
IRB will permit any given trial to be initiated or completed.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, gene therapy clinical trials
generally are conducted with a small number of patients, who may or may not be
afflicted with a specific disease, to determine the preliminary safety profile.
In Phase II, clinical trials are conducted with larger groups of patients
afflicted with a specific disease in order to determine preliminary efficacy and
optimal dosages and to obtain expanded evidence of safety. In Phase III,
large-scale, multicenter, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others for
market approval. The FDA receives reports on the progress of each phase of
clinical testing, and it may require the modification, suspension or termination
of clinical trials if an unwarranted risk is presented to patients. Because gene
therapy products are a new category of therapeutics, there can be no assurance
as to the length of the clinical trial period or the number of patients the FDA
will require to be enrolled in the clinical trials in order to establish to its
satisfaction the safety and efficacy of such products.
FDA marketing approval must be obtained after completion of clinical trials
of a new product. The Company expects that its products will be regulated as
biologic drugs. According to the FDA's 1993 notice outlining its regulatory
approach to somatic and gene therapy products, these products are also subject
to the drug provisions of the Federal Food, Drug and Cosmetic Act. This notice
also stated, however, that the FDA's regulatory approach may evolve as
scientific knowledge increases in the area of somatic and gene therapy. Current
regulations relating to biologic drugs will require the Company to submit to the
FDA both a Product License Application ("PLA") and an Establishment License
Application ("ELA"), which must be approved by the FDA before commercial
marketing is permitted. The PLA/ELA must include results of product development
activities, preclinical studies and clinical trials, in addition to detailed
manufacturing information. FDA approval of PLA/ELAs generally takes at least one
year. The process may take substantially longer if the FDA has questions or
concerns about a product. The FDA may also request additional data relating to
safety or efficacy. Notwithstanding the submission of relevant data, the FDA may
ultimately decide that a PLA/ELA does not satisfy its regulatory criteria for
approval. The FDA may also modify the scope of the desired claims or require
45
<PAGE> 47
the addition of warnings or other safety-related information and require
additional clinical tests following approval to confirm product safety and
efficacy (Phase IV trials). Even if FDA regulatory clearances are obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on marketing a product or in withdrawal
of the product from the market, as well as possible civil or criminal sanctions.
The FDA requires that manufacturers of a product comply with cGMP
requirements, both as a condition of product approval and on a continuing basis.
In complying with cGMP requirements, manufacturers must expend time, money and
effort on a continuing basis in production, record keeping and quality control.
Manufacturing facilities are subject to periodic inspections by the FDA to
ensure compliance. Failure to pass such inspections may subject the manufacturer
to possible FDA action such as the suspension of manufacturing, seizure of the
product, withdrawal of approval or other regulatory sanctions. The FDA may also
require the manufacturer to recall a product.
In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other federal, state and local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials and radioactive compounds. Although
the Company believes that its safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal laws
and regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any resulting damages, and any such liability
could exceed the Company's resources. See "Risk Factors -- Uncertainty of
Governmental Regulatory Requirements; Lengthy Approval Process" and
"-- Hazardous Materials; Environmental Matters."
HUMAN RESOURCES
At March 31, 1996, Targeted Genetics had 77 employees; 62 of these
employees were directly involved in research and development, of whom 18 had
Ph.D. or M.D. degrees. A significant number of the Company's management and
professional employees have prior experience with other biotechnology or
pharmaceutical companies. The Company considers its relations with its employees
to be good.
The Company's success will depend in large part on its ability to attract
and retain key employees and scientific advisors. Competition among
biotechnology and pharmaceutical companies for highly skilled scientific and
management personnel is intense. There can be no assurance that the Company will
be successful in retaining its existing personnel or advisors, or in attracting
additional qualified employees. See "Risk Factors -- Dependence on Key Personnel
and Scientific Collaborators."
FACILITIES
Targeted Genetics currently occupies approximately 33,000 square feet of
laboratory and office space in a single facility in Seattle, Washington. Rental
payments in 1995 totaled $396,220. The lease expires on April 1, 1999 and
includes options to extend the lease term for three consecutive five-year
periods. The Company believes this facility, together with approximately 2,000
square feet of expansion space and space available in an adjoining office
complex, will be adequate to meet its projected needs for the next two to three
years. Within that time frame, the Company may be required to locate alternative
facilities, depending on the Company's growth and development.
46
<PAGE> 48
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The following are the directors, director nominees and executive officers
of Targeted Genetics, and their ages as of March 31, 1996, each of whom will
serve in the capacities noted until their successors are duly appointed and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
H. Stewart Parker.................... 40 President, Chief Executive Officer and Director
Barrie J. Carter, Ph.D............... 51 Executive Vice President and Director of Research
and Development
Richard Daifuku, M.D., Ph.D.......... 43 Vice President, Clinical Affairs
James A. Johnson..................... 39 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
Jeremy Curnock Cook.................. 47 Director
Stephen A. Duzan..................... 54 Director
James D. Grant....................... 63 Director
Donald E. O'Neill.................... 70 Director
Austin M. Long, III.................. 51 Director Nominee
Martin P. Sutter..................... 41 Director Nominee
</TABLE>
The Company's directors are divided into three classes and will serve for
terms of three years, with one class being elected by the shareholders each
year. The terms of the current directors expire as follows: Stephen A. Duzan and
James D. Grant in 1996, H. Stewart Parker in 1997 and Donald E. O'Neill in 1998.
Jeremy Curnock Cook was elected to the Board of Directors in July 1995 to fill a
vacancy and has been nominated for election at Targeted Genetics' 1996 annual
shareholders meeting for a term expiring in 1998.
Pursuant to the Merger Agreement, the Company's Board of Directors will
appoint Austin M. Long, III and Martin P. Sutter as RGene's designees to the
Company's Board of Directors. The Company has agreed to cause Messrs. Long and
Sutter to be nominated for election at the Company's 1997 annual meeting of
shareholders.
H. STEWART PARKER managed the formation of Targeted Genetics as a wholly
owned subsidiary of Immunex and has been President, Chief Executive Officer and
a director since the Company's inception in 1989. She served in various
capacities at Immunex from August 1981 through December 1991, most recently as
Vice President, Corporate Development. Ms. Parker also served as President and a
director of Receptech Corporation, a company formed by Immunex in 1989 to
accelerate the development of soluble cytokine receptor products, from February
1991 to January 1993, and was Chairperson of the Washington State Biotechnology
Association. She received her B.A. and M.B.A. from the University of Washington.
BARRIE J. CARTER, PH.D. is Executive Vice President and Director of
Research and Development of Targeted Genetics. He joined the Company in August
1992. For the previous 22 years he was employed by the NIH in Bethesda, Maryland
where he was Chief of the Laboratory of Molecular and Cellular Biology in the
National Institute for Diabetes, Digestive and Kidney Diseases from 1982 to
1992. He spent a period of postdoctoral training at the Imperial Cancer Research
Fund Laboratories in London, England before joining the NIH. His long-term
research interests are in molecular biology of viruses, development of AAV
vectors and gene therapy. Dr. Carter serves on the Editorial Boards of Journal
of Virology, Gene Therapy Newsletter and Human Gene Therapy, and as an Associate
Editor of Virology. He is an Affiliate Professor of Medicine at the University
of Washington Medical School. Dr. Carter received his B.Sc. (Honors) from the
University of Otago, Dunedin, New Zealand and his Ph.D. in the Biochemistry
Department of the University of Otago Medical School.
47
<PAGE> 49
RICHARD DAIFUKU, M.D., PH.D. joined the Company in January 1995 as Vice
President, Clinical Affairs. From January 1992 to January 1995, Dr. Daifuku
served in a variety of positions at Amgen Corporation, a biotechnology company,
including Associate Director, Infectious Diseases and Product Development Team
Leader. From June 1990 to January 1992, he was Associate Medical Director at
Cetus Corporation, a biotechnology company, and a Clinical Instructor at the
University of California at San Francisco. Dr. Daifuku is board-certified in
internal medicine and, from 1987 to 1990, completed his fellowship in infectious
disease at the UCLA Center for Health Sciences. Dr. Daifuku received his B.A. in
biology from Boston University, his M.S. in Environmental Health Sciences from
Harvard School of Public Health and his M.D. and Ph.D. in Epidemiology from the
University of Washington.
JAMES A. JOHNSON joined the Company in March 1994 as Vice President,
Finance, Chief Financial Officer, Treasurer and Secretary. He was employed by
Immunex from January 1988 to February 1994, initially as Director of Finance and
as Vice President, Finance beginning in February 1990. Mr. Johnson has served as
Treasurer of Targeted Genetics from its inception in 1989 to the present. From
November 1989 to January 1993, he also served as Treasurer and Assistant
Secretary of Receptech Corporation. He received his B.A. from the University of
Washington.
JEREMY CURNOCK COOK has been a director of the Company since 1995. Mr. Cook
is a director of Rothschild Asset Management Limited and has been responsible
for the Rothschild Bioscience Unit since 1987. Mr. Cook founded the
International Biochemicals Group in 1975, which he subsequently sold to Royal
Dutch Shell in 1985, remaining as Managing Director until 1987. He currently
serves on the board of directors of Cell Therapeutics Inc., Creative
BioMolecules Inc. and Ribozyme Pharmaceuticals Inc., as well as several public
and privately held companies outside the United States, including International
Biotechnology Trust plc ("IBT").
STEPHEN A. DUZAN has been a director of the Company since its inception in
1989. He is currently Chairman of the Board and Chief Executive Officer of Key
Computer Systems, Inc. He was a co-founder of Immunex, and served as its Chief
Executive Officer and as a director from its formation in 1981 until his
retirement in September 1993. He also served as President of Immunex from 1981
through 1990. He currently serves as a consultant to Immunex and is on the board
of directors of IBT, Ergo Science Corporation and a number of private companies
and nonprofit organizations.
JAMES D. GRANT has been a director of the Company since February 1993. He
is a business consultant in addition to serving as the Chairman of the Board of
T Cell Sciences, Inc., a biotechnology company ("T Cell"). Mr. Grant previously
served as Chairman and Chief Executive Officer of T Cell from 1986 until his
retirement in 1992. Previously, he was Vice President of CPC International,
Inc., a multinational food and industrial products company, from 1972 to 1986.
Mr. Grant served as Deputy Commissioner of the FDA from 1969 to 1972, and was
Vice Chairman of the Advisory Committee of the FDA from 1990 to 1991. Mr. Grant
currently serves on the board of directors of Biocompatibles, Ltd. (U.K.) and
IBT.
DONALD E. O'NEILL has been a director of the Company since November 1992.
From March 1971 to March 1991, he held various positions at Warner-Lambert
Company, a healthcare company, most recently as Executive Vice President,
Chairman of International Operations and as a director. He currently serves on
the board of directors of Alliance Pharmaceutical Corp., Cytogen Corporation,
Immunogen, Inc., New Jersey Resources Corporation, Scios Nova, Inc., MDL
Information Systems, Inc. and Fuisz Technologies.
AUSTIN M. LONG, III will be nominated by the Board of Directors to become a
director of the Company upon the closing of the RGene Acquisition. Mr. Long has
been the Director of Private Investments at the University of Texas since 1987.
MARTIN P. SUTTER will be nominated by the Board of Directors to become a
director of the Company upon the closing of the RGene Acquisition. Mr. Sutter
has been a General Partner of The Woodlands/Essex Management Partners, L.P., a
venture capital firm, since September 1994. He has also been the Managing
General Partner of The Woodlands Venture Partners, L.P. since October 1988. Mr.
Sutter is currently a member of the Biomedical Advisory Board of the Houston
Advanced Research Center, Chairman of the Board of Aronex and Zonagen, Inc. and
a director of LifeCell Corporation.
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<PAGE> 50
SCIENTIFIC ADVISORY BOARD
The Company has retained a group of scientific advisors to serve on its
Scientific Advisory Board. The Scientific Advisory Board provides Targeted
Genetics with specific expertise in areas of molecular biology, immunology, cell
biology and clinical medicine relevant to the product and technology development
efforts now underway at the Company. The Company's scientific advisors are Drs.
David Cosman, Philip Greenberg, A. Dusty Miller, Richard Palmiter and George
Stamatoyannopoulos. Upon completion of the RGene Acquisition, Drs. Leaf Huang
and Mien-Chie Hung are expected to join the Company's Scientific Advisory Board.
The Scientific Advisory Board meets bimonthly with the Company's scientific
personnel and management to discuss the Company's present research and
development activities and long-term strategies. The members of the Scientific
Advisory Board are employed by entities other than Targeted Genetics and may
have commitments to or consulting contracts with other entities that may limit
their availability to the Company. With the exception of Dr. Cosman, who is a
member of the Scientific Advisory Board in connection with the Company's
relationship with Immunex, each member of the Scientific Advisory Board has
agreed not to perform services for another person or entity that would create a
conflict of interest with the services provided to the Company, although there
can be no assurance that such a conflict will not arise. Under such agreements,
inventions or processes discovered by members of the Scientific Advisory Board
in their capacity as such will not, unless invented or discovered in the course
of providing consulting services to Targeted Genetics, including pursuant to the
collaborative agreements provided in this Prospectus, become the property of the
Company, but will remain the property of such members or their employers. See
"Business -- Research Collaborations and Licensing Agreements."
DR. COSMAN has been a member of the Scientific Advisory Board since 1995.
Since 1988, Dr. Cosman has been Vice President, Molecular Biology at Immunex. In
1980, Dr. Cosman received his Ph.D. in Microbiology from the Pennsylvania State
University College of Medicine.
DR. GREENBERG has been a member of the Scientific Advisory Board since
February 1992. He joined the University of Washington School of Medicine in
1976, and since 1988 has been a Professor of Immunology and Oncology. He has
been a member of the Hutchinson Center since 1976, where he has pioneered
techniques for adoptive immunotherapy as a cancer treatment. He has served on
various National Cancer Institute and NIH committees and study sections,
including the Clinical Cancer Program Project Review Committee, the Special
Study Section for the Biological Response Modifiers Program, the Immunobiology
Study Section and the U.S.-Japan Cancer Research Cooperation Program. He has
served as an editor for various journals, including Journal of Immunology,
Journal of the National Cancer Institute, Journal of Gene Therapy, Human Gene
Therapy and Therapeutic Immunology. Dr. Greenberg received his B.A. from
Washington University and his M.D. from the State University of New York.
DR. MILLER has been a member of the Scientific Advisory Board since
February 1992. He is a leading researcher in the field of retroviral vectors,
and has developed certain packaging cell lines utilized by the Company in its
gene therapy systems. Dr. Miller joined the Hutchinson Center in 1984, where he
is a full member of the Department of Molecular Medicine. He is also an
Affiliate Professor of Pathology at the University of Washington. The Hutchinson
Center has patented several of Dr. Miller's inventions. He currently serves on
the editorial boards of several journals, including Somatic Cell and Molecular
Genetics and Journal of Virology, and is an associate editor of Human Gene
Therapy. He is also a former member of the NIH Recombinant DNA Advisory
Committee. Dr. Miller received his B.S. from Brown University and his Ph.D. in
pharmacology from Stanford University.
DR. PALMITER has been a member of the Scientific Advisory Board since
February 1992. Since 1981, he has been a Professor of Biochemistry at the
University of Washington. Since 1976, Dr. Palmiter has also been an Investigator
at the Howard Hughes Medical Institute. Dr. Palmiter is a leading researcher on
gene regulation and expression. He is a Fellow of the American Association for
the Advancement of
49
<PAGE> 51
Science, a member of the National Academy of Sciences, and a member of the
American Academy of Arts and Sciences. He received his A.B. from Duke University
and his Ph.D. from Stanford University.
DR. STAMATOYANNOPOULOS has been a member of the Scientific Advisory Board
since February 1992. He is a leader in the field of hemoglobin gene regulation.
He has been a Professor of Medicine and Genetics at the University of Washington
since 1975 and has served as head of the Division of Medical Genetics,
Department of Medicine of the University of Washington. Dr. Stamatoyannopoulos
also currently serves as the Director of the Lucille P. Markey Molecular
Medicine Center. He is the past-president of the American Society of Hematology.
He has served on various NIH committees and international scientific panels. Dr.
Stamatoyannopoulos received his M.D. from the University of Athens, Greece.
DR. HUANG is currently a member of the RGene scientific advisory board and
has agreed to join the Company's Scientific Advisory Board upon completion of
the RGene Acquisition. He is a leader in the area of lipid-based gene delivery.
Dr. Huang is a Professor in the Department of Pharmaceutical Sciences and
Director of Liposome Vector Core, Pittsburgh Center for Human Gene Therapy at
the University of Pittsburgh. Dr. Huang has been affiliated with the University
of Pittsburgh since 1991. Dr. Huang was at the University of Tennessee from 1985
to 1991 and is a founder of RGene.
DR. HUNG is currently a member of the RGene scientific advisory board and
has agreed to join the Company's Scientific Advisory Board upon completion of
the RGene Acquisition. He is a leader in the fields of tumor biology and
oncogenes. Dr. Hung is Professor of Virology in the Department of Tumor Biology,
Section of Virology, at M.D. Anderson and Director of Breast Cancer Basic
Research. Dr. Hung has been affiliated with M.D. Anderson since 1986. He is one
of the original scientists involved in cloning the Her-2/neu oncogene and is a
founder of RGene.
With the exception of Dr. Cosman, each existing member of the Scientific
Advisory Board has been issued Common Stock in consideration for service to the
Company. Drs. Greenberg and Miller also receive annual consulting fees pursuant
to agreements with the Company. Upon completion of the RGene Acquisition, Drs.
Huang and Hung will also receive fees in connection with consulting agreements
that are to be entered into after completion of the RGene Acquisition.
DIRECTOR COMPENSATION
Directors who are employees of Targeted Genetics do not receive any fee for
their services as directors. Directors who are not employees of Targeted
Genetics are compensated pursuant to the Targeted Genetics Corporation Stock
Option Plan for Nonemployee Directors (the "Directors Plan"). Additionally,
nonemployee directors are reimbursed for travel expenses incurred in connection
with attendance at meetings. See "-- Benefit Plans -- Directors Plan."
COMMITTEES OF THE BOARD AND MEETINGS
Targeted Genetics has established standing committees of the Board,
including Audit and Compensation Committees. Each of these committees is
responsible to the full Board, and its activities are therefore subject to
approval of the Board. The functions performed by these committees can be
summarized as follows:
AUDIT COMMITTEE. The Audit Committee reviews the corporate accounting and
reporting practices, internal accounting controls, audit plans and results,
investment policies, and financial reports of Targeted Genetics in order to
ensure that Targeted Genetics' assets are appropriately safeguarded and to
ensure the quality and integrity of its financial records. Additionally, the
Audit Committee recommends to the Board the independent auditors to be retained
by Targeted Genetics. The original members of this committee during 1995 were
James D. Grant and Donald L. Murfin. After Mr. Murfin's resignation from the
Board, the Board appointed Donald E. O'Neill to fill the vacancy on the
committee. On October 11, 1995, Jeremy Curnock Cook was appointed to be the
third member of this committee.
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<PAGE> 52
COMPENSATION COMMITTEE. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors, officers and other
executives of Targeted Genetics. This committee also administers Targeted
Genetics' various incentive compensation and benefit plans, including stock
option plans, and recommends the establishment of policies relating to such
incentive compensation and benefit plans. The members of this committee are
Stephen A. Duzan, James D. Grant and Donald E. O'Neill.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth certain information with respect to
compensation paid by the Company for the fiscal year ended December 31, 1995 and
for the two prior fiscal years to (i) the Company's Chief Executive Officer and
(ii) the Company's most highly compensated executive officers whose salary and
bonus exceeded $100,000 for services performed during the fiscal year ended
December 31, 1995 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SHARES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- ----------------------------------- ----- --------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
H. Stewart Parker.................. 1995 $ 165,000 $ 41,250 39,186 $ 235
President and Chief Executive 1994 154,000 45,000 50,000 137
Officer 1993 140,000 -- -- 119
Barrie J. Carter, Ph.D............. 1995 140,000 28,000 26,982 6,018
Executive Vice President and 1994 132,550 30,000 40,000 5,975
Director of Research and 1993 120,500 -- -- 44,262
Development
Richard Daifuku, M.D., Ph.D. (2)... 1995 150,974 -- 40,000 65,303
Vice President, Clinical Affairs 1994 -- -- -- --
1993 -- -- -- --
James A. Johnson (3)............... 1995 128,000 19,200 25,038 103
Vice President, Finance, Chief 1994 102,500 -- 60,000 96
Financial Officer, Treasurer and 1993 -- -- -- --
Secretary
</TABLE>
- ------------------
(1) For Ms. Parker and Mr. Johnson, consists of excess life insurance premiums;
for Dr. Carter, consists of reimbursement for relocation expenses of $38,517
in 1993, extinguishment of debt associated with initial purchases of Common
Stock of $5,500 in each of 1993, 1994 and 1995, and excess life insurance
premiums of $245, $475 and $518 in 1993, 1994 and 1995, respectively; and
for Dr. Daifuku, consists of reimbursement for relocation expenses of
$53,079, extinguishment of debt associated with relocation costs of $12,000,
and excess life insurance premiums of $224.
(2) Dr. Daifuku began his employment with Targeted Genetics on January 23, 1995.
(3) Mr. Johnson began his employment with Targeted Genetics on March 1, 1994.
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<PAGE> 53
OPTION GRANTS
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1995 to the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
---------------------------------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) FISCAL YEAR(1)(2) ($/SHARE) DATE 5%($) 10%($)
- ---------------------------- ------------- ----------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
H. Stewart Parker........... 39,186 17.6% $4.00 1/27/2005 $ 98,575 $249,810
Barrie J. Carter, Ph.D. .... 26,982 12.1% 4.00 1/27/2005 67,875 172,009
Richard Daifuku, M.D.,
Ph.D. .................... 40,000 17.9% 4.00 1/27/2005 100,623 254,999
James A. Johnson............ 25,038 11.2% 4.00 1/27/2005 62,985 159,616
</TABLE>
- ------------------
(1) Options are granted at the fair market value on the date of grant and
generally vest over five years with 20% of each grant becoming exercisable
annually beginning on the first anniversary of the date of grant. Certain
changes in control of Targeted Genetics can trigger accelerated vesting of
stock options and rights to related payments.
(2) Options to purchase 223,237 shares of Common Stock were granted by the
Company to its employees during 1995.
(3) The dollar amounts under these columns are the result of calculations at
assumed rates of 5% and 10% and are not intended to forecast future
appreciation. No value will be realized if the stock price does not exceed
the exercise price of the options.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information as of December 31, 1995,
regarding options held by the Named Executive Officers. None of such individuals
exercised any options during the fiscal year ended December 31, 1995.
AGGREGATED FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Stewart Parker.............................. 34,000 95,186 $ 128,220 $ 170,353
Barrie J. Carter, Ph.D......................... 8,000 58,982 5,040 64,141
Richard Daifuku, M.D., Ph.D.................... -- 40,000 -- 65,200
James A. Johnson............................... 12,000 73,038 27,560 151,052
</TABLE>
- ------------------
(1) Represents the aggregate number of outstanding options multiplied by the
difference between $5.63 (the closing price of the Common Stock as reported
on the Nasdaq National Market on December 29, 1995) and the exercise price
of such options.
BENEFIT PLANS
1992 RESTATED STOCK OPTION PLAN
The Company's 1992 Restated Stock Option Plan (the "1992 Option Plan"),
which was amended and restated in March 1994, provides for the grant of options
to acquire a maximum of 1,400,000 shares of Common Stock. The Company's Board of
Directors has adopted a proposal, subject to approval by the Company's
shareholders at the 1996 annual shareholders meeting, to increase such option
pool to 2,000,000 shares of Common Stock. As of March 31, 1996, options to
purchase 61,300 shares of
52
<PAGE> 54
Common Stock granted under the 1992 Option Plan had been exercised, options to
purchase 1,138,014 shares of Common Stock were outstanding and options to
purchase 200,686 shares of Common Stock remained available for grant. The
outstanding options were held by 77 individuals and were exercisable at a
weighted average exercise price of $3.15 per share. Outstanding options to
purchase an aggregate of 683,129 shares were held by employees who are not
officers or directors of the Company.
The 1992 Option Plan permits the granting of incentive stock options
("ISOs") to employees or nonqualified stock options ("NSOs") to employees,
directors, officers, agents, consultants, advisors and independent contractors
(any such person, an "Optionee") at the discretion of the administrator of the
1992 Option Plan (the "Plan Administrator"). The Compensation Committee of the
Board of Directors is currently the Plan Administrator. Subject to the terms of
the 1992 Option Plan, the Plan Administrator determines the terms and conditions
of options granted under the 1992 Option Plan, including the exercise price. The
maximum number of shares with respect to which an option or options may be
granted to any Optionee in any taxable year may not exceed 200,000 shares.
Additionally, the 1992 Option Plan provides that the Plan Administrator must
establish an exercise price for ISOs that is not less than the fair market value
per share at the date of grant. Each option must expire within ten years of the
date of grant. However, if ISOs are granted to persons owning more than 10% of
the voting stock of the Company, the 1992 Option Plan provides that the exercise
price shall not be less than 110% of the fair market value per share on the date
of grant and that the ISOs' term shall not exceed five years. NSOs generally
expire ten years from the date of grant. Unless otherwise provided by the Plan
Administrator, options granted under the 1992 Option Plan vest at a rate of 20%
per year over a five-year period.
During an Optionee's lifetime, an option is exercisable only by the
Optionee and no option may be transferred by the Optionee other than by will or
the laws of descent and distribution or, in the case of NSOs, pursuant to a
qualified domestic relations order (as defined in the Internal Revenue Code of
1986, as amended); provided, however, that to the extent permitted by Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Plan Administrator may permit a recipient of an option to transfer such option
or designate, by giving written notice to the Plan Administrator, a person who
may exercise the option after such Optionee's death. An Optionee whose
relationship with the Company or any related corporation ceases for any reason
(other than termination for cause, death or total disability, as such terms are
defined in the 1992 Option Plan) may exercise, in the three-month period
following such cessation (unless such options terminate or expire sooner by
their terms), or such longer period as determined by the Plan Administrator,
that portion of the Optionee's options that is exercisable at the time of such
cessation. In the event the Optionee is terminated for cause, the options
terminate upon the Company's discovery of such cause. In the event the Optionee
dies or becomes totally disabled, the options vested as of the date of death or
total disability may be exercised prior to the earlier of the option's specified
expiration date or one year from the date of the Optionee's death or disability.
Unexercised options granted under the 1992 Option Plan terminate upon the
occurrence of certain events, including certain mergers. In a stock merger, the
options would convert into options to purchase shares of the other corporation
involved in the merger, unless the Company and such other corporation, in their
sole discretion, determine that such options shall terminate. The converted
options would continue to vest in accordance with the vesting requirements of
the 1992 Option Plan. Upon the occurrence of a consolidation, reorganization or
sale of assets of the Company other than a stock merger, Optionees may exercise
such options immediately prior to such transaction without regard to whether the
vesting requirements have been satisfied.
Shares subject to options granted under the 1992 Option Plan that have
lapsed or terminated may again be subject to options granted under the 1992
Option Plan. Furthermore, the Plan Administrator may offer to exchange new
options for existing options, with the shares subject to the existing options
being again available for grant under the 1992 Option Plan. Unless sooner
terminated by the Board of Directors, the 1992 Option Plan terminates on January
21, 2002.
53
<PAGE> 55
DIRECTORS PLAN
The Directors Plan was approved by the Board of Directors and by the
Company's shareholders in March 1994. An aggregate of 120,000 shares of Common
Stock may be issued under the Directors Plan. The Directors Plan provides for
automatic grants of NSOs to nonemployee directors of Targeted Genetics at an
exercise price equal to the fair market value per share on the date of grant. On
June 1, 1994, the effective date of the Directors Plan, an option to purchase
3,000 shares of Common Stock was automatically awarded to each nonemployee
director. In the future, each nonemployee director who is initially elected or
appointed to the Board will, upon such election or appointment, be automatically
granted an option to purchase 15,000 shares of Common Stock. In addition, the
Directors Plan provides for the annual grant of options to purchase 5,000 shares
of Common Stock to each continuing nonemployee director. Any options granted
after the effective date of the Directors Plan vest in three equal annual
installments beginning one year after the date of grant. The options that were
granted on the effective date of the Directors Plan became fully exercisable on
June 1, 1995, 12 months after such effective date. As of March 31, 1996, options
to purchase 39,000 shares of Common Stock had been granted under the Directors
Plan. Messrs. Duzan, Grant and O'Neill each received options in 1995 to purchase
5,000 shares of Common Stock. Mr. Cook received an option to purchase 15,000
shares of Common Stock upon his appointment to the Board in July 1995.
During a nonemployee director's lifetime, an option granted under the
Directors Plan may be exercised only by such optionee and is nontransferable
other than by will or the laws of descent and distribution; provided, however,
that to the extent permitted by Rule 16b-3 under the Exchange Act, the Plan
Administrator, which is currently the Board of Directors, may permit a recipient
of an NSO to designate, by giving written notice to the Plan Administrator, a
person who may exercise the option after such optionee's death. Options expire
within ten years of the date of grant or, if earlier, three months after a
nonemployee director's termination of service as a director or 12 months after a
nonemployee director's death.
Unexercised options granted under the Directors Plan terminate upon the
occurrence of certain events, including mergers. In a stock merger, the options
would convert into options to purchase shares of the other corporation involved
in the merger, unless Targeted Genetics and such other corporation, in their
sole discretion, determine that such options shall terminate. Optionees may
exercise options immediately prior to the occurrence of a consolidation,
reorganization or sale of assets of Targeted Genetics other than a stock merger
without regard to whether the vesting requirements have been satisfied.
Unless sooner terminated by either the Board of Directors or the
shareholders of Targeted Genetics, the Directors Plan will terminate on March 2,
2004.
54
<PAGE> 56
CERTAIN TRANSACTIONS
Targeted Genetics was formed in 1989 as a subsidiary of Immunex, a
biotechnology company that develops immunoregulatory proteins as therapeutics.
Immunex owns 2,613,122 shares of Targeted Genetics' Common Stock.
Subject to availability of resources, Immunex has agreed to provide certain
services to Targeted Genetics in areas such as immunology, clinical and
regulatory affairs, quality control, administration and consulting by specific
Immunex employees. Targeted Genetics reimburses Immunex for these services on a
fully burdened cost basis. During the years ended December 31, 1994 and 1995,
Targeted Genetics incurred expenses of $83,915 and $29,249, respectively, for
such services.
Between July 13, 1995 and July 17, 1995, Targeted Genetics issued an
aggregate of 830,598 units (the "Units"), consisting of four shares of Common
Stock and one warrant ("Warrant") to purchase one share of Common Stock, in a
self-managed public offering at a price of $15 per Unit. The Warrants are
convertible into shares of Common Stock. The purchasers of the Units included,
among others, the following greater-than-5% shareholders of the Company:
<TABLE>
<CAPTION>
NO. OF
NAME UNITS
------------------------------------- ------
<S> <C>
International Biotechnology Trust plc................................... 300,000
State of Wisconsin Investment Board..................................... 100,000
T. Rowe Price Associates, Inc........................................... 135,000
Oracle Partners, L.P. and affiliates.................................... 100,000
</TABLE>
See "Description of Capital Stock -- Warrants -- 1995 Unit Offering."
55
<PAGE> 57
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 31, 1996, certain information
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by Targeted Genetics to own beneficially more than 5% of the shares
of Common Stock, (ii) each director and director nominee of Targeted Genetics,
(iii) each of the Named Executive Officers, and (iv) all directors and executive
officers of Targeted Genetics as a group. Except as otherwise noted, the
information in the following table does not reflect the issuance of shares of
Common Stock in connection with the RGene Acquisition. In addition, except as
otherwise noted, Targeted Genetics believes that the beneficial owners of the
shares of Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
NUMBER OF OWNED
SHARES ----------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING(1)
- ------------------------------------------------------------ ------------ -------- -----------
<S> <C> <C> <C>
5% OWNERS:
Immunex Corporation....................................... 2,613,122 21.1% 13.4%
51 University Street
Seattle, WA 98101
International Biotechnology Trust plc..................... 1,500,000(2) 11.8% 7.6%
c/o Rothschild Asset Management Limited
Five Arrows House
St. Swithin's Lane
London, EC4N 8NR England
State of Wisconsin Investment Board....................... 1,112,500(3) 8.9% 5.7%
121 East Wilson Street
P.O. Box 7842
Madison, WI 53707
T. Rowe Price Associates, Inc. ........................... 670,000(4) 5.3% 3.4%
100 East Pratt Street
Baltimore, MD 21202
Oracle Partners, L.P. and affiliates...................... 651,000(5) 5.2% 3.3%
712 Fifth Avenue, 45th Floor
New York, NY 10019
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS:
H. Stewart Parker......................................... 178,502(6) 1.4% *
Barrie J. Carter, Ph.D. .................................. 140,061(7) 1.1% *
Richard Daifuku, M.D., Ph.D. ............................. 8,000(8) * *
James A. Johnson.......................................... 28,008(9) * *
Jeremy Curnock Cook....................................... 1,500,000(2) 11.8% 7.6%
Stephen A. Duzan.......................................... 16,130(10) * *
James D. Grant............................................ 10,200(8) * *
Donald E. O'Neill......................................... 20,200(11) * *
Austin M. Long, III....................................... -- -- 1.1%(12)
Martin P. Sutter.......................................... -- -- 8.1%(13)
All Directors, Director Nominees and Executive Officers as
a group (10 persons)................................... 1,901,101(14) 14.8% 18.5%(15)
</TABLE>
- ------------------
* Less than 1%.
(1) Assumes the issuance of 3,636,634 shares of Common Stock in the RGene
Acquisition.
(2) Represents 1,200,000 shares of Common Stock and warrants to purchase
300,000 shares of Common Stock owned by International Biotechnology Trust
plc ("IBT"), an investment trust the shares of which are traded on the
London Stock Exchange. Mr. Cook is a managing director of Rothschild Asset
Management Limited, the investment manager and
56
<PAGE> 58
secretary of IBT, and thereby has power to direct IBT's investments. Mr. Cook
disclaims beneficial ownership of the securities owned by IBT.
(3) Includes warrants to purchase 100,000 shares of Common Stock.
(4) Represents 535,000 shares of Common Stock and warrants to purchase 135,000
shares of Common Stock owned by T. Rowe Price New Horizons Fund, Inc., for
which T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or sole power to
vote the securities. Although for purposes of the Exchange Act Price
Associates is deemed to be a beneficial owner of such securities, Price
Associates expressly disclaims that it is, in fact, the beneficial owner of
such securities.
(5) Represents 551,000 shares of Common Stock and warrants to purchase 100,000
shares of Common Stock owned by Oracle Partners, L.P. and affiliated
investment limited partnerships, of which Larry N. Feinberg is the managing
general partner and over which Mr. Feinberg has investment discretion. Mr.
Feinberg has the power to vote, direct the vote of, dispose of or direct
the disposition of all such securities.
(6) Includes warrants to purchase 3,333 shares of Common Stock and 41,837
shares subject to options that may be exercised within 60 days.
(7) Includes warrants to purchase 1,333 shares of Common Stock and 13,396
shares subject to options that may be exercised within 60 days.
(8) Represents shares subject to options that may be exercised within 60 days.
(9) Includes warrants to purchase 600 shares of Common Stock and 25,008 shares
subject to options that may be exercised within 60 days.
(10) Includes warrants to purchase 1,666 shares of Common Stock and 7,800 shares
subject to options that may be exercised within 60 days.
(11) Includes warrants to purchase 2,000 shares of Common Stock and 10,200
shares subject to options that may be exercised within 60 days.
(12) Represents 208,557 shares of Common Stock to be issued to the University of
Texas Board of Regents in the RGene Acquisition. Mr. Long is the Director
of Private Investments at the University of Texas and thereby has power to
vote the securities. Although for purposes of the Exchange Act Mr. Long is
deemed to be the beneficial owner of such securities, Mr. Long expressly
disclaims that he is, in fact, the beneficial owner of such securities.
(13) Represents 444,421 shares of Common Stock to be issued to Aronex in the
RGene Acquisition, 370,031 shares of Common Stock to be issued to The
Woodlands Venture Fund, L.P. in the RGene Acquisition and 771,280 shares of
Common Stock to be issued to The Woodlands/Essex Venture Partners III, L.P.
in the RGene Acquisition. Mr. Sutter is Chairman of the Board of Aronex. In
addition, he is (i) a General Partner of The Woodlands/Essex Management
Partners, L.P., which is the General Partner of The Woodlands/Essex Venture
Partners III, L.P., and (ii) the Managing General Partner of The Woodlands
Venture Partners, L.P., which is the General Partner of The Woodlands
Venture Fund, L.P., and thereby has the power to vote the securities.
Although for purposes of the Exchange Act Mr. Sutter is deemed to be the
beneficial owner of such securities, Mr. Sutter expressly disclaims that he
is, in fact, the beneficial owner of such securities.
(14) Includes 1,200,000 shares of Common Stock and warrants to purchase 300,000
shares of Common Stock owned by IBT, which are attributable to Mr. Cook;
also includes additional warrants to purchase 8,932 shares of Common Stock
and 116,441 shares subject to options that may be exercised within 60 days.
(15) Includes, in addition to the 1,901,101 shares of Common Stock listed in the
table, 208,557 shares of Common Stock to be issued to the University of
Texas Board of Regents in the RGene Acquisition, which are attributable to
Mr. Long, and 444,421 shares of Common Stock to be issued to Aronex in the
RGene Acquisition, 370,031 shares of Common Stock to be issued to The
Woodlands Venture Fund, L.P. in the RGene Acquisition and 771,280 shares of
Common Stock to be issued to The Woodlands/Essex Venture Partners III, L.P.
in the RGene Acquisition, all of which are attributable to Mr. Sutter. See
footnotes (12) and (13) above.
57
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares
of Common Stock, par value $.01 per share, and 6,000,000 shares of Preferred
Stock, par value $.01 per share. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Articles of Incorporation and the Bylaws of the Company, copies of which are
filed as exhibits to the Registration Statement of which this Prospectus forms a
part.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders and are not entitled to cumulative
voting rights with respect to the election of directors. Holders of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor, subject to preferences
that may be applicable to any outstanding Preferred Stock. In the event of
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. All the outstanding shares of Common Stock are, and all
shares of Common Stock to be outstanding upon completion of the Offering will
be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 6,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. The issuance
of Preferred Stock could adversely affect the voting power of holders of Common
Stock and could have the effect of delaying, deferring or preventing a change in
control of the Company. No shares of Preferred Stock are currently outstanding.
The Company has no present plans to issue any shares of Preferred Stock.
WARRANTS
Equipment Financing Transactions
In conjunction with equipment financing transactions completed in December
1993 through October 1995, the Company issued warrants (the "Equipment Financing
Warrants") to purchase an aggregate of 62,016 shares of Common Stock at an
average exercise price of $6.00 per share, expiring through December 2003. The
Equipment Financing Warrants may be exercised for cash or on a cashless basis,
whereby the holder tenders the number of shares necessary to satisfy the
exercise price. Holders of the Equipment Financing Warrants are entitled to
certain rights with respect to registration under the Securities Act of the
shares of Common Stock issuable upon exercise of such warrants. See
"-- Registration Rights."
1995 Unit Offering
In July 1995, the Company completed a self-managed public offering of
830,598 Units, consisting of four shares of Common Stock and one Warrant. The
Warrants were issued under a Warrant Agreement dated July 7, 1995 between
Targeted Genetics and First Interstate Bank of Washington, N.A., as Warrant
Agent. The Warrants were immediately exercisable upon issuance at an exercise
price of $4.68 per share (the "Exercise Price") and will expire on July 31,
1997. From and after the sale and issuance of the Units, the Warrants and the
shares of Common Stock traded separately. As of May 24, 1996, 769,598 of such
Warrants were outstanding.
58
<PAGE> 60
In case of any reclassification or capital reorganization, or in case of
any consolidation or merger of Targeted Genetics with or into another
corporation or any sale, lease or transfer to another corporation of all or
substantially all the assets of Targeted Genetics, the holder of each
outstanding Warrant will have the right, upon subsequent exercise of a Warrant,
to purchase the kind and amount of shares of stock or other securities and
property receivable upon such reclassification, capital reorganization,
consolidation, merger, sale, lease or transfer by a holder of the number of
shares of Common Stock that would have been received upon the exercise of such
Warrant immediately prior thereto, and the Exercise Price will be appropriately
adjusted. The Warrants do not confer upon the holder any voting or preemptive
rights, or any other rights as a shareholder of Targeted Genetics.
CERTAIN CHARTER PROVISIONS AND WASHINGTON LAW
The Articles of Incorporation and Bylaws of the Company include provisions
that may have the effect of impeding a hostile takeover of the Company. The
Articles of Incorporation and Bylaws provide for a classified Board of Directors
consisting of three classes of directors. The Company's directors may be removed
only for cause by shareholders holding not less than two-thirds of the shares
entitled to elect the director or directors whose removal is sought. The
Articles of Incorporation and Bylaws direct that special meetings of the
Company's shareholders may be called only by the Board of Directors, the
Chairman of the Board or the President of the Company or at the direction of 30%
of the Company's shareholders. The Bylaws require that shareholder nominations
for directors to be elected to the Board of Directors be made pursuant to timely
notice and in proper written form to the Secretary of the Company. To be timely,
the shareholders' notice must be received by the Company not less than 60 or
more than 90 days prior to an annual meeting (or within 10 days of the mailing
by the Company of notice of the date of the annual meeting if such Company
notice is made less than 60 days prior to the date of the annual meeting) and no
more than seven days following the date on which notice is given to shareholders
if the election is to take place at a special meeting. There are also specific
content requirements for such notice. Requests to present matters to the
shareholders at an annual meeting must also be received by the Company not less
than 60 or more than 90 days prior to the meeting, and such requests must meet
specific content requirements.
These provisions, as well as the availability of Preferred Stock for
issuance without shareholder approval, may have the effect of lengthening the
time required for a person to acquire control of the Company through a proxy
contest or the election of a majority of the Board of Directors, and may deter
any potential unfriendly offers or other efforts to obtain control of the
Company, thereby possibly depriving the Company's shareholders of opportunities
to realize a premium for their Common Stock, and could make removal of incumbent
directors more difficult. At the same time, these provisions may have the effect
of inducing any persons seeking control of the Company to negotiate terms
acceptable to the Board of Directors.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. First, subject to certain
exceptions, including approval of the transaction by a majority of the
corporation's disinterested directors or the satisfaction of a statutory "fair
price" provision, a merger, sale of assets or liquidation of a corporation
involving an "Interested Shareholder" (defined as a person who owns beneficially
20% or more of the corporation's outstanding voting securities) must be approved
by the holders of two-thirds of the corporation's outstanding voting securities,
other than those of the Interested Shareholder. A corporation may, in its
articles of incorporation, exempt itself from coverage of this provision. The
Company has not done so. Washington law also prohibits a corporation, with
certain exceptions, from engaging in certain significant business transactions
with a person or group of persons that holds 10% or more of the Company's
outstanding voting securities for a period of five years after such acquisition.
The prohibited transactions include, among others, a merger with, disposition of
assets to, or issuance or redemption of stock to or from, such person or group
of persons or allowing such person or group of persons to receive any
disproportionate benefit as a shareholder. A corporation may not "opt out" of
this statute. These
59
<PAGE> 61
provisions may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Risk Factors -- Concentration of Ownership and
Antitakeover Considerations."
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The Company's Bylaws contain provisions indemnifying the Company's
directors and officers to the fullest extent permitted by law. The Company has
also entered into indemnity agreements pursuant to which it has agreed, among
other things, to indemnify its directors and executive officers against certain
liabilities. In addition, the Articles of Incorporation contain provisions
limiting the personal liability of directors to the Company or its shareholders
to the fullest extent permitted by law.
REGISTRATION RIGHTS
The holders of an aggregate of 7,505,155 shares of Common Stock are
entitled to certain registration rights as set forth below:
RGene Acquisition
Under the terms of the Merger Agreement, the RGene stockholders are
entitled to certain registration rights with respect to 3,636,364 shares of
Common Stock issuable to such stockholders upon the closing of the merger, as
well as up to $5 million of Common Stock issuable in connection with the
achievement of certain milestones. Subject to certain limitations, the Company
must register 50% of such shares under the Securities Act prior to the one-year
anniversary of the closing of the RGene Acquisition. The Company has agreed to
cause such registration to remain effective for a period ending 24 months after
completion of the RGene Acquisition. See "RGene Acquisition."
Registration Rights Agreement
Pursuant to the terms of a Registration Rights Agreement, dated as of April
27, 1992 (the "Registration Rights Agreement"), between the Company and certain
of the Company's shareholders, including Immunex, such shareholders are entitled
to certain registration rights with respect to 3,806,775 shares of Common Stock
(the "Registrable Securities"). Subject to certain limitations in the
Registration Rights Agreement, the holders of at least 30% of the Registrable
Securities, and their permitted transferees, may require that the Company, on
two occasions, use its best efforts to register such securities for public
resale. In addition, if the Company registers any shares of Common Stock either
for its own account or for the accounts of other holders of Common Stock, the
parties to the Registration Rights Agreement are entitled to include their
Registrable Securities in such registration, subject to the ability of any
underwriters to limit the number of shares included in the offering to no less
than 20% of such offering. The parties to the Registration Rights Agreement also
may require the Company, not more than once in any 12-month period, to register
all or a portion of their Registrable Securities on Form S-3, provided, among
other things, that the proposed aggregate selling price is at least $1 million.
Of the Registrable Securities, 1,193,653 shares are available for immediate
sale in the public market under Rule 144(k). The 2,613,122 shares of Common
Stock held by Immunex will be available for sale in the public market 91 days
after the date of this Prospectus, subject to the limitations provided in Rule
144.
Equipment Financing Warrants
The holders of the Equipment Financing Warrants are entitled to certain
registration rights with respect to 62,016 shares issuable upon exercise of such
warrants. Generally, such registration rights are comparable to the rights
provided to holders of the Registrable Securities under the Registration Rights
Agreement, provided that the holders of the Equipment Financing Warrants have no
demand registration rights and are entitled to include their securities in a
registration statement if and only to the extent that the inclusion of such
securities would not reduce the amount of Registrable Securities included in
such offering.
As of May 24, 1996, Equipment Financing Warrants exercisable for the
purchase of 40,016 shares of Common Stock had an exercise price at or below the
closing sales price for the Common Stock as reported by Nasdaq on such date.
60
<PAGE> 62
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom Vector Securities
International, Inc. ("Vector Securities") and Genesis Merchant Group Securities
are acting as representatives (the "Representatives"), have severally agreed to
purchase, subject to the terms and conditions of the Underwriting Agreement, and
the Company has agreed to sell to the Underwriters, the following respective
number of shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Vector Securities International, Inc......................................
Genesis Merchant Group Securities.........................................
---------
Total..................................................................... 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering of the shares of Common Stock, the offering
price and other selling terms may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period after the date of this Prospectus, to purchase up
to an additional 525,000 shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering. To the extent
such option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
listed in the table.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereto.
Vector Securities was retained by the Company to render a fairness opinion
to the Targeted Genetics Board of Directors in connection with the RGene
Acquisition, for which it received customary fees.
61
<PAGE> 63
The executive officers, directors and certain other shareholders of the
Company have agreed that they will not, without the prior written consent of
Vector Securities International, Inc., offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock or securities exchangeable for or convertible into shares
of Common Stock owned by them for a period of 90 days after the date of this
Prospectus. The Company has agreed that it will not, without the prior written
consent of Vector Securities International, Inc., offer, sell or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable for or convertible into shares of Common
Stock for a period of 90 days after the date of this Prospectus, except that the
Company may grant additional options under its stock option plans, or issue
shares upon the exercise of outstanding stock options or warrants.
In connection with the Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on the Nasdaq
National Market may engage in passive market-making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Exchange Act during the two-business-day period before commencement of sales in
the Offering. The passive market-making transactions must comply with applicable
volume and price limits and be identified as such. In general, a passive market
maker may display its bid at a price not in excess of the highest independent
bid for the security. If all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded. Net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market-making average
daily trading volume in the Common Stock during a price period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail, and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Perkins Coie, Seattle, Washington. Certain legal matters will
be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom,
Chicago, Illinois.
EXPERTS
The financial statements of Targeted Genetics Corporation at December 31,
1993, 1994 and 1995 appearing in this Prospectus and the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of RGene Therapeutics, Inc. appearing in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy or information statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy or information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth
62
<PAGE> 64
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, reports,
proxy or information statements and other information concerning the Company may
be inspected at the offices of Nasdaq, 1735 K Street, N.W., Washington, D.C.
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statement. Statements contained herein
concerning certain provisions of documents are necessarily summaries of such
documents and each such statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
63
<PAGE> 65
INTENTIONALLY LEFT BLANK
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TARGETED GENETICS CORPORATION
Report of Ernst & Young LLP, Independent Auditors.................................... F-2
Balance Sheets....................................................................... F-3
Statements of Operations............................................................. F-4
Statements of Shareholders' Equity................................................... F-5
Statements of Cash Flows............................................................. F-6
Notes to Financial Statements........................................................ F-7
RGENE THERAPEUTICS, INC.
Report of Independent Public Accountants............................................. F-13
Balance Sheets....................................................................... F-14
Statements of Operations............................................................. F-15
Statements of Stockholders' Equity................................................... F-16
Statements of Cash Flows............................................................. F-17
Notes to Financial Statements........................................................ F-18
</TABLE>
F-1
<PAGE> 67
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Targeted Genetics Corporation
We have audited the accompanying balance sheets of Targeted Genetics
Corporation (a development stage company) as of December 31, 1994 and 1995, and
the related statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995 and the period
from March 9, 1989 (date of inception) through December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Targeted Genetics
Corporation (a development stage company) at December 31, 1994 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the period from March 9, 1989 (date of
inception) through December 31, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
February 9, 1996, except for Note 9
as to which the date is April 16, 1996
F-2
<PAGE> 68
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 2,306,979 $ 2,154,814 $ 1,526,073
Securities available for sale....................... 9,167,808 12,287,748 10,352,493
Deposits, prepaid expenses and other................ 254,225 196,150 157,800
------------ ------------ ------------
Total current assets............................. 11,729,012 14,638,712 12,036,366
Property, plant and equipment, net.................... 5,038,812 4,959,502 4,990,602
Other assets.......................................... 278,057 362,246 354,176
------------ ------------ ------------
$ 17,045,881 $ 19,960,460 $ 17,381,144
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 704,804 $ 564,403 $ 402,510
Accrued payroll and other liabilities............... 261,562 336,713 229,447
Current portion of long-term obligations............ 584,371 881,210 995,919
------------ ------------ ------------
Total current liabilities........................ 1,550,737 1,782,326 1,627,876
Long-term obligations................................. 2,252,999 2,405,298 2,633,765
Commitments
Shareholders' equity:
Preferred stock, $.01 par value, 6,000,000 shares
authorized, none outstanding..................... -- -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 8,958,831, 12,317,183 and 12,397,484
outstanding at December 31, 1994 and 1995, and
March 31, 1996, respectively..................... 31,024,884 43,295,436 43,605,225
Unrealized gains (losses) on securities available
for sale......................................... (116,104) 66,319 (5,064)
Deficit accumulated during development stage........ (17,666,635) (27,588,919) (30,480,658)
------------ ------------ ------------
Total shareholders' equity....................... 13,242,145 15,772,836 13,119,503
------------ ------------ ------------
$ 17,045,881 $ 19,960,460 $ 17,381,144
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 69
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MARCH 9, MARCH 9,
1989 1989
(DATE OF (DATE OF
INCEPTION) THREE MONTHS ENDED INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH MARCH 31, THROUGH
------------------------------------------- DECEMBER 31, --------------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues:
Investment
income........ $ 412,076 $ 448,822 $ 667,835 $ 2,077,282 $ 132,537 $ 183,536 $ 2,260,818
Other........... -- -- 174,625 174,625 -- -- 174,625
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total
revenues.... 412,076 448,822 842,460 2,251,907 132,537 183,536 2,435,443
----------- ----------- ----------- ------------ ----------- ----------- ------------
Expenses:
Research and
development... 4,261,154 6,763,549 8,194,913 22,771,120 1,978,316 2,366,032 25,137,152
General and
administrative... 1,216,434 1,891,947 2,267,516 6,574,720 701,013 616,862 7,191,582
Interest........ -- 192,671 302,315 494,986 74,840 92,381 587,367
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total
expenses.... 5,477,588 8,848,167 10,764,744 29,840,826 2,754,169 3,075,275 32,916,101
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss.......... $(5,065,512) $(8,399,345) $(9,922,284) $(27,588,919) $(2,621,632) $(2,891,739) $(30,480,658)
========== ========== ========== =========== ========== ========== ===========
Net loss per
share........... $ (3.73) $ (1.40) $ (0.94) $ (0.29) $ (0.23)
========== ========== ========== ========== ==========
Shares used in
computation of
net loss per
share........... 1,359,840 6,005,141 10,532,950 8,966,194 12,342,748
========== ========== ========== ========== ==========
Pro forma,
assuming
conversion of
preferred stock
to common stock:
Net loss per
share......... $ (0.73) $ (1.03) $ (0.94)
========== ========== ==========
Shares used in
computation of
net loss per
share......... 6,955,826 8,151,547 10,532,950
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 70
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM MARCH 9, 1989 (DATE OF INCEPTION) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS DEFICIT
(LOSSES) ON ACCUMULATED
ADVANCES SECURITIES DURING TOTAL
PREFERRED COMMON FROM AVAILABLE FOR DEVELOPMENT SHAREHOLDERS'
STOCK STOCK IMMUNEX SALE STAGE EQUITY
------------ ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net loss from March 9, 1989
(date of inception) through
December 31, 1991................. $ -- $ -- $ 2,807,316 $ -- $(2,807,316) $ --
Sale of 1,080,000 shares of common
stock........................... -- 27,600 -- -- -- 27,600
Issuance of 1,920,000 shares of
Series A convertible preferred
stock to Immunex in repayment of
advances........................ 2,807,316 -- (2,807,316) -- -- --
Sale of 3,675,986 shares of Series
B preferred stock, net of
issuance costs of $772,415...... 16,597,399 -- -- -- -- 16,597,399
Issuance of 120,000 shares of
common stock as compensation.... -- 66,000 -- -- -- 66,000
Net loss -- 1992.................. -- -- -- -- (1,394,462) (1,394,462)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1992........ 19,404,715 93,600 -- -- (4,201,778) 15,296,537
Net loss -- 1993.................. -- -- -- -- (5,065,512) (5,065,512)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1993........ 19,404,715 93,600 -- -- (9,267,290) 10,231,025
Sale of 2,154,345 shares of common
stock in initial public
offering, net of issuance costs
of $1,404,056................... -- 11,522,014 -- -- -- 11,522,014
Conversion of Series A and B
preferred stock to 5,595,986
shares of common stock.......... (19,404,715) 19,404,715 -- -- -- --
Exercise of stock options......... -- 4,555 -- -- -- 4,555
Unrealized losses on securities
available for sale.............. -- -- -- (116,104) -- (116,104)
Net loss -- 1994.................. -- -- -- -- (8,399,345) (8,399,345)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1994........ -- 31,024,884 -- (116,104) (17,666,635) 13,242,145
Sale of 3,322,392 shares of common
stock and 830,598 warrants, net
of issuance costs of $214,509... -- 12,244,461 -- -- -- 12,244,461
Exercise of stock options......... -- 26,091 -- -- -- 26,091
Unrealized gains on securities
available for sale.............. -- -- -- 182,423 -- 182,423
Net loss -- 1995.................. -- -- -- -- (9,922,284) (9,922,284)
------------ ----------- ----------- --------- ------------ -----------
Balance at December 31, 1995........ -- 43,295,436 -- 66,319 (27,588,919) 15,772,836
Exercise of stock options
(unaudited)..................... -- 11,809 -- -- -- 11,809
Exercise of 61,000 warrants
(unaudited)..................... -- 285,480 -- -- -- 285,480
Expenses paid with 2,461 shares of
common stock (unaudited)........ -- 12,500 -- -- -- 12,500
Unrealized loss on securities
available for sale
(unaudited)..................... -- -- -- (71,383) -- (71,383)
Net loss -- 1996 (unaudited)...... -- -- -- -- (2,891,739) (2,891,739)
------------ ----------- ----------- --------- ------------ -----------
Balance at March 31, 1996
(unaudited)....................... $ -- $43,605,225 $ -- $ (5,064) $(30,480,658) $13,119,503
============ =========== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 71
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9, 1989
(DATE OF PERIOD FROM
INCEPTION) MARCH 9, 1989
YEAR ENDED DECEMBER 31, THROUGH THREE MONTHS ENDED (DATE OF
----------------------------------------- DECEMBER 31, MARCH 31, INCEPTION)
1993 1994 1995 1995 ------------------------- THROUGH
----------- ------------ ------------ ------------- 1995 1996 MARCH 31,
----------- ----------- 1996
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss................ $(5,065,512) $ (8,399,345) $ (9,922,284) $(27,588,919) $(2,621,632) $(2,891,739) $(30,480,658)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Expenses paid with
common stock........ -- -- -- 66,000 -- 12,500 78,500
Depreciation and
amortization........ 411,652 1,264,848 1,484,549 3,162,881 340,023 446,855 3,609,736
(Increase) decrease in
deposits, prepaid
expenses and
other............... (8,610) (161,827) (49,865) (295,290) (26,850) 3,350 (291,940)
(Increase) decrease in
accrued interest on
securities available
for sale............ 124,180 (29,750) (9,287) (82,928) (14,931) 11,038 (71,890)
Increase (decrease) in
current
liabilities......... 133,735 88,493 (17,955) 769,991 (114,941) (184,562) 585,429
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash used in
operating
activities...... (4,404,555) (7,237,581) (8,514,842) (23,968,265) (2,438,331) (2,602,558) (26,570,823)
Investing activities:
Purchases of property,
plant and equipment... (4,546,933) (885,604) (1,335,876) (7,170,597) (272,764) (519,482) (7,690,079)
Purchases of securities
available for sale.... (8,770,199) (12,990,428) (13,047,852) (55,090,522) (1,972,886) (1,513,869) (56,604,391)
Sales of securities
available for sale.... 14,049,110 9,369,127 10,119,622 42,952,020 2,838,299 3,366,703 46,318,723
Increase in other
assets................ (199,749) (177,500) (76,500) (574,179) (30,000) -- (574,179)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash provided
by (used in)
investing
activities...... 532,229 (4,684,405) (4,340,606) (19,883,278) 562,649 1,333,352 (18,549,926)
Financing activities:
Advances from Immunex... -- -- -- 2,807,316 -- -- 2,807,316
Net proceeds from sale
of capital stock...... -- 11,526,569 12,270,552 40,422,120 8,295 297,289 40,719,409
Proceeds from equipment
financing............. 806,114 1,950,391 1,089,789 3,846,294 237,459 554,063 4,400,357
Payments under capital
leases and installment
loans................. -- (412,315) (657,058) (1,069,373) (140,826) (210,887) (1,280,260)
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net cash provided
by financing
activities...... 806,114 13,064,645 12,703,283 46,006,357 104,928 640,465 46,646,822
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
cash and cash
equivalents............. (3,066,212) 1,142,659 (152,165) 2,154,814 (1,770,754) (628,741) 1,526,073
Cash and cash equivalents,
beginning of period..... 4,230,532 1,164,320 2,306,979 -- 2,306,979 2,154,814 --
----------- ------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents,
end of period........... $ 1,164,320 $ 2,306,979 $ 2,154,814 $ 2,154,814 $ 536,225 $ 1,526,073 $ 1,526,073
=========== ============ ============ ============ ============ ============ ============
Supplemental disclosures
of noncash investing and
financing activities:
Deferred sales tax on
leasehold improvements
and equipment......... $ 363,933 $ 114,589 $ 16,407 $ 509,588 $ 9,256 $ -- $ 509,588
=========== ============ ============ ============ ============ ============ ============
Preferred stock issued
to Immunex in payment
of advances........... $ -- $ -- $ -- $ 2,807,316 $ -- $ -- $ 2,807,316
=========== ============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 72
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. ORGANIZATION
Targeted Genetics Corporation (the "Company") is developing gene therapy
products for the treatment of certain acquired and inherited diseases. As a
development stage company, the Company has devoted substantially all of its
efforts to date to conducting research and development activities, recruiting
personnel and raising capital.
The Company was incorporated in the state of Washington in March 1989 as a
wholly owned subsidiary of Immunex Corporation ("Immunex"). In February 1992,
the Company issued 1,920,000 shares of Series A convertible preferred stock to
Immunex in exchange for the grant of a license to certain technology, settlement
of advances from Immunex and cancellation of 40,000 shares of common stock
issued by the Company to Immunex on March 28, 1989. At December 31, 1995,
Immunex held 21% of the outstanding stock of the Company.
The Company estimates that, at its current rate of expenditures, its
existing cash, cash equivalents and securities available for sale will be
sufficient to meet operating requirements through the end of 1996. Accordingly,
the Company is pursuing one or more collaborative arrangements with corporate
partners, with the intent of generating both research and development funding
and equity capital. The Company may also elect to seek additional equity capital
via the public or private markets, depending on market conditions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The financial information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Operating results for the March 31,
1996 period are not necessarily indicative of the results that may be expected
for the entire year.
Cash Equivalents
The Company considers all short-term investments with a purchased maturity
of three months or less to be cash equivalents. Cash equivalents, valued at cost
which approximates market, consist principally of money market accounts and
short-term government obligations.
Securities Available for Sale
Securities available for sale consist primarily of corporate debt
securities and U.S. Government notes, all of which mature within two years.
Management currently classifies the Company's entire investment portfolio, other
than cash equivalents, as securities available for sale. Such securities are
stated at market value, with the unrealized gains and losses included in
shareholders' equity. The cost of debt securities in this category is adjusted
for amortization of premiums and accretion of discounts to maturity, which are
included in investment income. Realized gains and losses and declines in value
judged to be other than temporary on securities available for sale are also
included in investment income. The cost of securities sold is calculated using
the specific identification method.
F-7
<PAGE> 73
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of furniture
and equipment is provided using the straight-line method over the assets'
estimated useful lives, ranging from five to seven years. Furniture and
equipment under capitalized leases are amortized over the life of the lease.
Leasehold improvements are amortized over the life of the improvements or the
term of the lease, whichever is shorter.
Net Loss Per Share
Net loss per share is computed based upon the weighted average number of
common shares outstanding during the period. Common equivalent shares are not
included in the computation because the effect of their inclusion would be
antidilutive, except that, in accordance with Securities and Exchange Commission
requirements, common equivalent shares issued during the twelve months prior to
the Company's initial public offering have been included in the calculation as
if they were outstanding for all periods through March 31, 1994.
Upon completion of the Company's initial public offering, all 5,595,986
shares of preferred stock converted to common stock. Unaudited pro forma net
loss per share reflects the assumption that all such shares had converted to
common stock as of the beginning of the periods reported.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123 is effective for fiscal years beginning after
December 15, 1995. Under Statement No. 123, stock-based compensation expense is
measured using either the intrinsic value method, as prescribed by Accounting
Principles Board Opinion No. 25, or the fair value method described in Statement
No. 123. Companies choosing the intrinsic value method will be required to
disclose the pro forma impact of the fair value method on net income and
earnings per share. The Company plans to implement Statement No. 123 in 1996
using the intrinsic value method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
F-8
<PAGE> 74
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1994:
U.S. corporate securities............ $ 3,349,999 $ 2,961 $ 34,653 $ 3,318,307
U.S. Government obligations.......... 5,933,913 -- 84,412 5,849,501
---------- ------- -------- -----------
$ 9,283,912 $ 2,961 $119,065 $ 9,167,808
========== ======= ======== ===========
December 31, 1995:
U.S. corporate securities............ $ 2,473,549 $ 8,803 $ -- $ 2,482,352
U.S. Government obligations.......... 9,747,880 57,516 -- 9,805,396
---------- ------- -------- -----------
$12,221,429 $ 66,319 $ -- $12,287,748
========== ======= ======== ===========
March 31, 1996:
U.S. corporate securities............ $ 2,398,777 $ 3,584 $ 191 $ 2,402,170
U.S. Government obligations.......... 7,958,780 7,714 16,171 7,950,323
---------- ------- -------- -----------
$10,357,557 $ 11,298 $ 16,362 $10,352,493
========== ======= ======== ===========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$15,901 and $25,047, and the gross realized losses totaled $55,576 and $48,013
in 1994 and 1995, respectively. For the three months ended March 31, 1995, the
gross realized gains on sales of securities available for sale totaled $18,158
and there were no gross realized losses.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment............................ $2,835,223 $3,862,632 $4,241,598
Leasehold improvements............................. 3,608,599 3,948,678 4,004,597
---------- ---------- ----------
6,443,822 7,811,310 8,246,195
Less accumulated depreciation and amortization..... 1,405,010 2,851,808 3,255,593
---------- ---------- ----------
$5,038,812 $4,959,502 $4,990,602
========== ========== ==========
</TABLE>
The Company has leased furniture and equipment, primarily laboratory
equipment, under three capital leases. The total cost of furniture and equipment
leased at December 31, 1994 and 1995 was $2,009,604 and $2,655,998,
respectively, with related accumulated depreciation of $489,541 and $1,076,712
at December 31, 1994 and 1995, respectively. At March 31, 1996, the total cost
of furniture and equipment leased was $3,298,545, and the related accumulated
depreciation was $1,238,622.
At December 31, 1994 and 1995, the Company had pledged furniture and
equipment, having a total cost of $616,441 and $853,900, respectively, as
collateral under an installment loan agreement. Accumulated depreciation related
to these assets was $63,911 and $221,410 at December 31, 1994 and 1995,
respectively. At March 31, 1996, the total cost of pledged furniture and
equipment was $853,900, and the related accumulated depreciation was $260,924.
F-9
<PAGE> 75
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred state sales tax.......................... $ 493,181 $ 509,588 $ 509,588
Installment note payable, effective rate of 16.73%
due in monthly installments through 1999........ 741,004 822,214 778,190
Capitalized lease obligations (see note 7)........ 1,603,185 1,954,706 2,341,906
---------- ---------- ----------
2,837,370 3,286,508 3,629,684
Less current portion.............................. 584,371 881,210 995,919
---------- ---------- ----------
$2,252,999 $2,405,298 $ 2,633,765
========== ========== ==========
</TABLE>
The state of Washington granted the Company a deferral of state sales tax
on new construction and equipment used in research and development activities.
The related obligation is payable over six years beginning in 1996.
Principal payments related to long-term obligations for each of the five
years ending December 31, 2000 are $881,210, $1,024,238, $658,800, $430,932 and
$162,539, respectively.
6. SHAREHOLDERS' EQUITY
Common Stock
The Company sold 1,200,000 shares of common stock to its scientific
advisors and founders in February and November 1992. The Company has the right
to repurchase certain of these shares in the event the holder's relationship
with the Company terminates. The repurchase rights expire in annual increments
ending in 1996. The shares were sold at prices ranging from $0.03 to $0.55 per
share. At December 31, 1995, 216,000 shares were subject to repurchase at the
original sales price. At March 31, 1996, 24,000 shares were subject to
repurchase at the original sales price.
Stock Options
The Company has adopted two stock option plans under which 1,520,000 shares
of common stock were reserved for issuance. Generally, options vest in annual
increments over a three- or five-year period. All options expire ten years from
date of grant. Options have been granted at market value or, prior to the
Company's initial public offering, at fair value at the date of grant as
established by the Company's Board of Directors and, accordingly, no
compensation expense has been recorded. As of December 31, 1995, options on
268,620 shares were exercisable and 443,123 shares were available for future
grant. As of March 31, 1996, options on 312,126 shares were exercisable and
281,686 shares were available for future grant.
F-10
<PAGE> 76
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. SHAREHOLDERS' EQUITY (CONTINUED)
A summary of activity related to the Company's stock option plans follows:
<TABLE>
<CAPTION>
SHARES UNDER
OPTION OPTION PRICE
------------ ------------
<S> <C> <C>
Balance, January 1, 1995.................................. 838,000 $0.50 - 6.25
Cancelled............................................... (22,860) 0.55 - 6.25
Granted................................................. 253,237 4.00 - 5.13
Exercised............................................... (35,960) 0.50 - 5.00
--------- ----------
Balance, December 31, 1995................................ 1,032,417 0.50 - 6.25
Cancelled............................................... (6,920) 0.55 - 5.00
Granted................................................. 168,357 5.00
Exercised............................................... (16,840) 0.50 - 5.00
------------ ------------
Balance, March 31, 1996................................... 1,117,014 $0.50 - 6.25
========== ===========
</TABLE>
Warrants
In July 1995, the Company issued warrants to purchase 830,598 shares of
common stock in conjunction with an offering of its common stock. The warrants
are immediately exercisable at a price of $4.68 per share, expiring July 1997.
The Company has issued a total of 62,016 warrants related to equipment financing
agreements. The warrants have a weighted average exercise price of $6.00 per
share and expire from May 1999 to December 2003. At December 31, 1995 and March
31, 1996, 892,614 shares and 831,614 shares, respectively, of common stock were
reserved for these warrants.
7. LEASE COMMITMENTS
The Company leases its research and office facility under a noncancellable
operating lease that expires April 1, 1999. The lease may be extended under
three five-year renewal options at the then prevailing fair market value rental
rate.
Future minimum rental payments under noncancellable leases at December 31,
1995 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
Year ending December 31:
1996....................................................... $ 433,880 $ 873,814
1997....................................................... 457,446 873,814
1998....................................................... 474,233 303,740
1999....................................................... 119,607 358,866
2000....................................................... -- --
---------- ----------
Total minimum lease payments................................. $1,485,166 2,410,234
==========
Less amount representing interest............................ 455,528
----------
Present value of minimum capitalized lease payments.......... $1,954,706
==========
</TABLE>
Rent expense under operating leases for the years ended December 31, 1993,
1994 and 1995 and the three months ended March 31, 1996 was $256,354, $321,307,
$396,220 and $101,923, respectively.
F-11
<PAGE> 77
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $24.2 million and research and experimental credit carryforwards
of approximately $817,000. The carryforwards are available to offset future
federal income taxes and begin to expire in 2007. At December 31, 1994 and 1995,
the Company recognized a valuation allowance to offset deferred tax assets due
to the uncertainty of realizing the related benefits.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $5,162,000 $8,223,000
Research and experimental credit carryforwards............. 654,000 817,000
Depreciation............................................... 29,000 156,000
Other...................................................... 55,000 54,000
---------- ----------
Total deferred tax assets.................................... $5,900,000 $9,250,000
========== ==========
Valuation allowance for deferred tax assets.................. $5,900,000 $9,250,000
========== ==========
</TABLE>
9. SUBSEQUENT EVENTS
On April 16, 1996, the Company entered into a definitive merger agreement
with RGene Therapeutics, Inc. ("RGene") to acquire 100% of the outstanding stock
of RGene. The Company will issue to the RGene stockholders 3,636,364 shares of
its common stock. The RGene stockholders will have the right to receive an
additional $5 million of the Company's common stock if certain milestones
relating to RGene's potential products are achieved prior to December 31, 1998.
Completion of the RGene acquisition is subject to customary conditions,
including the approval of the shareholders of both companies.
On April 16, 1996, the Board of Directors authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission permitting the Company to sell up to 4,025,000 shares of common stock
in a public offering.
F-12
<PAGE> 78
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RGene Therapeutics, Inc.:
We have audited the accompanying balance sheets of RGene Therapeutics, Inc.
(a Delaware corporation in the development stage), as of December 31, 1994 and
1995, and the related statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1994 and 1995, and the period from
inception (August 27, 1993) through December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of RGene Therapeutics, Inc., as
of December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1995, and the period from
inception (August 27, 1993) through December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has operated as a development stage enterprise
since its inception, devoting substantially all of its efforts to financial
planning, raising capital and performing research and development. Consequently,
as shown in the accompanying financial statements, the Company has not realized
any revenues from product sales and has a cumulative loss of $5,075,183 since
its inception, all of which raises substantial doubt about its ability to
continue as a going concern. Accordingly, the Company's continued existence is
dependent upon its ability to obtain additional financing to develop,
manufacture and market its products and to attain successful future operations.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts of other current
assets and property and equipment or the amount of liabilities that might result
should the Company be unable to continue as a going concern.
ARTHUR ANDERSEN LLP
The Woodlands, Texas
April 10, 1996
F-13
<PAGE> 79
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
--------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 2,300,235 $ 239,361 $ 1,677,083
Other current assets............................... 83,473 84,700 146,235
----------- ----------- -----------
Total current assets............................ 2,383,708 324,061 1,823,318
Furniture, equipment and leasehold improvements, net
of accumulated depreciation of $10,839, $56,828 and
$70,263, respectively.............................. 174,332 176,370 176,179
----------- ----------- -----------
Total assets.................................... $ 2,558,040 $ 500,431 $ 1,999,497
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 36,458 $ 152,138 $ 149,028
Payable to contract manufacturer................... 74,057 154,997 115,131
Payable to related parties......................... -- 65,000 1,500,000
Notes payable to related parties................... -- 1,000,000 1,000,000
----------- ----------- -----------
Total current liabilities....................... 110,515 1,372,135 2,764,159
Commitments and contingencies (Note 9)
Stockholders' equity:
Undesignated serial preferred stock, $.001 par
value; 4,196,428 shares authorized; none issued
and outstanding at December 31, 1994 and 1995
and March 31, 1996.............................. -- -- --
Series A convertible preferred stock, $.001 par
value; 5,803,572 shares authorized; 3,571,430
issued and outstanding at December 31, 1994 and
1995 and March 31, 1996......................... 3,571 3,571 3,571
Common stock, $.001 par value; 15,000,000 shares
authorized; 3,264,176, 3,394,176 and 3,394,176
issued and outstanding at December 31, 1994 and
1995 and March 31, 1996, respectively........... 3,264 3,394 3,394
Additional paid-in capital......................... 4,020,884 4,196,514 4,353,314
Deficit accumulated during the development stage... (1,580,194) (5,075,183) (5,124,941)
----------- ----------- -----------
Total stockholders' equity (deficit)............ 2,447,525 (871,704) (764,662)
----------- ----------- -----------
Total liabilities and stockholders'
equity................................... $ 2,558,040 $ 500,431 $ 1,999,497
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE> 80
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 27, 1993) FOR THE PERIOD
YEAR ENDED DECEMBER 31, THROUGH THREE MONTHS FROM INCEPTION
------------------------- DECEMBER 31, ENDED MARCH 31, (AUGUST 27, 1993)
1994 1995 1995 ------------------------- THROUGH
----------- ----------- ----------------- 1995 1996 MARCH 31,
----------- ----------- 1996
(UNAUDITED) (UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
License and other
fees................ $ -- $ 300,000 $ 300,000 $ -- $ 2,500,000 $ 2,800,000
Interest income........ 56,266 53,277 109,543 26,092 23,048 132,591
----------- ----------- ----------- ----------- ----------- -----------
Total
revenues..... 56,266 353,277 409,543 26,092 2,523,048 2,932,591
Expenses:
Research and
development......... 976,786 3,073,268 4,050,054 447,902 2,269,934 6,319,988
General and
administrative...... 659,674 752,943 1,412,617 194,708 270,772 1,683,389
Interest expense....... -- 22,055 22,055 -- 32,100 54,155
----------- ----------- ----------- ----------- ----------- -----------
Total
expenses..... 1,636,460 3,848,266 5,484,726 642,610 2,572,806 8,057,532
----------- ----------- ----------- ----------- ----------- -----------
Net loss................. $(1,580,194) $(3,494,989) $(5,075,183) $ (616,518) $ (49,758) $(5,124,941)
=========== =========== =========== =========== =========== ===========
Loss per share........... $ (0.61) $ (1.06) $ (0.19) $ (0.01)
=========== =========== =========== ===========
Weighted average shares
used in computing loss
per share.............. 2,598,449 3,289,820 3,264,176 3,394,176
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE> 81
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (AUGUST 27, 1993) THROUGH MARCH 31, 1996
<TABLE>
<CAPTION>
DEFICIT
SERIES A ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING TOTAL
------------------ ------------------ PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL STAGE EQUITY
--------- ------ --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at inception, August 27, 1993..... -- $ -- -- $ -- $ -- $ -- $ --
Warrants issued to purchase shares of
common stock in conjunction with bridge
loan on September 27, 1993.............. -- -- -- -- -- -- --
Issuance of common stock for cash,
February 14, 1994, through April 4, 1994
($.001 per share)....................... -- -- 1,763,462 1,763 -- -- 1,763
Issuance of common stock for cash,
February 24, 1994 ($.01 per share)...... -- -- 215,000 215 1,935 -- 2,150
Issuance of common stock for license
agreement rights, April 6, 1994, through
April 8, 1994 ($.001 per share)......... -- -- 1,284,614 1,285 -- -- 1,285
Issuance of Series A preferred stock for
cash, April 8, 1994, through September
22, 1994 ($1.12 per share).............. 3,571,430 3,571 -- -- 3,996,429 -- 4,000,000
Issuance of common stock for services,
August 17, 1994 ($.11 per share)........ -- -- 1,100 1 120 -- 121
Compensation expense related to stock
purchase agreements..................... -- -- -- -- 22,400 -- 22,400
Net loss.................................. -- -- -- -- -- (1,580,194) (1,580,194)
--------- ------- --------- ------- --------- ----------- ----------
Balance, December 31, 1994................ 3,571,430 3,571 3,264,176 3,264 4,020,884 (1,580,194) 2,447,525
Warrants issued to purchase shares of
common stock in conjunction with bridge
loan on September 29, 1995.............. -- -- -- -- -- -- --
Issuance of common stock for license
agreement rights, October 20, 1995 ($.11
per share).............................. -- -- 130,000 130 14,170 -- 14,300
Compensation expense related to stock
purchase agreements and stock options... -- -- -- -- 161,460 -- 161,460
Net loss.................................. -- -- -- -- -- (3,494,989) (3,494,989)
--------- ------- --------- ------- --------- ----------- ----------
Balance, December 31, 1995................ 3,571,430 3,571 3,394,176 3,394 4,196,514 (5,075,183) (871,704)
Compensation expense related to stock
purchase agreements and stock options
(unaudited)............................. -- -- -- -- 156,800 -- 156,800
Net loss (unaudited)...................... -- -- -- -- -- (49,758) (49,758)
--------- ------- --------- ------- --------- ----------- ----------
Balance, March 31, 1996................... 3,571,430 $3,571 3,394,176 $3,394 $4,353,314 $(5,124,941) $ (764,662)
========= ======= ========= ======= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 82
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(AUGUST 27, 1993) FOR THE PERIOD
DECEMBER 31, THROUGH THREE MONTHS FROM INCEPTION
------------------------- DECEMBER 31, ENDED MARCH 31, (AUGUST 27, 1993)
1994 1995 1995 ------------------------ THROUGH
----------- ----------- ----------------- 1995 1996 MARCH 31,
---------- ----------- 1996
(UNAUDITED) (UNAUDITED) -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(1,580,194) $(3,494,989) $(5,075,183) $ (616,518) $ (49,758) $(5,124,941)
Adjustments to reconcile net
loss to net cash used in
operating activities --
Depreciation.............. 10,839 45,989 56,828 10,063 13,435 70,263
Issuance of common stock
for license agreement
rights.................. 1,285 14,300 15,585 -- -- 15,585
Compensation expense
related to stock
purchase agreements and
stock options........... 22,400 161,460 183,860 -- 156,800 340,660
Changes in assets and
liabilities --
(Increase) decrease in
other current
assets............... (83,473) (1,227) (84,700) 54,983 (61,536) (146,236)
Increase (decrease) in
accounts payable,
accrued liabilities
and payable to
contract
manufacturer......... 110,515 196,620 307,135 (776) (42,975) 264,161
Increase in payable to
related parties...... -- 65,000 65,000 -- 1,435,000 1,500,000
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities......... (1,518,628) (3,012,847) (4,531,475) (552,248) 1,450,966 (3,080,508)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities:
Purchase of fixed assets..... (185,171) (48,027) (233,198) (18,347) (13,244) (246,443)
----------- ----------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities......... (185,171) (48,027) (233,198) (18,347) (13,244) (246,443)
----------- ----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Issuance of common stock..... 4,034 -- 4,034 -- -- 4,034
Issuance of Series A
preferred stock........... 4,000,000 -- 4,000,000 -- -- 4,000,000
Proceeds from notes
payable................... -- 1,000,000 1,000,000 -- -- 1,000,000
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by
financing
activities......... 4,004,034 1,000,000 5,004,034 -- -- 5,004,034
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
cash......................... 2,300,235 (2,060,874) 239,361 (570,595) 1,437,722 1,677,083
Cash and cash equivalents,
beginning of period.......... -- 2,300,235 -- 2,300,235 239,361 --
----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end
of period.................... $ 2,300,235 $ 239,361 $ 239,361 $1,729,640 $ 1,677,083 $ 1,677,083
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 83
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
1. ORGANIZATION AND BUSINESS
RGene Therapeutics, Inc. (the Company), a Delaware corporation in the
development stage, was incorporated on August 27, 1993, and effectively
commenced operations in 1994. The Company is developing gene therapy products to
deliver genes that may provide unique clinical benefits in the treatment of a
number of human diseases. The Company's initial research and drug discovery
programs are based on inventions by leading scientists at The University of
Texas M. D. Anderson Cancer Center (MDACC) and the University of Pittsburgh
(UP).
The Company is a development stage company and has not yet generated
revenue from product sales or other sources, nor is there any assurance that the
Company will generate significant revenue in the future. The research and
development activities engaged in by the Company involve a high degree of risk
and uncertainty. The ability of the Company to successfully develop, manufacture
and market its proprietary products is dependent upon many factors. These
factors include, but are not limited to, the need for additional financing,
attracting and retaining key personnel and consultants, dependence on licenses,
patents and know-how, and successfully developing manufacturing, sales and
marketing operations. The Company's ability to develop these operations may be
immensely impacted by uncertainties related to patents and proprietary
technologies, technological change and obsolescence, product development,
competition, government regulations and approvals, healthcare reform and product
liability exposure. As a result of the aforementioned factors and the related
uncertainties, there can be no assurance of the Company's future success.
The Company believes that its current cash balance will be sufficient to
satisfy its funding needs through mid-1996. The Company must raise additional
funds during the next 12 months to maintain its research and development
activities. The Company's future funding requirements will depend on many
factors, including the progress of the Company's research and development and
the establishment of other collaborative relationships. Accordingly, the Company
is considering all of its financing alternatives, including corporate partnering
relationships with pharmaceutical companies to license some of its technology
and/or jointly develop products or the combination of the Company with another
entity (see Note 10). As a result of the aforementioned factors and the related
uncertainties, there is substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts of other current assets and furniture, equipment and leasehold
improvements or the amount and classification of liabilities that might result
from the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Interim financial statements
The interim financial statements as of March 31, 1996 and for the three
months ended March 31, 1995 and 1996 are unaudited, and certain information and
footnote disclosures, normally included in
F-18
<PAGE> 84
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
such financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the financial position, results of operations and cash flows for
the interim periods then ended, have been included. The results of operations
for the interim periods are not necessarily indicative of the results that may
be expected for the entire year.
Cash and cash equivalents
All highly liquid investments purchased with a remaining maturity of three
months or less are considered to be cash equivalents.
Furniture, equipment and leasehold improvements
Furniture, equipment and leasehold improvements are carried at cost and
depreciated on a straight-line basis over the estimated useful economic lives of
the assets involved. The estimated useful lives employed in computing
depreciation are three to seven years. When property is retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in income. Maintenance and repairs
that do not extend the life of assets are charged to expense when incurred.
Revenue recognition
Option, license and milestone payments under collaborative agreements are
recorded as earned based on the provisions of each agreement.
Research and development costs
Costs incurred in connection with research and development activities are
expensed as incurred. These costs consist of direct and indirect costs
associated with specific projects as well as fees paid to various entities that
perform certain research on behalf of the Company. Payments related to the
acquisition and patenting of technology rights, for which development work is in
process, are expensed and considered a component of research and development
costs.
Loss per share
Loss per share has been computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the periods. During
the noted periods, all common stock equivalents were antidilutive.
F-19
<PAGE> 85
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
3. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- -------- MARCH 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and equipment........................... $ 31,094 $ 72,087 $ 85,331
Lab equipment..................................... 146,985 146,706 146,706
Leasehold improvements............................ 7,092 14,405 14,405
-------- -------- --------
185,171 233,198 246,442
Less -- Accumulated depreciation and
amortization.................................... 10,839 56,828 70,263
-------- -------- --------
$174,332 $176,370 $ 176,179
======== ======== ========
</TABLE>
4. NOTES PAYABLE
On September 29, 1995, the Company executed $1,000,000 in promissory notes
from certain stockholders of the Company. The promissory notes bear interest at
prime (8.5 percent at December 31, 1995) and are secured by the Company's
patents. The notes matured on December 31, 1995; the principal amount of
$1,000,000 and accrued interest of $22,055 and $54,155 are included in current
liabilities in the accompanying financial statements as of December 31, 1995 and
March 31, 1996, respectively. Management believes that the principal and accrued
interest on the notes will be converted into the Company's common stock in
conjunction with the contemplated merger (see Note 10).
5. STOCKHOLDERS' EQUITY
Series A convertible preferred stock
For the period from April 1994 through September 1994, the Company issued
3,571,430 shares of Series A convertible preferred stock, at a price of $1.12
per share, for cash proceeds of $4,000,000.
Series A convertible preferred shares are convertible at the option of the
holder into common stock as determined by dividing $1.12 by the conversion price
($1.12 at December 31, 1995) in effect at the time of conversion. At December
31, 1995, the Company reserved 3,571,430 shares of common stock for the
conversion of Series A convertible preferred stock. Series A convertible
preferred stock shall automatically be converted into common stock upon the
closing of a public offering with total proceeds of at least $7,500,000. The
holders of Series A convertible preferred stock have the right to vote on all
stockholder matters on an as-if-converted basis.
Series A convertible preferred stockholders may receive dividends at the
discretion of the Company's board of directors. To date, no dividends have been
declared.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A convertible preferred stock are entitled to receive
preference over any distribution to the holders of common stock in the amount of
$1.12 per share. The holders of Series A convertible preferred stock have
registration rights as defined in the stock purchase agreement.
F-20
<PAGE> 86
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
5. STOCKHOLDERS' EQUITY (CONTINUED)
Warrants
In connection with the bridge loans provided by two stockholders of the
Company, the Company issued each of the two stockholders warrants to purchase
50,000 shares of common stock at a price of $.10 per share. In April 1994, the
bridge loans were converted to Series A preferred stock. At the date of
issuance, the warrants were estimated to have a de minimis value and,
accordingly, the warrants were recorded at zero in the financial statements. The
warrants expire if not exercised before September 27, 1998.
During 1995, the Company issued warrants to purchase $250,000 of common
stock in conjunction with the $1,000,000 bridge loans provided by certain
stockholders of the Company. The number of shares of common stock to be issued
upon exercise of the warrants is to be determined by dividing $250,000 by the
price of the next equity financing. According to their original terms, the
warrants are exercisable at a price per share equal to the price of the next
equity financing and expire on September 28, 2000. In connection with the
contemplated merger (see Note 10), the Company and the warrant holders have
agreed that the warrants to purchase $250,000 of common stock shall be exercised
prior to completion of the merger at a price of $1.40 per share (unaudited) in
exchange for 178,571 shares of the Company's common stock. At the date of
issuance, the warrants were estimated to have a de minimis value and,
accordingly, the warrants have been recorded at zero in the financial
statements.
Options
During 1995, the board of directors approved the expansion of the incentive
stock option pool to a total of the greater of (a) 750,000 shares of common
stock or (b) 10 percent of the total common stock issued of the Company. The
options under the 1994 Stock Option Plan (the Plan) have a term of 10 years.
Options to purchase 388,000 shares of common stock vest upon the achievement of
specific milestones. Options to purchase 168,000 shares of common stock vest
over a period of five years for each year of employment with the Company. At
December 31, 1995 and March 31, 1996, 144,216 and 152,566 options, respectively
were exercisable. The Company has recorded $74,100 and $156,800 of compensation
expense for the difference between the grant price and the deemed fair value, as
of December 31, 1995 and March 31, 1996, respectively, for financial statement
presentation purposes related to options which vest based upon the successful
completion of milestones.
F-21
<PAGE> 87
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
5. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity for the Plan follows:
<TABLE>
<CAPTION>
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- -----------
<S> <C> <C>
Balance at inception (August 27, 1993)..................... -- $ --
Granted.................................................. 52,000 $ .10
-------
Balance at December 31, 1994............................... 52,000 $ .10
Granted.................................................. 505,000 $.10 to .11
Forfeited................................................ (1,000) $ .11
-------
Balance at December 31, 1995............................... 556,000 $.10 to .11
Granted (unaudited)...................................... -- $ --
Forfeited (unaudited).................................... -- $ --
-------
Balance at March 31, 1996 (unaudited)...................... 556,000 $.10 to .11
=======
</TABLE>
Prior to completion of the contemplated merger (see Note 10), in accordance
with the Plan, all outstanding stock options shall become immediately
exercisable, and will be exercised prior to the merger.
6. FEDERAL INCOME TAXES
The Company has had losses since inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1995, the Company has
generated net operating loss (NOL) carryforwards of approximately $3.2 million
and approximately $70,000 of research and development credits available to
reduce future income taxes. These carryforwards begin to expire in 2008.
The Tax Reform Act of 1986 provides for an annual limitation following
certain ownership changes on the use of NOL and credit carryforwards that could
significantly limit the Company's ability to utilize its carryforwards. The
Company's ability to utilize its current and future NOLs to reduce future
taxable income and tax liabilities may be limited. Additionally, because United
States tax laws limit the time during which these carryforwards may be applied
against future taxes, the Company may not be able to take full advantage of
these attributes for federal income tax purposes.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), requires an asset and liability approach for financial
accounting and reporting for income taxes. Under SFAS 109, an NOL requires the
recognition of a deferred tax asset. As the Company has had cumulative losses
and there is no assurance of future taxable income, a valuation allowance has
been
F-22
<PAGE> 88
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
6. FEDERAL INCOME TAXES (CONTINUED)
established to fully offset the deferred tax assets at December 31, 1994 and
1995. The components of the Company's deferred tax assets are as follows at
December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Net operating loss carryforwards............................ $ 306,000 $ 1,088,000
Research and development tax credits........................ 27,000 70,000
--------- ----------
Total deferred tax assets......................... 333,000 1,158,000
Less -- Valuation allowance................................. (333,000) (1,158,000)
--------- ----------
Net deferred tax assets........................... $ -- $ --
========= ==========
</TABLE>
7. LICENSE AND RESEARCH AGREEMENTS
In March 1994, the Company entered into a license agreement with the Board
of Regents of The University of Texas System (the System) and MDACC, a component
institution of the System, whereby the Company has an exclusive noncancelable
worldwide license to certain technology rights. In exchange for the grant of
this exclusive license, the Company issued 642,307 shares of its common stock
pursuant to the stockholder agreement entered into in April 1994. The Company
will pay MDACC for 15 years, beginning with the first commercial sale of a
product incorporating the licensed technologies, a royalty based on net sales by
the Company or its affiliates or by sublicense agreement of products
incorporating any of such technologies. The Company is obligated by the
agreement to reimburse any of MDACC's costs that may be incurred in connection
with obtaining necessary patents. Failure by the Company to make all
commercially reasonable efforts to commercialize a licensed product could result
in termination of the license agreement rights.
In April 1994, the Company entered into an assignment agreement and
development agreement with Aronex Pharmaceuticals, Inc. (Aronex), formerly Argus
Pharmaceuticals, Inc. The assignment agreement transfers to the Company all
rights and obligations with respect to certain technology rights and related
patent applications invented by a research scientist licensed under an exclusive
license agreement between Aronex and the System. The development agreement
provides that the Company bear all costs in funding the research and development
of the technology and patent rights assigned above that is performed by Aronex.
The development agreement has an initial term of three years. In connection with
the above agreements and the sublicense agreement mentioned below, the Company
issued 321,154 shares of its common stock at a price of $.001 per share to the
research scientist referred to above. In addition, in exchange for the
sublicense agreement and assignment agreement described below, the Company
issued to Aronex 642,307 shares of its common stock pursuant to a stock purchase
agreement.
In April 1994, the Company entered into a sublicense agreement with Aronex,
whereby the Company has an exclusive worldwide sublicense to the technology
licensed under Aronex's license agreement with the University of Tennessee
Research Corporation (UTRC) dated May 25, 1992. Under the original license
agreement between Aronex and UTRC, any sales of licensed products by a
sublicensee are subject to royalties based on net sales.
F-23
<PAGE> 89
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
7. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
In October 1995, the Company entered into a license agreement with UTRC. In
consideration for the license granted, the Company paid a license fee of
$250,000 to UTRC. As additional consideration, the Company issued 130,000 shares
of its common stock at a price of $.11 per share to UTRC, three research
scientists and McMaster University. The Company has committed to pay royalties
to UTRC in an amount based on net sales of the licensed technology and on any
sublicense of the licensed technology. As of December 31, 1995, royalties of
$65,000 are payable to UTRC. In addition, pursuant to the agreement, the Company
has commitments to UTRC for annual license maintenance fees as follows: $30,000
per year for 1996 through 1999; $40,000 per year for 2000 through 2004; and
$50,000 per year for 2005 and each year thereafter during the term of the
agreement. As of March 31, 1996, the Company paid $30,000 pertaining to this
annual license maintenance fee.
In October 1994, the Company entered into a license agreement with UP
whereby the Company has an exclusive worldwide license to certain technology
rights. Upon execution of the agreement, the Company paid UP an initial license
fee of $15,000. The Company has committed to pay an additional $35,000
immediately upon the filing of the first patent application with respect to the
licensed technology. The Company has committed to pay royalties to UP in an
amount based on net sales of the licensed technology.
In August 1995, the Company entered into a nonexclusive license agreement
with QIAGEN GmbH (Qiagen). Under the license agreement, the Company has the
right to produce or sell a product made with Qiagen technology. As consideration
for the license agreement, the Company is committed to pay a royalty on net
sales.
In December 1995, the Company entered into a license agreement with Pasteur
Merieux Serums & Vaccins S.A. (PMSV). Under the terms of the agreement, the
Company is to receive license and milestone fees upon the completion of certain
performance milestones. In 1995, the Company received $300,000 in license and
other fees in accordance with the agreement. In addition, as consideration of
the license granted, the Company will receive royalties on net sales from PMSV.
The Company has sponsored research agreements with MDACC and UP to fund
research and clinical studies. During fiscal 1994 and 1995 and the three months
ended March 31, 1996, the Company paid $375,741, $771,214 and $193,164,
respectively, pursuant to those agreements and has committed to pay a minimum of
approximately $900,000 through 1998 to continue funding research and clinical
activities. The payments are recorded as research and development expense.
8. CONSULTING AND RELATED AGREEMENTS
The Company has consulting agreements with research scientists associated
with the System and UP, to provide technical know-how, expertise and other
assistance. Pursuant to these agreements, the Company has commitments through
1998 with remaining payments through that date totaling $153,000. In connection
with these two consulting agreements, the Company issued 1,121,154 shares of
common stock for a purchase price of $.001 per share. Pursuant to these
stockholder agreements, the Company has certain repurchase rights.
The Company has stock purchase agreements with an officer of the Company.
Under the stock purchase agreements, the Company issued 321,154 shares of common
stock at a price of $.001 per
F-24
<PAGE> 90
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
8. CONSULTING AND RELATED AGREEMENTS (CONTINUED)
share. In the event the officer is terminated, the Company can elect to
repurchase a specified number of shares at a price of $.001 per share, based on
the length of employment prior to termination. The Company also issued 215,000
shares of common stock at a price of $.01 per share, of which, 200,000 shares
are subject to repurchase by the Company if certain performance milestones are
not met by the officer. The Company recorded compensation expense of $20,000,
$78,000, and $80,000 for fiscal 1994 and 1995 and for the three months ended
March 31, 1996, respectively, in connection with these agreements. In addition,
if the Company terminates the officer before the term of the employment
agreement has expired, the officer shall have the option to require the Company
to repurchase 24,000 shares at a price per share based on the fair value at the
date of termination. The Company recorded compensation expense of $2,400,
$9,360, and $9,600 in 1994, 1995 and the three months ended March 31, 1996,
respectively, in connection with this aspect of the officer's employment
agreement.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its principal office under a lease which expires on
December 31, 1996. Monthly rental under the lease is $2,331. Lease expense
totaled $4,662, $27,972 and $5,439 for 1994 and 1995 and the three months ended
March 31, 1996, respectively.
10. SUBSEQUENT EVENTS
License, research and marketing agreement
On December 28, 1995, the Company granted a pharmaceutical company an
exclusive option to enter into a license agreement. In connection with the
execution of the option agreement, in January 1996 the pharmaceutical company
paid the Company a nonrefundable fee of $2,000,000 to maintain the option until
February 16, 1996. On February 22, 1996, the Company agreed to an outline of
principal terms in contemplation of a license agreement with the pharmaceutical
company. In consideration for the outline of principal terms and the extension
of the option period to April 30, 1996, the pharmaceutical company paid an
additional nonrefundable fee of $500,000 to the Company in March 1996. The $2.5
million received from the pharmaceutical company has been recorded as revenue as
of March 31, 1996 and, as a result, $1.5 million has been recorded as a payable
to related parties (see Note 7). An additional $2.5 million may be received upon
execution of a definitive license agreement or, if such agreement is not
executed, to extend the exclusive option. Such amounts received are
nonrefundable and are creditable toward the license fee due upon execution of
the license agreement. On April 30, 1996, the option was extended to May 17,
1996. Although the extension period has expired, the Company is continuing to
negotiate with the pharmaceutical company. If the definitive license agreement
is consummated, an additional $1.5 million may be payable to related parties
(see Note 7).
Merger (unaudited)
On April 16, 1996, the Company entered into a definitive merger agreement
(the Merger Agreement) with Targeted Genetics Corporation (Targeted). Pursuant
to the Merger Agreement, Targeted will acquire the Company by merging the
Company with and into TGC Acquisition Corporation (TGC), a wholly owned
subsidiary of Targeted. Under the Merger Agreement, Targeted will issue
3,636,364 shares of common stock in exchange for 100 percent of the outstanding
stock of the Com-
F-25
<PAGE> 91
RGENE THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995
(INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED.)
10. SUBSEQUENT EVENTS (CONTINUED)
pany. Prior to completion of the merger, in accordance with the Plan, all
outstanding stock options will become immediately exercisable. All of the
Company's outstanding stock options and warrants are expected to be exercised.
Pursuant to the Merger Agreement and prior to the merger, an additional $550,000
shall be advanced under the promissory notes from certain stockholders of the
Company (see Note 4). Such advances, together with the $1,000,000 in promissory
notes from certain stockholders of the Company, shall be converted at or prior
to the merger into common stock of the Company at a conversion price of $1.40
per share. The Company stockholders will have the right to receive up to an
additional $5 million of Targeted's common stock if certain milestones are
achieved.
F-26
<PAGE> 92
===============================================================================
No dealer, sales representative or any other person is authorized in
connection with any offering made hereby to give any information or to make any
representation not contained herein and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or the Underwriters. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any security other than the securities offered
hereby, nor does it constitute an offer to sell or a solicitation of an offer to
buy any such securities to any person in any jurisdiction in which it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
date subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 3
RGene Acquisition........................... 6
Risk Factors................................ 8
Use of Proceeds............................. 17
Price Range of Common Stock................. 18
Dividend Policy............................. 18
Dilution.................................... 19
Capitalization.............................. 20
Selected Financial Data..................... 21
Unaudited Pro Forma Consolidated Financial
Statements................................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 25
Business.................................... 29
Management.................................. 47
Certain Transactions........................ 55
Principal Shareholders...................... 56
Description of Capital Stock................ 58
Underwriting................................ 61
Legal Matters............................... 62
Experts..................................... 62
Additional Information...................... 62
Index to Financial Statements............... F-1
</TABLE>
================================================================================
================================================================================
3,500,000 SHARES
TARGETED GENETICS CORPORATION
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
Vector Securities International, Inc.
Genesis Merchant Group Securities
, 1996
================================================================================
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to a letter agreement dated as of November 28, 1995 between the
Registrant and Lehman Brothers, Inc., the Registrant issued to Lehman Brothers,
Inc. 2,461 shares of its Common Stock in payment of certain advisory fees in a
transaction not involving a public offering and therefore exempt pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement
2.1+ -- Form of Agreement and Plan of Merger dated as of April 16, 1996, by and among
Targeted Genetics Corporation, TGC Acquisition Corporation and RGene Therapeutics,
Inc.
3.1 -- Restated Articles of Incorporation (Exhibit 3.1)(B)
3.2 -- Amended and Restated Bylaws (Exhibit 3.2)(C)
4.1 -- Warrant to Purchase 11,000 shares of Series B Preferred Stock of Targeted Genetics
Corporation issued to MMC/GATX Partnership No. 1 on December 27, 1993 (Exhibit
4.2)(A)
4.2 -- Warrant to Purchase 11,000 shares of Series B Preferred Stock of Targeted Genetics
Corporation issued to LINC Capital Management Services, Ltd. on December 27, 1993
(Exhibit 4.3)(A)
4.3 -- Warrant to Purchase 18,701 shares of Common Stock of Targeted Genetics Corporation
issued to MMC/GATX Partnership No. 1 on November 30, 1994 (Exhibit 4.3)(B)
4.4 -- Warrant Agreement between Targeted Genetics Corporation and First Interstate Bank
of Washington, N.A., as Warrant Agent (Exhibit 4.4)(D)
4.5 -- Specimen Warrant Certificate (Exhibit 4.5)(C)
4.6 -- Warrant to Purchase 21,315 shares of Common Stock of Targeted Genetics Corporation
issued to Financing for Science International, Inc. on November 30, 1995(D)
5.1+ -- Opinion of Perkins Coie regarding legality of shares
10.1* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and Philip D. Greenberg (Exhibit 10.1)(A)
10.2* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and A. Dusty Miller (Exhibit 10.2)(A)
10.3* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and Richard D. Palmiter (Exhibit 10.3)(A)
10.4* -- Scientific Advisory Board Agreement, dated February 15, 1992, between Targeted
Genetics Corporation and George Stamatoyannopoulos (Exhibit 10.4)(A)
10.5 -- Form of Indemnification Agreement between the registrant and its officers and
directors (Exhibit 10.6)(A)
10.6* -- Non-exclusive License Agreement, dated as of November 19, 1991, between Fred
Hutchinson Cancer Research Center and Immunex Corporation (Exhibit 10.7)(A)
</TABLE>
II-1
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.7* -- Gene Transfer Technology License Agreement, dated as of February 18, 1992, between
Immunex Corporation and Targeted Genetics Corporation (Exhibit 10.8)(A)
10.8* -- License Agreement, dated as of June 1, 1992, between Wisconsin Alumni Research
Foundation and Targeted Genetics Corporation (Exhibit 10.9)(A)
10.9* -- License Agreement, dated as of August 14, 1992, between Leland Stanford Junior
University and Targeted Genetics Corporation (Exhibit 10.10)(A)
10.10* -- PHS Patent License Agreement -- Non-exclusive, dated as of July 13, 1993, between
National Institutes of Health Centers for Disease Control and Targeted Genetics
Corporation (Exhibit 10.13)(A)
10.11* -- Non-exclusive Patent License Agreement, dated as of December 25, 1993, between The
University of Florida Research Foundation, Inc. and Targeted Genetics Corporation
(Exhibit 10.14)(A)
10.12* -- Research and Exclusive License Agreement, dated as of January 1, 1994, between
Targeted Genetics Corporation and Fred Hutchinson Cancer Research Center (Exhibit
10.19)(A)
10.13* -- PHS Patent License Agreement -- Exclusive, dated as of March 10, 1994, between
National Institutes of Health Centers for Disease Control and Targeted Genetics
Corporation (Exhibit 10.15)(A)
10.14* -- Exclusive License Agreement, dated as of March 14, 1994, between Medical College
of Ohio and Targeted Genetics Corporation (Exhibit 10.16)(A)
10.15* -- License Agreement, dated as of March 16, 1994, between The Johns Hopkins
University and Targeted Genetics Corporation (Exhibit 10.17)(A)
10.16* -- License Agreement, dated as of March 28, 1994, between Targeted Genetics
Corporation and the University of Michigan (Exhibit 10.18)(A)
10.17* -- Exclusive License Agreement, dated as of March 28, 1994, between Fred Hutchinson
Cancer Research Center and Targeted Genetics Corporation (Exhibit 10.20)(A)
10.18* -- Exclusive License Agreement, dated as of August 25, 1994, between Targeted
Genetics Corporation and Fred Hutchinson Cancer Research Center (Exhibit 10.20)(B)
10.19 -- Olive Way Building Lease, dated as of November 20, 1993, between Metropolitan
Federal Savings and Loan Association and Targeted Genetics Corporation (Exhibit
10.21)(A)
10.20 -- First Amendment to Olive Way Building Lease, dated as of December 10, 1994,
between Targeted Genetics Corporation and Metropolitan Federal Savings and Loan
Association (Exhibit 10.22)(B)
10.21 -- MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of December 27,
1993 (Exhibit 10.22)(A)
10.22 -- LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of December 27,
1993 (Exhibit 10.23)(A)
10.23 -- Loan and Security Agreement, dated as of November 30, 1994, between MMC/GATX
Partnership No. 1 and Targeted Genetics Corporation (Exhibit 10.25)(B)
10.24 -- Master Equipment Lease Agreement, dated as of October 17, 1995, between Financing
for Science International, Inc. and Targeted Genetics Corporation (Exhibit
10.28)(D)
10.25 -- Registration Rights Agreement, dated as of April 27, 1992, among Targeted Genetics
Corporation and the holders of the Series A and Series B Convertible Preferred
Stock (Exhibit 10.26)(A)
10.26 -- 1992 Restated Stock Option Plan (Exhibit 10.26)(B)
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.27 -- Stock Option Plan for Nonemployee Directors (Exhibit 10.31)(D)
10.28* -- Development Agreement dated April 6, 1994, by and between Argus Pharmaceuticals,
Inc. and RGene Therapeutics, Inc.
10.29* -- Patent and Technology License Agreement effective as of March 1, 1994, by and
among the Board of Regents of the University of Texas M.D. Anderson Cancer Center
and RGene Therapeutics, Inc.
10.30* -- First Amended and Restated License Agreement effective October 12, 1995, by and
between The University of Tennessee Research Corporation and RGene Therapeutics,
Inc.
10.31* -- License Agreement dated October 12, 1994, by and between The University of
Pittsburgh -- of the Commonwealth System of Higher Education and RGene
Therapeutics, Inc.
11.1 -- Computation of net loss per share (D)
23.1 -- Consent of Ernst & Young LLP (contained on page II-6)
23.2 -- Consent of Arthur Andersen LLP (contained on page II-7)
23.3+ -- Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1 hereto)
24.1+ -- Power of Attorney
99.1 -- Consent of Martin P. Sutter as Director Nominee
99.2 -- Consent of Austin M. Long, III as Director Nominee
</TABLE>
- ------------------
+ Previously filed.
* Confidential treatment has been requested from the Securities and Exchange
Commission for portions of these agreements.
** To be filed by amendment.
(A) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (Registration No. 33-77054)
filed March 30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (No. 33-91500) filed April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1995.
(b) Financial Statement Schedules
All financial statement schedules have been omitted because the required
information is either included in the financial statements or the notes thereto
or is not applicable.
II-3
<PAGE> 96
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 30th day of May, 1996.
TARGETED GENETICS CORPORATION
By: /s/ James A. Johnson
----------------------------------
James A. Johnson, Vice President,
Finance, Chief Financial Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities indicated below on the 30th day of May, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<C> <S>
*H. Stewart Parker President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
H. Stewart Parker
/s/ James A. Johnson Vice President, Finance, Chief Financial
- --------------------------------------------- Officer, Treasurer and Secretary
James A. Johnson (Principal Financial Officer)
*Stephen A. Duzan Director
- ---------------------------------------------
Stephen A. Duzan
*James D. Grant Director
- ---------------------------------------------
James D. Grant
*Donald E. O'Neill Director
- ---------------------------------------------
Donald E. O'Neill
*Jeremy Curnock Cook Director
- ---------------------------------------------
Jeremy Curnock Cook
*By: /s/ James A. Johnson
- ---------------------------------------------
James A. Johnson
As Attorney-in-Fact
</TABLE>
II-5
<PAGE> 98
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated February 9,
1996, except for Note 9 as to which the date is April 16, 1996 in the
Registration Statement (Form S-1) and related Prospectus of Targeted Genetics
Corporation for the registration of its common stock.
ERNST & YOUNG LLP
Seattle, Washington
May 28, 1996
II-6
<PAGE> 99
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
Amendment No. 1 to Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1996
II-7
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 ** Form of Underwriting Agreement
2.1+ Form of Agreement and Plan of Merger dated as of April 16, 1996, by and
among Targeted Genetics Corporation, TGC Acquisition Corporation and
RGene Therapeutics Inc.
3.1 Restated Articles of Incorporation (Exhibit 3.1) (B)
3.2 Amended and Restated Bylaws (Exhibit 3.2) (C)
4.1 Warrant to Purchase 11,000 shares of Series B Preferred Stock of (A)
Targeted Genetics Corporation issued to MMC/GATX Partnership No. 1 on
December 27, 1993 (Exhibit 4.2)
4.2 Warrant to Purchase 11,000 shares of Series B Preferred Stock of (A)
Targeted Genetics Corporation issued to LINC Capital Management
Services, Ltd. on December 27, 1993 (Exhibit 4.3)
4.3 Warrant to Purchase 18,701 shares of Common Stock of Targeted Genetics (B)
Corporation issued to MMC/GATX Partnership No. 1 on November 30, 1994
(Exhibit 4.3)
4.4 Warrant Agreement between Targeted Genetics Corporation and First (D)
Interstate Bank of Washington, N.A., as Warrant Agent (Exhibit 4.4)
4.5 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.6 Warrant to Purchase 21,315 shares of Common Stock of Targeted Genetics (D)
Corporation issued to Financing for Science International, Inc. on
November 30, 1995
5.1+ Opinion of Perkins Coie regarding legality of shares
10.1 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and Philip D. Greenberg (Exhibit 10.1)
10.2 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and A. Dusty Miller (Exhibit 10.2)
10.3 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and Richard D. Palmiter (Exhibit 10.3)
10.4 * Scientific Advisory Board Agreement, dated February 15, 1992, between (A)
Targeted Genetics Corporation and George Samatoyannopoulos (Exhibit
10.4)
10.5 Form of Indemnification Agreement between the registrant and its (A)
officers and directors (Exhibit 10.6)
10.6 * Non-exclusive License Agreement, dated as of November 19, 1991, between (A)
Fred Hutchinson Cancer Research Center and Immunex Corporation (Exhibit
10.7)
10.7 * Gene Transfer Technology License Agreement, dated as of February 18, (A)
1992, between Immunex Corporation and Targeted Genetics Corporation
(Exhibit 10.8)
10.8 * License Agreement, dated as of June 1, 1992, between Wisconsin Alumni (A)
Research Foundation and Targeted Genetics Corporation (Exhibit 10.9)
10.9 * License Agreement, dated as of August 14, 1992, between Leland Stanford (A)
Junior University and Targeted Genetics Corporation (Exhibit 10.10)
</TABLE>
<PAGE> 101
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.10* PHS Patent License Agreement -- Non-exclusive, dated as of July 13, (A)
1993, between National Institutes of Health Centers for Disease Control
and Targeted Genetics Corporation (Exhibit 10.13)
10.11* Non-exclusive Patent License Agreement, dated as of December 25, 1993, (A)
between The University of Florida Research Foundation, Inc. and Targeted
Genetics Corporation (Exhibit 10.14)
10.12* Research and Exclusive License Agreement, dated as of January 1, 1994, (A)
between Targeted Genetics Corporation and Fred Hutchinson Cancer
Research Center (Exhibit 10.19)
10.13* PHS Patent License Agreement -- Exclusive, dated as of March 10, 1994, (A)
between National Institutes of Health Centers for Disease Control and
Targeted Genetics Corporation (Exhibit 10.15)
10.14* Exclusive License Agreement, dated as of March 14, 1994, between Medical (A)
College of Ohio and Targeted Genetics Corporation (Exhibit 10.16)
10.15* License Agreement, dated as of March 16, 1994, between The Johns Hopkins (A)
University and Targeted Genetics Corporation (Exhibit 10.17)
10.16* License Agreement, dated as of March 28, 1994, between Targeted Genetics (A)
Corporation and the University of Michigan (Exhibit 10.18)
10.17* Exclusive License Agreement, dated as of March 28, 1994, between Fred (A)
Hutchinson Cancer Research Center and Targeted Genetics Corporation
(Exhibit 10.20)
10.18* Exclusive License Agreement, dated as of August 25, 1994, between (B)
Targeted Genetics Corporation and Fred Hutchinson Cancer Research Center
(Exhibit 10.20)
10.19 Olive Way Building Lease, dated as of November 20, 1993, between (A)
Metropolitan Federal Savings and Loan Association and Targeted Genetics
Corporation (Exhibit 10.21)
10.20 First Amendment to Olive Way Building Lease, dated as of December 10, (B)
1994, between Targeted Genetics Corporation and Metropolitan Federal
Savings and Loan Association (Exhibit 10.22)
10.21 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.22)
10.22 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of (A)
December 27, 1993 (Exhibit 10.23)
10.23 Loan and Security Agreement, dated as of November 30, 1994, between (B)
MMC/GATX Partnership No. 1 and Targeted Genetics Corporation (Exhibit
10.25)
10.24 Master Equipment Lease Agreement, dated as of October 17, 1995, between (D)
Financing for Science International, Inc. and Targeted Genetics
Corporation (Exhibit 10.28)
10.25 Registration Rights Agreement, dated as of April 27, 1992, among (A)
Targeted Genetics Corporation and the holders of the Series A and Series
B Convertible Preferred Stock (Exhibit 10.26)
10.26 1992 Restated Stock Option Plan (Exhibit 10.26) (B)
10.27 Stock Option Plan for Nonemployee Directors (Exhibit 10.31) (D)
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.28* Development Agreement dated April 6, 1994, by and between Argus
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.
10.29* Patent and Technology License Agreement effective as of March 1, 1994,
by and among the Board of Regents of the University of Texas M.D.
Anderson Cancer Center and RGene Therapeutics, Inc.
10.30* First Amended and Restated License Agreement effective October 12, 1995,
by and between The University of Tennessee Research Corporation and
RGene Therapeutics, Inc.
10.31* License Agreement dated October 12, 1994, by and between The University
of Pittsburgh -- of the Commonwealth System of Higher Education and
RGene Therapeutics, Inc.
11.1 Computation of net loss per share (D)
23.1 Consent of Ernst & Young LLP (contained on page II-6)
23.2 Consent of Arthur Andersen LLP (contained on page II-7)
23.3 Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1
hereto)
24.1 Power of Attorney
99.1 Consent of Martin P. Sutter as Director Nominee
99.2 Consent of Austin M. Long, III as Director Nominee
</TABLE>
- ------------------
+ Previously filed.
* Confidential treatment has been requested from the Securities and Exchange
Commission for portions of these agreements.
** To be filed by amendment.
(A) Incorporated by reference to the designated exhibits included with the
registrant's Form S-1 Registration Statement (Registration No. 33-77054)
filed March 30, 1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
registrant's Form S-1 Registration Statement (No. 33-91500) filed April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
registrant's Form 10-K for the year ended December 31, 1995.
<PAGE> 1
REDACTED VERSION
EXHIBIT 10.28
TO
TARGETED GENETICS CORPORATION
AMENDMENT NO.1
TO
FORM S-1
TO BE FILED ON OR BEFORE
MAY 30, 1996
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
DEVELOPMENT AGREEMENT
This Development Agreement ("Agreement") is entered into this
6th day of April, 1994, by and between Argus Pharmaceuticals, Inc., a Delaware
corporation ("Argus"), and RGene Therapeutics, Inc., a Delaware corporation
("RGene").
WHEREAS, concurrently with the execution of this Agreement,
Argus and RGene are entering into the Assignment Agreement and the Sublicense
Agreement referenced in Sections 1.1 and 1.2 below, whereby Argus is
transferring to RGene certain rights in the technology covered by the Assignment
Agreement and the Sublicense Agreement (the "Argus Technology"); and
WHEREAS, Argus and RGene desire to collaborate to conduct
certain research and experiments and to further the development of products that
may incorporate the Argus Technology, among others.
NOW, THEREFORE, it is hereby agreed as follows:
1. ASSIGNMENT/SUBLICENSE BY ARGUS
1.1 ASSIGNMENT OF MDA/ARGUS LICENSE
Concurrent with or prior to the execution of this Agreement,
Argus agrees that it will execute the Assignment Agreement in the form attached
hereto as Exhibit B (the "Assignment Agreement"), which Assignment Agreement
transfers to RGene certain rights of Argus under that certain Exclusive License
Agreement dated July 1, 1988 by and among Argus, The University of Texas System
Board of Regents and the University of Texas M.D. Anderson Cancer Center
("MDACC"), as amended ("MDA/Argus License Agreement"), relating to certain
technology rights and related patent applications invented by Dr. Gabriel
Lopez-Berestein at MDACC. Argus agrees that it will obtain MDACC's consent and,
if necessary, the consent of the Board of Regents of the University of Texas
System to the assignment of such rights by Argus, prior to or concurrent with
the other transactions contemplated by this Agreement.
1.2 SUBLICENSE OF UTRC LICENSE
Concurrent with or prior to the execution of this Agreement,
Argus agrees that it will execute that certain Sublicense Agreement in the form
attached hereto as Exhibit C (the "Sublicense Agreement"), which Sublicense
Agreement sublicenses to
-1-
<PAGE> 3
RGene all rights of Argus under that certain Agreement dated November 1, 1993 by
and between the University of Tennessee Research Corporation and Argus (the
"UTRC License Agreement"). Argus agrees that it will, if necessary, obtain the
consent of the University of Tennessee Research Corporation to the sublicense of
such rights by Argus, prior to or concurrent with the other transactions
contemplated by this Agreement.
2. DEVELOPMENT PROGRAM
2.1 GOALS
Commencing upon completion of the initial Work Plan and Budget
as set forth in Section 2.2(c), Argus and RGene agree to conduct the research
and development on products incorporating the Argus Technology ("Products"),
initially including those Products more particularly described in Exhibit A
hereto, according to the Work Plans and Budgets, with the goal of developing
commercially marketable Products in the shortest feasible period of time
consistent with the level of funding hereunder (the "Development Program").
Specifically, the initial goals of the Development Program will be to undertake
preclinical pharmaceutical development of the Products (including animal testing
and quality control testing to insure compliance with "good manufacturing
practices") and to file an investigational new drug application ("IND") with the
United States Food and Drug Administration ("FDA") regarding both Products;
provided, that the development of other products, that do not involve or relate
to the Argus Technology, will be negotiated by RGene and Argus in good faith on
a case by case basis. While the parties agree to use reasonable efforts to
achieve these goals, neither Argus nor RGene warrants or guarantees that their
efforts will result in the filing of an IND or marketable or approved Products
or that the goals specified in the Work Plan and Budget will be achieved within
the periods set forth herein.
2.2 PROGRAM ADMINISTRATION
(a) Project Representatives. The parties have each designated
a Project Representative to facilitate liaison between it and the other party,
oversee and review the progress of the Development Program, select indications
to pursue, determine the allocation of responsibilities between the parties for
conducting the Development Program, develop clinical trial protocols, manage the
clinical/regulatory process and discuss potential competition and other relevant
matters to assure rapid development and commercialization of the Products.
(b) Disagreements. All decisions made hereunder relating to
the Development Program shall require the approval of both Project
Representatives. The
-2-
<PAGE> 4
Project Representatives shall attempt in good faith to reach consensus on all
matters. In the event of a disagreement between the Project Representatives, the
Project Representatives shall promptly present the disagreement to the chief
executive officers of the parties, who shall attempt resolution of the matter.
If such executives cannot promptly resolve such disagreement, then the dispute
shall be resolved under the arbitration provisions of Section 13.
(c) Work Plans and Budgets. Promptly after the date hereof,
the Project Representatives shall prepare and recommend to each party an initial
Work Plan and Budget for the remainder of 1994 which relates to the development
of the Products consistent with the goals set forth in Section 2.1 above. The
Work Plan and Budget shall be the plan and budget as approved by both parties in
writing. It is contemplated that Argus will provide substantially all of the
development services called for in the initial and any subsequent Work Plan and
Budget. Prior to October 1, of each year, the Project Representatives shall
prepare and recommend to each party a proposed Work Plan and Budget for the next
year. Each Work Plan and Budget adopted shall be signed by both parties. The
Project Representatives shall actively consult with one another throughout the
term of the Development Program so as to adjust the specific work performed
under the Work Plan and Budget to conform to evolving developments in technology
and the results of the development work performed. While minor adjustments to
the Work Plan and Budget may be made from time to time upon approval by the
Project Representatives, significant changes to the scope or direction of the
work and any changes in funding exceeding 15% of the total amount previously
budgeted in the Work Plan and Budget must be agreed to in writing by each party,
in the absence of which the most recently approved Work Plan and Budget shall
remain in effect.
(d) Progress Reports. Within 45 days following the end of
each calendar quarter, each Project Representative shall deliver to the other a
reasonably detailed written report which shall (i) describe the work performed
by it during the quarter on the Development Program and (ii) if appropriate,
recommend any revisions to the Work Plan and Budget that would improve the
progress of the Development Program.
(e) Meetings. The Project Representatives and other employees
or consultants or the parties responsible for management of the Development
Program shall meet at least once during each calendar quarter during the term of
the Development Program for the purpose of reviewing the status of the
Development Program including (i) relevant data, (ii) technical issues that have
arisen, (iii) issues of priority, (iv) the design and conduct of clinical trails
and anticipated regulatory filings, (v) budgets and expenditures, (vi)
competition and (vii) any other matters relevant to
-3-
<PAGE> 5
the development of the Products. Such meetings shall be at such times as may be
agreed to by the parties, and the location of such meetings shall alternate
between Argus facilities and RGene facilities, unless otherwise agreed by the
parties. The Project Representatives shall jointly prepare minutes summarizing
the matters reviewed and any actions taken at such meetings and shall distribute
such minutes to the parties within 14 days following each meeting.
2.3 PERFORMANCE OF SERVICES
Each party shall use all commercially reasonable efforts to
perform the development work assigned to it in a prudent and skillful manner in
accordance, in all material respects, with the Work Plan and Budget then in
effect and applicable laws. Each party shall furnish all labor, supervision,
facilities, supplies and materials necessary to perform the development work
assigned to it in accordance with the Work Plan and Budget then in effect.
2.4 REGULATORY FILINGS
The party assigned responsibility for any regulatory filings
with the FDA or any comparable foreign regulatory body shall make available to
the other party any materials it proposes to file for such party's review and
approval, which approval may not be unreasonably withheld or delayed. All
responses by regulatory bodies shall also be promptly disclosed to the other
party. In any case where responsibility for a regulatory filing is assigned to a
sublicensee, the applicable sublicense shall require the sublicense to afford
the parties hereto the same review, approval and comment rights with respect to
such regulatory filing as are set forth in this Section 2.4.
2.5 RECORDS AND DATA
Each party shall maintain records in sufficient detail and in
good scientific manner appropriate for patent and FDA purposes and so as to
properly reflect all work done and results achieved in the performance of the
Development Program. Such records, shall include books, records, reports,
research notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage means, samples of materials and other graphic or written data generated
in connection with the Development Program, including any data required to be
maintained pursuant to all applicable government regulations. Each party shall
provide the other the right to inspect records, and shall provide copies of all
requested records, to the extent reasonably related to the performance of the
other's obligations under this Agreement.
-4-
<PAGE> 6
2.6 VISIT OF FACILITIES
Representatives of each party may, upon reasonable notice and
at times reasonably acceptable to the other party, (a) visit the facilities
where the Development Program is being conducted and/or the facilities where the
other party manufactures any Product or active compound contained therein (or
has a Product or compound manufactured by a Third Party), (b) consult
informally, during such visits and by telephone, with personnel of the other
party performing work on the Development Program and (c) with the other party's
prior approval, which approval shall not be unreasonably withheld, visit the
sites of any Clinical Trials or other experiments being conducted by such other
party in connection with the Development Program, but only to the extent in each
case as such trials or other experiments relate to the Development Program. If
requested by the other party, Argus and RGene shall cause appropriate
individuals working on the Development Program to be available for meetings at
the location of the facilities where such individuals are employed at times
reasonably convenient to the party responding to such request.
2.7 EXCLUSIVITY
During the term of this Agreement, Argus agrees that it will
not engage in research and development relating to, and will not manufacture,
use or sell, any products relating to or utilizing in any way the Argus
Technology except as expressly provided herein. RGene acknowledges that Argus is
actively engaged in the development of pharmaceuticals for the treatment of
life-threatening infectious diseases and cancer. Except as set forth herein,
this Agreement is not intended and should not be construed to prevent or limit
Argus's ownership of or right to use its technology and patent rights in areas
outside the Argus Technology including without limitation the development of
pharmaceuticals involving gene therapy or antisense technology. Additionally,
Argus acknowledges that RGene is not limited in any way, subject to the terms
hereof, regarding the use of the Argus Technology, including without limitation
the sublicensing thereof to third parties.
2.8 ARGUS PROPRIETARY TECHNOLOGY
Argus and RGene recognize and agree that Argus has expertise
and proprietary technology not licensed to or owned by RGene pursuant to the
Assignment Agreement or Sublicense Agreement, including in the area of liposomal
drug delivery and manufacturing, which may be useful or necessary in the
development of the Products ("Argus Proprietary Technology"). RGene shall have a
non-exclusive royalty-free license to the Argus Proprietary Technology to the
extent useful or necessary (in RGene's good faith business judgment after
consultation with Argus) for the manufacture, use or sale of the Products
("Licensed Argus Proprietary Technology");
-5-
<PAGE> 7
provided that RGene shall not be entitled to sublicense any such Licensed Argus
Proprietary Technology, directly or indirectly, without the express written
consent of Argus, which shall not unreasonably be withheld.
2.9 SUBCONTRACTS
Neither party may subcontract any portion of the development
work to be performed by it hereunder unless such subcontract is contemplated by
the Work Plan and Budget or otherwise approved in writing by the other party,
which approval shall not be unreasonably withheld or delayed. In the case of any
such approved subcontract, the payments to such subcontractor shall be included
in the calculation of Development Costs hereunder.
3. PAYMENTS AND FUNDING
3.1 FUNDING
RGene agrees that it shall bear all costs of funding the
costs set forth in Work Plans and Budgets regarding the Development Program. The
initial Work Plan and Budget is attached hereto as Exhibit 3.1.
3.2 ADDITIONAL CONSIDERATION FOR LICENSING
In further consideration of the assignment and sublicense made
by Argus to RGene as set forth in Article 1 hereof, RGene, effective as of the
date hereof, has issued to Argus 642,307 shares of the common stock of RGene,
all pursuant to the terms of that certain Stockholder Agreement by and between
RGene and Argus of even date herewith attached hereto as Exhibit 3.2.
3.3 REIMBURSEMENT OF DEVELOPMENT COSTS
Subject to the provisions of Section 2 and Section 3.1 hereof,
RGene agrees to compensate Argus for all Development Costs (defined below)
incurred by Argus in connection with the Development Program. For purposes
hereof, the term "Development Costs" means (i) the direct costs, fees and
out-of-pocket or other expenses incurred in the course of performing the work
under the Development Program plus (ii) an allocation of overhead costs on
internal research and development not to exceed 25% of the amounts set forth in
subparagraph (i) above and which shall be consistent with Argus' internal cost
accounting system.
-6-
<PAGE> 8
3.4 REPORTS AND PAYMENTS
Within 60 days after the end of the first three calendar
quarters and within 90 days after the end of each calendar year, Argus shall
provide RGene with a reasonably detailed itemization of the Development Costs
incurred during the previous quarter for which it is entitled to reimbursement
from RGene. Within 30 days following receipt of such statements, RGene shall
reimburse Argus for such Development Costs for which Argus is entitled
reimbursement, subject to RGene's right to withhold reimbursement of any
disputed amounts pending resolution by the parties. RGene and Argus agree to
negotiate in good faith to resolve any such dispute. Argus shall keep and
maintain proper and complete records and books of account documenting all of its
Development Costs to be reimbursed or credited.
3.5 ROYALTIES
No royalties shall be payable by RGene to Argus regarding the
sale or commercial use of any Products or any other products developed from the
Argus Technology.
3.6 AUDIT RIGHTS
Each party shall permit the other party or its representatives
to have access, at its own expense, no more than once in each calendar year
during the term of this Agreement and twice during the three (3) calendar years
following the termination hereof, during regular business hours and upon
reasonable notice, to its records and books for the sole purpose of determining
the appropriateness of any amounts charged by such party hereunder or verifying
the amounts payable hereunder, if any. If such examination reveals that such
amounts have been overstated or understated for any calendar year, such
overpayment shall be promptly refunded or added to the remaining funding
obligation of such party hereunder or in the case of an underpayment, the party
shall promptly pay the amount of any underpayment; provided, that if such
examination was not conducted by an independent accountant, the party whose
records were examined shall have the right to engage an independent accountant
reasonably acceptable to the examining party to verify the results of such
examination. The fees and expenses of such accountant shall be paid by the party
alleging that the amounts charged or paid were incorrect, unless the error is
more than 10% of the actual amount due, in which case the party who made the
error shall pay all reasonable costs and expenses incurred by the investigating
party in the course of making such determination.
-7-
<PAGE> 9
4. OWNERSHIP; COMMERCIALIZATION
4.1 OWNERSHIP
(a) In connection with the Development Program, RGene
and Argus acknowledge and agree that new products or technology based on and/or
incorporating the Argus Technology, and improvements or modifications thereof,
may be developed (the "New Technology"), and that the New Technology will be
owned by RGene. Argus agrees to execute any assignments or other agreements
evidencing RGene's ownership of the New Technology as may be requested by RGene.
(b) Nothing herein shall give Argus any ownership or
commercialization rights with respect to any products, processes or other
technology rights which are developed under this Development Program or
otherwise owned by or licensed to RGene, except to the extent provided in
Sections 4.2 and 4.3 below.
(c) The terms of this Section 4.1 shall at all times be
subject to the provisions of Section 2.8 hereof, to the extent applicable.
4.2 MANUFACTURING
If RGene seeks to manufacture or contract with a third party
to manufacture a Product incorporating or utilizing the Argus Technology, RGene
hereby agrees to negotiate in good faith with Argus with respect to the
manufacture of such Product.
4.3 MARKETING
In the event that RGene desires to market or license to a
third party marketing rights to any Product incorporating or utilizing the Argus
Technology assigned to RGene under the Assignment Agreement, then RGene shall
send Argus notice of said intention. For a period of thirty (30) days after said
notice, Argus and RGene will enter into good faith negotiations regarding an
agreement whereby Argus would undertake the marketing effort of said Product.
Should the parties not execute an agreement prior to the conclusion of said
thirty (30) day period, RGene shall be entitled, in its sole discretion, to
market said Product or, within a twelve month period following the expiration of
such thirty (30) day period, license to a third party marketing rights to any
such Product; provided that the terms of any such license shall clearly be more
favorable to RGene than were last offered in writing by Argus, provided that
such offer by Argus remains outstanding during such twelve-month period. Upon
expiration of such twelve-month period, if no license has been entered into by
RGene with respect to said Product, RGene shall not license such Product
-8-
<PAGE> 10
without complying with this Section 4.3. Argus shall have no other marketing
rights to any of RGene's products except as set forth in this Section 4.3.
4.4 OTHER CONSIDERATIONS
Notwithstanding anything in Section 4.2 or 4.3 to the
contrary, any discussions between the parties with respect to marketing and/or
manufacturing of Products incorporating Argus Technology by Argus as opposed to
a third party, and any judgment as to the relative favorability to RGene of any
such transaction, shall take into account the terms of the proposed agreement
and the relative strengths of Argus and such third party, including sales force,
manufacturing capabilities, manufacturing capacity, marketing and economic
considerations and other relevant information.
5. PATENT PROSECUTION; INFRINGEMENT
5.1 PATENT PROSECUTION AND MAINTENANCE
RGene shall be responsible for filing, prosecuting and
maintaining the patents in the United States and foreign countries on all Argus
Technology licensed or transferred to RGene pursuant to the Assignment Agreement
and the Sublicense Agreement and RGene shall bear all costs associated
therewith. RGene shall have the sole right to file, prosecute and maintain the
patents in the United States and foreign countries on the New Technology, and
shall bear all costs associated therewith. Notwithstanding the foregoing, beyond
reasonable efforts, neither party assumes liability to the other for the
successful prosecution of any patent application.
5.2 THIRD PARTY CLAIM OF INFRINGEMENT
Each party shall give the other prompt notice of each claim or
allegation that the exercise of rights hereunder constitutes an infringement of
one or more patents or other rights of a third party. Each party shall use all
reasonable efforts to defend the parties against any such claim or allegation
with counsel of its own choice reasonably acceptable to such party. The costs of
such defense and any costs of settling or otherwise satisfying such claim shall
be borne by such party.
6. COMPLIANCE WITH LAWS
The parties acknowledge that the products and materials to be
developed pursuant to this Agreement are experimental, biological materials and
are not to be used in humans prior to appropriate regulatory approvals under any
circumstances. Each party agrees to comply with all laws and regulations for
handling and use thereof
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<PAGE> 11
and, if applicable, all export and import regulations of the United States of
America and to provide the other party with evidence thereof upon request.
7. INDEMNIFICATION
7.1 MUTUAL RIGHT TO INDEMNIFICATION
Each party shall defend, indemnify and hold harmless the other
and its directors, officers, employees and agents from and against any and all
claims, liabilities, losses and expenses, including attorneys' fees, incurred by
or asserted against it or any of the foregoing arising out of the development,
testing, manufacture, handling or storage of any Product by such party,
including without limitation (i) any actual or alleged bodily injury, death or
property damage resulting from the use of any Product manufactured by such
party, (ii) any actual or alleged violation of law applicable to the
development, testing, manufacture, handling or storage of the Product by such
party and (iii) any product recall of Product manufactured by such party that is
ordered by a governmental agency or required by a confirmed Product failure as
reasonably determined by the parties, except as otherwise provided herein and
except to the extent that such liabilities, losses and expenses result from the
negligence or willful misconduct of a party, in which case the party who engaged
in such negligence or willful misconduct shall indemnify and hold harmless the
other party and its directors, officers, employees and agents.
7.2 PROCEDURE
Any person that intends to claim indemnification under this
Section 7 (an "Indemnitee") shall promptly notify the other party (the
"Indemnitor") of any claim, in respect of which the Indemnitee intends to claim
such indemnification, and the Indemnitor shall assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings. The indemnity agreement in this
Section 7 shall not apply to amounts paid in settlement of any loss, claim,
liability or action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld unreasonably. The failure to
deliver notice to the Indemnitor within a reasonable time after the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Section 7,
but not any liability that it may have to any Indemnitee otherwise than under
this Section 7. The Indemnitee and its employees and agents shall cooperate
fully with the Indemnitor and its legal
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<PAGE> 12
representatives in the investigation of any action, claim or liability covered
by this indemnification. In the event that each party claims indemnity from the
other and one party is finally held liable to indemnify the other, the
Indemnitor shall additionally be liable to pay the reasonable legal costs and
attorneys' fees incurred by the Indemnitee in establishing its claim for
indemnity.
7.3 PRODUCT LIABILITY INSURANCE
Each party shall use all commercially reasonable efforts to
maintain product liability insurance with respect to its manufacture of the
Product hereunder. Such insurance shall be in such amounts and subject to such
deductibles as the parties may agree based upon standards prevailing in the
industry at the time such manufacturing commences.
8. TERM
8.1 INITIAL TERM
This Agreement shall have an initial term equal to three (3)
years from the initial date set out at the outset of this Agreement, unless
extended by the written consent of the parties or earlier terminated pursuant to
the provisions hereof.
8.2 EARLY TERMINATION
This Agreement may be terminated in advance of the expiration
of the term set forth in Section 8.1 above in accordance with the following
provisions:
(a) This Agreement may be terminated immediately by
either party in the event of bankruptcy, insolvency, receivership or compulsory
liquidation of the other party.
(b) In the event that any of the terms or conditions of
this Agreement or any of the Exhibits hereto are materially breached or
materially violated by one party (the "Defaulting Party") and are not corrected
within forty-five (45) days after written notice hereof has been given by the
nondefaulting party, the nondefaulting party shall have the right, in addition
to any other rights or remedies of action, to terminate this Agreement
immediately.
(c) This Agreement may be terminated by Argus if RGene
has not completed an equity financing with proceeds to RGene of at least $2.5
million by September 30, 1994.
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<PAGE> 13
9. CONFIDENTIALITY
9.1 CONFIDENTIAL INFORMATION
Each of the parties hereby agrees that it will hold each
other's proprietary information, trade secrets, know-how, and related
confidential information, limited, however, to such information as is in written
form, or if disclosed orally, to a written memorandum delivered to the
nondisclosing party summarizing such orally disclosed confidential information
within 30 days of such disclosure ("Confidential Information"), in confidence
and will not disclose such Confidential Information to any third party without
the prior written consent of the other party, except as expressly provided in
this Agreement or as may be otherwise provided in any agreement which is an
Exhibit to this Agreement. Confidential Information shall not include any
information to the extent that the receiving party can show:
(a) that such information is publicly available or
otherwise generally known through no fault of its own;
(b) that such information was in its possession prior to
the date of disclosure;
(c) that it subsequently received such information from
a third party without restriction as to its disclosure or use;
(d) that it is authorized to disclose such information
by any subsequent written agreement between the parties hereto; or
(e) that it independently developed such information
without the benefit of the Confidential Information from such party.
9.2 NON-USE
Neither party shall use any of the Confidential Information
disclosed to it by the other party pursuant to the terms of this Agreement for
any purpose other than that which it has contemplated for herein, without the
consent of the other party hereto.
9.3 TERM
The confidentiality and non-use covenants contained in
Sections 9.1 and 9.2 above shall continue during the term of this Agreement and
for a period of five years thereafter.
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<PAGE> 14
9.4 EMPLOYEES
Each party agrees that it will require each of its employees
who work on any Project contemplated by this Agreement to execute a
confidentiality and non-use agreement containing the above terms directly with
the other party to this Agreement, if requested.
10. SUCCESSORS AND ASSIGNS
The provisions of this Agreement shall be binding upon and
inure to the benefit of each of the parties hereto, their employees, officers,
directors and consultants, if any, together with their successors and assigns;
provided, however, that no right or obligation arising under this Agreement may
be transferred or assigned by either party without the prior written consent of
the other.
11. INDEPENDENT RELATIONSHIP
The parties agree that Argus will act as an independent
consultant or contractor to RGene and not as an employee, agent, partner or
joint venturer. Under no circumstances shall Argus, its agents, employees and
consultants, if any, be deemed to be agents or representatives of RGene, nor
will any of them have the right to enter into any contracts or commitments in
the name of RGene or otherwise bind or commit RGene.
12. PERSONS BOUND
Argus agrees to require its employees, consultants,
collaborators and agents, if any, that will be providing services under the
terms of this Agreement to acknowledge and agree to abide by all the terms of
Argus' obligations hereunder.
13. WARRANTY DISCLAIMERS
Argus makes no warranty or representation, either express or
implied, as to its findings, recommendations, specifications, or professional
advice for the services to be rendered hereunder except as follows:
(a) This Agreement does not conflict with any other agreement
to which Argus is bound;
(b) No other agreement exists which prevents Argus from
entering into this Agreement or performing the services to be provided
hereunder; and
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<PAGE> 15
(c) Argus agrees that it will not during the term of this
Agreement enter into any contract or agreement with any other party which would
abrogate any of its duties or rights hereunder, or compete with the development
efforts of RGene herein, without the prior written consent of RGene.
14. ARBITRATION
The parties agree that any dispute arising out of this
Agreement or its interpretation shall be submitted to binding arbitration to the
authority of an arbitrator selected by the parties and sanctioned by the
American Arbitration Association. If the parties cannot agree on an arbitrator,
they shall each select an arbitrator and the two arbitrators will select a third
arbitrator, with the decision of a majority of the arbitrators being binding.
The parties agree that the decision of the arbitrator shall be final and binding
and shall not be appealed. In the event of any litigation or arbitration between
the parties arising out of this Agreement, the prevailing party shall be
reimbursed for any and all reasonable attorneys' fees and court costs by the
losing party.
15. MISCELLANEOUS
15.1 GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, unless otherwise specially
agreed upon.
15.2 SEVERABILITY
If any part of this Agreement or any part of the Exhibits
hereto is deemed to be unlawful or invalid then that part shall be severed from
this Agreement or Exhibits, but the remaining parts and the Agreement or Exhibit
as a whole shall remain in effect and be binding upon both parties.
15.3 FORCE MAJEURE
Neither party hereto shall be liable to the other party for
the default of any obligation hereunder due to any cause which is beyond such
party's reasonable control, including, but not limited to, acts of God,
compliance with laws and orders, riot, fires, explosions, shipwrecks, epidemics,
and the like.
15.4 WAIVER AND AMENDMENTS
A breach of the terms or conditions of this Agreement may only
be waived in writing. No waiver of any breach of the terms and conditions of
this Agreement to be
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<PAGE> 16
performed by the other party shall be construed as a waiver of any subsequent
breach, whether of the same, or any other, terms and conditions hereof. No
amendment to this Agreement shall be effective for any purpose unless in writing
and signed by an authorized officer of each party.
15.5 ENTIRE AGREEMENT
This Agreement and the Exhibits hereto constitute the entire
agreement and understanding between the parties and supersede and cancel all
previous negotiations, representations, undertakings, understandings and
agreements which have previously been made between the parties with respect to
the subject matter of this Agreement and the Exhibits.
15.6 NOTICES
All notices required or contemplated by this Agreement from
any party shall be in writing and shall be delivered either (a) by personal
delivery, (b) by regular mail, postage prepaid, (c) by electronic transmission,
confirmed by mail, postage prepaid, or (d) by overnight delivery service which
takes receipt of delivery. All notices delivered by mail or electronic
transmission shall be addressed to the party at its address set forth in this
Agreement, which address may be changed from time to time by notice delivered in
accordance with this Section 15.6. The effective date of any notice delivered in
accordance with this Section 15.6 shall be (a) the date of personal delivery,
(b) the third day after the date of mailing, or (c) the second business day
after electronic transmission.
15.7 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which, taken together,
shall constitute one instrument.
15.8 EXPENSES
Each party agrees that it shall be liable for its own legal
fees and other expenses incurred by it in the negotiation of this Agreement, and
shall not be entitled to reimbursement by the other for such expenses either
directly or through the provisions of this Agreement.
15.9 RELATIONSHIP OF THE PARTIES
The parties agree that each is acting as an independent
contractor with respect to the other and nothing contained in this Agreement is
intended, or is to be construed,
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<PAGE> 17
to constitute RGene and Argus as partners or joint venturers or Argus as an
agent of RGene. Neither party hereto shall have any express or implied right or
authority to assume or create any obligations on behalf of or in the name of the
other party or to bind the other party to any contract, agreement or
undertaking.
ARGUS PHARMACEUTICALS, INC.
By: /s/ D.M. LEECH
------------------------------------
Name: D.M. LEECH
----------------------------------
Title: President/CEO
---------------------------------
3400 Research Forest Drive
The Woodlands, Texas 77381
RGENE THERAPEUTICS, INC.
By: /s/ MARTIN P. SUTTER
-----------------------------------
Name: MARTIN P. SUTTER
----------------------------------
Title: Chairman
---------------------------------
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
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<PAGE> 18
EXHIBIT A
"PRODUCTS"
(a) An in vivo gene therapy product (EIA) treating ovarian
and/or breast cancer relating to the technology covered by the UTRC License
Agreement and the technology covered by the Patent and Technology License
Agreement between MDACC and RGene effective March 1, 1994; and
(b) An anti-sense product treating chronic myelogenous
leukemia (CML) relating to the technology covered by the Assignment Agreement.
<PAGE> 19
Exhibit B
ASSIGNMENT AND ASSUMPTION
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") is
entered into this 6th day of April, 1994, by and between Argus Pharmaceuticals,
Inc., a Delaware corporation ("Argus"), and RGene Therapeutics, Inc., a Delaware
corporation ("RGene").
WHEREAS, Argus is the exclusive licensee of certain Technology
under that certain Exclusive License Agreement, dated July 1, 1988 by and among
Argus, the University of Texas Board of Regents and the University of Texas M.D.
Anderson Cancer Center, as amended ("Exclusive License Agreement");
WHEREAS, in exchange for the issuance of shares in RGene under
that certain Stockholder Agreement dated April 6, 1994 by and between Argus and
RGene, Argus wishes to assign to RGene its rights and obligations with respect
to the Technology licensed the Exclusive License Agreement; and
WHEREAS, RGene is desirous of obtaining the entire right and
interest of Argus in and to the Exclusive License Agreement as it relates to the
Technology and assume the obligations of Argus therefor, all pursuant to the
terms and conditions set forth below.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
I. ASSIGNMENT
1.1 Argus hereby assigns to RGene, its successors and assigns,
all of the right, title and interest of Argus in and to the Exclusive License
Agreement to the extent and only to the extent that the Exclusive License
Agreement relates to the Invention identified in Amendment No. 3 to the
Exclusive License Agreement.
1.2 By its acceptance of this Assignment, RGene hereby accepts
all of the benefits and assumes all of the obligations of Argus under the
Exclusive License Agreement to the extent the Exclusive License Agreement
relates to the Invention identified in Amendment No. 3 thereto, including but
not limited to all costs and fees relating to the filing and prosecuting of
patent applications on the Invention and the payment of royalties and other
payments required by the Exclusive License Agreement to the extent the Exclusive
License Agreement relates to the Invention identified in Amendment No. 3
thereto.
1.3 Argus agrees to execute such further instruments as RGene
reasonably requests to secure or perfect in RGene the full benefit of the
Assignment set forth herein.
<PAGE> 20
II. NEGATION OF WARRANTIES
2.1 Argus makes no representation or warranty (a) that any
patent application on the Technology will ultimately issue as a patent, (b) that
any patent application which issues into a patent is valid and enforceable, (c)
that the use of the Technology in the manufacture, use or sale of any product
will be free from infringement of patents of third parties, or (d) as to the
safety, reliability, or efficacy of the Technology which may ultimately be
incorporated in any product.
2.2 Argus makes no representations, extends no warranties of
any kind, either express or implied, and assumes no responsibilities whatever
with respect to the manufacture, use, or sale, or other disposition of any
products incorporating the Technology.
III. MISCELLANEOUS
3.1 The execution of this Agreement by the University of Texas
Board of Regents and the University of Texas M.D. Anderson Cancer Center, as the
licensor of the Technology, is for the purpose of indicating their approval of
the provisions of this Agreement.
3.2 It is understood that this Assignment contains the entire
agreement between the parties relating to the subject matter of this Agreement.
3.3 This Assignment is deemed to have been made in the State
of Texas and shall be interpreted and construed in accordance with the laws of
the State of Texas.
IN WITNESS WHEREOF, signifying their acceptance of and
agreement to be bound by the terms and conditions of this Agreement, the
signatures of the parties are affixed hereto.
RGENE THERAPEUTICS, INC. ARGUS PHARMACEUTICALS, INC.
By: /s/ MARTIN P. SUTTER By: /s/ DAVID M. LEECH
---------------------------- --------------------------------
Name: Martin P. Sutter Name: David M. Leech
-------------------------- ------------------------------
Title: Chairman Title: President and CEO
------------------------- ------------------------------
Date: 4-5-94 Date:
-------------------------- ------------------------------
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<PAGE> 21
THE UNIVERSITY OF TEXAS BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER UNIVERSITY OF TEXAS SYSTEM
By: /s/ DAVID J. BACHRACH By: /s/ THOMAS G. RICKS
---------------------------------- ------------------------------
Name: David J. Bachrach Name: Thomas G. Ricks
Title: Executive Vice President for Title: Vice Chancellor for Asset
Administration and Finance Management
Date: 3-25-94 Date:
-------------------------------- ----------------------------
APPROVED AS TO CONTENT APPROVED AS TO FORM
By: /s/ WILLIAM J. DOTY By: /s/ DUDLEY R. DOBIE, JR.
---------------------------------- ---------------------------------
Name: William J. Doty Name: Dudley R. Dobie, Jr.
Title: Director, Technology Title: Manager, Intellectual
Development Property
Date: 3/22/94 Date:
-------------------------------- ------------------------------
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<PAGE> 22
EXHIBIT C
SUBLICENSE AGREEMENT
This Sublicense Agreement ("Sublicense"), effective the 6th
day of April, 1994, ("Effective Date") is entered into by and between Argus
Pharmaceuticals, Inc., a Delaware corporation ("Argus"), and RGene Therapeutics,
Inc., a Delaware corporation ("RGene").
WITNESSETH:
WHEREAS, the University of Tennessee Research Corporation
("UTRC") and McMaster University ("McMaster") executed and entered into an
agreement effective May 25, 1992 whereby UTRC received the exclusive right to
commercialize certain Technology including the right to grant licenses to third
parties;
WHEREAS, Argus is the licensee of that certain Technology
pursuant to an Agreement dated November 1, 1993 by and between UTRC and Argus
(the "UTRC License Agreement");
WHEREAS, in exchange for the issuance of shares in RGene under
that certain Stockholder Agreement dated April 6, 1994 by and between Argus and
RGene ("Stockholder Agreement"), Argus is willing to grant RGene an exclusive
sublicense to the Technology licensed under the UTRC License Agreement; and
WHEREAS, RGene is desirous of obtaining an exclusive
sublicense of the Technology pursuant to the terms and conditions set forth
below.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
I. DEFINITIONS
1.1 "Technology" shall mean the technology defined as
Technology in the UTRC License Agreement.
1.2 "Licensed Patent Rights" shall mean the U.S. and foreign
patents and applications defined as Licensed Patent Rights in the UTRC License
Agreement.
1.3 "Licensed Product" shall mean the products or compositions
defined as a Licensed Product in the UTRC License Agreement.
<PAGE> 23
1.4 "Licensed Fields" shall mean the applications of the
Technology and the Licensed Patent Rights defined as Licensed Fields in the UTRC
License Agreement.
1.5 "Excluded Fields" shall mean those applications and fields
excluded or reserved from the license defined as Excluded Fields in the UTRC
License Agreement.
1.6 "Argus Licensed Rights" shall mean and only include those
rights licensed to Argus under the UTRC License Agreement and shall specifically
exclude (for purposes of this Sublicense only and without affecting any other
agreement between Argus and RGene) any other proprietary rights owned or
licensed by Argus.
II. SUBLICENSE
2.1 Subject to all the terms and conditions of this Sublicense
and the UTRC License Agreement, Argus hereby grants to RGene a worldwide,
exclusive sublicense under all the Argus Licensed Rights to fully exploit and
commercialize the Technology in the Licensed Fields granted to Argus under the
UTRC License Agreement subject to the Excluded Fields and any other reservations
or limitations set forth in the UTRC License Agreement.
2.2 RGene agrees that it will not utilize the Technology or
practice under the Licensed Patent Rights for any purpose other than that
encompassed by the Sublicense granted herein.
2.3 As the exclusive sublicensee of Argus, RGene hereby
accepts all the benefits and assumes all of the obligations of Argus under the
UTRC License Agreement and agrees to be bound by all terms and conditions of the
UTRC License Agreement on behalf of Argus and as sublicensee under the UTRC
License Agreement in each case subject to the terms and conditions set forth
herein.
2.4 Argus agrees not to utilize the Technology or practice
under the Licensed Patent Rights for any purpose other than with the prior
written agreement of RGene.
2.5 RGene agrees that it will comply with the terms of Section
2.6 of the UTRC License Agreement.
2.6 RGene shall use its best efforts to bring one or more
Licensed Products to market in each of the Licensed Fields.
2.7 Argus and RGene agree, and UTRC acknowledges, that RGene
is an Associate Sublicensee under the UTRC License Agreement
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<PAGE> 24
III. PAYMENTS
3.1 The rights and licenses granted by RGene pursuant to
Article II shall be non royalty bearing to Argus and no payments shall be
required by RGene to Argus other than those as a sublicensee under the UTRC
License Agreement.
3.2 RGene agrees to pay the UTRC Running Royalties pursuant to
Article 4.1 B. and C. set forth in the UTRC License Agreement. Further, RGene
agrees to pay all UTRC Milestone Payments when due pursuant to Article 4.1 E. of
the UTRC License Agreement.
3.3 RGene agrees to make payment of all UTRC Running Royalties
and Milestone Payments directly to UTRC in accordance with Articles 4.2, 4.3,
4.4, 4.5 and 4.7 of the UTRC License Agreement.
3.4 Should RGene fail to make any payment or submit any report
as required under this Sublicense or under the UTRC License Agreement, Argus
shall have the option to terminate this Sublicense in accordance with the
provisions of Article 7.3 herein.
3.5 RGene agrees to maintain all reports, records, and allow
inspection as provided in Article 5 of the UTRC License Agreement and to submit
the written reports of Article 5.2 of the UTRC License Agreement directly to
UTRC.
IV. PATENTS
4.1 Argus will provide RGene with any correspondence or
election notices received from UTRC pursuant to Section 6.1 of the UTRC License
Agreement immediately upon Argus' receipt thereof. RGene shall be entitled to
exercise all rights of Argus under Section 6.1 of the UTRC License Agreement.
4.2 RGene agrees to assume the rights and obligations of Argus
with respect to the patent related expenses set forth in Articles 6.2 and 6.3 of
the UTRC License Agreement.
4.3 RGene agrees to mark all products covered by the Licensed
Patent Rights with patent numbers in accordance with Article 6.5 of the UTRC
License Agreement.
4.4 RGene shall be entitled at its own expense to participate
in any lawsuit in which UTRC or Argus is a party that relates to the alleged
infringement of the rights to any issued patent included within the Licensed
Patent Rights, United States or foreign, by an unlicensed third party. Argus
shall not grant its consent, pursuant to
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<PAGE> 25
Section 7.1 of the UTRC Agreement, to the grant by UTRC of any license under the
Licensed Patent Rights in the First Licensed Field without the prior written
consent of RGene, which shall not unreasonably be withheld.
V. DEFENSE OF LEGAL ACTIONS; INSURANCE
5.1 In the event that UTRC, the University of Tennessee or
Argus, or any of their respective directors, officers, or employees, or any
individual named as an inventor of the Licensed Patent Rights (hereinafter
"Indemnified Party") is charged with infringement of a patent by a third party
or is made a party in any lawsuit (including but not limited to products
liability actions) as a result of the manufacture, use, or sale of any Licensed
Product under this Sublicense or as a result of any obligation or activity of
RGene under this Sublicense or the UTRC License Agreement, RGene shall:
(a) defend or settle, at RGene's expense, any claim of
infringement or lawsuit;
(b) assume all costs, expenses, damages, and other
obligations for payments incurred as a consequence of such charges of
infringement or lawsuit; and
(c) indemnify and hold such Indemnified Party harmless
for any and all damages, losses, liability, and costs resulting from such charge
of infringement or lawsuit.
5.2 At RGene's request, Argus and UTRC shall give RGene
assistance in the defense any such infringement charge or lawsuit.
5.3 Any Indemnified Party shall have the right to participate
in any defense, compromise or settlement to the extent that, in its judgment, it
may be prejudiced thereby.
5.4 RGene shall not settle any suit naming an Indemnified
Party without the prior written consent of each such Indemnified Party.
5.5 RGene shall not settle any claim or suit in any manner
that shall adversely affect any Licensed Patent Rights, require any payment by
any Indemnified Party, or reduce the royalty due to UTRC hereunder without the
prior written consent of UTRC. The foregoing shall apply even with regard to a
claim or suit in which UTRC is not a party.
5.6 RGene and Argus each agree to carry such liability
insurance as shall be mutually agreed for companies of their size and activities
operating in the
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<PAGE> 26
pharmaceutical industry. At all times during the term of this Sublicense, UTRC
and Argus shall be listed as an additional named insured on such liability
insurance policy(ies) of RGene, and RGene shall be listed as an additional
insured on such liability insurance policies of Argus. RGene and Argus each
agree to provide written evidence of such insurance upon request by the other.
VI. NEGATION OF WARRANTIES
6.1 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS:
(a) a warranty or representation by UTRC or Argus that
any patent application included within the Licensed Patent Rights will
ultimately issue as a patent;
(b) a warranty or representation as to the validity or
scope of any patent application or issued patent that may be included in the
Licensed Patent Rights;
(c) a warranty or representation that the use of the
Technology or the practice of the invention(s) covered by the Licensed Patent
Rights or the manufacture, use, or sale of the Licensed Products are or will be
free from infringement of patents of third parties;
(d) a requirement that UTRC or Argus shall be responsible
for the expenses of filing or prosecuting any patent application or maintaining
any patent in force;
(e) an obligation on the part of UTRC or Argus to bring
or prosecute actions or suits against third parties for infringement of the
Licensed Patent Rights or for unauthorized use of the Technology;
(f) an obligation on the part of UTRC or Argus to defend
any action or suit brought by any third party;
(g) a warranty or representation by UTRC or Argus as to
the safety, reliability, or efficacy of the Technology, the invention(s) covered
by the Licensed Patent Rights, or any product which incorporates or in its
production employs such Technology or invention(s);
(h) a warranty or representation by UTRC or Argus that
any Technology is secret or confidential; or
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<PAGE> 27
(i) a requirement that UTRC take any action to prevent
the disclosure of the Technology by the University of Tennessee, or its
employees, or any other third party.
6.2 UTRC and Argus make no representations, extend no
warranties of any kind, either express or implied, and UTRC assumes no
responsibilities whatever with respect to the manufacture, use, or sale, or
other disposition of the Licensed Products, or any other activities hereunder by
RGene, its customers, or any third parties.
VII. TERM AND TERMINATION
7.1 This Agreement shall commence and become effective as
of the Effective Date.
7.2 Unless earlier determined in accordance with the
provisions set out herein, this Sublicense shall continue in full force and
effect until the expiration or termination of the UTRC License Agreement. Argus
agrees that it will not take any action to terminate the UTRC License Agreement
(except pursuant to Section 10.2 thereof) without the prior written consent of
RGene.
7.3 RGene shall be entitled to all rights of Argus under
Sections 10.3 and 10.5 under the UTRC License Agreement.
7.4 Should RGene fail to pay UTRC royalties or Milestone
Payments or any other payments due and payable hereunder, Argus shall have right
to terminate this Sublicense on thirty (30) days' written notice to RGene,
unless RGene shall within said thirty (30) day period pay UTRC all such amounts
due and payable, this Sublicense shall terminate at midnight on the 30th day,
all without prejudice to any rights or remedies otherwise available to Argus.
7.5 In the event that either party to this Sublicense defaults
in the due performance of its obligations or covenants hereunder or in the event
that any representation by either party proves to be false or incorrect in any
material respect, the other party may give notice of same the defaulting party
demanding that such default be cured within sixty (60) days. If the fault is not
cured within the sixty (60) day grace period, this Sublicense shall terminate at
midnight on the last day of such period, all without prejudice to any rights or
remedies otherwise available to the terminating party.
7.6 Upon any termination of this Sublicense by either party,
except pursuant to the provisions of Section 7.2 above;
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<PAGE> 28
(a) All rights granted to RGene hereunder shall terminate
automatically and shall revert to Argus; and
(b) RGene shall not thereafter utilize the Technology for
any purpose or manufacture, use, or sell Licensed Products under the Licensed
Patent Rights.
7.7 Within thirty (30) days after the termination of this
Sublicense for any reason, RGene shall duly account for and pay to UTRC all
royalties and other payments accrued as of the date of termination.
7.8 In the event of adjudication of bankruptcy, appointment of
a receiver by a court of competent jurisdiction, assignment for the benefit of
creditors, or where levy or execution directly involves all the substantial
assets of RGene or if RGene goes out of business, this Sublicense shall
automatically terminate effective the date of such action; provided, however,
that such termination shall not impair or prejudice any right or remedy that
Argus may otherwise have.
7.9 Termination of this Sublicense for any cause shall not be
construed to release RGene from any royalty or confidentiality obligation or any
obligation under Article V (all of which shall survive the termination of this
Sublicense) or from any other obligation matured prior to the effective date of
such termination.
VIII. CONFIDENTIALITY
8.1 RGene agrees that reasonable and prudent practices shall
be followed to maintain the confidential nature of the Technology that is not
public knowledge, including where necessary, obtaining written confidentiality
agreements from employees not already bound by such agreements and all employees
of same who have access to such Technology. Argus and RGene each agree that all
information relating to this Sublicense and the Technology and improvements
sublicensed hereunder contained in documents made "Confidential" which are
forwarded to one by the other (or between UTRC and either party) shall be
received in strict confidence, shall be used only for the purpose of this
Sublicense, and shall not be disclosed by the receiving party (except as
required by law), its agents or employees without the prior written consent of
the forwarding party, unless such information (i) was in the public domain at
the time of disclosure, (ii) later becomes part of the public domain through no
act or omission of the receiving party, its employees, agents, successors or
assigns, (iii) was lawfully disclosed to the receiving party by a third party
having a right to disclose it, (iv) was already known to the receiving party at
the time of disclosure, (v) was independently conceived, discovered or reduced
to practice, (vi) is required to be submitted to a government agency pursuant to
any obligation imposed or right granted hereunder, (vii) is required by law or
court order
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<PAGE> 29
to be disclosed, or (viii) is disclosed by the University of Tennessee, UTRC, or
McMaster in the exercise of rights under Article 15.1 of the UTRC License
Agreement. The foregoing obligation of confidentiality shall survive the
termination of this Sublicense for any reason for a period of ten (10) years
thereafter. In addition, RGene shall be entitled to the benefit of all rights of
Argus pursuant to Section 11.1 of the UTRC License Agreement.
IX. MISCELLANEOUS
9.1 It is understood that this Sublicense contains the entire
agreement between the parties relating to the subject matter of this Sublicense.
Neither party shall be bound by any agreement, covenants or warranties unless it
shall be reduced to writing and signed by an officer of such party. The failure
of either of the parties at any time or times to require the performance by the
other of any provisions hereof shall in no matter affect the right of the first
mentioned party thereafter to enforce the same. The waiver by either of the
parties of any breach of any provision hereof shall never be construed to be a
waiver of any succeeding breach of such provision or a waiver of the provision
itself.
9.2 This Sublicensee shall be binding upon and shall enure to
the benefit of Argus and its assigns and successors in interest and shall be
binding upon and shall enure to the benefit of RGene and its assigns and
successors in interest provided that such successor shall agree in writing to be
bound in all respect thereby. This Sublicense shall not be assignable or
assigned by RGene without the prior written approval of UTRC, as required by the
UTRC License Agreement, which approval shall not be unreasonably withheld.
9.3 All payments, notices and other communications to the
parties shall be deemed to be given and received two (2) days after the date of
mailing when sent by certified or registered United States mail, return receipt
requested, and addressed as set out below. Otherwise, a payment, notice, or
other communication shall be deemed to be given and received on the date of
actual receipt by the addressee.
(a) If to RGene:
RGENE THERAPEUTICS, INC.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77381
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<PAGE> 30
(b) If to Argus:
ARGUS PHARMACEUTICALS, INC.
3400 Research Forest Drive
The Woodlands, Texas 77381
(c) If to UTRC:
UNIVERSITY OF TENNESSEE
RESEARCH CORPORATION
415 Communications Building
Knoxville, Tennessee 37996-0344
9.4 Either party may change its address by written notice duly
given to the other party. A post office receipt showing the date of deposit
shall be prima facie evidence of mailing when sent by certified or registered
United States mail.
9.5 RGene will comply with the terms of Section 15.1 of the
UTRC License Agreement.
9.6 Each party shall be deemed to be an independent contractor
and this Sublicense shall not constitute a partnership or a joint venture, and
neither party shall be bound by the other to any contract, arrangement or
understanding except as specifically stated herein.
9.7 Prior written approval must be obtained for the use of
UTRC's, McMaster's, or the University of Tennessee's name, logo or associated
symbols in any form of advertising.
9.8 RGene shall be solely responsible for the payment and
discharge of any taxes or duties relating to any transactions of RGene, its
employees, contractors, or agents in connection with the manufacture, use, or
sale in any country of Licensed Products.
9.9 RGene shall, at its own expense, be responsible for
applying for and obtaining any approvals, authorizations, or validations
required under the laws of the United States or a foreign country that may be
necessary for the manufacture, use, or sale of License Products or relative to
the performance of any obligation under this Sublicense.
9.10 The failure of either party to enforce at any time any of
the provisions of this Sublicense, or any rights in respect thereto, or to
exercise any election herein provided, shall in no way be considered to be a
waiver of such provisions, rights or
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<PAGE> 31
elections, or in any way to affect the validity of this Sublicense. Exercise by
either party of any of these rights herein or any of its elections under the
terms or covenants herein shall not preclude either party from exercising the
same or any other rights in this Sublicense irrespective of any previous action
or proceeding taken by either party hereunder.
9.11 If any provision of this Sublicense is judicially or in
an arbitration proceeding determined to be void or unenforceable, such provision
shall be deemed to be severable from the other provisions of this Sublicense
which shall remain in full force and effect. Either party may request that a
provision otherwise void or unenforceable be reformed so as to be valid and
enforceable to the maximum extent permitted by law.
9.12 No liability hereunder shall result to a party by reason
of delay in performance caused by force majeure, that is, circumstances beyond
reasonable control of the party, including, without limitation, acts of God,
fire, flood, war, civil unrest, labor unrest, or shortage or inability to obtain
material or equipment.
9.13 The signature on the part of UTRC appears below as the
licensor of the Licensed Patent Rights and the Technology for the purpose of
indicating its approval of the provisions of Sublicense and indicating its
agreement not to take any action in derogation of the rights herein granted to
RGene. It is understood and agreed by RGene that Argus shall have no
responsibility or liability for any act or omission to act on the part of UTRC
or McMaster and UTRC and McMaster shall have no responsibility or liability for
any act or omission to act on part of Argus.
9.14 This Agreement shall have no force and effect unless and
until duly executed by both parties.
9.15 This Sublicense is deemed to have been made in the State
of Texas and shall be interpreted and construed and any legal relations created
hereunder shall be determined in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, signifying their acceptance of and
agreement to be bound by terms and conditions of this Agreement, the signature
of the parties are affixed hereto.
RGENE THERAPEUTICS, INC. ARGUS PHARMACEUTICALS, INC.
By: /s/ MARTIN P. SUTTER By: /s/ DAVID M. LEECH
-------------------------- -----------------------------
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<PAGE> 32
Name: Martin P. Sutter Name: David M. Leech
----------------------------
Title: Chairman Title: President & CEO
---------------------------
Date: April 6, 1994 Date: April 6, 1994
---------------------------- -------------------------------
APPROVED BY THE UNIVERSITY OF
TENNESSEE RESEARCH
CORPORATION
By: /s/ ANN J. ROBERSON
----------------------------------
Name: Ann J. Roberson
--------------------------------
Title: President
--------------------------------
Date: April 7, 1994
--------------------------------
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<PAGE> 33
EXHIBIT 3.1
<TABLE>
<CAPTION>
AR-GENE BUDGET
GROUP BUDGET ITEM 1ST 6 MONTH 2ND 6 MONTH 3RD 6 MONTH 4TH 6 MONTH
----- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ARGUS [*]
L. HUANG [*]
G. LOPEZ [*]
M. HUNG [*]
PASS THRU [*]
</TABLE>
- --------------------
[*] Confidential Treatment Requested.
<PAGE> 34
EXHIBIT 3.2
RGENE THERAPEUTICS, INC.
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") dated April 6,
1994 is entered into by and between RGene Therapeutics, Inc., a Delaware
corporation (the "Company"), and Argus Pharmaceuticals, Inc., a Delaware
corporation ("Stockholder").
WITNESSETH:
WHEREAS, the Company desires to issue certain shares of common
stock, $.001 par value, of the Company (the "Common Stock") to the Stockholder;
and
WHEREAS, the Stockholder desires to acquire certain shares of
Common Stock from the Company; and
WHEREAS, the Stockholder and the Company desire that the
Stockholder grant to the Company, and under certain circumstances to holders of
the Company's Preferred Stock or other securities issued by the Company to
investors (the "Investors"), options to repurchase certain shares of Common
Stock purchased by the Stockholder on the terms and conditions set forth;
NOW, THEREFORE, for and in consideration of the mutual
promises, covenants and obligations contained herein, the parties agree as
follows:
1. ISSUANCE OF SHARES
1.1 PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement and in
consideration of the execution of (i) that certain Assignment Agreement between
the Company and the Stockholder dated the date hereof relating to certain patent
applications and technology currently licensed to Stockholder by The University
of Texas M.D. Anderson Cancer Center and The University of Texas System Board of
Regents pursuant to an Exclusive License Agreement dated July 1, 1988, and (ii)
that certain Sublicense Agreement between the Company and the Stockholder dated
the date hereof relating to certain patent applications and technology rights
currently licensed to Stockholder by the University of Tennessee Research
Corporation pursuant to an Agreement dated November 1, 1993, the Company agrees
to issue to the Stockholder 642,307 shares of Common Stock (the "Shares") at the
Closing (as defined below).
<PAGE> 35
1.2 CLOSING
The closing for the issuance of the Shares to the Stockholder
shall occur on or before April 6, 1994, or at such other date and time as the
parties may agree (the "Closing"). At the Closing, or within a reasonable time
thereafter, the Company shall deliver to Stockholder a certificate or
certificates representing the number of Shares as set forth in Section 1.1
hereof, in the name of the Stockholder.
2. REPRESENTATIONS AND WARRANTIES
To induce the Company to deliver the Shares to the
Stockholder, the Stockholder represents and warrants to the Company:
(a) The Stockholder is acquiring the Shares for its own
account as principal, for investment purposes only, and not with a view to, or
for, resale or distribution, and no other person or entity has a direct or
indirect beneficial interest in the Shares;
(b) The Stockholder has not offered any of the Shares for
resale and has no present intention of dividing its interest with others or of
reserving or otherwise disposing of any of the Shares;
(c) Any information the Stockholder has furnished to the
Company with respect to the Stockholder's status as a sophisticated or
accredited investor, its business experience or financial position is correct;
(d) The financial capacity of the Stockholder is such that
the investment in the Shares is not material to its total financial capacity;
the Stockholder has the financial ability to bear the economic risk of its
investment, has adequate means for providing for its current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the Shares;
(e) The Stockholder considers itself to be a sophisticated
investor and has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of the prospective
investment in the Shares;
(f) The Stockholder has been furnished with all information
concerning the Shares and the Company that it desires;
(g) The Stockholder has been given the opportunity to ask
questions of, and receive answers from, the Company with respect to the Shares,
concerning the terms and conditions of the offering and other matters pertaining
to this investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information provided to him
by the Company in order for him to evaluate
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<PAGE> 36
the merits and risks of investment in the Shares to the extent that the Company
possessed such information or could acquire it without unreasonable effort or
expense; and
(h) The Stockholder is not relying on the Company with
respect to any economic considerations of the Stockholder related to this
investment. In regard to the economic considerations related to this investment,
the Stockholder has relied on the advice of, or has consulted with, only its own
advisors.
The Stockholder further represents, warrants and agrees that
it will not sell or otherwise transfer the Shares without registration under the
Securities Act of 1933, as amended (the "Act"), or an exemption therefrom, and
fully understands and agrees that it must bear the economic risk of its purchase
for an indefinite period of time because, among other reasons, the Shares have
not been registered under the Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states or an exemption from such registration is
available. It also understands that the Company is under no obligation to
register the Shares on its behalf or to assist him in complying with any
exemption from registration under the Act. It further understands that any
certificate evidencing the Shares will bear a legend restricting the transfer
thereof consistent with the foregoing and that a notation may be made in the
records of the Company restricting the transfer of any Shares in a manner
consistent with the foregoing.
3. STOCKHOLDER AWARENESS
The Stockholder acknowledges that it is aware that:
(a) No federal or state agency has passed upon the Shares
or made any finding or determination as to the fairness of this investment;
(b) There are substantial risks of loss of investment
incident to an investment in the Shares and such an investment is highly
speculative;
(c) The Company is only recently organized, has not
conducted any substantial business to date and does not have any substantial
working capital or financial resources. The business in which the Company
proposes to engage is highly competitive and success in the Company's business
may depend on, among other things, the Company's ability to obtain financing, to
complete product development, to attract qualified employees and to obtain
patent protection and governmental approvals, market acceptance of products and
numerous other factors over which the Company does not have control.
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<PAGE> 37
4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL
4.1 COMPANY'S PURCHASE OPTION
Stockholder shall not sell, transfer, pledge, hypothecate or
otherwise dispose of any Shares which are purchased hereunder without first
complying with the terms of this Section 4.
4.2 RIGHT OF FIRST REFUSAL
Before any of the Shares registered in the name of Stockholder
may be sold or transferred (including transfer by operation of law), except as
permitted in Section 5, such Shares shall first be offered to the Company and to
the Investors, in accordance with the terms set out herein.
(i) Stockholder shall deliver a notice ("Notice") to the
Company and to the Investors stating (A) its bona fide
intention to sell or transfer such Shares, (B) the number of
such Shares to be sold or transferred, (C) the price for which
it proposes to sell or transfer such Shares, and (D) the name
of the proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice,
the Company and/or the Investors may elect to purchase all but
not less than all of the Shares to which the Notice refers, at
the price per share specified in the Notice. The closing for
such purchase by the Company and/or the Investors shall occur,
unless otherwise agreed by the Company, the Investors electing
to purchase Shares, and the Stockholder, no later than 30 days
after the election by the Company and/or the Investors to
purchase same. In the event that the number of Shares which
the Company and the Investors desire to purchase exceeds the
number of Shares proposed for sale by Stockholder in the
Notice, then in such instance the Company shall have full
preference to acquire such Shares to the exclusion of the
Investors, and, to the extent that there are Shares still
available for purchase by the Investors, the Investors
desiring to purchase Shares shall be entitled to purchase the
remaining amount thereof on a pro rata basis based upon the
number of shares of Common Stock and Preferred Stock, or
securities convertible into shares of Common Stock and
Preferred Stock, then held by each of them so electing to
purchase bears to the total number of shares of Common Stock
and Preferred Stock, or securities convertible into shares of
Common Stock and Preferred Stock, held by all Investors
desiring to acquire Shares, on a fully diluted as if converted
to Common Stock basis.
(iii) If the Shares to which the Notice refers are not
purchased by the Company and the Investors, as provided in
Section 4.2(ii) hereof, Stockholder may sell such Shares which
the Company and the Investors elected not to purchase to
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<PAGE> 38
any person or persons named in the Notice at the price
specified in the Notice or at a higher price, provided that
such sale or transfer is consummated within 120 days of the
date of said Notice to the Company and the Investors, and
provided, further, that any such sale is in accordance with
all the terms and conditions hereof.
(iv) Upon the closing of a firm commitment public offering
pursuant to an effective registration statement filed by the
Company under the Securities Act of 1933, as amended (the
"Act"), covering the offering and sale of shares of Common
Stock for the account of the Company in which the aggregate
gross proceeds received by the Company equal or exceed
$7,500,000 and in which the public offering price per share
equals or exceeds $5.00 per share, the thirty (30) day period
specified in Section 4.2(ii) above shall be reduced to a ten
(10) day period; and the requirement to identify the name of
the proposed purchaser and the proposed price shall be
inapplicable if the Stockholder proposed to sell the Shares in
an over-the-counter sale or on a national or regional exchange
transaction. In such instance, any such sale to the Company
and/or the Investors shall be at the average closing price of
the Company's Common Stock on the date of notice of election
to purchase such shares by the Company and/or the Investors.
The average closing price is defined as the last closing price
regular way on the exchange where the Common Stock is listed
for trading or the average of the bid and ask prices if
applicable.
4.3 STANDOFF AGREEMENT
Stockholder agrees, in connection with each of the Company's
public offerings of its equity securities, and upon request of the Company or
the underwriters managing such offering, not to sell, make any short sale of,
loan, grant any option for the purchase of or otherwise dispose of any of the
Shares (other than those included in the registration, if any) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time from the effective date of such registration as may be
requested by the Company or such underwriters; provided, that the officers and
directors of the Company who own stock of the Company also agree to such
restrictions.
4.4 OTHER RESTRICTIONS ON TRANSFER
The Company shall not be required (i) to transfer on its books
any of the Shares which shall have been sold or transferred in violation of any
of the provisions set forth in this Agreement, or (ii) to treat as owner of such
Shares or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
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<PAGE> 39
5. EXEMPT TRANSACTIONS
The prohibition in Section 4 against the sale of the Shares
shall not apply to the exchange of Shares pursuant to a plan or merger,
consolidation, recapitalization, reorganization, or sale of the Stockholder in
which the Stockholder is the surviving entity, but any stock or securities
received in exchange therefor shall also become subject to this Agreement.
6. ASSIGNMENT
The Company may assign this Agreement or any of its rights and
obligations hereunder. The Stockholder may not assign this Agreement or any of
its rights and obligations hereunder. All covenants and agreements of, and
benefits for, the Investors contained in this Agreement shall inure to the
benefit of their respective successors and assigns and be binding on the Company
and its successors and on the Stockholder and its successors and assigns. All
such covenants and agreements are fully assignable by the Investors, provided,
however, that any assignment of any of its rights under this Agreement by any
Investor (other than to partners of such Investor or successors of such Investor
or such partners by operation of law) shall be made only in connection with the
sale or other transfer of all or any portion of the Preferred Stock, Common
Stock, convertible notes, warrants, options or other securities of the Company
which are exchangeable or convertible into shares of Common Stock or Preferred
Stock of the Company held by such Investor and such assignee or transferee shall
execute this Agreement.
7. ADJUSTMENTS
If, from time to time during the term of this Agreement (i)
there is any stock dividend or liquidating dividend of cash or property, stock
split or other change in the character or amount of any of the outstanding
securities of the Company, or (ii) there is any transaction involving the
consolidation, merger or sale of all, or substantially all, of the assets of the
Company, then, in such event, (x) any and all new, substituted or additional
securities or other property to which the Stockholder is entitled by reason of
its ownership of the Shares shall be immediately subject to right of first
refusal provided to the Company and the Investors as described in Section 4
hereof and (y) all Shares purchased by Stockholder hereunder shall be treated on
the same basis as all other outstanding shares of Common Stock of the Company so
that Stockholder's Shares shall not be diluted by any such event any differently
than any other holder of Common Stock of the Company.
8. LEGENDS
All certificates representing any of the Shares subject to the
provisions of this Agreement shall have endorsed thereon a legend substantially
as follows:
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<PAGE> 40
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF
ANY INTEREST IN THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS, AND THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL, CONTAINED IN A CERTAIN
AGREEMENT BY THE RECORDHOLDER HEREOF AND THE
CORPORATION, A COPY OF WHICH WILL BE MAILED
TO ANY HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE AFTER RECEIPT BY THE CORPORATION OF A
WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer
agent, the certificates representing the Shares or any appropriate portion
thereof shall be exchanged for certificates not bearing such legend if the
certificates are presented after the termination of this Agreement.
9. RIGHTS AS A STOCKHOLDER; VOTING AGREEMENT
(a) Subject to the provisions of Section 4 above, the
Stockholder shall, during the term of this Agreement, exercise all rights and
privileges of a stockholder of the Company with respect to the Shares, including
the right to vote such Shares at any stockholder meeting. Notwithstanding
anything herein to the contrary, Stockholder hereby agrees that it will, for a
ninety-day period following the issuance of the Shares or until the closing of
the first round financing by the Company in an amount at least equal to
$2,000,000, whichever comes first, vote such Shares, at any stockholder meeting,
in person, by proxy, by written consent, or otherwise, for the directors
nominated for election to the Board of Directors of the Company by The Woodlands
Venture Fund and no others, and, in any other matter coming before the
stockholders of the Company, in accordance with the directive of The Woodlands
Venture Fund.
In order to secure the obligation to vote in accordance with
the provisions hereof, the Stockholder hereby appoints Martin P. Sutter as its
true and lawful proxy and attorney, with full power of substitution, to vote all
of its Shares for the matters specified hereinabove. The irrevocable proxy
granted by the Stockholder may be exercised at any time Stockholder fails to
comply with the terms of this Section 9. The proxy and power granted by the
Stockholder pursuant to this Section are coupled with an interest and are given
to secure the duties of the Stockholder pursuant hereto. Such proxy will be
irrevocable and will survive the bankruptcy, liquidation, dissolution, merger,
consolidation or other reorganization of Stockholder, provided that it shall
terminate upon the expiration of such ninety (90) day period following the
issuance of the Shares or the closing of the above-referenced financing,
whichever comes first.
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<PAGE> 41
Stockholder hereby consents to the placement of an appropriate
legend evidencing the voting restrictions provided for in this Agreement, on the
certificates representing the Shares and any certificates issued in replacement
or exchange therefor, and Stockholder will take all actions reasonably requested
by the Company to effect such placement.
(b) The Company agrees that it will provide Stockholder
with "piggyback" registration rights, that is, rights to register the Shares
purchased by Stockholder under this Agreement in a public offering of equity
securities conducted by the Company by or on behalf of stockholders of the
Company on terms which are identical to the piggyback registration rights
provided to the holders of shares of Series A Preferred Stock of the Company, on
a pari passu basis.
10. TERMINATION
Except as may be otherwise provided herein, this Agreement
shall terminate on the 91st calendar day immediately succeeding the third
anniversary of the public offering referenced in Section 4.2.
11. MISCELLANEOUS
11.1 NOTICE
For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
RGene Therapeutics, Inc.
The Woodlands Venture Fund
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Attention: Martin P. Sutter
If to the Stockholder, at the address identified on the
signature page hereof, and if to an Investor, at the address identified on the
records of the Company hereto, or to such other address as either party or an
Investor may furnish to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
11.2 APPLICABLE LAW
The substantive laws of the State of Texas, excluding any law,
rule or principle which might refer to the substantive law of another
jurisdiction, will govern the
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<PAGE> 42
interpretation, validity and effect of this Agreement without regard to the
place of execution or the place for performance thereof. This Agreement is to be
at least partially negotiated, executed and performed in Harris County, Texas,
and, as such, the Company and the Stockholder agree that personal jurisdiction
and venue shall be proper with the state or federal courts situated in Harris
County, Texas, to hear such disputes arising under this Agreement.
11.3 NO WAIVER
No failure by either party hereto at any time to give notice
of any breach by the other party of, or to require compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
11.4 SEVERABILITY
If a court of competent jurisdiction determined that any
provision of this Agreement, including any appendices attached hereto, is
invalid or unenforceable, then the invalidity or unenforceability of that
provision shall not affect the validity or enforceability of any other provision
of this Agreement, and all other provisions shall remain in full force and
effect. Further, such provision shall be reformed and construed to the extent
permitted by law so that it may be valid, legal and enforceable to the maximum
extent possible.
11.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
11.6 HEADINGS
The section headings have been inserted for purposes of
convenience and shall not be used for interpretive purposes.
11.7 SUCCESSORS; THIRD PARTY BENEFICIARY
This Agreement shall inure to the benefit of the successors
and assigns of the Company and the Investors and be binding upon the Stockholder
and its successors and assigns. The Stockholder agrees that any and all
Investors in the Company shall be treated as third party beneficiaries of this
Agreement without the necessity of execution of this Agreement, and shall be
entitled to all of the rights rendered to them herein.
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<PAGE> 43
11.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties
with regard to the subject matter hereof, and contains all the covenants,
promises, representations, warranties and agreements between the parties with
respect to the subject matter hereof. Each party to this Agreement acknowledges
that no representation, inducement, promise or agreement, oral or written, with
regard to the subject matter hereof, has been made by either party, or by anyone
acting on behalf of either party, which is not embodied herein, and that no
agreement, statement or promise relating to the subject matter hereof which is
not contained in this Agreement or in such other agreements shall be valid and
binding.
11.9 AMENDMENT
No amendment or modification to this Agreement will be
effective unless it is in writing and signed by the Company, the Stockholder
and, if such amendment alters or amends any of the rights of the Investors, by
Investors holding a majority of the outstanding shares of capital stock of the
Company held by such Investors, if any.
11.10 INDEMNITY
The Stockholder agrees to indemnify and hold harmless the
Company and any person, if any, who controls the Company or such successor
within the meaning of Section 15 of the Act against any and all loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the Stockholder to comply with any covenant or agreement made by the
Stockholder herein or in any other document furnished by the Stockholder in
connection with this transaction.
11.11 INJUNCTIVE RELIEF
In view of the inadequacy of money damages, and in view of the
fact that the stock of the Company cannot be readily purchased or sold in the
general market, if the Stockholder or any other person shall fail to comply with
any provision of this Agreement, the Company shall be entitled, to the extent
permissible by law, to injunctive relief in the case of the violation, or
attempted or threatened violation, by Stockholder or other person of any such
provision, or to a decree compelling specific performance by the Stockholder or
other person, of any such provision, or to any other remedies legally available.
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<PAGE> 44
11.12 VOID TRANSFERS
If any Stock shall be sold or transferred otherwise than in
accordance with the terms and conditions of this Agreement, such sale shall be
void. Any such attempted sale or other transfer shall create a right in the
Company to purchase the Stock which is the subject of such purported transfer at
the applicable purchase price specified herein. Such right shall constitute an
"adverse claim" within the meaning of such term as used within the meaning of
the Uniform Commercial Code of any State. In addition to, and without prejudice
to, any and all other rights or remedies which may be available to the Company,
the Stockholder agrees that the Company may, but shall have no obligation to,
hold and refuse to transfer any Stock, or any certificate therefor, tendered to
it for transfer if the transfer violates the provisions of the Agreement.
11.13 TAX REPRESENTATIONS
The Stockholder acknowledges that the Company has made no
warranties or other representations to Stockholder with respect to the income
tax consequences of the transactions contemplated by this Agreement and
Stockholder is in no manner relying on the Company or its representatives for an
account of such tax consequences.
11.14 FURTHER ASSURANCES
The parties agree to execute such further instruments and to
take such further action as may reasonably be necessary to carry out the intent
of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered as of the day and year first above written.
Company
RGENE THERAPEUTICS, INC.
By: /s/ MARTIN P. SUTTER
-----------------------------
Name: Martin P. Sutter
--------------------------
Title: Chairman
--------------------------
Stockholder
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<PAGE> 45
ARGUS PHARMACEUTICALS, INC.
By: /s/ D.M. LEECH
-----------------------------
Name: D.M. Leech
--------------------------
Title: President/CEO
--------------------------
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<PAGE> 1
REDACTED VERSION
EXHIBIT 10.29
TO
TARGETED GENETICS CORPORATION
AMENDMENT NO. 1
TO
FORM S-1
TO BE FILED ON OR BEFORE
MAY 30, 1996
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
PATENT AND TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT ("AGREEMENT") is made by and between the BOARD
OF REGENTS ("BOARD") of THE UNIVERSITY OF TEXAS SYSTEM ("SYSTEM"), an agency of
the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701,
THE UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER ("MDA"), a component
institution of the SYSTEM, and RGENE THERAPEUTlCS, INC., a corporation having a
principal place of business located at The Woodlands, Texas ("LICENSEE").
RECITALS
A. BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS
related to LICENSED SUBJECT MATTER, which were developed at MDA, a component
institution of SYSTEM.
B. BOARD desires to have the LICENSED SUBJECT MATTER developed
and used for the benefit of LICENSEE, the inventor, BOARD, and the public as
outlined in the Intellectual Property Policy promulgated by the BOARD.
C. The LICENSED SUBJECT MATTER is the subject of SPONSORED
RESEARCH AGREEMENTS between MDA and LICENSEE, copies of which are attached
hereto as Exhibits 1A and 1B for approval by BOARD, although certain LICENSED
SUBJECT MATTER was developed with funding from, and is subject to the rights of,
the Federal Government.
D. LICENSEE is a company which was formed to develop and
commercially exploit the inventions of LICENSED SUBJECT MATTER, and LICENSEE,
therefore, wishes to obtain a license from BOARD to practice LICENSED SUBJECT
MATTER.
E. A copy of an executed Stock Purchase Agreement between
LICENSEE and Gabriel Lopez-Berestein, M.D., an employee of MDA, which provides
for, among other things, the circumstances and methods under which Gabriel
Lopez-Berestein, M.D. shall be able to divest himself of stock in LICENSEE
acquired under said Stock Purchase Agreement, is attached hereto as Exhibit 2
for approval by BOARD.
F. A copy of an executed Stock Purchase Agreement between
LICENSEE and Mien-Chie Hung, Ph.D., an employee of MDA, which provides for,
among other things, the circumstances and methods under which Mien-Chie Hung,
Ph.D. shall be able to divest himself of stock in LICENSEE acquired under said
Stock Purchase Agreement, is attached hereto as Exhibit 3 for approval by BOARD.
<PAGE> 3
G. A copy of an executed Stockholder Agreement between
LICENSEE and BOARD is attached hereto as Exhibit 4 for approval by BOARD.
NOW, THEREFORE, in consideration of the mutual covenants and
premises herein contained, the parties hereto agree as follows:
1. EFFECTIVE DATE
1.1 This AGREEMENT shall be effective as of March 1, 1994
subject to approval by BOARD ("EFFECTIVE DATE").
2. DEFINITIONS
As used in this AGREEMENT, the following terms shall have the
meanings indicated:
2.1 IMPROVEMENTS shall mean any inventions and discoveries
which are within the scope of either pending patent applications or issued
patents included within PATENT RIGHTS and which are developed in the
laboratories of either Mien Chie Hung, Ph.D. or Gabriel Lopez-Berestein, M.D. at
MDA.
2.2 LICENSED FIELD shall mean all compositions and fields of
use of the LICENSED SUBJECT MATTER.
2.3 LICENSED PRODUCT shall mean any product SOLD by LICENSEE
or its sublicensees comprising LICENSED SUBJECT MATTER pursuant to this
AGREEMENT.
2.4 LICENSED SUBJECT MATTER shall mean inventions and
discoveries covered by PATENT RIGHTS, TECHNOLOGY RIGHTS, LICENSEE SPONSORED
TECHNOLOGY and/or IMPROVEMENTS.
2.5 LICENSED TERRITORY shall mean the entire world.
2.6 LICENSEE SPONSORED TECHNOLOGY shall have the meaning given
to it under either of the SPONSORED RESEARCH AGREEMENTS, or any extension
thereof.
2.7 NET SALES shall mean the gross revenues received by
LICENSEE from the SALE of LICENSED PRODUCTS less sales and/or use taxes actually
paid, import and/or export duties actually paid, outbound transportation prepaid
or allowed, and amounts allowed or credited due to returns (not to exceed the
original billing or invoice amount).
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<PAGE> 4
2.8 PATENT RIGHTS shall mean BOARD's rights in information or
discoveries covered by patents and/or patent applications, whether domestic or
foreign, and all divisionals, continuations, continuations-in-part, reissues,
reexaminations or extensions thereof, and any letters patent that issue thereon,
for the inventions listed on Attachment A hereto and incorporated herein and for
any inventions comprising LICENSEE SPONSORED TECHNOLOGY and/or IMPROVEMENTS,
from time to time.
2.9 SALE or SOLD shall mean the transfer or disposition of a
LICENSED PRODUCT for value to a party other than LICENSEE or an AFFILIATE.
2.10 SPONSORED RESEARCH AGREEMENT shall mean each of the
SPONSORED RESEARCH AGREEMENTS of even date herewith between LICENSEE and MDA,
copies of which are attached as Exhibit 1A and Exhibit 1B hereto.
2.11 AFFILIATE shall mean any business entity more than 50%
owned by LICENSEE, any business entity which owns more than 50% of LICENSEE, or
any business entity that is more than 50% owned by a business entity that owns
more than 50% of LICENSEE.
2.12 TECHNOLOGY RIGHTS shall mean BOARD's rights in any
technical information, know-how, process, procedure, composition, device,
method, formula, protocol, technique, software, design, drawing or data relating
to LICENSED SUBJECT MATTER, which is not covered by PATENT RIGHTS but which is
necessary for practicing the invention at any time claimed in PATENT RIGHTS.
3. WARRANTY: SUPERIOR-RIGHTS
3.1 Except for the rights, if any, of the Government of the
United States as set forth hereinbelow, BOARD represents and warrants that it is
the owner of the entire right, title, and interest in and to LICENSED SUBJECT
MATTER, and that it has the sole right to grant licenses thereunder, and that it
has not granted licenses thereunder to any other entity that would restrict
rights granted hereunder except as stated herein.
3.2 LICENSEE understands that the LICENSED SUBJECT MATTER may
have been developed under a funding agreement with the Government of the United
States of America and, if so, that the Government may have certain rights
relative thereto. This AGREEMENT is explicitly made subject to the Government's
rights under any such agreement and any applicable law or regulation, including
P.L. 96-517 as amended by P.L. 98-620. To the extent that there is a conflict
between any such agreement, applicable law or regulation and this AGREEMENT, the
terms of such Government agreement, applicable law or regulation shall prevail.
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<PAGE> 5
3.3 LICENSEE understands that BOARD can make no
representations or guarantees as to the patentability or breadth of the
inventions contained in the PATENT RIGHTS. LICENSEE also understands that BOARD
can make no representations or guarantees as to whether or not there are any
patents now held, or which will be held, by others or by BOARD in the LICENSED
FIELD or whether or not the inventions contained in PATENT RIGHTS may infringe
any other patents now held or that will be held by others or by BOARD.
4. LICENSE
4.1 BOARD hereby grants to LICENSEE a royalty-bearing,
exclusive license under LICENSED SUBJECT MATTER to manufacture, have
manufactured, use and/or sell LICENSED PRODUCT within LICENSED TERRITORY for use
within LICENSED FIELD and shall extend to BOARD's undivided interest in any
LICENSED SUBJECT MATTER developed during the term of this AGREEMENT and jointly
owned by BOARD and LICENSEE. This grant shall also extend to LICENSEE SPONSORED
TECHNOLOGY and IMPROVEMENTS. The grant shall be subject to Paragraph 3.2,
hereinabove, the payment by LICENSEE to BOARD of all consideration as provided
in this AGREEMENT (including the timely payment of all amounts due under the
SPONSORED RESEARCH AGREEMENT as well as reimbursement of MDA's patent expenses),
and shall be further subject to rights retained by BOARD and MDA to:
(a) Publish the general scientific findings from research
related to LICENSED SUBJECT MATTER, provided that LICENSEE shall be provided
written notice of any such proposed publication at least sixty (60) days in
advance thereof in order to determine whether BOARD should file a patent
application with respect to such scientific findings, and no such publication
shall occur until BOARD has adequately protected the patentability of such
findings.
(b) Use any information contained in LICENSED SUBJECT
MATTER for research, teaching, unreimbursed experimental patient care, and other
educationally related purposes.
4.2 LICENSEE shall have the right to extend the license
granted herein to any AFFILIATE provided that such AFFILIATE consents to be
bound by this AGREEMENT to the same extent as LICENSEE.
4.3 LICENSEE shall have the right to grant sublicenses
consistent with this AGREEMENT provided that LICENSEE shall be responsible for
the operations of its sublicensees relevant to this AGREEMENT as if such
operations were carried out by LICENSEE. LICENSEE further agrees to deliver to
BOARD a true and correct copy of each sublicense granted by LICENSEE, and any
modification or termination thereof, within thirty (30) days after execution,
modification, or termination. Upon termination of
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<PAGE> 6
this AGREEMENT, any and all existing sublicenses granted by LICENSEE may, at
BOARD's sole discretion, be assigned to BOARD.
4.4 BOARD shall have the right at any time after (i) three (3)
years from the date of this Agreement or (ii) termination of both of the
SPONSORED RESEARCH AGREEMENTS, whichever is later, to terminate the exclusivity
of the license granted herein in any national political jurisdiction in which
patent protection for the LICENSED SUBJECT MATTER is either being sought or is
in effect within LICENSED TERRITORY if LICENSEE, within ninety (90) days after
written notice from BOARD as to such intended termination, fails to provide
written evidence that it has commercialized or is actively attempting to
commercialize an invention hereunder. Evidence provided by LICENSEE that it has
an ongoing and active research, development, manufacturing, marketing or
licensing program as appropriate, directed toward production and sale of
products based on the invention disclosed and claimed in PATENTS or
incorporating TECHNOLOGY within such jurisdiction shall be deemed satisfactory
evidence. BOARD agrees to negotiate in good faith with LICENSEE for adjusting
terms under such a nonexclusive arrangement.
4.5 The parties hereto agree to annually update the schedule
of patents and patent applications listed on Attachment A.
5. PAYMENTS AND REPORTS
5.1 In consideration of rights granted by BOARD to LICENSEE
under this AGREEMENT, LICENSEE agrees to pay MDA the following:
(a) A running royalty equal to [*] of NET SALES for
LICENSED PRODUCTS SOLD by LICENSEE;
(b) [*] of all royalties received by LICENSEE for SALES
by a sublicensee, but in no event more than [*] of NET SALES for LICENSED
PRODUCT SOLD by such sublicensee, received by LICENSEE from a sublicensee from
SALES of LICENSED PRODUCT by such sublicensee;
(c) [*] royalty on all cash considerations received by
LICENSEE from a sublicensee as a result of a sublicense for Licensed Products in
the form of licensing fees, marketing fees, milestone payments, bonus payments
and the like, but excluding payments for equity and sponsored research; and
(d) [*] royalty on all cash consideration received by
LICENSEE from a sublicensee as a result of a sublicense for Licensed Products
for sponsored research if,
- ---------------------
[*] Confidential Treatment Requested.
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<PAGE> 7
and only if, the SPONSORED RESEARCH AGREEMENT for such Licensed Products is not
in existence at the time any such payment is received.
5.2 During the Term of this AGREEMENT and for one (1) year
thereafter, LICENSEE shall keep complete and accurate records of its and its
sublicensees' SALES and NET SALES of LICENSED PRODUCTS to enable the royalties
and other amounts payable hereunder to be determined. LICENSEE shall permit
BOARD or its representatives, at BOARD's expense, to periodically examine its
books, ledgers, and records during regular business hours for the purpose of and
to the extent necessary to verify any report required under this AGREEMENT. In
the event that the amounts due to BOARD are determined to have been underpaid by
ten percent (10%) or more, LICENSEE shall pay the cost of such examination, and
accrued interest at twelve percent (12%), or at the highest rate allowed by law,
if lower, on which the amount which was deficient.
5.3 Within thirty (30) days after March 31, June 30, September
30, and December 31, LICENSEE shall deliver to BOARD and MDA a true and accurate
report, giving such particulars of the business conducted by LICENSEE and its
sublicensee, if any exist, during the preceding three (3) calendar months under
this AGREEMENT as are pertinent to an account for payments hereunder. Such
report shall include at least (a) the quantities of LICENSED SUBJECT MATTER that
it has produced; (b) the total SALES, (c) the calculation of royalties thereon;
and (d) the total royalties so computed and due BOARD. Simultaneously with the
delivery of each such report, LICENSEE shall pay to BOARD the amount, if any,
due for the period of such report. If no payments are due, it shall be so
reported.
5.4 Upon the request of BOARD or MDA but not more often than
once per calendar year, LICENSEE shall deliver to BOARD and MDA a written report
as to LICENSEE's efforts and accomplishments during the preceding year in
commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and its
commercialization plans for the upcoming year.
5.5 All amounts payable hereunder by LICENSEE shall be
payable in United States funds without deductions for taxes, assessments, fees,
or charges of any kind. Checks shall be made payable to The University of Texas
M.D. Anderson Cancer Center.
5.6 LICENSEE shall reimburse BOARD for all its out-of-pocket
expenses thus far incurred in filing, prosecuting, enforcing and maintaining
PATENT RIGHTS exclusively licensed hereunder, and shall pay all such future
expenses so long as and in such countries as its license remains exclusive.
LICENSEE shall reimburse all of BOARD's expenses thus far incurred upon
execution of this AGREEMENT. To the extent such expenses are greater than
$10,000, the excess over $10,000 shall be reimbursed within ninety (90) days
after the EFFECTIVE DATE. Thereafter, MDA will
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<PAGE> 8
invoice LICENSEE on a quarterly basis beginning July 1, 1994, with such invoices
being due and payable within thirty (30) days thereafter.
5.7 No payments due or royalty rates under this AGREEMENT
shall be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by
BOARD and LICENSEE.
5.8 Notwithstanding the above, MDA shall have the right,
exercisable until such time as LICENSEE has completed a public offering of its
equity securities under the Securities Act of 1933, as amended, pursuant to an
effective registration statement filed with the Securities and Exchange
Commission, to acquire shares of Common Stock of the LICENSEE in lieu of the
payments due MDA under Section 5.1(c) above, in an amount determined by dividing
the amount of payments otherwise due MDA under Section 5.1(c) by the sale price
of the LICENSEE's equity securities stock determined by the Board of Directors
of the LICENSEE in the most recent financing completed by LICENSEE prior to the
date any such payments under Section 5.1(c) accrued.
In the event that any payment under Section 5.1(c) shall be
due and so long as MDA's right under this Section 5.8 shall exist, LICENSEE
shall provide written notice to MDA of the amount of the payment due to MDA
under Section 5.1(c) and the price of its most recent sale of preferred stock,
together with the number of shares of Common Stock available to MDA hereunder.
MDA shall have a period of thirty (30) days from the date of such notice to
exercise its right hereunder, and shall provide written notice to LICENSEE prior
to the expiration of such time period of its desire to exercise its rights
hereunder. If MDA fails to provide such notice in such time period, or fails to
exercise its rights hereunder, MDA shall receive such amounts owed under Section
5.1(c) in U.S. dollars, provided that such financing occurred within 12 months
of the date such payments accrued. In the event that such financing occurred
more than 12 months before the date such payments accrued, then in such event
the fair market value of the LICENSEE's equity securities, as determined in the
good faith opinion of the Board of Directors of the LICENSEE, shall be used
instead of such sale price, provided, however, that if LICENSOR disagrees with
such determination, LICENSOR shall be able to appoint an independent third party
knowledgeable and experienced in such matters, reasonably acceptable to
LICENSEE, to make its own determination of such fair market value, at the sole
expense of LICENSOR, which determination shall govern and control for the
purposes hereof.
5.9 LICENSEE agrees that it will not, during the term of this
AGREEMENT, enter into a license agreement with another institution which license
agreement licenses to the LICENSEE on an exclusive basis technology and/or
patent rights on terms which are more favorable to such institution on an
aggregate basis than the terms contained in this Agreement, taking into account
all of the financial terms contained in any such license agreement, including
but not limited to terms relating to the payment of royalties,
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<PAGE> 9
sublicensee royalties, equity issued by LICENSEE to MDA or any such other
institution as consideration for the license, milestone payments, annual license
fees, minimum royalties and all other similar terms.
6. PATENTS AND INVENTIONS
6.1 LICENSEE shall reimburse BOARD for all reasonable future
third party expenses incurred by BOARD in searching, filing, prosecuting and
maintaining patent applications and patents relating to Patent Rights. If after
consultation with LICENSEE it is agreed by BOARD and LICENSEE that a new patent
application should be filed for LICENSED SUBJECT MATTER, BOARD will prepare and
file appropriate patent applications, and LICENSEE will pay the reasonable third
party cost of searching, preparing, filing, prosecuting and maintaining same. If
LICENSEE notifies BOARD that it does not intend to pay the third party cost of
an application, or if LICENSEE does not respond or make an effort to agree with
BOARD on the disposition of rights of the subject invention, then BOARD may file
such application at its own expense and LICENSEE shall have no rights to such
invention other than TECHNOLOGY RIGHTS. BOARD shall provide LICENSEE with a copy
of the application for which LICENSEE has paid the cost of filing, as well as
copies of any documents received or filed during prosecution thereof.
6.2 The parties acknowledge that research in laboratories at
MDA which are under the direct supervision of Mien Chie Hung, Ph.D. or Gabriel
Lopez-Berestein, M.D. may result in discoveries and inventions which are in the
field of the molecular biology of oncogenes and/or growth factors and lipid
based gene, nucleic acid and/or oligonucleotide delivery technologies, are
related to the LICENSED SUBJECT MATTER but not included therein, and did not
result from the Sponsored Research Agreements attached hereto as Exhibit 1A and
1B (RELATED TECHNOLOGY). MDA hereby grants to the LICENSEE the right of first
review with respect to the RELATED TECHNOLOGY (excluding, however, any RELATED
TECHNOLOGY as to which any other commercial organization has rights therein)
under the following terms:
(a) MDA shall notify the LICENSEE in writing of the
RELATED TECHNOLOGY and provide the LICENSEE with sufficient detail to evaluate
the RELATED TECHNOLOGY.
(b) The LICENSEE shall have ninety (90) days after such
notification to evaluate the RELATED TECHNOLOGY and notify MDA in writing that
the LICENSEE desires to license the RELATED TECHNOLOGY.
(c) Upon notification by the LICENSEE of its desire to
acquire rights in the RELATED TECHNOLOGY, the LICENSEE and MDA shall negotiate
in good faith for a period not to exceed ninety (90) days, unless extended by
mutual written agreement of MDA and the LICENSEE, in an effort to arrive at
terms and conditions satisfactory to
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<PAGE> 10
MDA and LICENSEE for the license by the LICENSEE of the RELATED TECHNOLOGY.
(d) If MDA and the LICENSEE do not reach such agreement within
said ninety (90) day period, MDA shall be free to deal with such RELATED
TECHNOLOGY as it in its discretion may decide, and shall have no further
obligations to the LICENSEE with respect to such RELATED TECHNOLOGY; provided
that any subsequent license to a third party by MDA of such RELATED TECHNOLOGY
shall be on terms no less favorable to MDA than were last offered by MDA to the
LICENSEE in writing.
7. INFRINGEMENT BY THIRD PARTIES
7.1 LICENSEE shall have the obligation of enforcing at its expense any
patent exclusively licensed hereunder against infringement by third parties and
shall be entitled to retain recovery from such enforcement. LICENSEE shall pay
MDA a royalty equal to the amount set out in Section 5.1(a) on any monetary
recovery to the extent that such monetary recovery by LICENSEE is in excess of
the cost thereof and to the extent held to be damages or a reasonable royalty in
lieu thereof. In the event that LICENSEE does not file suit against a
substantial infringer of such patents within six (6) months of knowledge
thereof, then BOARD shall have the right to enforce any patent licensed
hereunder on behalf of itself and LICENSEE (MDA retaining all recoveries from
such enforcement).
7.2 In any suit or dispute involving an infringer, the parties shall
cooperate fully, and upon the request and at the expense of the party bringing
suit, the other party shall make available to the party bringing suit at
reasonable times and under appropriate conditions all relevant personnel,
records, papers, information, samples, specimens, and the like which are in its
possession.
7.3 In the event of any infringement or likely infringement by any of
the LICENSED SUBJECT MATTER or LICENSEE SPONSORED TECHNOLOGY of any third
party's intellectual property (collectively, INFRINGING RIGHTS), BOARD, SYSTEM
and MDA shall, together with LICENSEE, cooperate in good faith and on a mutual
and reasonable basis, with each party responsible for its respective expenses:
(a) To negotiate and settle any dispute with any such third
party concerning the INFRINGING RIGHTS, and otherwise resolve any such
infringement and secure LICENSEE's continued rights to the INFRINGING RIGHTS;
and
(b) To make a reasonable and equitable adjustment, if any, to
the royalties paid or otherwise due under this AGREEMENT in respect of licenses
or other rights obtained by LICENSEE from third parties under such INFRINGING
RIGHTS in order for LICENSEE to continue to exercise rights granted under this
AGREEMENT.
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<PAGE> 11
8. PATENT MARKING
8.1 LICENSEE agrees that all packaging containing individual LICENSED
PRODUCT(S), and documentation therefor, sold by LICENSEE, SUBSIDIARIES, and
sublicensees of LICENSEE will be marked permanently and legibly with the number
of the applicable patent(s) licensed hereunder in accordance with each country's
patent laws, including Title 35, United States Code.
9. INDEMNIFICATION
9.1 LICENSEE shall hold harmless and indemnify BOARD, SYSTEM, MDA, its
Regents, officers, employees, students, and agents from and against those
damages finally awarded a third party in respect of any claims, demand, or
causes of action whatsoever, including without limitation those arising on
account of any injury or death of persons or damage to property caused by, or
arising out of, or resulting from, the exercise or practice of the license
granted hereunder by LICENSEE or its officers, employees, agents or
representatives, except to the extent such claim, demand or cause of action
arose from the negligence, recklessness or willful misconduct of BOARD, SYSTEM,
MDA, its Regents, officers, employees and agents, for which BOARD, SYSTEM, MDA,
to the extent authorized under the constitution and laws of the State of Texas,
shall similarly hold harmless and indemnify LICENSEE, its officers, employees,
agents or representatives.
9.2 In no event shall any party to this AGREEMENT be liable for
indirect, consequential or similar damages, even if advised of the possibility
of such liability.
10. USE OF BOARD AND COMPONENT'S NAME
10.1 LICENSEE shall not use the name of MDA, SYSTEM or BOARD without
express written consent. Notwithstanding the above, LICENSEE may use the name of
MDA, BOARD or SYSTEM when indicating, as a factual matter, that MDA is a
licensor of LICENSEE under this AGREEMENT and only in connection with either or
both of the following:
(a) Communications associated with LICENSEE's financing
activities; and
(b) Communications (other than promotions and advertisements)
directed to describing or responding to inquiries concerning the business,
technology, products, services and associated activities of LICENSEE.
LICENSEE may otherwise use the name of MDA, BOARD or SYSTEM when and as
required by applicable law, rules and regulations or upon MDA's consent, which
shall not be unreasonably withheld or delayed.
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<PAGE> 12
11. CONFIDENTIAL INFORMATION
11.1 BOARD and LICENSEE each agree that all information contained in
documents marked "confidential" which are forwarded to one by the other shall be
received in strict confidence, used only for the purposes of this AGREEMENT, and
not disclosed by the recipient party (except as required by law or court order),
its agents or employees without the prior written consent of the other party,
unless such information (a) was in the public domain at the time of disclosure,
(b) later became part of the public domain through no act or omission of the
recipient party, its employees, agents, successors or assigns, (c) was lawfully
disclosed to the recipient party by a third party having the right to disclose
it, (d) was already known by the recipient party at the time of disclosure, (e)
was independently developed or (f) is required to be submitted to a government
agency pursuant to any preexisting obligation.
11.2 Each party's obligation of confidence hereunder shall be fulfilled
by using at least the same degree of care with the other party's confidential
information as it uses to protect its own confidential information. This
obligation shall exist while this AGREEMENT is in force and for a period of
three (3) years thereafter.
12. ASSIGNMENT
12.1 Except in connection with sale of LICENSEE's business, this
AGREEMENT may not be assigned by LICENSEE without the prior written consent of
BOARD, which shall not be unreasonably withheld.
13. TERMS AND TERMINATION
13.1 The term of this AGREEMENT shall extend from the EFFECTIVE DATE
set forth hereinabove to the full end of the term or terms for which PATENT
RIGHTS have not expired and if only TECHNOLOGY RIGHTS are licensed and no PATENT
RIGHTS are applicable, for a term of fifteen (15) years.
13.2 BOARD shall have the right at any time after (i) five (5) years
from the date of this AGREEMENT or (ii) termination of both of the SPONSORED
RESEARCH AGREEMENTS, whichever is later, to terminate the license in any
national political jurisdiction if LICENSEE, within ninety days after written
notice from BOARD of such intended termination, fails to provide written
evidence that it has commercialized or is actively attempting to commercialize
an invention licensed hereunder within such jurisdiction. Evidence provided by
LICENSEE that it has an ongoing and active research, development, manufacturing,
marketing or licensing program as appropriate, directed toward production and
sale of products based on the invention disclosed and claimed in PATENTS or
incorporating TECHNOLOGY within such jurisdiction shall be deemed satisfactory
evidence.
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13.3 This AGREEMENT will earlier terminate in its entirety:
(a) automatically if LICENSEE shall become bankrupt or
insolvent and/or if the business of LICENSEE shall be placed in hand of a
receiver, assignee, or trustee, whether by voluntary act of LICENSEE or
otherwise;
(b) (i) upon thirty (30) days' written notice from BOARD if
LICENSEE shall breach or default on the payment obligations of Article V, or use
of name obligations of Article X; or (ii) upon ninety (90) days' written notice
if LICENSEE shall breach or default on any other obligation under this
AGREEMENT; provided, however, LICENSEE may avoid such termination if before the
end of such period LICENSEE notifies BOARD that such breach has been cured and
states the manner of such cure;
13.4 Upon termination of this AGREEMENT for any cause, nothing herein
shall be construed to release either party of any obligation matured prior to
the effective date of such termination. LICENSEE may, after the effective date
of such termination, sell all LICENSED PRODUCT that it may have on hand at the
date of termination, provided that it pays earned royalty thereon as provided in
this AGREEMENT.
13.5 Upon and effective as of the date of termination of this AGREEMENT
pursuant to Paragraphs 13.2 and 13.3 above, LICENSEE agrees to grant to BOARD a
royalty bearing license with the right to sublicense others with respect to
improvements made solely by LICENSEE in the LICENSED SUBJECT MATTER on terms to
be negotiated.
14. GENERAL
14.1 This AGREEMENT and the SPONSORED RESEARCH AGREEMENTS constitute
the entire and only AGREEMENT between the parties for LICENSED SUBJECT MATTER
and all other prior negotiations, representations, agreements and understandings
are superseded hereby. No agreements altering or supplementing the terms hereof
may be made except by means of a written document signed by the duly authorized
representatives of the parties.
14.2 Any notice required by this AGREEMENT shall be given by prepaid,
first class, certified mail, return receipt requested, addressed in the case of
BOARD to:
BOARD OF REGENTS
The University of Texas System
201 West Seventh Street
Austin, Texas 78701
ATTENTION: Office of General
Counsel
-12-
<PAGE> 14
with copy to: The University of Texas
M.D. Anderson Cancer Center
Office of Technology Development
1020 Holcombe Boulevard, Suite 1405
Houston, Texas 77030
ATTENTION: William J. Doty
or in the case of LICENSEE to: RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77350
ATTENTION: Martin P. Sutter
or such other address as may be given from time to time under the terms of this
notice provision.
14.3 LICENSEE shall comply with all applicable federal, state and local
laws and regulations in connection with its activities pursuant to this
AGREEMENT.
14.4 This AGREEMENT shall be construed and enforced in accordance with
the laws of the United States of America and of the State of Texas.
14.5 Failure of a party to enforce a right under this AGREEMENT shall
not act as a waiver of that right or the ability to later assert that right
relative to the particular situation involved.
14.6 Headings included herein are for convenience only and shall not be
used to construe this AGREEMENT.
14.7 If any provision of this AGREEMENT shall be found by a court to be
void, invalid or unenforceable, the same shall be reformed to comply with
applicable law or stricken if not so conformable, so as not to affect the
validity or enforceability of this AGREEMENT.
14.8 This AGREEMENT may be executed in two counterparts, each of which
shall be deemed an original but all of which, taken together, shall constitute
one and the same instrument.
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<PAGE> 15
IN WITNESS WHEREOF, parties hereto have caused their duly authorized
representatives to execute this AGREEMENT.
THE UNIVERSITY OF TEXAS BOARD OF REGENTS OF THE
M.D. ANDERSON CANCER CENTER UNIVERSITY OF TEXAS SYSTEM
By /s/ DAVID J. BACHRACH By /s/ THOMAS G. RICKS
----------------------------- -------------------
David J. Bachrach Thomas G. Ricks
Executive Vice President Vice Chancellor for
for Administration and Finance Asset Management
APPROVED AS TO CONTENT: APPROVED AS TO FORM:
By /s/ WILLIAM J. DOTY By /s/ DUDLEY R. DOBIE, JR.
-------------------------- ----------------------------
William J. Doty Dudley R. Dobie, Jr.
Director, Technology Development Manager, Intellectual Property
RGENE THERAPEUTICS, INC.
By /s/ MARTIN P. SUTTER
------------------------------
Martin P. Sutter
Chairman of the Board
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<PAGE> 16
ATTACHMENT A
Patent and technology rights for U.S. Patent Application entitled:
- Methods and Compositions for the Suppression of Neu Mediated
Transformation
Inventors: Mien-Chie Hung, Ph.D. and Di-hua Yu, M.D., Ph.D.;
and
- U.S. Serial No. 621,465, filed December 4, 1990,
(MDA Ref: UTSC:203); and
- Continuation-in-part Serial No. 070,410, filed June
4, 1993, (MDA Ref: UTSC:256); and
- Continuation-in-part, Serial No. 162,406, filed
December 3, 1993, (MDA Ref: UTSC:364)
<PAGE> 17
EXHIBIT 1A
SR94-02
SPONSORED RESEARCH AGREEMENT
Agreement, made this 1st day of March, 1994, by and between The
University of Texas M.D. Anderson Cancer Center (hereinafter referred to as
"Cancer Center"), a component institution of The University of Texas System
(hereinafter referred to as "System"), located in Houston, Texas, and RGene
Therapeutics, Inc. (hereinafter referred to as "Sponsor"), located in The
Woodlands, Texas.
WITNESSETH:
WHEREAS, Sponsor is the manufacturer or licensee of the lipid based
gene and oligonucleotide delivery technologies which have potential utilization
in patient care and treatment; and
WHEREAS, Cancer Center has research facilities and situations which
would allow investigation and study of "Targeting and Delivery of
Oligonucleotides to Leukemic Cells" as described in Exhibit I (hereinafter
referred to as "Research"), a copy of which is attached hereto and incorporated
herein by reference; and
WHEREAS, both Sponsor and Cancer Center consider it necessary and
desirable to perform the Research;
NOW, THEREFORE, the parties agree as follows:
1. EVALUATION
Sponsor agrees to engage the services of Cancer Center as an
independent contractor to perform the Research. The Research will be under the
supervision of Gabriel Lopez-Berestein, M.D. (Principal Investigator) at Cancer
Center, with the assistance of appropriate associates and colleagues at Cancer
Center as may be required.
2. RESEARCH
Cancer Center agrees as an independent contractor to conduct the
Research. Such Research was originally approved by Cancer Center in accordance
with Cancer Center policy and may be subsequently amended only in accordance
with Cancer Center policy and the written agreement of Cancer Center and Sponsor
as provided for in Article 16 hereinbelow. Cancer Center shall provide written
report to Sponsor as requested, summarizing results of the Research, and all
such reports, test data, information, etc. shall be the property of Sponsor.
<PAGE> 18
3. INVENTION AND PATENTS
(a) For all purposes herein, "Invention" shall mean any discovery,
concept or idea whether or not patentable or copyrightable, which (i) arises out
of work performed pursuant to the obligations of this Agreement; (ii) is
conceived and reduced to practice during the term of the Agreement as defined in
Article 14 hereinbelow and within the six (6) month period thereafter; and (iii)
includes but is not limited to processes, methods, software, formulae,
techniques, compositions of matter, devices, and improvements thereof and
know-how relating thereto. Inventions made solely by the Principal Investigator
and/or other Cancer Center personnel as identified in Article 1 hereinabove or
agents of Cancer Center shall be the sole property of Cancer Center. Inventions
made jointly by employees or agents of Cancer Center and Sponsor shall be
jointly owned by Cancer Center and Sponsor. Inventions made solely by employees
or agents of Sponsor shall be the sole property of Sponsor
(b) In the event that an Invention is made, either solely by employees
or agents of Cancer Center or jointly by employees or agents of Cancer Center
and Sponsor, Cancer Center and Sponsor agree to give notice of such Invention to
each other within thirty (30) days of the identification of such Invention.
Within thirty (30) days of notice of Invention, Cancer Center and Sponsor will
thereupon exert their best reasonable efforts in cooperation with each other to
investigate, evaluate and determine to the mutual satisfaction of both parties,
the disposition of rights to the Invention, including whether, by whom, and
where any patent applications are to be filed, subject to the terms of this
Article 3.
(c) If, after consultation with Sponsor, it is agreed by the parties
that a patent application should be filed, Cancer Center will prepare and file
appropriate United States and foreign patent applications on Inventions made
under this Agreement and owned by Cancer Center, in whole or in part, and
Sponsor will pay the cost of preparing, filing and maintenance thereof. If
Sponsor notifies Cancer Center that it does not intend to pay the costs of an
application, or if Sponsor does not respond or make an effort to agree with
Cancer Center on the disposition of rights to the Invention, then Cancer Center
may file such application at its own expense, and Sponsor shall have no rights
to such Invention. Cancer Center will provide Sponsor a copy of the application
filed for which Sponsor has paid the cost of filing, as well as copies of any
documents received or filed during prosecution thereof. Sponsor agrees to
maintain any such application in confidence until it is published by Cancer
Center or by the respective patent office.
(d) Any Invention made hereunder which is in the field of the molecular
biology of oncogenes and/or growth factors and/or nucleic acid, lipid based
gene, and/or oligonucleotide delivery technology and which results from the
research described in this Agreement ("Licensee Sponsored Technology") shall be
automatically licensed to Sponsor pursuant to the terms of the Patent and
Technology License Agreement dated
-2-
<PAGE> 19
March 1, 1994 between Cancer Center, the Board of Regents of The University of
Texas System and Sponsor (the "Patent and Technology License Agreement"), a copy
of which is attached hereto and incorporated herein as Exhibit II, without any
further action. This shall apply with like result to any Invention which
constitutes an Improvement (as defined in the Patent and Technology License
Agreement).
(e) Any Invention made hereunder which is outside of the field
identified in Article 3(d) shall be subject to an option to Sponsor to negotiate
and acquire an exclusive, worldwide, royalty-bearing license to commercialize
such Invention (as well as patent applications, patents and copyrights thereon),
provided that Sponsor shall pay all costs and expenses associated with patent
and copyright filing, prosecution, issuance, and maintenance relating thereto.
Sponsor shall have ninety (90) days from the date of notice of Invention from
Cancer Center pursuant to Article 3(b) hereinabove, to give written notice to
Cancer Center exercising said option. In the event that Sponsor elects to
exercise its option to negotiate and acquire such a license in the time and
manner provided hereinabove, the parties agree to enter into good faith
negotiations regarding the terms and conditions of said license and further
agree to negotiate license fee rates and other payments which are fair and
reasonable to both parties.
(f) In the event that parties fail to reach an agreement regarding the
terms and conditions of said license, within ninety (90) days after Sponsor's
notification to Cancer Center of Sponsor's exercise of said option pursuant to
Article 3(e) hereinabove, Cancer Center shall have the right to enter into
license agreements concerning the same Inventions with third parties on terms no
less favorable to Cancer Center than were last offered in writing by Sponsor.
4. CONFIDENTIALITY
Because Cancer Center and Sponsor will be cooperating with each other
in this Research, and because each may reveal to the other in the course of this
Research certain confidential information, Cancer Center and Sponsor agree to
hold any confidential information which (a) is obtained during the course of and
as a result of this work and (b) is related thereto and (c) is marked as
"CONFIDENTIAL" in confidence, and each party will not disclose same to any third
party without the express written consent of the other party to this Agreement.
This requirement shall remain in force during the term of this Agreement and for
a period of three (3) years following completion of work under this Agreement.
Nothing in this paragraph shall in any way restrict the rights of either Cancer
Center or Sponsor to use, disclose or otherwise deal with any information which:
(a) Can be demonstrated to have been in public domain as of
the effective date of this Agreement or comes into the public domain through the
term of this Agreement through no act of the recipient; or
-3-
<PAGE> 20
(b) Can be demonstrated to have been known to the recipient prior to
the execution of this Agreement; or
(c) Can be demonstrated to have been rightfully received by the
recipient after disclosure under this Agreement from a third party who did not
require the recipient to hold it in confidence or limit its use and who did not
acquire it, directly or indirectly, under obligation of confidentiality to the
disclosing party; or
(d) Shall be required for disclosure to federal regulatory agencies
pursuant to approval for use; or
(e) Is independently invented by researchers of the recipient, which in
the case of Cancer Center includes System, who have not had access to the
information provided to the recipient hereunder.
Except as permitted under the Patent and Technology License Agreement, nothing
herein is intended to give Sponsor the right to use for any purpose preexisting
confidential information of Cancer Center. Notwithstanding the confidentiality
obligations of this Agreement, nothing herein shall prevent Cancer Center and
any other component of System from using any information generated hereunder for
ordinary research and educational purposes of a university.
5. PUBLICATION RIGHTS
Notwithstanding the provisions of Article 4 of this Agreement, Cancer
Center may publish scientific papers relating to the collaborative research
performed under this Agreement. In the event that Cancer Center wishes to
publish, Cancer Center shall notify Sponsor of its desire to publish at least
thirty (30) days in advance of publication and shall furnish to Sponsor a
written description of the subject matter of the publication in order to permit
Sponsor to review and comment thereon. Sponsor shall notify Cancer Center IN
writing within thirty (30) days of receipt of such draft whether such draft
contains information deemed to be confidential under the provisions of Article
4, or information that if published within thirty (30) days would have an
adverse effect on a patent application in which Sponsor owns full or part
interest, or intends to obtain an interest from Cancer Center pursuant to this
Agreement. In the latter case Sponsor has the right to request a delay and
Cancer Center agrees to delay said publication for a period not exceeding ninety
(90) days. In any such notification, Sponsor shall indicate with specificity to
what manner and degree Cancer Center may disclose said information. Cancer
Center shall have the final authority to determine the scope and content of any
publication, provided that such authority shall be exercised with reasonable
regard for the commercial interests of Sponsor.
-4-
<PAGE> 21
6. PUBLICITY
Cancer Center acknowledges Sponsor's intention to distribute periodically
informational releases and announcements to the news media regarding the
progress of research hereunder. Sponsor shall not release such materials
containing the name of Cancer Center or any of its employees without prior
written approval by an authorized representative of Cancer Center, and said
approval shall not be unreasonably withheld. Should Cancer Center reject the
news release, Cancer Center and Sponsor agree to discuss the reasons for Cancer
Center's rejection, and every effort shall be made to develop an appropriate
informational news release within the bounds of accepted academic practices.
Sponsor reserves the same right in the event that Cancer Center desires to
distribute a news release concerning the research program. Nothing herein shall
be construed as prohibiting Cancer Center or Sponsor from reporting on this
study to a governmental agency or as prohibiting Sponsor from using the name of
Cancer Center or its employees, but only when indicating, as a factual matter,
that Sponsor is sponsoring research at Cancer Center under this Agreement and
only in connection with either or both of the following: (a) communications
associated with Sponsor's financing activities; and (b) communications (other
than promotions and advertisements) directed to describing or responding to
inquiries concerning the business, technology products, services and associated
activities of Sponsor. Sponsor may otherwise use the name of Cancer Center when
and as required by applicable law, rules and regulations, or upon Cancer
Center's consent, which shall not be unreasonably withheld or delayed.
7. RESPONSIBILITY
The parties each agree to assume individual responsibility for the actions
and omissions of their respective employees, agents and assigns in conjunction
with this evaluation.
8. INDEPENDENT CONTRACTOR
Sponsor will not have the right to direct or control the activities of
Cancer Center in performing the services provided herein, and Cancer Center
shall perform services hereunder only as an independent contractor, and nothing
herein contained shall be construed to be inconsistent with this relationship or
status. Under no circumstances shall Cancer Center be considered to be an
employee or agent of Sponsor. This Agreement shall not constitute, create or in
any way be interpreted as a joint venture, partnership or formal business
organization of any kind.
9. TITLE TO EQUIPMENT
Cancer Center shall retain title to all equipment purchased and/or
fabricated by it with funds provided by Sponsor under this Agreement.
-5-
<PAGE> 22
10. SURVIVORSHIP
The provisions of Articles 3, 4, 5, 6, and 12 shall survive any expiration
or termination of this Agreement.
11. ASSIGNMENT
This Agreement may not be assigned by either party without the prior
written consent of the other party; provided, however, that Sponsor may assign
this Agreement to any purchaser or transferee of all or substantially all of
Sponsor's business upon prior written notice to Cancer Center.
12. INDEMNIFICATION
Cancer Center shall, to the extent authorized under the Constitution and
the laws of the State of Texas, indemnify and hold Sponsor and its officers,
directors, employees, agents and stockholders harmless from any and all
liability resulting from the negligent acts or omissions of Cancer Center, its
agents or employees pertaining to the activities to be carried out pursuant to
the obligations of this Agreement; provided, however, that Cancer Center shall
not hold Sponsor harmless from claims arising out of the negligence of Sponsor,
its officers, agents or any person or entity not subject to Cancer Center's
supervision or control.
Sponsor shall indemnify and hold harmless System, Cancer Center, their
regents, officers, agents and employees from any liability or loss resulting
from judgments or claims against them arising out of the activities to be
carried out pursuant to the obligations of this Agreement or the use by Sponsor
of the results of the Research, provided, however, that the following is
excluded from Sponsor's obligation to indemnify and hold harmless:
(a) the negligent failure of Cancer Center to comply with any
applicable governmental requirements; or
(b) the negligence or willful malfeasance by a regent, officer, agent
or employee of Cancer Center or System.
13. AWARD
Sponsor agrees to pay Cancer Center a fee of [*] for expenses and other
related costs incurred in conjunction with the Research. This fee, as shown by
approximate category of expense in the attached Exhibit I which is attached
hereto and is incorporated
- ---------------
[*] Confidential Treatment Requested.
-6-
<PAGE> 23
herein by reference, for information only, shall be payable in equal
installments of [*] each by Sponsor to Cancer Center. The first such installment
shall be due within thirty (30) days of the date of execution of this Agreement.
The subsequent installments shall be due and payable on a quarterly basis.
14. BASIC TERM
This Agreement shall become effective as of the date first hereinabove
written and unless earlier terminated as hereinafter provided, shall continue in
force for a period of two (2) years after the same, except as otherwise provided
herein.
15. DEFAULT AND TERMINATION
In the event that either party to this Agreement shall be in default of any
of its material obligations hereunder and shall fail to remedy such default
within thirty (30) days after receipt of written notice thereof, the party not
in default shall have the option of terminating this Agreement by giving written
notice thereof, notwithstanding anything to the contrary contained in this
Agreement. Termination of this Agreement shall not affect the rights and
obligations of the parties which accrued prior to the effective date of
termination. Sponsor shall pay Cancer Center for all reasonable expenses
incurred or committed to be expended as of the effective termination date,
subject to the maximum amount as specified in Article 13.
16. ENTIRE AGREEMENT
The parties acknowledge that this Agreement and Exhibit I and Exhibit II
(the Patent and Technology License Agreement) attached hereto represent the sole
and entire Agreement between the parties hereto pertaining to the Research and
that such supersedes all prior Agreements, understandings, negotiations and
discussions between the parties regarding same, whether oral or written. There
are no warranties, representations or other Agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, amendment, alteration, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
parties hereto.
17. REFORM OF AGREEMENT
If any provision of this Agreement is, becomes or is deemed invalid,
illegal or unenforceable in any United States jurisdiction, such provision shall
be deemed amended to conform to applicable laws so as to be valid and
enforceable; or if it cannot be so
- ---------------
[*] Confidential Treatment Requested.
-7-
<PAGE> 24
amended without materially altering the intention of the parties, it shall be
stricken, and the remainder of this Agreement shall remain in full force and
effect.
18. NOTICES
Any notices, statements or reports required by this Agreement shall be
considered given if sent by United States Certified Mail, postage prepaid and
addressed as follows:
If to Cancer Center:
Michael J. Best
Chief Financial Officer
The University of Texas M.D. Anderson Cancer Center
1515 Holcombe Blvd.
Houston, Texas 77030
If to Sponsor:
Martin P. Sutter
President
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
19. CAPTIONS
The captions in this Agreement are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Agreement.
20. GOVERNING LAW
This Agreement shall be governed and interpreted in accordance with the
substantive laws of the State of Texas and with applicable laws of the United
States of America.
IN WITNESS WHEREOF, Cancer Center and Sponsor entered into this
Agreement effective as of the date first hereinabove written and have executed
two (2) originals each of which are of equal dignity.
RGENE THERAPEUTICS, INC. THE UNIVERSITY OF TEXAS
M.D. ANDERSON CANCER CENTER
BY: /s/ MARTIN P. SUTTER BY: /s/ MICHAEL J. BEST
------------------------- -------------------------
-8-
<PAGE> 25
TITLE: Chairman Michael J. Best
Chief Financial Officer
I have read this agreement and understand CONTENT APPROVED:
my obligations hereunder:
BY: /s/ GABRIEL LOPEZ-BERESTEIN, M.D. BY: /s/ DONNA S. GILBERG
--------------------------------- ---------------------------
Gabriel Lopez-Berestein, M.D. Donna S. Gilberg, CPA
Principal Investigator Manager, Sponsored Programs
FORM APPROVED:
BY: /s/ MARTIN N. RABER, M.D. BY: /s/ MATTHEW E. BURR
------------------------- ---------------------------
Martin N. Raber, M.D. Matthew E. Burr, J.D.
Acting Head, Div. of Medicine Legal Services Officer
Make Payment To:
The University of Texas
M.D. Anderson Cancer Center
Attn: Manager, Sponsored Programs
P.O. Box 297402
Houston, TX 77297
Tax I.D. 74 6001118 A1
-9-
<PAGE> 26
EXHIBIT 1B
SR94-03
SPONSORED RESEARCH AGREEMENT
Agreement, made this 1st day of March, 1994, by and between The University
of Texas M.D. Anderson Cancer Center (hereinafter referred to as "Cancer
Center"), a component institution of The University of Texas System (hereinafter
referred to as "System"), located in Houston, Texas, and RGene Therapeutics,
Inc. (hereinafter referred to as "Sponsor"), located in The Woodlands, Texas.
WITNESSETH:
WHEREAS, Sponsor is the manufacturer or licensee of the HER-2/neu gene
which has potential utilization in patient care and treatment; and
WHEREAS, Cancer Center has research facilities and situations which would
allow investigation and study of "HER-2/neu Targeting Cancer Therapy" as
described in Exhibit I (hereinafter referred to as "Research"), a copy of which
is attached hereto and incorporated herein by reference; and
WHEREAS, both Sponsor and Cancer Center consider it necessary and desirable
to perform the Research;
NOW, THEREFORE, the parties agree as follows:
1. EVALUATION
Sponsor agrees to engage the services of Cancer Center as an independent
contractor to perform the Research. The Research will be under the supervision
of Mien-Chie Hung, Ph.D. (Principal Investigator) at Cancer Center, with the
assistance of appropriate associates and colleagues at Cancer Center as may be
required.
2. RESEARCH
Cancer Center agrees as an independent contractor to conduct the Research.
Such Research was originally approved by Cancer Center in accordance with Cancer
Center policy and may be subsequently amended only in accordance with Cancer
Center policy and the written agreement of Cancer Center and sponsor as provided
for in Article 16 herein below. Cancer Center shall provide written report to
Sponsor as requested, summarizing results of the Research, and all such reports,
test data, information, etc. shall be the property of Sponsor.
<PAGE> 27
3. INVENTION AND PATENTS
(a) For all purposes herein, "Invention" shall mean any discovery, concept
or idea whether or not patentable or copyrightable, which (i) arises out of work
performed pursuant to the obligations of this Agreement; (ii) is conceived and
reduced to practice during the term of the Agreement as defined in Article 14
hereinbelow and within the six (6) month period thereafter; and (iii) includes
but is not limited to processes, methods, software, formulae, techniques,
compositions of matter, devices, and improvements thereof and know-how relating
thereto. Inventions made solely by the Principal Investigator and/or other
Cancer Center personnel as identified in Article 1 hereinabove or agents of
Cancer Center shall be the sole property of Cancer Center. Inventions made
jointly by employees or agents of Cancer Center and Sponsor shall be jointly
owned by Cancer Center and Sponsor. Inventions made solely by employees or
agents of Sponsor shall be the sole property of Sponsor.
(b) In the event that an Invention is made, either solely by employees or
agents of Cancer Center or jointly by employees or agents of Cancer Center and
Sponsor, Cancer Center and Sponsor agree to give notice of such Invention to
each other within thirty (30) days of the identification of such Invention.
Within thirty (30) days of notice of Invention, Cancer Center and Sponsor will
thereupon exert their best reasonable efforts in cooperation with each other to
investigate, evaluate and determine to the mutual satisfaction of both parties,
the disposition of rights to the invention, including whether, by whom, and
where any patent applications are to be filed, subject to the terms of this
Article 3.
(c) If, after consultation with Sponsor, it is agreed by the parties that a
patent application should be filed, Cancer Center will prepare and file
appropriate United States and foreign patent applications on Inventions made
under this Agreement and owned by Cancer Center, in whole or in part, and
Sponsor will pay the cost of preparing, filing and maintenance thereof. If
Sponsor notifies Cancer Center that it does not intend to pay the costs of an
application, or if Sponsor does not respond or make an effort to agree with
Cancer Center on the disposition of rights to the invention, then Cancer Center
may file such application at its own expense, and Sponsor shall have no rights
to such Invention. Cancer Center will provide Sponsor a copy of the application
filed for which Sponsor has paid the cost of filing, as well as copies of any
documents received or filed during prosecution thereof. Sponsor agrees to
maintain any such application in confidence until it is published by Cancer
Center or by the respective patent office.
(d) Any Invention made hereunder which is in the field of the molecular
biology of oncogenes and/or growth factors and/or nucleic acid, lipid based
gene, and/or oligonucleotide delivery technology and which results from the
research described in this Agreement ("Licensee Sponsored Technology") shall be
automatically licensed to Sponsor pursuant to the terms of the Patent and
Technology License Agreement dated
-2-
<PAGE> 28
March 1, 1994 between Cancer Center, the Board of Regents of The University of
Texas System and Sponsor (the "Patent and Technology License Agreement"), a copy
of which is attached hereto and incorporated herein as Exhibit II, without any
further action. This shall apply with like result to any Invention which
constitutes an Improvement (as defined in the Patent and Technology License
Agreement).
(e) Any Invention made hereunder which is outside of the field identified
in Article 3(d) shall be subject to an option to Sponsor to negotiate and
acquire an exclusive, worldwide, royalty-bearing license to commercialize such
Invention (as well as patent applications, patents and copyrights thereon),
provided that Sponsor shall pay all costs and expenses associated with patent
and copyright filing, prosecution, issuance, and maintenance relating thereto.
Sponsor shall have ninety (90) days from the date of notice of Invention from
Cancer Center pursuant to Article 3(b) hereinabove, to give written notice to
Cancer Center exercising said option. In the event that Sponsor elects to
exercise its option to negotiate and acquire such a license in the time and
manner provided hereinabove, the parties agree to enter into good faith
negotiations regarding the terms and conditions of said license and further
agree to negotiate license fee rates and other payments which are fair and
reasonable to both parties.
(f) In the event that parties fail to reach an agreement regarding the
terms and conditions of said license, within ninety (90) days after Sponsor's
notification to Cancer Center of Sponsor's exercise of said option pursuant to
Article 3(e) hereinabove, Cancer Center shall have the right to enter into
license agreements concerning the same Inventions with third parties on terms no
less favorable to Cancer Center than were last offered in writing by Sponsor.
4. CONFIDENTIALITY
Because Cancer Center and Sponsor will be cooperating with each other in
this Research, and because each may reveal to the other in the course of this
Research certain confidential information, Cancer Center and Sponsor agree to
hold any confidential information which (a) is obtained during the course of and
as a result of this work and (b) is related thereto and (c) is marked as
"CONFIDENTIAL" in confidence, and each party will not disclose same to any third
party without the express written consent of the other party to this Agreement.
This requirement shall remain in force during the term of this Agreement and for
a period of three (3) years following completion of work under this Agreement.
Nothing in this paragraph shall in any way restrict the rights of either Cancer
Center or Sponsor to use, disclose or otherwise deal with any information which:
(a) Can be demonstrated to have been in public domain as of the
effective date of this Agreement or comes into the public domain through the
term of this Agreement through no act of the recipient; or
-3-
<PAGE> 29
(b) Can be demonstrated to have been known to the recipient prior to
the execution of this Agreement; or
(c) Can be demonstrated to have been rightfully received by the
recipient after disclosure under this Agreement from a third party who did not
require the recipient to hold it in confidence or limit its use and who did not
acquire it, directly or indirectly, under obligation of confidentiality to the
disclosing party; or
(d) Shall be required for disclosure to federal regulatory agencies
pursuant to approval for use; or
(e) Is independently invented by researchers of the recipient, which in
the case of Cancer Center includes System, who have not had access to the
information provided to the recipient hereunder; or
(f) Is disclosed pursuant to any research grant relating to technology
included within the field from a noncommercial granting entity such as grants
from the Department of Health and Human services and other governmental and
private nonprofit agencies.
Except as permitted under the Patent and Technology License Agreement, nothing
herein is intended to give Sponsor the right to use for-any purpose pre-existing
confidential information of Cancer Center. Notwithstanding the confidentiality
obligations of this Agreement, nothing herein shall prevent Cancer Center and
any other component of System from using any information generated hereunder for
ordinary research and educational purposes of a university.
5. PUBLICATION RIGHTS
Notwithstanding the provisions of Article 4 of this Agreement, Cancer
Center may publish scientific papers relating to the collaborative research
performed under this Agreement. In the event that Cancer Center wishes to
publish, Cancer Center shall notify Sponsor of its desire to publish at least
thirty (30) days in advance of publication and shall furnish to Sponsor a
written description of the subject matter of the publication in order to permit
Sponsor to review and comment thereon. Sponsor shall notify Cancer Center in
writing within thirty (30) days of receipt of such draft whether such draft
contains information deemed to be confidential under the provisions of Article
4, or information that if published within thirty (30) days would have an
adverse effect on a patent application in which Sponsor owns full or part
interest, or intends to obtain an interest from Cancer Center pursuant to this
Agreement. In the latter case Sponsor has the right to request a delay and
Cancer Center agrees to delay said publication for a period not exceeding ninety
(90) days. In any such notification, Sponsor shall indicate with specificity to
what manner and degree Cancer Center may disclose said information. Cancer
Center shall have the final authority to determine the scope and content of any
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publication, provided that such authority shall be exercised with reasonable
regard for the commercial interests of Sponsor.
6. PUBLICITY
Cancer Center acknowledges Sponsor's intention to distribute periodically
informational releases and announcements to the news media regarding the
progress of research hereunder. Sponsor shall not release such materials
containing the name of Cancer Center or any of its employees without prior
written approval by an authorized representative of Cancer Center, and said
approval shall not be unreasonably withheld. Should Cancer Center reject the
news release, Cancer Center and Sponsor agree to discuss the reasons for Cancer
Center's rejection, and every effort shall be made to develop an appropriate
informational news release within the bounds of accepted academic practices.
Sponsor reserves the same right in the event that Cancer Center desires to
distribute a news release concerning the research program. Nothing herein shall
be construed as prohibiting Cancer Center or Sponsor from reporting on this
study to a governmental agency or as prohibiting Sponsor from using the name of
Cancer Center or its employees, but only when indicating, as a factual matter,
that Sponsor is sponsoring research at Cancer Center under this Agreement and
only in connection with either or both of the following: (a) communications
associated with Sponsor's financing activities; and (b) communications (other
than promotions and advertisements) directed to describing or responding to
inquiries concerning the business, technology products, services and associated
activities of Sponsor. Sponsor may otherwise use the name of Cancer Center when
and as required by applicable law, rules and regulations, or upon Cancer
Center's consent, which shall not be unreasonably withheld or delayed.
7. RESPONSIBILITY
The parties each agree to assume individual responsibility for the actions
and omissions of their respective employees, agents and assigns in conjunction
with this evaluation.
8. INDEPENDENT CONTRACTOR
Sponsor will not have the right to direct or control the activities of
Cancer Center in performing the services provided herein, and Cancer Center
shall perform services hereunder only as an independent contractor, and nothing
herein contained shall be construed to be inconsistent with this relationship or
status. Under no circumstances shall Cancer Center be considered to be an
employee or agent of Sponsor. This Agreement shall not constitute, create or in
any way be interpreted as a joint venture, partnership or formal business
organization of any kind.
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9. TITLE TO EQUIPMENT
Cancer Center shall retain title to all equipment purchased and/or
fabricated by it with funds provided by Sponsor under this Agreement.
10. SURVIVORSHIP
The provisions of Articles 3, 4, 5, 6, and 12 shall survive any expiration
or termination of this Agreement.
11. ASSIGNMENT
This Agreement may not be assigned by either party without the prior
written consent of the other party; provided, however, that Sponsor may assign
this Agreement to any purchaser or transferee of all or substantially all of
Sponsor's business upon prior written notice to Cancer Center.
12. INDEMNIFICATION
Cancer Center shall, to the extent authorized under the Constitution and
the laws of the State of Texas, indemnify and hold Sponsor and its officers,
directors, employees, agents and stockholders harmless from any and all
liability resulting from the negligent acts or omissions of Cancer Center, its
agents or employees pertaining to the activities to be carried out pursuant to
the obligations of this Agreement; provided, however, that Cancer Center shall
not hold Sponsor harmless from claims arising out of the negligence of Sponsor,
its officers, agents or any person or entity not subject to Cancer Center's
supervision or control.
Sponsor shall indemnify and hold harmless System, Cancer Center, their
regents, officers, agents and employees from any liability or loss resulting
from judgments or claims against them arising out of the activities to be
carried out pursuant to the obligations of this Agreement or the use by Sponsor
of the results of the Research, provided, however, that the following is
excluded from Sponsor's obligation to indemnify and hold harmless:
(a) the negligent failure of Cancer Center to comply with any
applicable governmental requirements; or
(b) the negligence or willful malfeasance by a regent, officer, agent
or employee of Cancer Center or System.
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13. AWARD
Sponsor agrees to pay Cancer Center a fee of [*] for expenses and other
related costs incurred in conjunction with the Research. This fee, as shown by
approximate category of expense in Exhibit I which is attached hereto and is
incorporated herein by reference, for information only, shall be payable in
equal installments of [*] each by Sponsor to Cancer Center. The first such
installment shall be due within thirty (30) days of the date of execution of
this Agreement. The subsequent installments shall be due and payable on a
quarterly basis.
14. BASIC TERM
This Agreement shall become effective as of the date first hereinabove
written and unless earlier terminated as hereinafter provided, shall continue in
force for a period of two (2) years after the same, except as otherwise provided
herein.
15. DEFAULT AND TERMINATION
In the event that either party to this Agreement shall be in default of any
of its material obligations hereunder and shall fail to remedy such default
within thirty (30) days after receipt of written notice thereof, the party not
in default shall have the option of terminating this Agreement by giving written
notice thereof, notwithstanding anything to the contrary contained in this
Agreement. Termination of this Agreement shall not affect the rights and
obligations of the parties which accrued prior to the effective date of
termination. Sponsor shall pay Cancer Center for all reasonable expenses
incurred or committed to be expended as of the effective termination date,
subject to the maximum amount as specified in Article 13.
16. ENTIRE AGREEMENT
The parties acknowledge that this Agreement, Exhibit I and Exhibit II (the
patent and Technology License Agreement) attached hereto represent the sole and
entire Agreement between the parties hereto pertaining to the Research and that
such supersedes all prior Agreements, understandings, negotiations and
discussions between the parties regarding same, whether oral or written. There
are no warranties, representations or other Agreements between the parties in
connection with the subject matter hereof except as specifically set forth
herein. No supplement, amendment, alteration, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
parties hereto.
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17. REFORM OF AGREEMENT
If any provision of this Agreement is, becomes or is deemed invalid,
illegal or unenforceable in any United States jurisdiction, such provision shall
be deemed amended to conform to applicable laws so as to be valid and
enforceable; or if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken, and the remainder of this
Agreement shall remain in full force and effect.
18. NOTICES
Any notices, statements or reports required by this Agreement shall be
considered given if sent by United States Certified Mail, postage prepaid and
addressed as follows:
If to Cancer Center:
Michael J. Best
Chief Financial Officer
The University of Texas M.D. Anderson Cancer Center
1515 Holcombe Blvd.
Houston, Texas 77030
If to Sponsor:
Martin P. Sutter
President
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
19. CAPTIONS
The captions in this Agreement are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Agreement.
20. GOVERNING LAW
This Agreement shall be governed and interpreted in accordance with the
substantive laws of the State of Texas and with applicable laws of the United
States of America.
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IN WITNESS WHEREOF, Cancer Center and Sponsor entered into this Agreement
effective as of the date first hereinabove written and have executed two (2)
originals each of which are of equal dignity.
RGENE THERAPEUTICS, INC. THE UNIVERSITY OF TEXAS
M.D. ANDERSON CANCER CENTER
BY: /s/ MARTIN P. SUTTER BY: /s/ MICHAEL J. BEST
--------------------------- ---------------------------
TITLE: Chairman Michael J. Best
Chief Financial Officer
I have read this agreement and understand CONTENT APPROVED:
my obligations hereunder:
BY: /s/ MIEN-CHIE HUNG BY: /s/ DONNA S. GILBERG
--------------------------- ---------------------------
Mien-Chie Hung, Ph.D. Donna S. Gilberg, CPA
Principal Investigator Manager, Sponsored Programs
FORM APPROVED:
BY: /s/ GARTH L. NICOLSON BY: /s/ MATTHEW E. BURR
--------------------------- ---------------------------
Garth L. Nicolson, Ph.D. Matthew E. Burr, J.D.
Chairman, Dept. of Tumor Biology Legal Services Officer
Make Payment To:
The University of Texas
M.D. Anderson Cancer Center
Attn: Manager, Sponsored Programs
P.O. Box 297402
Houston, TX 77297
Tax I.D. 74 6001118 A1
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EXHIBIT 2
RGENE THERAPEUTICS, INC.
GABRIEL LOPEZ-BERESTEIN
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated February 14, 1994
is entered into by and between RGene Therapeutics, Inc., a Delaware corporation
(the "Company"), and Gabriel Lopez-Berestein (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to sell certain shares of common stock,
$.001 par value, of the Company (the "Common Stock") to the Buyer; and
WHEREAS, the Buyer desires to purchase certain shares of Common Stock
from the Company; and
WHEREAS, the Buyer and the Company desire that the Buyer grant to the
Company, and under certain circumstances to holders of the Company's Preferred
Stock or other securities issued by the Company to investors (the "Investors"),
options to repurchase certain shares of Common Stock purchased by the Buyer on
the terms and conditions set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement and in
consideration of the payment of the Purchase Price (as defined below) by the
Buyer to the Company at the Closing (as defined below), the Company agrees to
sell to the Buyer, and the Buyer agrees to purchase from the Company, [*] shares
of Common Stock (the "Shares").
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<PAGE> 36
1.2 PURCHASE PRICE
The Purchase Price payable to the Company shall be $[*]per Share,
payable in cash at the Closing.
1.3 CLOSING
The closing for the sale of the Shares to the Buyer shall occur on or
before February 15, 1994, or at such other date and time as the parties may
agree (the "Closing"). Concurrent with the payment by Buyer of the Purchase
Price, or within a reasonable time thereafter, the Company shall deliver to
Buyer a certificate or certificates representing the number of Shares as set
forth in Section 1.1 hereof, in the name of the Buyer.
2. REPRESENTATIONS AND WARRANTIES
To induce the Company to deliver the Shares to the Buyer, the Buyer
represents and warrants to the Company:
(a) The Buyer is acquiring the Shares for his own account as
principal, for investment purposes only, and not with a view to, or for, resale
or distribution, and no other person has a direct or indirect beneficial
interest in the Shares;
(b) The Buyer has not offered any of the Shares for resale and
has no present intention of dividing his interest with others or of reselling or
otherwise disposing of any of the Shares;
(c) Any information the Buyer has furnished to the Company with
respect to the Buyer's status as a sophisticated or accredited investor, his
business experience or financial position is correct;
(d) The financial capacity of the Buyer is such that the
investment in the Shares is not material to his total financial capacity; the
Buyer has the financial ability to bear the economic risk of his investment, has
adequate means for providing for his current needs and personal contingencies
and has no need for liquidity with respect to his investment in the Shares;
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(e) The Buyer considers himself to be a sophisticated investor
and has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the prospective investment in the
Shares;
(f) The Buyer has been furnished with all information concerning
the Shares and the Company that he desires;
(g) The Buyer has been given the opportunity to ask questions of,
and receive answers from, the Company with respect to the Shares, concerning the
terms and conditions of the offering and other matters pertaining to this
investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information provided to him
by the Company in order for him to evaluate the merits and risks of investment
in the Shares to the extent that the Company possessed such information or could
acquire it without unreasonable effort or expense; and
(h) The Buyer is not relying on the Company with respect to any
economic considerations of the Buyer related to this investment. In regard to
the economic considerations related to this investment, the Buyer has relied on
the advice of, or has consulted with, only his own advisors.
The Buyer further represents, warrants and agrees that he will not sell
or otherwise transfer the Shares without registration under the Securities Act
of 1933, as amended (the "Act"), or an exemption therefrom, and fully
understands and agrees that he must bear the economic risk of his purchase for
an indefinite period of time because, among other reasons, the Shares have not
been registered under the Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states or an exemption from such registration is
available. He also understands that the Company is under no obligation to
register the Shares on his behalf or to assist him in complying with any
exemption from registration under the Act. He further understands that any
certificate evidencing the Shares will bear a legend restricting the transfer
thereof consistent with the foregoing and that a notation may be made in the
records of the Company restricting the transfer of any Shares in a manner
consistent with the foregoing.
3. BUYER AWARENESS
The Buyer acknowledges that he is aware that:
(a) No federal or state agency has passed upon the Shares or made
any finding or determination as to the fairness of this investment;
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(b) There are substantial risks of loss of investment incident to
an investment in the Shares and such an investment is highly speculative;
(c) The Company is only recently organized, has not conducted any
substantial business to date and does not have any substantial working capital
or financial resources. The business in which the Company proposes to engage is
highly competitive and success in the Company's business may depend on, among
other things, the Company's ability to obtain financing, to complete product
development, to attract qualified employees and to obtain patent protection and
governmental approvals, market acceptance of products and numerous other factors
over which the Company does not have control.
4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL
4.1 COMPANY'S PURCHASE OPTION
Buyer shall not sell, transfer, pledge, hypothecate or otherwise dispose
of any Shares which are purchased hereunder without first complying with the
terms of this Section 4.
4.2 RIGHT OF FIRST REFUSAL
Before any of the Shares registered in the name of Buyer may be sold or
transferred (including transfer by operation of law), except as permitted in
Section 5, such Shares shall first be offered to the Company and to the
Investors, in accordance with the terms set out herein, provided, however, that
until the Company has completed a public offering of its equity securities
pursuant to an effective registration statement filed with the Securities and
Exchange Commission, no transfer of Shares may be made under any circumstances.
(i) Buyer shall deliver a notice ("Notice") to the Company and to
the Investors stating (A) his bona fide intention to sell or transfer such
Shares, (B) the number of such Shares to be sold or transferred, (C) the price
for which he proposes to sell or transfer such Shares, and (D) the name of the
proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice, the
Company and/or the Investors may elect to purchase some or all of the Shares to
which the Notice refers, at the price per share specified in the Notice. The
closing for such purchase by the Company and/or the Investors shall occur,
unless otherwise agreed by the Company, the Investors electing to purchase
Shares, and the Buyer, no later than 30 days after the election by the Company
and/or the Investors to purchase same. In
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the event that the number of Shares which the Company and the Investors desire
to purchase exceeds the number of Shares proposed for sale by Buyer in the
Notice, then in such instance the Company shall have full preference to acquire
such Shares to the exclusion of the Investors, and, to the extent that there are
Shares still available for purchase by the Investors, the Investors desiring to
purchase Shares shall be entitled to purchase the remaining amount thereof on a
pro rata basis based upon the number of shares of Common Stock and Preferred
Stock, or securities convertible into shares of Common Stock and Preferred
Stock, then held by each of them so electing to purchase bears to the total
number of shares of Common Stock and Preferred Stock, or securities convertible
into shares of Common Stock and Preferred Stock, held by all Investors desiring
to acquire Shares, on a fully diluted as if converted to Common Stock basis.
(iii) If all of the Shares to which the Notice refers are not
purchased by the Company and the Investors, as provided in Section 4.2(ii)
hereof, Buyer may sell such Shares which the Company and the Investors elected
not to purchase to any person or persons named in the Notice at the price
specified in the Notice or at a higher price, provided that such sale or
transfer is consummated within 120 days of the date of said Notice to the
Company and the investors, and provided, further, that any such sale is in
accordance with all the terms and conditions hereof.
(iv) Upon the closing of a firm commitment public offering
pursuant to an effective registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Act"), covering the offering and sale
of shares of Common Stock for the account of the Company in which the aggregate
gross proceeds received by the Company equal or exceed $7,500,000 and in which
the public offering price per share equals or exceeds $5.00 per share, the
thirty (30) day period specified in Section 4.2(ii) above shall be reduced to a
ten (10) day period; and the requirement to identify the name of the proposed
purchaser and the proposed price shall be inapplicable if the Buyer proposed to
sell the Shares in an over-the-counter sale or on a national or regional
exchange transaction. In such instance, any such sale to the Company and/or the
Investors shall be at the average closing price of the Company's Common Stock on
the date of notice of election to purchase such shares by the Company and/or the
Investors. The average closing price is defined as the last closing price
regular way on the exchange where the Common Stock is listed for trading or the
average of the bid and ask prices if applicable.
4.3 STANDOFF AGREEMENT
Buyer agrees, in connection with each of the Company's public offerings
of its equity securities, and upon request of the Company or the underwriters
managing such offering, not to sell, make any short sale of, loan, grant any
option for the
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purchase of or otherwise dispose of any of the Shares (other than those included
in the registration, if any) without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time from the
effective date of such registration as may be requested by the Company or such
underwriters; provided, that the officers and directors of the Company who own
stock of the Company also agree to such restrictions.
4.4 OTHER RESTRICTIONS ON TRANSFER
The Company shall not be required (i) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement, or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
5. EXEMPT TRANSACTIONS
5.1 CERTAIN TRANSACTIONS
The prohibition in Section 4 against the sale of the Shares shall not
apply to the exchange of Shares pursuant to a plan or merger, consolidation,
recapitalization, reorganization, or sale of the Company, in which the Company
is the surviving entity, but any stock or securities received in exchange
therefor shall also become subject to this Agreement.
5.2 PERMITTED TRANSFERS
The prohibition in Section 4 against the sale of Shares shall not apply
to a transfer by Buyer of all or part of his Shares during his lifetime or on
death by will or by intestacy to or for the benefit of himself, his spouse, his
ancestors or his lineal descendants, provided that any such transferee or
transferees shall receive and hold the Shares subject to the terms of this
Agreement, and there shall be no further transfer of such Shares except in
accordance with the terms of this Agreement.
6. ASSIGNMENT
The Company may assign this Agreement or any of its rights and
obligations hereunder. The Buyer may not assign this Agreement or any of his
rights and obligations hereunder. All covenants and agreements of, and benefits
for, the Investors contained in this Agreement shall inure to the benefit of
their respective successors and assigns and be binding on the Company and its
successors and on the Buyer and his heirs, executors, administrators and
successors. All such covenants and
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agreements are fully assignable by the Investors, provided, however, that any
assignment of any of its rights under this Agreement by any Investor (other than
to partners of such Investor or successors of such Investor or such partners by
operation of law) shall be made only in connection with the sale or other
transfer of all or any portion of the Preferred Stock, Common Stock, convertible
notes, warrants, options or other securities of the Company which are
exchangeable or convertible into shares of Common Stock or Preferred Stock of
the Company held by such Investor and such assignee or transferee shall execute
this Agreement.
7. ADJUSTMENTS
If, from time to time during the term of this Agreement (i) there is any
stock dividend or liquidating dividend of cash or property, stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) there is any transaction involving the consolidation, merger or
sale of all, or substantially all, of the assets of the Company, then, in such
event, (x) any and all new, substituted or additional securities or other
property to which the Buyer is entitled by reason of his ownership of the Shares
shall be immediately subject to right of first refusal provided to the Company
and the Investors as described in Section 4 hereof and (y) all Shares purchased
by Buyer hereunder shall be treated on the same basis as all other outstanding
shares of Common Stock of the Company so that Buyer's Shares shall not be
diluted by any such event any differently than any other holder of Common Stock
of the Company.
8. LEGENDS
All certificates representing any of the Shares subject to the
provisions of this Agreement shall have endorsed thereon a legend substantially
as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST
IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
CERTAIN RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL, CONTAINED IN
A CERTAIN AGREEMENT BY THE RECORDHOLDER HEREOF AND THE
CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A
WRITTEN REQUEST THEREFOR."
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Upon presentation to the Company or any authorized transfer agent, the
certificates representing the Shares or any appropriate portion thereof shall be
exchanged for certificates not bearing such legend if the certificates are
presented after the termination of this Agreement.
9. RIGHTS AS A STOCKHOLDER; VOTING AGREEMENT
Subject to the provisions of Section 4 above, the Buyer shall, during
the term of this Agreement, exercise all rights and privileges of a stockholder
of the Company with respect to the Shares, including the right to vote such
Shares at any stockholder meeting. Notwithstanding anything herein to the
contrary, Buyer hereby agrees that he will, for a ninety-day period following
the issuance of the Shares or until the closing of the first round financing by
the Company in an amount at least equal to $2,000,000, whichever comes first,
vote such Shares, at any stockholder meeting, in person, by proxy, by written
consent, or otherwise, for the directors nominated for election to the Board of
Directors of the Company by The Woodlands Venture Fund and no others, and, in
any other matter coming before the stockholders of the Company, in accordance
with the directive of The Woodlands Venture Fund.
In order to secure the obligation to vote in accordance with the
provisions hereof, the Buyer hereby appoints Martin P. Sutter as his true and
lawful proxy and attorney, with full power of substitution, to vote all of his
Shares for the matters specified hereinabove. The irrevocable proxy granted by
the Buyer may be exercised at any time Buyer fails to comply with the terms of
this Section 9. The proxy and power granted by the Buyer pursuant to this
section are coupled with an interest and are given to secure the duties of the
Buyer pursuant hereto. Such proxy will be irrevocable and will survive the
death, incompetency, and disability of Buyer, provided that it shall terminate
upon the expiration of twelve months following the issuance of the Shares.
Buyer hereby consents to the placement of an appropriate legend
evidencing the voting restrictions provided for in this Agreement, on the
certificates representing the Shares and any certificates issued in replacement
or exchange therefor, and Buyer will take all actions reasonably requested by
the Company to effect such placement.
10. TERMINATION
Except as may be otherwise provided herein, this Agreement shall
terminate on the 91st calendar day immediately succeeding the third anniversary
of the public offering referenced in Section 4.2.
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11. MISCELLANEOUS
11.1 NOTICE
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
RGene Therapeutics, Inc.
c/o The Woodlands Venture Fund
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Attention: Martin P. Sutter
If to the Buyer, at the address identified on the signature page hereof,
and if to an Investor, at the address identified on the records of the Company
hereto, or to such other address as either party or an Investor may furnish to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
11.2 APPLICABLE LAW
The substantive laws of the State of Texas, excluding any law, rule or
principle which might refer to the substantive law of another jurisdiction, will
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. This Agreement
is to be at least partially negotiated, executed and performed in Harris County,
Texas, and, as such, the Company and the Buyer agree that personal jurisdiction
and venue shall be proper with the state or federal courts situated in Harris
County, Texas, to hear such disputes arising under this Agreement.
11.3 NO WAIVER
No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
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11.4 SEVERABILITY
If a court of competent jurisdiction determined that any provision of
this Agreement, including any appendices attached hereto, is invalid or
unenforceable, then the invalidity or unenforceability of that provision shall
not affect the validity or enforceability of any other provision of this
Agreement, and all other provisions shall remain in full force and effect.
Further, such provision shall be reformed and construed to the extent permitted
by law so that it may be valid, legal and enforceable to the maximum extent
possible.
11.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
11.6 HEADINGS
The section headings have been inserted for purposes of convenience and
shall not be used for interpretive purposes.
11.7 SUCCESSORS; THIRD PARTY BENEFICIARY
This Agreement shall inure to the benefit of the successors and assigns
of the Company and the Investors and be binding upon the Buyer and his heirs,
executors, administrators and successors. The Buyer agrees that any and all
Investors in the Company shall be treated as third party beneficiaries of this
Agreement without the necessity of execution of this Agreement, and shall be
entitled to all of the rights rendered to them herein.
11.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
the subject matter hereof. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, with regard
to the subject matter hereof, has been made by either party, or by anyone acting
on behalf of either party, which is not embodied herein, and that no agreement,
statement or promise relating to the subject matter hereof which is not
contained in this Agreement or in such other agreements shall be valid and
binding.
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11.9 AMENDMENTS
No amendment or modification to this Agreement will be effective unless
it is in writing and signed by the Company, the Buyer and, if such amendment
alters or amends any of the rights of the Investors, by Investors holding a
majority of the outstanding shares of capital stock of the Company held by such
Investors, if any.
11.10 INDEMNITY
The Buyer agrees to indemnify and hold harmless the Company and any
person, if any, who controls the Company or such successor within the meaning of
Section 15 of the Act against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any fuse representation or warranty or breach or failure by the
Buyer to comply with any covenant or agreement made by the Buyer herein or in
any other document furnished by the Buyer in connection with this transaction.
11.11 INJUNCTIVE RELIEF
In view of the inadequacy of money damages, and in view of the fact that
the stock of the Company cannot be readily purchased or sold in the general
market, if the Buyer or any other person shall fail to comply with any provision
of this Agreement, the Company shall be entitled, to the extent permissible by
law, to injunctive relief in the case of the violation, or attempted or
threatened violation, by Buyer or other person of any such provision, or to a
decree compelling specific performance by the Buyer or other person, of any such
provision, or to any other remedies legally available.
11.12 SPOUSES
The spouse of the Buyer, if any, hereby represents and acknowledges that
he or she is fully aware of, understands, and fully consents and agrees to the
provisions of this Agreement and its binding effect upon any community property
interest he or she may now or hereafter own. Said spouse agrees that the
termination of their marital relationship with the Buyer for any reason or his
or her death shall not have the effect of removing any stock of the Company
otherwise subject to this Agreement from its coverage. Said spouse's awareness,
understanding, consent and agreement is evidenced by the execution of this
Agreement. All stock described in this Agreement shall include the community
property interest of the spouse of Buyer.
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11.13 VOID TRANSFERS
If any Stock shall be sold or transferred otherwise than in accordance
with the terms and conditions of this Agreement, such sale shall be void. Any
such attempted sale or other transfer shall create a right in the Company to
purchase the Stock which is the subject of such purported transfer at the
applicable purchase price specified herein. Such right shall constitute an
"adverse claim" within the meaning of such term as used within the meaning of
the Uniform Commercial Code of any State. In addition to, and without prejudice
to, any and all other rights or remedies which may be available to the Company,
the Buyer agrees that the Company may, but shall have no obligation to, hold and
refuse to transfer any Stock, or any certificate therefor, tendered to it for
transfer if the transfer violates the provisions of the Agreement.
11.14 TAX REPRESENTATIONS
The Buyer acknowledges that the Company has made no warranties or other
representations to Buyer with respect to the income tax consequences of the
transactions contemplated by this Agreement and the Buyer is in no manner
relying on the Company or its representatives for an account of such tax
consequences.
11.15 FURTHER ASSURANCES
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above written.
Company
RGENE THERAPEUTICS, INC.
By: /s/ MARTIN P. SUTTER
-----------------------------
Name: Martin P. Sutter
-----------------------------
Title: Chairman
-----------------------------
Buyer's Spouse Buyer
Signed: /s/ SONIA LOPEZ Signed: /s/ G. LOPEZ-BERESTEIN
----------------------------- ------------------------
Print Name: Sonia Lopez Print Name: G. Lopez-Berestein
----------------------------- ------------------------
Address: Address:
----------------------------- ------------------------
----------------------------- ------------------------
----------------------------- ------------------------
----------------------------- ------------------------
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EXHIBIT 3
RGENE THERAPEUTICS, INC.
MIEN CHIE HUNG, PH.D.
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") dated February 14, 1994
is entered into by and between RGene Therapeutics, Inc., a Delaware corporation
(the "Company"), and Mien Chie Hung, Ph.D. (the "Buyer").
WITNESSETH:
WHEREAS, the Company desires to sell certain shares of common stock,
$.001 par value, of the Company (the "Common Stock") to the Buyer; and
WHEREAS, the Buyer desires to purchase certain shares of Common Stock
from the Company; and
WHEREAS, the Buyer and the Company desire that the Buyer grant to the
Company options to repurchase certain shares of Common Stock purchased by the
Buyer on the terms and conditions set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the parties agree as follows:
1. PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement and in
consideration of the payment of the Purchase Price (as defined below) by the
Buyer to the Company at the Closing (as defined below), the Company agrees to
sell to the Buyer, and the Buyer agrees to purchase from the Company, [*] shares
of Common Stock (the "Shares").
1.2 PURCHASE PRICE
The Purchase Price payable to the Company shall be $[*] per Share,
payable as follows: the Company shall deduct the Purchase Price from the first
month's consulting fee owed to Buyer under that certain Consulting Agreement
between the Buyer and the Company dated the date hereof (the "Consulting
Agreement").
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[*] Confidential Treatment Requested.
<PAGE> 49
1.3 CLOSING
The closing for the sale of the Shares to the Buyer shall occur on or
before February 15, 1994, or at such other date and time as the parties may
agree (the "Closing"). Concurrent with the payment by Buyer of the Purchase
Price, or within a reasonable time thereafter, the Company shall deliver to
Buyer a certificate or certificates representing the number of Shares as set
forth in Section 1.1 hereof, in the name of the Buyer.
2. REPURCHASE OPTION
(a) A total of [*] of the Shares purchased by Buyer pursuant to this
Agreement (hereinafter, the "Option Shares") shall be subject to the option
("Repurchase Option") set forth in this Section 2. In the event the Buyer shall
cease to be engaged by the Company (including a parent or subsidiary of the
Company) as a Consultant for any reason, voluntarily or involuntarily, the
Company shall have the right, at any time within 90 days after the date Buyer
ceases to be so engaged, to exercise the Repurchase Option, which consists of
the right to purchase from the Buyer at a purchase price of $[*] per share (the
"Unvested Option Price"), up to but not exceeding the number of Option Shares
specified in Section 2(b)(i) below, upon the terms hereinafter set forth.
(b) (i) If the Buyer's engagement by the Company under the Consulting
Agreement is terminated at any time prior to the second anniversary thereof, the
Company may exercise the Repurchase Option at the Unvested Option Price as to
all or any number of the Option Shares less the number of Option Shares equal to
1/24th of the balance of the Option Shares (rounded down to the nearest whole
Option Share) for each and every full calendar month that the Buyer was engaged
by the Company as a consultant pursuant to the Consulting Agreement.
(ii) The Repurchase Option provided in this Section 2 is assignable
by the Company in whole or in part to the holders of the Company's Preferred
Stock or other securities issued by the Company to investors (herein the
"Investors"). If the Company should decide not to exercise the Repurchase Option
or not to exercise the Repurchase Option for all Option Shares, it shall give
the Investors (or the Investor if at the time there is only one Investor) the
right to purchase all of the Option Shares or all of the remaining Option
Shares, as the case may be, then subject to the Repurchase Option or such lesser
portion thereof as may be selected by the Investors. Within 30 days after the
Section 2(b) Event, the Company shall notify each Investor in writing thereof
and the number of Option Shares remaining subject to the Repurchase Option. If
within 30 days after the Company gives its aforesaid notice, one or more of the
Investors do not notify the Company that they desire to purchase all of such
Option Shares, the Repurchase Option
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[*] Confidential Treatment Requested.
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shall expire. If the Investors oversubscribe for such Option Shares, each
Investor who notifies the Company that it desires to purchase Option Shares
shall have a right to purchase a pro rata portion of such Option Shares based on
the percentage of Common Stock and Preferred Stock then owned by it or which may
be acquired upon exercise of any outstanding convertible notes, warrants,
options or other securities, on a fully diluted as if converted to Common Stock
basis, bears to the number of shares of Common Stock and Preferred Stock then
owned by all Investors who notify the Company of their desire to purchase any of
such Option Shares or which may be acquired upon exercise of any outstanding
convertible notes, warrants, options or other securities, on a fully diluted as
if converted to Common Stock basis. The Company shall promptly advise each
Investor of the amount of such Option Shares it is entitled to purchase as a
result of such allocation.
(c) The Repurchase Option shall be exercised by written notice or
notices signed by an officer of the Company or the purchasing Investors, as the
case may be, and delivered or mailed as provided in Section 12.1 hereof. The
Unvested Option Price shall be payable, at the option of the Company or the
purchasing Investors, as the case may be, in cancellation of all or a portion of
any outstanding indebtedness of the Company or the purchasing Investors, as the
case may be, to the Buyer or in cash (by check) or both. The provisions of this
Section 2(c) shall survive any termination of this Agreement.
(d) Nothing in this Agreement shall affect in any manner whatsoever the
right or power of the Company, or a parent or subsidiary of the Company, to
terminate the Buyer's engagement, for any reason, with or without cause.
(e) The Buyer shall not sell, assign or otherwise transfer any of the
Option Shares or any interest therein, or grant or otherwise allow to exist any
lien, claim or other encumbrance on or with respect to any of the Option Shares
then subject to the Repurchase Option.
3. REPRESENTATIONS AND WARRANTIES
To induce the Company to deliver the Shares to the Buyer, the Buyer
represents and warrants to the Company:
(a) The Buyer is acquiring the Shares for his own account as
principal, for investment purposes only, and not with a view to, or for, resale
or distribution, and no other person has a direct or indirect beneficial
interest in the Shares;
(b) The Buyer has not offered any of the Shares for resale and
has no present intention of dividing his interest with others or of reselling or
otherwise disposing of any of the Shares;
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(c) Any information the Buyer has furnished to the Company with
respect to the Buyer's status as a sophisticated or accredited investor, his
business experience or financial position is correct;
(d) The financial capacity of the Buyer is such that the
investment in the Shares is not material to his total financial capacity; the
Buyer has the financial ability to bear the economic risk of his investment, has
adequate means for providing for his current needs and personal contingencies
and has no need for liquidity with respect to his investment in the Shares;
(e) The Buyer considers himself to be a sophisticated investor
and has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of the prospective investment in the
Shares;
(f) The Buyer has been furnished with all information concerning
the Shares and the Company that he desires;
(g) The Buyer has been given the opportunity to ask questions of,
and receive answers from, the Company with respect to the Shares, concerning the
terms and conditions of the offering and other matters pertaining to this
investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information provided to him
by the Company in order for him to evaluate the merits and risks of investment
in the Shares to the extent that the Company possessed such information or could
acquire it without unreasonable effort or expense; and
(h) The Buyer is not relying on the Company with respect to any
economic considerations of the Buyer related to this investment. In regard to
the economic considerations related to this investment, the Buyer has relied on
the advice of, or has consulted with, only his own advisors.
The Buyer further represents, warrants and agrees that he will not sell
or otherwise transfer the Shares without registration under the Securities Act
of 1933, as amended (the "Act"), or an exemption therefrom, and fully
understands and agrees that he must bear the economic risk of his purchase for
an indefinite period of time because, among other reasons, the Shares have not
been registered under the Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states or an exemption from such registration is
available. He also understands that the Company is under no obligation to
register the Shares on his behalf or to assist him in complying with any
exemption from registration under the Act. He further understands that any
certificate evidencing the Shares will bear a legend restricting the transfer
thereof consistent with the foregoing and that a notation may be made in the
records of the Company restricting the transfer of any Shares in a manner
consistent with the foregoing.
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<PAGE> 52
4. BUYER AWARENESS
The Buyer acknowledges that he is aware that:
(a) No federal or state agency has passed upon the Shares or made
any finding or determination as to the fairness of this investment;
(b) There are substantial risks of loss of investment incident to
an investment in the Shares and such an investment is highly speculative;
(c) The Company is only recently organized, has not conducted any
substantial business to date and does not have any substantial working capital
or financial resources. The business in which the Company proposes to engage is
highly competitive and success in the Company's business may depend on, among
other things, the Company's ability to obtain financing, to complete product
development, to attract qualified employees and to obtain patent protection and
governmental approvals, market acceptance of products and numerous other factors
over which the Company does not have control.
5. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL
5.1 COMPANY'S PURCHASE OPTION
Buyer shall not sell, transfer, pledge, hypothecate or otherwise dispose
of any Shares which are purchased hereunder without first complying with the
terms of this Section 5.
5.2 RIGHT OF FIRST REFUSAL
Before any of the Shares registered in the name of Buyer that are not
subject to the Repurchase Option may be sold or transferred (including transfer
by operation of law), except as permitted in Section 6, such Shares shall first
be offered to the Company and to the Investors, in accordance with the terms set
out herein, provided, however, that until the Company has completed a public
offering of its equity securities pursuant to an effective registration
statement filed with the Securities and Exchange Commission, no transfer of the
Shares may be made under any circumstances.
(i) Buyer shall deliver a notice ("Notice") to the Company and to
the Investors stating (A) his bona fide intention to sell or transfer such
Shares, (B) the number of such Shares to be sold or transferred, (C) the price
for which he proposes to sell or transfer such Shares, and (D) the name of the
proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice, the
Company and/or the Investors may elect to purchase some or all of the Shares to
which the Notice refers, at the price per share specified in the Notice. The
closing for such purchase by the
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Company and/or the Investors shall occur, unless otherwise agreed by the
Company, the Investors electing to purchase Shares, and the Buyer, no later than
30 days after the election by the Company and/or the Investors to purchase same.
In the event that the number of Shares which the Company and the Investors
desire to purchase exceeds the number of Shares proposed for sale by Buyer in
the Notice, then in such instance the Company shall have full preference to
acquire such Shares to the exclusion of the Investors, and, to the extent that
there are Shares still available for purchase by the Investors, the Investors
desiring to purchase Shares shall be entitled to purchase the remaining amount
thereof on a pro rata basis based upon the number of shares of Common Stock and
Preferred Stock, or securities convertible into shares of Common Stock and
Preferred Stock, then held by each of them so electing to purchase bears to the
total number of shares of Common Stock and Preferred Stock, or securities
convertible into shares of Common Stock and Preferred Stock, held by all
Investors desiring to acquire Shares, on a fully diluted as if converted to
Common Stock basis.
(iii) If all of the Shares to which the Notice refers are not
purchased by the Company and the Investors, as provided in Section 5.2(ii)
hereof, Buyer may sell such Shares which the Company and the Investors elected
not to purchase to any person or persons named in the Notice at the price
specified in the Notice or at a higher price, provided that such sale or
transfer is consummated within 120 days of the date of said Notice to the
Company and the Investors, and provided, further, that any such sale is in
accordance with all the terms and conditions hereof.
(iv) Upon the closing of a firm commitment public offering
pursuant to an effective registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Act"), covering the offering and sale
of shares of Common Stock for the account of the Company in which the aggregate
gross proceeds received by the Company equal or exceed $7,500,000 and in which
the public offering price per share equals or exceeds $5.00 per share, the
thirty (30) day period specified in Section 5.2(ii) above shall be reduced to a
ten (10) day period; and the requirement to identify the name of the proposed
purchaser and the proposed price shall be inapplicable if the Buyer proposed to
sell the Shares in an over-the-counter sale or on a national or regional
exchange transaction. In such instance, any such sale to the Company and/or the
Investors shall be at the average closing price of the Company's Common Stock on
the date of notice of election to purchase such shares by the Company and/or the
Investors. The average closing price is defined as the last closing price
regular way on the exchange where the Common Stock is listed for trading or the
average of the bid and ask prices if applicable.
5.3 STANDOFF AGREEMENT
Buyer agrees, in connection with each of the Company's public offerings
of its equity securities, and upon request of the Company or the underwriters
managing such offering, not to sell, make any short sale of, loan, grant any
option for the purchase of or
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otherwise dispose of any of the Shares (other than those included in the
registration, if any) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time from the effective
date of such registration as may be requested by the Company or such
underwriters; provided, that the officers and directors of the Company who own
stock of the Company also agree to such restrictions.
5.4 OTHER RESTRICTIONS ON TRANSFER
The Company shall not be required (i) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
6. EXEMPT TRANSACTIONS
6.1 CERTAIN TRANSACTIONS
The prohibition in Section 5 against the sale of the Shares shall not
apply to the exchange of Shares pursuant to a plan or merger, consolidation,
recapitalization, reorganization, or sale of the Company, in which the Company
is the surviving entity, but any stock or securities received in exchange
therefor shall also become subject to this Agreement.
6.2 PERMITTED TRANSFERS
The prohibition in Section 5 against the sale of Shares shall not apply
to a transfer by Buyer of all or part of his Shares during his lifetime or on
death by will or by intestacy to or for the benefit of himself, his spouse, his
ancestors or his lineal descendants, provided that any such transferee or
transferees shall receive and hold the Shares subject to the terms of this
Agreement, and there shall be no further transfer of such Shares except in
accordance with the terms of this Agreement.
7. ASSIGNMENT
The Company may assign this Agreement or any of its rights and
obligations hereunder. The Buyer may not assign this Agreement or any of his
rights and obligations hereunder. All covenants and agreements of, and benefits
for, the Investors contained in this Agreement shall inure to the benefit of
their respective successors and assigns and be binding on the Company and its
successors and on the Buyer and his heirs, executors, administrators and
successors. All such covenants and agreements are fully assignable by the
Investors, provided, however, that any assignment of any of its rights under
this Agreement by any Investor (other than to partners of such Investor or
successors of such Investor or such partners by operation of law) shall be made
only in connection with the
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sale or other transfer of all or any portion of the Preferred Stock, Common
Stock, convertible notes, warrants, options or other securities of the Company
which are exchangeable or convertible into shares of Common Stock or Preferred
Stock of the Company held by such Investor and such assignee or transferee shall
execute this Agreement.
8. ADJUSTMENTS
If, from time to time during the term of this Agreement (i) there is any
stock dividend or liquidating dividend of cash or property, stock split or other
change in the character or amount of any of the outstanding securities of the
Company, or (ii) there is any transaction involving the consolidation, merge or
sale of all, or substantially all, of the assets of the Company, then, in such
event, (x) any and all new, substituted or additional securities or other
property to which the Buyer is entitled by reason of his ownership of the Shares
shall be immediately subject to right of first refusal provided to the Company
and the Investors as described in Section 5 hereof and to the Repurchase Option
and be included in the term "Option Shares" for all purposes of the Repurchase
Option with the same force and effect as the Option Shares subject to the
Repurchase Option under the terms of Section 2 hereof and (y) all Shares
purchased by Buyer hereunder shall be treated on the same basis as all other
outstanding shares of Common Stock of the Company so that Buyer's Shares shall
not be diluted by any such event any differently than any other holder of Common
Stock of the Company. While the total Unvested Option Price shall remain the
same after each such event, the Unvested Option Price per Option Share upon
exercise of the Repurchase Option shall be appropriately adjusted.
9. LEGENDS
All certificates representing any of the Shares subject to the
provisions of this Agreement shall have endorsed thereon a legend substantially
as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST
IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
CERTAIN RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A RIGHT OF REPURCHASE AND RIGHT OF
FIRST REFUSAL, CONTAINED IN A CERTAIN AGREEMENT BY THE
RECORDHOLDER HEREOF AND THE CORPORATION, A COPY OF WHICH WILL BE
MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER
RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR."
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Upon presentation to the Company or any authorized transfer agent, the
certificates representing the Shares or any appropriate portion thereof shall be
exchanged for certificates not bearing such legend if the certificates are
presented after the termination of this Agreement.
10. RIGHTS AS A STOCKHOLDER; VOTING AGREEMENT
Subject to the provisions of Sections 2 and 5 above, the Buyer shall,
during the term of this Agreement, exercise all rights and privileges of a
stockholder of the Company with respect to the Shares, including the right to
vote such Shares at any stockholder meeting. Notwithstanding anything herein to
the contrary, Buyer hereby agrees that he will, for a ninety-day period
following the issuance of the Shares or until the closing of the first round
financing by the Company in an amount at least equal to $2,000,000, whichever
comes first, vote such Shares, at any stockholder meeting, in person, by proxy,
by written consent, or otherwise, for the directors nominated for election to
the Board of Directors of the Company by The Woodlands Venture Fund and no
others, and, in any other matter coming before the stockholders of the Company,
in accordance with the directive of The Woodlands Venture Fund.
In order to secure the obligation to vote in accordance with the
provisions hereof, the Buyer hereby appoints Martin P. Sutter as his true and
lawful proxy and attorney, with full power of substitution, to vote all of his
Shares for the matters specified hereinabove. The irrevocable proxy granted by
the Buyer may be exercised at any time Buyer fails to comply with the terms of
this Section 10. The proxy and power granted by the Buyer pursuant to this
section are coupled with an interest and are given to secure the duties of the
Buyer pursuant hereto. Such proxy will be irrevocable and will survive the
death, incompetency, and disability of Buyer, provided that it shall terminate
upon the expiration of twelve months following the issuance of the Shares.
Buyer hereby consents to the placement of an appropriate legend
evidencing the voting restrictions provided for in this Agreement, on the
certificates representing the Shares and any certificates issued in replacement
or exchange therefor, and Buyer will take all actions reasonably requested by
the Company to effect such placement.
11. TERMINATION
Except as may be otherwise provided herein, this Agreement shall
terminate on the 91st calendar day immediately succeeding the third anniversary
of the public offering referenced in Section 5.2.
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12. MISCELLANEOUS
12.1 NOTICE
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
RGene Therapeutics, Inc.
c/o The Woodlands Venture Fund
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Attention: Martin P. Sutter
If to the Buyer, at the address identified on the signature page hereof,
and if to an Investor, at the address identified on the records of the Company
hereto, or to such other address as either party or an Investor may furnish to
the other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
12.2 APPLICABLE LAW
The substantive laws of the State of Texas, excluding any law, rule or
principle which might refer to the substantive law of another jurisdiction, will
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. This Agreement
is to be at least partially negotiated, executed and performed in Harris County,
Texas, and, as such, the Company and the Buyer agree that personal jurisdiction
and venue shall be proper with the state or federal courts situated in Harris
County, Texas, to hear such disputes arising under this Agreement.
12.3 NO WAIVER
No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
12.4 SEVERABILITY
If a court of competent jurisdiction determined that any provision of
this Agreement, including any appendices attached hereto, is invalid or
unenforceable, then the invalidity or unenforceability of that provision shall
not affect the validity or
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enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect. Further, such provision shall
be reformed and construed to the extent permitted by law so that it may be
valid, legal and enforceable to the maximum extent possible.
12.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
12.6 HEADINGS
The section headings have been inserted for purposes of convenience and
shall not be used for interpretive purposes.
12.7 SUCCESSORS; THIRD PARTY BENEFICIARY
This Agreement shall inure to the benefit of the successors and assigns
of the Company and the Investors and be binding upon the Buyer and his heirs,
executors, administrators and successors. The Buyer agrees that any and all
Investors in the Company shall be treated as third party beneficiaries of this
Agreement without the necessity of execution of this Agreement, and shall be
entitled to all of the rights accorded to them herein.
12.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
the subject matter hereof. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, with regard
to the subject matter hereof, has been made by either party, or by anyone acting
on behalf of either party, which is not embodied herein, and that no agreement,
statement or promise relating to the subject matter hereof which is not
contained in this Agreement or in such other agreements shall be valid and
binding.
12.9 AMENDMENTS
No amendment or modification to this Agreement will be effective unless
it is in writing and signed by the Company, the Buyer and, if such amendment
alters or amends any of the rights of the Investors, by Investors holding a
majority of the outstanding shares of capital stock of the Company held by such
Investors, if any.
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12.10 INDEMNITY
The Buyer agrees to indemnify and hold harmless the Company and any
person, if any, who controls the Company or such successor within the meaning of
Section 15 of the Act against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty or breach or failure by the
Buyer to comply with any covenant or agreement made by the Buyer herein or in
any other document furnished by the Buyer in connection with this transaction.
12.11 INJUNCTIVE RELIEF
In view of the inadequacy of money damages, and in view of the fact that
the stock of the Company cannot be readily purchased or sold in the general
market, if the Buyer or any other person shall fail to comply with any provision
of this Agreement, the Company shall be entitled, to the extent permissible by
law, to injunctive relief in the case of the violation, or attempted or
threatened violation, by Buyer or other person of any such provision, or to a
decree compelling specific performance by the Buyer or other person, of any such
provision, or to any other remedies legally available.
12.12 SPOUSES
The spouse of the Buyer, if any, hereby represents and acknowledges that
he or she is fully aware of, understands, and fully consents and agrees to the
provisions of this Agreement and its binding effect upon any community property
interest he or she may now or hereafter own. Said spouse agrees that the
termination of their marital relationship with the Buyer for any reason or his
or her death shall not have the effect of removing any stock of the Company
otherwise subject to this Agreement from its coverage. Said spouse's awareness,
understanding, consent and agreement is evidenced by the execution of this
Agreement. All stock described in this Agreement shall include the community
property interest of the spouse of Buyer.
12.13 VOID TRANSFERS
If any Stock shall be sold or transferred otherwise than in accordance
with the terms and conditions of this Agreement, such sale shall be void. Any
such attempted sale or other transfer shall create a right in the Company to
purchase the Stock which is the subject of such purported transfer at the
applicable purchase price specified herein. Such right shall constitute an
"adverse claim" within the meaning of such term as used within the meaning of
the Uniform Commercial Code of any State. In addition to, and without prejudice
to, any and all other rights or remedies which may be available to the Company,
the Buyer agrees that the Company may, but shall have no obligation to, hold and
refuse
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<PAGE> 60
to transfer any Stock, or any certificate therefor, tendered to it for
transfer if the transfer violates the provisions of the Agreement.
12.14 TAX REPRESENTATIONS
The Buyer acknowledges that the Company has made no warranties or other
representations to Buyer with respect to the income tax consequences of the
transactions contemplated by this Agreement and Buyer is in no manner relying on
the Company or its representatives for an account of such tax consequences.
12.15 FURTHER ASSURANCES
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
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<PAGE> 61
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above written.
Company
RGENE THERAPEUTICS, INC.
By: /s/ MARTIN P. SUTTER
-----------------------------
Name: Martin P. Sutter
-----------------------------
Title: Chairman
-----------------------------
Buyer's Spouse Buyer
Signed: /s/ KING LAN C. HUNG Signed: /s/ HIEN-CHIE HUNG
------------------------ ------------------------
Print Name: King Lan C. Hung Print Name: Hien-Chie Hung
------------------------ ------------------------
Address: 5762 Birdwood R. Address: 5762 Birdwood Rd.
------------------------ ------------------------
Houston, Texas 77096 Houston, Texas 77096
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
- ------------------------------------ ------------------------------------
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<PAGE> 62
EXHIBIT 4
RGENE THERAPEUTICS, INC.
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") dated March __, 1994 is
entered into by and between RGene Therapeutics, Inc., a Delaware corporation
(the "Company"), and Board of Regents of the University of Texas System, an
agency of the State of Texas ("Stockholder").
WITNESSETH:
WHEREAS, the Company desires to issue certain shares of common stock,
$.001 par value, of the Company (the "Common Stock") to the Stockholder; and
WHEREAS, the Stockholder desires to acquire certain shares of Common
Stock from the Company; and
WHEREAS, the Stockholder and the Company desire that the Stockholder
grant to the Company, and under certain circumstances to holders of the
Company's Preferred Stock or other securities issued by the Company to investors
(the "Investors"), options to repurchase certain shares of Common Stock
purchased by the Stockholder on the terms and conditions set forth;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the parties agree as follows:
1. ISSUANCE OF SHARES
1.1 PURCHASE AND SALE OF SHARES
Subject to the terms and conditions of this Agreement and in
consideration of the execution of the Patent and Technology License Agreement
between the Company and the Stockholder dated the date hereof relating to
certain patent applications and technology owned by Stockholder and invented by
Dr. Mien Chie Hung, Ph.D., the Company agrees to issue to the Stockholder
[ * ] shares of Common Stock (the "Shares").
- ------------------------------
[*] Confidential Treatment Requested.
<PAGE> 63
1.2 CLOSING
The closing for the issuance of the Shares to the Stockholder shall
occur on or before March __, 1994, or at such other date and time as the parties
may agree (the "Closing"). At the Closing, or within a reasonable time
thereafter, the Company shall deliver to Stockholder a certificate or
certificates representing the number of Shares as set forth in Section 1.1
hereof, in the name of the Stockholder.
2. REPRESENTATIONS AND WARRANTIES
To induce the Company to deliver the Shares to the Stockholder, the
Stockholder represents and warrants to the Company:
(a) The Stockholder is acquiring the Shares for its own account
as principal, for investment purposes only, and not with a view to, or for,
resale or distribution, and no other person or entity has a direct or indirect
beneficial interest in the Shares;
(b) The Stockholder has not offered any of the Shares for resale
and has no present intention of dividing its interest with others or of
reselling or otherwise disposing of any of the Shares;
(c) Any information the Stockholder has furnished to the Company
with respect to the Stockholder's status as a sophisticated or accredited
investor, its business experience or financial position is correct;
(d) The financial capacity of the Stockholder is such that the
investment in the Shares is not material to its total financial capacity; the
Stockholder has the financial ability to bear the economic risk of its
investment, has adequate means for providing for its current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the Shares;
(e) The Stockholder considers itself to be a sophisticated
investor and has such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of the prospective
investment in the Shares;
(f) The Stockholder has been furnished with all information
concerning the Shares and the Company that it desires;
(g) The Stockholder has been given the opportunity to ask
questions of, and receive answers from, the Company with respect to the Shares,
concerning the terms and conditions of the offering and other matters pertaining
to this investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information provided to him
by the Company in order for him to evaluate
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<PAGE> 64
the merits and risks of investment in the Shares to the extent that the Company
possessed such information or could acquire it without unreasonable effort or
expense; and
(h) The Stockholder is not relying on the Company with respect to
any economic considerations of the Stockholder related to this investment. In
regard to the economic considerations related to this investment, the
Stockholder has relied on the advice of, or has consulted with, only its own
advisors.
The Stockholder further represents, warrants and agrees that it will not
sell or otherwise transfer the Shares without registration under the Securities
Act of 1933, as amended (the "Act"), or an exemption therefrom, and fully
understands and agrees that it must bear the economic risk of its purchase for
an indefinite period of time because, among other reasons, the Shares have not
been registered under the Act or under the securities laws of any state and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states or an exemption from such registration is
available. It also understands that the Company is under no obligation to
register the Shares on its behalf or to assist him in complying with any
exemption from registration under the Act. It further understands that any
certificate evidencing the Shares will bear a legend restricting the transfer
thereof consistent with the foregoing and that a notation may be made in the
records of the Company restricting the transfer of any Shares in a manner
consistent with the foregoing.
3. STOCKHOLDER AWARENESS
The Stockholder acknowledges that it is aware that:
(a) No federal or state agency has passed upon the Shares or made
any finding or determination as to the fairness of this investment;
(b) There are substantial risks of loss of investment incident to
an investment in the Shares and such an investment is highly speculative;
(c) The Company is only recently organized, has not conducted any
substantial business to date and does not have any substantial working capital
or financial resources. The business in which the Company proposes to engage is
highly competitive and success in the Company's business may depend on, among
other things, the Company's ability to obtain financing, to complete product
development, to attract qualified employees and to obtain patent protection and
governmental approvals, market acceptance of products and numerous other factors
over which the Company does not have control.
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<PAGE> 65
4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL
4.1 COMPANY'S PURCHASE OPTION
Stockholder shall not sell, transfer, pledge, hypothecate or otherwise
dispose of any Shares which are purchased hereunder without first complying with
the terms of this Section 4.
4.2 RIGHT OF FIRST REFUSAL
Before any of the Shares registered in the name of Stockholder may be
sold or transferred (including transfer by operation of law), except as
permitted in Section 5, such Shares shall first be offered to the Company and to
the Investors, in accordance with the terms set out herein.
(i) Stockholder shall deliver a notice ("Notice") to the Company
and to the Investors stating (A) its bona fide intention to sell or transfer
such Shares, (B) the number of such Shares to be sold or transferred, (C) the
price for which it proposes to sell or transfer such Shares, and (D) the name of
the proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the Notice, the
Company and/or the Investors may elect to purchase some or all of the Shares to
which the Notice refers, at the price per share specified in the Notice. The
closing for such purchase by the Company and/or the Investors shall occur,
unless otherwise agreed by the Company, the Investors electing to purchase
Shares, and the Stockholder, no later than 30 days after the election by the
Company and/or the Investors to purchase same. In the event that the number of
Shares which the Company and the Investors desire to purchase exceeds the number
of Shares proposed for sale by Stockholder in the Notice, then in such instance
the Company shall have full preference to acquire such Shares to the exclusion
of the Investors, and, to the extent that there are Shares still available for
purchase by the Investors, the Investors desiring to purchase Shares shall be
entitled to purchase the remaining amount thereof on a pro rata basis based upon
the number of shares of Common Stock and Preferred Stock, or securities
convertible into shares of Common Stock and Preferred Stock, then held by each
of them so electing to purchase bears to the total number of shares of Common
Stock and Preferred Stock, or securities convertible into shares of Common Stock
and Preferred Stock, held by all Investors desiring to acquire Shares, on a
fully diluted as if converted to Common Stock basis.
(iii) If all of the Shares to which the Notice refers are not
purchased by the Company and the Investors, as provided in Section 4.2(ii)
hereof, Stockholder may sell such Shares which the Company and the Investors
elected not to purchase to any person or persons named in the Notice at the
price specified in the Notice or at a higher price, provided that such sale or
transfer is consummated within 120 days of the date of
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<PAGE> 66
said Notice to the Company and the Investors, and provided, further, that any
such sale is in accordance with all the terms and conditions hereof.
(iv) Upon the closing of a firm commitment public offering
pursuant to an effective registration statement filed by the Company under the
Securities Act of 1933, as amended (the "Act"), covering the offering and sale
of shares of Common Stock for the account of the Company in which the aggregate
gross proceeds received by the Company equal or exceed $7,500,000 and in which
the public offering price per share equals or exceeds $5.00 per share, the
thirty (30) day period specified in Section 4.2(ii) above shall be reduced to a
ten (10) day period; and the requirement to identify the name of the proposed
purchaser and the proposed price shall be inapplicable if the Stockholder
proposed to sell the Shares in an over-the-counter sale or on a national or
regional exchange transaction. In such instance, any such sale to the Company
and/or the Investors shall be at the average closing price of the Company's
Common Stock on the date of notice of election to purchase such shares by the
Company and/or the Investors. The average closing price is defined as the last
closing price regular way on the exchange where the Common Stock is listed for
trading or the average of the bid and ask prices if applicable.
4.3 STANDOFF AGREEMENT
Stockholder agrees, in connection with each of the Company's public
offerings of its equity securities, and upon request of the Company or the
underwriters managing such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of or otherwise dispose of any of the Shares
(other than those included in the registration, if any) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time from the effective date of such registration as may be
requested by the Company or such underwriters; provided, that the officers and
directors of the Company who own stock of the Company also agree to such
restrictions.
4.4 OTHER RESTRICTIONS ON TRANSFER
The Company shall not be required (i) to transfer on its books any of
the Shares which shall have been sold or transferred in violation of any of the
provisions set forth in this Agreement or (ii) to treat as owner of such Shares
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Shares shall have been so transferred.
5. EXEMPT TRANSACTIONS
The prohibition in Section 4 against the sale of the Shares shall not
apply to the exchange of Shares pursuant to a plan or merger, consolidation,
recapitalization, reorganization, or sale of the Stockholder in which the
Stockholder is the surviving entity,
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<PAGE> 67
but any stock or securities received in exchange therefor shall also become
subject to this Agreement.
6. ASSIGNMENT
The Company may assign this Agreement or any of its rights and
obligations hereunder. The Stockholder may not assign this Agreement or any of
its rights and obligations hereunder. All covenants and agreements of, and
benefits for, the Investors contained in this Agreement shall inure to the
benefit of their respective successors and assigns and be binding on the Company
and its successors and on the Stockholder and its successors and assigns. All
such covenants and agreements are fully assignable by the investors, provided,
however, that any assignment of any of its rights under this Agreement by any
Investor (other than to partners of such Investor or successors of such Investor
or such partners by operation of law) shall be made only in connection with the
sale or other transfer of all or any portion of the Preferred Stock, Common
Stock, convertible notes, warrants, options or other securities of the Company
which are exchangeable or convertible into shares of Common Stock or Preferred
Stock of the Company held by such Investor and such assignee or transferee shall
execute this Agreement.
7. ADJUSTMENTS
If, from time to time during the term of this Agreement (i) there is any
stock dividend or liquidating dividend of cash or property, stock split or other
change in the character or amount of any of the outstanding securities of the
Company or (ii) there is any transaction involving the consolidation, merger or
sale of all, or substantially all, of the assets of the Company, then, in such
event, (x) any and all new, substituted or additional securities or other
property to which the Stockholder is entitled by reason of its ownership of the
Shares shall be immediately subject to right of first refusal provided to the
Company and the Investors as described in Section 4 hereof and (y) all Shares
purchased by Stockholder hereunder shall be treated on the same basis as all
other outstanding shares of Common Stock of the Company so that Stockholder's
Shares shall not be diluted by any such event any differently than any other
holder of Common Stock of the Company.
8. LEGENDS
All certificates representing any of the Shares subject to the
provisions of this Agreement shall have endorsed thereon a legend substantially
as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST
IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
CERTAIN RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS
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<PAGE> 68
CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL, CONTAINED IN
A CERTAIN AGREEMENT BY THE RECORDHOLDER HEREOF AND THE
CORPORATION, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A
WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent, the
certificates representing the Shares or any appropriate portion thereof shall be
exchanged for certificates not bearing such legend if the certificates are
presented after the termination of this Agreement.
9. RIGHTS AS A STOCKHOLDER; VOTING AGREEMENT
(a) Subject to the provisions of Section 4 above, the Stockholder shall,
during the term of this Agreement, exercise all rights and privileges of a
stockholder of the Company with respect to the Shares, including the right to
vote such Shares at any stockholder meeting. Notwithstanding anything herein to
the contrary, Stockholder hereby agrees that it will, for a ninety-day period
following the issuance of the Shares or until the closing of the first round
financing by the Company in an amount at least equal to $2,000,000, whichever
comes first, vote such Shares, at any stockholder meeting, in person, by proxy,
by written consent, or otherwise, for the directors nominated for election to
the Board of Directors of the Company by The Woodlands Venture Fund and no
others, and, in any other matter coming before the stockholders of the Company,
in accordance with the directive of The Woodlands Venture Fund.
In order to secure the obligation to vote in accordance with the
provisions hereof, the Stockholder hereby appoints Martin P. Sutter as its true
and lawful proxy and attorney, with full power of substitution, to vote all of
its Shares for the matters specified hereinabove. The irrevocable proxy granted
by the Stockholder may be exercised at any time Stockholder fails to comply with
the terms of this Section 9. The proxy and power granted by the Stockholder
pursuant to this section are coupled with an interest and are given to secure
the duties of the Stockholder pursuant hereto. Such proxy will be irrevocable
and will survive the death, incompetency, and disability of Stockholder,
provided that it shall terminate upon the expiration of ninety days following
the issuance of the Shares or until the above-referenced closing, if earlier.
Stockholder hereby consents to the placement of an appropriate legend
evidencing the voting restrictions provided for in this Agreement, on the
certificates representing the Shares and any certificates issued in replacement
or exchange therefor, and Stockholder will take all actions reasonably requested
by the Company to effect such placement.
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<PAGE> 69
10. TERMINATION
Except as may be otherwise provided herein, this Agreement shall
terminate on the 91st calendar day immediately succeeding the third anniversary
of the public offering referenced in Section 4.2.
11. MISCELLANEOUS
11.1 NOTICE
For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Company:
RGene Therapeutics, Inc.
c/o The Woodlands Venture Fund
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77380
Attention: Martin P. Sutter
If to the Stockholder, at the address identified on the signature page
hereof, and if to an Investor, at the address identified on the records of the
Company hereto, or to such other address as either party or an Investor may
furnish to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
11.2 APPLICABLE LAW
The substantive laws of the State of Texas, excluding any law, rule or
principle which might refer to the substantive law of another jurisdiction, will
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof. This Agreement
is to be at least partially negotiated, executed and performed in Harris County,
Texas, and, as such, the Company and the Stockholder agree that personal
jurisdiction and venue shall be proper with the state or federal courts situated
in Harris County, Texas, to hear such disputes arising under this Agreement.
11.3 NO WAIVER
No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this
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<PAGE> 70
Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
11.4 SEVERABILITY
If a court of competent jurisdiction determined that any provision of
this Agreement, including any appendices attached hereto, is invalid or
unenforceable, then the invalidity or unenforceability of that provision shall
not affect the validity or enforceability of any other provision of this
Agreement, and all other provisions shall remain in full force and effect.
Further, such provision shall be reformed and construed to the extent permitted
by law so that it may be valid, legal and enforceable to the maximum extent
possible.
11.5 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
11.6 HEADINGS
The section headings have been inserted for purposes of convenience and
shall not be used for interpretive purposes.
11.7 SUCCESSORS; THIRD PARTY BENEFICIARY
This Agreement shall inure to the benefit of the successors and assigns
of the Company and the Investors and be binding upon the Stockholder and its
successors and assigns. The Stockholder agrees that any and all Investors in the
Company shall be treated as third party beneficiaries of this Agreement without
the necessity of execution of this Agreement, and shall be entitled to all of
the rights rendered to them herein.
11.8 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties with
regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
the subject matter hereof. Each party to this Agreement acknowledges that no
representation, inducement, promise or agreement, oral or written, with regard
to the subject matter hereof, has been made by either party, or by anyone acting
on behalf of either party, which is not embodied herein, and that no agreement,
statement or promise relating to the subject matter hereof which is not
contained in this Agreement or in such other agreements shall be valid and
binding.
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<PAGE> 71
11.9 AMENDMENTS
No amendment or modification to this Agreement will be effective unless
it is in writing and signed by the Company, the Stockholder and, if such
amendment alters or amends any of the rights of the Investors, by Investors
holding a majority of the outstanding shares of capital stock of the Company
held by such Investors, if any.
11.10 INDEMNITY
The Stockholder agrees to indemnify and hold harmless the Company and
any person, if any, who controls the Company or such successor within the
meaning of Section 15 of the Act against any and all loss, liability, claim,
damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the Stockholder to comply with any covenant or agreement made by the
Stockholder herein or in any other document furnished by the Stockholder in
connection with this transaction.
11.11 INJUNCTIVE RELIEF
In view of the inadequacy of money damages, and in view of the fact that
the stock of the Company cannot be readily purchased or sold in the general
market, if the Stockholder or any other person shall fail to comply with any
provision of this Agreement, the Company shall be entitled, to the extent
permissible by law, to injunctive relief in the case of the violation, or
attempted or threatened violation, by Stockholder or other person of any such
provision, or to a decree compelling specific performance by the Stockholder or
other person, of any such provision, or to any other remedies legally available.
11.12 VOID TRANSFERS
If any Stock shall be sold or transferred otherwise than in accordance
with the terms and conditions of this Agreement, such sale shall be void. Any
such attempted sale or other transfer shall create a right in the Company to
purchase the Stock which is the subject of such purported transfer at the
applicable purchase price specified herein. Such right shall constitute an
"adverse claim" within the meaning of such term as used within the meaning of
the Uniform Commercial Code of any State. In addition to, and without prejudice
to, any and all other rights or remedies which may be available to the Company,
the Stockholder agrees that the Company may, but shall have no obligation to,
hold and refuse to transfer any Stock, or any certificate therefor, tendered to
it for transfer if the transfer violates the provisions of the Agreement.
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<PAGE> 72
11.13 TAX REPRESENTATIONS
The Stockholder acknowledges that the Company has made no warranties or
other representations to Stockholder with respect to the income tax consequences
of the transactions contemplated by this Agreement and Stockholder is in no
manner relying on the Company or its representatives for an account of such tax
consequences.
11.14 FURTHER ASSURANCES
The parties agree to execute such further instruments and to take such
further action as may reasonably be necessary to carry out the intent of this
Agreement.
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<PAGE> 73
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above written.
Company
RGENE THERAPEUTICS, INC.
By: /s/ MARTIN P. SUTTER
-------------------------------------
Name: Martin P. Sutter
-----------------------------------
Title: Chairman
----------------------------------
Stockholder
BOARD OF REGENTS OF THE
UNIVERSITY OF TEXAS SYSTEM
By: /s/ THOMAS E. RICKS
-------------------------------------
Name: Thomas E. Ricks
-----------------------------------
Title: Vice Chairman for Asset Management
----------------------------------
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<PAGE> 1
REDACTED VERSION
EXHIBIT 10.30
TO
TARGETED GENETICS CORPORATION
AMENDMENT NO. 1
TO
FORM S-1
TO BE FILED ON OR BEFORE
MAY 30, 1996
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
FIRST AMENDED AND RESTATED LICENSE AGREEMENT
BETWEEN
THE UNIVERSITY OF TENNESSEE RESEARCH
CORPORATION
AND
RGENE THERAPEUTICS, INC.
This Agreement, effective the 12th day of October, 1995 ("Effective
Date") is entered into by and between The University of Tennessee Research
Corporation ("UTRC"), a Tennessee nonprofit corporation having an office at 415
Communications Building, Knoxville, TN 37996-0344, and RGene Therapeutics, Inc.
("RGENE"), a Delaware corporation having its principal office at 2170 Buckthorne
Place, Suite 230, The Woodlands, TX 77381.
WITNESSETH
WHEREAS, UTRC and McMaster University (hereinafter "McMaster") are
collectively the owners of United States Patent Application Serial Number
07/751,873 filed August 28, 1991 titled, "Method for Delivering Nucleic Acids
into Cells" (hereinafter "Patent Application") and the subject matter disclosed
and/or claimed therein.
WHEREAS, UTRC and McMaster have executed and entered into that certain
Agreement (hereinafter the "UTRC-McMaster Agreement") effective as of May 25,
1992 whereby it was agreed that UTRC shall have the exclusive right to
commercialize the aforesaid subject matter, including the granting of license(s)
to third parties.
WHEREAS, UTRC and RGENE executed and entered into that certain license
agreement (hereinafter the "Original Agreement") effective as of October 12,
1995, whereby RGENE was granted a license to the Technology and Licensed Patent
Rights (as defined below).
<PAGE> 3
WHEREAS, the parties now desire to amend and restate the Original
Agreement to modify the scope of RGENE's license to a Fourth Licensed Field, and
to make certain other changes regarding the rights and obligations of the
parties pertaining to RGENE's license.
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto expressly agree as follows:
1. DEFINITIONS
Except as otherwise defined herein, capitalized terms shall have the
following meanings:
1.1 Affiliate" shall mean any company, partnership, or other
entity, which directly or indirectly controls, is controlled by, or is under
common control with the entity in question or with whom the entity in question
has entered into a joint venture pertaining to the subject matter of this
Agreement. "Control" means the ownership of more than fifty percent (50%) of the
issued share capital or the legal power to cause the direction of the general
management and policies of the entity in question.
1.2 "Agreement" and "First Amended License Agreement" shall mean
this agreement.
1.3 "Technology" shall mean the subject matter disclosed and/or
claimed in the Licensed Patent Rights.
1.4 "Licensed Patent Rights" shall mean:
A. United States Patent Application Serial Number
07/751,873 titled, "Method for Delivering Nucleic Acids into Cells" (previously
defined herein as the "Patent Application");
B. any application that is owned by UTRC and constitutes
a continuation, continuation-in-part, divisional, re-issue, or a foreign
counterpart of the Patent Application referenced in Article 1.3A; and
C. any United States or foreign patent owned by UTRC
that may issue on any application covered by Article 1.3A. or 1.3B. above.
1.5 "Licensed Product" shall mean a product or composition, any
part of which incorporates or utilizes the Technology or any part thereof in its
manufacture, use, or sale.
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<PAGE> 4
1.6 "Net Sales" shall be defined as follows:
A. Sales by RGENE to a third party other than an
Affiliate. If any Licensed Products are sold by RGENE to other than an Affiliate
for separate consideration payable wholly in money, "Net Sales" shall mean the
aggregate gross selling price of such Licensed Products in the form in which
such Licensed Products are sold, whether or not assembled (and without excluding
therefrom any components or subassemblies thereof, whatever their origin), less
the following items (but only insofar as they pertain to the sale of such
Licensed Products and are included in such gross selling price):
(a) usual and customary trade discounts actually
granted;
(b) credits allowed for Licensed Products
returned or not accepted by customers;
(c) packaging, transportation and prepaid
insurance charges billed to customers that are separately itemized on the
customer's invoice; and
(d) taxes actually incurred and paid by RGENE in
connection with the sale or delivery of Licensed Products to customers.
B. Sales by RGENE to an Affiliate. If any Licensed
Products are sold by RGENE for separate consideration payable wholly in money to
an Affiliate, "Net Sales" shall mean the greater of the actual sales price or
the usual and customary price at which such Licensed Products are normally
offered for sale.
C. Sales by RGENE for consideration other than money. If
any Licensed Products are sold for other than separate consideration payable
wholly in money, "Net Sales" shall be determined in good faith by RGENE by
assuming that RGENE received the same Net Sales (as defined in subsection 1.5A.
above) in the sale that would have been realized in a transaction with an
unaffiliated buyer in an arm's length sale of such Licensed Products for money.
D. Sales by any Affiliate Sublicensee or Associate
Sublicensee. For the purposes of calculating "Net Sales" (but not for the
purpose of calculating royalties under Article 4.1), sales of Licensed Products
by any Affiliate Sublicensee or Associate Sublicensee shall be considered sales
by RGENE.
1.7 "Licensed Fields" shall mean the applications of the
Technology and the Licensed Patent Rights included within the definitions of the
First Licensed Field, the Second Licensed Field, the Third Licensed Field, and
the Fourth Licensed Field, as set out below.
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1.8 "First Licensed Field" shall mean and include therapeutic and
prophylactic applications of the Technology and the Licensed Patent Rights for:
A. all cancers except for Excluded Cancers (defined
below); and
B. traumatic brain injuries; and
C. cardiac and cardiovascular diseases and disorders
except for infectious diseases of the cardiovascular system; and
D. all dystrophies or dystrophic diseases and disorders
not specifically included in the Second Licensed Field, the Third Licensed
Field, or the Excluded Fields; and
E. all non-sepsis related infectious diseases other than
pulmonary diseases; and
F. all other immunologic and genetic diseases and
disorders not specifically included in the Second Licensed Field, the Third
Licensed Field, or the Excluded Fields and not previously licensed to others as
indicated by Appendix A, consisting of excerpts from all licenses for the
Licensed Patent Rights granted to third parties by UTRC (excluding the names of
the licensees); and
G. all other therapeutic, prophylactic, and diagnostic
applications not specifically included in the Second Licensed Field, the Third
Licensed Field, or the Excluded Fields and not previously licensed to others as
indicated in Appendix A, consisting of excerpts from all licenses for the
Licensed Patent Rights granted to third parties by UTRC (excluding the names of
the licensees).
For the purposes of this Article 1.8 only, the term "Excluded Cancers" shall be
defined as hematological cancers and cancers of the lung, breast, ovaries, colon
(i.e., large intestine and rectum), pancreas, stomach, small intestine, cervix
uteri, mouth, head, neck, and central nervous system and brain.
1.9 "Second Licensed Field" shall mean and include therapeutic and
prophylactic applications of the Technology and the Licensed Patent Rights for
diseases and disorders of the lung except for lung cancer, cystic fibrosis in
humans, pulmonary infections in cystic fibrosis patients, and infectious
diseases of the lung (whether or not sepsis-related).
1.10 "Third Licensed Field" shall mean and include therapeutic and
prophylactic applications of the Technology and the Licensed Patent Rights for:
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A. cancers of the pancreas, stomach, and small
intestine;
B. cancers of the mouth, head, and neck (excluding the
central nervous system and brain); and
C. cancers of the cervix uteri.
1.11 "Fourth Licensed Field" shall mean and include therapeutic and
prophylactic applications of the Technology and the Licensed Patent Rights for
infectious diseases (whether or not sepsis-related) of the pulmonary system
(excluding pulmonary infections in cystic fibrosis patients).
1.12 "Excluded Fields" shall mean:
A. the sale for research purposes of cationic lipid(s),
reagent(s) and/or other products based on or incorporating the Technology or
described/claimed in the Licensed Patent Rights; and
B. all applications for:
(1) the following classifications of rheumatic
diseases as set forth in Table 105-1 ("Classification of the Rheumatic
Diseases") of The Merck Manual, Sixteenth Edition (Robert Berkow, M.D.,
Editor-in-Chief; published by Merck Research Laboratories, Rahway, N.J.; 1992;
pp. 1297-1300):
I. Diffuse connective tissue diseases
II. Arthritis associated with spondylitis
III. Osteoarthritis, including osteoarthrosis and
degenerative joint diseases
IV. Arthritis, tenosynovitis, and bursitis
associated with infectious agents, excluding
treatment of the underlying infectious
diseases themselves
V. Metabolic and endocrine diseases with
rheumatic states, including
(a) crystal-induced conditions
VII. Neuropathic disorders
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VIII. Bone and cartilage disorders associated with
articular manifestations
IX Nonarticular rheumatism; and
(2) osteogenesis imperfecta; and
(3) tendon, ligament, and cartilage repair and
healing; and
(4) diseases and disorders of the following
types of connective tissues: white fibrous tissue in the form of tendons and
ligaments; hyaline cartilage; interarticular fibro-cartilage; connecting
fibro-cartilage; circumferential fibro-cartilage; stratiform fibro-cartilage;
yellow or elastic fibro-cartilage; and
(5) all other diseases and disorders of joints
and connective tissues; and
C. all applications for sepsis-related infectious
diseases except sepsis-related infectious diseases of the pulmonary system other
than bacterial pulmonary infections in cystic fibrosis patients; and
D. all applications for cystic fibrosis and pulmonary
diseases and disorders in cystic fibrosis patients; and
E. all other applications previously licensed on an
exclusive basis to others as indicated in Appendix A, being excerpts from all
licenses for the Licensed Patent Rights granted to third parties by UTRC
(excluding the names of the licensees other than Aronex Pharmaceuticals, Inc.,
RGENE's sublicensor).
1.13 "Affiliate Sublicense" shall mean a sublicense granted by
RGENE under this Agreement to an Affiliate of RGENE. "Affiliate Sublicensee"
shall mean any sublicensee of RGENE under this Agreement who is an Affiliate of
RGENE. Notwithstanding the foregoing, if a sublicensee qualifies as both an
Affiliate Sublicensee and an Associate Sublicensee, such sublicensee shall be
considered an Affiliate Sublicensee for all purposes.
1.14 "Associate Sublicense" shall mean a sublicense granted by
RGENE under this Agreement that provides for RGENE to receive as consideration
anything of value in lieu of cash payments. "Associate Sublicensee" shall mean
any sublicensee of RGENE under an Associate Sublicense. Notwithstanding the
foregoing, if a sublicensee qualifies as both an Affiliate Sublicensee and an
Associate Sublicensee, such sublicensee shall be considered an Affiliate
Sublicensee for all
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purposes and the sublicense granted to such sublicensee shall be considered an
Affiliate Sublicense.
1.15 "RGENE Licensing Group" shall mean RGENE, its Affiliate
Sublicensees, and its Associate Sublicensees.
1.16 "Territory" shall mean the world, subject to modification
pursuant to the terms of Article 6.
2. GRANT OF LICENSE
2.1 UTRC hereby grants to RGENE, and RGENE hereby accepts from
UTRC, upon the terms and conditions herein specified and subject to the
reservations set out below and further subject to the royalty-free nonexclusive
and other rights held by the United States Government (as more fully set out in
Article 2.3 below),
A. a right and license in the Territory to utilize the
Technology in the manufacture, use, and sale of Licensed Products for use in the
First Licensed Field, with the right to sell such Licensed Products for use in
the First Licensed Field being exclusive; and
B. a right and license in the Territory to manufacture,
use, and sell Licensed Products for use in the First Licensed Field under the
issued patents included within the Licensed Patent Rights, with the right to
sell such Licensed Products for use in the First Licensed Field being exclusive;
and
C. a nonexclusive right and license in the Territory to
utilize the Technology in the manufacture, use and sale of Licensed Products for
use in the Second Licensed Field; and
D. a nonexclusive right and license in the Territory to
manufacture, use, and sell Licensed Products for use in the Second Licensed
Field under the issued patents included within the Licensed Patent Rights; and
E. a right and license in the Territory to utilize the
Technology in the manufacture, use, and sale of Licensed Products for use in the
Third Licensed Field, with the right to sell such Licensed Products for use in
the Third Licensed Field being co-exclusive; and
F. a right and license in the Territory to manufacture,
use, and sell Licensed Products for use in the Third Licensed Field under the
issued patents
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included within Licensed Patent Rights, with the right to sell such Licensed
Products for use in the Third Licensed Field being co-exclusive; and
G. a right and license in the Territory to utilize the
Technology in the manufacture, use, and sale of Licensed Products for use in the
Fourth Licensed Field, with the right to sell such Licensed Products for use in
the Fourth Licensed Field being co-exclusive; and
H. a right and license in the Territory to manufacture,
use, and sell Licensed Produces for use in the Fourth Licensed Field under the
issued patents included within Licensed Patent Rights, with the right to sell
such Licensed Products for use in the Fourth Licensed Field being co-exclusive.
Notwithstanding the foregoing, the right to sell Licensed Products for use in
the First Licensed Field as granted in 2.1A. and 2.1B. above shall be
nonexclusive as to cancers other than Excluded Cancers until UTRC shall have
entered into an agreement with [*] whereby [*] relinquishes its licensed rights
with regard to such cancers. At such time as UTRC and [*] enter into such
agreement, this paragraph shall no longer apply and the exclusivity provisions
of Article 2.1A and 2.1B. shall control.
The term "exclusive" as used in this Article 2.1 means that during the
term of this Agreement UTRC shall not sell or otherwise distribute Licensed
Products in the Territory for use in the First Licensed Field or license any
third party to sell or otherwise distribute Licensed Products in the Territory
for use in the First Licensed Field.
The term "co-exclusive" as used in Article 2.1E. and Article 2.1F means
that during the term of this Agreement (UTRC shall not sell or otherwise
distribute Licensed Products in the Territory for use in the Third Licensed
Field or license any third party (other than [*] or a successor or assignee of
[*]) to sell or otherwise distribute Licensed Products in the Territory for use
in the Third Licensed Field.
The term "co-exclusive" as used in Article 2.1G. and Article 2.1H means
that during the term of this Agreement UTRC shall not sell or otherwise
distribute Licensed Products in the Territory for use in the Fourth Licensed
Field or license any third party (other than [*] or a successor or assignee of
[*]) to sell or otherwise distribute Licensed Products in the Territory for use
in the Fourth Licensed Field.
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2.2 UTRC expressly reserves and does not license to RGENE any
rights with respect to:
A. the manufacture, use, or sale of Licensed Products in
the Excluded Fields or otherwise outside the Licensed Fields; or
B. the manufacture, use, or sale of reagents covered by
Technology or described/claimed in Licensed Patent Rights in the Excluded Fields
or otherwise outside the Licensed Fields, the express intent of the parties
being to restrict the rights licensed to RGENE hereunder to the Licensed Fields;
or
C. the manufacture, use, or sale of Licensed Products
outside the Territory.
2.3 UTRC further expressly reserves for itself and for McMaster:
A. the nonexclusive right to utilize and to license
third parties to utilize the Technology and the Licensed Patent Rights in the
First Licensed Field and the Third Licensed Field for any research (including
commercial research) and/or academic purpose, including but not limited to the
manufacture, use, and sale of reagents;
B. the nonexclusive right to utilize and to license
third parties to utilize the Technology and the Licensed Patent Rights in the
Second Licensed Field for any commercial or noncommercial purpose; and
C. the nonexclusive right to manufacture, use, and sell
Licensed Products for use in the Second Licensed Field under the issued patents
included within Licensed Patent Rights and to license third parties to
manufacture, use, and sell Licensed Products for use in the Second Licensed
Field.
2.4 RGENE recognizes and accepts that not all aspects of the
Technology and potential Licensed Products are covered by an issued patent
within Licensed Patent Rights, and in the absence of such patent protection, it
is possible for third parties without license from UTRC to sell product(s)
identical or similar to Licensed Products for use in the Licensed Fields without
the possibility of recourse on the part of UTRC or RGENE. Such occurrence shall
not constitute a breach of this Agreement by UTRC, and in such case RGENE shall
not have any claim for damages under this Agreement against UTRC.
2.5 To the extent of the license granted hereunder, RGENE shall
have the right in the Territory to sublicense to third parties the right to
make, use, and sell Licensed Products for use in the First Licensed Field, the
Second Licensed Field, and
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the Fourth Licensed Field during the term of this Agreement. RGENE shall also
have the right to sublicense to third parties the right to make, use, and sell
Licensed Products for use in the Third Licensed Field during the term of this
Agreement, but only with the prior written permission of [*] (in any country
where [*] retains a license at that time). No sublicense shall be entered into
by RGENE without the prior written approval of UTRC, which approval shall not be
unreasonably withheld. In addition, all such sublicenses shall be subject to
this Agreement in all respects and RGENE shall be responsible for the
performance hereunder by any such sublicensee. RGENE shall give UTRC prompt
notification of the identity and address of each potential sublicensee with whom
it enters into sublicense negotiations and shall provide UTRC with a copy of
each draft of a written sublicense. No sublicense shall relieve RGENE of any of
its obligations under this Agreement. No sublicensee shall have the right to
further sublicense third parties to make, use, or sell Licensed Products for use
in any Licensed Field without prior written permission from RGENE and UTRC,
which shall not be unreasonably withheld.
2.6 RGENE agrees that Licensed Products sold in the United States
shall be manufactured substantially in the United States.
2.7 It is specifically acknowledged that RGENE is as of the
Effective Date a sublicensee of Aronex Pharmaceuticals, Inc. under a license
granted by UTRC to the Technology and the Licensed Patent Rights.
2.8 RGENE agrees that it will not utilize the Technology or
practice under the Licensed Patent Rights for any purpose other than that
encompassed by the license granted herein, except as may be allowed by its
sublicense from Aronex Pharmaceuticals, Inc.
2.9 In interpreting this Agreement, in the event of a conflict
between any of the Licensed Fields and the "Excluded Fields," "Excluded Fields"
shall govern; in the event of a conflict between the "First Licensed Field" on
the one hand and the "Second Licensed Field," the "Third Licensed Field," or the
"Fourth Licensed Field" on the other hand, the "Second Licensed Field" the
"Third Licensed Field," or the "Fourth Licensed Field," as the case may be,
shall govern. Likewise, in the event of a conflict between the "Second Licensed
Field" on the one hand and the "Third Licensed Field" or the "Fourth Licensed
Field" on the other hand, the "Third Licensed Field" or the "Fourth Licensed
Field," as the case may be, shall govern.
3. DUE DILIGENCE
3.1 RGENE shall use its best efforts to bring one or more Licensed
Products to market in each of the Licensed Fields.
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3.2 UTRC shall have no obligation to provide RGENE with technical
information concerning the Technology. If RGENE desires technical assistance
with regard to its activities under this Agreement, obtaining such assistance
from third parties, including those individuals named as inventors on the Patent
Application, shall be the responsibility of RGENE.
4. PAYMENTS
4.1 As consideration for the license hereby granted:
A. ENE shall pay to UTRC a License Issue Fee in the
amount of Two Hundred Fifty Thousand Dollars ($250,000), acknowledged to have
been paid by RGENE and received by UTRC prior to the execution of this First
Amended Agreement, with such payment being neither refundable nor chargeable
against future fees or royalties of any type.
B. Upon execution by the stock recipient of a
Stockholders Agreement substantially the same in form and substance as the
agreement attached hereto as Appendix B, RGENE shall transfer or have
transferred 130,000 shares of RGENE Founders Stock in the amounts and to the
recipients as set out below:
<TABLE>
<S> <C>
UTRC [*]
Dr. Leaf Huang [*]
McMaster University [*]
[*] [*]
[*] [*]
--------
TOTAL 130,000 shares
========
</TABLE>
Said transfer of shares in the amounts specified above is acknowledged to have
been completed by RGENE prior to the execution of this First Amended Agreement.
C. RGENE shall pay to UTRC Running Royalties in an
amount equal to [*] of all Net Sales by RGENE and Affiliate Sublicensees of
Licensed Products that are covered by a claim of an issued and unexpired patent
included within Licensed Patent Rights in the place of manufacture, use, or
sale, and RGENE shall pay to UTRC Running Royalties in an amount equal to [*] of
all Net Sales by Associate Sublicensees of Licensed Products that are covered by
a claim of an issued and unexpired patent included within Licensed Patent Rights
in the place of manufacture, use, or sale, provided:
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(1) If, in order to manufacture or sell any
Licensed Product covered by this Article 4.1C, any member of the RGENE Licensing
Group is required to obtain from one or more third parties who are not
Affiliates or members of the RGENE Licensing Group other royalty-bearing
license(s) for additional drug delivery technology, the Running Royalty rate
payable hereunder on Net Sales of that Licensed Product shall be reduced by [*]
for each such license actually entered into by a member of the RGENE Licensing
Group, provided that in no event shall the Running Royalty rate be less than [*]
of Net Sales and further provided that the reduced Running Royalty rate shall
apply only to sales of that Licensed Product on which a member of the RGENE
Licensing Group actually owes and pays a royalty to a non-Affiliate third party.
(2) In order to establish such reduction in the
Running Royalty rate for a particular Licensed Product, RGENE shall furnish to
UTRC a copy of such executed agreement and any other written evidence in such
form as may be required by UTRC along with a statement by an appropriate officer
of RGENE that the third-party agreement was required for the manufacture or sale
of that Licensed Product.
(3) The reduction in the Running Royalty rate
for a particular Licensed Product shall not operate to reduce the Running
Royalty rate for any other Licensed Product.
D. RGENE shall pay to UTRC Running Royalties in an
amount equal to [*] of all Net Sales of Licensed Products that are not covered
by the provisions of Article 4.1C above by members of the RGENE Licensing Group
during each calendar quarter during the term of this Agreement, provided:
(1) If, in order to manufacture or sell any
Licensed Product covered by this Article 4.1D, a member of the RGENE Licensing
Group is required to obtain from one or more non-Affiliate third parties other
royalty-bearing license(s) for additional drug delivery technology, the Running
Royalty rate payable hereunder on Net Sales of that Licensed Product shall be
reduced by [*] for each such license actually entered into by a member of the
RGENE Licensing Group, provided that in no event shall the Running Royalty rate
be less than [*] of Net Sales and further provided that the reduced Running
Royalty rate shall apply only to sales of that Licensed Product on which a
member of the RGENE Licensing Group actually owes and pays a royalty to a
non-Affiliate third party.
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(2) In order to establish such reduction in the
Running Royalty rate for a particular Licensed Product, RGENE shall furnish to
UTRC a copy of such executed agreement and any other written evidence in such
form as may be required by UTRC along with a statement by an appropriate officer
of RGENE that the third-party agreement was required for the manufacture or sale
of that Licensed Product.
(3) The reduction in the Running Royalty rate
for a particular Licensed Product shall not operate to reduce the Running
Royalty rate for any other Licensed Product.
E. RGENE shall pay to UTRC Sublicense Royalties as
follows:
(1) Up-Front Payments.
(a) For each sublicense granted
hereunder which covers only one
molecular entity (i.e., only one
therapeutic or diagnostic agent),
RGENE shall pay UTRC the greater of:
(i) [*] to RGENE that is
designated as an up-front
payment for Licensed Patent
Rights; or
(ii) [*]
(b) For each sublicense granted
hereunder which covers more than one
molecular entity (i.e., more than
one therapeutic or diagnostic
agent), RGENE shall pay UTRC the
greater of:
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(i) [*] to RGENE that is
designated as an up-front
payment for any Licensed
Patent Rights; or
(ii) [*].
(2) RGENE shall pay UTRC [*] of running
royalties and all remaining revenue received from RGENE's sublicensees other
than up-front fees.
(3) Notwithstanding the foregoing, in the event
a sublicense is granted to Pasteur Merieux, UTRC will receive [*] of any revenue
received by any member(s) of the RGENE Licensing Group as a result of such
sublicense.
F. RGENE shall pay to UTRC Annual License Maintenance
Fees as follows:
(1) [*] per year for each of the following
years: 1995, 1996, 1997, 1998 and 1999
(2) [*] per year for each of the following
years: 2000, 2001, 2002, 2003, and 2004
(3) [*] per year for 2005 and each year
thereafter during the term of this Agreement.
Annual License Maintenance Fees shall be paid by the last day of February of the
year to which they apply. The Annual License Maintenance Fee paid for any year
shall be creditable against the Running Royalties and Sublicense royalties
accruing during that year. Annual License Maintenance Fees for any year paid in
excess of Running Royalties and Sublicense Royalties for that year shall not be
creditable to Running Royalties and Sublicense royalties for subsequent years.
4.2 Payment of the amounts due to UTRC for Running Royalties and
Sublicense Royalties shall be made quarterly by RGENE to UTRC on or before the
last day of February, May, August, and November of each year during the term of
this Agreement based on sales which occurred during the immediately preceding
calendar quarter. The last such payment shall be made within forty-five (45)
days after termination of this Agreement.
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4.3 For purposes of determining when Running Royalties are earned,
Licensed Products shall be considered to be sold when billed, or if not billed
out, when delivered or shipped. The nonpayment by customers shall not affect the
royalties due to UTRC. However, royalties paid (a) on Licensed Products that are
returned or that are not accepted by customers or (b) on billings or shipments
for which a member of the RGENE Licensing Group does not receive payment shall
be credited against subsequent royalties due UTRC under this Agreement. In the
case of a distribution other than sale, such distribution shall be considered to
have been made on the earlier of the date of delivery, shipment, or
installation.
4.4 All payments due hereunder are expressed in and shall be paid
in United States of America currency, without deduction of exchange, collection
or other charges, to UTRC in immediately available funds, or to the account of
UTRC at such financial institution as UTRC may from time to time designate in
writing.
4.5 Any amount owed by RGENE which is not received by UTRC on or
before the date due shall bear interest at the prime rate quoted in the Wall
Street Journal for a major New York bank on the date due (or if not quoted on
the date due, the next date on which the prime rate is quoted) plus two
percentage points. RGENE shall also pay all reasonable collection costs at any
time incurred by UTRC in obtaining payment of amounts past due, including
reasonable attorneys' fees. The payment of such interest by RGENE shall not
foreclose UTRC from exercising any other rights it may have as a consequence of
the lateness of any payment.
4.6 Should RGENE fail to make any payment or submit any report as
required under this Agreement, UTRC shall have the option to terminate this
Agreement in accordance with the provisions of Article 10.4 herein.
4.7 Notwithstanding any provision herein to the contrary, the
obligation to pay royalties shall terminate as to each of the issued United
States patents that may be included within Licensed Patent Rights upon
expiration of the patent, except that royalties accrued but not paid prior to
such expiration shall be payable with the next scheduled royalty payment under
the provisions of this Article.
5. REPORTS, RECORDS AND INSPECTION
5.l RGENE shall maintain and shall require its sublicensees to
maintain a true and correct set of records pertaining to performance under this
Agreement or any sublicense, as the case may be. RGENE agrees to permit an
auditor selected by UTRC to have access, during the term of this Agreement and
for a period of three (3) years thereafter, and during ordinary business hours
upon at least two (2) weeks' notice, to such records as may be necessary, in the
opinion of such auditor, to
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determine the correctness of any report and/or payment made under this
Agreement. Results of any such examination shall be made available to RGENE and
UTRC. If any examination reveals a shortage in amounts paid to UTRC equal to or
greater than five percent (5%) of the total amount due in the period under
audit, RGENE shall reimburse UTRC for the cost of the examination as well as the
shortage, together with interest thereon as provided in Article 4.5, within ten
(10) days following completion of the examination. Any overage will be credited
to future royalties.
5.2 On or before the last day of February, May, August, and
November of each year during the term of this Agreement, RGENE shall furnish
UTRC a written report of the activities of RGENE and its sublicensee(s) under
this Agreement in such form as UTRC may reasonably request. Each such report
shall reflect at a minimum the volume sold of all Licensed Products and all
revenues received by RGENE and its sublicensee(s) pursuant to commercialization
of Licensed Products during the immediately preceding calendar quarter.
5.3 On or before the one-hundred twentieth (120th) day following
the close of RGENE's fiscal year, RGENE shall provide UTRC with a copy of
RGENE's annual report for the preceding fiscal year.
6. PATENT PROSECUTION AND INFRINGEMENT
6.1 UTRC shall have the right, but not the obligation, to file,
prosecute and/or maintain patent applications and patents included within
Licensed Patent Rights. Upon request by RGENE, UTRC shall provide or request
that its patent attorney(s) provide RGENE with copies of correspondence with
patent offices concerning any patent applications and patents that may be
included within Licensed Patent Rights. In the event that UTRC elects not to
prosecute and/or maintain any patent applications or patents that may be
included within Licensed Patent Rights, UTRC shall so notify RGENE (and other
licensees of such Licensed Patent Rights) in writing of such election no later
than thirty (30) days prior to any applicable statutory bar date or response
date, as the case may be, to permit RGENE and such other licensees (at their own
expense) to file, prosecute and/or maintain the patent application(s) and/or
patent (s) that were the subject of such notice.
6.2 Within thirty (30) days after receipt of an invoice from UTRC,
RGENE shall reimburse UTRC for:
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A. [*] of all out-of-pocket expenses incurred after the
Effective Date by UTRC in the filing, prosecution, and maintenance of United
States patent applications and patents included within Licensed Patent Rights;
and
B. [*] of all out-of-pocket expenses incurred after the
Effective Date by UTRC in the filing, prosecution, and maintenance of foreign
patent applications and patents included within Licensed Patent Rights.
6.3 Notwithstanding the provisions of Article 6.2, in the event
that UTRC grants a license to one or more third parties under the Licensed
Patent Rights outside the First Licensed Field, RGENE shall be responsible to
UTRC from and after the effective date of such subsequent license(s) for only
1/x (where "x" is the total number of direct UTRC licensees, excluding
sublicensees) of the out-of-pocket expenses incurred by UTRC in the filing,
prosecution, and maintenance of patent applications and patents included in such
license to a third party. Further, UTRC agrees that it will notify RGENE of
UTRC's intention to file in a foreign country any patent application that would
be covered by the definition of Licensed Patent Rights. In the event RGENE fails
for any reason to pay its pro rata share of any such expenses within sixty (60)
days following its receipt of an invoice from UTRC for such expenses, then (1)
RGENE shall have no further license under the Licensed Patent Rights in the
country(ies) to which such expenses pertain, and (2) RGENE shall not thereafter
make, have made, sell or lease, or sublicense others to use Licensed Products in
the country(ies) to which such expenses pertain; and (3) those country(ies) will
be automatically deleted from the Territory.
6.4 All patent applications and issued patents within Licensed
Patent Rights shall be owned by UTRC.
6.5 RGENE and all its sublicensees shall mark all products covered
by Licensed Patent Rights with patent numbers in accordance with the statutory
requirements in the country(ies) of manufacture, use, and sale, and pending the
issue of any patents, RGENE and its sublicensees shall stamp the products,
"Patent Applied For," or the foreign equivalent as appropriate.
7. INFRINGEMENT
7.1 If it is believed in good faith that the rights to any issued
patent included within Licensed Patent Rights, United States or foreign, are
infringed by an
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unlicensed third party, the party to this Agreement first having knowledge of
such infringement shall promptly notify the other thereof in writing, which
notice shall set forth the known facts of such infringement in reasonable
detail. UTRC shall have the right but not the obligation to institute and
prosecute at its own expense any such infringement of the Licensed Patent Rights
or to enter into negotiations with the alleged infringer for the granting of a
license under Licensed Patent Rights. In furtherance of such right, RGENE hereby
agrees that UTRC may include RGENE as a party plaintiff in any such suit,
without expense to RGENE. The total cost of any such infringement action
commenced solely by UTRC shall be borne by UTRC. Any recovery or damages for
past infringement during the term of this Agreement in the First Licensed Field
in the Territory shall be applied first to reimburse UTRC for its out-of-pocket
expenses and reasonable attorneys' fees incurred by UTRC in connection with such
suit, and the balance remaining from any such recovery shall be divided equally
between UTRC and RGENE. Any recovery or damages for past infringement during the
term of this Agreement in the Third Licensed Field in the Territory shall be
applied first to reimburse UTRC for its out-of-pocket expenses and reasonable
attorneys' fees incurred by UTRC in connection with such suit, and the balance
remaining from any such recovery shall be divided seventy-five percent (75%) to
UTRC and twenty-five percent (25%) to RGENE. Any recovery or damages for past
infringement during the term of this Agreement in the Second Licensed Field in
the Territory shall be retained by UTRC. RGENE shall have the right at its own
expense to participate in such lawsuit to the extent that, in its judgment, it
may be prejudiced thereby.
7.2 If within six (6) months after having been notified of an
alleged infringement in the First Licensed Field in the Territory, UTRC shall
have been unsuccessful in persuading the alleged infringer to desist and shall
not have brought an infringement action, or if UTRC shall notify RGENE at any
time prior thereto of its intention not to bring suit against any alleged
infringer in the First Licensed Field in the Territory, then, and in those
events only, RGENE shall have the right, but shall not be obligated, to
prosecute at its own expense any such infringement in the First Licensed Field
in the Territory, and RGENE may, for such purposes, use the name of UTRC as
party plaintiff. No settlement, consent judgment or other voluntary final
disposition of the suit may be entered into without the consent of UTRC, which
consent shall not be unreasonably withheld. In the event RGENE shall undertake
the enforcement and/or defense of the Licensed Patent Rights by litigation, any
recovery of damages by RGENE for each such suit shall be applied first to
reimburse RGENE for out-of-pocket expenses and reasonable attorneys' fees
incurred by RGENE in connection with such suit, and the balance remaining from
any such recovery shall be divided equally between RGENE and UTRC.
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<PAGE> 20
7.3 Nothing in this Agreement shall be construed in such a way as
to obligate either party to institute suit against any alleged infringer.
7.4 In the event a declaratory judgment action alleging invalidity
or noninfringement of any of the Licensed Patent Rights shall be brought by any
third party against RGENE, UTRC, at its option, shall have the right, within
thirty (30) days after commencement of such action, to intervene and take over
the sole defense of such action at its own expense.
7.5 In any infringement suit that either party may institute to
enforce the Licensed Patent Rights, the other party hereto shall, at the request
and expense of the party initiating such suit, cooperate in all respects and, to
the extent possible, have its employees testify when requested and make
available relevant records, papers, information, samples, specimens, and the
like.
7.6 Notwithstanding any of the foregoing, if, at any time during
the term of this Agreement, UTRC shall be unable to uphold the validity of any
granted patent within Licensed Patent Rights against any alleged infringer,
RGENE shall not have a damage claim or a claim for refund or reimbursement
against UTRC.
8. DEFENSE OF LEGAL ACTIONS; INSURANCE INDEMNIFICATION
8.1 In the event that UTRC, The University of Tennessee, any of
their directors, officers, or employees, or any individual named as an inventor
of Licensed Patent Rights (hereinafter "Indemnified Party") is charged with
infringement of a patent by a third party or is made a party in any lawsuit
(including but not limited to products liability actions) as a result of the
manufacture, use, or sale of any Licensed Product under this Agreement or as a
result of any obligation or activity of RGENE or its sublicensees under this
Agreement or any sublicense, RGENE shall:
A. defend or settle, at RGENE's expense, any such claim
of infringement or lawsuit;
B. assume all costs, expenses, damages, and other
obligations for payments incurred as a consequence of such charges of
infringement or lawsuit; and
C. indemnify and hold such Indemnified Party harmless
for any and all damages, losses, liability, and costs resulting from such charge
of infringement or lawsuit.
8.2 At RGENE's request and expense, UTRC shall give RGENE
assistance in the defense of any such infringement charge or lawsuit.
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<PAGE> 21
8.3 Any Indemnified Party shall have the right to participate in
any defense, compromise or settlement to the extent that, in its judgment, it
may be prejudiced thereby.
8.4 RGENE shall not settle any suit naming an Indemnified Party
without the prior consent of UTRC and each such Indemnified Party.
8.5 RGENE shall not settle any claim or suit in any manner that
shall adversely affect any Licensed Patent Rights, require any payment by UTRC
or any other Indemnified Party, or reduce the royalty due to UTRC hereunder
without the prior written consent of UTRC. The foregoing shall apply even with
regard to a claim or suit in which UTRC is not a party.
8.6 RGENE agrees to carry such liability insurance as would
reasonably be expected of a company of RGENE's size and activities operating in
the pharmaceutical industry. At all times during the term of this Agreement,
UTRC shall be listed as an additional named insured on such liability insurance
policy(ies). RGENE agrees to provide written evidence of such insurance upon
request by UTRC.
9. NEGATION OF WARRANTIES
9.1 NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS:
A. a warranty or representation by UTRC that any patent
application included within Licensed Patent Rights will ultimately issue as a
patent;
B. a warranty or representation as to the validity or
scope of any patent application or issued patent that may be included in
Licensed Patent Rights;
C. a warranty or representation that the use of the
Technology or the practice of the invention(s) covered by Licensed Patent Rights
or the manufacture, use, or sale of Licensed Products are or will be free from
infringement of patents of third parties;
D. a requirement that UTRC shall be responsible for the
expenses of filing or prosecuting any patent application or maintaining any
patent in force;
E. an obligation on the part of UTRC to bring or
prosecute actions or suits against third parties for infringement of Licensed
Patent Rights or for unauthorized use of the Technology;
F. an obligation on the part of UTRC to defend any
action or suit brought by any third party;
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<PAGE> 22
G. a warranty or representation by UTRC as to the
safety, reliability, or efficacy of the Technology, the invention(s) covered by
Licensed Patent Rights, or any product which incorporates or in its production
employs such Technology or invention(s);
H. a warranty or representation by UTRC that any
Technology is secret or confidential; or
I. a requirement that UTRC take any action to prevent
the disclosure of the Technology by the University, its employees, or any other
third party.
9.2 UTRC makes no representations, extends no warranties of any
kind, either express or implied, and assumes no responsibilities whatever with
respect to the manufacture, use, sale, or other disposition of Licensed Products
or any other activities hereunder by RGENE, its sublicensee(s), their customers,
or any third parties.
10. TERM AND TERMINATION
10.1 This Agreement shall commence and become effective as of the
Effective Date.
10.2 Unless earlier terminated in accordance with the provisions
set out herein, this Agreement shall continue in full force and effect until the
expiration or termination of all Licensed Patent Rights.
10.3 Upon termination of this Agreement as a result of the
expiration or termination of all Licensed Patent Rights, RGENE shall have no
further royalty obligation to UTRC with regard to any Licensed Products
manufactured, used, or sold for use in the Licensed Fields, and may thereafter
utilize any inventions covered by expired Licensed Patent Rights without
obligation to make any farther payment to UTRC.
10.4 Should RGENE fail to pay UTRC royalties or any other payments
due and payable hereunder, UTRC shall have the right to terminate this Agreement
on thirty (30) days' written notice to RGENE, and unless RGENE shall within said
thirty-day period pay UTRC all such amounts due and payable, this Agreement
shall terminate at midnight on the thirtieth day, all without prejudice to any
rights or remedies otherwise available to UTRC.
10.5 Should RGENE's program of the exploitation of the Technology
in the Licensed Fields fail at any time to yield satisfactory progress, in
RGENE's reasonable
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<PAGE> 23
business judgment, toward the introduction to market of one or more Licensed
Products, RGENE shall have the right to terminate this Agreement upon ninety
(90) days' written notice to UTRC and, concurrently with the giving of such
notice, payment of a Termination Fee in the amount of the next Annual License
Maintenance Fee; provided, however, that RGENE shall remain liable for all
amounts due and payable under this Agreement through the date of termination.
10.6 In the event that either party to this Agreement defaults in
the due performance of its obligations or covenants hereunder (other than a
default by RGENE covered by Article 10.4 above) or in the event that any
representation by either party proves to be false or incorrect in any material
respect, the other party may give notice of same to the defaulting party
demanding that such default be cured within sixty (60) days. If the default is
not cured within the 60-day grace period, this Agreement shall terminate at
midnight on the last day of such period, all without prejudice to any rights or
remedies otherwise available to the terminating party.
10.7 Upon any termination of this Agreement by either party except
pursuant to the expiration of termination of all Licensed Patent Rights:
A. All rights granted to RGENE hereunder shall terminate
automatically and shall revert to UTRC;
B. RGENE shall not thereafter utilize the Technology for
any purpose or manufacture, use, or sell Licensed Products under Licensed Patent
Rights; and
C. UTRC shall automatically assume the position of
"sublicensor" in any sublicense granted by RGENE.
10.8 Within thirty (30) days after the termination of this
Agreement for any reason, RGENE shall duly account for and pay to UTRC all
royalties and other payments accrued as of the date of termination.
10.9 In the event of adjudication of bankruptcy, appointment of a
receiver by a court of competent jurisdiction, assignment for the benefit of
creditors, or where levy or execution directly involves all the substantial
assets of RGENE or if RGENE goes out of business, this Agreement shall
automatically terminate effective the date of such action, provided, however,
that such termination shall not impair or prejudice any right or remedy that
UTRC may otherwise have.
10.10 Termination of this Agreement for any cause shall not be
construed to release RGENE from any royalty or confidentiality obligation or any
obligation under
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<PAGE> 24
Article 8 (all of which shall survive the termination of this Agreement) or from
any other obligation matured prior to the effective date of such termination.
11. CONFIDENTIALITY
11.1 RGENE agrees that reasonable and prudent practices shall be
followed to maintain the confidential nature of the Technology that is not
public knowledge, including where necessary, obtaining written confidentiality
agreements from employees not already bound by such agreements and all
sublicensees and all employees of same who have access to such Technology. UTRC
and RGENE each agree that all information relating to this Agreement and the
Technology and improvements licensed hereunder contained in documents marked
"Confidential" which are forwarded to one by the other shall be received in
strict confidence, shall be used only for the purposes contemplated in this
Agreement, and shall not be disclosed by the receiving party (except as required
by law), its agents or employees without the prior written consent of the
forwarding party, unless such information (i) was in the public domain at the
time of disclosure, (ii) later became part of the public domain through no act
or omission of the receiving party, its employees, agents, successors or
assigns, (iii) was lawfully disclosed to the receiving party by a third party
having the right to disclose it, (iv) was already known to the receiving party
at the time of disclosure, (v) was independently conceived, discovered or
reduced to practice, (vi) is required to be submitted to a government agency
pursuant to any obligation imposed or right granted hereunder, (vii) is required
by law or court order to be disclosed, or (viii) is disclosed by The University
of Tennessee, UTRC, or McMaster in the exercise of rights under Article 15.1.
The foregoing obligation of confidentiality shall survive the termination of
this Agreement for any reason for a period of ten (10) years thereafter.
12. WAIVER AND MODIFICATIONS
12.1 It is understood that this Agreement and the previous
confidentiality agreement executed by the parties contain the entire agreement
between the parties relating to the subject matter of this Agreement. Neither
party shall be bound by any agreement, covenants or warranties unless it shall
be reduced to writing and signed by an officer of such party. The failure of
either of the parties at any time or times to require the performance by the
other of any provisions hereof shall in no manner affect the right of the
first-mentioned party thereafter to enforce the same. The waiver by either of
the parties of any breach of any provision hereof shall never be construed to be
a waiver of any succeeding breach of such provision or a waiver of the provision
itself.
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<PAGE> 25
13. ASSIGNABILITY
13.1 This Agreement shall be binding upon and shall inure to the
benefit of UTRC and its assigns and successors in interest and shall be binding
upon and shall insure to the benefit of RGENE and the successor to its entire
business, but shall not otherwise be assignable or assigned by RGENE without
UTRC's prior written approval, which approval shall not be unreasonably
withheld, provided that such successor shall agree in writing to be bound in all
respects thereby.
14. NOTICES
14.1 All payments, notices, and other communications between the
parties shall be deemed to be given and received two (2) days after the date of
mailing when sent by certified or registered United States mail, return receipt
requested, and addressed as set out below. Otherwise, a payment, notice, or
other communication shall be deemed to be given and received on the date of
actual receipt by the addressee.
A. If to RGENE:
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 230
The Woodlands, TX 77381
B. If to UTRC:
The University of Tennessee Research Corporation
415 Communications Building
Knoxville, TN 37996-0344
14.2 Either party may change its address by written notice duly
given to the other party. A post office receipt showing the date of deposit
shall be prima facie evidence of mailing when sent by certified or registered
United States mail.
15. ADDITIONAL PROVISIONS
15.1 During the term of this Agreement, RGENE shall, at its own
expense and without remuneration from UTRC, fully disclose to UTRC all
improvements and modifications to the Technology, the Licensed Products, and the
invention(s) within Licensed Patent Rights which are developed wholly or partly
by RGENE, employees, contractors, agents, and subsidiaries. The University of
Tennessee, McMaster, and UTRC shall have during the term of this Agreement a
nonexclusive nontransferable royalty-free license to utilize such improvements
and modifications for research and
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<PAGE> 26
academic purposes only. However, in the event that this Agreement is terminated
by UTRC due to a default by RGENE, UTRC and McMaster shall have a royalty-free
license (with the right to sublicense) to manufacture, use, and sell such
improvements and modifications for any commercial or noncommercial purpose. The
provisions of this paragraph shall not apply to any technology developed by a
university or other academic institution under contract with RGENE.
15.2 Each party shall be deemed to be an independent contractor and
this Agreement shall not constitute a partnership or a joint venture, and
neither party may be bound by the other to any contract, arrangement or
understanding except as specifically stated herein.
15.3 Prior written approval must be obtained for the use of UTRC's,
McMaster's, or the University's name, logo or associated symbols in any form of
advertising.
15.4 RGENE shall be solely responsible for the payment and
discharge of any taxes or duties relating to any transactions of RGENE, its
employees, contractors, agents, or sublicensees in connection with the
manufacture, use, or sale in any country of Licensed Products.
15.5 RGENE shall, at its own expense, be responsible for applying
for and obtaining any approvals, authorizations, or validations required under
the laws of the United States or a foreign country that may be necessary for the
manufacture, use, or sale of Licensed Products or relative to the performance of
any obligation under this Agreement.
15.6 The failure of either party to enforce at any time any of the
provisions of this Agreement, or any rights in respect thereto, or to exercise
any election herein provided, shall in no way be considered to be a waiver of
such provisions, rights or elections, or in any way to affect the validity of
this Agreement. Exercise by either party of any of these rights herein or any of
its elections under the terms or covenants herein shall not preclude either
party from exercising the same or any other rights in this Agreement
irrespective of any previous action or proceeding taken by either party
hereunder.
15.7 If any provision of this Agreement is judicially or in an
arbitration proceeding determined to be void or unenforceable, such provision
shall be deemed to be severable from the other provisions of this Agreement
which shall remain in full force and effect. Either party may request that a
provision otherwise void or unenforceable be reformed so as to be valid and
enforceable to the maximum extent permitted by law.
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<PAGE> 27
15.8 No liability hereunder shall result to a party by reason of
delay in performance caused by force majeure, that is, circumstances beyond
reasonable control of the party, including, without limitation, acts of God,
fire, flood, war, civil unrest, labor unrest, or shortage of or inability to
obtain material or equipment.
15.9 This First Amended Agreement amends and restates the Original
Agreement. From and after the execution of this First Amended Agreement, the
Original Agreement shall have no further force and effect.
15.10 The signature on the part of McMaster appears below as
co-owner of the Licensed Patent Rights and the Technology for the purpose of
indicating its approval of the provisions of this Agreement and indicating its
agreement not to take any action in derogation of the rights herein granted to
RGENE. It is understood and agreed by RGENE that UTRC shall have no
responsibility or liability for any act or omission to act on the part of
McMaster, and McMaster shall take no responsibility or liability for any act or
omission to act on the part of UTRC.
15.11 This Agreement shall have no force and effect unless and until
duly executed by both parties.
15.12 This Agreement is deemed to have been made in the State of
Tennessee and shall be interpreted and construed and any legal relations created
hereunder shall be determined in accordance with the laws of the State of
Tennessee.
IN WITNESS WHEREOF, signifying their acceptance of and agreement to be
bound by the terms and conditions of this Agreement, the signatures of the
parties are affixed hereto.
THE UNIVERSITY OF TENNESSEE
RGENE, INC. RESEARCH CORPORATION
By: /s/MARTIN LINDENBERG By: /s/ANN J. ROBERSON
-------------------- ------------------
Name: Martin Lindenberg Name: Ann J. Roberson
Title: President and CEO Title: President
Date: 12/8/95 Date: 12-6-95
Approved by MCMASTER UNIVERSITY
By: /s/DR. M.R. McDERMOTT
---------------------
Name: Dr. M.R. McDermott
Title: Director, Research Contracts &
Intellectual Property
Date: Dec. 7/95
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<PAGE> 28
Appendix A - p.1
ACTUAL GRANTS OF LICENSE AND FIELDS OF USE FOR DC-CHOL FOR UTRC'S LICENSEES AS
OF 12/06/95
LICENSEE A - ARONEX
2.1 UTRC hereby grants to ARONEX, and ARONEX hereby accepts from
UTRC, upon the terms and conditions herein specified and subject to the
reservations set out below, (a) a world-wide exclusive License to utilize the
Technology in the manufacture, use, and sale of Licensed Products for use in the
Licensed Field and (b) a world-wide exclusive License to manufacture, use and
sell Licensed Products for use in the Licensed Field under the issued patents
included within Licensed Patent Rights. The term "exclusive" as used in this
Article 2.1 means that UTRC shall not sell or otherwise distribute Licensed
Products for use in the Licensed Field or license third parties to sell or
otherwise distribute Licensed Products for use in the Licensed Field during the
term of this Agreement.
1.7 "Licensed Field" shall mean and include therapeutic and
prophylactic applications of the Technology and the Licensed Patent Rights for
(a) sepsis-related infectious diseases other than pulmonary diseases and (b)
lung, colon, breast, ovarian, and hematologic cancers.
1.8 "Excluded Fields" shall mean:
(a) the sale for research purposes of products based on
or incorporating the Technology or described/claimed in the Licensed Patent
Rights; and
(b) all applications for immunologic or genetic
disorders; and
(c) all applications for diseases and disorders of joints
and connective tissues, including but not limited to (1) all forms of arthritis;
(2) osteoporosis and other diseases of the bone; (3) tendon and ligament repair
and healing; (4) cartilage repair and healing; (5) radicular and pseudoradicular
syndromes; (6) systemic lupus erythematosus; (7) scleroderma; (8) Sjogren's
syndrome; and (9) aseptic loosening and other causes of prosthetic orthopaedic
failure; and
(d) all applications for pulmonary diseases or disorders
other than lung cancer; and
(e) all applications for cardiac diseases or disorders
other than hematologic cancer; and
<PAGE> 29
(f) all applications for diseases and disorders of the
skin except skin cancer; and
(g) all applications for infectious diseases except
sepsis-related infectious diseases other than pulmonary diseases; and
(h) all other applications not specifically included in
the Licensed Field.
LICENSEE B - RGENE
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<PAGE> 30
Appendix A - p.2
LICENSEE C
2.1 UTRC hereby grants to LICENSEE C, and LICENSEE C hereby
accepts from UTRC, upon the terms and conditions herein specified and subject to
the royalty-free nonexclusive license and other rights held by the United States
Government and further subject to the reservations set out below,
A. a world-wide right and license to utilize the
Technology in the manufacture, use, and sale of Licensed Products for use in the
First Licensed Field, with the right to sell such Licensed Products for use in
the First Licensed Field being exclusive; and
B. a world-wide right and license to manufacture, use,
and sell Licensed Products for use in the First Licensed Field under the issued
patents included within Licensed Patent Rights, with the right to sell such
Licensed Products for use in the First Licensed Field being exclusive; and
C. a world-wide nonexclusive right and license to
utilize the Technology in the manufacture, use, and sale of Licensed Products
for use in the Second Licensed Field; and
D. a world-wide nonexclusive right and license to
manufacture, use, and sell Licensed Products for use in the Second Licensed
Field under the issued patents included within Licensed Patent Rights.
The term "exclusive" as used in this Article 2.1 means that UTRC shall not sell
or otherwise distribute Licensed Products for use in the First Licensed Field or
license third parties to sell or otherwise distribute Licensed Products for use
in the First Licensed Field during the term of this Agreement.
1.7 "Licensed Fields" shall be defined as the First Licensed Field
(defined below) and the Second Licensed Field (defined below).
1.8 "First Licensed Field" shall mean and include Applications
Group 1 and Applications Group 2.
1.9 "Second Licensed Field" shall mean and include Applications
Group 3 and Applications Group 4.
<PAGE> 31
1.10 "Applications Group 1" shall mean therapeutic and prophylactic
applications for:
(a) the following classifications of rheumatic diseases
as set forth in Table 105-1 ("Classification of the Rheumatic Diseases") of The
Merck Manual, Sixteenth Edition (Robert Berkow, M.D., Editor-in-Chief; published
by Merck Research Laboratories, Rahway, N.J.; 1992; pp. 1297-1300.):
I. Diffuse connective tissue diseases
II. Arthritis associated with spondylitis
III. Osteoarthritis, including osteoarthrosis and
degenerative joint diseases
IV. Arthritis, tenosynovitis, and bursitis
associated with infectious agents, excluding
treatment of the underlying infectious
diseases themselves
V. Metabolic and endocrine diseases with
rheumatic states, including
(a) crystal-induced conditions
VI.
VII. Neuropathic disorders
VIII. Bone and cartilage disorders associated with
articular manifestations
IX. Nonarticular rheumatism; and
(b) osteogenesis imperfecta; and
(c) tendon, ligament, and cartilage repair and healing;
and
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<PAGE> 32
Appendix A - p.3
(d) diseases and disorders of the following types of
connective tissues: white fibrous tissue in the form of tendons and ligaments;
hyaline cartilage; interarticular fibro-cartilage; connecting fibro-cartilage;
circumferential fibro-cartilage; stratiform fibro-cartilage; yellow or elastic
fibro-cartilage.
1.11 "Applications Group 2" shall mean therapeutic and prophylactic
applications for diseases and disorders of the central nervous system.
1.12 "Applications Group 3" shall mean diseases and disorders of
the lung except for (a) lung cancer; (b) the treatment or prevention of cystic
fibrosis in humans; and (c) the treatment or prevention of pulmonary infections
in cystic fibrosis patients.
1.13 "Applications Group 4" shall mean cancer other than lung,
breast, ovarian, hematological, and colon cancers.
1.14 "Excluded Fields" shall mean:
A. the sale for research purposes of reagents based on
the Technology or described/claimed in the Licensed Patent Rights; and
B. any applications for immunologic or genetic diseases
or disorders other than those included in the Licensed Field; and
C. any applications for infectious diseases; and
D. any applications for all forms of cancer except
cancers of the central nervous system, pancreas, stomach, small intestine,
cervix uteri, mouth, head and neck; and
E. any applications for cystic fibrosis; and
F. any applications for all cardiac and cardiovascular
diseases and disorders; and
G. any applications for skin diseases and disorders not
included in Table 105-1 of The Merck Manual, Sixteenth Edition, as referenced in
Section 1.6 above; and
H. any applications for areolar tissue, outside of
rheumatoid conditions and conditions where areolar tissue is connected to
synovial cells, in which it comprises or is found throughout the various organs
of the body; and
<PAGE> 33
I. any applications for dystrophies or other diseases
and conditions not included in Table 105-1 of The Merck Manual, Sixteenth
Edition as referenced in Section 1.6 above; and
J. any other applications not included in the Licensed
Fields.
LICENSEE D
2.1 UTRC hereby grants to LICENSEE D, and LICENSEE D hereby
accepts from UTRC, upon the terms and conditions herein specified and subject to
the reservations set out below and further subject to the royalty-free
nonexclusive license and other rights held by the United States Government (as
more fully set out in Article 2.3 below),
A. a world-wide license under the Patent Rights to
manufacture, use, and sell Licensed Products for use in the First Licensed Field
with the license to sell being exclusive; and
B. a world-wide nonexclusive License under the Patent
Rights to manufacture, use, and sell Licensed Products for use in the Second
Licensed Field;
The term "exclusive" as used in Article 2.1(a) above means that UTRC
shall not sell or otherwise distribute Licensed Products for use in the First
Licensed Field or license third parties to sell or otherwise distribute Licensed
Products for use in the First Licensed Field during the term of this Agreement,
subject to the provisions of Article 2.2 below.
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<PAGE> 34
Appendix A - p.4
1.6 "Licensed Fields" shall be defined as the First Licensed Field
(defined below) and the Second Licensed Field (defined below).
1.7 "First Licensed Field" shall mean and include therapeutic and
prophylactic applications for treating and/or preventing cystic fibrosis in
humans, including applications for treating and/or preventing bacterial
pulmonary infections in cystic fibrosis patients.
1.8 "Second Licensed Field" shall mean and include:
A. therapeutic and prophylactic applications for
treating and/or preventing all diseases and disorders of the pulmonary system
except for lung cancer and disease(s)/disorder(s) included in the First Licensed
Field; and
B. therapeutic and prophylactic applications for
treating and/or preventing sepsis-related and nonsepsis-related infectious
diseases of the lungs.
1.9 "Excluded Fields" shall mean:
A. the sale for research purposes of active cationic
lipid(s) and/or reagent(s) based on the Technology or described/claimed in the
Patent Rights; and
C. any applications for immunologic or genetic disorders
other than those which may be specifically included in the First or Second
Licensed Fields; and
D. any applications for:
(1) the following classifications of rheumatic
diseases as set forth in Table 105-1 ("Classification of the Rheumatic
Diseases") of The Merck Manual, Sixteenth Edition (Robert Berkow, M.D.,
Editor-in-Chief; published by Merck Research Laboratories, Rahway, N.J.; 1992;
pp. 1297-1300.):
I. Diffuse connective tissue diseases
II. Arthritis associated with spondylitis
III. Osteoarthritis, including osteoarthrosis and
degenerative joint diseases
<PAGE> 35
IV. Arthritis, tenosynovitis and bursitis
associated with infectious agents, excluding
treatment of the underlying infectious
diseases themselves
V. Metabolic and endocrine diseases with
rheumatic states, including
a.) crystal induced conditions
VI. --
VII. Neuropathic disorders
VIII. Bone and cartilage disorders associated with
articular manifestations
IX. Nonarticular rheumatism; and
(2) osteogenesis imperfecta; and
(3) tendon, ligament, and cartilage repair and
healing; and
(4) diseases and disorders of the following
types of connective tissues: white fibrous tissue in the form of tendons and
ligaments; hyaline cartilage; interarticular fibro-cartilage; connecting
fibro-cartilage; circumferential fibro-cartilage; stratiform fibro-cartilage;
yellow or elastic fibro-cartilage; and
(5) any other diseases and disorders of joints
and connective tissues; and
D. any applications for all cardiac and cardiovascular
diseases and disorders; and
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<PAGE> 36
Appendix A - p.5
E. any applications for sepsis-related infectious diseases other
than those which may be specifically included in the First or Second Licensed
Fields; and
F. any applications for non-sepsis related infectious diseases
other than those which may be specifically included in the First or Second
Licensed Fields; and
G. any applications for skin diseases or disorders; and
H. any applications for cancer; and
I. any applications for diseases of the central nervous system;
and
J. any applications for any dystrophic diseases or disorders; and
K. any other applications not specifically included in the
Licensed Fields.
LICENSEE E
2.1 UTRC hereby grants to LICENSEE E, and LICENSEE E hereby
accepts from UTRC, upon the terms and conditions herein specified, subject to
the license and other rights held by the United States Government and further
subject to the other reservations set out below, during the term of this
Agreement:
A. a license to manufacture and to sublicense third
parties to manufacture Licensed Products for the Licensed Field in any country
(including the United States) where the manufacture of such Licensed Products is
covered in whole or in part by a pending or issued claim of Licensed Patent
Rights (sublicensees under this Article 2.1A. being hereinafter referred to as
"Manufacturing Sublicensees");
B. a worldwide license to use and to sublicense third
parties to use Licensed Products in the Licensed Field (sublicensees under this
Article 2.1B. being hereinafter referred to as "Use Sublicensees");
C. a worldwide license to sell and to sublicense third
parties to sell Licensed Products to Use Sublicensees for the Licensed Field
(sublicensees under this Article 2.1.C. being hereinafter referred to as
"Distributors").
<PAGE> 37
2.2 Subject to the reserved rights, UTRC hereby agrees that it
shall not grant any other license to sell Licensed Products for the Licensed
Field during the active term of this Agreement.
1.6 "Licensed Field" shall mean the use of Licensed Products for
non-clinical research purposes.
1.7 "Excluded Fields" shall mean:
A. the manufacture, use, or sale of products for any
therapeutic or clinical purpose or any other purpose except non-clinical
research use; and
B. all applications and uses of the Technology other
than the manufacture and sale of products for non-clinical research use.
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<PAGE> 38
EXHIBIT A
RGENE THERAPEUTICS, INC.
Stockholder Agreement
This Stockholder Agreement (this "Agreement"), dated and effective as
of 20 October, 1995, is entered into by and between RGene Therapeutics, Inc., a
Delaware corporation (the "Company"), and McMaster University ("Stockholder").
RECITALS
A. The Company desires to issue certain shares of common Stock,
$.001 par value, of the Company (the "Common Stock") to the Stockholder.
B. The Stockholder desires to acquire certain shares of Common
Stock from the Company.
C. The Stockholder and the Company desire that the Stockholder
grant to the Company and under certain circumstances to holders of the Company's
capital stock listed on Schedule A (the "Investors") options to repurchase
certain shares of Common Stock purchased by the Stockholder.
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. ISSUANCE OF SHARES
1.1 Purchase and Sale of Shares. Subject to the terms and
conditions of this Agreement and in consideration of the execution of the
License Agreement between the Company and The University of Tennessee Research
Corporation dated the date hereof, the Company agrees to issue to the
Stockholder [*] shares of Common Stock (the "Shares").
1.2 Closing. The closing for the issuance of the Shares by the
Company to the Stockholder shall occur on or before 20 October, 1995, or at such
other date and time as the parties may agree (the "Closing"). At the Closing or
within a reasonable
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[*] Confidential Treatment Requested
<PAGE> 39
time thereafter, the Company shall deliver to Stockholder a certificate or
certificates representing the number of Shares as set forth in Section 1.1
hereof, in the name of the Stockholder.
2. REPRESENTATIONS AND WARRANTIES
To induce the Company to deliver the Shares to the Stockholder, the
Stockholder represents and warrants to the Company as follows:
(a) The Stockholder is acquiring the Shares for its own account as
principal, for investment purposes only, and not with a view to, or for, resale
or distribution, and no other person or entity has a direct or indirect
beneficial interest in the Shares;
(b) The Stockholder has not offered any of the Shares for resale
and has no present intention of dividing its interest with others or of
reselling or otherwise disposing of any of the Shares;
(c) Any information the Stockholder has furnished to the Company
with respect to the Stockholder's status as a sophisticated or accredited
investor, its business experience or financial position is correct;
(d) The financial capacity of the Stockholder is such that the
investment in the Shares is not material to its total financial capacity; the
Stockholder has the financial ability to bear the economic risk of its
investment, has adequate means for providing for its current needs and personal
contingencies and has no need for liquidity with respect to its investment in
the shares;
(e) The Stockholder is an "accredited investor" within the meaning
of Regulation D under the Securities Act of 1933, as amended (the "Act"), and is
a sophisticated investor and has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
prospective investment in the Shares;
(f) The Stockholder has been furnished with all information
concerning the Shares and the Company that it desires;
(g) The Stockholder has been given the opportunity to ask
questions of, and receive answers from, the Company with respect to the Shares,
concerning the terms and conditions of the offering and other matters pertaining
to this investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the information provided to him
by the Company in order for him to evaluate the merits and risks of investment
in the Shares; and
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<PAGE> 40
(h) The Stockholder is not relying on the Company with respect to
any economic considerations of the Stockholder related to this investment. In
regard to the economic considerations related to this investment, the
stockholder has relied on the advice of, or has consulted with, only its own
advisors.
The Stockholder further represents, warrants and agrees that it will
not sell or otherwise transfer the Shares without registration under the Act, or
an exemption therefrom, and fully understands and agrees that it must bear the
economic risk of its purchase for an indefinite period of time because among
other reasons, the Shares have not been registered under the Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless the offer and sale of the Shares are
subsequently registered under the Act and under the applicable securities laws
of such states or an exemption from such registration is available. It also
understands that the Company is under no obligation to register the Shares or to
assist the Stockholder in complying with any exemption from registration under
the Act. It further understands that any certificate evidencing the Shares will
bear a legend restricting the transfer thereof consistent with the foregoing and
that a notation may be made in the records of the Company restricting the
transfer of any Shares in a manner consistent with the foregoing.
3. STOCKHOLDER AWARENESS
The Stockholder acknowledges that it is aware that:
(a) No federal or state agency has passed upon the Shares or made
any finding or determination as to the fairness of this investment;
(b) There are substantial risks of loss of investment incident to
an investment in the Shares and such an investment is highly speculative; and
(c) The business in which the Company proposes to engage is highly
competitive and success in the company's business may depend on, among other
things, the Company's ability to obtain financing, to complete product
development, to attract qualified employees and to obtain patent protection and
governmental approvals, market acceptance of products and numerous other factors
over which the Company does not have control.
4. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL
4.1 Restrictions on Transfer of Shares. None of the Shares, or any
interest therein, may be sold, assigned, pledged or otherwise transferred or
hypothecated, nor any security interest granted therein, by gift, operation of
law or otherwise except in
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<PAGE> 41
accordance with the terms and conditions set forth in this Section 4; provided
that this Agreement shall not prohibit the transfer of any Shares from The
University of Tennessee Research Corporation to The University of Tennessee.
4.2 Definitions. "Assigned Value," as used in this Section 4,
shall be defined as that value per share of the Common Stock determined as
follows:
(a) In the event of a proposed sale of any or all of the Shares by
the Stockholder pursuant to a bona fide written offer for cash for the purchase
thereof ("Purchase Offer"), the Assigned Value shall be the price per share set
forth in the Purchase Offer.
(b) As to all other Purchase Events (as defined in Section 4.3),
the Assigned Value shall be the fair market value per share of Common Stock of
the Company as of the end of the most recent fiscal quarter of the Company
preceding the applicable closing under this Section 4, less the fair market
value per share of any dividends distributed with respect to such shares after
the end of such quarter and before such closing. The fair market value per share
of Common Stock and the fair market value of any dividends thereon shall be
determined in accordance with such methodology as shall be determined by
[RGene's independent accountants].
"Stockholder," as used in this Section 4, shall be defined to mean and
include, in addition to the Stockholder signatory or expressly subject hereto,
the estate, administrator, executor, guardian or other personal representative,
successor, trustee, referee, receiver, donee, beneficiary, assignee or
transferee of a Stockholder, as appropriate.
4.3 Purchase Events. The Stockholder shall sell, convey, transfer
and deliver the Shares owned by the Stockholder to the Company pursuant hereto
upon the occurrence of any of the following events (the "Purchase Events"):
(a) the proposed or attempted gift, sale, assignment, pledge or
other transfer, hypothecation or grant of any security or other interest in any
of the Shares or any interest therein;
(b) the transfer of the Shares or any interest therein by operation of
law or otherwise, including without limitation the adjudication of bankruptcy or
the appointment of a receiver, guardian, executor or trustee of the assets or
estate of the Stockholder, the entry of any order, judgment or decree by a court
of competent jurisdiction approving a petition appointing a trustee in
bankruptcy, receiver or liquidator, any assignment or attempt to make an
assignment by the Stockholder for the benefit of creditors, the institution of
voluntary bankruptcy or equivalent
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<PAGE> 42
proceedings by the Stockholder or the dissolution, winding up or liquidation or
other reorganization of the Stockholder, as applicable; or
(c) if the Stockholder is an individual, upon the death or
incompetency of the Stockholder.
4.4 Notice of Purchase Event.
(a) The Stockholder shall, upon the occurrence of a Purchase
Event, immediately give written notice (the "Purchase Event Notice") to the
Company and the Investors, citing (i) the appropriate provision of Section 4.3
and (ii) giving the name and address of any proposed transferee or donee and the
proposed terms and conditions of such transfer and (iii) in the case where the
Purchase Event is pursuant to a Purchase Offer, including a written declaration
of the Stockholders intention, subject to the terms of this Agreement, to accept
the Purchase Offer.
(b) In the event of failure by the Stockholder to give the Purchase
Event Notice when and as required, the Purchase Event Notice may be given by the
Company and shall be effective as if given by the Stockholder; and in such
event, the information required to be given by the Stockholder pursuant to
Section 4.4(a) shall be given by the Company giving such notice to its best
knowledge and as so given shall be binding upon the Stockholder.
4.5 Purchase of Shares. Within sixty (60) days after receipt of the
Purchase Event Notice, the Company and/or the Investors may elect to purchase
some or all of the Shares to which the Purchase Event Notice refers, at the
Assigned Value. The closing for such purchase by the Company and/or the
Investors shall occur, unless otherwise agreed by the Company, the Investors
electing to purchase Shares, and the Stockholder, no later than thirty (30) days
after the election by the Company and/or the Investors to purchase same. In the
event that the number of Shares that the Company and the Investors desire to
purchase exceeds the number of Shares proposed for transfer by Stockholder in
the Purchase Event Notice, then in such instance the Company shall have full
preference to acquire such Shares to the exclusion of the Investors, and, to the
extent that there are Shares still available for purchase by the Investors, the
Investors desiring to purchase Shares shall be entitled to purchase the
remaining amount thereof on a pro rata basis based upon the number of shares of
Common Stock and Preferred Stock, or securities convertible into shares of
Common Stock and Preferred Stock, then held by each of them so electing to
purchase bears to the total number of shares of Common Stock and Preferred
Stock, or securities convertible into shares of Common Stock and Preferred
Stock, held by all Investors desiring to acquire Shares, on a fully diluted as
if converted to Common Stock basis.
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<PAGE> 43
4.6 Transfer to Other Persons. If all of the Shares to which the
Purchase Event Notice refers are not purchased by the Company and the Investors,
as provided in Section 4.5 hereof, the Stockholder may transfer such Shares that
the Company and the Investors elected not to purchase to any person or persons
named in the Purchase Event Notice, provided that such sale or transfer is
consummated within 120 days of the date of said Purchase Event Notice to the
Company and the Investors, and provided, further, that any such transfer is in
accordance with all the terms and conditions hereof.
4.7 Standoff Agreement. Stockholder agrees, in connection with
each of the Company's public offerings of its equity securities, and upon
request of the Company or the underwriters managing such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of or otherwise
dispose of any of the Shares (other than those included in the registration, if
any) without the prior written consent of the Company or such underwriters, as
the case may be, for such period of time from the effective date of such
registration as may be requested by the Company or such underwriters; provided,
that the officers and directors of the Company who own stock of the Company also
agree to such restrictions and provided further that such restriction shall not
be for a period longer than 180 days.
4.8 Other Restrictions on Transfer. The Company shall not be
required (i) to transfer on its books any of the shares which shall have been
sold or transferred in violation of any of the provisions set forth in this
Agreement, or (ii) to treat as owner of such Shares or to accord the right to
vote as such owner or to pay dividends to any transferee to which such Shares
shall have been so transferred.
5. EXEMPT TRANSACTIONS
The prohibition in Section 4 against the sale of the Shares shall not
apply to the exchange of Shares pursuant to a plan or merger, consolidation,
recapitalization, reorganization, or sale of the Company in which the Company is
the surviving entity, but any stock or securities received in exchange therefor
shall also become subject to this Agreement.
6. ASSIGNMENT
The Company may assign this Agreement or any of its rights and
obligations hereunder. The Stockholder may not assign this Agreement or any of
its rights and obligations hereunder. All covenants and agreements of, and
benefits for, the Investors contained in this Agreement shall inure to the
benefit of their respective successors and assigns and be binding on the Company
and its successors and on the Stockholder and its successors and assigns. All
such covenants and agreements are
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<PAGE> 44
fully assignable by the Investors, provided, however, that any assignment of any
of its rights under this Agreement by any Investor (other than to partners of
such Investor or successors of such Investor or such partners by operation of
law) shall be made only in connection with the sale or other transfer of all or
any portion of the Preferred Stock, Common Stock, convertible notes, warrants,
options or other securities of the Company which are exchangeable or convertible
into shares of Common Stock or Preferred Stock of the Company held by such
Investor and such assignee or transferee shall execute this Agreement.
7. ADJUSTMENTS
If, from time to time during the term of this Agreement (i) there is
any stock dividend or liquidating dividend of cash or property, stock split or
other change in the character or amount of any of the outstanding securities of
the Company, or (ii) there is any transaction involving the consolidation,
merger or sale of all, or substantially all, of the assets of the Company, then,
in such event, (x) any and all new, substituted or additional securities or
other property to which the Stockholder is entitled by reason of its ownership
of the Shares shall be immediately subject to right of first refusal provided to
the Company and the Investors as described in Section 4 hereof and (y) all
Shares purchased by Stockholder hereunder shall be treated on the same basis as
all other outstanding shares of Common Stock of the Company so that
Stockholder's Shares shall not be diluted by any such event any differently than
any other holder of Common Stock of the Company.
8. LEGEND
All certificates representing any of the Shares subject to the
provisions of this Agreement shall have endorsed thereon a legend substantially
as follows:
"ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST IN
THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL, CONTAINED IN A CERTAIN AGREEMENT
BY THE RECORDHOLDER HEREOF AND THE CORPORATION, A COPY OF WHICH WILL BE
MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT
BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR."
Upon presentation to the Company or any authorized transfer agent, the
certificates representing the Shares or any appropriate portion thereof shall be
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<PAGE> 45
exchanged for certificates not bearing such legend if the certificates are
presented after the termination of this Agreement.
9. RIGHTS AS A STOCKHOLDER
Subject to the provisions of Section 4 above, the Stockholder shall,
during the term of this Agreement, exercise all rights and privileges of a
stockholder of the Company with respect to the Shares, including the right to
vote such Shares at any stockholder meeting.
10. TERMINATION
Except as may be otherwise provided herein, this Agreement shall
terminate on the 180th calendar day immediately succeeding the Company's initial
public offering.
11. MISCELLANEOUS
11.1 Notice. For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Company:
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 230
The Woodlands, Texas 77380
Attention: Martin H. Lindenberg, M.D.
If to the Stockholder, at the address identified on the signature page
hereof, and if to an Investor, at the address identified on the records of the
Company hereto, or to such other address as either party or an Investor may
furnish to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
11.2 Applicable Law. The substantive laws of the State of Texas,
excluding any law, rule or principle that might refer to the substantive law of
another jurisdiction, will govern the interpretation, validity and effect of
this Agreement without regard to the place of execution or the place for
performance thereof. This Agreement is to be at least partially negotiated,
executed and performed in Harris County, Texas, and, as such, the Company and
the Stockholder agree that personal jurisdiction and venue shall be proper with
the state or federal courts situated in Harris County, Texas, to hear such
disputes arising under this Agreement.
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<PAGE> 46
11.3 No Waiver. No failure by either party hereto at any time to
give notice of any breach by the other party of, or to require compliance with,
any condition or provision of this Agreement shall be deemed a waiver of similar
or dissimilar provisions or conditions at the same or at any prior or subsequent
time.
11.4 Severability. If a court of competent jurisdiction determined
that any provision of this Agreement, including any appendices attached hereto,
is invalid or unenforceable, then the invalidity or enforceability of that
provision shall not affect the validity or enforceability of any other provision
of this Agreement, and all other provisions shall remain in full force and
effect. Further, such provision shall be reformed and construed to the extent
permitted by law so that it may be valid, legal and enforceable to the maximum
extent possible.
11.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
11.6 Headings. The section headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
11.7 Successors; Third Party Beneficiary. This Agreement shall
inure to the benefit of the successors and assigns of the Company and the
Investors and be binding upon the Stockholder and its successors and assigns.
The Stockholder agrees that any and all Investors in the Company shall be
treated as third party beneficiaries of this Agreement without the necessity of
execution of this Agreement, and shall be entitled to all of the rights rendered
to them herein.
11.8 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to the subject matter hereof, and contains
all the covenants, promises, representations, warranties and agreements between
the parties with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representation, inducement, promise or agreement,
oral or written, with regard to the subject matter hereof, has been made by
either party, or by anyone acting on behalf of either party, which is not
embodied herein, and that no agreement, statement or promise relating to the
subject matter hereof which is not contained in this Agreement or in such other
agreements shall be valid and binding.
11.9 Amendments. No amendment or modification to this Agreement
will be effective unless it is in writing and signed by the Company, the
Stockholder and, if such amendment alters or amends any of the rights of the
Investors, by Investors holding a majority of the outstanding shares of capital
stock of the Company held by such Investors, if any.
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<PAGE> 47
11.10 Indemnity.
(a) The Stockholder agrees to indemnify and hold harmless the
Company and any person, if any, who controls the Company or such successor
within the meaning of Section 15 of the Act against any and all loss, liability,
claim, damage and expense whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation or warranty or breach or failure
by the Stockholder to comply with any covenant or agreement made by the
Stockholder herein or in any other document furnished by the Stockholder in
connection with this transaction.
(b) The Company agrees to indemnify and hold harmless the
Stockholder and any person, if any, who controls the Stockholder or such
successor within the meaning of Section 15 of the Act against any and all loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty or
breach or failure by the Company to comply with any covenant or agreement made
by the Company herein or in any other document furnished by the Company in
connection with this transaction.
11.11 Injunctive Relief. In view of the inadequacy of money damages,
and in view of the fact that the stock of the Company cannot be readily
purchased or sold in the general market, if the Stockholder or any other person
shall fail to comply with any provision of this Agreement, the Company shall be
entitled, to the extent permissible by law, to injunctive relief in the case of
the violation, or attempted or threatened violation, by Stockholder or other
person of any such provision, or to a decree compelling specific performance by
the Stockholder or other person, of any such provision, or to any other remedies
legally available.
11.12 Void Transfers. If any Stock shall be sold or transferred
otherwise than in accordance with the terms and conditions of this Agreement,
such sale shall be void. Any such attempted sale or other transfer shall create
a right in the Company to purchase the Stock which is the subject of such
purported transfer at the applicable purchase price specified herein. Such right
shall constitute an "adverse claim" within the meaning of such term as used
within the meaning of the Uniform Commercial Code of any state. In addition to,
and without prejudice to, any and all other rights or remedies which may be
available to the Company, the Stockholder agrees that the Company may, but shall
have no obligation to, hold and refuse to transfer any Stock, or any certificate
therefor, tendered to it for transfer if the transfer violates the provisions of
the Agreement.
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<PAGE> 48
11.13 Tax Representations. The Stockholder acknowledges that the
Company has made no warranties or other representations to Stockholder with
respect to the income tax consequences of the transactions contemplated by this
Agreement and Stockholder is in no manner relying on the Company or its
representatives for an account of such tax consequences.
11.14 Further Assurances. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out of the intent of this Agreement.
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<PAGE> 49
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above written.
Company
RGENE THERAPEUTICS, INC.
By: /s/MARTIN LINDENBERG
--------------------
Name: Martin Lindenberg
Title: President & CEO
Stockholder
McMASTER UNIVERSITY
By: /s/M.R. McDERMOTT
-----------------
Name: Dr. M.R. McDermott
Title: Research Contracts and Intellectual Property
Address:
1200 Main Street West
Hamilton, Ontario L8N 325
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<PAGE> 1
REDACTED VERSION
EXHIBIT 10.31
TO
TARGETED GENETICS CORPORATION
AMENDMENT NO. 1
TO
FORM S-1
TO BE FILED ON OR BEFORE
MAY 30, 1996
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
LICENSE AGREEMENT
This Agreement is made and entered into this 12th day of October, 1994
("Effective Date"), by and between the UNIVERSITY OF PITTSBURGH - OF THE
COMMONWEALTH SYSTEM OF HIGHER EDUCATION, a nonprofit corporation, organized and
existing under the laws of the Commonwealth of Pennsylvania, having its
principal office at 4200 Fifth Avenue, Pittsburgh, PA 15260 ("UNIVERSITY") and
RGENE THERAPEUTICS, INC., Suite 170, 2170 Buckthorne Place, The Woodlands, TX
77380 ("LICENSEE").
WHEREAS, UNIVERSITY is the owner of certain intellectual property
relating to liposome-based cancer and sepsis treatment developed by Leaf Huang,
Ph.D. ("Dr. Huang"), a member of the faculty at UNIVERSITY, and has the right as
specified herein to grant licenses to such intellectual property;
WHEREAS, UNIVERSITY desires to have the LICENSED TECHNOLOGY utilized in
the public interest;
WHEREAS, LICENSEE has represented to UNIVERSITY, to induce UNIVERSITY
to enter into this Agreement, that LICENSEE is experienced in the development,
production, manufacture, marketing and sale of products and/or the use of
similar products to the LICENSED TECHNOLOGY (as defined below) and that LICENSEE
shall commit itself to a thorough, vigorous and diligent program of exploiting
the LICENSED TECHNOLOGY so that public utilization results therefrom;
WHEREAS, the LICENSED TECHNOLOGY is the subject matter of a Sponsored
Research Agreement between UNIVERSITY and LICENSEE; and
WHEREAS, LICENSEE desires to obtain a license under the PATENT RIGHTS
and/or LICENSED TECHNOLOGY upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1 - DEFINITIONS
For purposes of this Agreement, the following words and phrases shall
have the following meanings:
<PAGE> 3
1.1 AFFILIATE shall mean, with respect to UNIVERSITY, any clinical
or research entity in Pittsburgh which is operated or managed as a facility
under the University of Pittsburgh Medical Center, whether or not owned by
UNIVERSITY.
1.2 LICENSEE shall mean RGene Therapeutics, Inc. and all entities
at least fifty percent (50%) owned or controlled by RGene Therapeutics, Inc., an
entity which directly or indirectly owns or controls more than fifty percent
(50%) of the voting stock of RGene Therapeutics, Inc. and any entity, the
majority ownership of which is directly or indirectly common to the ownership of
RGene Therapeutics, Inc.
1.3 LICENSED TECHNOLOGY shall mean any product or part thereof or
process which is within the FIELD OF USE and is:
(a) covered in whole or in part by an issued, unexpired
or pending claim contained in the PATENT RIGHTS in the country in which any such
product or part thereof is made, used or sold or in which any such process is
used or sold;
(b) manufactured by using a process or is employed to
practice a process which is covered in whole or in part by an issued, unexpired
claim or a pending claim contained in the PATENT RIGHTS in the country in which
any process that is included in LICENSED TECHNOLOGY is used or in which such
product or part thereof is used or sold;
(c) developed, manufactured or employing any part of the
TECHNOLOGY or the NEW TECHNOLOGY.
Notwithstanding the foregoing, LICENSED TECHNOLOGY shall not include
any discovery or invention in the field of HIV transfection to the extent (and
only to the extent) such discovery or invention (i) resulted from the use of
materials provided under, and (ii) [*] Company ([*]) pursuant to that certain
[*].
1.4 NET SALES shall mean LICENSEE's and its sublicensees' gross
sales revenue for products or processes included in LICENSED TECHNOLOGY and
produced hereunder less the sum of the following:
(a) actual cost of freight charges or freight absorption,
separately stated in such invoice;
(b) actual trade, quantity or cash discounts allowed, if
any;
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[*] Confidential Treatment Requested.
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<PAGE> 4
(c) sales, tariff duties and/or use taxes separately
stated on each invoice.
1.5 PATENT RIGHTS shall mean all UNIVERSITY United States and
foreign patents, patent applications and any patents filed or issued with
respect to the LICENSED TECHNOLOGY from time to time during the term of this
Agreement, and any and all divisions, reissues, re-examinations, renewals,
continuations, continuations-in-part, extensions and patents issued thereon.
1.6 TECHNOLOGY shall mean any and all know-how, information,
processes, formulae, patterns, compilations, programs, devices, methods,
techniques, compounds, products, data, preparations and usage information or
materials and sources thereof, whether patentable or unpatentable, in each case
that relates to the PATENT RIGHTS and which have been developed in a laboratory
at UNIVERSITY under the direct supervision of Dr. Huang as of the date hereof or
during the term of the Sponsored Research Agreement referenced below, including
that described in the invention disclosures listed on Exhibit A hereto.
1.7 NEW TECHNOLOGY shall mean any technology within the Field of
Use, that is developed after the Effective Date and prior to the expiration of
the Sponsored Research Agreement in a laboratory at UNIVERSITY under supervision
of Dr. Huang.
1.8 SPONSORED RESEARCH AGREEMENT shall mean that certain Sponsored
Research Agreement dated the date hereof and attached hereto as Exhibit B by and
between LICENSEE and UNIVERSITY relating to certain research to be conducted
under the supervision of Dr. Huang.
1.9 FIELD OF USE shall mean the fields of cancer and sepsis
related infectious diseases.
ARTICLE 2 - GRANT
2.1 UNIVERSITY hereby grants, to the extent it may lawfully do so,
the right to practice under the PATENT RIGHTS, within the FIELD OF USE only, the
right and exclusive license throughout the entire world to make, have made, use
and sell the LICENSED TECHNOLOGY to the end of the term for which the PATENT
RIGHTS are issued, or, if no PATENT RIGHTS are issued, for ten (10) years from
the date hereof, unless this Agreement is terminated sooner as provided herein.
The license granted hereby is subject to the rights of the United States
government, if any, as set forth in 35 U.S.C. Article 200 et seq.
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2.2 UNIVERSITY reserves the royalty-free, nonexclusive right to
practice under the PATENT RIGHTS to use the LICENSED TECHNOLOGY for its own
noncommercial education and research purposes.
2.3 At the end of the exclusive period hereof, the license granted
hereunder shall become nonexclusive.
2.4 LICENSEE shall have the right to enter into sublicensing
arrangements for the rights, privileges and licenses granted hereunder only
during the exclusive period of this Agreement upon prior written notice to
UNIVERSITY. Such sublicenses may extend past the expiration date of the
exclusive period of this Agreement, but any exclusivity of such sublicenses
shall expire upon the expiration of LICENSEE's exclusivity. Rights of any
sublicensees shall terminate upon termination of this Agreement.
2.5 LICENSEE agrees that any sublicense granted by it shall
provide that the obligations to UNIVERSITY of Articles 2, 7, 8, 9, 10, 11 and 15
of this Agreement shall be binding upon the sublicensee as if it were party to
this Agreement.
2.6 LICENSEE agrees to forward to UNIVERSITY a copy of any and all
sublicense agreements promptly upon execution thereof. LICENSEE further agrees
to attach copies of the Articles set forth in 2.5, above, to each sublicense
agreement.
2.7 The license granted hereunder shall not be construed to confer
any rights upon LICENSEE by implication, estoppel or otherwise as to any
technology not specifically set forth herein.
ARTICLE 3 - DUE DILIGENCE
3.1 LICENSEE shall use its best efforts to bring the LICENSED
TECHNOLOGY to market through a thorough, diligent program for the exploitation
of LICENSED TECHNOLOGY and PATENT RIGHTS and to continue active, diligent
marketing efforts for the LICENSED TECHNOLOGY throughout the life of this
Agreement.
3.2 LICENSEE shall be deemed to have met the requirements
contained in Article 3.1 so long as LICENSEE is conducting sales of the LICENSED
TECHNOLOGY or is conducting an active clinical development program of the
LICENSED TECHNOLOGY and at all times during the duration of the Sponsored
Research Agreement of even date herewith by and between UNIVERSITY and LICENSEE,
provided, however, that prior to the expiration of the Sponsored Research
Agreement, LICENSEE and UNIVERSITY shall agree upon specific performance
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<PAGE> 6
milestones relating to the clinical development of the LICENSED TECHNOLOGY in
accordance with a proposed development schedule submitted by LICENSEE.
3.3 LICENSEE's failure to perform in accordance with 3.1 and 3.2
hereof shall be grounds for UNIVERSITY to terminate this Agreement pursuant to
the terms of Article 11.1(a) hereof, and upon termination, all rights to and
interest in the LICENSED TECHNOLOGY and PATENT RIGHTS shall revert to
UNIVERSITY.
ARTICLE 4 - ROYALTIES AND OTHER LICENSE
CONSIDERATION
4.1 In consideration of the rights, privileges and license granted
by UNIVERSITY hereunder, LICENSEE shall pay royalties and other monetary
consideration as follows:
(a) Initial license fee, nonrefundable and not credited
against royalties, of $[*] payable as follows:
(i) [*] immediately upon execution of this
Agreement; and
(ii) $[*] immediately upon filing of the first
patent application with respect to the LICENSED TECHNOLOGY;
(b) Royalties in an amount equal to [*] of NET SALES of
the LICENSED TECHNOLOGY in any country for which PATENT RIGHTS have issued, per
calendar quarter; or royalties in an amount equal to [*] of NET SALES in any
country where no patent issues;
(c) Minimum royalty in the amount of $[*] per calendar
year if such minimum royalty is greater than the aggregate annual royalty
computed in accordance with 4.1(b), above, provided that no minimum royalty
shall be required for any year in which LICENSEE is contributing to the
Sponsored Research Agreement in any year unless a PATENT RIGHT is pending or
issued with respect to the LICENSED TECHNOLOGY and provided further, that all
royalty payments made under Article 4.1(b) shall be credited against such
minimum royalty amount. However, to the extent that the LICENSEE is commercially
pursuing multiple products or processes incorporating the LICENSED TECHNOLOGY,
then the minimum royalty specified above shall be $[*] per product or process
incorporating the LICENSED TECHNOLOGY which are being commercially pursued by
LICENSEE, on the same terms as above.
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[*] Confidential Treatment Requested.
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4.2 Royalty payments, pursuant to Article 4.1(b), above, shall be
paid to UNIVERSITY in United States dollars and directed to the address set
forth in Article 12 hereof within sixty (60) days after the end of each March
31, June 30, September 30 and December 31. The minimum royalty, pursuant to
Article 4.1(c), above, shall be paid to UNIVERSITY in like manner by December 15
of the calendar year in which the minimum royalty is due.
4.3 Royalty payments which are overdue shall bear interest at the
rate of 8% per annum.
4.4 To the extent permissible under then applicable laws and
regulations, LICENSEE shall sell products and/or processes resulting from
LICENSED TECHNOLOGY to UNIVERSITY and its AFFILIATES upon request at such
price(s) and on such terms and conditions as such products and/or processes are
made available to LICENSEE's most favored customer. LICENSEE agrees that it will
provide UNIVERSITY and its AFFILIATES the opportunity to purchase such products
or processes at the same time as any other United States clinical institution.
Notwithstanding the above, the parties agree that a failure by LICENSEE to
comply with the terms of this Section 4.4 shall not be deemed to be a default
for purposes of Section 11.1 hereof.
ARTICLE 5 - REPORTS
5.1 Within thirty (30) days after each March 31, June 30,
September 30 and December 31 of each year during the term of this Agreement,
LICENSEE shall deliver to UNIVERSITY true and accurate reports of the following
information in a form acceptable to UNIVERSITY:
(a) number of LICENSED TECHNOLOGY products manufactured
and sold by LICENSEE and all sublicensees;
(b) total billings for such products;
(c) Accounting for all LICENSED TECHNOLOGY processes used
or sold by LICENSEE and all sublicensees;
(d) deductions set forth in Article 1.4;
(e) total royalties due; and
(f) name and addresses of sublicensees.
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5.2 If no royalties shall be due hereunder, LICENSEE shall so
advise UNIVERSITY in writing within thirty (30) days after the end of any
calendar quarter for which no royalties are due.
5.3 LICENSEE shall keep full true and accurate books of account,
in accordance with generally accepted accounting principles, containing all
information that may be necessary for the purpose of showing the amounts payable
to UNIVERSITY hereunder. Said books of account shall be kept at LICENSEE's
principal place of business. Said books and the supporting data shall be open at
all reasonable times for three (3) years following the end of the calendar year
to which they pertain, to the inspection of UNIVERSITY or its agents for the
purpose of verifying LICENSEE's royalty statement or compliance in other
respects with this Agreement.
ARTICLE 6 - PATENT PROSECUTION
6.1 UNIVERSITY has or shall apply for, seek prompt issuance of and
maintain during the term of this Agreement the PATENT RIGHTS in the United
States and in such foreign countries as may be designated by LICENSEE within a
reasonable time in advance of the required foreign filing dates. LICENSEE shall
have the opportunity to advise and cooperate with UNIVERSITY in the prosecution,
filing and maintenance of such patents.
6.2 All fees and costs, including attorneys' fees, relating to the
filing, prosecution and maintenance of the PATENT RIGHTS shall be the
responsibility of LICENSEE, whether incurred prior to or after the date of this
Agreement and payments by LICENSEE therefore shall not be creditable against
royalties. Such fees and costs incurred by UNIVERSITY prior to the date hereof
will be payable by LICENSEE to UNIVERSITY within five (5) business days of the
execution of this Agreement by LICENSEE.
ARTICLE 7 - INFRINGEMENT ACTIONS
7.1 Each party shall inform the other promptly in writing of any
alleged infringement of the PATENT RIGHTS by a third party and of any available
evidence thereof.
7.2 During the term of this Agreement, LICENSEE shall have the
right, but shall not be obligated, to prosecute at its own expense all
infringements of the PATENT RIGHTS and, in furtherance of such right, UNIVERSITY
hereby agrees that LICENSEE may include UNIVERSITY as a party plaintiff in any
such suit, without expense to UNIVERSITY. The total cost of any such
infringement action
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<PAGE> 9
commenced or defended solely by LICENSEE shall be borne by LICENSEE and LICENSEE
shall keep any recovery or damages for past infringement derived therefrom
subject to payment of royalties thereon at the rate established in Article
4.1(b), after application of the costs incurred by LICENSEE in prosecuting such
infringement actions, including legal fees. LICENSEE may, for such purposes, use
the name of UNIVERSITY as party plaintiff. Notwithstanding the above, LICENSEE's
right to bring such an infringement action shall remain in effect only for so
long as the license granted herein remains exclusive.
7.3 If within six (6) months after having been notified of any
alleged infringement, LICENSEE shall have been unsuccessful in persuading the
alleged infringer to desist and shall not have brought and shall not be
diligently prosecuting an infringement action, or if LICENSEE shall notify
UNIVERSITY at any time prior thereto of its intention not to bring suit against
any alleged infringer, then, and in those events only, UNIVERSITY shall have the
right, but shall not be obligated, to prosecute at its own expense any
infringement of the PATENT RIGHTS, and UNIVERSITY may, for such purposes, use
the name of LICENSEE as party plaintiff. No settlement, consent judgment or
other voluntary final disposition of the suit may be entered into by either
party without the consent of the other, which consent shall not unreasonably be
withheld. In any settlement or other conclusion, by litigation or otherwise,
UNIVERSITY shall be entitled to share in the monetary award therefrom in at
least an amount proportional to the royalty rate established in Article 4.1(b),
above, and LICENSEE shall be entitled to offset against royalties due hereunder
all costs incurred by LICENSEE in prosecution of any such infringement,
including legal fees. LICENSEE shall indemnify UNIVERSITY against any order for
costs that may be made against UNIVERSITY in such proceedings.
7.4 In the event that a declaratory judgment action alleging
invalidity or noninfringement of any of the PATENT RIGHTS shall be brought
against UNIVERSITY, LICENSEE, at its option, shall have the right, within thirty
(30) days after commencement of such action, to intervene and take over the sole
defense of the action at its own expense.
7.5 In any infringement suit either party may institute to enforce
the PATENT RIGHTS pursuant to this Agreement, the other party hereto shall, at
the request and expense of the party initiating such suit, cooperate in all
respects and, to the extent possible, have its employees testify when requested
and make available relevant records, papers, information, samples, specimens,
and the like.
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<PAGE> 10
ARTICLE 8 - INDEMNIFICATION/INSURANCE/LIMITATION
OF LIABILITY
8.1 LICENSEE shall at all times during the term of this Agreement
and thereafter, indemnify, defend and hold UNIVERSITY, its trustees, officers,
employees and affiliates, harmless against all claims and expenses, including
legal expenses and reasonable attorneys' fees, arising out of the death of or
injury to any person or persons or out of any damage to property or the
environment, and against any other claim, proceeding, demand, expense and
liability of any kind whatsoever resulting from the production, manufacture,
sale, use, lease, consumption or advertisement of the LICENSED TECHNOLOGY or
arising from any obligation of LICENSEE hereunder, except to the extent caused
by the negligence, recklessness or willful misconduct of UNIVERSITY or its
personnel and agents, for which UNIVERSITY shall similarly hold harmless and
indemnify LICENSEE, its officers, employees, agents or representatives.
8.2 Prior to such time as LICENSEE or its sublicensees commence
human clinical trials for LICENSED TECHNOLOGY or otherwise commence marketing
such LICENSED TECHNOLOGY, LICENSEE shall maintain in force such liability
insurance policies and coverages as are required under applicable laws and
regulations. At such time as LICENSEE commences marketing the LICENSED
TECHNOLOGY, LICENSEE shall maintain in force such liability insurance in such
amounts and for such coverages as is customarily taken by similar companies in
its industry, to the extent such coverages are reasonably available. LICENSEE
shall use its best efforts to have such policies provide that the insurer will
give UNIVERSITY not less than 30 days' advance notice of any material changes in
or cancellation of coverage, and to have UNIVERSITY named as an additional
insured thereunder.
ARTICLE 9 - ASSIGNMENT
9.1 Except as provided in Article 2.4, this Agreement is not
assignable and any attempt to do so shall be null and void.
ARTICLE 10 - ARBITRATION
10.1 Except as to issues relating to the validity, enforceability
or final determination of infringement of any patent contained in the PATENT
RIGHTS licensed hereunder, any and all claims, disputes or controversies arising
under, out of, or in connection with this License Agreement which has not been
resolved in good faith negotiations between the parties, shall be resolved by a
board of three (3) arbitrators in accordance with the rules, then in effect, of
the American Arbitration Association. Such independent board shall be composed
of three panelists, of
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<PAGE> 11
sufficient education, scientific experience and national reputation to address
such issues. The board shall be composed of one scientist selected by
UNIVERSITY, one selected by LICENSEE and one selected by LICENSEE and
UNIVERSITY. The decision of such panel shall be final and binding upon the
parties and enforceable in any court of competent jurisdiction.
ARTICLE 11 - TERMINATION
11.1 UNIVERSITY shall have the right to terminate this Agreement
if:
(a) LICENSEE shall default in the performance of any of
the obligations herein contained and such default has not been cured within
thirty (30) days after receiving written notice thereof from UNIVERSITY;
(b) LICENSEE shall cease to carry out its business,
become bankrupt or insolvent, apply for or consent to the appointment of a
trustee, receiver or liquidator of its assets or seek relief under any law for
the aid of debtors; or
(c) LICENSEE shall terminate the Sponsored Research
Agreement with UNIVERSITY for further work on the LICENSED TECHNOLOGY for any
reason, except breach thereof by UNIVERSITY, termination by mutual consent,
termination for Dr. Huang's departure from UNIVERSITY as described in Section
2.03 of the Sponsored Research Agreement, or expiration of the term of Sponsored
Research Agreement.
11.2 LICENSEE may terminate this Agreement upon six (6) months'
prior written notice to UNIVERSITY and upon payment of all amounts due
UNIVERSITY through the effective date of the termination.
11.3 Upon termination of this Agreement neither party shall be
released from any obligation that matured prior to the effective date of such
termination. LICENSEE and any sublicensee may, however, after the effective date
of such termination, sell all products under the LICENSED TECHNOLOGY, provided
that LICENSEE shall pay to UNIVERSITY the royalties thereon as required by
Article 4 hereof and submit the reports required by Article 5 hereof.
ARTICLE 12 - NOTICES
12.1 Any notice or communication pursuant to this Agreement shall
be sufficiently made or given if sent by certified, first-class mail, postage
prepaid, addressed to the address below or as either party shall designate by
written notice to the other party.
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<PAGE> 12
In the case of UNIVERSITY:
Office of Technology Transfer
and Intellectual Property
911 William Pitt Union
University of Pittsburgh
Pittsburgh, PA 15260
In the case of LICENSEE:
RGene Therapeutics, Inc.
Suite 170
2170 Buckthorne Place
The Woodlands, TX 77380
ARTICLE 13 - AMENDMENT, MODIFICATION
13.1 This Agreement may not be amended or modified except by the
execution of a written instrument signed by the parties hereto.
ARTICLE 14 - REPRESENTATIONS, WARRANTIES AND
LIMITATIONS OF LIABILITY
14.1 UNIVERSITY
(a) UNIVERSITY is validly existing and in good standing
under the laws of the State of Pennsylvania.
(b) The execution, delivery and authority to execute and
deliver this Agreement have been duly authorized by all necessary action on the
part of the UNIVERSITY.
(c) UNIVERSITY has the power and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement.
(d) UNIVERSITY hereby represents and warrants that, other
than the grant set forth herein, including, without limitations, any
nonexclusive license that UNIVERSITY may be required by law to grant to the
United States of America or to a foreign state pursuant to an existing or future
treaty with the United States of America, it has not encumbered, restricted,
transferred or otherwise burdened the Technology except that UNIVERSITY makes no
such representations and warranties as to the invention disclosure of Dr. Huang
and Dr. R. Jude Samulski described on Exhibit A hereto.
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<PAGE> 13
(e) UNIVERSITY hereby represents and warrants that on the
date hereof, it is not aware of any infringement of or by the PATENT RIGHTS or
any claims by any other party in and to the TECHNOLOGY except that University
makes no such representations and warranties as to the invention disclosure of
Dr. Huang and Dr. R. Jude Samulski described on Exhibit A hereto.
(f) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT, UNIVERSITY MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF TECHNOLOGY
CLAIMS, ISSUED OR PENDING. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION MADE OR WARRANTY GIVEN BY UNIVERSITY THAT THE PRACTICE BY
LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE TECHNOLOGY OF
ANY THIRD PARTY.
14.2 LICENSEE
The LICENSEE represents and warrants that:
(a) It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action on the
part of the LICENSEE.
(c) It has the corporate power and authority to execute
and deliver this Agreement and to perform its obligations under this Agreement.
(d) It has received copies of both invention disclosures
identified on Exhibit A hereto.
ARTICLE 15 - MISCELLANEOUS
15.1 This Agreement shall be construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania.
15.2 The parties acknowledge that this Agreement together with the
SPONSORED RESEARCH AGREEMENT, sets forth the entire understanding and agreement
of the parties hereto as to the subject matter hereof and supersedes all
previous understandings between the parties, written or oral, regarding such
subject matter.
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<PAGE> 14
15.3 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity or other promotional
activities any name, trade name, trademark, or other designation (including any
contraction, abbreviation, or simulation of any of the foregoing). Without the
express written approval of the other party, neither party shall use any
designation of the other party in any promotional activity associated with this
Agreement or the LICENSED TECHNOLOGY. Neither party shall issue any press
release or make any similar written public statement in regard to this Agreement
without the prior written approval of the other party which approval shall not
be unreasonably withheld.
15.4 If one or more of the provisions of this Agreement shall be
held invalid, illegal or unenforceable, the remaining provisions shall not in
any way be affected or impaired thereby. In the event any provision is held
illegal or unenforceable, the parties shall use reasonable efforts to substitute
a valid, legal and enforceable provision which, insofar as is practical,
implements purposes of the section held invalid, illegal and unenforceable.
15.5 Failure at any time to require performance of any of the
provisions herein shall not waive or diminish a party's right thereafter to
demand compliance therewith or with any other provision. Waiver of any default
shall not waive any other default. A party shall not be deemed to have waived
any rights hereunder unless such waiver is in writing and signed by a duly
authorized officer of the party making such waiver.
ARTICLE 16 - CLINICAL TRIALS
16.1 LICENSEE agrees that Phase I clinical trials will be performed
at UNIVERSITY and its AFFILIATES. LICENSEE further agrees to give preferential
consideration to UNIVERSITY and its AFFILIATES for the conduct of Phase II and
III clinical trials, subject to the understanding that LICENSEE may be obligated
or deem it advisable to conduct Phase II and III clinical trials incorporating
technology licensed by LICENSEE from other institutions, at such other
institutions or their affiliates. Additional medical centers may be involved in
Phase II and III clinical trials, as may be necessary.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have set their hands and seals this
12th day of October, 1994.
UNIVERSITY OF PITTSBURGH -
OF THE COMMONWEALTH
SYSTEM OF HIGHER EDUCATION
WITNESS:
By /s/ BEN J. TUCHI
- ------------------------------------ ----------------
Ben J. Tuchi, Ph.D.
Senior Vice Chancellor
Business and Finance
WITNESS: RGENE THERAPEUTICS, INC.
By /s/ MARTIN H. LINDENBERG
- ------------------------------------ ------------------------
Martin H. Lindenberg, M.D.
President & CEO
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<PAGE> 16
EXHIBIT A
Invention Disclosures
1. [*]
2. [*]
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[*] Confidential Treatment Requested.
<PAGE> 17
EXHIBIT B
SPONSORED RESEARCH AGREEMENT
This Sponsored Research Agreement ("Agreement") entered into this 12th
day of October, 1994 between RGene Therapeutics, Inc., a corporation organized
under the laws of the State of Delaware and having an office at 2170 Buckthorne
Place, Suite 170, The Woodlands, Texas 77380, hereinafter referred to as
"Sponsor";
and
University of Pittsburgh of the Commonwealth System of Higher Education, a
nonprofit Pennsylvania corporation having an office at Office of Research, 350
Thackeray Hall, Pittsburgh, Pennsylvania 15260, hereinafter referred to as
"University."
W I T N E S S E T H:
WHEREAS, Sponsor desires the research services of University and
University desires and agrees to provide such services to Sponsor;
WHEREAS, Sponsor and University have entered into that certain License
Agreement of even date herewith (the "License Agreement") which provides for an
exclusive worldwide license to Sponsor of certain patent rights and technology
invented and to be invented by Leaf Huang, Ph.D. (the "Principal Investigator"),
an employee of University;
NOW, THEREFORE, in consideration of the mutual promises and
undertakings set forth herein, the parties agree as follows:
1. SCOPE OF WORK
1.01 University agrees to use its best efforts to perform services
for Sponsor as described in the Statement of Work in proposal attached hereto as
Appendix A ("Project"), as it may be modified by agreement from time to time.
1.02 University shall use its best efforts to cause Principal
Investigator and persons on his staff or under his direct supervision ("Research
Associates") to use their best efforts to perform the Project, as it may be
modified from time to time by consent of Sponsor and University, and to meet
from time to time with Sponsor to discuss the planning and progress of the
Project.
<PAGE> 18
1.03 All studies done in connection with the Project shall be
carried out in compliance with any applicable federal, state or local laws,
regulations or guidelines governing the conduct of such research.
2. TERM
2.01 The Term of this Agreement is four years, commencing on
execution, subject to early termination as provided in Section 2.03 or Section
10 hereof.
2.02 Any extension must be in writing upon terms mutually agreeable
to the parties hereto.
2.03 If, for any reason, the Principal Investigator ceases to be
associated with University or otherwise becomes unavailable to work on the
Project, a qualified replacement scientist at University shall be mutually
appointed by Sponsor and University or, in the event that a mutually acceptable
scientist is not identified and agreed upon, at Sponsor's sole option, this
Agreement shall be terminated on 30 days written notice, and any remaining
financial obligations of Sponsor, including the payment of the Project Funds as
set forth in Section 3, shall be cancelled.
3. PAYMENT
3.01 Subject to early termination of this Agreement in accordance
with the terms of Section 2.03, 10.01 and 10.03, Sponsor agrees to pay the sum
of $[*] to University ("Project Funds") for the services, payment to be made as
follows: in eight equal semi-annual installments over the Term, with the first
payment due within thirty (30) days of execution of this Agreement and the
remaining payments due each six months thereafter.
3.02 University costs shall follow the proposed budget as contained
in Appendix A.
3.03 The Project Funds specified shall be inclusive of any and all
direct and indirect costs associated with the Project.
4. REPORTS
4.01 University shall provide Sponsor with periodic verbal reports
on request and with semi-annual written reports of the results of the Project.
University shall throughout the Term of this Agreement provide to Sponsor copies
of all data and other
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[*] Confidential Treatment Requested.
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<PAGE> 19
information generated by or on behalf of the Principal Investigator or Research
Associates pursuant to this Agreement, including without limitation, all raw
data obtained as a result of studies conducted in the course of the Project and
all experimental procedures developed under the Project in sufficient written
detail to permit Sponsor's personnel to employ such procedures in their own
research.
4.02 Upon completion of the services by University, or earlier
termination of this Agreement, University shall provide a final written report
to Sponsor, which final report shall include: (i) a complete summary of the
services performed, (ii) a good faith evaluation by the Principal Investigator
of the relationship of the research to the discovery of new modalities of
therapy in the field of the Project, and (iii) detailed experimental protocols
of the assays performed in the course of the Project, and such other information
or data as may be specified in Appendix A. University shall also, at Sponsor's
option, meet with Sponsor to discuss the services or the content of the final
report.
5. INSURANCE
5.01 University shall provide the necessary Workman's Compensation
and Employer's Liability insurance to meet statutory liability limits of the
Commonwealth of Pennsylvania for the employees of University involved in this
Project.
6. LIABILITY
6.01 University shall not be responsible or liable for any injuries
or losses which may result from the implementation or use by Sponsor or others
of the results from the Project or research data generated by University.
6.02 Sponsor agrees to indemnify, defend and hold harmless
University, its trustees, officers, agents and employees with respect to any
expense, claim, liability, loss, damage, or costs (including attorney's fees) in
connection with or in any way arising out of the use of the data or results from
the Project, except for such expenses, claims, liabilities, losses, damages, or
costs (including attorneys' fees) which relate to injuries or death of persons
which occur on University premises and which result from the negligence of any
of University's personnel. University shall notify Sponsor if it learns of the
institution or threatened institution of any such claims or lawsuit and
University shall cooperate with Sponsor in every proper way in the defense or
settlement thereof at Sponsor's request and expense.
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<PAGE> 20
7. DISCLAIMER OF WARRANTY
7.01 Any information, materials or services furnished by University
pursuant to this Agreement are on an "as is" basis. UNIVERSITY MAKES NO
WARRANTIES OF ANY KIND EITHER EXPRESS OR IMPLIED AS TO ANY MATTER, INCLUDING BUT
NOT LIMITED TO WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY,
PATENTABILITY, OR THAT USE BY SPONSOR OF THE RESULTS OBTAINED WILL BE FREE FROM
INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS OR OTHER RIGHTS OF THIRD
PARTIES. In no event shall University be liable to Sponsor for indirect,
special, or consequential damages, such as loss of profits or inability to use
the results obtained or any applications and derivations thereof.
8. INTELLECTUAL PROPERTY RIGHTS
8.01 Under University policy, all rights and title to any
inventions and/or discoveries ("Inventions") developed under Project which were
made either solely by University personnel or jointly by University and Sponsor
personnel shall belong to University, subject to the terms set out in Section
8.02 and 8.03 below.
8.02 If the Project results in an Invention, whether patentable or
unpatentable, which may be commercially useful and which is within the Field of
Research identified in the Project attached hereto as Appendix A, such Invention
shall be automatically licensed to Sponsor under the terms of the License
Agreement attached hereto without any further act by Sponsor or University,
except payment of the licensing fee, if any, required by Section 4.1(a) of such
License Agreement. University shall, in cooperation with the Principal
Investigator, promptly supply Sponsor with a copy of the disclosure of any such
Invention in confidence for Sponsor's evaluation purposes.
8.03 University hereby grants to Sponsor a right of first refusal
to an exclusive royalty-bearing license to Inventions developed under this
Agreement which are not within the Field of Research to the extent it is legally
able to do so, subject to Public Law 96-517 and to the constraints set forth
herein. Such option must be exercised within ninety (90) days from the date of
disclosure to Sponsor, unless such time is extended by written agreement of the
parties. If Sponsor exercises its right of first refusal as provided in this
Section 8.03, and provided that Sponsor agrees to reimburse University for the
costs of patent prosecution and maintenance in the United States and foreign
countries upon execution of such exclusive license, the University and Sponsor
shall negotiate a license agreement in good faith to include reasonable royalty
rates and other customary terms and conditions, including but not limited to, a
royalty free, nonexclusive license in favor of the University to use such
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<PAGE> 21
Inventions for noncommercial education and research purposes, within three (3)
months of the date Sponsor exercises its right of first refusal. If a mutually
acceptable agreement is not executed and delivered by the end of such three (3)
months, Sponsor's rights described in Section 8.03 hereof shall terminate,
provided, however, that University agrees that it will not enter into a license
agreement with a third party on terms which are less favorable to University
than were last offered by University to Sponsor.
8.04 Rights to Inventions, whether patentable or copyrightable or
not, relating to Project made solely by employees of Sponsor shall belong to
Sponsor. Provided, University shall retain, at a minimum, a nonexclusive,
royalty free non-transferable right to use such Inventions developed under this
Agreement for educational and research activities on a non-commercial basis for
University.
8.05 In the event that any Invention which is subject to the right
of first refusal provided in Section 8.03 is the result of a sponsored research
agreement with another commercial entity other than Sponsor and such entity has
rights thereto with respect to the commercialization of such Invention, then in
such event Sponsor agrees that it will in good faith negotiate with such other
entity to arrive at a mutually beneficial agreement with respect to the
commercialization of such Invention.
9. PUBLICATIONS; CONFIDENTIALITY
9.01 University and Sponsor agree to maintain as confidential and
proprietary all confidential information which was provided by the other party
during the Term hereof. Except as provided in subparagraph 9.02 below,
University and Sponsor agree not to use except in furtherance of this Agreement
and not to disclose orally, by written publication or otherwise any Project
results, except that such information may be disclosed insofar as such
disclosure is necessary to allow either University or Sponsor, as the case may
be, to defend itself against litigation, to file and prosecute patent
applications on any invention conceived or reduced to practice under the
Project, to comply with judicial decree or governmental action, or as may be
otherwise required in order to commercialize the Project results pursuant to the
License Agreement. Notwithstanding the above, such obligation of confidentiality
shall not apply to information that at the time of disclosure:
(i) is in the public domain;
(ii) has come into the public domain through no fault of
University;
(iii) was known to the receiving party prior to its
disclosure by the disclosing party, or
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<PAGE> 22
(iv) was disclosed by the disclosing party to a third
party not under an obligation of confidence.
9.02 In the exercise of the rights of academic freedom of an
educational institution and its faculty, University, the Principal Investigator
and the Research Associates shall have the right to publish in scientific or
other journals or to present at professional conferences or other meetings the
results of the research conducted under this Agreement. In order to permit
Sponsor the opportunity to properly protect patent and proprietary rights
relating to the Project, a copy of each proposed publication shall be provided
to Sponsor thirty (30) days in advance of submission for publication to permit
Sponsor time in which to prepare application(s) for letters patent regarding the
subject matter of such publication. Any final proposed publication provided to
Sponsor shall be considered as acceptable for submission for publication unless
Sponsor notifies University and the Principal Investigator within thirty (30)
days of receipt of the proposed publication that it requires additional time to
secure patents on such Project in which case Sponsor shall have an additional
sixty (60) days to undertake such action before publication. Sponsor shall also
receive final drafts of any proposed publication, and Sponsor shall be named in
the publication as the sponsor of the Project or, as the case may be, licensee
of such technology. The right to review publications as set forth herein shall
extend only to the work product of the Principal Investigator and the Research
Associates pursuant to the Project and not to the work product of other research
conducted in the laboratories of the Principal Investigator or Research
Associates or in the laboratories of other researchers at University.
10. TERMINATION
10.01 Sponsor may terminate this Agreement with or without cause, at
any time prior to the expiration of the designated term by giving sixty (60)
days written notice to University.
10.02 Upon early termination of this Agreement, Sponsor shall pay
all costs accrued by University as of the date of termination including
non-cancelable obligations for the Term of the Agreement, which shall include
all appointments of research staff incurred prior to the effective date of the
termination.
10.03 In the event that either party shall be in default of any of
its obligations under this Agreement, and shall fail to remedy such default
within 60 days after receipt of written notice thereof, the party not in default
shall have the option of cancelling this Agreement by giving written notice of
termination to the other party.
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<PAGE> 23
10.04 Termination of this Agreement shall not affect the rights and
obligations of the parties which shall have accrued prior to termination
including, without limitation the confidentiality obligations set forth in
Section 9.01.
11. PUBLICITY
11.01 Sponsor will not use the name of University nor of any member
of University personnel, in any publicity, advertising, or news release without
the prior written approval of University.
12. GOVERNING LAW
12.01 This Agreement shall be deemed to be a contract under, and
shall be governed by and construed and enforced in accordance with the laws of
the Commonwealth of Pennsylvania.
13. MISCELLANEOUS
13.01 Nothing contained in this Agreement is to be construed to
constitute University and Sponsor as partners or joint venturers of each other,
or to constitute the employees, agents or representatives of either party as the
employees, agents or representatives of the other party, it being intended that
the relationship between University and Sponsor shall at all times be that of
independent contractors. Neither party hereto shall have any express or implied
right or authority to assume or create any obligations on behalf of, or in the
name of, the other party; or to bind the other party to any contract, agreement
or undertaking with any third party. Sponsor agrees, warrants and represents to
University, with the intention that University may rely thereon, that Sponsor
does not now exercise, and will not be permitted during the terms of this
Agreement to exercise any significant degree of control over University's method
of operation.
13.02 University agrees that it is responsible for withholding and
paying to appropriate taxing bodies, all statutory payroll taxes that are
applicable to University personnel to be supported under the Project.
13.03 Failure of either party hereto to enforce any of the
provisions of this Agreement, or of any rights with respect thereto, or failure
to exercise any election provided for herein, shall in no way be considered a
waiver of such provisions, rights or elections, or in any way affect the
validity of this Agreement. The failure by any party hereto to enforce any of
such provisions, rights or elections shall not prejudice such party from later
enforcing or exercising the same or any other provisions, rights or elections
which it may have under this Agreement.
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<PAGE> 24
13.04 Should a court of competent jurisdiction later consider any
provision of this Agreement to be invalid, illegal or unenforceable, it shall be
considered severed from the Agreement. All other provisions, rights and
obligations shall continue without regard to the severed provision, provided
that the remaining provisions of the Agreement are in accordance with the
intention of the parties. It is the further intention of the parties that in
lieu of any provision which is invalid, illegal or unenforceable, there be
substituted or added as part of this Agreement a provision which shall be as
similar as possible in economic and business objectives as intended by the
parties to this Agreement.
13.05 This Agreement may not be and shall not be construed to have
been modified, amended, rescinded, cancelled or waived, in whole or in part,
except in writing signed by the parties hereto and making specific reference to
this Agreement. This Agreement, together with the License Agreement, constitutes
the entire agreement of the parties with respect to the subject matter hereof.
13.06 Any notice or communication required or permitted to be given
or made under this Agreement by one of the parties hereto to the other shall be
in writing and shall be deemed to have been sufficiently given or made for all
purposes if mailed by certified mail, postage prepaid, addressed to such other
party at its respective address as follows:
If to University:
University of Pittsburgh
of the Commonwealth System
of Higher Education
350 Thackeray Hall
Pittsburgh, Pennsylvania 15260
Attention: Michael M. Crouch
Director, Office of Research
With a copy to:
Frances Connell, Director
Office of Technology Transfer
and Intellectual Property
911 William Pitt Union
Pittsburgh, Pennsylvania 15260
If to Sponsor:
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<PAGE> 25
RGene Therapeutics, Inc.
2170 Buckthorne Place, Suite 170
The Woodlands, Texas 77388
Attention: President
With a copy to:
Andrews & Kurth L.L.P.
2170 Buckthorne Place, Suite 150
The Woodlands, Texas 77380
Attention: Jeffrey R. Harder
13.07 The headings used herein are included solely for the purpose
of convenience, and shall not be used in any way to construe, modify, explain,
enlarge or restrict any of the provisions hereof.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their respective duly authorized representatives.
WITNESS: UNIVERSITY OF PITTSBURGH - OF
THE COMMONWEALTH SYSTEM
OF HIGHER EDUCATION
By: /S/ MICHAEL M. COUCH
- ------------------------------ -----------------------------------
Typed Name: Michael M. Crouch
---------------------------
Title: Director, Office of Research
--------------------------------
Date: 9-29-94
---------------------------------
WITNESS: RGENE THERAPEUTICS, INC.
By: /S/ MARTIN H. LINDENBERG
- ------------------------------ -----------------------------------
Typed Name: Martin H. Lindenberg, M.D.
---------------------------
Title: President & CEO
--------------------------------
Date: 10-12-94
---------------------------------
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<PAGE> 1
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the reference to me as a prospective director of
Targeted Genetics Corporation (the "Company") where it appears in the Company's
Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-3592)
and related prospectus and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"). This consent may be incorporated
by reference into any such registration statement filed pursuant to Rule 462(b)
under the Act.
/s/ MARTIN P. SUTTER
--------------------------------------
Martin P. Sutter
May 28, 1996
<PAGE> 1
EXHIBIT 99.2
CONSENT OF DIRECTOR NOMINEE
I hereby consent to the reference to me as a prospective director of
Targeted Genetics Corporation (the "Company") where it appears in the Company's
Amendment No. 1 to Registration Statement on Form S-1 (SEC File No. 333-3592)
and related prospectus and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"). This consent may be incorporated
by reference into any such registration statement filed pursuant to Rule 462(b)
under the Act.
/s/ AUSTIN M. LONG, III
--------------------------------------
Austin M. Long, III
May 28, 1996
