<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to __________
Commission File Number: 0-23930
TARGETED GENETICS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1549568
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 OLIVE WAY, SUITE 100, SEATTLE, WASHINGTON 98101
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(206) 623-7612
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value 20,205,434
----------------------------- -------------------------------
(Class) (Outstanding at April 28, 1997)
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TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
For the quarter ended March 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheets - March 31, 1997 and
December 31, 1996 3
b) Condensed Statements of Operations - for the three months
ended March 31, 1997 and 1996 4
c) Condensed Statements of Cash Flows - for the three months
ended March 31, 1997 and 1996 5
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosure About Market Risk *
PART II OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
</TABLE>
* No information is provided due to inapplicability of the item.
2
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 892,618 $ 3,532,568
Securities available for sale 14,661,159 15,518,502
Prepaid expenses and other 238,550 468,671
------------ ------------
Total current assets 15,792,327 19,519,741
Property, plant and equipment, net 4,851,738 4,991,017
Other assets 587,918 628,294
------------ ------------
$ 21,231,983 $ 25,139,052
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,371,395 $ 1,887,880
Accrued payroll and other liabilities 269,363 364,964
Current portion of long-term obligations 1,327,649 1,250,263
------------ ------------
Total current liabilities 2,968,407 3,503,107
Long-term obligations 1,995,338 2,128,157
Shareholders' equity:
Preferred stock -- --
Common stock (20,205,434 and 20,136,468 shares
outstanding at March 31, 1997 and December 31,
1996, respectively) 73,397,577 73,115,362
Deficit accumulated during development stage (57,129,339) (53,607,574)
------------ ------------
Total shareholders' equity 16,268,238 19,507,788
------------ ------------
$ 21,231,983 $ 25,139,052
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 9, 1989
March 31, (date of inception)
------------------------------- through
1997 1996 March 31, 1997
------------ ------------ -------------------
<S> <C> <C> <C>
Revenues:
Collaborative agreements $ 77,382 $ -- $ 1,355,347
Investment income 230,336 183,536 3,231,338
Other 98,255 -- 325,373
------------ ------------ ------------
Total revenues 405,973 183,536 4,912,058
------------ ------------ ------------
Expenses:
Research and development 3,051,538 2,366,032 37,325,242
In-process research and development -- -- 13,517,911
General and administrative 742,570 616,862 10,191,606
Interest 86,893 92,381 979,288
------------ ------------ ------------
Total expenses 3,881,001 3,075,275 62,014,047
------------ ------------ ------------
Net loss $ (3,475,028) $ (2,891,739) $(57,101,989)
============ ============ ============
Net loss per share $ (0.17) $ (0.23)
============ ============
Shares used in computation of net loss
per share 20,162,043 12,342,748
============ ============
</TABLE>
See accompanying notes.
4
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 9, 1989
March 31, (date of inception)
----------------------------- through
1997 1996 March 31, 1997
----------- ----------- --------------
<S> <C> <C> <C>
Net cash used in operating activities $(3,182,796) $(2,602,558) $(37,521,977)
Investing activities:
Purchases of property, plant and equipment (396,692) (519,482) (9,109,883)
Purchases of securities available for sale -- (1,513,869) (78,664,645)
Sales of securities available for sale 712,878 3,366,703 64,033,905
Net cash acquired in RGene acquisition -- -- 1,594,386
Increase in other assets -- -- (719,179)
----------- ----------- ------------
Net cash used in investing activities 316,186 1,333,352 (22,865,416)
Financing activities:
Advances from Immunex -- -- 2,807,316
Net proceeds from sale of capital stock 282,215 297,289 55,657,215
Proceeds from equipment financing 259,972 554,063 5,203,854
Payments under capital leases and installment loans (315,527) (210,887) (2,388,374)
----------- ----------- ------------
Net cash provided by financing activities 226,660 640,465 61,280,011
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (2,639,950) (628,741) 892,618
Cash and cash equivalents, beginning of period 3,532,568 2,154,814 --
----------- ----------- ------------
Cash and cash equivalents, end of period $ 892,618 $ 1,526,073 $ 892,618
=========== =========== ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed financial statements included herein have been prepared
by Targeted Genetics Corporation (the "Company"), without audit, according to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The financial statements
reflect, in the opinion of management, all adjustments (which consist solely of
normal recurring adjustments) necessary to present fairly the financial position
and results of operations as of and for the periods indicated. The results of
operations for the three months ended March 31, 1997, are not necessarily
indicative of the results to be expected for the full year.
Note 2. Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share ("Statement 128"), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods presented. The impact of Statement 128 on the calculation of
net loss per share for all current and prior periods is not expected to be
material.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Risks and Uncertainties
This discussion contains forward-looking statements that are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. The Company's future cash requirements and
expense levels will depend on many factors, including 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 filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities; and other factors. Reference is made
to the Company's Annual Report on Form 10-K for more detailed description of
such factors. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Financial Condition
The Company had $15.6 million in cash, cash equivalents and
securities available for sale as of March 31, 1997, compared to $19.1 million at
December 31, 1996. The change was primarily attributable to the use of $3.2
million to fund operations and $397,000 to purchase property, plant and
equipment, offset by the receipt of $277,000 for the exercise of warrants by
existing shareholders.
The Company is a development stage company conducting gene and cell
therapy research and development. Income earned from investments and, to a
lesser degree, revenues under collaborative agreements have been its only
sources of revenue, covering less than ten percent of expenses. Gene and cell
therapy products are subject to the risks of failure inherent in the development
of products based on innovative technologies. Although the Company's technology
appears promising, it is unknown whether any commercially viable products will
result from the research and development. It is not anticipated that the Company
will have any product-related revenues for a number of years. Accordingly, the
Company expects to incur substantial additional losses over the next several
years and to use its capital resources to fund preclinical and clinical research
programs, development of manufacturing capabilities and the preparation for
commercialization of its products under development.
The Company currently estimates that, at its planned rate of
spending, its existing cash, cash equivalents and securities available for sale
will be sufficient to meet its capital requirements until at least early 1998.
Such estimates include the impact of future milestone payments potentially
receivable under existing collaborative agreements. There can be no assurance
that such milestone payments will be received or that the underlying assumed
levels of revenue and expense will prove to be accurate. In any event,
substantial additional funds will be needed to continue the development and
commercialization of the Company's products. Accordingly, the Company is seeking
to establish additional collaborative agreements with corporate partners that
would provide research and development funding and equity investment. The
Company also may seek to raise additional equity capital whenever conditions in
the financial markets allow it to do so. There can be no assurance, however,
that adequate funds will be available when needed or will be available on terms
favorable to the Company, if at all.
Results of Operations
The Company's net loss has grown from year-to-year, consistent with
the growth in the Company's scope and size of operations. In the near term, the
Company does not expect additional growth in employee headcount or facilities;
however, the Company estimates that operating expenses will continue to increase
moderately as a result of continuing with its current operating plan, which
includes growth in the level of clinical trial activity. At least until such
time as the Company enters into a collaborative arrangement providing a
significant amount of research and development funding, the net loss is expected
to continue to increase as well.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (continued)
For the three months ended March 31, 1997, revenue under
collaborative agreements was $77,000. The revenue primarily consists of amounts
recoverable from Laboratoires Fournier S.C.A. related to tgDCC-E1A process
development activities.
For the three months ended March 31, 1997, investment income
increased to $230,000 compared to $184,000 during the three months ended March
31, 1996. The increase was largely attributable to higher average cash balances
for investment in 1997 compared to the same period in 1996.
Other revenue was $98,000 for the three months ended March 31, 1997.
The revenue represents proceeds from Small Business Innovation Research grants
awarded by the National Institutes of Health.
Research and development expenses were $3.1 million for the three
months ended March 31, 1997, and $2.4 million for the three months ended March
31, 1996. Expenses that resulted directly from the acquisition of RGene
Therapeutics Inc., specifically costs related to the continuation of the
acquired research, development and clinical programs, were largely responsible
for the increase in 1997. Additional factors that contributed to the increase
were a moderate increase in the level of preclinical research activities and
continued progression of the Company's clinical trial programs.
General and administrative expenses were $743,000 for the three
months ended March 31, 1997, and $617,000 for the three months ended March 31,
1996. The increase was primarily attributable to an increased level of corporate
development activities focused on the completion of additional corporate
collaborations.
8
<PAGE> 9
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed as a part of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
4.1 Warrant to purchase 50,000 shares of the Common Stock of
Targeted Genetics Corporation, issued to The Burnham
Institute on March 15, 1997.
27.1 Financial Data Schedule
</TABLE>
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TARGETED GENETICS CORPORATION
(Registrant)
Date May 9, 1997 /s/ H. STEWART PARKER
------------------- ---------------------------------------
H. Stewart Parker, Chief Executive
Officer (Principal Executive Officer)
Date May 9, 1997 /s/ JAMES A. JOHNSON
------------------- ---------------------------------------
James A. Johnson, Vice President,
Finance (Principal Financial and
Accounting Officer)
10
<PAGE> 11
Exhibit Index
4.1 Warrant to purchase 50,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to The Burnham Institute on March 15,
1997.
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 4.1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND LAWS.
TARGETED GENETICS CORPORATION
COMMON STOCK PURCHASE WARRANT
This certifies that for value received, THE BURNHAM INSTITUTE, or
registered assigns, is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof (subject to the
provisions of Section 1) and at or prior to 11:59 pm, Pacific time, on March 15,
2004 (the "Expiration Time"), but not thereafter, to acquire from TARGETED
GENETICS CORPORATION, a Washington corporation (the "Company"), in whole or from
time to time in part, up to a maximum of 50,000 fully paid and nonassessable
shares of Common Stock ("Warrant Stock") at a purchase price per share (the
"Exercise Price") of $4.50. Such number of shares, type of security and Exercise
Price are subject to adjustment as provided herein, and all references to
"Warrant Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment.
1. VESTING OF WARRANTS
The rights to purchase Warrant Stock pursuant to this Warrant shall vest
according to the following schedule:
(a) 16,667 shares of Warrant Stock immediately upon execution of a license
agreement for patent rights pertaining to (i) U.S. Patent Application, "Method
of Inhibiting Replication of Hyperproliferative Cells," Serial No. 07/960,112,
and Continuing Application 08/473,399, and (ii) U.S. Patent Application. "Method
of Sensitizing Tumor Cells with Adenovirus E1A," Serial No. 08/301,316;
(b) 16,666 shares of Warrant Stock upon successful completion of in vivo
animal studies (as described in Appendix A to the Sponsored Research Agreement,
dated as of March __, 1997, between the Company and the Burnham Institute)
demonstrating in vivo utility of E1A in non-HER-2/neu overexpressing tumor
cells; provided, however, that the right to purchase Warrant Stock pursuant to
this subsection (b) shall terminate if such studies are not completed by March
15, 1998; and
(c) 16,667 shares of Warrant Stock upon issuance of a U.S. Patent covering
in vivo applications of E1A in non-HER-2/neu overexpressing tumors cells, such
patent to be similar in scope with respect to in vivo claims as covered for in
vitro applications under U.S. Patent No. 5,516,631.
<PAGE> 2
2. EXERCISE OF WARRANT
Subject to the vesting requirements set forth in Section 1 hereof, the
purchase rights represented by this Warrant are exercisable by the registered
holder hereof, in whole or in part, at any time and from time to time at or
prior to the Expiration Time by the surrender of this Warrant and the Notice of
Exercise form attached hereto duly executed to the office of the Company at 1100
Olive Way, Suite 100, Seattle, Washington 98101 (or such other office or agency
of the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company), and
upon payment of the Exercise Price for the shares thereby purchased (by cash or
by check or bank draft payable to the order of the Company or by cancellation of
indebtedness of the Company to the holder hereof, if any, at the time of
exercise in an amount equal to the purchase price of the shares thereby
purchased); whereupon the holder of this Warrant shall be entitled to receive
from the Company a stock certificate in proper form representing the number of
shares of Warrant Stock so purchased.
3. SECURITIES ACT COMPLIANCE
As a condition of its delivery of the certificates for the Warrant Stock,
the Company may require the registered holder hereof (or the transferee, if any,
of the Warrant Stock in whose name the shares of Warrant Stock are to be
registered) to deliver to the Company, in writing, representations regarding the
purchaser's sophistication, investment intent, acquisition for his, her or its
own account and such other matters as are reasonable and customary for
purchasers of securities in an unregistered private offering and the Company may
place conspicuously upon each certificate representing shares of Warrant Stock a
legend substantially in the following form, the terms of which are agreed to by
the registered holder hereof (including any transferee of this Warrant or the
Warrant Stock):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE
SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (ii)
THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE
HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR
(iii) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
4. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP
Certificates for shares purchased hereunder shall be delivered to the
holder hereof within a reasonable time after the date on which this Warrant
shall have been exercised in accordance with the terms hereof. The Company
agrees that the shares so issued shall be, and be deemed to be, issued to such
holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been exercised in accordance with the
terms hereof. No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
fraction multiplied by the then current price at which each share may be
purchased hereunder shall be paid in cash or check to the holder of this
Warrant.
<PAGE> 3
5. CHARGES, TAXES AND EXPENSES
Issuance of certificates for shares of Warrant Stock upon the exercise of
this Warrant shall be made without charge to the holder hereof for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the holder of this Warrant or
in such name or names as may be directed by the holder of this Warrant;
provided, however, that in the event certificates for shares of Warrant Stock
are to be issued in a name other than the name of the holder of this Warrant,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the holder hereof.
6. NO RIGHTS AS SHAREHOLDER
This Warrant does not entitle the holder hereof to any voting rights or
other rights as a shareholder of the Company prior to the exercise hereof.
7. EXCHANGE AND REGISTRY OF WARRANT
This Warrant is exchangeable, upon the surrender hereof by the registered
holder at the above-mentioned office or agency of the Company, for a new Warrant
of like tenor and dated as of such exchange. The Company shall maintain at the
above-mentioned office or agency a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for exchange,
transfer or exercise, in accordance with its terms and subject to compliance
with applicable laws, at such office or agency of the Company, and the Company
shall be entitled to rely in all respects, prior to written notice to the
contrary, upon such registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon receipt of indemnity or security reasonably
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will make and deliver a new Warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
9. SATURDAYS, SUNDAYS AND HOLIDAYS
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday, then such action may be taken or such right may be exercised
on the next succeeding day not a legal holiday.
10. MERGER, SALE OF ASSETS, ETC.
If at any time the Company proposes to merge or consolidate with or into
any other corporation, effect any reorganization, or sell or convey all or
substantially all of its assets to any other entity, in a transaction in which
the shareholders of the Company immediately before the transaction will own
immediately after the transaction less than a majority of the outstanding voting
securities of the entity (or its parent) succeeding to the business of the
Company (each such transaction, a "corporate transaction"), then the Company
shall give the holder of this Warrant 20 days' prior written notice of the
proposed effective date of such corporate transaction. The holder of this
Warrant shall have the right, effective as
<PAGE> 4
of the consummation of such corporate transaction, to exercise this Warrant in
whole or in part whether or not the vesting requirements set forth herein have
been satisfied; provided, however, that this Warrant may not be exercised as to
any unvested portion if this Warrant is assumed by the successor entity (or its
parent) in the corporate transaction or replaced with a substantially equivalent
warrant (subject to the same vesting schedule as is contained in Section 1
hereof) for the purchase of an amount of securities of the successor entity (or
its parent) which the holder of this Warrant would have received in the
corporate transaction had the unexercised portion of this Warrant (including the
unvested portion) been exercised in full immediately prior thereto. If this
Warrant has not been exercised or assumed by or on the effective date of such
corporate transaction, it shall terminate.
11. RECLASSIFICATION, CONVERSION, ETC.
If the Company at any time shall, by reclassification of securities or
otherwise, change the Warrant Stock into the same or a different number of
securities of any class or classes, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Stock (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change) as the result of such change if
this Warrant had been exercised in full for cash immediately prior to such
change. The Exercise Price hereunder shall be adjusted if and to the extent
necessary to reflect such change. If the Warrant Stock or other securities
issuable upon exercise hereof are subdivided or combined into a greater or
smaller number of shares of such security, the number of shares issuable
hereunder shall be proportionately increased or decreased, as the case may be,
and the Exercise Price shall be proportionately reduced or increased, as the
case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Company shall give the holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
12. REPRESENTATIONS AND WARRANTIES
The Company hereby represents, warrants and covenants to the holder hereof
that:
(a) during the period this Warrant is outstanding, the Company will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Warrant Stock upon the exercise of this
Warrant;
(b) the issuance of this Warrant shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue, or cause to be issued, the necessary
certificates for the shares of Warrant Stock issuable upon exercise of this
Warrant;
(c) the Company has all requisite legal and corporate power to execute
and deliver this Warrant, to sell and issue the Warrant Stock hereunder and
perform its obligations under the terms of this Warrant;
(d) all corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Warrant by the Company, the authorization, sale, issuance
and delivery of the Warrant Stock and the performance of the Company's
obligations hereunder has been taken; and
<PAGE> 5
(e) the Warrant Stock, when issued in compliance with the provisions
of this Warrant and the Company's Articles of Incorporation and Bylaws, will be
validly issued, fully paid and nonassessable, and free of any liens or
encumbrances (other than liens or encumbrances created by or imposed upon the
holder of the Warrant Stock), and will be issued in compliance with all
applicable federal and state securities laws.
13. COOPERATION
The Company will not, by amendment of its Articles of Incorporation or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such reasonable action as may be necessary or appropriate in order
to protect the rights of the holder of the Warrant against material impairment.
14. GOVERNING LAW
This Warrant shall be governed by and construed in accordance with the laws
of the state of Washington.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer.
Dated: March 15, 1997
TARGETED GENETICS CORPORATION
By /s/ James A. Johnson
Title: Vice President, Finance
ACCEPTED: ____________, 1997
THE BURNHAM INSTITUTE
By /s/ Louis Coffman
Its Vice President
<PAGE> 6
NOTICE OF EXERCISE
To: Targeted Genetics Corporation
(1) The undersigned hereby elects to purchase __________ shares of
Common Stock of Targeted Genetics Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
--------------------------------
(Name)
--------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
(4) The undersigned accepts such shares of Common Stock subject to
the terms of the License Agreement, dated as of March 15, 1997, between Targeted
Genetics Corporation and The Burnham Institute.
- ----------------------------- -----------------------------------
(Date) (Signature)
<PAGE> 7
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
- --------------------------------------------------------------------------------
(Please Print)
whose address is
----------------------------------------------------------------
(Please Print)
Dated:
-------------------------------------
Holder's Signature:
------------------------
Holder's Address:
--------------------------
--------------------------------------------
Guaranteed Signature:
----------------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 892,618
<SECURITIES> 14,661,159
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,792,327
<PP&E> 9,908,943
<DEPRECIATION> 5,057,205
<TOTAL-ASSETS> 21,231,983
<CURRENT-LIABILITIES> 2,968,407
<BONDS> 0
0
0
<COMMON> 73,397,577
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,231,983
<SALES> 0
<TOTAL-REVENUES> 405,973
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,794,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,893
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,475,028)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
