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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NO. 0-23930
TARGETED GENETICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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WASHINGTON 91-1549568
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
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1100 OLIVE WAY, SUITE 100
SEATTLE, WA 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (206) 623-7612
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
WARRANTS FOR THE PURCHASE OF SHARES OF COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS, $.01 PAR VALUE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation SK is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
Indicate the aggregate market value of voting stock held by nonaffiliates
of the Registrant as of March 3, 1997: $69,785,575.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock as of March 3, 1997:
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TITLE OF CLASS NUMBER OF SHARES
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Common Stock, $.01 par value 20,161,434
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Proxy Statement for the Annual Meeting of Shareholders
to be held on May 7, 1997, are incorporated by reference into Part III of this
report.
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PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements within the following description of the business of
Targeted Genetics Corporation and elsewhere in this Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or acheivements of the Company, or industry results, to be
materially different from any future results, performance or acheivements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the following: technological uncertainty; results of
clinical trials; ability to obtain adequate financing in the future; uncertainty
regarding patents and proprietary rights; changes in, or failure to comply with,
governmental regulations; competition; rapid technological change; availability
of key personnel and scientific collaborators; ability to manufacture and market
products; and dependence on corporate collaborators. See "Factors Affecting
Forward-Looking Information".
OVERVIEW
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. The Company is using its core technology
platform to develop potential products for the treatment of various genetic
disorders, cancer and infectious 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
in vivo or ex vivo delivery. Accordingly, the Company is developing multiple
gene delivery systems based on three different vector technologies:
adeno-associated viral ("AAV"), non-viral and retroviral. 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.
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 ("Targeted CTLs").
This expertise forms the basis for a series of potential immunotherapies for the
treatment of infectious diseases and cancer. Targeted CTLs are 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.
Targeted Genetics is currently conducting or planning a number of clinical
trials based on its diversified technology platform, as shown in the following
table.
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PRODUCT DEVELOPMENT PROGRAMS
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CLINICAL TRIALS TECHNOLOGY GENE STATUS
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CYSTIC FIBROSIS
Maxillary sinus AAV vector CFTR Phase II
Lung/nose AAV vector CFTR Phase I
Lung -- aerosol AAV vector CFTR Preclinical
CANCER
Ovarian/breast non-viral vector E1A tumor suppressor Phase I
Head and neck/breast/lung non-viral vector E1A tumor suppressor Phase I
INFECTIOUS DISEASE
HIV Targeted CTLs -- Phase I
Hepatitis B Targeted CTLs -- Preclinical
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In addition to the product development programs summarized above, the
Company is performing research oriented toward identifying promising new
applications of its technology base. Also, the Company is collaborating with
certain academic researchers who are using its retroviral vectors in Phase I
clinical trials focused on Gaucher disease, melanoma and HIV infection.
PRODUCT DEVELOPMENT PROGRAMS
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
cystic fibrosis transmembrane regulator ("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.
tgAAV-CFTR. Based on preclinical findings by the Company and its scientific
collaborators, the Company believes that the persistence of expression and lack
of toxicity observed with its AAV-based gene delivery vector potentially make it
better suited than other types of vectors for delivery of the CFTR gene to the
lung. 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 in the lung for periods of up to six months with no observed side
effects. 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.
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 Company's AAV-CFTR product ("tgAAV-CFTR") has been granted orphan
drug status by the United States Food and Drug Administration (the "FDA").
The first clinical trial, which began in November 1995, is a Phase I
clinical trial at Johns Hopkins and the University of Florida in which
tgAAV-CFTR 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 16 patients. Two patients are being
treated at each of eight escalating dose levels. The tgAAV-CFTR is administered
in an open-label single dose to the right lower lobe of the lung via
bronchoscopy. Additionally, each patient is randomized to receive a single dose
of tgAAV-CFTR administered to one nostril and a placebo to the other. Patients
are 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 early 1997. If the results of
the trial confirm the Company's preclinical findings of safety and gene
transfer, the Company intends to conduct a subsequent clinical trial later in
1997 involving aerosol delivery of tgAAV-CFTR to the whole lung. The Company is
currently developing an aerosol formulation for testing in a toxicology study
prior to beginning the clinical trial.
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A second clinical trial began in December 1995 at Stanford University. This
trial was designed as a Phase I/II trial, pursuant to which tgAAV-CFTR is
administered to the maxillary sinuses of cystic fibrosis patients with chronic
sinusitis. The Phase I part of this trial, designed as a dose escalation study,
has been completed. A total of ten patients were enrolled, and 15 sinuses were
treated, in five cohorts receiving escalating doses. The results of the trial
indicate that tgAAV-CFTR is safe and well tolerated with no resulting
inflammatory response or other side effects, even after repeat delivery.
Furthermore, administration of tgAAV-CFTR resulted in consistent gene transfer
and, in one patient, persistence of the gene for at least 70 days after
treatment. Additionally, the dose level was established for the Phase II part of
the trial, in which up to 50 patients will receive tgAAV-CFTR in one sinus and a
placebo in the other. Patients in the Phase II trial will be monitored to assess
the ability of tgAAV-CFTR to prevent the relapse of chronic sinusitis. The Phase
II part of the trial began in February 1997.
Cancer
Cancer is the second leading cause of death in the United States, with over
one million new cases diagnosed each year. The Company's primary approach to the
treatment of cancer utilizes a proprietary non-viral delivery system to deliver
in vivo an E1A tumor suppressor gene to cancer cells. A second approach involves
the use of Targeted CTLs to enhance the immune system's natural ability to
eliminate cancer cells selectively.
tgDCC-E1A. Cancer arises when the genetic pathways that control normal cell
growth and division are disrupted. 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. 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 University of Texas M.D. Anderson Cancer
Center ("M.D. Anderson"), to function as a suppressor of the HER-2/neu oncogene,
which is known to be overexpressed in certain cancers. The Company has worldwide
rights to the use of the E1A gene as a tumor suppressor.
Overexpression of the HER-2/neu oncogene occurs in approximately 30% of
patients in 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 E1A was shown to inhibit the
intraperitoneal growth of ovarian cancer cells that were overexpressing the
HER-2/neu oncogene, and to increase significantly the long-term survival of the
mice.
Other research has suggested that E1A may have other tumor suppression
activity beyond the inhibition of HER2/neu expression. Preclinical in vitro
experiments have shown that E1A, when introduced to a variety of tumor cell
lines, is capable of altering tumor cells such that they appear to have
characteristics of normal cells. Furthermore, in vivo mouse studies involving
tumor cells not overexpressing HER-2/neu showed reduced tumor growth rates with
the administration of E1A versus the same tumor cells without E1A. E1A has also
been shown in preclinical studies to sensitize tumor cells to killing by certain
chemotherapeutic agents.
The Company's E1A product ("tgDCC-E1A") is a formulation that combines the
E1A tumor suppressor gene with the Company's proprietary non-viral gene delivery
system based on the cationic lipid DC cholesterol ("DC Chol"). In the Company's
first Phase I clinical trial, which began in July 1996 at M.D. Anderson, 12 to
24 patients with ovarian cancer and 12 to 24 patients with breast cancer having
tumors that overexpress the HER-2/neu oncogene are administered weekly doses of
tgDCC-E1A for up to six months. This trial is being conducted as an
interpatient, escalating dose study with doses of tgDCC-E1A 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. Two additional sites have
been added to the study and it is expected that this clinical trial will be
completed in 1997.
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A second Phase I clinical trial is expected to begin in early 1997 at M.D.
Anderson, in which 12 to 24 patients with nonoperable primary head or neck
tumors or metastatic breast or lung tumors are administered weekly doses of
tgDCC-E1A, injected directly into the patient tumor, for up to two months. The
trial is being conducted as an interpatient escalating dose study with two
patients in each cohort. The objectives of the trial are to assess safety,
levels of gene transfer and expression and tumor response. Two additional sites
are being added to the study and it is expected that this clinical trial will be
completed by the end of 1997.
In 1996, the Company entered into a license, research and marketing
agreement with Laboratoires Fournier S.C.A. ("Fournier") under which Fournier
received exclusive rights to develop and commercialize tgDCC-E1A in Europe. See
"Research and Development Collaborations."
Targeted CTLs. The Company has conducted certain preclinical experiments
directed to the isolation and ex vivo multiplication of CTLs specific to colon
tumor cells. Also, in conjunction with a recently completed
investigator-sponsored melanoma tumor vaccine clinical trial, the Company has
shown that it can generate CTLs specific to melanoma tumor cells, multiply these
CTLs in the REM process and use them to kill cancer cells in vitro. Based on
these and other experiments, the Company believes that a potentially effective
cancer therapy may be developed based on the infusion of large numbers of
Targeted CTLs that kill specific tumor cells. However, due to resource
constraints and also due to the Company's growing commitment to cancer therapy
using the E1A tumor suppressor, the Company will not pursue clinical trials of
Targeted CTLs for cancer unless a corporate collaboration in this area is
completed.
INFECTIOUS DISEASES
Human Immunodeficiency Virus ("HIV"). 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. 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 long-term treatment of HIV infection 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. 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 preventing progression to AIDS.
In early 1996, the Company began a Phase I clinical trial at the Fred
Hutchinson Cancer Research Center (the "Hutchinson Center") in which up to eight
HIV-infected patients are being administered five escalating doses of Targeted
CTLs specific to the HIV gag protein. The first three doses will consist of
unmarked cells and the last two will consist of cells modified with a retroviral
vector containing a marker gene. Patients in the trial will be monitored for
safety, persistence of the infused Targeted CTLs and changes in viral burden.
This trial is expected to be completed in 1997.
Hepatitis B. Hepatitis B virus ("HBV") is a disease of global significance,
with over 300 million carriers worldwide. HBV is the cause of up to 80% of cases
of primary liver cancer. Over 75% of the chronic carriers of HBV are in Asia. It
is estimated that 200,000 to 300,000 HBV infections occur annually in the United
States and that chronic infection develops in approximately 10% of those cases.
During acute HBV infection most patients develop a strong immune response
that is capable of clearing the virus. In contrast, the CTL response to HBV is
usually not detectable in chronically infected patients. The lack of core
specific CTL response may contribute to failure of virus elimination resulting
in chronic inflammation. Thus, the Company believes that restoring the immune
response by administering Targeted CTLs specific for HBV may provide an
effective means to treat patients with this chronic disease.
In 1997, the Company plans to take the necessary steps to adapt its
Targeted CTL technology to the treatment of HBV in preparation for a preclinical
study in which chimpanzees infected with HBV will be
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administered Targeted CTLs. The objective of the study, expected to begin in
late 1997, is to establish safety of the therapy and, potentially, obtain proof
of concept that HBV-specific Targeted CTLs may be promising as a treatment for
humans infected with HBV.
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 in vivo
or ex vivo delivery. Accordingly, the Company is developing multiple gene
delivery systems based on three different vector technologies: AAV, non-viral
and retroviral. 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 is
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 transfered genes and
may also allow targeted delivery in vivo.
In the area of cell therapy, the Company's expertise in isolating and
multiplying CTLs forms the basis for a series of potential immunotherapies.
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 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 cells 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.
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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.
The Company is building its 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 an issued patent
for use of a novel AAV vector for cystic fibrosis.
In addition to its 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. To date, the Company has focused its efforts in
this area to cells of the cardiovascular system and the gastrointestinal tract.
With the Company's newly increased capacity to manufacture AAV vectors for
preclinical research purposes, it plans to examine the use of AAV vectors in
additional cell types, both internally, to the extent resources are available to
do so, and through academic collaborators.
Non-Viral Vectors. The Company has exclusive 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. These non-viral 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 in
vivo as well as ex vivo. For in vivo use, these complexes can potentially be
delivered topically, intravenously, intraperitoneally, intrapleurally or by
aerosol.
The Company intends to develop a series of these non-viral delivery systems
originated by Dr. Leaf Huang of the University of Pittsburgh. His original DC
Chol system, which appears to have a favorable clinical toxicity profile, was
used in two clinical trials by unaffiliated investigators prior to the Company
using it in its tgDCC-E1A cancer clinical trials. The Company has acquired 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 the Company has obtained exclusive worldwide rights in the field of gene
therapy from the 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 gene transfer 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.
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Retroviral Vectors. The Company uses 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 transfer of genes to human blood cells such as T cells
and stem cells.
To date, the Company's internal efforts with retroviral vectors have been
primarily oriented toward improvements in the design, manufacture and methods of
using such vectors for gene transfer and expression. Additionally, the Company
has manufactured retroviral vectors for several investigator-sponsored clinical
trials. In one such clinical trial, peripheral blood stem cells were reinfused
into Gaucher disease patients after ex vivo transduction with the Company's
retroviral vectors containing the GC gene. The results of this clinical trial
have confirmed the Company's belief that current technology and know how related
to stem cell gene therapy must be improved in order to provide the increased
level of gene transfer and expression necessary to result in an effective
therapeutic product. Although the Company believes that retroviral vectors show
long-term promise for the ex vivo delivery of therapeutic genes, the Company's
only current effort internally in the area of retroviral vectors relates to the
process used to generate Targeted CTLs. Given this low level of internal
development activity related to retroviral vectors, the Company is pursuing
licensing arrangements for use of the PG13 vector for applications outside the
Company's interests.
TARGETED CTLS
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 infectious diseases 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.
Targeted CTL Cell Therapy. 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. In the Company's Targeted CTL program, antigen-specific
CTLs are isolated from a small sample of the patient's blood, multiplied to
large numbers ex vivo and then reinfused into the patient. In essence, these
Targeted CTLs are intended to amplify the natural disease-fighting function of
the immune system relating to specific infected or cancerous cells.
The Company believes that its Targeted CTL program represents an
improvement over other approaches to immunotherapy because it is based on
cloned, antigen-specific CTLs. The Company believes that Targeted CTLs 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
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profile may be improved over other immunotherapy approaches because of the
uniformity and consistency of the reinfused cells.
The Company's focus on Targeted CTLs 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 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. None of the 14 patients
receiving the CTLs developed CMV viremia or disease.
Rapid Expansion Method. The Targeted CTL 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 Targeted CTLs specific for HIV, CMV, malignant melanoma
and prostate tumor peptides. The Company has filed patent applications, on a
worldwide basis, relating to the original REM process and to subsequent process
improvements.
RESEARCH AND DEVELOPMENT COLLABORATIONS
LABORATOIRES FOURNIER S.C.A.
In May 1996, the Company and Fournier entered into a license, research and
marketing agreement under which Fournier received exclusive rights to develop
and commercialize in Europe tgDCC-E1A and any other product candidates based on
the E1A tumor suppressor gene and developed pursuant to the agreement. Fournier
has agreed to coordinate development of tgDCC-E1A in Europe by conducting
clinical trials, preparing and filing submissions for regulatory approval in its
territory and paying all associated costs, while the Company has corresponding
responsibilities with respect to development and commercialization in the United
States.
Fournier has paid a $5 million upfront license fee and $1.5 million of
milestone payments through the end of 1996. The agreement provides that Fournier
will make additional milestone payments to the Company upon the achievement of
specified goals by Fournier or the Company and royalties on sales of resulting
products, if any. In addition, if the parties are able to negotiate a mutually
acceptable supply agreement, the Company will be entitled to manufacture
products for Fournier in return for manufacturing fees. Pursuant to the
agreement, the Company has agreed to indemnify Fournier with respect to claims
incurred as a result of the manufacture, supply or sale of tgDCC-E1A. The
agreement may be terminated if the parties mutually agree on or about the second
anniversary of the agreement that the results of the collaboration are
unsatisfactory.
PASTEUR MERIEUX
In December 1995, the Company entered into an agreement with Pasteur
Merieux pursuant to which Pasteur Merieux was granted 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, Pasteur Merieux paid a process development fee and an upfront license
fee. In addition, the Company may receive milestone payments upon realization of
certain benchmarks and a royalty on sales of the products, if any, incorporating
the underlying technology.
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RELATIONSHIP WITH IMMUNEX CORPORATION
Targeted Genetics was formed in 1989 as a subsidiary of Immunex Corporation
("Immunex"), a biotechnology company developing immunoregulatory proteins as
therapeutics. In February 1992, Targeted Genetics and Immunex entered into a
technology license agreement. In exchange for shares of Preferred Stock, which
were converted into 1,920,000 shares of Common Stock at the time of the
Company's initial public offering, Immunex granted a worldwide, exclusive field
of use license to Targeted Genetics for certain Immunex proprietary technology
specifically applicable to Targeted Genetics' gene therapy business. The
technology transferred from Immunex to Targeted Genetics relates to gene
identification and cloning, panels of retroviral vectors, packaging cell
technology, recombinant cytokines, DNA constructs, cell lines, promoter/enhancer
elements and immunological assays. In addition, until February 1999, the Company
has the option to acquire a nonexclusive, worldwide, fully paid royalty-free
license (and in certain cases an opportunity to negotiate the conversion of a
nonexclusive license into an exclusive license) for certain additional
technology relating to Targeted Genetics' gene therapy business. Targeted
Genetics granted to Immunex a right of first offer and a 30-day right of first
refusal on technology the Company intends to out-license that is based on
Immunex technology. The Company may accept or reject any offers made by Immunex
under such rights. Immunex currently owns approximately 13% of the Company's
outstanding common stock.
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
39 patent applications relating to its product and technology development
programs with the United States Patent and Trademark Office (the "USPTO"), as
well as foreign counterparts of certain of these applications in Europe, Japan
and certain other countries. Of these patent applications, 5 patents have been
issued or allowed by the USPTO.
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.
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
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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 Company'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 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.
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,
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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.
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 Investigational New
Drug application ("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
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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 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 recently amended its regulations to eliminate the ELA requirement
for therapeutic DNA plasmid products, therapeutic synthetic peptide products of
40 or fewer amino acids, monoclonal antibody products for in vivo use, and
therapeutic recombinant DNA-derived products. Manufacturers of these products
will instead be required to submit a biologics license application, which will
include, among other information, nonclinical and clinical data demonstrating
that the manufactured product meets prescribed standards for safety, purity and
potency, and information pertaining to manufacturing methods. It is unclear
whether any of the Company's products will fall within the category of products
for which the ELA requirement has been eliminated, or what effect such
elimination may have on product development and FDA review.
The FDA requires that manufacturers of a product comply with current Good
Manufacturing Practices ("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.
HUMAN RESOURCES
At December 31, 1996, Targeted Genetics had 88 employees; 69 of these
employees were directly involved in research and development, of whom 17 had
Ph.D. or M.D. degrees. A significant number of the
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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.
EXECUTIVE OFFICERS
The following are the executive officers of Targeted Genetics who 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 41 President, Chief Executive Officer and Director
Barrie J. Carter, Ph.D. 52 Executive Vice President and Director of Research
and Development
Richard Daifuku, M.D., Ph.D. 44 Vice President, Clinical Affairs
James A. Johnson 40 Vice President, Finance, Chief Financial Officer,
Treasurer and Secretary
</TABLE>
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 ("Receptech"),
from February 1991 to January 1993. She received her B.A. and M.B.A. from the
University of Washington.
BARRIE J. CARTER 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 and Digestive and Kidney Diseases from 1982 to 1992. 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. He then 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 Human
Gene Therapy and Molecular Therapeutics: Gene Therapy & Oligonucleotides and as
an Associate Editor of Virology. Since 1995, he has been an Affiliate Professor
of Medicine at the University of Washington Medical School.
RICHARD DAIFUKU joined the Company in January 1995 as Vice President,
Clinical Affairs. Prior to that, 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 since February 1990. While at Immunex, Mr. Johnson
served as Treasurer of Targeted Genetics from its inception in 1989. From
November 1989 to
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January 1993, he also served as Treasurer and Assistant Secretary of Receptech.
He received his B.A. from the University of Washington.
FACTORS AFFECTING FORWARD-LOOKING INFORMATION
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. Prior to any commercial use, these
potential products will require significant additional research and development,
extensive clinical testing and regulatory approval. There can be no assurance
that the Company's efforts to develop, test and gain regulatory approval of its
potential products will be successful.
History of Losses and Uncertainty of Future Results. Targeted Genetics is a
development stage company and has generated minimal revenues and significant net
losses since inception. The Company expects to incur substantial additional
losses over at least the next several years. To achieve profitable operations,
Targeted Genetics, alone or with corporate collaborative partners, must
successfully develop, manufacture, obtain regulatory approvals and market its
potential products. There can be no assurance that the Company's efforts in
these areas will be successful.
Uncertainties Relating to Clinical Trials. Existing data on the safety and
efficacy of gene and cell therapy treatments are very limited. There can be no
assurance that clinical trials of the Company's potential products will
demonstrate safety and efficacy. Furthermore, there can be no assurance that the
Company will not encounter unacceptable side effects or other problems in
clinical trials of its potential products that will cause the Company to delay
or discontinue development of such products. The rate of completion of the
Company's clinical trials depends on, among other factors, the rate of patient
enrollment. Delays in patient enrollment may result in increased costs, delays
or termination of clinical trials.
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 the development and
commercialization of its potential products. Adequate funds, 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 the Company. If additional funds are raised
by issuing equity securities, dilution to existing shareholders may result. 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. Furthermore, if at any time the Company's funds are depleted, the
Company may be required to cease operations.
Uncertainty of Patent Position and Proprietary Rights. 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. There can be no assurance that any
patent application relating to the technology used by the Company will result in
a patent being issued or that, if issued, the patent will afford protection
against competitors. 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. If the Company
becomes involved in patent 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. 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. 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. See "Business -- Patents and Proprietary Rights."
Uncertainty of Governmental Regulatory Requirements; Lengthy Approval
Process. 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. There can be no
assurance that the Company will be able to obtain the necessary regulatory
approvals for manufacturing or
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marketing any of its product candidates. Even if regulatory approval of a
potential product is obtained, 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. 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.
See "Business -- Governmental Regulation."
Dependence on Corporate Collaborators. The Company will depend to a
significant extent on collaborative partners, licensees or other entities for
development, manufacturing and commercialization of its potential 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 would be controlled by such partners. Furthermore, there can be
no assurance that present or future collaborators will not pursue existing or
alternative technologies in preference to potential products being developed in
collaboration with the Company.
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. Many of these 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. Consequently, the Company's competitors may succeed in commercializing
products more rapidly than the Company. The Company's competitors may also
manufacture and market competitive products more successfully than the Company's
potential products. Such developments could render the Company's potential
products less competitive or obsolete. See "Business -- Competition."
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. Rapid technological development could result in actual and
proposed technologies, products or processes of the Company becoming obsolete
prior to successful commercialization.
Dependence on Key Personnel and Scientific Collaborators. The Company's
success will depend in large part on its ability to attract and retain key
employees and scientific collaborators. There can be no assurance that the
Company will be successful in retaining its existing personnel or in attracting
additional qualified employees. The Company also depends on the continued
availability of outside scientific collaborators who perform research in certain
areas relevant to the Company's research. There can be no assurance that the
Company will be successful in maintaining its relationships with scientific
collaborators, or that inventions or processes developed by the Company's
collaborators will become the property of the Company.
No Commercial Manufacturing or Marketing Capability. The Company's current
facilities and staff will need to be expanded, or supplemented through the use
of contract providers, for large-scale clinical or commercial production of its
potential products. 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. There can be no assurance that the
Company will be successful in obtaining the necessary manufacturing or marketing
capabilities. Furthermore, 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.
Hazardous Materials; Environmental Matters. 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 applicable 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.
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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 have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 2. PROPERTIES
Targeted Genetics currently occupies approximately 33,000 square feet of
laboratory and office space in a single facility in Seattle, Washington. The
lease expires on April 1, 1999 and includes options to extend the lease term for
three consecutive five-year periods. The average annual rent payment during the
initial term of the lease is approximately $408,000. In 1996, the Company
entered into a lease for approximately 4,700 square feet of office space in an
office complex adjoining its primary facility. The lease expires on March 31,
2004 and includes options to extend the lease term for two consecutive five-year
periods. The average annual rent payment during the initial term of the lease is
approximately $95,000. The Company believes its current facilities, together
with approximately 2,000 square feet of expansion space remaining in its primary
facility and additional expansion space available in the adjoining office
complex, will be adequate to meet its projected needs for the next several
years. Within that time frame, the Company may be required to locate alternative
facilities, depending on the Company's growth and development.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of its fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol TGEN. At March 1, 1997, there were approximately 1,400 holders of the
Company's common stock. The Company has never paid cash dividends and does not
anticipate paying them in the foreseeable future. The following table sets forth
for each calendar quarter indicated, the high and low sale prices for the
Company's common stock.
<TABLE>
<S> <C> <C>
1995
1st Quarter........................................... $ 6 3/8 $ 3 7/8
2nd Quarter........................................... 5 5/8 3 1/2
3rd Quarter........................................... 6 1/2 3 5/8
4th Quarter........................................... 5 5/8 3 3/4
1996
1st Quarter........................................... $ 7 1/4 $ 4
2nd Quarter........................................... 6 1/4 3 7/8
3rd Quarter........................................... 5 2 7/8
4th Quarter........................................... 5 1/4 3 1/2
</TABLE>
On February 21, 1996, the Company issued to Lehman Brothers, Inc. an
aggregate of 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 (the
"Securities
18
<PAGE> 19
Act"). On June 19, 1996, the Company issued 3,636,364 shares of its common stock
in connection with the merger of a wholly-owned subsidiary of the Company into
RGene Therapeutics, Inc. ("RGene"). Such shares were issued to the former
shareholders of RGene in a transaction not involving a public offering and
therefore exempt pursuant to Section 4(2) of the Securities Act and Rule 506
promulgated thereunder. On December 20, 1996, the Company issued 16,000 shares
of its common stock to the University of Pittsburgh as partial consideration for
rights granted to the Company under a license agreement. Such shares were issued
in a transaction not involving a public offering and therefore exempt pursuant
to Section 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues............................... $ 2,254,178 $ 842,460 $ 448,822 $ 412,076 $ 548,549
Expenses............................... 28,292,220 10,764,744 8,848,167 5,477,588 1,943,011
Net loss............................... (26,038,042) (9,922,284) (8,399,345) (5,065,512) (1,394,462)
Net loss per share..................... (1.59) (.94) (1.40) N.M.(1) N.M.(1)
FINANCIAL CONDITION
Cash, cash equivalents and securities
available for sale................... $ 19,051,070 $14,442,562 $11,474,787 $ 6,797,182 $15,266,485
Total assets........................... 25,139,052 19,960,460 17,045,881 12,115,184 15,876,914
Long-term obligations, including
current portion...................... 3,378,420 3,286,508 2,837,370 1,184,706 14,659
Shareholders' equity................... 19,507,788 15,772,836 13,242,145 12,115,184 15,296,537
</TABLE>
- ---------------
(1) Per share amounts are not meaningful.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Targeted Genetics Corporation, a development stage company, was
incorporated in March 1989 as a wholly owned subsidiary of Immunex Corporation.
The Company's activities were carried out as a project within Immunex through
December 31, 1991. In 1992, the Company began to operate independently from
Immunex and raised $16.6 million, net of expenses, in a private placement of
preferred stock. Through public offerings, the Company has raised an additional
$38.4 million. In June 1996, the Company completed a merger with RGene
Therapeutics, Inc. ("RGene"), a privately-held biotechnology company. Currently,
the Company's only significant revenue sources are a research and development
collaborative agreement and interest income earned on investments. The Company
has generated an accumulated deficit of $53.6 million through December 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.
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
19
<PAGE> 20
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. 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.
RESULTS OF OPERATIONS
For the year ended December 31, 1996, revenue under collaborative
agreements increased to $1.2 million from $75,000 for the year ended December
31, 1995. The increase primarily resulted from receipt of milestone payments
totaling $1.5 million net of $375,000 of royalty and other such payments due as
a result of receiving such milestone payments under the Company's collaborative
agreement with Laboratoires Fournier S.C.A. The milestones were earned through
the enrollment of patients in a U.S. clinical trial for the treatment of breast
and ovarian cancer and through completion of certain related regulatory
activities. This agreement provides for additional milestone-based payments in
the future; however, there can be no assurance that such milestones will be
achieved.
Investment income increased each year over the three-year period ended
December 31, 1996. The increases in both 1996 and 1995 were attributable to a
higher average investment balance during the year and higher rates of return on
those balances.
Research and development expenses have steadily increased over the three
years ended December 31, 1996. Contributing to the $3.3 million increase in 1996
expense was approximately $1.6 million related to the RGene merger and
continuation of the acquired research, development and clinical programs. Of
this amount, approximately $1.3 million represented recurring, routine charges
related to the RGene technology, and approximately $300,000 represented
non-recurring employee termination payments. Also contributing to the increase
in expenses in both 1996 and 1995 were a moderate increase in the level of
expenses supporting the advancement of clinical, manufacturing process
development and regulatory programs, as well as additional employees and related
expenses in preclinical immunology. Research and development expenses are
expected to increase in the future, primarily resulting from increased clinical
trial activity. Continued growth, however, is dependent on the availability of
capital.
A one-time expense resulting from the acquisition of RGene was charged
against income in 1996. Of the total RGene purchase price, $13.5 million was
written-off in the second quarter to in-process research and development
expense.
General and administrative expenses increased to $2.9 million for the year
ended December 31, 1996, compared with $2.3 million and $1.9 million for the
years 1995 and 1994, respectively. The increase in 1996 general and
administrative expenses included $338,000 incurred as a result of the RGene
acquisition. These expenses were non-recurring in nature, with no expected
impact on future periods. Other factors contributing to the increases in 1996
and 1995 expenses were increases in business development and investor relations
activities and, to a lesser extent, modest growth in administrative staff.
Interest expense increased to $397,000 for the year ended December 31,
1996, compared to $302,000 and $193,000 for the years 1995 and 1994,
respectively. This expense item relates to equipment financing transactions. The
increase each year is due to an increase in the amount of equipment purchases
financed. The Company expects that it will continue to finance equipment
purchases, if favorable terms are available.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had cash, cash equivalents and securities
available for sale totaling $19.1 million, compared to $14.4 million at December
31, 1995. The increase was primarily attributable to the completion of a public
stock offering and the cash held by RGene at the time of its acquisition in June
1996. The stock offering resulted in net proceeds of $14.6 million and the
acquisition resulted in net cash received of
20
<PAGE> 21
$1.6 million. The Company also completed equipment financing transactions
totaling $1.1 million during 1996. Offsetting these increases, the Company used
$10.4 million to fund its operations, $1.7 million for purchases of equipment,
facility expansion and acquisition of technology and $1.0 million for payments
under equipment leases and notes.
The Company expects that its cash needs will continue to increase in future
periods due to expansion of research and development programs, including those
programs acquired as a result of the RGene merger, 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
be affected by a number of factors, as described above in the section entitled
"Risks and Uncertainties".
The Company estimates that at its current rate of spending, its existing
cash, cash equivalents and securities available for sale will be sufficient to
meet capital requirements at least through the end of 1997. The Company intends
to strengthen its cash position by entering into agreements with corporate
partners that would provide license fees, research and development funding and,
potentially, equity investment. 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. Also, up to
approximately $3.6 million of additional capital would be provided if warrant
holders were to exercise approximately 770,000 outstanding warrants expiring in
July 1997 and having an exercise price of $4.68. Depending on market conditions,
the Company may also seek additional sources of public or private equity
capital. Any additional funding received by the Company from any of these
potential sources would be expected to extend the period over which the
Company's cash resources would fund its capital requirements. There can be no
assurance, however, that the warrants will be exercised or that adequate funds
will be available when needed or will be available on terms favorable to the
Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE IN
FORM 10-K
---------
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and 1995......................... 22
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995, and 1994 and for the period from March 9, 1989 (date of
inception) through December 31, 1996............................................ 23
Consolidated Statement of Shareholders' Equity for the period from March 9, 1989
(date of inception) through December 31, 1996................................... 24
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995,
and 1994 and for the period from March 9, 1989 (date of inception) through
December 31, 1996............................................................... 25
Notes to Consolidated Financial Statements........................................ 26 - 33
Report of Ernst and Young LLP, Independent Auditors............................... 34
</TABLE>
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 3,532,568 $ 2,154,814
Securities available for sale................................... 15,518,502 12,287,748
Prepaid expenses and other...................................... 468,671 196,150
----------- -----------
Total current assets......................................... 19,519,741 14,638,712
Property, plant and equipment, net................................ 4,991,017 4,959,502
Other assets...................................................... 628,294 362,246
----------- -----------
$25,139,052 $19,960,460
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 1,887,880 $ 564,403
Accrued payroll and other liabilities........................... 364,964 336,713
Current portion of long-term obligations........................ 1,250,263 881,210
----------- -----------
Total current liabilities.................................... 3,503,107 1,782,326
Long-term obligations............................................. 2,128,157 2,405,298
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,
20,136,468 and 12,317,183 outstanding at December 31, 1996
and 1995, respectively....................................... 73,115,362 43,295,436
Unrealized gains on securities available for sale............... 19,387 66,319
Deficit accumulated during development stage.................... (53,626,961) (27,588,919)
----------- -----------
Total shareholders' equity................................... 19,507,788 15,772,836
----------- -----------
$25,139,052 $19,960,460
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9, 1989
(DATE OF
YEAR ENDED DECEMBER 31, INCEPTION)
-------------------------------------------- THROUGH
1996 1995 1994 DECEMBER 31, 1996
------------ ----------- ----------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Collaborative agreements........ $ 1,202,965 $ 75,000 $ -- $ 1,277,965
Investment income............... 923,720 667,835 448,822 3,001,002
Other........................... 127,493 99,625 -- 227,118
------------ ----------- ----------- ------------
Total revenues.......... 2,254,178 842,460 448,822 4,506,085
------------ ----------- ----------- ------------
Expenses:
Research and development........ 11,502,584 8,194,913 6,763,549 34,273,704
In-process research and
development.................. 13,517,911 -- -- 13,517,911
General and administrative...... 2,874,316 2,267,516 1,891,947 9,449,036
Interest........................ 397,409 302,315 192,671 892,395
------------ ----------- ----------- ------------
Total expenses.......... 28,292,220 10,764,744 8,848,167 58,133,046
------------ ----------- ----------- ------------
Net loss.......................... $(26,038,042) $(9,922,284) $(8,399,345) $ (53,626,961)
============ =========== =========== ============
Net loss per share................ $ (1.59) $ (0.94) $ (1.40)
============ =========== ===========
Shares used in computation of net
loss per share.................. 16,407,928 10,532,950 6,005,141
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM MARCH 9, 1989 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAINS DEFICIT
(LOSSES) ACCUMULATED
COMMON STOCK ADVANCES ON SECURITIES DURING TOTAL
PREFERRED ------------------------ FROM AVAILABLE FOR DEVELOPMENT SHAREHOLDERS'
STOCK SHARES AMOUNT IMMUNEX SALE STAGE EQUITY
------------ ---------- ----------- ----------- ------------- ------------ -------------
<S> <C> <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 common stock..... -- 1,080,000 27,600 -- -- -- 27,600
Issuance of 1,920,000
shares of Series A
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 common stock
as compensation........ -- 120,000 66,000 -- -- -- 66,000
Net loss -- 1992......... -- -- -- -- -- (1,394,462) (1,394,462)
------------ ---------- ----------- ----------- ------------- ------------ -------------
Balance at December 31,
1992..................... 19,404,715 1,200,000 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 1,200,000 93,600 -- -- (9,267,290) 10,231,025
Sale of common stock in
initial public
offering, net of
issuance costs of
$1,404,056............. -- 2,154,345 11,522,014 -- -- -- 11,522,014
Conversion of Series A
and B preferred stock
to common stock........ (19,404,715) 5,595,986 19,404,715 -- -- -- --
Exercise of stock
options................ -- 8,500 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..................... -- 8,958,831 31,024,884 -- (116,104) (17,666,635) 13,242,145
Sale of common stock and
830,598 warrants, net
of issuance costs of
$214,519............... -- 3,322,392 12,244,461 -- -- -- 12,244,461
Exercise of stock
options................ -- 35,960 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..................... $ -- 12,317,183 $43,295,436 $ -- $ 66,319 $(27,588,919) $ 15,772,836
Sale of common stock, net
of issuance costs of
$1,476,779............. -- 4,025,000 14,623,221 -- -- -- 14,623,221
Issuance of common stock
in RGene acquisition... -- 3,636,364 14,854,546 -- -- -- 14,854,546
Exercise of stock
options................ -- 78,460 44,179 -- -- -- 44,179
Exercise of warrants..... -- 61,000 285,480 -- -- -- 285,480
Issuance of common stock
in payment for
consulting and license
fees................... -- 18,461 12,500 -- -- -- 12,500
Unrealized losses on
securities available
for sale............... -- -- -- -- (46,932) -- (46,932)
Net loss -- 1996......... -- -- -- -- -- (26,038,042) (26,038,042)
------------ ---------- ----------- ----------- ------------- ------------ -------------
Balance at December 31,
1996..................... $ -- 20,136,468 $73,115,362 $ -- $ 19,387 $(53,626,961) $ 19,507,788
============= ========== ============ ============ ============= ============== =============
</TABLE>
24
<PAGE> 25
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
MARCH 9, 1989
YEAR ENDED DECEMBER 31, (DATE OF INCEPTION)
------------------------------------------ THROUGH
1996 1995 1994 DECEMBER 31, 1996
------------ ------------ ------------ --------------------
<S> <C> <C> <C> <C>
Operating activities:
Net loss........................... $(26,038,042) $ (9,922,284) $ (8,399,345) $(53,626,961)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Expenses paid with common
stock......................... 12,500 -- -- 78,500
In-process research and
development................... 12,867,986 -- -- 12,867,986
Depreciation and amortization... 1,919,510 1,484,549 1,264,848 5,082,391
Increase in prepaid expenses and
other......................... (201,575) (49,865) (161,827) (496,865)
Increase in accrued interest on
securities available for
sale.......................... (72,570) (9,287) (29,750) (155,498)
Increase (decrease) in current
liabilities................... 1,141,275 (17,955) 88,493 1,911,266
------------ ----------- ----------- ------------
Net cash used in operating
activities............... (10,370,916) (8,514,842) (7,237,581) (34,339,181)
Investing activities:
Purchases of property, plant and
equipment....................... (1,542,594) (1,335,876) (885,604) (8,713,191)
Purchases of securities available
for sale........................ (23,574,123) (13,047,852) (12,990,428) (78,664,645)
Sales of securities available for
sale............................ 20,369,007 10,119,622 9,369,127 63,321,027
Net cash received in RGene
acquisition..................... 1,594,386 -- -- 1,594,386
Increase in other assets........... (145,000) (76,500) (177,500) (719,179)
------------ ----------- ----------- ------------
Net cash used in investing
activities............... (3,298,324) (4,340,606) (4,684,405) (23,181,602)
------------ ----------- ----------- ------------
Financing activities:
Advances from Immunex.............. -- -- -- 2,807,316
Net proceeds from sale of capital
stock........................... 14,952,880 12,270,552 11,526,569 55,375,000
Proceeds from equipment financing
transactions.................... 1,097,588 1,089,789 1,950,391 4,943,882
Payments under capital leases and
installment loans............... (1,003,474) (657,058) (412,315) (2,072,847)
------------ ----------- ----------- ------------
Net cash provided by
financing activities..... 15,046,994 12,703,283 13,064,645 61,053,351
------------ ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................... 1,377,754 (152,165) 1,142,659 3,532,568
Cash and cash equivalents, beginning
of period.......................... 2,154,814 2,306,979 1,164,320 --
------------ ----------- ----------- ------------
Cash and cash equivalents, end of
period............................. $ 3,532,568 $ 2,154,814 $ 2,306,979 $ 3,532,568
============ =========== =========== ============
Supplemental disclosures of non-cash
investing and financing activities:
Deferred sales tax on leasehold
improvements and equipment...... $ -- $ 16,407 $ 114,589 $ 509,588
============ =========== =========== ============
Preferred stock issued to Immunex
in payment of advances.......... $ -- $ -- $ -- $ 2,807,316
============ =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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, 1996,
Immunex held 13% 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 at least through the end of 1997.
Accordingly, the Company is pursuing 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
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All intercompany transactions and balances have
been eliminated in consolidation.
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 as a
component of 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.
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 three 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.
26
<PAGE> 27
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Stock Compensation
In adopting the provisions of Statement of Financial Accounting Standards
(SFAS) No. 123 "Accounting for Stock-Based Compensation," the Company has
elected to apply the disclosure-only provisions and related interpretations for
accounting for its stock option plans. The Company does not recognize any
compensation expense related to the plans since all options are granted at fair
market value on the date of grant.
Revenue Under Collaborative Agreements
Revenue under collaborative agreements is recognized as defined under the
terms of the respective collaborative agreements. Revenue related to milestones
is recognized upon the achievement of the related milestone and when collection
is probable. Royalty payments and other similar payments due as a direct result
of such revenues being earned and received are offset against and recognized in
the same period as such revenue.
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 through March 31, 1994.
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.
Reclassification
Certain reclassifications have been made to prior year financial statements
to conform to the current year presentation.
27
<PAGE> 28
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SECURITIES AVAILABLE FOR SALE
Securities available for sale consisted of the following:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. corporate securities...... $ 3,905,454 $ 4,311 $ 4,665 $ 3,905,100
U.S. Treasury securities and
obligations of U.S.
government agencies......... 11,593,661 26,686 6,945 11,613,402
----------- ------- ------- -----------
$15,499,115 $ 30,997 $ 11,610 $15,518,502
=========== ======= ======= ===========
December 31, 1995:
U.S. corporate securities...... $ 2,473,549 $ 8,803 $ -- $ 2,482,352
U.S. Treasury securities and
obligations of U.S.
government agencies......... 9,747,880 57,516 -- 9,805,396
----------- ------- ------- -----------
$12,221,429 $ 66,319 $ -- $12,287,748
=========== ======= ======= ===========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$27,300, $25,047 and $15,901, and the gross realized losses totaled $1,097,
$48,013, and $55,576 in 1996, 1995, and 1994, respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Furniture and equipment............................. $5,248,913 $3,862,632
Leasehold improvements.............................. 4,420,590 3,948,678
---------- ----------
9,669,503 7,811,310
Less accumulated depreciation and amortization...... 4,678,486 2,851,808
---------- ----------
$4,991,017 $4,959,502
========== ==========
</TABLE>
The Company has leased furniture and equipment, primarily laboratory
equipment, under four capital leases. The total cost of furniture and equipment
leased at December 31, 1996 and 1995 was $3,796,152 and $2,655,998,
respectively, with related accumulated depreciation of $1,840,284 and $1,076,712
at December 1996 and 1995, respectively.
At December 31, 1996, the Company had pledged furniture and equipment,
having a net book value of $474,428, as collateral under an installment loan
agreement.
28
<PAGE> 29
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Deferred state sales tax............................ $ 467,540 $ 509,588
Installment note payable, effective rate of 16.73%,
due in monthly installments through 1999.......... 634,609 822,214
Capitalized lease obligations (see note 8).......... 2,276,271 1,954,706
---------- ----------
3,378,420 3,286,508
Less current portion................................ 1,250,263 881,210
---------- ----------
$2,128,157 $2,405,298
========== ==========
</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 remaining obligation is payable over the next four years.
Principal payments related to long-term obligations for each of the five
years ending December 31, 2001 are $1,250,263, $898,792, $764,904, $355,542, and
$0, respectively.
6. SHAREHOLDERS' EQUITY
Warrants
In July 1995, the Company issued warrants to purchase 830,598 shares in
conjunction with an offering of its common stock. At December 31, 1996, 769,598
of such warrants were outstanding and 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. These warrants have a weighted average price of
$6.00 per share and expire from May 1999 to December 2003. At December 31, 1996,
831,614 shares of common stock were reserved for all such warrants.
Shareholder Rights Plan
In October 1996, the Company adopted a Shareholder Rights Plan under which
it distributed a dividend of one right for each outstanding share of common
stock. The issuance of these rights had no dilutive effect, did not impact
reported earnings per share and is not taxable to the Company or the Company's
shareholders. These rights could cause substantial dilution to certain persons
or groups that attempt to acquire the Company on terms not approved by the Board
of Directors.
Stock Options
The Company has two stock option plans under which 2,120,000 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 the estimated fair value at the date of
grant as established by the Company's Board of Directors. As of December 31,
1996, options on 782,666 shares were available for future grant.
29
<PAGE> 30
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of activity related to the Company's stock option plans follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance, January 1, 1994....................... 441,200 $ 0.53
Granted...................................... 411,100 4.47
Exercised.................................... (8,500) 0.54
Cancelled.................................... (5,800) 4.17
---------- -----
Balance, December 31, 1994..................... 838,000 2.44
Granted...................................... 253,237 4.09
Exercised.................................... (35,960) 0.73
Cancelled.................................... (22,860) 4.00
---------- -----
Balance, December 31, 1995..................... 1,032,417 2.87
Granted...................................... 332,157 4.86
Exercised.................................... (78,460) 0.56
Cancelled.................................... (71,700) 2.67
---------- -----
Balance, December 31, 1996..................... 1,214,414 $ 3.57
==========
</TABLE>
Options for 390,884, 268,620, and 130,700 shares were exercisable at
December 31, 1996, 1995, and 1994, respectively. The following table summarizes
information related to outstanding and exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------- EXERCISABLE
WEIGHTED --------------------
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE
EXERCISE PRICES SHARES PRICE LIFE SHARES PRICE
- --------------- --------- -------- ---------------- ------- --------
<S> <C> <C> <C> <C> <C>
$ .50 - $2.50 364,120 $ .91 6.29 220,600 $ .78
4.00 - 4.88 369,337 4.16 8.64 55,144 4.08
5.00 - 6.25 480,957 5.14 8.22 115,140 5.18
- --------------- --------- ------ ---- ------- ------
$ .50 - $6.25 1,214,414 $ 3.57 7.77 390,884 $ 2.54
========= =======
</TABLE>
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation". In
conformity with the provisions of SFAS No. 123, the Company has elected to
follow the intrinsic value method allowed under the statement for its stock
option plans and present pro forma disclosures using the fair value accounting
approach. Had compensation costs been recorded, the following amounts would have
been reported:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net loss -- as reported......................... $(26,038,042) $ (9,922,284)
Net loss -- pro forma........................... (26,558,542) (10,156,530)
Net loss per share -- as reported............... (1.59) (.94)
Net loss per share -- pro forma................. (1.62) (.96)
</TABLE>
30
<PAGE> 31
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of each option is estimated on the date of grant using the
Black-Scholes multiple-option approach pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Expected dividend rate.................................... nil nil
Expected stock price volatility........................... .664 .664
Risk-free interest rate................................... 6.03% 7.16%
Expected life of options from vest date................... 3 years 3 years
</TABLE>
The weighted average fair value of options granted during 1996 and 1995 was
$3.11 and $2.64, respectively, per share.
7. ACQUISITION OF RGENE THERAPEUTICS, INC.
On June 19, 1996, the Company completed its acquisition of RGene
Therapeutics, Inc. ("RGene"), a privately-held gene therapy company. The Company
issued 3,636,364 shares of common stock in exchange for all the outstanding
capital stock of RGene at approximately $4.08 per share. The shares are
currently unregistered but the company has agreed to register 50 percent of the
shares issued in the merger one year from the date of closing.
The acquisition was accounted for as a purchase and the consideration
issued by the company was allocated to tangible and intangible assets acquired
based on their estimated fair values on the acquisition date. The aggregate
purchase price of $17,821,986 consisted of:
<TABLE>
<S> <C>
Market value of capital stock................... $14,854,546
Acquisition costs and expenses.................. 649,925
Liabilities assumed............................. 2,317,515
-----------
$17,821,986
===========
</TABLE>
The aggregate purchase price was allocated to RGene's tangible and
intangible assets based on their relative fair values. The amount allocated to
acquired in-process research and development was written off to operations in
the second quarter of 1996. The allocation of the aggregate purchase price was
as follows:
<TABLE>
<S> <C>
Cash and cash equivalents....................... $ 3,911,901
Other current assets............................ 392,174
In-process technology........................... 13,517,911
-----------
$17,821,986
===========
</TABLE>
The following summarized unaudited pro forma results of operations for the
years ended December 31, 1996 and 1995, respectively, assume the acquisition
occurred as of the beginning of the respective periods and do not include
certain one-time charges related to the acquisition of RGene, primarily the
write-off of in-process research and development.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenue......................................... $ 6,165,213 $ 1,195,737
Net loss........................................ (11,708,198) (13,417,273)
Net loss per share.............................. (0.65) (0.95)
</TABLE>
The Company may issue up to $5 million in additional common stock to
RGene's former stockholders based on the achievement of certain clinical and
business-related milestones prior to December 31, 1998. The
31
<PAGE> 32
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company has also assumed certain long-term consulting and research funding
agreements as a result of the merger.
8. COMMITMENTS
The Company leases its research and office facilities under two
noncancellable operating leases which expire beginning April 1, 1999. The leases
may be extended under specific renewal options at the then prevailing fair
market value rental rate.
Future minimum rental payments under noncancellable leases at December 31,
1996 were as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
Year Ending December 31:
1997.............................................. $ 544,919 $1,211,192
1998.............................................. 561,656 629,881
1999.............................................. 208,087 668,073
2000.............................................. 92,376 249,075
2001.............................................. 92,376 --
Thereafter........................................ 316,044 --
---------- ----------
Total minimum lease payments........................ $1,815,458 2,758,221
==========
Less amount representing interest................... 481,950
----------
Present value of minimum capitalized lease
payments.......................................... $2,276,271
==========
</TABLE>
Rent expense under operating leases for the years ended December 31, 1996,
1995 and 1994 was $432,335, $396,220 and $321,307, respectively.
9. EMPLOYEE RETIREMENT PLAN
The Company sponsors an Employee Retirement Plan in accordance with Section
401(k) of the Internal Revenue Code. All employees 21 years old or older are
eligible to participate in the plan. Contributions made into the plan are at the
discretion of the Company's Board of Directors. The Company incurred $81,364 of
expense in 1996 related to contributions to the plan. There were no
contributions to the plan made by the Company in 1995 or 1994.
10. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
$39,270,000 and research and experimental credit carryforwards of $1,074,000.
The carryforwards are available to offset future federal income taxes and begin
to expire in 2007. At December 31, 1996 and 1995, the Company provided a
valuation allowance to offset the excess of deferred tax assets over the
deferred tax liabilities due to the uncertainty of realizing the benefits of the
net deferred tax asset. The valuation allowance increased by $5,717,000 and
$3,350,000 during 1996 and 1995, respectively.
32
<PAGE> 33
TARGETED GENETICS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $13,352,000 $8,223,000
Research and experimental credit carryforwards... 1,074,000 817,000
Depreciation..................................... 401,000 156,000
Other............................................ 140,000 54,000
----------- ----------
Total deferred tax assets.......................... $14,967,000 $9,250,000
=========== ==========
Valuation allowance for deferred tax assets........ $14,967,000 $9,250,000
=========== ==========
</TABLE>
Utilization of federal income tax carry forwards is subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986. The
Company's past sales of common stock have resulted in "ownership changes" as
defined under Section 382, resulting in limitations on the future use of carry
forwards. At December 31, 1996, the Company calculated its annual limitation to
be approximately $3,782,000. However, this annual limitation is not expected to
have a material adverse effect on the Company's utilization of its net operating
loss and research credit carryforwards.
33
<PAGE> 34
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Targeted Genetics Corporation
We have audited the accompanying consolidated balance sheets of Targeted
Genetics Corporation (a development stage company) as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1996 and the period from March 9, 1989 (date of inception) through December
31, 1996. 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 consolidated financial position of Targeted
Genetics Corporation (a development stage company) at December 31, 1996 and
1995, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 and the period from
March 9, 1989 (date of inception) through December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
February 7, 1997
34
<PAGE> 35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(a) The information required by this item concerning the Company's
directors is incorporated by reference from the section captioned "ELECTION OF
DIRECTORS" in the Company's definitive Proxy Statement for the annual meeting to
be held on May 7, 1997.
(b) The information required by this item concerning the Company's
executive officers is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "EXECUTIVE COMPENSATION" in the Company's definitive Proxy
Statement for the annual meeting to be held on May 7, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "PRINCIPAL TARGETED GENETICS SHAREHOLDERS" in the Company's
definitive Proxy Statement for the annual meeting to be held on May 7, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Inapplicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS. The following Financial Statements are included
in Part II, Item 8.
<TABLE>
<CAPTION>
PAGE(S) IN
10-K
----------
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and 1995................. 24
Consolidated Statements of Operations for the years ended December 31,
1996, 1995, and 1994 and for the period from March 9, 1989 (date of
inception) through December 31, 1996.................................... 25
Consolidated Statements of Shareholders' Equity for the period from March
9, 1989 (date of inception) through December 31, 1996................... 26 - 27
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994 and for the period from March 9, 1989 (date of
inception) through December 31, 1996.................................... 28
Notes to Consolidated Financial Statements................................ 29 - 36
Report of Ernst and Young LLP, Independent Auditors....................... 37
</TABLE>
35
<PAGE> 36
2. 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.
3. EXHIBITS
<TABLE>
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of April 16, 1996, by and among
Targeted Genetics Corporation, TGC Acquisition Corporation and RGene
Therapeutics, Inc. (Exhibit 2.1) (E)
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Warrant to Purchase 11,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on December
27, 1993, as amended (D)
4.2 Warrant to Purchase 11,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to LINC Capital Management, Ltd. on
December 27, 1993 (Exhibit 4.3) (A)
4.3 Warrant to Purchase 18,701 shares of the 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 (D)
4.5 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.6 Warrant to Purchase 21,315 shares of the common stock of Targeted
Genetics Corporation, issued to Financing for Science International,
Inc. on November 30, 1995 (D)
4.7 Rights Agreement, dated as of October 17, 1996, between Targeted
Genetics Corporation and ChaseMellon Shareholder Services (H)
10.1 Form of Indemnification Agreement between the registrant and its
officers and directors (Exhibit 10.6) (A)
10.2 Form of Senior Management Employment Agreement between the registrant
and its executive officers
10.3 Non-exclusive License Agreement, dated as of November 19, 1991, between
the Fred Hutchinson Cancer Research Center and Immunex Corporation*
(Exhibit 10.7) (A)
10.4 Gene Transfer Technology License Agreement, dates as of February 18,
1992, between Immunex Corporation and Targeted Genetics Corporation*
(Exhibit 10.8) (A)
10.5 License Agreement, dated as of June 1, 1992, between Wisconsin Alumni
Research Foundation and Targeted Genetics Corporation* (Exhibit 10.9) (A)
10.6 License Agreement, dated as of August 14, 1992, between Leland Stanford
Junior University and Targeted Genetics Corporation* (Exhibit 10.10) (A)
10.7 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)
10.8 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)
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C>
10.9 Research and Exclusive License Agreement, dated as of January 1, 1994,
between Targeted Genetics Corporation and the Fred Hutchinson Cancer
Research Center* (Exhibit 10.19) (A)
10.10 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)
10.11 Exclusive License Agreement, dated as of March 14, 1994, between
Medical College of Ohio and Targeted Genetics Corporation* (Exhibit
10.16) (A)
10.12 License Agreement, dated as of March 16, 1994, between the Johns
Hopkins University and Targeted Genetics Corporation* (Exhibit 10.17) (A)
10.13 License Agreement, dated as of March 28, 1994, between Targeted
Genetics Corporation and the University of Michigan* (Exhibit 10.18) (A)
10.14 Exclusive License Agreement dated as of March 28, 1994, between the
Fred Hutchinson Cancer Research Center and Targeted Genetics
Corporation* (Exhibit 10.20) (A)
10.15 Exclusive License Agreement, dated as of August 25, 1994, between
Targeted Genetics Corporation and the Fred Hutchinson Cancer Research
Center* (Exhibit 10.20) (B)
10.16 Development Agreement dated April 6, 1994, by and between Argus
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.* (Exhibit 10.28) (F)
10.17 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.* (Exhibit 10.29) (F)
10.18 First Amended and Restated License Agreement effective October 12, 1995
between The University of Tennessee Research Corporation and RGene
Therapeutics, Inc.* (Exhibit 10.30) (F)
10.19 Amendment to the First Amended and Restated License Agreement, between
The University of Tennessee Research Corporation and RGene
Therapeutics, Inc., dated as of June 19, 1996* (Exhibit 10.1) (G)
10.20 Exclusive Sublicense Agreement effective July 23, 1996 by and between
Alkermes, Inc. and Targeted Genetics Corporation*
10.21 Revised License Agreement effective October 1, 1996, by and between the
University of Pittsburgh -- of the Commonwealth System of Higher
Education and Targeted Genetics Corporation*
10.22 Agreement dated as of May 28, 1996 by and between RGene Therapeutics,
Inc. and Laboratoires Fournier S.C.A.* (Exhibit 10.32) (F)
10.23 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)
10.24 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)
10.25 Second Amendment to Olive Way Building Lease, dated as of June 12,
1996, between Targeted Genetics Corporation and Ironwood Apartments,
Inc. (successor in interest to Metropolitan Federal Savings and Loan
Association)
10.26 Office Lease, dated as of October 7, 1996, by and between Benaroya
Capital Company, LLC and Targeted Genetics Corporation
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
10.27 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of
December 27, 1993 (Exhibit 10.22) (A)
10.28 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of
December 27, 1993 (Exhibit 10.23) (A)
10.29 Loan and Security Agreement, dated as of November 30, 1994, between
MMC/GATX Partnership No. 1 and Targeted Genetics Corporation (Exhibit
10.25) (B)
10.30 Master Equipment Lease Agreement, dated as of October 17, 1995, between
Financing for Science International, Inc. and Targeted Genetics
Corporation (D)
10.31 Registration Rights Agreement dated as of April 27, 1992, among
Targeted Genetics Corporation and the holders of Series A and Series B
Convertible Preferred Stock (Exhibit 10.26) (A)
10.32 1992 Restated Stock Option Plan
10.33 Stock Option Plan for Nonemployee Directors
11.1 Computation of net loss per share
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment has been granted by or requested from the Securities
and Exchange Commission for portions of these exhibits.
(A) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-77054) filed on March 30,
1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-91500) filed on April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(E) Incorporated by reference to the designated exhibit included with the
Company's Form 8-K filed April 16, 1996.
(F) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 333-03592) filed on April 16,
1996, as amended.
(G) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996.
(H) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A filed October 22, 1996.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated October 18, 1996 was filed with the
Securities and Exchange Commission reporting that Targeted Genetics Corporation
had adopted a Shareholder Rights Agreement.
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
TARGETED GENETICS CORPORATION
By: /s/ H. STEWART PARKER Date: March 10, 1997
-------------------------------------
H. Stewart Parker,
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ H. STEWART PARKER President and Chief March 10, 1997
- ------------------------------- Executive Officer, Director
H. Stewart Parker (Principal Executive
Officer)
/s/ JAMES A. JOHNSON Vice President, Finance, March 10, 1997
- ------------------------------- Chief Financial Officer,
James A. Johnson Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ JEREMY L. CURNOCK COOK Director March 11, 1977
- -------------------------------
Jeremy L. Curnock Cook
/s/ STEPHEN A. DUZAN Director March 7, 1997
- -------------------------------
Stephen A. Duzan
/s/ JAMES D. GRANT Director March 7, 1997
- -------------------------------
James D. Grant
/s/ AUSTIN M. LONG III Director
- -------------------------------
Austin M. Long III
/s/ DONALD E. O'NEILL Director March 7, 1997
- -------------------------------
Donald E. O'Neill
/s/ MARK RICHMOND, PH.D. Director March 7, 1997
- -------------------------------
Mark Richmond, Ph.D.
/s/ MARTIN P. SUTTER Director March 6, 1997
- -------------------------------
(Martin P. Sutter)
</TABLE>
39
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of April 16, 1996, by and among
Targeted Genetics Corporation, TGC Acquisition Corporation and RGene
Therapeutics, Inc. (Exhibit 2.1) (E)
3.1 Amended and Restated Articles of Incorporation
3.2 Amended and Restated Bylaws
4.1 Warrant to Purchase 11,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to MMC/GATX Partnership No. 1 on December
27, 1993, as amended (D)
4.2 Warrant to Purchase 11,000 shares of the Common Stock of Targeted
Genetics Corporation, issued to LINC Capital Management, Ltd. on
December 27, 1993 (Exhibit 4.3) (A)
4.3 Warrant to Purchase 18,701 shares of the 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 (D)
4.5 Specimen Warrant Certificate (Exhibit 4.5) (C)
4.6 Warrant to Purchase 21,315 shares of the common stock of Targeted
Genetics Corporation, issued to Financing for Science International,
Inc. on November 30, 1995 (D)
4.7 Rights Agreement, dated as of October 17, 1996, between Targeted
Genetics Corporation and ChaseMellon Shareholder Services (H)
10.1 Form of Indemnification Agreement between the registrant and its
officers and directors (Exhibit 10.6) (A)
10.2 Form of Senior Management Employment Agreement between the registrant
and its executive officers
10.3 Non-exclusive License Agreement, dated as of November 19, 1991, between
the Fred Hutchinson Cancer Research Center and Immunex Corporation*
(Exhibit 10.7) (A)
10.4 Gene Transfer Technology License Agreement, dates as of February 18,
1992, between Immunex Corporation and Targeted Genetics Corporation*
(Exhibit 10.8) (A)
10.5 License Agreement, dated as of June 1, 1992, between Wisconsin Alumni
Research Foundation and Targeted Genetics Corporation* (Exhibit 10.9) (A)
10.6 License Agreement, dated as of August 14, 1992, between Leland Stanford
Junior University and Targeted Genetics Corporation* (Exhibit 10.10) (A)
10.7 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)
10.8 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)
10.9 Research and Exclusive License Agreement, dated as of January 1, 1994,
between Targeted Genetics Corporation and the Fred Hutchinson Cancer
Research Center* (Exhibit 10.19) (A)
</TABLE>
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<TABLE>
<S> <C> <C>
10.10 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)
10.11 Exclusive License Agreement, dated as of March 14, 1994, between
Medical College of Ohio and Targeted Genetics Corporation* (Exhibit
10.16) (A)
10.12 License Agreement, dated as of March 16, 1994, between the Johns
Hopkins University and Targeted Genetics Corporation* (Exhibit 10.17) (A)
10.13 License Agreement, dated as of March 28, 1994, between Targeted
Genetics Corporation and the University of Michigan* (Exhibit 10.18) (A)
10.14 Exclusive License Agreement dated as of March 28, 1994, between the
Fred Hutchinson Cancer Research Center and Targeted Genetics
Corporation* (Exhibit 10.20) (A)
10.15 Exclusive License Agreement, dated as of August 25, 1994, between
Targeted Genetics Corporation and the Fred Hutchinson Cancer Research
Center* (Exhibit 10.20) (B)
10.16 Development Agreement dated April 6, 1994, by and between Argus
Pharmaceuticals, Inc. and RGene Therapeutics, Inc.* (Exhibit 10.28) (F)
10.17 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.* (Exhibit 10.29) (F)
10.18 First Amended and Restated License Agreement effective October 12, 1995
between The University of Tennessee Research Corporation and RGene
Therapeutics, Inc.* (Exhibit 10.30) (F)
10.19 Amendment to the First Amended and Restated License Agreement, between
The University of Tennessee Research Corporation and RGene
Therapeutics, Inc., dated as of June 19, 1996* (Exhibit 10.1) (G)
10.20 Exclusive Sublicense Agreement effective July 23, 1996 by and between
Alkermes, Inc. and Targeted Genetics Corporation*
10.21 Revised License Agreement effective October 1, 1996, by and between the
University of Pittsburgh -- of the Commonwealth System of Higher
Education and Targeted Genetics Corporation*
10.22 Agreement dated as of May 28, 1996 by and between RGene Therapeutics,
Inc. and Laboratoires Fournier S.C.A.* (Exhibit 10.32) (F)
10.23 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)
10.24 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)
10.25 Second Amendment to Olive Way Building Lease, dated as of June 12,
1996, between Targeted Genetics Corporation and Ironwood Apartments,
Inc. (successor in interest to Metropolitan Federal Savings and Loan
Association)
10.26 Office Lease, dated as of October 7, 1996, by and between Benaroya
Capital Company, LLC and Targeted Genetics Corporation
10.27 MMC/GATX Partnership No. 1 Equipment Lease Agreement, dated as of
December 27, 1993 (Exhibit 10.22) (A)
10.28 LINC Capital Management, Ltd. Equipment Lease Agreement, dated as of
December 27, 1993 (Exhibit 10.23) (A)
</TABLE>
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<TABLE>
<S> <C> <C>
10.29 Loan and Security Agreement, dated as of November 30, 1994, between
MMC/GATX Partnership No. 1 and Targeted Genetics Corporation (Exhibit
10.25) (B)
10.30 Master Equipment Lease Agreement, dated as of October 17, 1995, between
Financing for Science International, Inc. and Targeted Genetics
Corporation (D)
10.31 Registration Rights Agreement dated as of April 27, 1992, among
Targeted Genetics Corporation and the holders of Series A and Series B
Convertible Preferred Stock (Exhibit 10.26) (A)
10.32 1992 Restated Stock Option Plan
10.33 Stock Option Plan for Nonemployee Directors
11.1 Computation of net loss per share
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
</TABLE>
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* Confidential treatment has been granted by or requested from the Securities
and Exchange Commission for portions of these exhibits.
(A) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-77054) filed on March 30,
1994, as amended.
(B) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
(C) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 33-91500) filed on April 24,
1995, as amended.
(D) Incorporated by reference to the designated exhibit included with the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(E) Incorporated by reference to the designated exhibit included with the
Company's Form 8-K filed April 16, 1996.
(F) Incorporated by reference to the designated exhibit included with the
Company's Form S-1 Registration Statement (No. 333-03592) filed on April 16,
1996, as amended.
(G) Incorporated by reference to the designated exhibit included with the
Company's Quarterly Report on Form 10-Q for the period ended June 30, 1996.
(H) Incorporated by reference to the designated exhibit included with the
Company's Form 8-A filed October 22, 1996.
(b) REPORTS ON FORM 8-K
A Current Report on Form 8-K dated October 18, 1996 was filed with the
Securities and Exchange Commission reporting that Targeted Genetics Corporation
had adopted a Shareholder Rights Agreement.
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<PAGE> 1
EXHIBIT 3.1
TARGETED GENETICS CORPORATION
RESTATED ARTICLES OF INCORPORATION
Targeted Genetics Corporation, a Washington corporation, by its President,
hereby submits the following Restated Articles of Incorporation of said
corporation, pursuant to provisions of RCW 23B.10.070. These Restated Articles
of Incorporation correctly set forth the corresponding provisions of the
Articles of Incorporation as heretofore amended and restated and supersede the
original Articles of Incorporation and all amendments and prior restatements
thereto.
ARTICLE 1. NAME
The name of this corporation shall be Targeted Genetics Corporation.
ARTICLE 2. DURATION
This corporation is organized under the Washington Business Corporation Act
and shall have perpetual existence.
ARTICLE 3. PURPOSE AND POWERS
The purpose and powers of this corporation are as follows:
3.1 To engage in the business of biotechnology research and development.
3.2 To engage in any and all activities that may, in the judgment of the Board
of Directors, at any time be incidental or conducive to the attainment of the
foregoing purpose.
3.3 To exercise any and all powers that a corporation formed under the
Washington Business Corporation Act, or any amendment thereto or substitute
therefor, may at the time lawfully exercise.
ARTICLE 4. CAPITAL STOCK
4.1 AUTHORIZED CAPITAL
The total authorized stock of this corporation shall consist 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.
4.2 ISSUANCE OF PREFERRED STOCK IN SERIES
The Preferred Stock may be issued from time to time in one or more series,
the shares of each series to have such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof as are stated and
expressed herein or in the resolution or resolutions providing for the issuance
of such series adopted by the Board of Directors.
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<PAGE> 2
4.2.1 AUTHORITY OF THE BOARD OF DIRECTORS
Authority is hereby expressly granted to the Board of Directors of this
corporation, subject to the provisions of this Article 4 and to the limitations
prescribed by law, to authorize the issuance of one or more series of Preferred
Stock, and with respect to each such series to fix by resolution or resolutions
providing for the issuance of each series the number of shares of such series,
the voting powers, full or limited, if any, of the shares of such series and the
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but shall not be limited to, the determination or fixing of
the following:
(a) The number of shares of such series;
(b) The designation of such series;
(c) The dividends of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes of stock and whether
such dividends shall be cumulative or noncumulative;
(d) Whether the shares of such series shall be subject to
redemption by this corporation and, if made subject to such redemption, the
times, prices, rates, adjustments, and other terms and conditions of such
redemption;
(e) The terms and amounts of any sinking fund provided for the
purchase or redemption of the shares of such series;
(f) Whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or classes or of
any other series of any class or classes of stock of this corporation and, if
provision be made for conversion or exchange, the times, prices, rates,
adjustments, and other terms and conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of the shares of
such series shall be entitled to vote with respect to the election of directors
or otherwise, including the right to elect a specified number or class of
directors, the number or percentage of votes required for certain actions, and
the extent to which a vote by class or series shall be required for certain
actions;
(h) The restrictions, if any, on the issue or reissue of any
Preferred Stock;
(i) The rights of the holders of the shares of such series upon
the dissolution of, or upon the distribution of the assets of, this corporation;
and
(j) The extent, if any, to which any committee of the Board of
Directors may fix the designations and any of the preferences or rights of the
shares of such series relating to dividends, redemption, dissolution, any
distribution of assets of this corporation or the conversion into or exchange of
such shares for shares of any other class or classes of stock of this
corporation or any other series of the same or any other class or classes
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of stock of this corporation, or fix the number of shares of any such series or
authorize the increase or decrease in the shares of such series.
4.2.2 DIVIDENDS
Subject to any preferential rights granted for any series of Preferred
Stock, the holders of shares of the Common Stock shall be entitled to receive
dividends, out of the funds of this corporation legally available therefor, at
the rate and at the time or times, whether cumulative or noncumulative, as may
be provided by the Board of Directors. The holders of shares of the Preferred
Stock shall be entitled to receive dividends to the extent provided herein or by
the Board of Directors in designating the particular series of Preferred Stock.
The holders of shares of the Common Stock shall not be entitled to receive any
dividends thereon other than the dividends referred to in this section.
4.2.3 VOTING
The holders of shares of the Common Stock, on the basis of one vote per
share, shall have the right to vote for the election of members of the Board of
Directors of this corporation and the right to vote on all other matters, except
those matters on which a separate class of this corporation's shareholders vote
by class or series to the exclusion of the holders of the shares of the Common
Stock. To the extent provided herein or by resolution or resolutions of the
Board of Directors providing for the issue of a series of Preferred Stock, the
holders of each such series shall have the right to vote for the election of
members of the Board of Directors of this corporation and the right to vote on
all other matters, except those matters in which a separate class of this
corporation's shareholders vote by class or series to the exclusion of the
holders of the shares of such series.
4.2.4 ISSUANCE OF SHARES
This corporation may from time to time issue and dispose of any of the
authorized and unissued shares of the Common Stock or the Preferred Stock for
such consideration as may be fixed from time to time by the Board of Directors,
without action by the shareholders. The Board of Directors may provide for
payment therefor to be received by this corporation in cash, property, services
or such other consideration as is approved by the Board of Directors. Any and
all such shares of the Common Stock or the Preferred Stock of this corporation,
the issuance of which has been so authorized, and for which consideration so
fixed by the Board of Directors has been paid or delivered, shall be deemed
fully paid stock and shall not be liable to any further call or assessment
thereon.
4.3 DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES A PARTICIPATING
CUMULATIVE PREFERRED STOCK
The following series of Preferred Stock is hereby designated, which
series shall have the rights, preferences and privileges and limitations set
forth below:
4.3.1 DESIGNATION OF SERIES A PARTICIPATING CUMULATIVE
PREFERRED STOCK
The shares of such series shall be designated the "Series A
Participating Cumulative Preferred Stock" (the "Series A Preferred Stock"), par
value $.01 per share. The number of
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shares initially constituting the Series A Preferred Stock shall be 400,000;
provided, however, if more than a total of 400,000 shares of Series A Preferred
Stock shall be issuable upon the exercise of Rights (the "Rights") issued
pursuant to the Rights Agreement dated as of October 17, 1996 between the
corporation and ChaseMellon Shareholder Services, as Rights Agent (the "Rights
Agreement"), the corporation's Board of Directors, pursuant to Section
23B.06.020 of the Revised Code of Washington, shall direct by resolution or
resolutions that Articles of Amendment be properly executed and filed with the
Washington Secretary of State providing for the total number of shares of Series
A Preferred Stock authorized for issuance to be increased (to the extent that
the Restated Articles of Incorporation then permits) to the largest number of
whole shares (rounded up to the nearest whole number) issuable upon exercise of
such Rights. In addition, such number of shares may be decreased by resolution
of the Board of Directors; provided, however, that no decrease shall reduce the
number of shares of Series A Preferred Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the conversion of
any outstanding securities issued by the corporation convertible into Series A
Preferred Stock.
4.3.2 DIVIDENDS AND DISTRIBUTIONS
(a) Subject to the prior and superior rights of the holders of shares of any
other series of Preferred Stock or other class of capital stock of the
corporation ranking prior and superior to the shares of Series A Preferred Stock
with respect to dividends, the holders of shares of Series A Preferred Stock
shall be entitled to receive, when, as, and if declared by the Board of
Directors, out of the assets of the corporation legally available therefor,
quarterly dividends payable in cash on the last day of each fiscal quarter in
each year, or such other dates as the corporation's Board of Directors shall
approve (each such date being referred to in this Designation as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or a fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent) equal to
the greater of (i) $.01 and (ii) the Formula Number (as hereinafter defined)
then in effect times the cash dividends then to be paid on each share of Common
Stock. In addition, if the corporation shall pay any dividend or make any
distribution on the Common Stock payable in assets, securities or other forms of
noncash consideration (other than dividends or distributions solely in shares of
Common Stock), then, in each such case, the corporation shall simultaneously pay
or make on each outstanding whole share of Series A Preferred Stock a dividend
or distribution in like kind equal to the Formula Number then in effect times
such dividend or distribution on each share of Common Stock. As used in this
Designation and in the Rights Agreement, the "Formula Number" shall be 100;
provided, however, that if at any time after October 17, 1996 the corporation
shall (i) declare or pay any dividend on the Common Stock payable in shares of
Common Stock or make any distribution on the Common Stock in shares of Common
Stock, (ii) subdivide (by a stock split or otherwise) the outstanding shares of
Common Stock into a larger number of shares of Common Stock, or (iii) combine
(by a reverse stock split or otherwise) the outstanding shares of Common Stock
into a smaller number of shares of Common Stock, then in each such event the
Formula Number shall be adjusted to a number determined by multiplying the
Formula Number in
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effect immediately prior to such event by a fraction, the numerator of which is
the number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
are outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that if at any time after October
17, 1996 the corporation shall issue any shares of its capital stock in a
merger, reclassification or change of the outstanding shares of Common Stock,
then in each such event the Formula Number shall be appropriately adjusted to
reflect such merger, reclassification or change so that each share of Preferred
Stock continues to be the economic equivalent of a Formula Number of shares of
Common Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on
the Series A Preferred Stock as provided in Section 4.3.2(a) immediately prior
to or at the same time it declares a dividend or distribution on the Common
Stock (other than a dividend or distribution solely in shares of Common Stock);
provided, however, that in the event no dividend or distribution (other than a
dividend or distribution in shares of Common Stock) shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per
share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Corporation's Board of Directors
may fix a record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a dividend or distribution declared thereon,
which record date shall be the same as the record date for any corresponding
dividend or distribution on the Common Stock and which shall not be more than 60
days prior to the date fixed for payment thereof.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares of
Series A Preferred Stock from and after the Quarterly Dividend Payment Date next
preceding the date of original issue of such shares of Series A Preferred Stock;
provided, however, that dividends on such shares that are originally issued
after the record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend on or prior to the next
succeeding Quarterly Dividend Payment Date shall begin to accrue and be
cumulative from and after such Quarterly Dividend Payment Date. Notwithstanding
the foregoing, dividends on shares of Series A Preferred Stock that are
originally issued prior to the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend on
or prior to the first Quarterly Dividend Payment Date shall be calculated as if
cumulative from and after the last day of the fiscal quarter (or such other
Quarterly Dividend Payment Date as the corporation's Board of Directors shall
approve) next preceding the date of original issuance of such shares. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding.
(d) So long as any shares of Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment
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or distribution, on the Common Stock unless, in each case, the dividend required
by this Section 4.3.2 to be declared on the Series A Preferred Stock shall have
been declared.
(e) The holders of shares of Series A Preferred Stock shall not
be entitled to receive any dividends or other distributions except as provided
in this Designation.
4.3.3 VOTING RIGHTS
The holders of shares of Series A Preferred Stock shall have the following
voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to
a number of votes equal to the Formula Number then in effect for each share of
Series A Preferred Stock held of record on each matter on which holders of the
Common Stock or shareholders generally are entitled to vote, multiplied by the
maximum number of votes per share that any holders of the Common Stock or
shareholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided in this Designation or by
applicable law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the corporation
having general voting rights shall vote together as one class for the election
of directors of the corporation and on all other matters submitted to a vote of
shareholders of the corporation.
(c) Except as provided in this Designation or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth in this Designation) for
authorizing or taking any corporate action.
4.3.4 CERTAIN RESTRICTIONS
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section
4.3.2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends
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are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock; provided, however, that the corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock in
exchange for shares of any stock of the corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any shares of
stock ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the corporation's Board of Directors) to all holders of
such shares upon such terms as the corporation's Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(b) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any shares of
stock of the corporation unless the corporation could, under paragraph (a) of
this Section 4.3.4, purchase or otherwise acquire such shares at such time and
in such manner.
4.3.5 LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of the corporation,
whether voluntary or involuntary, no distribution shall be made to (a) the
holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received an amount equal to the greater of (i) $.01 per share and (ii) the
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, plus an aggregate amount per share equal to the
Formula Number then in effect times the aggregate amount to be distributed per
share to holders of Common Stock or (b) the holders of shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
4.3.6 CONSOLIDATION, MERGER, ETC.
In case the corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into
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other stock or securities, cash and/or any other property, then in any such case
the then outstanding shares of Series A Preferred Stock shall at the same time
be similarly exchanged or changed into an amount per share equal to the Formula
Number then in effect times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is exchanged or changed. In the event both
this Section 4.3.6 and Section 4.3.2 appear to apply to a transaction, this
Section 4.3.6 will control.
4.3.7 NO REDEMPTION; NO SINKING FUND
(a) The shares of Series A Preferred Stock shall not be subject
to redemption by the corporation or at the option of any holder of Series A
Preferred Stock; provided, however, that the corporation may purchase or
otherwise acquire outstanding shares of Series A Preferred Stock in the open
market or by offer to any holder or holders of shares of Series A Preferred
Stock.
(b) The shares of Series A Preferred Stock shall not be subject
to or entitled to the operation of a retirement or sinking fund.
4.3.8 RANKING
The Series A Preferred Stock shall rank junior to all other series of
Preferred Stock of the corporation, unless the corporation's Board of Directors
shall specifically determine otherwise in fixing the powers, preferences and
relative, participating, optional and other special rights of the shares of such
series and the qualifications, limitations and restrictions thereof.
4.3.9 FRACTIONAL SHARES
The Series A Preferred Stock shall be issuable upon exercise of the
Rights issued pursuant to the Rights Agreement in whole shares or in any
fractional share that is one one-hundredth (1/100th) of a share or any integral
multiple of such fraction, and shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, exercise voting rights,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock. In lieu of fractional shares, the corporation,
prior to the first issuance of a share or a fractional share of Series A
Preferred Stock, may elect to (a) make a cash payment as provided in the Rights
Agreement for a fractional share other than one one-hundredth (1/100th) of a
share or any integral multiple thereof or (b) issue depository receipts
evidencing such authorized fractional share of Series A Preferred Stock pursuant
to an appropriate agreement between the corporation and a depository selected by
the corporation; provided, however, that such agreement shall provide that the
holders of such depository
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receipts shall have all the rights, privileges and preferences to which they are
entitled as holders of the Series A Preferred Stock.
4.3.10 REACQUIRED SHARES
Any shares of Series A Preferred Stock purchased or otherwise acquired
by the corporation in any manner whatsoever shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred Stock, without
designation as to series until such shares are once more designated as part of a
particular series by the corporation's Board of Directors pursuant to the
provisions of Article 4 of the Restated Articles of Incorporation.
4.3.11 AMENDMENT
None of the powers, preferences and relative, participating, optional
and other special rights of the Series A Preferred Stock as provided in this
Designation or in the Restated Articles of Incorporation shall be amended in any
manner that would alter or change the powers, preferences, rights or privileges
of the holders of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, voting as a separate class.
ARTICLE 5. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 6. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE 7. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation subject to approval by a majority of the Continuing
Directors (as defined in Article 13); provided, however, the Board of Directors
may not repeal or amend any bylaw that the shareholders have expressly provided
may not be amended or repealed by the Board of Directors. The shareholders shall
also have the power to adopt, amend or repeal the Bylaws of this corporation by
the affirmative vote of the holders of not less than two-thirds of the
outstanding shares and, to the extent, if any, provided by resolution or
resolutions of the Board of Directors providing for the issuance of a series of
Common or Preferred Stock, not less than two-thirds of the outstanding shares
entitled to vote thereon, voting as a class.
ARTICLE 8. REGISTERED OFFICE AND AGENT
The name of the registered agent of this corporation and the address of
its current registered office are as follows:
H. Stewart Parker
1100 Olive Way, Suite 100
Seattle, Washington 98101
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<PAGE> 10
ARTICLE 9. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein. The Board of Directors shall be divided
into three classes, with such classes to be as equal in number as may be
possible, with any Director or Directors in excess of the number divisible by
three being assigned to Class 3 and Class 2, as appropriate. At each annual
meeting of shareholders, the number of Directors equal to the number of
Directors in the class whose term expires at the time of such meeting shall be
elected to serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article 9, Directors
shall serve until their successors are elected and qualified or until their
earlier death, resignation or removal from office, or until there is a decrease
in the number of Directors. The Directors of this corporation may be removed
only for cause by the holders of not less than two-thirds of the shares entitled
to elect the Director or Directors whose removal is sought in the manner
provided by the Bylaws.
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal, by the affirmative
vote of the holders of a majority of the outstanding shares and, to the extent,
if any, provided by resolution or resolutions of the Board of Directors
providing for the issuance of a series of Common or Preferred stock, a majority
of the outstanding shares entitled to vote thereon, voting as a class, any of
the provisions contained in these Articles of Incorporation; provided, however,
that amendment or repeal of Article 7, Article 9, Article 10, Article 12 or
Article 13 shall require the affirmative vote of the holders of two-thirds of
the outstanding shares. The rights of the shareholders of this corporation are
granted subject to this reservation; provided, however, that the holders of the
outstanding shares of a class shall be entitled to vote as a class upon a
proposed amendment if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
the shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
shall not affect the entire class, then only the shares of the series so
affected by the amendment shall be considered as a separate class for the
purposes of this Article 10. Notwithstanding the provisions of this Article 10,
the number of authorized shares of any such class or classes of stock may be
increased by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon, if so
provided in any amendment which created such class or classes of stock or which
was adopted prior to the issuance of any shares of such class or classes of
stock, or in any amendment which was authorized by a resolution or resolutions
adopted by the affirmative vote of the holders of a majority of such class or
classes of stock.
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation or
elimination of the liability of Directors, a Director of this corporation shall
not be liable to this corporation or its shareholders for monetary damages for
conduct as a Director. Any amendments to or repeal of this Article
53
<PAGE> 11
11 shall not adversely affect any right or protection of a Director of this
corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal.
ARTICLE 12. SPECIAL MEETINGS OF SHAREHOLDERS
The Chairman of the Board of Directors, the President or the Board of
Directors may call special meetings of the shareholders for any purpose.
Further, a special meeting of the shareholders shall be held if the holders of
not less than thirty percent (30%) of all the votes entitled to be cast on any
issue proposed to be considered at such special meeting have dated, signed and
delivered to the Secretary one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held.
ARTICLE 13. SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, these Articles of
Incorporation or otherwise, any "Business Combination" (as hereinafter defined)
involving this corporation shall be subject to approval in the manner set forth
in this Article 13.
13.1 DEFINITIONS.
For the purposes of this Article 13:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of this corporation or any of its Subsidiaries with any other
corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other
disposition or encumbrance, whether in one transaction or a series of
transactions, by this corporation or any of its Subsidiaries of all or a
substantial part of the corporation's assets otherwise than in the usual and
regular course of business, or (iii) any agreement, contract or other
arrangement providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board of Directors who
was a member of the Board of Directors on January 1, 1994 or who is elected to
the Board of Directors after January 1, 1994 upon the recommendation of a
majority of the Continuing Directors voting separately and as a subclass of
Directors on such recommendation.
(c) "Subsidiary" means a domestic or foreign corporation that has a
majority of its outstanding voting shares owned, directly or indirectly, by this
corporation.
13.2 VOTE REQUIRED FOR BUSINESS COMBINATIONS.
13.2.1 Except as provided in subsection 13.2.2 of this Article 13, the
affirmative vote of not less than two-thirds of the outstanding shares and, to
the extent, if any, provided by resolution or resolutions of the Board of
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than two-thirds of the outstanding shares entitled to vote thereon,
voting as a class, shall be required for the adoption or authorization of a
Business Combination.
13.2.2 Notwithstanding subsection 13.2.1 of this Article 13, if a Business
Combination shall have been approved by a majority of the Continuing Directors,
voting separately and as a subclass of Directors, and is otherwise required by
law to be approved by this corporation's shareholders, such Business Combination
shall require the affirmative vote of not less than fifty-one percent (51%) of
the outstanding shares entitled to vote thereon and,
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<PAGE> 12
to the extent, if any, provided by resolution or resolutions of the Board of
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than fifty-one percent (51%) of the outstanding shares of such series,
voting as a class; provided, however, that if a Business Combination approved by
a majority of the Continuing Directors is not otherwise required by law to be
approved by this corporation's shareholders, then no vote of the shareholders of
this corporation shall be required.
In addition to any affirmative vote required by law, these Articles of
Incorporation or otherwise, any "Business Combination" (as hereinafter defined)
involving this corporation shall be subject to approval in the manner set forth
in this Article 13.
DATED: January 9, 1997
TARGETED GENETICS CORPORATION
By: /s/ H. Stewart Parker
H. Stewart Parker, President
55
<PAGE> 13
CERTIFICATE ACCOMPANYING
RESTATED ARTICLES OF INCORPORATION
OF
TARGETED GENETICS CORPORATION
Pursuant to RCW 23B.10.070, the foregoing constitutes Restated Articles of
Incorporation of Targeted Genetics Corporation. The Restated Articles of
Incorporation supersede the original Articles of Incorporation and all
amendments thereto.
The Restated Articles of Incorporation were amended as set forth on Exhibit
A attached hereto.
The Restated Articles of Incorporation were duly approved by the Board of
Directors on October 17, 1996. No approval by the shareholders of the Company is
necessary.
This Certificate Accompanying the Restated Articles of Incorporation of
Targeted Genetics Corporation is executed by said corporation by its duly
authorized officer.
Dated: January 9, 1997.
TARGETED GENETICS CORPORATION
By: /s/ H. Stewart Parker
H. Stewart Parker, President
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<PAGE> 14
EXHIBIT A
TO
CERTIFICATE ACCOMPANYING
RESTATED ARTICLES OF INCORPORATION
OF
TARGETED GENETICS CORPORATION
1. Article 9 is amended in its entirety to read as follows:
ARTICLE 9. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein. The Board of Directors shall be divided
into three classes, with such classes to be as equal in number as may be
possible, with any Director or Directors in excess of the number divisible by
three being assigned to Class 3 and Class 2, as appropriate. At each annual
meeting of shareholders, the number of Directors equal to the number of
Directors in the class whose term expires at the time of such meeting shall be
elected to serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article 9, Directors
shall serve until their successors are elected and qualified or until their
earlier death, resignation or removal from office, or until there is a decrease
in the number of Directors.
The Directors of this corporation may be removed only for cause by the
holders of not less than two-thirds of the shares entitled to elect the Director
or Directors whose removal is sought in the manner provided by the Bylaws.
2. Article 10 is amended in its entirety to read as follows:
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal, by the affirmative
vote of the holders of a majority of the outstanding shares and, to the extent,
if any, provided by resolution or resolutions of the Board of Directors
providing for the issuance of a series of Common or Preferred stock, a majority
of the outstanding shares entitled to vote thereon, voting as a class, any of
the provisions contained in these Articles of Incorporation; provided, however,
that amendment or repeal of Article 7, Article 9, Article 10, Article 12 or
Article 13 shall require the affirmative vote of the holders of two-thirds of
the outstanding shares. The rights of the shareholders of this corporation are
granted subject to this reservation; provided, however, that the holders of the
outstanding shares of a class shall be entitled to vote as a class upon a
proposed amendment if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of
the shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to affect them adversely. If any
proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
shall not affect the entire class, then only the shares of the series so
affected by the amendment shall be considered as a separate class for the
purposes of this Article 10. Notwithstanding the provisions of this Article 10,
the number of authorized shares of any such class or classes of stock may be
increased by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon, if so
provided in any amendment which created
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<PAGE> 15
such class or classes of stock or which was adopted prior to the issuance of any
shares of such class or classes of stock, or in any amendment which was
authorized by a resolution or resolutions adopted by the affirmative vote of the
holders of a majority of such class or classes of stock.
3. Article 12 is amended in its entirety to read as follows:
ARTICLE 12. SPECIAL MEETINGS OF SHAREHOLDERS
The Chairman of the Board of Directors, the President or the Board of
Directors may call special meetings of the shareholders for any purpose.
Further, a special meeting of the shareholders shall be held if the holders of
not less than thirty percent (30%) of all the votes entitled to be cast on any
issue proposed to be considered at such special meeting have dated, signed and
delivered to the Secretary one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held.
58
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
TARGETED GENETICS CORPORATION
Originally adopted on: March 28, 1989
Restated on: January 21, 1992
Amended and Restated on: March 2, 1994
Amended on: February 16, 1995
Amended and Restated on: October 17, 1996
Amendments are listed on page i
59
<PAGE> 2
AMENDMENTS
60
<PAGE> 3
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
SECTION 1. OFFICES...................................................65
SECTION 2. SHAREHOLDERS..............................................65
2.1 ANNUAL MEETING.................................................65
2.2 SPECIAL MEETINGS...............................................65
2.3 MEETINGS BY COMMUNICATION EQUIPMENT............................65
2.4 DATE, TIME AND PLACE OF MEETING................................66
2.5 NOTICE OF MEETING..............................................66
2.6 BUSINESS FOR SHAREHOLDERS' MEETINGS............................66
2.6.1 Business at Annual Meetings................................66
2.6.2 Business at Special Meetings...............................67
2.6.3 Notice to Corporation......................................67
2.7 WAIVER OF NOTICE...............................................67
2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS.............68
2.9 VOTING RECORD..................................................68
2.10 QUORUM........................................................68
2.11 MANNER OF ACTING..............................................69
2.12 PROXIES.......................................................69
2.13 VOTING OF SHARES..............................................69
2.14 VOTING FOR DIRECTORS..........................................69
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING......................70
SECTION 3. BOARD OF DIRECTORS........................................70
3.1 GENERAL POWERS.................................................70
</TABLE>
61
<PAGE> 4
<TABLE>
<S> <C>
3.2 NUMBER AND TENURE..............................................70
3.3 NOMINATION AND ELECTION........................................71
3.3.1 Nomination.................................................71
3.3.2 Election...................................................72
3.4 ANNUAL AND REGULAR MEETINGS....................................72
3.5 SPECIAL MEETINGS...............................................72
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT...........................72
3.7 NOTICE OF SPECIAL MEETINGS.....................................72
3.7.1 Personal Delivery.........................................73
3.7.2 Delivery by Mail..........................................73
3.7.3 Delivery by Private Carrier...............................73
3.7.4 Facsimile Notice..........................................73
3.7.5 Oral Notice...............................................73
3.8 WAIVER OF NOTICE...............................................73
3.8.1 In Writing................................................73
3.8.2 By Attendance.............................................74
3.9 QUORUM........................................................74
3.10 MANNER OF ACTING..............................................74
3.11 PRESUMPTION OF ASSENT.........................................74
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING...............74
3.13 RESIGNATION...................................................75
3.14 REMOVAL.......................................................75
3.15 VACANCIES.....................................................76
3.16 EXECUTIVE AND OTHER COMMITTEES................................76
3.16.1 Creation of Committees...................................76
3.16.2 Authority of Committees..................................76
3.16.3 Audit Committee..........................................77
3.16.4 Quorum and Manner of Acting..............................77
3.16.5 Minutes of Meetings......................................77
3.16.6 Resignation..............................................77
</TABLE>
62
<PAGE> 5
<TABLE>
<S> <C>
3.16.7 Removal..................................................77
3.17 COMPENSATION..................................................78
SECTION 4. OFFICERS..................................................78
4.1 APPOINTMENT AND TERM...........................................78
4.2 RESIGNATION....................................................78
4.3 REMOVAL........................................................78
4.4 CONTRACT RIGHTS OF OFFICERS....................................79
4.5 CHAIRMAN OF THE BOARD..........................................79
4.6 PRESIDENT......................................................79
4.7 VICE PRESIDENT.................................................79
4.8 SECRETARY......................................................79
4.9 TREASURER......................................................80
4.10 SALARIES......................................................80
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS.....................80
5.1 CONTRACTS......................................................80
5.2 LOANS TO THE CORPORATION.......................................80
5.3 CHECKS AND DRAFTS..............................................80
5.4 DEPOSITS.......................................................81
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER................81
6.1 ISSUANCE OF SHARES.............................................81
6.2 CERTIFICATES FOR SHARES........................................81
6.3 STOCK RECORDS..................................................81
</TABLE>
63
<PAGE> 6
<TABLE>
<S> <C>
6.4 TRANSFER OF SHARES.............................................81
6.5 LOST OR DESTROYED CERTIFICATES.................................82
SECTION 7. BOOKS AND RECORDS.........................................82
SECTION 8. ACCOUNTING YEAR...........................................82
SECTION 9. SEAL......................................................83
SECTION 10. INDEMNIFICATION..........................................83
10.1 RIGHT TO INDEMNIFICATION......................................83
10.2 RESTRICTIONS ON INDEMNIFICATION...............................83
10.3 ADVANCEMENT OF EXPENSES.......................................84
10.4 RIGHT OF INDEMNITEE TO BRING SUIT.............................84
10.5 PROCEDURES EXCLUSIVE..........................................84
10.6 NONEXCLUSIVITY OF RIGHTS......................................85
10.7 INSURANCE, CONTRACTS AND FUNDING..............................85
10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION....85
10.9 PERSONS SERVING OTHER ENTITIES................................85
SECTION 11. AMENDMENTS...............................................86
</TABLE>
64
<PAGE> 7
AMENDED AND RESTATED BYLAWS
OF
TARGETED GENETICS CORPORATION
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices, either within or without
the state of Washington, as the Board may designate or as the business of the
corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held at such place and at
such time as the Board of Directors shall prescribe, for the purpose of electing
Directors and transacting such other business as may properly come before the
meeting. If the day fixed for the annual meeting is a legal holiday at the place
of the meeting, the meeting shall be held on the next succeeding business day.
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 30% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
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<PAGE> 8
2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
state of Washington, designated by or at the direction of the Board.
2.5 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than ten nor more than sixty days before the
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail,
first-class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.6 BUSINESS FOR SHAREHOLDERS' MEETINGS
2.6.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board or (b)
brought before the meeting by a shareholder pursuant to written notice thereof,
in accordance with subsection 2.6.3 hereof, and received by the Secretary not
fewer than sixty nor more than ninety days prior to the date specified in
subsection 2.1 hereof for such annual meeting (or if less than sixty days'
notice or prior public disclosure of the date of the annual meeting is given or
made to the shareholders, not later than the tenth day following the day on
which the notice of the date of the
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<PAGE> 9
annual meeting was mailed or such public disclosure was made). Any such
shareholder notice shall set forth (i) the name and address of the shareholder
proposing such business; (ii) a representation that the shareholder is entitled
to vote at such meeting and a statement of the number of shares of the
corporation which are beneficially owned by the shareholder; (iii) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to propose such business; and (iv) as to each matter the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting, the language of the proposal (if appropriate), and any
material interest of the shareholder in such business. No business shall be
conducted at any annual meeting of shareholders except in accordance with this
subsection 2.6.1. If the facts warrant, the Board, or the chairman of an annual
meeting of shareholders, may determine and declare (x) that a proposal does not
constitute proper business to be transacted at the meeting or (y) that business
was not properly brought before the meeting in accordance with the provisions of
this subsection 2.6.1 and, if, in either case, it is so determined, any such
business shall not be transacted. The procedures set forth in this subsection
2.6.1 for business to be properly brought before an annual meeting by a
shareholder are in addition to, and not in lieu of, the requirements set forth
in Rule 14a-8 under Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor provision.
2.6.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with subsection 2.5
hereof, shall come before such meeting.
2.6.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 2.5, subsection 2.6.1 or subsection 2.6.2
hereof must be given, either by personal delivery or by registered or certified
mail, postage prepaid, to the Secretary at the corporation's executive offices
in the city of Seattle, state of Washington.
2.7 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
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<PAGE> 10
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance at such
meeting in person or by proxy, unless such shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
2.8 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or
to vote at any meeting of shareholders or any adjournment thereof, (b) to demand
a special meeting, or (c) to receive payment of any dividend, or in order to
make a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than seventy days, and in case of a meeting of shareholders
not less than thirty days prior to the date on which the particular action
requiring such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than one hundred twenty
days after the date fixed for the original meeting. If no record date is set for
the determination of shareholders entitled to receive payment of any stock
dividend or distribution (other than one involving a purchase, redemption or
other acquisition of the corporation's shares) the record date shall be the date
the Board authorizes the stock dividend or distribution.
2.9 VOTING RECORD
At least ten days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for ten days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
2.10 QUORUM
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, are entitled to vote and be counted collectively upon
such matter,
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<PAGE> 11
represented in person or by proxy, shall constitute a quorum of such shares at a
meeting of shareholders. If less than a majority of such votes are represented
at a meeting, a majority of the votes so represented may adjourn the meeting
from time to time without further notice if the new date, time or place is
announced at the meeting before adjournment. Any business may be transacted at a
reconvened meeting that might have been transacted at the meeting as originally
called, provided a quorum is present or represented at such meeting. Once a
share is represented for any purpose at a meeting other than solely to object to
holding the meeting or transacting business at such meeting, it is deemed
present for quorum purposes for the remainder of the meeting and any adjournment
thereof (unless a new record date is or must be set for the adjourned meeting)
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
2.11 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act requires a greater number of affirmative votes.
2.12 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid eleven months after the date of its
execution, unless otherwise provided in the proxy. A proxy with respect to a
specified meeting shall entitle the holder thereof to vote at any reconvened
meeting following adjournment of such meeting but shall not be valid after the
final adjournment thereof.
2.13 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.14
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.14 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder
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has a right to vote. Unless otherwise provided in the Articles of Incorporation
or in Section 3.14 hereof, the candidates elected shall be those receiving the
largest number of votes cast, up to the number of Directors to be elected.
2.15 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action which could be taken at a meeting of the shareholders may be
taken without a meeting if one or more written consents setting forth the action
so taken are signed by all shareholders entitled to vote on the action and are
delivered to the corporation. If not otherwise fixed by the Board, the record
date for determining shareholders entitled to take action without a meeting is
the date the first shareholder signs the consent. A shareholder may withdraw a
consent only by delivering a written notice of withdrawal to the corporation
prior to the time that all consents are in the possession of the corporation.
Action taken by written consent of shareholders without a meeting is effective
when all consents are in the possession of the corporation, unless the consent
specifies a later effective date. Any such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the shareholders.
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
3.2 NUMBER AND TENURE
The Board shall be composed of not less than one nor more than nine
Directors, the specific number to be set by resolution of the Board or the
shareholders. The number of Directors may be changed from time to time by
amendment to these Bylaws, but no decrease in the number of Directors shall have
the effect of shortening the term of any incumbent Director. Directors need not
be shareholders of the corporation or residents of the state of Washington and
need not meet any other qualifications.
The Board shall be divided into three classes, with such classes to be as
equal in number as may be possible, with any Director or Directors in excess of
the number divisible by three being assigned to Class 3 and Class 2, as
appropriate. At each annual meeting of shareholders the number of Directors
equal to the number of Directors in the class whose term expires at the time of
such meeting shall be elected
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to serve until the third ensuing annual meeting of shareholders. Notwithstanding
any of the foregoing provisions of this Section 3.2, Directors shall serve until
their successors are elected and qualified or until their earlier death,
resignation or removal from office or until there is a decrease in the number of
Directors.
3.3 NOMINATION AND ELECTION.
3.3.1 NOMINATION
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations for the
election of Directors may be made (a) by or at the direction of the Board or (b)
by any shareholder of record entitled to vote for the election of Directors at
such meeting; provided, however, that a shareholder may nominate persons for
election as Directors only if written notice (in accordance with subsection
2.6.3 hereof) of such shareholder's intention to make such nominations is
received by the Secretary not later than (i) with respect to an election to be
held at an annual meeting of the shareholders, not fewer than sixty nor more
than ninety days prior to the date specified in subsection 2.1 hereof for such
annual meeting (or if less than sixty days' notice or prior public disclosure of
the date of the annual meeting is given or made to the shareholders, not later
than the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made) and (ii) with
respect to an election to be held at a special meeting of the shareholders for
the election of Directors, the close of business on the seventh business day
following the date on which notice of such meeting is first given to
shareholders. Any such shareholder's notice shall set forth (a) the name and
address of the shareholder who intends to make a nomination; (b) a
representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation which are beneficially
owned by the shareholder; (c) a representation that the shareholder intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; (d) as to each person the shareholder proposes to
nominate for election or re-election as a Director, the name and address of such
person and such other information regarding such nominee as would be required in
a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had such nominee been nominated by the Board, and a
description of any arrangements or understandings, between the shareholder and
such nominee and any other persons (including their names), pursuant to which
the nomination is to be made; and (e) the consent of each such nominee to serve
as a Director if elected. If the facts warrant, the Board, or the chairman of a
shareholders' meeting at which Directors are to be elected, shall determine and
declare that a nomination was not made in accordance with the foregoing
procedure and, if it is so determined, the defective nomination
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shall be disregarded. The right of shareholders to make nominations pursuant to
the foregoing procedure is subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation. The procedures set forth in this subsection 3.3 for nomination
for the election of Directors by shareholders are in addition to, and not in
limitation of, any procedures now in effect or hereafter adopted by or at the
direction of the Board or any committee thereof.
3.3.2 ELECTION
At each election of Directors, the persons receiving the greatest number
of votes shall be the Directors.
3.4 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the state of Washington for holding regular meetings thereof without
notice other than such resolution.
3.5 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any one Director and,
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the state of Washington as the place
for holding any special Board or committee meeting called by them.
3.6 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
3.7 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally. Neither
the
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business to be transacted at, nor the purpose of, any special meeting need be
specified in the notice of such meeting.
3.7.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.7.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
3.7.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed
effective when dispatched to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.7.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.7.5 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two days
before the meeting.
3.8 WAIVER OF NOTICE
3.8.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of
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such notice. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board or any committee designated by the Board
need be specified in the waiver of notice of such meeting.
3.8.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the Director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business at such meeting and does not
thereafter vote for or assent to action taken at the meeting.
3.9 QUORUM
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority are present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.10 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board meeting shall be the act of the Board, unless
the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
3.11 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business at such meeting, (b) the Director's dissent or abstention from the
action taken is entered in the minutes of the meeting, or (c) the Director
delivers written notice of the Director's dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation within a
reasonable time after adjournment of the meeting. The right of dissent or
abstention is not available to a Director who votes in favor of the action
taken.
3.12 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
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written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.13 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.14 REMOVAL
Any Director or the entire Board may be removed for cause by the holders
of not less than two-thirds of the shares entitled to elect the Director or
Directors whose removal is sought. Such action may only be taken at a special
meeting of the shareholders called expressly for that purpose, providing that
notice of the proposed removal, which shall include a statement of the charges
alleged against the Director, shall have been duly given to the shareholders
together with or as a part of the notice of the meeting.
Where a question of the removal of a Director for cause is to be
presented for shareholder consideration, an opportunity must be provided to such
Director to present his or her defense to the shareholders by a statement which
must accompany or precede the notice of the special meeting of shareholders or,
if provided to shareholders prior to the notice of the special meeting, the
initial solicitation of proxies seeking authority to vote for the removal of
such Director for cause. If not provided, then such proxies may not be voted for
removal. The Director involved shall be served with notice of the meeting at
which such action is proposed to be taken together with a statement of the
specific charges and shall be given an opportunity to be present and to be heard
at the meeting at which his or her removal is considered.
The vacancy created by the removal of a Director under this Section 3.14
shall be filled only by a vote of the holders of two-thirds of the shares then
entitled to elect the Director removed. Such vote may be taken at the same
meeting at which the removal of such Director was accomplished, or at such later
meeting, regular or special, as the shareholders may decide.
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3.15 VACANCIES
Subject to the provisions of Section 3.14 hereof and unless the Articles
of Incorporation provide otherwise, any vacancy occurring on the Board may be
filled by the shareholders, the Board or, if the Directors in office constitute
fewer than a quorum, by the affirmative vote of a majority of the remaining
Directors. Any vacant office held by a Director elected by the holders of one or
more classes or series of shares entitled to vote and be counted collectively
thereon shall be filled only by the vote of the holders of such class or series
of shares. A Director elected to fill a vacancy shall serve only until the next
election of Directors by the shareholders.
3.16 EXECUTIVE AND OTHER COMMITTEES
3.16.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.16.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (a) authorize
or approve a distribution except according to a general formula or method
prescribed by the Board, (b) approve or propose to shareholders actions or
proposals required by the Washington Business Corporation Act to be approved by
shareholders, (c) fill vacancies on the Board or any committee thereof, (d)
adopt, amend or repeal Bylaws, (e) amend the Articles of Incorporation pursuant
to RCW 23B.10.020, (f) approve a plan of merger not requiring shareholder
approval, or (g) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares except that the Board may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board.
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3.16.3 AUDIT COMMITTEE
In addition to any committees appointed pursuant to this Section 3.16,
there shall be an Audit Committee, appointed annually by the Board, consisting
of at least two Directors who are not members of management. It shall be the
responsibility of the Audit Committee to review the scope and results of the
annual independent audit of books and records of the corporation, to review
compliance with all corporate policies which have been approved by the Board and
to discharge such other responsibilities as may from time to time be assigned to
it by the Board. The Audit Committee shall meet at such times and places as the
members deem advisable, and shall make such recommendations to the Board as they
consider appropriate.
3.16.4 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute a
quorum for the transaction of business at any meeting of such committee but, if
less than a majority are present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business Corporation Act, if a
quorum is present when the vote is taken the act of a majority of the members
present shall be the act of the committee.
3.16.5 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.16.6 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary or the
Board. Any such resignation is effective upon delivery thereof, unless the
notice of resignation specifies a later effective date, and the acceptance of
such resignation shall not be necessary to make it effective.
3.16.7 REMOVAL
The Board may remove any member of any committee elected or appointed by
it but only by the affirmative vote of the greater of a majority of the
Directors then in
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office and the number of Directors required to take action in accordance with
these Bylaws.
3.17 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
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4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as Chairman of such meetings.
4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless another officer is so designated by the Board, shall preside
over meetings of the Board and shareholders in the absence of a Chairman of the
Board, and, subject to the Board's control, shall supervise and control all of
the assets, business and affairs of the corporation. In general, the President
shall perform all duties incident to the office of President and such other
duties as are prescribed by the Board from time to time. If no Secretary has
been appointed, the President shall have responsibility for the preparation of
minutes of meetings of the Board and shareholders and for authentication of the
records of the corporation.
4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President (or if there is more than one Vice President, the Vice
President who was designated by the Board as the successor to the President, or
if no Vice President is so designated, the Vice President first elected to such
office) shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by or at the
direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation's records and stock registers and authentication of the
corporation's records and shall in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the President or by or at the direction of the Board. In the
absence of the Secretary, an Assistant Secretary may perform the duties of the
Secretary.
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4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
SECTION 5. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 CONTRACTS
The Board may authorize any officer or officers, or agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation. Such authority may be general or confined to
specific instances.
5.2 LOANS TO THE CORPORATION
No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 CHECKS AND DRAFTS
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, or agent or agents, of the corporation and
in such manner as is from time to time determined by resolution of the Board.
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5.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositories as the Board may select.
SECTION 6. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
6.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by the President or any Vice President and by
the Treasurer or any Assistant Treasurer or the Secretary or any Assistant
Secretary and shall include on their face written notice of any restrictions
which may be imposed on the transferability of such shares. All certificates
shall be consecutively numbered or otherwise identified.
6.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
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6.5 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 7. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its shareholders
and the Board, a record of all actions taken by the shareholders or the Board
without a meeting, and a record of all actions taken by a committee of the Board
exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in
effect;
3. the minutes of all meetings of shareholders and records of
all action taken by shareholders without a meeting, for the past three years;
4. the financial statements described in RCW 23B.16.200(1) for
the past three years;
5. all written communications to shareholders generally within
the past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Washington
Secretary of State.
SECTION 8. ACCOUNTING YEAR
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The accounting year of the corporation shall be the calendar year,
provided that if a different accounting year is at any time selected by the
Board for purposes of federal income taxes, or any other purpose, the accounting
year shall be the year so selected.
SECTION 9. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 10. INDEMNIFICATION
10.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or
is otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as a Director, officer, partner,
trustee, employee or agent of another corporation or of a partnership, joint
venture, trust, employee benefit plan or other enterprise (hereinafter an
"indemnitee"), whether the basis of a proceeding is alleged action in an
official capacity as such a Director, officer, partner, trustee, employee or
agent or in any other capacity while serving as such a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless by
the corporation against all expense, liability and loss (including counsel fees,
judgments, fines, ERISA excise taxes or penalties and amounts to be paid in
settlement) actually and reasonably incurred or suffered by such indemnitee in
connection therewith, and such indemnification shall continue as to an
indemnitee who has ceased to be a Director, officer, partner, trustee, employee
or agent and shall inure to the benefit of the indemnitee's heirs, executors and
administrators. Except as provided in subsection 10.2 of this Section with
respect to proceedings seeking to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if a proceeding (or part
thereof) was authorized or ratified by the Board. The right to indemnification
conferred in this Section shall be a contract right.
10.2 RESTRICTIONS ON INDEMNIFICATION
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No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of RCW 23B.08.310, for any transaction with respect to which it was
finally adjudged that such indemnitee personally received a benefit in money,
property or services to which the indemnitee was not legally entitled or if the
corporation is otherwise prohibited by applicable law from paying such
indemnification. Notwithstanding the foregoing, if RCW 23B.08.560 or any
successor provision of the Washington Business Corporation Act is hereafter
amended, the restrictions on indemnification set forth in this subsection 10.2
shall be as set forth in such amended statutory provision.
10.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the
right to be paid by the corporation the expenses incurred in defending any
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"). An advancement of expenses shall be made upon delivery to the
corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal that such indemnitee is not entitled to be indemnified for such expenses
under this subsection 10.3.
10.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 10.1 or 10.3 of this Section is not paid in
full by the corporation within sixty days after a written claim has been
received by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part, in
any such suit or in a suit brought by the corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. The
indemnitee shall be presumed to be entitled to indemnification under this
Section upon submission of a written claim (and, in an action brought to enforce
a claim for an advancement of expenses, where the required undertaking has been
tendered to the corporation) and thereafter the corporation shall have the
burden of proof to overcome the presumption that the indemnitee is so entitled.
10.5 PROCEDURES EXCLUSIVE
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Pursuant to RCW 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the procedures
required by RCW 23B.08.550 or any successor provision of the Washington Business
Corporation Act.
10.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred in
this Section shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the Articles of
Incorporation or Bylaws of the corporation, general or specific action of the
Board, contract or otherwise.
10.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself
and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the Washington Business Corporation Act. The corporation
may enter into contracts with any Director, officer, partner, trustee, employee
or agent of the corporation in furtherance of the provisions of this Section and
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such amounts as may be necessary to effect indemnification as provided in this
Section.
10.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any class
or group of employees and agents of the corporation (a) with the same scope and
effect as the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (b)
pursuant to rights granted pursuant to, or provided by, the Washington Business
Corporation Act; or ) as are otherwise consistent with law.
10.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the corporation,
is or was serving as a Director or officer of another foreign or domestic
corporation of which a majority of the shares entitled to vote in the election
of its Directors is held
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by the corporation shall be deemed to be so serving at the request of the
corporation and entitled to indemnification and advancement of expenses under
subsections 10.1 and 10.3 of this Section.
SECTION 11. AMENDMENTS
The Board shall have the power to adopt, amend or repeal the Bylaws of
this corporation subject to approval by a majority of the Continuing Directors
as defined in the Articles of Incorporation; provided, however, the Board may
not repeal or amend any bylaw that the shareholders have expressly provided may
not be amended or repealed by the Board. The shareholders shall also have the
power to adopt, amend or repeal the Bylaws of this corporation by the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares and, to the extent, if any, provided by resolution or resolutions of the
Board providing for the issue of a series of Common or Preferred Stock, not less
than two-thirds of the outstanding shares entitled to vote thereon, voting as a
class.
* * * * *
The foregoing Amended and Restated Bylaws were adopted by the Board on October
17, 1996 and are effective as of October 17, 1996.
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EXHIBIT 10.2
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT
SENIOR MANAGEMENT EMPLOYMENT AGREEMENT, dated as of the 18 day of October, 1996,
between TARGETED GENETICS CORPORATION, a Washington corporation (the "Company"),
and _____________ ("Executive").
RECITALS
A. Executive is currently employed by the Company or one of its
Subsidiaries.
B. The Board of Directors of the Company (the "Board") has determined
that it is appropriate to reinforce the continued attention and dedication of
certain members of the Company's management, including Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a Change in Control of the Company, as defined
in Schedule A attached hereto.
AGREEMENTS
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the Company and Executive agree as follows:
1. DEFINITIONS
Terms capitalized in this Agreement which are not otherwise defined shall
have the meanings assigned to such terms in Schedule A attached hereto.
2. EFFECTIVENESS
Except with respect to Sections 6 through 9 of this Agreement which shall
be effective immediately, this Agreement shall become effective immediately upon
the occurrence of a Change in Control, provided that Executive is employed by
the Company immediately prior to such Change in Control.
3. TERM
Unless earlier terminated as provided herein, the initial term of this
Agreement shall be from the date hereof until the second anniversary date of
this Agreement; provided, however, that, unless terminated as provided herein or
there shall have occurred a Change in Control, on each annual anniversary date
of this Agreement this Agreement shall automatically be renewed for successive
two-year terms. In the event
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of a Change in Control, unless earlier terminated as provided herein, this
Agreement shall continue in effect until the second anniversary date of the
Change in Control at which time this Agreement shall expire.
4. BENEFITS UPON CHANGE IN CONTROL
Executive shall be entitled to the following payments and benefits
following a Change in Control, whether or not a Termination occurs:
(A) SALARY AND BENEFITS. Executive shall (i) receive an annual base
salary no less than the Executive's annual base salary in effect immediately
prior to the date that the Change in Control occurs, including any salary which
has been earned but deferred, and an annual bonus equal to at least the average
of the three annual bonuses paid to Executive in the three years prior to the
Change in Control, and (ii) be entitled to participate in all employee expense
reimbursement, incentive, savings and retirement plans, practices, policies and
programs (including any Company plan qualified under Section 401(a) of the Code)
available to other peer executives of the Company and its Subsidiaries, but in
no event shall the benefits provided to Executive under this item (ii) be less
favorable, in the aggregate, than the most favorable of those plans, practices,
policies or programs in effect immediately prior to the date that the Change in
Control occurs.
(B) WELFARE PLAN BENEFITS. The Company shall at the Company's expense
(except for the amount, if any, of any required employee contribution which
would have been necessary for Executive to contribute as an active employee
under the plan or program as in effect on the date of the Change in Control)
continue to cover Executive (and his or her dependents) under, or provide
Executive (and his or her dependents) with insurance coverage no less favorable
than, the Company's life, disability, health, dental and any other employee
welfare benefit plans or programs, as in effect on the date of the Change in
Control (such benefits, the "Welfare Benefits").
(C) DEATH OF EXECUTIVE. In the event of Executive's death prior to
Termination, but while employed by the Company or any Subsidiary, his or her
spouse, if any, or otherwise the personal representative of his or her estate
shall be entitled to receive (i) Executive's salary at the rate then in effect
through the date of death, as provided under the Company's pay policy, (ii) any
Accrued Benefits for the periods of service prior to the date of death, and
(iii) Welfare Benefits for a period of two (2) years following the death of
Executive.
(D) DISABILITY OF EXECUTIVE. In the event of Executive's Disability
prior to Termination, but while employed by the Company or any Subsidiary,
Executive shall be entitled to receive (i) his or her salary at the rate then in
effect through the date of the determination of Disability, as provided under
the Company's pay policy, (ii) any Accrued Benefits for the periods of service
prior to the date of the determination of
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Disability, (iii) payments under the Company's short and long term disability
plans following the determination of Disability, and (iv) Welfare Benefits for a
period of two (2) years following the determination of Disability.
(E) CAUSE; UPON EXPIRATION OF THIS AGREEMENT; OTHER THAN FOR GOOD
REASON. If, prior to Termination, Executive's employment shall be terminated by
the Company for Cause or upon expiration of this Agreement or by Executive other
than for Good Reason, Executive shall be entitled to receive (i) his or her
salary at the rate then in effect through the date of such termination, as
provided under the Company's pay policy, and (ii) any Accrued Benefits for the
periods of service prior to the date of such termination.
(F) WITHHOLDING. All payments under this Section 4 are subject to
applicable federal and state payroll withholding or other applicable taxes.
5. PAYMENTS AND BENEFITS UPON TERMINATION
Executive shall be entitled to the following payments and benefits
following Termination:
(A) TERMINATION PAYMENT. In recognition of past services to
the Company by Executive, the Company shall make a lump sum payment in cash to
Executive as severance pay equal to _____ times the sum of: (i) Executive's
annual base salary in effect immediately prior to the date that either a Change
in Control shall occur or such date of Termination, whichever salary is higher,
provided that if Executive is a part-time employee on the date of Termination
then Executive's base salary in effect immediately prior to the date of
Termination shall be used in calculating the payment to which Executive may be
entitled under this Section 5(a); plus (ii) a percentage of Executive's annual
base salary specified in subparagraph (i) above, which percentage is equal to
the percentage bonus paid to Executive for the fiscal year ended immediately
prior to the Change in Control; provided, however, that if Termination occurs
prior to the determination of such percentage for a fiscal year that has ended
or if Executive has not received a percentage bonus in the previous year, such
percentage shall be ten percent (10%). All payments under this Section 5(a) (the
"Termination Payments") shall be paid within ten (10) business days following
the date of Termination.
(B) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
Notwithstanding the foregoing, if all or any portion of the Termination Payments
either alone or together with all other payments and benefits which Executive
receives or is then entitled to receive (pursuant to this Agreement or
otherwise) from the Company or any Subsidiary (all such payments and benefits,
including the Termination Payments, the "Termination Benefits"), would
constitute a Parachute Payment, then the Payments to Executive under Section
5(a) shall be increased (such increase, a "Gross-Up Payment"), but only to the
extent necessary to ensure that, after payment by Executive of all taxes
(including
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any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes and Excise Tax imposed upon the Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Termination Benefits. The foregoing calculations shall be
made, at the Company's expense, by the Company and Executive. If no agreement on
the calculations is reached within thirty (30) business days after the date of
Termination, then the accounting firm which regularly audits the financial
statements of the Company (the "Auditors") shall review the calculations. The
determination of such firm shall be conclusive and binding on all parties and
the expense for such accountants shall be paid by the Company. Pending such
determination, the Company shall continue to make all other required payments to
Executive at the time and in the manner provided herein and shall pay the
largest portion of such payments and benefits that, in the Company's reasonable
judgment, may be paid without triggering the Excise Tax.
As a result of the uncertainty in the application of Section 4999 of
the Code, it is possible that Termination Payments or Gross-Up Payments will
have been made by the Company which should not have been made (an "Overpayment")
or that additional Gross-Up Payments which will not have been made by the
Company should have been made (an "Underpayment"). If it is determined by the
Company and Executive, or, if no agreement is reached by the Company and
Executive, the Auditors, that an Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan to Executive which Executive shall
repay to the Company, together with interest at the applicable federal rate
provided for in section 7872(f)(2) of the Code. In the event that the Company
and Executive, or, if no agreement is reached by the Company and Executive, the
Auditors, determine that an Underpayment has occurred, such Underpayment shall
promptly be paid by the Company to or for the benefit of Executive, together
with interest at the applicable federal rate provided for in section
7872(f)(2)(A) of the Code. The Company and Executive shall give each other
prompt written notice of any information that could reasonable result in the
determination that an Overpayment or Underpayment has been made.
(C) ACCRUED BENEFITS. The Company shall make a lump sum payment in
cash to Executive in the amount of any Accrued Benefits for the periods of
service prior to the date of Termination.
(D) WELFARE PLAN BENEFITS. The Company shall at the Company's expense
(except for the amount, if any, of any required employee contribution which
would have been necessary for Executive to contribute as an active employee
under the plan or program as in effect on the date of Termination) continue to
cover Executive (and his or her dependents) under, or provide Executive (and his
or her dependents) with Welfare Benefits (as in effect on the date of the Change
in Control or, at the option of Executive, on the date of Termination) for a
period of one year following the date of Termination (or, at the Company's
option, in lieu of providing such Welfare Benefits, a
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lump sum cash payment may be made which will equal the then-present value of the
cost to the Company of such Welfare Benefits); provided, however, that if
Executive is provided by another employer during such one-year period with
benefits substantially comparable to the benefits provided by one or more of
such plans or programs, the benefits provided by the Company shall, unless a
lump sum payment has been made by the Company, be reduced by the benefits
provided by such other employer, but only to the extent of, and with respect to,
the benefits otherwise payable under the corresponding Company employee welfare
benefit plan or program.
(E) DEATH OF EXECUTIVE. In the event of Executive's death subsequent
to Termination and prior to receiving all benefits and payments provided for by
this Section 5, such benefits shall be paid to his or her spouse, if any, or
otherwise to the personal representative of his or her estate, unless Executive
has otherwise directed the Company in writing prior to his or her death.
(F) EXCLUSIVE SOURCE OF SEVERANCE PAY. Benefits provided hereunder
shall replace the amount of any severance payments to which Executive would
otherwise be entitled under any severance plan or policy generally available to
employees of the Company.
(G) NONSEGREGATION. No assets of the Company need be segregated or
earmarked to represent the liability for benefits payable hereunder. The rights
of any person to receive benefits hereunder shall be only those of a general
unsecured creditor.
(H) WITHHOLDING. All payments under this Section 5 are subject to
applicable federal and state payroll withholding or other applicable taxes.
6. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Seattle, Washington, in
accordance with the Rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any jurisdiction.
7. CONFLICT IN BENEFITS
Except for the amount of any severance payments to which Executive would
otherwise be entitled under any severance plan or policy generally available to
employees of the Company, this Agreement is not intended to and shall not
adversely affect, limit or terminate any other agreement or arrangement between
Executive and the Company presently in effect or hereafter entered into,
including any employee benefit plan under which Executive is entitled to
benefits.
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8. TERMINATION
(A) TERMINATION PRIOR TO A CHANGE IN CONTROL.
(i) At any time prior to a Change in Control, the Company may
terminate this Agreement upon thirty (30) days' prior written notice in the form
of a Notice of Termination, and this Agreement shall terminate upon the
effective date specified in such Notice of Termination; provided, however, such
Notice of Termination shall have no force or effect in the event of the
occurrence of a Change in Control prior to such effective date.
(ii) At any time prior to a Change in Control, Executive may
terminate this Agreement upon thirty (30) days' prior written notice in the form
of a Notice of Termination, and this Agreement shall terminate upon the
effective date specified in such Notice of Termination notwithstanding the
occurrence of a Change in Control prior to such effective date.
(B) TERMINATION AFTER A CHANGE IN CONTROL. After a Change in Control,
either party may terminate this Agreement upon thirty (30) days' prior written
notice in the form of a Notice of Termination.
(C) EFFECT OF TERMINATION. Notwithstanding the termination or
expiration of this Agreement, the Company shall remain liable for any rights or
payments arising prior to such termination to which Executive is entitled under
this Agreement.
9. MISCELLANEOUS
(A) AMENDMENT. This Agreement may not be amended except by written
agreement between Executive and the Company.
(B) NO MITIGATION. All payments and benefits to which Executive is
entitled under this Agreement shall be made and provided without offset,
deduction or mitigation on account of income Executive could or may receive from
other employment or otherwise, except as provided in Section 5(d) hereof.
(C) EMPLOYMENT NOT GUARANTEED. Nothing contained in this Agreement,
and no decision as to the eligibility for benefits or the determination of the
amount of any benefits hereunder, shall give Executive any right to be retained
in the employ of the Company or rehired, and the right and power of the Company
to dismiss or discharge any employee for any reason is specifically reserved.
Except as expressly provided herein, no employee or any person claiming under or
through him or her shall have any right or interest herein, or in any benefit
hereunder.
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(D) LEGAL EXPENSES. In connection with any litigation, arbitration or
similar proceeding, whether or not instituted by the Company or Executive, with
respect to the interpretation or enforcement of any provision of this Agreement,
the prevailing party shall be entitled to recover from the other party all costs
and expenses, including reasonable attorneys' fees and disbursements, in
connection with such litigation, arbitration or similar proceeding. The Company
shall pay prejudgment interest on any money judgment obtained by Executive as a
result of such proceedings, calculated at the published commercial interest rate
of Seafirst Bank for its best customers, as in effect from time to time from the
date that payment should have been made to Executive under this Agreement.
(E) NOTICES. Any notices required under the terms of this Agreement
shall be effective when mailed, postage prepaid, by certified mail and addressed
to, in the case of the Company:
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
Attention: Chief Financial Officer
and to, in the case of Executive:
----------------------
----------------------
----------------------
Either party may designate a different address by giving written notice of
change of address in the manner provided above.
(F) WAIVER; CURE. No waiver or modification in whole or in part of
this Agreement, or any term or condition hereof, shall be effective against any
party unless in writing and duly signed by the party sought to be bound. Any
waiver of any breach of any provision hereof or any right or power by any party
on one occasion shall not be construed as a waiver of, or a bar to, the exercise
of such right or power on any other occasion or as a waiver of any subsequent
breach. Any breach of this Agreement may be cured by the breaching party within
ten (10) days of the date that such breaching party shall have received written
notice of such breach from the party asserting such breach.
(G) BINDING EFFECT; SUCCESSORS. Subject to the provisions hereof,
nothing in this Agreement shall prevent the consolidation of the Company with,
or its merger into, any other corporation, or the sale by the Company of all or
substantially all of its properties and assets, or the assignment of this
Agreement by the Company in connection with any of the foregoing actions. This
Agreement shall be binding upon,
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inure to the benefit of and be enforceable by the Company and Executive and
their respective heirs, legal representatives, successors and assigns. If the
Company shall be merged into or consolidated with another entity, the provisions
of this Agreement shall be binding upon and inure to the benefit of the entity
surviving such merger or resulting from such consolidation. The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, including the successor to all or substantially all of
the business or assets of any Subsidiary, division or profit center of the
Company, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. The provisions of this Section 10(g)
shall continue to apply to each subsequent employer of Executive hereunder in
the event of any subsequent merger, consolidation or transfer of assets of such
subsequent employer.
(H) SEPARABILITY. Any provision of this Agreement which is held to be
unenforceable or invalid in any respect in any jurisdiction shall be ineffective
in such jurisdiction to the extent that it is unenforceable or invalid without
affecting the remaining provisions hereof, which shall continue in full force
and effect. The enforceability or invalidity of any provision of this Agreement
in one jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
(I) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of Washington applicable to contracts
made and to be performed therein.
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IN WITNESS WHEREOF, the Company and Executive have executed this Agreement
as of the day and year first above written.
TARGETED GENETICS CORPORATION
By:
----------------------------
Title:
-------------------------
EXECUTIVE:
-------------------------
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Schedule A
CERTAIN DEFINITIONS
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"Accrued Benefits" means the aggregate of any compensation previously
deferred by Executive (together with any accrued interest or earnings thereon),
any accrued vacation pay and, if the date of Termination occurs after the end of
a Fiscal Year for which a bonus is payable to Executive, such bonus, in each
case to the extent previously earned and not paid, plus an amount equal to the
product of the bonus paid to Executive the prior Fiscal Year and a fraction, the
numerator of which is the number of days since the end of the prior Fiscal Year,
and the denominator of which is 365.
"Beneficial Owner" and "Beneficial Ownership" have the meanings set forth
in Rules 13d-3 and 13d-5 of the General Rules and Regulations promulgated under
the Exchange Act.
"Board Change" means that a majority of the seats (other than vacant seats)
on the Board have been occupied by individuals who were neither (a) nominated or
appointed by a majority of the Incumbent Directors nor (b) nominated or
appointed by directors so nominated or appointed.
"Business Combination" means a reorganization, merger or consolidation or
sale of substantially all of the assets of the Company.
"Cause" means (a) willful misconduct on the part of Executive that has a
materially adverse effect on the Company and its Subsidiaries, taken as a whole,
(b) Executive's engaging in conduct which could reasonably result in his or her
conviction of a felony or a crime against the Company or involving substance
abuse, fraud or moral turpitude, or which would materially compromise the
Company's reputation, as determined in good faith by a written resolution duly
adopted by the affirmative vote of not less than two-thirds of all of the
directors who are not employees or officers of the Company, or (c) unreasonable
refusal by Executive to perform the duties and responsibilities of his or her
position in any material respect. No action, or failure to act, shall be
considered willful or unreasonable if it is done by Executive in good faith and
with reasonable belief that his or her action or omission was in the best
interests of the Company.
"Change in Control" means, and shall be deemed to occur upon the
happening of, any one of the following:
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(a) A Board Change; or
(b) The acquisition (whether directly or indirectly, beneficially or of
record) by any Person of (i) fifteen percent (15%) or more of the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors, which acquisition is not
approved in advance by a majority of the Incumbent Directors; or (ii)
thirty-three percent (33%) or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors, which acquisition has been approved in advance by a
majority of the Incumbent Directors; provided, however, that the following
acquisitions shall not constitute a Change in Control: (x) any acquisition by
the Company, (y) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any company controlled by the Company,
or (z) any acquisition by any company pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of the following subsection
(c) are satisfied; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation in which the Company is not the continuing or surviving
corporation, or pursuant to which shares of the Company's Common Stock are
converted into cash, securities or other property, unless following such
reorganization, merger or consolidation (i) at least sixty-six and two-thirds
percent (66-2/3%) of the then outstanding shares of common stock of the company
resulting from such reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such company entitled
to vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the Company's voting securities
immediately prior to such reorganization, merger or consolidation, (ii) no
Person (excluding the Company, any employee benefit plan (or related trust) of
the Company or such company resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, thirty-three
percent (33%) or more of the Company's voting securities) beneficially owns,
directly or indirectly, thirty-three percent (33%) or more of, respectively, the
then outstanding shares of common stock of the company resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such company entitled to vote generally in the
election of directors, and (iii) at least a majority of the members of the board
of directors of the company resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the execution
of the initial agreement providing for such reorganization, merger or
consolidation; or
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(d) Approval by the shareholders of the Company of (i) any plan or
proposal for liquidation or dissolution of the Company or (ii) any sale, lease,
exchange or other transfer in one transaction or a series of transactions of all
or substantially all of the assets of the Company other than to a company with
respect to which following such sale or other disposition (A) at least sixty-six
and two-thirds percent (66-2/3%) of the then outstanding shares of common stock
of such company and the combined voting power of the then outstanding voting
securities of such company entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial owners
of the Company's voting securities immediately prior to such sale or other
disposition, (B) no Person (excluding the Company and any employee benefit plan
(or related trust) of the Company or such company and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, thirty-three percent (33%) or more of the Company's voting
securities) beneficially owns, directly or indirectly, thirty-three percent
(33%) or more of, respectively, the then outstanding shares of common stock of
such company and the combined voting power of the then outstanding voting
securities of such company entitled to vote generally in the election of
directors, and (C) at least a majority of the members of the board of directors
of such company were approved by a majority of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing for
such sale or other disposition of assets of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Disability" means that (a) a person has been incapacitated by bodily
injury or physical or mental disease so as to be prevented thereby from
performance of his or her duties with the Company for one hundred twenty (120)
days in any twelve (12) month period, and (b)UUsuch person is disabled for
purposes of any and all of the plans or programs of the Company or any
Subsidiary that employs Executive under which benefits, compensation or awards
are contingent upon a finding of disability. The determination with respect to
whether Executive is suffering from such a Disability will be determined by a
mutually acceptable physician or, if there is no physician mutually acceptable
to the Company and Executive, by a physician selected by the then Dean of the
University of Washington Medical School.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excise Tax" means the excise tax, including any interest or penalties
thereon, imposed by Section 4999 of the Code.
"Fiscal Year" means the twelve (12) month period ending on December 31 in
each year (or such other fiscal year period established by the Board).
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"Good Reason" means, without Executive's express written consent:
(a) (i) the assignment to Executive of duties, or limitation of
Executive's responsibilities, inconsistent with Executive's title,
position, duties, responsibilities and status with the Company or any
Subsidiary that employs Executive as such duties and responsibilities
existed immediately prior to the date of the Change in Control, or
(ii) removal of Executive from, or failure to re-elect Executive to,
Executive's positions with the Company or any Subsidiary that employs
Executive immediately prior to the Change in Control, except in
connection with the involuntary termination of Executive's employment
by the Company for Cause or as a result of Executive's death or
Disability; or
(b) failure by the Company to pay, or reduction by the Company of,
Executive's annual base salary, as reflected in the Company's payroll
records for Executive's last pay period immediately prior to the
Change in Control;
(c) failure by the Company to pay, or reduction by the Company of,
Executive's salary and benefits or Welfare Benefits under Section 4(a)
or Section 4(b) of this Agreement;
(d) the relocation of the principal place of Executive's employment to a
location that is more than twenty-five (25) miles further from
Executive's principal residence than such principal place of
employment immediately prior to the Change in Control; or
(e) the breach of any material provision of this Agreement by the Company,
including, without limitation, failure by the Company to bind any
successor to the Company to the terms and provisions of this Agreement
in accordance with Section 9(g) of this Agreement.
"Incumbent Director" means a member of the Board who has been either (a)
nominated by a majority of the directors of the Company then in office or (b)
appointed by directors so nominated, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board.
"Notice of Termination" means a written notice to Executive or to the
Company, as the case may be, which shall indicate those specific provisions in
this Agreement
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relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for the termination of Executive's
employment constituting a Termination, if any, under the provision so indicated.
"Parachute Payment" means any payment deemed to constitute a "parachute
payment" as defined in Section 280G of the Code.
"Person" means any individual, entity or group within the meaning of
Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date of this
Agreement) of the Exchange Act.
"Subsidiary" with respect to the Company has the meaning set forth in Rule
12b-2 of the General Rules and Regulations promulgated under the Exchange Act.
"Termination" means, following the occurrence of any Change in Control by
the Company, (a) the involuntary termination of the employment of Executive for
any reason other than death, Disability or for Cause or (b) the termination of
employment by Executive for Good Reason.
"Voting Securities" means the voting securities of the Company entitled to
vote generally in the election of directors.
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===========================
REDACTED VERSION
===========================
EXHIBIT 10.20
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1996
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
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EXHIBIT 10.20
EXCLUSIVE SUBLICENSE AGREEMENT
THIS AGREEMENT is made and entered into this 23rd day of July 1996
("Effective Date") by and between: Alkermes, Inc., 64 Sidney Street, Cambridge,
MA 02139, (hereinafter referred to together with its subsidiaries and affiliated
companies as "LICENSOR" ) and Targeted Genetics Corporation, 1100 Olive Way,
Suite 100, Seattle, Washington 98101, (hereinafter referred to together with its
subsidiaries and affiliated companies as "LICENSEE").
WHEREAS, LICENSOR is the exclusive licensee from the Children's Hospital
Research Foundation/Children's Hospital, Inc. of certain "Licensed Patent
Rights" and "Licensed Materials" relating to Adeno-Associated Virus (AAV)
packaging cell lines invented by Dr. Philip R. Johnson and has the right to
grant sublicenses under Licensed Patent Rights and to Licensed Materials.
WHEREAS, LICENSEE desires to obtain certain sublicensing rights under the
Licensed Patent Rights and to the Licensed Materials 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 I
DEFINITIONS
1.1 "LICENSEE" shall include the following:
(a) a related company of LICENSEE, the voting stock of which is directly
or indirectly at least fifty percent (50%) owned or controlled by
LICENSEE;
(b) an organization which directly or indirectly owns or controls more
than fifty percent (50%) of the voting stock of LICENSEE;
(c) an organization, the majority ownership of which is directly or
indirectly common to the majority ownership of LICENSEE.
1.2 "Licensed Patent Rights", as used herein, shall mean all of the following:
(a) U.S. Patent Application Serial No. 08/254,358, filed June 6, 1994, and
Serial No. 08/475,391, filed June 7, 1995, "Adeno-Associated Virus
Materials", invented by Philip R. Johnson.
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(b) to the extent that the following contain one or more claims to the
invention or inventions claimed in (a) above: divisions, continuations
and continuations-in-part of (a) above, all divisions and
continuations of these continuations-in-part, divisions and
continuations, and any reissues, extensions or reexaminations of the
foregoing patents;
(c) to the extent that the following contain one or more claims to the
invention or inventions claimed in (a) above: all counterpart foreign
applications and patents to (a) and (b) above;
(d) any other patent applications, including divisions, continuations,
continuations-in-part, reissues, extensions, reexaminations and
counterpart foreign applications thereof, that contain one or more
claims to the invention or inventions claimed in (a) above or any
improvements to such invention or inventions; and
(e) any patents issuing in respect of any of the applications, divisions,
continuations, continuations-in-part, reissues, extensions,
reexaminations and counterpart foreign applications referenced in
clauses (a), (b), (c) and (d) above.
1.3 "Licensed Materials", as used herein, shall mean the C12 adeno-associated
virus packaging cell line developed by the Children's Hospital Research
Foundation/Children's Hospital, Inc. and any improvements thereto.
1.4 "Licensed Product(s)", as used herein, shall mean any product which cannot
be manufactured, used or sold without utilizing Licensed Materials or
which, in the course of manufacture, use or sale would, in the absence of
this Agreement, infringe one or more issued claims of the Licensed Patent
Rights that have not been held invalid or unenforceable by an unappealed or
unappealable judgement of a court of competent jurisdiction or expired.
1.5 "Net Sales" shall mean revenue received by LICENSEE from sales of Licensed
Products by LICENSEE, its sublicensee(s) or agent(s) less the sum of the
following:
(a) discounts allowed in amounts customary in the trade,
(b) sales taxes, tariff duties, and/or use taxes which are directly
imposed and are with reference to particular sales;
(c) outbound transportation prepaid or allowed;
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* Confidential Treatment Requested
(d) amounts allowed or credited on returns; and
(e) charges deemed uncollectible under generally accepted accounting
principles.
1.6 "Field of Use" shall mean the following:
[ * ]
1.7 "Optioned Field(s) of Use" shall mean the following:
Optioned Field 1. [ * ]
Optioned Field 2. [ * ]
Optioned Field 3. [ * ]
Optioned Field 4. [ * ]
Optioned Field 5. [ * ]
Optioned Field 6. [ * ]
Optioned Field 7. [ * ]
ARTICLE II
GRANT
2.1 LICENSOR hereby grants to LICENSEE a worldwide exclusive sublicense under
Licensed Patent Rights and to Licensed Materials to make, have made, use, lease,
have sold and sell Licensed Products in the Field of Use.
2.2 LICENSOR hereby grants to LICENSEE under Licensed Patent Rights and to
Licensed Materials the exclusive right to grant one or more sublicenses to its
rights to make, have made, use, lease, have sold and sell Licensed Products in
the Field of Use.
* Confidential Treatment Requested
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* Confidential Treatment Requested
2.3 LICENSOR reserves unto itself the personal, non-transferable right to make,
have made, and use Licensed Product(s) and Licensed Material in the Field of Use
for internal research purposes only, and for no other purpose in the Field of
Use.
2.4 LICENSEE hereby agrees grants to LICENSOR an exclusive, worldwide
royalty-free license to make, have made, use and sell products under any patent
rights owned by LICENSEE for improvements on the C12 cell line in the field of
nervous system diseases including, without limitation, brain cancers.
ARTICLE III
COMPENSATION-ROYALTIES
3.1 For the rights, privileges and license granted hereunder, LICENSEE shall
pay royalties to LICENSOR in the manner hereinafter provided to the end of the
term of the Licensed Patent Rights on a country-by-country basis or until this
Agreement shall be terminated as hereinafter provided, whichever occurs first.
LICENSEE agrees to pay to LICENSOR a royalty of [ * ] on the amount of annual
Net Sales of Licensed Products that are less than or equal to [ * ] and a
royalty of [ * ] on the amount of annual Net Sales of Licensed Products that
exceed [ * ]. For sales in any country in which no Licensed Patent Rights exist,
such royalty shall be reduced [ * ] on the amount of annual Net Sales of
Licensed Products incorporating, based upon or made by employing the Licensed
Material or the technology described in the Licensed Patent Rights.
3.2 Notwithstanding the foregoing, if LICENSEE is required to pay royalties to
an unaffiliated third party(ies) for sales of Licensed Products for which
payments are also due to LICENSOR ("Third Party Royalties"), then the royalties
to be paid by LICENSEE to LICENSOR shall be reduced by the amount that the sum
of the LICENSOR's royalty percentage and Third Party royalty percentage are in
excess of [ * ] of Net Sales of Licensed Products, but in no event shall the
LICENSOR'S royalty percentage be reduced to less than [ * ].
3.3 No multiple royalties shall be payable because any Licensed Product, its
manufacture, use, lease or sale are or shall be covered by multiple claims or
more than one Licensed Patent Right licensed under this Agreement.
* Confidential Treatment Requested
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* Confidential Treatment Requested
3.4 In addition to royalties, LICENSEE agrees to pay LICENSOR the following
sums within thirty (30) days of the time that each of the milestones listed
below:
(a) The sum of [ * ] upon execution of this Agreement and [ * ] payable
one (1) year from the Effective Date;
(b) The sum of [ * ] for the first Phase I clinical trial, or equivalent
in a foreign country, initiated by LICENSEE or one of its sublicensees
for a Licensed Product;
(c) The sum of [ * ] for the first Phase II clinical trial, or equivalent
in a foreign country, initiated by LICENSEE or one of its sublicensees
for a Licensed Product (Phase I/II or equivalent in a foreign country
will be considered a Phase I trial);
(d) The sum of [ * ] for the first Phase III clinical trial, or equivalent
in a foreign country, initiated by LICENSEE or one of its sublicensees
for a Licensed Product for which a Phase II clinical trial was
initiated and, consequently, a milestone payment was made to LICENSOR
pursuant to paragraph 3.4(c);
(e) The sum of [ * ] for the first Phase III clinical trial, or equivalent
in a foreign country, initiated by LICENSEE or one of its sublicensees
for a Licensed Product for which no Phase II clinical trial was
initiated and, consequently, no milestone payment was made to LICENSOR
pursuant to paragraph 3.4(c); and
(f) The sum of [ * ] for the first Product Licensing Application, or
equivalent in a foreign country, approved for LICENSEE's or one of its
sublicensee's Licensed Product.
3.5 Royalty payments made pursuant to Paragraph 3.1, supra, shall be made
quarterly for the three (3) month periods ending March 31, June 30, September 30
and December 31 of each calendar year and shall be due and payable within 45
days of the termination of each calendar half year--i.e., such payments shall be
due or payable on or before May 15, August 14, November 15 and February 14 in
each calendar year.
* Confidential Treatment Requested
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*Confidential Treatment Requested
3.6 All monies due to LICENSOR hereunder shall be paid in United States
dollars. LICENSEE shall be responsible for making the payment to the LICENSOR.
The rate of exchange to be used in computing the amount of currency equivalent
to United States dollars due to LICENSOR shall be made at the rate of exchange
at Chase Manhattan Bank for the three (3) month trailing average for the
calendar quarter for which payment is due.
3.7 If LICENSEE grants a sublicense to the Licensed Patent Rights or the
Licensed Materials to a third party, for value other than royalties based on
sales of Licensed Products, LICENSEE shall pay LICENSOR [ * ] of all proceeds
paid to LICENSEE in consideration for such grant of a sublicense, including any
premium paid over the market value of the LICENSEE's common stock by a
sublicensee in connection with an equity purchase, but excluding such royalties
paid to LICENSEE in connection therewith, up to a maximum of [ * ] per year in
the year that such proceeds are paid to LICENSEE ("Non-Royalty Fees"). Any such
payment shall be made within thirty (30) days after receipt of such Non-Royalty
Fees by LICENSEE. Notwithstanding the foregoing, in no event shall LICENSEE: a)
be obligated to pay LICENSOR a share of any proceeds that LICENSEE receives from
a third party as research and development funding, milestone payments, or equity
purchase, other than any premium paid on an equity purchase; or b) enter into a
paid-up sublicense to Licensed Patent Rights or Licensed Materials with a third
party without the written consent of LICENSOR.
3.8 In the event that LICENSEE transfers or otherwise sublicenses Licensed
Patent Rights or Licensed Materials to a third party in combination with
patent(s) and/or other right(s) of a third party(ies) and LICENSEE is due and
receives Non-Royalty Fees, then LICENSEE shall pay LICENSOR an equitable portion
of such Non-Royalty Fees as determined by the good faith negotiations of
LICENSEE and LICENSOR.
ARTICLE IV
LICENSE OPTION
4.1 LICENSOR hereby grants to LICENSEE an exclusive right of first negotiation
to sublicense on an exclusive basis the Licensed Patent Rights and the Licensed
Materials for one or more of the Optioned Fields of Use ("License Option"). Upon
written notification by LICENSEE to LICENSOR of an intent to acquire exclusive
rights to an Optioned Field(s)
* Confidential Treatment Requested
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* Confidential Treatment Requested
of Use, LICENSOR shall negotiate with LICENSEE in good faith to reach agreement
on commercially reasonable terms for a sublicense to such Optioned Field(s) of
Use. Upon notification to LICENSOR by a third party of an intent to acquire
license rights to an optioned Field of Use, LICENSOR shall provide LICENSEE
written notification of such notice, and LICENSEE, at its own discretion, shall
have the option to negotiate with LICENSOR in good faith for a period of at
least sixty (60) days from the date of such notification ("Option Period") to
reach agreement on commercially reasonable terms for a sublicense to LICENSEE to
such Optioned Field(s) of Use. If LICENSEE elects not to negotiate, or if the
parties do not reach agreement during the Option Period, then LICENSOR may grant
a sublicense in respect of such Optioned Field(s) of Use to the Third Party on
terms that are no more favorable than those that were last offered by LICENSOR
to LICENSEE during the Option Period. The License Option shall expire one (1)
year from the Effective Date and may be renewed at LICENSEE's sole discretion
for subsequent one (1) year periods at the rate of [ * ] per year, reduced pro
rata in proportion to the number of Optioned Fields of Use which have previously
been sublicensed either to LICENSEE or to third parties.
ARTICLE V
RECORD KEEPING AND REPORTS
5.1 LICENSEE agrees to keep accurate records in sufficient detail to enable the
royalties payable by LICENSEE to LICENSOR hereunder to be determined, and agrees
to permit said records to be examined from time to time during the life of this
Agreement, and for one (1) year after the expiration and termination of this
Agreement, at reasonable intervals (but not more than once per calendar year) by
an independent auditor mutually agreeable to the parties, during normal business
hours, and to the extent necessary to verify the reports and payments required
hereunder. Such auditor shall only disclose to LICENSOR whether or not royalties
payable hereunder have been accurately computed and paid, and no other
information. In the event any such audit reveals an underpayment, LICENSEE shall
promptly remit the deficiency to LICENSOR. In the event any such audit reveals
an overpayment, the excess shall be credited against any future payments due to
LICENSOR hereunder.
5.2 LICENSEE agrees to furnish LICENSOR with written Reports within two (2)
months of the termination of each calendar quarter (i.e., such written Reports
shall be due as in Paragraph 3.3 supra) setting forth separately by model number
or other identifying
* Confidential Treatment Requested
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designation, the total number of Licensed Products theretofore made and sold
hereunder during the preceding calendar quarter and the royalties due thereon.
Each such Report shall be accompanied by a copy of any sub-sublicensee's Report
received subsequent to LlCENSEE's prior Report and prior to LlCENSEE's current
Report.
5.3 LICENSOR shall maintain in confidence, and shall not disclose to any third
party or use for any purpose not expressly authorized by this Agreement, all
information provided to LICENSOR and/or its auditor pursuant to this Article V
and to Article VII. LICENSOR shall obtain written agreement from LICENSOR's
auditor who shall inspect LICENSEE's records pursuant to Article 5.1, for
LICENSEE's benefit, to be bound by the foregoing confidentiality obligation.
Such confidentiality obligation shall survive any termination or expiration of
this Agreement. Notwithstanding the foregoing, the confidentiality obligation
shall not extend to the disclosure of data, documents or information to
judicial, governmental or other official agencies, or in accordance with common
practice, to the extent that such disclosure is required by any applicable
securities laws or self regulatory agencies.
ARTICLE VI
PATENT RIGHTS
6.1 LICENSOR shall, in the first instance, have the sole and exclusive right to
file any and all patent applications, both foreign and domestic, falling within
the scope of this Agreement; and LICENSOR shall be responsible for all costs,
fees and expenses incurred in connection with the filing, prosecution and
maintenance of any such patent application and the maintenance of any patent
issuing thereon. Any such patent shall be included within this Agreement as part
of the Licensed Patent Rights.
6.2 LICENSOR shall notify LICENSEE of the issuance of any Licensed Patent
Rights, and any expiration, lapse, revocation, surrender, invalidation or
abandonment of any Licensed Patent Rights.
6.3 If, at any time during the term of this Agreement, LICENSOR elects not to
file a patent application or to abandon any pending patent application or any
patent issued thereon, either foreign or domestic, it shall notify LICENSEE of
that decision at least two (2) months prior to any deadline for filing any
response or taking any other action necessary to file or maintain any such
application and/or patent in existence; and, thereafter, LICENSEE shall have the
right and option to participate, together with other licensees to such patent
application or issued patent, in the filing or prosecution of any such patent
application and/or the maintenance of any such patent, at LICENSEE's expense;
and, any patent issuing therefrom shall be exclusively licensed to LICENSEE in
the Field of Use and any Optioned Fields of Use as to which LICENSEE has
exercised its option pursuant to Article IV on a royalty-free basis.
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ARTICLE VII
DUE DILIGENCE
7.1 LICENSEE, during the entire term of this Agreement, shall utilize
commercially reasonable efforts in proceeding with the development, manufacture,
sale and commercial exploitation of Licensed Product(s), and in creating a
supply and demand for same; provided, however, that LICENSEE shall be entitled
to exercise prudent business judgment in meeting its reasonable diligence
obligations hereunder.
7.2 LICENSEE agrees to keep LICENSOR informed of its progress on the commercial
exploitation of Licensed Product(s) hereunder by annual reports due within sixty
(60) days following the end of each calendar year.
ARTICLE VIII
PATENT MARKING
8.1 LICENSEE shall mark, and shall require its sub-licensee(s) to mark, each
Licensed Product made and sold by it or by them with an appropriate patent
marking identifying the pendency of any U.S. application and/or any issued U.S.
or foreign patent forming any part of Licensed Patent Rights.
ARTICLE IX
TERM AND TERMINATION
9.1 This Agreement, and the rights, privileges and license granted herein,
shall be in force from the Effective Date hereof and shall remain in full force
and effect thereafter until the last to expire of Licensed Patent Rights unless
sooner terminated in accordance with the provision set forth herein below. It
is, however, understood by the parties hereto that LlCENSEE's obligation to pay
royalties to LICENSOR under this Agreement shall terminate in the event of a
judicial determination that no portion of such Licensed Patent Rights are valid,
infringed and/or enforceable by a decision of a tribunal of competent authority
where such decision is final or by lapse of time becomes final and unappealable.
9.2 LICENSEE may terminate this Agreement and concomitant future obligations
upon thirty (30) days written notice to LICENSOR.
9.3 If LICENSEE shall cease to carry on its business, this Agreement shall
terminate upon notice by LICENSOR.
9.4 Should LICENSEE fail to make any payment whatsoever due and payable to
LICENSOR hereunder, LICENSOR shall have the right to terminate this Agreement
effective on thirty (30) days notice, unless LICENSEE shall make all such
payments to LICENSOR within said thirty (30) day period. Upon the expiration of
the thirty (30) day
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period, if LICENSEE shall not have made all such payments to LICENSOR, the
rights, privileges and license granted hereunder shall automatically terminate.
9.5 Upon any material breach or default of this Agreement by LICENSEE other
than those occurrences set out in Articles 9.3 and 9.4 hereinabove, LICENSOR
shall have the right to terminate this Agreement and the rights, privileges and
license granted hereunder effective on sixty (60) days notice to LICENSEE. Such
termination shall become automatically effective unless LICENSEE shall have
cured any such material breach or default prior to the expiration of the sixty
(60) day period. In the event that LICENSOR asserts a breach of this Agreement
under Article 7.1, this Agreement shall remain in full force and effect until
the matter is resolved by the parties themselves or under arbitration as
provided for under Article 18.
ARTICLE X
DISPOSITION OF LICENSED PRODUCTS
ON HAND UPON TERMINATION
10.1 In the event of any termination of this Agreement, LICENSEE and its
sub-licensees shall have the right to use or sell all the Licensed Products on
hand at the time of such termination, provided that LICENSEE shall be obligated
to pay to the LICENSOR a royalty on such sales as set forth in this Agreement
if, at that time, there remains in existence any of Licensed Patent Rights
covering the manufacture, use or sale of such Licensed Product(s).
ARTICLE XI
PATENT ENFORCEMENT
11.1 If LICENSEE shall have supplied LICENSOR with written evidence
demonstrating infringement of the Licensed Patent Rights by a third party,
LICENSEE may, by written notice, request LICENSOR to take steps to assert such
Licensed Patent Rights against such infringing product. LICENSOR shall within
six (6) months of the receipt of such notice either (a) cause such infringement
to terminate or (b) initiate and continue legal proceedings against the
infringer, or pursue other equivalent legal or patent remedies. If LICENSOR
fails to take either of the actions specified in clause (a) or (b) above,
LICENSEE may, upon notice to LICENSOR, discontinue making royalty payments to
LICENSOR that are due hereunder, and have further royalty payments waived by
LICENSOR until LICENSOR in good faith takes and continues such action, at which
time only future royalties shall be due. Notwithstanding the foregoing, if the
infringement ceases at any time, TGC's obligations shall continue at full force
from the time that infringement ceases.
11.2 In the event LICENSOR fails to terminate the infringement within the six
(6) months of written notification from LICENSEE informing LICENSOR of an
alleged infringement, and does not institute litigation against the infringer
for that purpose within such period, then LICENSEE shall have the right to bring
an action against the infringer for
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that purpose. LICENSOR shall cooperate fully with LICENSEE, at LICENSEE's
expense, in connection with any such action. Such cooperation shall include
(without limitation) LICENSOR's permitting LICENSEE to bring the action in
LICENSOR's name and LICENSOR's executing any consents or assignments necessary
or useful to permit LICENSEE to enforce the Licensed Patent Rights against the
infringer. LICENSEE shall be entitled to deduct all expenses incurred by it in
connection with any such action from the royalties and other amounts that would
otherwise be payable to LICENSOR hereunder; provided that to the extent any
amounts are finally awarded to LICENSEE in such action or are paid to LICENSEE
in settlement thereof, such amounts shall be paid over to LICENSOR until all
amounts so withheld have been repaid. Any amounts so awarded or paid in
settlement in excess of the amounts so withheld shall be retained by LICENSEE.
ARTICLE XII
PUBLICITY
12.1 The parties agree that neither party will use the name of the other party,
or any abbreviation thereof, expressly or by implication, or disclose the
existence or nature of this Agreement, in any news, publicity release,
advertisement or other public disclosure, without the express prior written
approval of the other party. Notwithstanding the foregoing, each party hereby
consent to references to it (1) in such reports or documents sent to
stockholders or filed with or submitted to any governmental regulatory agencies
or bodies or stock exchanges or as may be required to obtain investment capital,
or (2) pursuant to any requirements of applicable law or governmental
regulations, provided that, in the event of any such disclosure, the party
making such disclosure shall afford the other party the prior opportunity to
review the text of such disclosure, the other party shall promptly respond to
the disclosing party, and the disclosing party shall use its best efforts to
comply with any reasonable requests by the other party regarding changes.
ARTICLE XIII
WAIVER
13.1 No omission or delay of either party hereto in requiring due and punctual
fulfillment of the obligations of the other party hereto shall be deemed to
constitute a waiver by such party of its rights to require such due and punctual
fulfillment, or of any other of its remedies hereunder.
ARTICLE XIV
WARRANTIES
14.1 LICENSOR warrants that it has the lawful right to grant the sublicense set
forth herein. LICENSOR furthers represents and warrants to LICENSEE that, to the
best of its knowledge, it is the exclusive licensee of the Children's Hospital
Research Foundation/Children's Hospital, Inc. in respect of the Licensed Patent
Rights and the Licensed Materials in all fields and that neither LICENSOR nor to
the best of LICENSOR's knowledge, the Children's Hospital Research
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Foundation/Children's Hospital, Inc. has granted any licenses, sublicenses, or
other rights in respect of the Licensed Patent Rights or the Licensed Materials
in the Field of Use or any Optioned Field of Use.
14.2 LICENSOR makes no express or implied warranties of merchantability or
fitness of the Licensed Products for any particular purpose.
14.3 Nothing in this Agreement shall be construed as:
i) a warranty or representation by the LICENSOR as to the patentability,
validity or scope of any of the Licensed Patent Rights;
ii) except as provided in Section 14.1, a warranty or representation that
anything made, used, sold or otherwise disposed of under any license granted in
this Agreement is or will be free from infringement of patents or proprietary
rights of third parties; or,
iii) an obligation to bring or prosecute actions or suits against third
parties for infringement.
ARTICLE XV
SUCCESSION AND ASSIGNABILITY
15.1 This Agreement and the rights and benefits conferred upon LICENSEE
hereunder may not be assigned nor transferred by LICENSEE without the prior
written consent of LICENSOR, except in the event of sale of all or a portion of
the business of LICENSEE, in which event LICENSEE, upon written notification to
LICENSOR, may assign this Agreement to a wholly owned subsidiary or to a
purchaser of substantially all of its assets relating to the subject matter of
the Agreement.
15.2 This Agreement shall be binding upon and inure to the benefit of the
successors, representatives and assigns of the parties hereto.
ARTICLE XVI
INDEMNITY
16.1 LICENSEE agrees to indemnify, hold harmless and defend LICENSOR, its
officers, employees and agents, against any and all claims, suits, losses,
damages, costs, fees and expenses, including reasonable attorney's fees,
resulting from or arising out of LICENSEE's
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exercise of its rights granted under this Agreement including, but not limited
to, product liability, any damages, losses or liabilities whatsoever with
respect to death or injury to any person and damage to any property arising from
the production, manufacture, sale, lease, consumption, advertisement,
possession, use or operation of Licensed Products by LICENSEE or its
sub-licensees or their customers in any manner whatsoever.
16.2 LICENSOR agrees to indemnify, hold harmless and defend LICENSEE and its
officers, employees and agents against any and all claims, suits, losses,
damages, costs, fees and expenses (including attorneys' fees) resulting from or
arising out of LICENSOR's grant of the sublicense granted under this Agreement
including, but not limited to, any amounts payable by LICENSOR to its
licensor(s) of the Licensed Patent Rights or the Licensed Materials or other
persons or entities having rights in respect of the Licensed Patent Rights or
the Licensed Materials.
16.3 In the event of any claim for which indemnification will be sought pursuant
to Section 16.1 or 16.2, the indemnified party will give the indemnifying party
prompt written notice of such claim. The indemnifying party shall have the sole
right to control the defense and settlement of any such claim and shall not be
liable for any settlement that the indemnifying party does not approve in
writing in advance. The indemnified party will cooperate fully with the
indemnifying party, at the indemnifying party's expense, in connection with the
defense and settlement of any such claim.
16.4 Prior to entering clinical trials, LICENSEE further agrees to obtain and
maintain in force a comprehensive or commercial form general liability insurance
policy supporting its obligations under Article 16.1. This insurance shall
provide LICENSOR with insurance coverage that is commensurate with the insurance
coverage that LICENSOR would have otherwise been provided had the LICENSOR been
named as additional insured on the LICENSEE's comprehensive general liability
insurance, and provide for prior notice to LICENSOR before cancellation. The
limits of such insurance shall be commercially reasonable amounts for personal
injury or death, and for property damage. Upon request, LICENSEE shall provide
LICENSOR with Certificates of Insurance evidencing the same.
ARTICLE XVII
NOTICES
17.1 Any payment, notice or other communication required or permitted to be
given by either party hereto shall be deemed to have been properly given and be
effective on the date of delivery if delivered, in writing, in person, by
facsimile, by overnight mail or by first class certified mail with postage
prepaid and return receipt requested to the respective addresses set forth
below, or to such other address as either party shall designate by written
notice given to the other party:
In the case of LICENSOR:
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Alkermes, Inc.
Chief Financial Officer
64 Sidney Street
Cambridge, MA 02139
In the case of LICENSEE:
President, Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
ARTICLE XVIII
ARBITRATION; APPLICABLE LAW
18.1 All disputes that may arise, including, but not limited to, disputes
arising under Article 7.1, in connection with this agreement and that are not
resolved by the parties themselves shall be submitted to binding arbitration
under the commercial rules and regulations then obtaining of the American
Arbitration Association relating to voluntary arbitrations. All costs of
arbitration shall be divided equally between the parties. The award shall be
binding and conclusive on each of the parties, and it may be enforced by the
party in whose favor it runs in any court of competent jurisdiction at the
option of the successful party.
18.2 In the event of any arbitration as provided in Section 18.1, (i) venue for
the arbitration shall lie exclusively in the state and county of the principal
executive offices of the party against whom the arbitration is initiated, and
(ii) the law governing this Agreement for purposes of the arbitration shall be
the law of the state of the principal executive offices of the party against
whom the arbitration is initiated.
ARTICLE XIX
MISCELLANEOUS
19.1 The headings of the several sections of this Agreement are inserted for
convenience and reference only; and, are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
19.2 This Agreement will not be binding upon the parties until it has been
signed by, or on behalf of, each party, in which event it shall be effective as
of the Effective Date.
19.3 No amendment or modification hereof shall be valid or binding upon the
parties unless made in writing and signed as aforesaid.
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19.4 This Agreement embodies the entire understanding of the parties and
supersedes all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof.
19.5 If any provision, or provisions, of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be in any way affected or impaired thereby.
19.6 In witness whereof, both the LICENSOR and LICENSEE have executed this
Agreement, in duplicate originals but collectively evidencing only a single
contract, by their respective officers hereunto duly authorized, on the day and
year hereinafter written.
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
ALKERMES, INC.
By: /s/ Michael Landine
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Title: Sr. Vice President and Chief Financial Officer
TARGETED GENETICS CORPORATION
By: /s/ H. Stewart Parker
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Title: President and CEO
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===========================
REDACTED VERSION
===========================
EXHIBIT 10.21
To
Targeted Genetics Corporation's
Form 10-K
For the Year Ended
December 31, 1996
"[ * ]" = omitted, confidential material, which material has been
separately filed with the Securities and Exchange Commission pursuant to a
request for confidential treatment.
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EXHIBIT 10.21
REVISED LICENSE AGREEMENT
This Agreement is made and entered into this 1st day of October, 1996,
(Effective Date) by and between the UNIVERSITY OF PITTSBURGH - OF THE
COMMONWEALTH SYSTEM OF HIGHER EDUCATION, a non-profit 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
TARGETED GENETICS CORPORATION, 1100 Olive Way, Suite 100, Seattle, Washington
98101 (LICENSEE).
WHEREAS, UNIVERSITY and RGene Therapeutics, Inc. entered into a License
Agreement dated October 12, 1994 (1994 LICENSE AGREEMENT) for certain
intellectual property rights;
WHEREAS, RGene Therapeutics, Inc. is now merged into a wholly owned
subsidiary of LICENSEE;
WHEREAS, UNIVERSITY and LICENSEE are desirous of revising the 1994 LICENSE
AGREEMENT;
WHEREAS, UNIVERSITY is the owner of certain intellectual property relating
to therapeutic drug delivery technology 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.
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* Confidential Treatment Requested
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:
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 Targeted Genetics Corporation and all entities at
least fifty percent (50%) owned or controlled by Targeted Genetics Corporation,
an entity which directly or indirectly owns or controls more than fifty percent
(50%) of the voting stock of Targeted Genetics Corporation and any entity, the
majority ownership of which is directly or indirectly common to the ownership of
Targeted Genetics Corporation.
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) is subject to the right of first refusal in
favor of [ * ] pursuant to that certain
Statement of Investigator and Material Transfer Agreement for In Vitro or
Laboratory Animal Tests, dated October 19, 1993, between [ * ] and
UNIVERSITY.
* Confidential Treatment Requested
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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;
(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, method, 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 patent applications 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 or any such technology developed under the Sponsored Research
Agreement between UNIVERSITY and RGene Therapeutics, Inc. dated October 12,
1994.
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 and the Sponsored Research Agreement between UNIVERSITY
and RGene Therapeutics, Inc. dated October 12, 1994 relating to certain research
to be conducted under the supervision of Dr. Huang.
1.9 FIELD OF USE shall mean all therapeutic applications related to the
delivery of proteins/pepides or oligonucleotides/nucleic acids, including but
not limited to genes.
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
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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.
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.
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,
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* Confidential Treatment Requested
provided, however, that prior to the expiration of the Sponsored Research
Agreement, * LICENSEE and UNIVERSITY shall agree upon specific performance
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. Notwithstanding the foregoing, if UNIVERSITY asserts such failure of
performance by LICENSEE, the parties shall enter into negotiations to resolve
the matter and, if unable to do so within sixty (60) days, the parties agree to
proceed to arbitration in accordance with Article 10 hereof.
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; and
(iii) $[ * ] immediately upon filing of the second 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, payable
beginning in 1997, at the end of each calendar year, if such minimum
royalty is greater than the aggregate annual royalty computed in
accordance with Article 4.1(b) above, provided that all royalty
payments made under Article 4.1(b) shall be credited against such
minimum royalty * Confidential Treatment Requested
* Confidential Treatment Requested
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* Confidential Treatment Requested
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.
(d) [ * ]% of any upfront fees received by LICENSEE pursuant to any
sublicense under Article 2.4 hereof.
(e) [ * ] shares of LICENSEE unregistered common stock, fully paid and
non-assessable, issued under the name of the UNIVERSITY as
shareholder. Of these shares, [ * ] shall be held in escrow by
LICENSEE until June 19, 1997 pursuant to the Agreement and Plan of
Merger among LICENSEE, TGC Acquisition Corporation and RGene
Therapeutics, Inc. dated April 16, 1996, and [ * ] shares of which
shall be registered by LICENSEE on or before June 19, 1997.
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.
4.5 Sublicense upfront payments under Article 4.1(d) shall be reduced by
any amount of the sublicense upfront payments that LICENSEE is required to make
to the *
Confidential Treatment Requested
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University of Tennessee pursuant to the Amendment to the First Amended and
Restated License Agreement between the University of Tennessee Research
Corporation and RGene Therapeutics, Inc., effective October 12, 1995.
Furthermore, if such sublicense also sublicenses rights under the License
Agreement between UNIVERSITY and LICENSEE of even date, sublicense upfront
payments under Article 4.1(d) after reduction for payments to the University of
Tennessee shall be further reduced by 50% to reflect payments to UNIVERSITY
under such License Agreement.
4.6 The License Fee in Article 4.1(a) and shares of LICENSEE stock in
Article 4.1(e) are new considerations solely for this Restated License Agreement
and are not applicable to the 1994 LICENSE AGREEMENT.
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, beginning after the
first commercial sale of LICENSED TECHNOLOGY, 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.
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.
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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 fifteen (15) business days of the invoicing by
UNIVERSITY to 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 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
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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.
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 by
LICENSEE, its affiliates or sublicensees 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 provide UNIVERSITY with
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commensurate coverage as would be provided if UNIVERSITY were 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, except in the event of sale of all
or substantially all of the assets of LICENSEE. LICENSEE shall provide
UNIVERSITY with prior written notice of such sale.
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 sufficient education, scientific experience and national
reputation to address such issues. The board shall be composed of an individual
selected by UNIVERSITY, an individual selected by LICENSEE and an individual
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; or
(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.
(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.
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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.
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:
Targeted Genetics Corporation
Suite 100
1100 Olive Way
Seattle, WA 98101
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.
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ARTICLE 14 - REPRESENTATIONS, WARRANTIES AND LIMITATIONS OF
LIABILITY
14.1 University
(a) UNIVERSITY is a non-profit corporation, validly existing and in
good standing under the laws of the Commonwealth 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
non-exclusive 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.
(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.
(f) EXCEPT AS OTHERWISE EXPRESSLY SET FORTH 1N 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 1N
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. LICENSEE represents and warrants that:
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(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the State of Washington.
(b) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary corporate action on the part of
LICENSEE.
(c) It has the corporate power and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
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.
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.
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<PAGE> 15
ARTICLE 16 - CLINICAL TRIALS
16.1 LICENSEE recognizes the desire of UNIVERSITY and its AFFILIATES to
perform Phase I clinical trials for products which incorporate the LICENSED
TECHNOLOGY. LICENSEE further recognizes UNIVERSITY and its AFFILIATES wish to be
granted preferential consideration in conducting Phase II and III clinical
trials for such products. UNIVERSITY recognizes that products which incorporate
LICENSED TECHNOLOGY will generally also incorporate technology licensed from
other institutions and that LICENSEE may be obligated or deem it advisable to
conduct clinical trials at such other institutions or their AFFILIATES.
UNIVERSITY also recognizes that additional medical centers may be involved in
Phase II and III clinical trial, as may be necessary. LICENSEE agrees to give
due consideration to conducting clinical trials at UNIVERSITY and its
AFFILIATES, to the extent permitted by its obligations to others.
IN WITNESS WHEREOF, the parties have set their hands and seals.
UNIVERSITY OF PITTSBURGH - OF THE
COMMONWEALTH SYSTEM OF HIGHER
WITNESS: EDUCATION
/s/ Beth Dudley By /s/ Jerome Cochran
- ------------------------------- -------------------------------
Jerome Cochran
Interim Vice Chancellor for Business
WITNESS: TARGETED GENETICS CORPORATION
/s/ Tiffany D. Dolmseth By H. Stewart Parker
- ------------------------------- -------------------------------
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<PAGE> 16
* Confidential Treatment Requested
Exhibit A
to Revised License Agreement
between University of Pittsburgh and Targeted Genetics Corporation
"Stable Lipid-Comprising Drug Delivery Complexes and Methods for Their
Production"
U.S. Patent Application Serial No. 08/376,701
Filed January 23, 1995
PCT Application 2710-4000
Filed January 23, 1996 designating all countries
"Novel Cationic Cholesteryl Derivatives Containing Derivatives Containing
Cyclic Polar Groups"
U.S. Patent Application Serial No. [ * ]
Filed [ * ]
"A Cytoplasmic Gene Expression System Which Utilizes a Prokaryotic RNA
Polymerase Autogene"
U.S. Patent Application Serial No. [ * ]
Filed [ * ]
"Emulsion Formulations and Their Use as Vehicles for the Delivery of
Hydrophilic Biologically Active Molecules to Cells"
U.S. Patent Application Serial No. [ * ]
Filed [ * ]
* Confidential Treatment Requested
131
<PAGE> 1
Exhibit 10.25
SECOND AMENDMENT TO LEASE AGREEMENT
[Targeted Genetics]
This Second Amendment to Lease Agreement (the "Amendment") is entered into as of
6/12/96 between Ironwood Apartments, Inc., successor in interest to Metropolitan
Federal Savings and Loan Association of Seattle, as Landlord, and Targeted
Genetics, Inc., a Washington corporation, as Tenant, whose address for purposes
hereof is 1100 Olive Way, Seattle, Washington 98101.
REPRESENTATIONS
A. Landlord and Tenant, entered into that certain Olive Way Building
Lease for the lease of portions of the Olive Way Building located at
1100 Olive Way, Seattle, Washington and dated November 20, 1992
(hereinafter referred to as the "Lease");
B. Landlord and Tenant entered into that certain First Amendment to Olive
Way Lease dated December 10, 1994 (hereinafter referred to as the
"First Amendment");
C. Landlord and Tenant have agreed to certain modifications and
clarifications to the Lease and First Amendment and wish to
memorialize their understanding in this Second Amendment to Olive Way
Lease.
AGREEMENT
NOW, THEREFORE, for the foregoing purposes and in consideration of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. EXPANSION SPACE - EXHIBIT "A". Effective May 1, 1996, Tenant agrees to
lease 3,090 square feet of additional space located in the northwest
corner of the ground floor of the Olive Way Building. The location of
this additional space is shown on the drawing attached hereto as
Exhibit "A" and incorporated herein by this reference. Said additional
space shall be added to the Premises for all purposes under the Lease
as of May 1, 1996.
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<PAGE> 2
Rent for the expansion space shall be as provided in Paragraph 6 of
the Lease, with Base Rent for this space being $13.25 per square foot
as of May 1, 1996 pursuant to Paragraph 6.01.
Tenant shall accept the additional space as is in its present
condition with no Landlord's Work required. Pursuant to Paragraph
11.05 of the Lease, Landlord shall pay to Tenant, the Expansion Space
Tenant Improvement Allowance upon Tenant's occupancy of the space.
2. RATIFICATION. Except as expressly set forth in this Second Amendment,
the Lease and each provision thereof, as amended, is hereby ratified
and affirmed in its entirety.
3. NO FURTHER MODIFICATION. All terms and conditions of the Lease remain
in full force and effect except as modified by this agreement by this
Second Amendment to Olive Way Building Lease. This Second Amendment
shall be construed and interpreted according to the laws of the State
of Washington.
IN WITNESS WHEREOF, this Second Amendment is executed by Landlord and Tenant as
of the date first set forth above.
LANDLORD :
IRONWOOD APARTMENTS, Inc.
By: /s/ John Stone
Its: President
Date: 6-12-96
TENANT:
TARGETED GENETICS, Inc.
By: /s/ James Johnson
Its: Vice President, Finance
Date: May 22, 1996
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<PAGE> 3
Exhibit "A" [Map of lot]
134
<PAGE> 4
TENANT NOTARY
PARTNERSHIP
STATE OF )
)
COUNTY OF )
On this day personally appeared before me , to me known to be the
individual(s) described in and who executed the within and foregoing instruments
as of and acknowledged that they signed the same as their free and
voluntary act and deed on behalf of said for the uses and purposes
therein mentioned.
GIVEN under my hand and official seal this day of , 19
Notary Public in
and for the State of residing at .
CORPORATION
STATE OF Washington )
)
COUNTY OF King )
On this 22 day of May, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared James A. Johnson, to me known to be the Vice President,
Finance, of Targeted Genetics Corporation, the corporation that executed the
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned and on oath stated that they were authorized to execute the said
instrument and that the seal affixed is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year first above
written.
/s/ Jon M. Case Notary Public in
and for the State of Washington, residing at Seattle, Washington.
[NOTARY SEAL]
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<PAGE> 5
LANDLORD NOTARY
PARTNERSHIP
STATE OF )
)
COUNTY OF )
On this day personally appeared before me , to me known to be the
individual(s) described in and who executed the within and foregoing instruments
as of and acknowledged that they signed the same as their free and
voluntary act and deed on behalf of said for the uses and purposes
therein mentioned.
GIVEN under my hand and official seal this day of , 19
Notary Public in
and for the State of residing at .
CORPORATION
STATE OF Washington )
)
COUNTY OF Spokane )
On this 12th day of June, 1996, before me, the undersigned, a Notary
Public in and for the State of Washington, duly commissioned and sworn,
personally appeared John Stone, to me known to be the President of Ironwood
Apartments, Inc., the corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned and on oath stated
that they were authorized to execute the said instrument and that the seal
affixed is the corporate seal of said corporation.
WITNESS my hand and official seal hereto affixed the day and year first above
written.
/s/ Durinda M. Howard Notary Public in
and for the State of Washington, residing at Spokane.
[Notary Seal]
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<PAGE> 1
EXHIBIT 10.26
OFFICE LEASE
THIS LEASE AGREEMENT made this 7 day of October. 1996, by and BETWEEN BENAROYA
CAPITAL COMPANY, LLC, a Washington limited liability company (the "Lessor") and
TARGETED GENETICS CORPORATION, a Washington corporation (the "Lessee").
1. PREMISES. Lessor does hereby lease to Lessee those certain premises, to
wit: approximately 4,720 rentable square feet of office space on the first
floor, Suite 100, as outlined on Exhibit A attached hereto (hereinafter
called "Premises") being situated within the Project known as the
Metropolitan Park West Tower. Lessee shall occupy the Premises "as is,
except as provided in Exhibit F, work Letter Agreement. See Legal
Description attached as Exhibit C.
2. TERM. This Lease shall be for a term of seven (7) years and three (3)
months commencing January 1, 1997 (the "Commencement Date") and expiring
March 31, 2004 ("Expiration Date").
3. MONTHLY MINIMUM RENT. Lessee covenants and agrees to pay Lessor at 1001
Fourth Avenue, Suite 4700, Seattle, WA 98154, or to such other party or at
such other place as Lessor may hereafter designate, Monthly Minimum Rent in
the following amounts according to the schedule below and Additional Rent,
as provided in Section 10, in advance without offset or deduction, on or
before the first (1st) day of each month of the Lease term:
<TABLE>
<CAPTION>
Period Monthly Minimum Rent
------ --------------------
<S> <C>
1/01/97- 12/31/97 $7,403.00
1/01/98 - 12/31/98 $7,403.00
1/01/99 - 12/31/99 $7,403.00
1/01/00- 12/31/00 $7,698.00
1/01/01 - 12/31/01 $7,698.00
1/01/02- 12/31/02 $8,779.00
1/01/03 - 12/31/03 $8,779.00
1/01/04 - 03/31/04 $8,779.00
</TABLE>
5. EXHIBITS: The following exhibits or riders are made a part of this Lease:
Exhibit A - Floor Plan of Premises
Exhibit A - 1 Floor Plan of Right of First Refusal Space
Exhibit B - Space Plan of Premises
Exhibit C - Legal Description
Exhibit D - Rules and Regulations
Exhibit E - Standards for Utilities and Services
Exhibit F - Work Letter Agreement
Exhibit G - Riders to Lease
Exhibit G1 - Chiyoda Relocation Amendment
6. USE. Lessee shall use the Premises for the purposes of general of office
and for no other purposes, without the prior written consent of Lessor, and
shall comply with all governmental laws, ordinances, regulations, orders
and directives and insurance requirements applicable to Lessee's use of the
Premises. Lessee shall not occupy or use or permit any portion of the
Premises to be occupied or used in such a manner or for any purpose which
would increase the cost of insurance coverage's upon the Premises, the
building or the contents thereof.
7. RULES AND REGULATIONS. Lessee agrees to comply with the Rules and
Regulations attached hereto as Exhibit D, as well as such other reasonable
rules and regulations as may from time to time be adopted by Lessor for the
management, good order and safety of common areas, the building and its
Lessee(s). Lessee shall be responsible for the compliance with such rules
and
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<PAGE> 2
regulations by its employees, agents and invitees. Lessor's failure to
enforce any of such rules and regulations against Lessee or any other
Lessee shall not be deemed to be a waiver of same.
8. MAINTENANCE AND REPAIRS.
a. LESSEE OBLIGATIONS. Subject to the provisions of Exhibit F. by
entry hereunder, Lessee accepts the Premises as being in good and sanitary
order, condition and repair. Subject to the provisions of section 8(b)
Lessee shall, at its expense, keep, maintain and preserve the Premises in
first class condition and repair, and shall make all repairs to the
Premises and every part thereof. Lessee shall, upon the expiration or
sooner termination of the term hereof, surrender the Premises to Lessor in
the same condition as when received, usual and ordinary wear and tear and
damage by casualty excepted. Lessee shall not alter, remodel, improve,
repair, decorate or paint the Premises or any part thereof without first
obtaining the prior written permission of Lessor.
b. LESSOR OBLIGATIONS. Notwithstanding Section 8a, Lessor shall repair
and maintain the exterior and structural portions of the Building, the
common areas of the Building including the garage and courtyard and the
plumbing, heating, ventilating, air conditioning, elevator and (electrical
and lighting systems furnished by Lessor; the costs of the foregoing shall
be Operating Expenses, unless such maintenance and repairs are caused by
the act, neglect or omission of Lessee, its agents, servants, employees or
invitees, in which case Lessee shall pay to Lessor, as additional rent, the
cost of such maintenance and repairs. Lessor shall not be liable for any
failure to make any such repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after written notice of the
need of such repairs or maintenance is given to Lessor by Lessee. There
shall be no abatement of rent and no liability of Lessor by reason of any
injury to or interference with Lessee's business arising from the making of
any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures, appurtenances and equipment
therein. Lessee waives the right, if any, to make repairs at Lessor's
expense under any law, statute or ordinance now or hereafter in effect.
9. UTILITIES AND FEES. It is Lessor's policy that utilities and services be
furnished as set forth in Exhibit E hereto. Lessor's failure to furnish any
of such items due to matters outside Lessor's control shall not result in
any liability to Lessor, Lessee shall not be entitled to any abatement or
reduction of rent by reason of such failure, and no eviction of Lessee
shall result from such failure. If Lessee uses more water or electrical
power than is considered reasonable or normal by Lessor, Lessor may at its
option require Lessee to pay, as additional rent, the cost, as fairly
determined by Lessor and Lessee, incurred by such extraordinary usage. In
addition, Lessor may install separate meter(s) for the Premises, at
Lessee's sole expense, and Lessee thereafter shall pay all charges so
metered.
10. ADDITIONAL RENT AND MONTHLY OPERATING EXPENSE ADJUSTMENTS. Commencing on
January 1. 1997 with regard to Lessor's Non-Controllable Operating
Expenses' and commencing on January 1. 1998 with regard to Lessor's
Controllable Operating Expenses for each calendar year during this Lease,
or portion thereof, Lessee shall pay as Additional Rent its prorata share
of the amount by which Operating Expenses for each year exceed the Base
Year Operating Expenses. The Base Year Operating Expenses for "Lessor's
Controllable Operating Expenses", as defined below, shall be 1997. The Base
Year Operating Expenses for "Lessor's Non-Controllable Operating Expenses",
as defined below, shall be 1996. Lessor shall estimate, from time to time,
Lessee's payment amount. This estimated amount shall be divided into equal
monthly installments, one payable with each installment of the Monthly
Minimum Rent. As soon as practical following each calendar year, Lessor
shall prepare an accounting of actual Operating Expenses incurred during
the prior calendar year and such accounting shall reflect Lessee's '
Percentage. If the Additional Rent paid by Lessee under this Section 10
during the preceding calendar year was less than the actual amount of
Lessee's Percentage of Operating Expenses, Lessor shall notify Lessee and
Lessee shall pay such amount to Lessor within fifteen (15) days of receipt
of such notice, notwithstanding Lessee's obligation to pay within fifteen
(15) days. Lessee shall have sixty (60) days from receipt of such notice to
contest the amount due; failure to so notify Lessor shall represent final
determination of Lessee's share of Operating Expenses. If Lessee's
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<PAGE> 3
payments were greater than the actual amount due, then such overpayment
shall be credited to Lessor to all present rent next due under this Section
10. As of the date of this Lease. the total rentable square footage of the
Building is 315,738 and Lessee's prorate share of Operating Expenses is
1.495%. If the rentable square footage of the Building is increased or
reduced during the Lease Term Lessee's prorate share shall be appropriately
adjusted.
For the purposes of this Paragraph 10, "Lessor's Controllable Operating
Expenses" shall include, but not be limited to:
All costs of management, operation and maintenance of the Premises,
the building and the Land, including without limitation the following:
wages and salaries of employees; cleaning, maintenance, and other
services; maintenance of heating, ventilating and air conditioning
equipment; materials and supplies; painting, repairs and other
maintenance; and depreciation on personal property, Management fees;
expenses incurred to operate an on site management of office;
association dues directly attributable to the management of the
property. Expenses shall not include depreciation on the Building;
costs of tenants' improvements; real estate brokers' commissions; or
capital items except that Expenses shall include the cost of any
capital improvements made after completion of the Building as a
labor-saving device or to effect other economies in the operation or
maintenance of the building or made after the date of this Lease that
are required under any governmental law or regulation, such costs to
be amortized over their useful life, together with interest at a rate
equal to the rate of interest publicly announced from time to time by
Seattle First National Bank of Washington, Seattle, Washington, as its
"prime interest rate" plus two percent (2%) per annum or such higher
rate as may be paid by Lessor on funds borrowed for the purpose of
constructing such capital improvements.
For the purposes of this Paragraph 10, "Lessor's Non-Controllable Operating
Expenses" shall include, but not be limited to:
Real Estate taxes and assessments; all real and personal property tax
assessments and charges levied upon, or with respect, to the Land, the
Building or Lessor's interest in the same; insurance, electricity,
water, waste disposal and other utilities; and elevator maintenance
contract services.
Even after this Lease has expired or been terminated, when final
determination is made of Lessee's Percentage of Operating Expenses for the
year in which this Lease expires or terminates, Lessee shall immediately
pay any shortfall due. Conversely, any overpayment made shall be rebated by
Lessor to Lessee, unless Lessee at that time is indebted to Lessor.
11. LESSOR'S RESERVATIONS. Lessor reserves the right without liability to
Lessee, but following commercially reasonable notice to Lessee: (a) to
inspect the Premises, to show them to prospective Lessees, and if they are
vacated, to prepare them for reoccupancy; (b) to retain at all times and to
use in appropriate instances keys to doors within and into the Premises;
(c) to make repairs, alterations, additions or improvements, whether
structural or otherwise, in or about the building, and for such purposes to
enter upon the Premises and during the continuance of any work, to close
common areas and to interrupt or temporarily suspend building services and
facilities, all without affecting any of Lessee's obligations hereunder, so
long as the Premises are reasonably accessible; and (d) generally to
perform any act relating to the safety, protection and preservation of the
Premises or building. In all circumstances in which Lessor's activities and
the activities of its agents and employees, affect Lessee's use or
occupancy of the Premises and common areas, Lessor agrees to manage its
activities in a professional manner which reasonably minimizes the impact
on Lessee.
12. POSSESSION. If Lessor does not deliver possession of the Premises at the
Commencement Date of the term of this Lease, Lessee may give Lessor written
notice of its intention to cancel this Lease if possession is not delivered
within ninety (90) days after receipt of such notice by Lessor. Lessor
shall not be liable for any damages caused by failure to deliver possession
of the Premises and Lessee shall not be liable for any rent until such time
as Lessor delivers possession. A delay
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<PAGE> 4
of possession shall not extend the termination date. If Lessor offers
possession of the Premises or any portion thereof prior to the Commencement
Date of the term of this Lease, and if Lessee accepts such early
possession, then both parties shall be bound by all of the covenants and
terms contained herein during such period of early possession including the
payment of rent which shall be pro-rated accordingly and for the number of
days of such early possession.
13. ASSIGNMENT AND SUBLETTING. Lessee shall not either voluntarily or by
operation of law assign, transfer, convey or encumber this Lease or any
interest under it, or sublet to occupy or use the Premises without Lessor's
prior written consent which shall not be unreasonably withheld. Lessor
reserves the right to recapture the Premises or applicable portion thereof
in lieu of giving its consent by notice given to Lessee within twenty (20)
days after receipt of Lessee's written request or assignment or subletting.
Such recapture shall terminate this Lease as to the applicable space
effective on the prospective date of assignment or subletting, which shall
be the last day of a calendar month and not earlier than sixty (60) days
after receipt of Lessee's request hereunder. In the event that Lessor shall
not elect to recapture and shall thereafter give its consent, Lessee shall
pay Lessor a reasonable fee, not to exceed Five Hundred and No/100 Dollars
($500.00) to reimburse Lessor for processing costs incurred in connection
with such consent. Lessor's consent shall not release or discharge Lessee
from future liability under this Lease and shall not waive Lessor's right
to consent to any future assignment or sublease. Any assignment or
subletting without Lessor's consent shall be void and shall, at Lessor's
option, constitute a default under this Lease. A transfer by the present
majority shareholders of ownership or control of a majority of the voting
stock of a corporate Lessee shall be deemed an assignment.
14. ALTERATIONS. After obtaining the prior written consent of Lessor, Lessee
may make minor alterations, additions and improvements in said Premises (so
long as such alterations, additions or improvements are not visible from
the exterior of the Premises) at its own expense. Lessee agrees to save
Lessor harmless from any damage, loss, or expense arising therefrom and to
comply with all laws, ordinances, rules and regulations. Upon termination
of this Lease, all alterations, additions and improvements made in, to or
on the Premises (including without limitation all electrical, lighting,
plumbing, heating, air conditioning, and communications equipment and
systems, doors, windows, partitions, drapery, carpeting, shelving,
counters, and physically attach fixtures unless excluded by written
agreement annexed hereto), shall remain upon and be surrendered as a part
of the Premises; provided however, upon Lessor's request, made at the time
Lessor grants its consent to the alterations Lessee shall on or before the
end of the Lease Term promptly remove those additions, alterations, or
improvements as may be specified by Lessor, and repair and restore the
Premises to its original condition at Lessee's own expense. Lessee agrees
to remind Lessor of this special provision in its request for approval.
15. LIENS. Lessee shall keep the Premises free from any liens arising out of
any work performed, materials furnished, equipment supplied, or
obligations incurred by or on behalf of Lessee. No work performed, material
furnished, equipment supplied or obligations incurred by or on behalf of
Lessee shall be deemed to be for the immediate use and benefit of Lessor so
that no mechanic's lien or other lien shall be allowed against Lessor's
estate in the Premises. Lessee shall provide, at Lessee's own cost, a
waiver of lien signed by any party (including the Lessee) who commences to
perform work, furnish materials, or supply equipment to the Premises.
Lessor does not authorize or consent to the performance of any work,
furnishing of material or supply of equipment incurred by or on behalf of
Lessee prior to Lessee providing Lessor with the signed waiver of lien
referred to above. Lessor may require, at Lessee's own expense, a lien
release and completion bond in an amount equal to either the actual
contract price or one and one-half times the estimated cost of any
improvements, additions or alterations in the Premises which Lessee desires
to make, to insure Lessor against any liability for lien and to insure
completion of the work.
16. SIGNS. All signs or symbols placed by Lessee in the windows and doors of
the Premises, or upon any exterior part of the building, shall be subject
to Lessor's prior written approval. Prior to termination of this Lease,
Lessee will remove all signs placed by it upon the Premises, and will
repair any damages caused by such removal.
17. INSURANCE.
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A. Lessee shall pay for and maintain, during the entire Lease Term, the
following policies of insurance:
(i) Commercial general liability insurance, including products, -
completed operations coverage and non-owned auto liability insurance
covering Lessee's operations and the Premises including but not
limited to coverage for personal injuries with limits of not less than
$1,000,000 combined single limit for death, personal injury, and
property damage, per occurrence, including Lessor as an additional
insured. Such policies shall include contractual liability insurance
covering all liability assumed by Lessee under the provisions of this
Lease and a copy of a certificate evidencing full coverage will be
delivered to Lessor prior to commencement of the Term.
(ii) Special cause of loss or "all risk" perils and sprinkler leaks:
property insurance upon all alterations on the Premises performed by
Lessee after the initial build-out and upon Lessee's property,
including but not limited to Fire and Extended Coverage, Vandalism and
Malicious Mischief, in the amount of one hundred percent (100%) full
replacement cost, including Lessor as an additional insured, as its
interests may appear, with a loss payable clause in favor of Lessor to
the extent of Lessor's interest in property damaged, except to the
extent proceeds are required to be paid to holders of mortgages or
trust deeds.
B. Each policy provided by Lessee shall expressly provide that it shall
not be subject to cancellation or material change without at least
thirty (30) days prior written notice to Lessor. Lessee shall furnish
Lessor, prior to commencement of the Term, with insurance certificates
and, upon request, copies of such policies required to be maintained
hereunder.
18. INDEMNITY AGAINST LIABILITY FOR LOSS OR DAMAGE BY LESSEE.
A. Lessee assumes all liability for and shall indemnify, hold harmless
and defend Lessor from and against all loss, damage or expense which
the Lessor may sustain or incur, and against any and all claims,
demands, suits and actions whatsoever, including expense of
investigation and litigation, on account of injury to or death of
persons, including without limitation employees of Lessor, employees
of Lessee or its affiliated companies or on account of damage to or
destruction of property, including without limitation property owned
by and property in the care, custody or control of Lessor during the
Term, due to or arising in any manner from:
(i) The acts or negligence of Lessee or any contractor,
subcontractor, or agent of Lessee or their respective employees;
(ii) The condition, use or operation of the Premises and/or
materials or substances used by Lessee or any of its contractors,
subcontractors or agents of Lessee or by their respective employees,
regardless of whether or not furnished by Lessor under this Lease or
otherwise;
(iii) Any damage or injury to persons or property arising
out of Lessee's breach of this Lease, including, but not limited to,
obligations of Lessee under Section 8, Maintenance and Repairs.
B. Lessor shall have no liability to Lessee as a result of loss or damage
to Lessee's property or for death or bodily injury caused by the acts
or omissions of other tenants in the project or by third parties
(including criminal acts).
C. It is mutually understood and agreed that the assumption of
liabilities and indemnification provided for in this Section 18 shall
survive any termination of this Lease.
D. Notwithstanding the preceding provisions of this Section 18, Lessor
and Lessee each herewith and hereby release and relieve the other and
waive its entire right of recovery against the other for loss or
damage arising out of or incident to perils insured against, whether
due to the negligence of either party, their agents, employees,
contractors, invitees or otherwise.
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19. DAMAGE OR DESTRUCTION. If the Premises or the building in which the
Premises are located shall be damaged or destroyed by fire or other
casualty, Lessor shall have the option either (a) to repair or rebuild
within one hundred twenty (120) days, or (b) not to repair or rebuild, and
cancel this Lease on thirty (30) days notice. If Lessor fails to give
Lessee written notice of its election within thirty (30) days from the date
of damage, or if the restoration of the Premises cannot be or is not
completed within one hundred twenty (120) days from date of notice, Lessee
may cancel this Lease at its option on thirty (30) days notice. During the
period of untenantability, rent shall abate in the same ratio as the
portion of the Premises rendered untenantable bears to the whole of the
Premises; provided that if the damage is due to the fault or neglect of
Lessee, there shall be no abatement of rent.
20. EMINENT DOMAIN. If the whole of the Premises shall be taken by any public
authority under the power of eminent domain, or purchased by the condemnor
or in lieu thereof, then the term of this Lease shall cease as of the date
possession is taken by such public authority. If only part of the Premises
shall be so taken, the Lease shall terminate only as to the portion taken,
and shall continue in full force and effect as to the remainder of said
Premises, and the monthly rent shall be reduced proportionately; provided,
however, if the remainder of the Premises cannot be made rentable for the
purposes for which Lessee has been using the Premises or if more than
twenty five percent (25%) of the rentable square footage of the Premises
shall be so taken, then either party, by written notice to the other, given
at least thirty (30) days prior to the date that possession must be
surrendered to the public authority, may terminate this Lease effective as
of such surrender of possession. If any part of the building other than the
Premises shall be so taken so as to render in Lessor's opinion the
termination of this Lease beneficial to the remaining portion of the
building, Lessor shall have the right within sixty (60) days of said taking
to terminate this Lease upon thirty (30) days written notice to Lessee. In
the event of any taking, whether whole or partial, Lessor shall be entitled
to all awards, settlements, or compensation which may be given for the land
and buildings. Lessee shall have no claim against Lessor for the value of
any unexpired term of this Lease.
21. INSOLVENCY. If Lessee shall be declared insolvent or bankrupt, or if
Lessee's leasehold interest herein shall be levied upon or seized under
writ of any court of law, or if a trustee, receiver or assignee be
appointed for the property of Lessee, whether under operation of State or
Federal statutes, then Lessor may, at its option, immediately, without
notice (notice being expressly waived), terminate this Lease and take
possession of said Premises, without, however, terminating Lessee's
obligations under this Lease.
22. DEFAULT AND RE-ENTRY. If Lessee fails to keep or perform any of the
covenants and agreements herein contained, then the same shall constitute a
breach hereof, and if Lessee has not remedied such breach within three (3)
days after written notice thereof from Lessor if the breach is non-payment
of rent or other charges, or within ten (10) days after written notice
thereof from Lessor in the event of the breach of any other covenant,
provided that if the default cannot reasonably be cured within that period
Lessee shall have such longer period to cure the default as is reasonably
necessary so lone as Lessee commences the work within the initial period
and is diligently pursuing the cure of such default, then Lessor may, at
its option, without further notice or demand:
(a) Cure such breach for the account and at the expense of Lessee and such
expense shall be deemed additional rent due on the first of the
following month. In addition, Lessor may terminate any future rights
of Lessee under Paragraphs 1, 2 3 and or 5 of Exhibit G; or
(b) Re-enter the Premises, remove all persons therefrom, take possession
of the Premises and remove all personal property therein at Lessee's
risk and expense and ( 1 ) terminate this Lease, or (2) without
terminating the Lease or in any way affecting the rights and remedies
of Lessor or the obligations of Lessee, re-let the whole or any part
of the Premises as agent
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for Lessee, upon such terms and conditions as Lessor may deem
advisable. In either event, any moneys received from Lessee and any
deposit or other amounts held by Lessor may first be applied by Lessor
to any damages suffered by Lessor as a result of such default,
including without limitation, costs and expenses incurred on re-entry
and re-letting, any unamortized tenant improvements and commissions,
cleaning, necessary repairs, restoration and alteration, and any
commissions incurred on re-letting, and the balance of such amounts
may be applied toward payment of other sums due to Lessor hereunder.
In the event the Premises are re-let for Lessee's account, Lessee
shall pay to Lessor monthly any deficiency; however, Lessor shall not
be required to pay any excess to Lessee. Upon termination of this
Lease or of Lessee's right to possession, Lessor has the right to
recover from Lessee: (1) The worth of the unpaid rent that had been
earned at the time of such termination; (2) The worth of the amount of
the unpaid rent that would have been earned after the date of such
termination; and (3) Any other amount, including court, attorney and
collection costs, necessary to compensate Lessor. "The Worth," as used
in Section (1) of this paragraph 22(b) is to be allowing interest at
18% per year. "The Worth" as used for Section (2) of this paragraph
22(b) is to be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of
termination. The above remedies of Lessor are cumulative and in
addition to any other remedies now or hereafter allowed by law or
elsewhere provided for in this Lease.
23. REMOVAL OF PROPERTY. Any property of Lessee removed by Lessor in accordance
with Section 22 above may be stored by Lessor or may be deposited on any
area adjacent to the building at the sole risk and expense of Lessee and
without any further responsibility of Lessor, and Lessor may at its sole
discretion without removing said property or after removing said property,
without obligation to do so and without notice to Lessee, sell or dispose
of the same at public or private sale for the account of Lessee, in which
event the proceeds therefrom may be applied by Lessor upon any indebtedness
due from Lessee to Lessor. Lessee waives all claims for damages that may be
caused by Lessor re-entering the Premises and removing or disposing of said
property as herein provided.
24. COSTS AND ATTORNEYS' FEES. In the event either party shall commence legal
action to enforce any provision of this Lease, the court shall award to the
prevailing party all reasonable attorneys' fees and all costs incurred in
connection therewith, including fees and costs on appeal. Any action
relating to this Lease shall be brought in the County in which the Premises
are located or, at Lessor's election, in King County, Washington.
25. SUBROGATION WAIVER. Lessor and Lessee each herewith and hereby release and
relieve the other and waive its entire right of recovery against the other
for loss or damage arising out of or incident to the perils of fire,
explosion or any other perils described in the "all risk" insurance
endorsement approved for use in the state in which the Premises are
situated which occurs in, on or about the Premises, whether due to the
negligence of either party, their agents, employees or otherwise.
26. HOLDING OVER. If Lessee, with the express consent of Lessor, shall hold
over after the expiration of the term of this Lease, Lessee shall remain
bound by all the covenants and agreements herein, except that (a) the
tenancy shall be from month-to-month and (b) the monthly rent to be paid by
Lessee shall be determined by multiplying the monthly rent in effect
immediately preceding such expiration times 150%. If Lessee holds
possession of the Demised Premises after the expiration of the Lease
without the express written consent of Lessor, Lessee shall remain bound by
all the covenants and agreements herein, except that (a) the tenancy shall
be from month-to-month and (b) the monthly rent to be paid by Lessee shall
be determined by
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multiplying the monthly rent in effect immediately preceding such
expiration times 200%. Any such tenancy may be terminated as provided by
Washington State law.
27. SUBORDINATION AND ATTORNMENT; MORTGAGEE PROTECTION
A. SUBORDINATION-NOTICE TO MORTGAGEE. At the request of Lessor, Lessee
shall promptly execute, acknowledge and deliver, all instruments which
may be required to subordinate this Lease to any existing or future
mortgages, deeds of trust and/or other security documents on or
encumbering the Premises or on the leasehold interest held by Lessor,
and to any extensions, renewals, or replacements thereof, provided
that the mortgagee or beneficiary, as the case may be, shall agree to
recognize this Lease in the event of foreclosure if Lessee is not in
default at such time and provided that such instruments do not change
the rights or obligations of Lessee under this Lease.
B. LESSEE'S CERTIFICATE. Lessee shall at any time and from time to time
upon not less than seven (7) days prior written notice from Lessor
execute, acknowledge and deliver to Lessor a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect
(or, if mod)modified, stating the nature of such mod)modification and
certifying that this Lease as so modified is in full force and effect
and the date to which the rental and other charges are paid in
advance, if any; and (b) acknowledging that there are not, to Lessee's
knowledge, any uncured defaults on the part of the Lessor or Lessee
hereunder, or specifying such defaults if any are claimed; and (c)
setting forth the date of commencement of rents and expiration of the
Lease Term hereof. Any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the
Premises of which the Premises are a part.
C. MORTGAGEE PROTECTION CLAUSE. Lessee agrees to notify any mortgagee
and/or trust deed holders, by registered mail, with a copy of any
notice of default served upon the Lessor, provided that prior to such
notice Lessee has been not)notified in writing (by way of Notice of
Assignment of Rents and Lease, or otherwise) of the addresses of such
mortgagees and/or trust deed holders. Lessee further agrees that if
Lessor shall have failed to cure such default, then the mortgagees
and/or trust deed holders have thirty (30) days within which to cure
such default or if such default cannot be cured within that time, then
such additional times as may be necessary if within such thirty (30)
days any mortgagee and/or trust deed holder has commenced and is
diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings
if necessary to affect such cure), in which event this Lease shall not
be terminated if such remedies are being so diligently pursued.
28. SURRENDER OF POSSESSION. Lessee shall, prior to the termination of this
Lease or of Lessee's right to possession, remove from the Premises all
personal property which Lessee is entitled to remove and those alterations,
additions, improvements or signs which may be required by Lessor to be
removed, pursuant to Section 14 above, and shall repair or pay for all
damage to the Premises caused by such removal. All such property remaining
and every interest of Lessee in the same shall be conclusively presumed to
have been conveyed by Lessee to Lessor under this Lease as a bill of sale,
without compensation, allowance, or credit to Lessee. Lessee shall upon
termination of this Lease or of Lessee's right of possession, deliver all
keys to Lessor and peacefully quit and surrender the Premises without
notice, neat and clean, and in as good
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condition as when Lessee took possession, except for reasonable wear and
tear and damage by casualty.
29. LATE PAYMENT AND INTEREST. If any amount due from Lessee is not received in
the office of Lessor on or before the third (3rd) business day following
the date upon which such amount is due and payable, a late charge of five
percent (5%) of said amount shall become immediately due and payable, which
late charge Lessor and Lessee agree represents a fair and reasonable
estimate of the processing and accounting costs that Lessor will incur by
reason of such late payment. All past due amounts owing to Lessor under
this Lease, including rent, shall be assessed interest at an annual
percentage rate of eighteen percent (18%) from the date due or date of
invoice, whichever is earlier, until paid.
30. NOTICE. Any notice required to be given by either party to the other
pursuant to the provisions of this Lease or any law, present or future,
shall be in writing, and shall be deemed to have been duly given or sent if
either delivered personally or three (3) business days after being
deposited in the United States Mail, postage prepaid, registered or
certified, return receipt requested, addressed to the Lessor at the address
specified for the payment of rent under paragraph 3 of this Lease or to 2
such other address as either party may designate to the other in writing
from time to time:
Targeted Genetics Corporation Benaroya Capital Company, LLC
1100 Olive Way, Suite 100 1001 4th Avenue, Suite 4700
Seattle, Washington 98101 Seattle, WA 98154
Atten: Director of Operations (206) 343-4750
31. NO WAIVER OR COVENANTS. Time is of the essence of this Lease. Any waiver by
either party of any breach hereof by the other shall not be considered a
waiver of any future similar or other breach.
32. BINDING ON HEIRS SUCCESSORS AND ASSIGNS. The covenants and agreements of
this Lease shall be binding upon the heirs, executors, administrators,
successors and assigns of both parties hereto, except as hereinabove
provided.
33. LESSOR'S ASSIGNMENT. Lessor shall have the full right to assign this Lease,
without any notice to Lessee, thereby relieving Lessor from all and any
liabilities occurring after such assignment; provided however, that the
assignee assumes all Lessor's responsibilities as set forth in this Lease.
34. ENVIRONMENTAL, EMISSIONS; STORAGE' USE AND DISPOSAL OF WASTE:
a. EMISSIONS. Lessee shall not (i) discharge, emit or permit to be
discharged or emitted, any liquid, solid or gaseous matter, or any
combination thereof, into the atmosphere, the ground or any body of water,
which does or may pollute or contaminate the same, or does or may adversely
affect the health or safety of persons, or the use or enjoyment of the
Premises; nor (ii) transmit, receive or permit to be transmitted or
received, any electromagnetic, microwave or other radiation in, on or about
the Premises.
b. STORAGE. IF, WITH or without violation of this Lease, Lessee possesses
at the Premises any matter described in Section A above or any Hazardous
Substances (as defined below), Lessee
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shall store the same in appropriate leak proof containers and/or areas
which comply with all laws and all prudent practices.
c. DISPOSAL OF WASTE. Lessee shall not keep any trash, garbage, waste or
other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove same from the Premises. Lessee shall keep
all such containers in a clean and sanitary condition. Lessee shall
properly dispose of all sanitary sewage and shall not use the sewage system
for the disposal of anything except sanitary sewage, nor in excess of
capacity. Lessee shall not cause any obstruction in the sewage disposal
system.
d. COMPLIANCE OF LAW. Notwithstanding any other provision in the Lease to
the contrary, Lessee shall comply with all Laws in complying with its
obligations under this Lease, and in particular, Laws relating to the
storage, use and disposal of Hazardous Substances (as defined below).
e. INDEMNIFICATION FOR BREACH. Lessee shall defend, indemnify and hold
Lessor, the Project and the holder of a trust deed or mortgage on the
Project harmless from any loss, claim, liability or expense, including,
without limitation, attorneys fees and costs, at trial and/or on appeal and
review, arising out of or in connection with its failure to observe or
comply with the provisions of this Section. This indemnity shall survive
the expiration or earlier termination of the term of the Lease or the
termination of Lessee's right of possession and be fully enforceable
thereafter.
f. INDEMNIFICATION REGARDING HAZARDOUS SUBSTANCES. In addition to the
indemnity obligations contained elsewhere herein, Lessee shall indemnify,
defend and hold harmless Lessor, the Premises, the Project, and the holder
of a trust deed or mortgage on the Project, from and against all claims,
losses, damages, monitoring costs, response costs, liabilities, and other
costs expenses caused by, arising out of, or in connection with, the
generation, release, handling, storage, discharge, transportation, deposit
or disposal in, on, under or about the Premises by Lessee or any of
Lessee's agents of the following (collectively referred to as "Hazardous
Substances"): hazardous materials, hazardous substances, toxic wastes,
toxic substances, pollutants, petroleum products, underground tanks, oils,
pollution, asbestos, PCB's, radioactive materials, or contaminants, as
those terms are commonly used or as defined by federal, state, and/or local
law or regulation related to protection of health or the environment as any
of same may be amended from time to time, and/or by any rules and
regulations promulgated thereunder. Such damages, costs, liability and
expenses shall include such as are claimed by any regulating and/or
administering agency, any ground lessor or master lessor of the Project,
the holder of any Mortgage or Deed of Trust on the Project, and/or any
successor of the Lessor named herein. This indemnity shall include (i)
claims of third parties, including governmental agencies, for damages,
fines, penalties, response costs, monitoring costs, injunctive or other
relief; (ii) the costs, expenses or losses resulting from any injunctive
relief, including preliminary or temporary injunctive relief; (iii) the
expenses, including fees of attorneys and experts, of reporting the
existence of Hazardous Substances to an agency of the State of which the
Premises is located or of the United States as required by applicable laws
and regulations; and (iv) any and all expenses or obligations, including
attorney's fees, incurred at, before and after any administrative
proceeding, trial, appeal and review. This indemnity shall survive the
expiration or earlier termination of the term of the Lease or the
termination of Lessee's right of possession and shall remain fully
enforceable thereafter.
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g. INFORMATION. Lessee shall give prior written notice to Lessor of any
use, whether incidental or otherwise, of Hazardous Substances on the
Premises, and shall immediately deliver to Lessor a copy of any notice of
any violation of any Law with respect to such use. Lessee shall also
provide to Lessor, upon request, with any and all information regarding
Hazardous Substances in the Premises, including contemporaneous copies of
all filings and reports to governmental entities, and any other information
requested by Lessor. In the event of any accident, spill or other incident
involving Hazardous Substances, Lessee shall immediately report the same to
Lessor and supply Lessor with all information and reports with respect to
the same. All information described herein shall be provided to Lessor
regardless of any claim by Lessee that it is confidential or privileged.
35. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Lessee agrees that, regarding any claim against Lessor,
including in the event of any actual or alleged failure, breach or default
by Lessor:
a. The sole and exclusive remedy of Lessee shall be against the interest
of Lessor in the Project, and Lessor shall have no other liability
whatsoever.
b. (i) No partner, member, employee, affiliate, or manager of Lessor
shall be sued or named as a party in any suit or action; (ii) No
service of process shall be made against any partner, member,
employee, affiliate, or manager of Lessor (except as may be necessary
to secure jurisdiction of Lessor); (iii) No partner, member, employee,
affiliate, or manager of Lessor shall be required to answer or
otherwise plead to any service or process; (iv) No judgment may be
taken against any partner, member, employee, affiliate, or manager of
Lessor; (v) Any judgment taken against any partner, member, employee,
affiliate, or manager may be vacated and set aside at any time without
hearing; and (vi) No writ of execution will ever be levied against the
assets of any partner, member, employee, affiliate, or manager of
Lessor.
35. ENTIRE AGREEMENT. It is expressly understood and agreed by Lessor and
Lessee that there are no promises, agreements, conditions, understandings,
inducements, warranties, or representations, oral or written, express or
implied, between them, other than as herein set forth and that this Lease
shall not be mod)modified in any manner except by an instrument in writing
executed by the parties.
LESSOR: BENAROYA CAPITAL COMPANY, LLC
By: /s/ Larry Benaroya
Larry Benaroya
Its: Manager
Date: 10/14/96
LESSEE: TARGETED GENETICS CORPORATION
By: /s/ H. Stewart Parker
Its: President and CEO
Date: Oct. 7, 1996
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STATE OF WASHINGTON ]
] ss.
COUNTY OF KING ]
I certify that I know or have satisfactory evidence that Larry R. Benaroya is
the person who appeared before me, a Notary Public in and for the State of
Washington duly commissioned and sworn, and acknowledged that he is the Manager
of BENAROYA CAPITAL COMPANY, LLC, a Washington limited liability company, who
executed the within and foregoing instrument, and acknowledged the instrument to
be the free and voluntary act and deed of said company for the uses and purposes
therein mentioned, and on oath stated that affiant is authorized to execute said
instrument on behalf of said company.
IN WITNESS WHEREOF I have hereunto set my and affixed my official seal the day
and year first above written
/s/ Patricia Venable
Notary Public in and for the
State of Washington
residing at Issaquah
[Notary Seal] Commission expires 11-4-99
Print Name Patricia Venable
STATE OF Washington ]
] ss.
COUNTY OF King ]
I certify that I know or have satisfactory evidence that H. Stewart
Parker is the person who appeared before me, a Notary Public in and for the
State of Washington duly commissioned and sworn, and acknowledged that he/(she)
is the President and CEO, of Targeted Genetics Corporation, a Washington
corporation, who executed the within and foregoing instrument, and acknowledged
the instrument to be the free and voluntary act and deed of said corporation for
the uses and purposes therein mentioned, and on oath stated that affiant is
authorized to execute said instrument on behalf of said corporation.
IN WITNESS WHEREOF I have hereunto set my hand and affixed my official seal the
day and year first above written.
/s/ Jon Case
Notary Public in and for the
STATE OF WASHINGTON
residing at Seattle, Washington
Commission expires 10-29-97
Print Name Jon M. Case
[Notary Seal]
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EXHIBIT A
FLOOR PLAN OF PREMISES
To Lease made on this __ day of ______________, 1996, between BENAROYA CAPITAL
COMPANY, LLC, a Washington limited liability company (the "Lessor") and TARGETED
GENETICS CORPORATION (the "Lessee").
The Premises of approximately 4,720 Rentable Square Feet as outlined below.
Lessee and Lessor acknowledge the approximate nature of this Square Foot
Calculation.
(PLEASE SEE ATTACHED)
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[MAP OF PREMISES]
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EXHIBIT A-1
FLOOR PLAN OF RIGHT OF FIRST REFUSAL SPACE
To Lease made on this __ day of ______________, 1996, between BENAROYA CAPITAL
COMPANY, LLC, a Washington limited liability company (the "Lessor") and
TARGETED GENETICS CORPORATION (the "Lessee").
The Premises of approximately 5,000 Rentable Square Feet as outlined below.
Lessee and Lessor acknowledge the approximate nature of this Square Foot
Calculation.
(PLEASE SEE ATTACHED)
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[MAP OF PREMISES]
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<PAGE> 17
EXHIBIT B
SPACE PLAN OF PREMISES
To Lease made on this __ day of _________________, 1996, between BENAROYA
CAPITAL COMPANY, LLC, a Washington limited liability company (the "Lessor") and
TARGETED GENETICS CORPORATION (the "Lessee").
The Premises of approximately 4,720 Rentable Square Feet is planned as follows:
(TO BE PROVIDED BY LESSEE)
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EXHIBIT C
LEGAL DESCRIPTION
DESCRIPTION OF THE PROPERTY
To Lease made on this __ day of _______________, 1996, between BENAROYA
CAPITAL COMPANY, LLC, a Washington limited liability company (the "Lessor") and
TARGETED GENETICS CORPORATION (the "Lessee").
Lots 6, 7, 8, 9, 10, and 11, Block 50, Second Addition to the Town of Seattle as
laid off by heirs of Sarah A. Bell (deceased), (Commonly known as heirs of Sarah
A. Bell's 2nd Addition to the City of Seattle), according to Plat recorded in
Volume 1 of Plats, page 121, in King County, Washington.
TOGETHER WITH that portion of vacated alley formerly running through Block 50,
vacated by City of Seattle Ordinance No. 88702, as would attach by operation of
law.
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EXHIBIT D
RULES AND REGULATIONS
To Lease made on this __ day of ____________, 1996, between BENAROYA CAPITAL
COMPANY, LLC, a Washington limited liability company (the "Lessor") and TARGETED
GENETICS CORPORATION (the "Lessee").
1. Any directory provided by Lessor for the building will be for the display
of the name and location of tenants, and Lessor reserves the right to
exclude any other names.
2. Lessee shall not place any new or rekey any existing locks on any doors of
the Premises, or change any plumbing or wiring without the prior written
consent of Lessor. All keys shall be obtained from Lessor and Lessee shall
not, from any other source, duplicate keys. Lessee, upon termination of the
tenancy, shall deliver to Lessor all keys which have been furnished, or
shall pay Lessor the cost of changing the lock(s) opened by any lost key(s)
if Lessor deems it necessary to make such change. Lessor, its employees and
agents may retain a passkey to the Premises. Lessee shall be permitted to
install a card reader security device on the entrance to the Premises as
long as Lessee provides Lessor with either an override key or an access
card.
3. The common area sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Lessee or used for any purpose,
including storage or placement of trash, other than for ingress to and
egress from the Premises. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof are not for the use of the general public and
Lessor shall in all cases retain the right to control and prevent access
thereto by all persons whose presence, in the judgment of Lessor, shall be
prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Lessee normally deals
in the ordinary course of Lessee's business, unless such persons are
engaged in illegal activities, intoxicated or violate any of these Rules
and Regulations. Lessee, Lessee's employees or invitees shall not go upon
the roof of the Building.
4. Lessee shall not make or permit any use of the Premises which may emit
noise, odor or vibrations from the Premises which are objectionable to
Lessor or other occupants of the Building. Lessee shall not use or permit
any part of its Premises to be used for lodging or sleeping.
5. The toilet rooms, urinals, washbowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Lessee who, or whose employees or invitees,
shall have caused it.
6. Lessee shall not use or keep in the Premises or the building, any kerosene,
gasoline or flammable or combustible fluid or materials, or use any method
of heating or air conditioning other than supplied by Lessor.
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7. Lessee shall not do or permit to be done within the Premises anything which
would unreasonably annoy or disturb or interfere with the rights of other
tenants of the Building. Lessee shall not solicit or canvass any occupant
of the building.
8. Lessee shall not commit or permit to be committed any waste, damage or
injury to the Premises or other Premises within the Building, or common
areas within and adjoining the Building. Such waste, damage or injury shall
be repaired at Lessee's own expense.
9. Lessee shall use electricity and water in a commercially reasonable manner.
and agrees to cooperate fully with Lessor to assure the most effective and
economical use of utility services provided to the Building by Lessor.
10. Lessee shall keep Lessor advised of the current telephone numbers of
Lessee's employees who may be contacted in emergency, i.e., fire, break-in,
vandalism, etc. If Lessor shall deem it necessary to respond to such
emergency in Lessee's behalf, Lessee shall pay all costs incurred for
services ordered by Lessor to secure or otherwise protect the Premises and
the contents thereof, including a premium charge for any time spent by
Lessor's employees in responding to such emergency.
11. Lessee shall see that the doors of the Premises are closed and securely
locked before leaving the Building and must observe strict care and caution
that all water faucets or water apparatus are entirely shut off before
Lessee's employees leave the Premises, and that all electricity shall be
shut off, so as to prevent waste or damage, and for any default or
carelessness Lessee shall make good all injuries sustained by Lessor, other
tenants, or occupants of the Building.
12. Lessee shall not place upon or install on, or beside, the windows, walls or
exterior doors of the Premises or any part of the Premises visible from the
exterior of the Premises any object including without limitation signs,
symbols, canopies, awnings, window coverings or other advertising or
decorative material, without obtaining the prior written consent of Lessor.
13. Lessee shall not overload the floor of the Premises or mark, drive nails,
screw, or drill into the partitions, woodwork or plaster, or in any way
deface the Premises or any part thereof. Lessee shall not bore holes, cut
or string wires, or lay floor tile, carpet or other floor covering in or
around the Premises in any manner, except as approved in writing by Lessor.
The expense of repairing any damage resulting from a violation of this rule
or removal of any floor covering shall be borne by the Lessee by whom, or
by whose contractors, employees, or invitees, the damage shall have been
caused.
14. No vending machine or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
Lessor.
15. Lessee agrees that is shall comply with all fire, life safety, security and
other regulatory policies and procedures that may be issued from time to
time by Lessor.
16. Without the written consent of Lessor, Lessee shall not use the name of the
building in connection with or in promoting or advertising the business of
Lessee, except as Lessee's address.
17. No furniture, freight, or equipment of any kind shall be brought into the
Building without the consent of Lessor and all moving of the same into or
out of the Building shall be done at such
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time and in such manner as Lessor shall designate. Lessor shall have the
right to prescribe the right, size and position of all safes and other
heavy equipment brought into the Building. Flooring under safes or other
heavy objects must be reinforced or a means of proper weight distribution
provided, at Lessee's sole expense, if, in the opinion of the Lessor, such
precautions are necessary. Any damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the sole
expense of Lessee. There shall not be used in any space, or in the public
halls of the Building, either by Lessee or others, any pallet jacks or hand
trucks, except those equipped with rubber tires and side guards.
18. Lessee shall not employ or permit access to any person(s) for the purpose
of cleaning the Premises unless otherwise agreed to by Lessor. Lessee shall
not cause any unnecessary labor by reason of Lessee's carelessness or
indifference in the preservation of good order and cleanliness. Lessor
shall in no way be responsible to Lessee for any loss of property on the
Premises, however occurring, or for any damage done to the effects of
Lessee by the janitor or any other employee or any other person.
19. If the Premises are equipped with heating facilities separate from those in
the remainder of the building, Lessee shall keep the leased Premises at a
temperature sufficient to prevent freezing of water in pipes and fixtures.
20. Lessor reserves the right, by written notice to Lessee, to rescind,
substitute, alter or waive any rule or regulation at any time prescribed
for the building when, in Lessor's judgment, it is necessary, desirable or
proper for the best interest of the Building and its tenants.
21. Lessee may not bring any animals into the building or Premises except for
those that are utilized for service to the handicapped.
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EXHIBIT E
STANDARDS FOR UTILITIES AND SERVICES
To Lease made on this __ day of__________ , 1996, between BENAROYA CAPITAL
COMPANY, LLC, a Washington limited liability company (the "Lessor") and TARGETED
GENETICS CORPORATION (the "Lessee").
The following Standards for Utilities and Services are in effect. Lessor
reserves the right to adopt nondiscriminatory mod)modifications and additions
hereto.
1. Non-attended automatic elevator facilities Monday through Friday, except
holidays, from 8 a.m. to 6 p.m., and have one elevator available at all other
times.
2. Monday through Friday, except holidays, from 7 a.m. to 6 p.m., (and
other times for the sum of $10.00 per hour via override switches located on the
zoned thermostats in the Premises), ventilate the Premises and furnish air
conditioning or heating and undertake good faith efforts to maintain
temperatures of between 68 o and 75o in the Premises subject to extreme outside
temperatures. Lessee agrees to cooperate fully at all times with Lessor, and to
abide by all reasonable regulations and requirements which Lessor may prescribe
for the proper function and protection of said air conditioning system. Lessee
agrees not to connect any apparatus, device, conduit or pipe to the building
chilled and hot water air conditioning supply lines. Lessee further agrees that
neither Lessee nor its, employees, agents, visitors, licensees or contractors
shall at any time enter mechanical installations or facilities of the Building
or adjust, tamper with, touch or otherwise in any manner affect said
installations or facilities. The cost of maintenance and service calls to adjust
and regulate the air conditioning system shall be charged to Lessee if the need
for maintenance work results from either Lessee's adjustment of room thermostats
or Lessee's failure to comply with its obligations under this section. Such work
shall be charged at hourly rates equal to then-current journeymen's wages to air
conditioning mechanics.
3. Electric current as required by the building standard office lighting
and fractional horsepower office business machines in an amount not to exceed
3.5 watts per square foot. Lessee agrees, should its electrical installation or
electrical consumption be in excess of the aforesaid quantity or extend beyond
normal business hours, to reimburse Lessor monthly for the measured consumption
at the average cost per kilowatt hour charged to the building during the period.
If a separate meter is not installed at Lessee's cost, such excess costs will be
established by an estimate agreed upon by Lessor and Lessee, and if the parties
fail to agree, as established by an independent licensed engineer. Lessee
further agrees not to connect any apparatus or devise with wires, conduits or
pipes, or the other means by which such services are supplied, for the purpose
of using additional or unusual amounts of such services without the prior
written consent of Lessor. Should Lessee use the same to excess, the refusal on
the part of Lessee to pay upon demand of Lessor the amount established by Lessor
for such excess charge shall constitute a breach of the obligation to pay rent
under this Lease and shall entitle Lessor to the rights therein granted for such
breach. At all times Lessee's use of electric current shall never exceed the
capacity of the feeders to the building or the risers or wiring installation and
Lessee shall not install or use or permit the installation or use of any
unusually high weight or high electrical consumption computer or electronic data
processing equipment in the Premises without the prior written consent of
Lessor.
4. Provide janitor service to the Premises, provided the same are used
exclusively as offices, and are kept reasonably in order by Lessee, and if to be
kept clean by Lessee, no one other than persons
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approved by Lessor shall be permitted to enter the Premises for such purposes.
If the Premises are not used exclusively as offices, they shall be kept clean
and in order by Lessee, at Lessee's expense, and to the satisfaction of Lessor,
and by persons approved by Lessor. Lessee shall pay to Lessor the cost of
removal of any of Lessee's refuse and rubbish to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of the Premises as
of offices.
Lessor reserves the right to stop service of the elevator, plumbing,
ventilation, air conditioning and electric systems, when necessary, by reason of
accident or emergency or for repairs, alterations or improvements, in the
judgment of Lessor desirable or necessary to be made, until said repairs,
alterations or improvements, shall have been completed, and shall further have
no responsibility or liability for failure to supply elevator facilities,
plumbing, ventilation, air conditioning or electric service. It is expressly
understood and agreed that any covenants, express or implied, for Lessor to
furnish any service for the benefit of Lessee shall not be deemed breached if
Lessor is unable to furnish or perform the same by virtue of a strike or labor
trouble or any other cause whatsoever beyond Lessor's reasonable control. In all
circumstances in which Lessor's activities and the activities of its agents and
employees' affect Lessee's use or occupancy of the Premises and common areas
Lessor agrees to manage its activities in a professional manner which reasonably
minimizes the impact on Lessee.
5. Lessee shall not use or install in the Premises any heat generating
equipment, except as specifically authorized herein, or installed pursuant to
the Work Letter Agreement, without Lessor's prior written consent. The inclusion
of this restriction is to ensure that the HVAC system is adequate to service the
Building and the various uses of tenants that occupy the Building.
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EXHIBIT F
WORK LETTER AGREEMENT
To Lease made on this _ day of , 1996, between BENAROYA CAPITAL COMPANY, LLC, a
Washington limited liability company (the "Lessor") and TARGETED GENETICS
CORPORATION (the "Lessee").
1. Lessor shall be responsible for the following work ("Lessor's Work") in
addition to the Allowance described below: install demising wall and the
door to the bathrooms, perform the "above the ceiling" work including
adding and/or relocating or replacing light fixtures, distributing and
balancing Premises HVAC system, and replacing ceiling tiles and ceiling
grid.
2. Lessee shall cause to be constructed the remainder of the tenant
improvements to the Premises ("Lessee's Work"). Lessee shall cause to be
prepared construction drawings ("Construction Drawings") for the Lessee's
Work that are consistent with the existing design work for the Premises.
Lessor shall reimburse Lessee for up to $.50 per rentable square foot for
the cost of the working drawings and design fees. As soon as the
Construction Drawings are completed, Lessee shall deliver them to Lessor
for its review and reasonable approval, which shall be granted or denied
within 3 business days. When Lessor has approved the Construction Drawings,
they shall be put out to bid to by contractors jointly selected by Lessee
and Lessor. When the bids are received, Lessee shall select the contractor
to be used for the job, which need not be the lowest bidder. Lessor's
property manager (at no cost to Lessee) and Lessee and contractor shall
then jointly work to value engineer the Lessee's Work to insure that the
cost of the Lessee's Work is feasible for Lessee. When the parties have
completed the value engineering and Lessee and contractor have reached
agreement on contract documents, Lessee shall enter into the contract
documents and the contractor shall proceed with the Lessee's Work.
3. Lessor shall provide a tenant improvement allowance of Seventy Thousand
Eight Hundred and no/100 Dollars ($70,800.00) (the "Allowance"), toward the
cost of the Lessee's Work. In addition, Lessor will finance all or a
portion of the cost of Lessee's Work in excess of the Allowance by
amortizing it into the rent for the initial term with interest at 12%. As
the contractor proceeds with the construction, it shall present draw
requests to Lessee for approval and Lessee shall forward the approved draw
requests to Lessor for payment. If the job is not completed or final costs
are not known on the date that minimum monthly rent payments commence, then
Lessee shall pay the amounts shown in Section 3 of the Lease until the
final total cost is determined and the rent shall then be adjusted to
include the correct amortization amount and Lessee shall pay the amount
necessary to retroactively adjust the rent previously paid to the correct
total amount.
4. Lessee is responsible for the suitability of the design and function of the
Lessee Improvements for Lessee's needs and business. Lessee shall also be
responsible for procuring or installing in the Premises any trade fixtures,
equipment, furniture, furnishings, telephone equipment or other personal
property (collectively, "Personal Property") to be used in the Premises by
Lessee, and the cost of such Personal Property shall be paid by Lessee.
Lessee shall conform to the Building's wiring standards in installing any
telephone and computer equipment and shall be subject to any and all rules
of the site during construction of the Lessee Improvements.
5. If the completion of the Lessee Improvements in the Premises is delayed (i)
at the request of Lessor, (ii) by Lessor's failure to comply with the
foregoing provisions, or (iii) by performance of
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Lessor's Work (each, a "Lease Delay"), the date that rent commences
hereunder shall be delayed one day for each such day of Lease Delay.
6. Lessee shall be permitted to enter the Premises prior to the Commencement
Date for the purpose of constructing Lessee's Work and to install Lessee's
Personal Property and equipment. Lessee hereby indemnifies and agrees to
protect, defend and hold Lessor, any mortgagee, ground lessor or
beneficiary of a mortgage, ground lease or deed of trust related to the
Premises or the Building harmless from and against any and all suits,
claims, or actions (including claims for worker's compensation) for any
nature whatsoever, together with reasonable attorney fees for counsel of
Lessor's choice, arising out of or in connection with the installation of
Lessee's Work or Lessee's Personal Property or equipment (including, but
not limited to, claims for breach of warranty, personal injury or property
damage).
7. If Lessee requests any upgrades to the above the ceiling work, the increase
in cost due to the upgrade will be included in the costs amortized into the
rent.
8. Lessee may install a cable linking its Premises with Lessee's adjacent
headquarters; provided that Lessee shall be required to obtain Lessor's
reasonable approval of the location and provided that any damage to the
common areas caused by installation of the cable is fully repaired.
BENAROYA CAPITAL COMPANY, LLC LESSEE
/s/ Larry R. Benaroya /s/ H. Stewart Parker
Larry R. Benaroya
Manager
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EXHIBIT G
RIDERS TO LEASE
To Lease made on this _ day of , 1996, between BENAROYA CAPITAL COMPANY, LLC, a
Washington limited liability company (the "Lessor") and TARGETED GENETICS
CORPORATION (the "Lessee").
1. OPTION TO RENEW. Provided Lessee is not in default of any term or condition
of the Lease on the date notice of exercise is given or on the commencement of
the applicable option term (unless the default is cured within the applicable
cure period), Lessee shall have two (2) Options to Extend the lease term for two
(2) periods of sixty (60) months each (each, an "Option Term"), upon the same
terms and conditions as are set forth in the Lease, except the Monthly Minimum
Rent shall be increased as set forth below and except that the tenant
improvement provisions and early cancellation provisions shall not apply. The
options shall be exercised, if at all, by written notice to Lessor at least ten
(10) months prior to the expiration of the then existing Lease term.
The rent shall be the fair market rent as agreed by Lessee and Lessor. If the
parties can't agree, then on the commencement of each Option Term, the Monthly
Minimum Rent shall be increased to the then current fair market rent (the "New
Rent"). The New Rent shall be the average prevailing rental rate for comparable
space. The parties agree that for purposes of determining the New Rent, they
will look to the leases signed within the prior six (6) months for space on the
first floor of the following buildings: 1800 9th Avenue, Marsh McLennon Building
and the Metropolitan Park Buildings. If there are no leases signed within that
time period for the first floor space in those buildings, then the parties will
use leases signed within the last six (6) months for space in the top 35% of
floor space in those buildings. The parities agree to select an independent
appraiser who will contact the owners of those buildings, obtain the most recent
lease rates for the applicable space, average the result (if there are more than
one) and produce the figure which shall be considered the "New Rent". The party
who is furthest from the appraiser's New Rent shall pay the fee of the
appraiser, who's determination will be binding. Lessor shall prepare and Lessee
shall execute a lease amendment for the extension within thirty (30) days after
determination of the New Rent, who's determination will be binding.
2. RIGHT OF FIRST REFUSAL. Provided Lessee s not in default of any term or
condition of the Lease on the date Lessee receives notice of availability from
Lessor, (unless the default is cured within the applicable cure period), Lessee
shall have the Right of First Refusal to lease approximately 5,000 rentable
square feet of space located adjacent to and west of the Premises, (outlined on
Exhibit A-1, Floor Plan of Right of First Refusal Space) subject to any rights
existing prior to the execution of this Lease. Lessee shall have the Right of
First Refusal for the term of the Lease. Prior to entering into negotiations for
the space that Lessee has a Right of First Refusal on, Lessor shall provide
Lessee with written not)notification specifying when the space shall be
available for occupancy and the terms and conditions under which Lessor will
lease the space. Lessee shall respond within five (5) business days of written
not)notification by Lessor if Lessee wishes to lease the space. If Lessee does
not respond within five (5) business days, Lessee shall be deemed to have passed
on the offer to lease the space. Should Lessee accept such offer to lease,
Lessee shall execute a Lease Amendment to such effect within five (5) business
days after delivery of the Lease Amendment to Lessee. If Lessee does not accept
the offer. then Lessor shall be free to lease the space to a third party on
terms no more favorable than were offered to Lessee. If Lessor wishes to offer
more favorable terms, it shall first go back and offer those more favorable
terms to Lessee, who shall have three (3 business days to determine whether to
lease the space on those more favorable terms.
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3. EXPANSION OPTION. Provided Lessee s not in default of any term or condition
of the Lease on the date Lessee receives notice of availability from Lessor
(unless the default is cured within the applicable cure period, Lessee will have
the Option to Expand into the approximately 5,000 rentable square feet of
contiguous space to the west of the Premises (the "Expansion Space"), subject to
Lessor's ability to relocate the existing tenant or a future tenant from the
Expansion Space pursuant to the terms of the tenant's lease. A copy of the
pertinent relocation clause for the existing tenant is attached to this Lease.
This option to expand may be exercised at any time during the term of this Lease
by written notice to Lessor given at least four (4) months prior to the date
Lessee wishes to begin leasing the Expansion Space. The lease terms for the
Expansion Space shall be the same terms and conditions as the existing lease
except as of the date Lessor delivers possession of the Expansion Space to
Lessee with the tenant improvements if any' completed, (a) the Premises shall be
expanded to include the Expansion Space, (b) Lessee's share of common area costs
shall be increased to reflect the added space, (c) the rent and tenant
improvements for the Expansion Space will be as negotiated by the two parties.
If the parties can't agree, then, the Monthly Minimum Rent shall be increased to
the then current fair market rent (the "New Rent") and Lessor shall provide the
same level of tenant improvements as are then being provided by landlords under
comparable leases. The New Rent shall be the average prevailing rental rate for
comparable space. The parties agree that for purposes of determining the New
Rent and the level of prevailing tenant improvements, they will look to the
leases signed within the prior six (6) months for space on the first floor of
the following buildings: 1800 9th Avenue, Marsh McLennon Building and the
Metropolitan Park Buildings. If there are no leases signed within that time
period for the first floor space in those buildings, then the parties will use
leases signed within the last six (6) months for space in the top 35% of floor
space in those buildings. The parities agree to select an independent appraiser
who will contact the owners of those buildings, obtain the most recent lease
rates for the applicable space, average the result (if there are more than one)
and produce the figure which shall be considered the "New Rent". The appraiser
shall also determine the average level of tenant improvements provided by
landlords for those comparable leases and that is the level of tenant
improvements to be provided by Lessor in the Expansion Space, at Lessor's
expense. The party who is furthest from the appraiser's New Rent shall pay the
fee of the appraiser, who's determination will be binding. Lessor shall prepare
and Lessee shall execute a lease amendment for the extension within thirty (30)
days after determination of the New Rent, who's determination will be binding.
Lessor shall prepare and Lessee shall execute a lease amendment for the
extension within thirty (30) days after Lessee's not)notification to Lessor of
its intent to expand. In addition, Lessee shall pay the reasonable costs to
relocate the existing tenant from the Expansion Space as may be provided in that
tenant's lease, to another location in the building, including the cost of
equivalent tenant improvements in the new space.
4. PARKING. Lessee will be entitled to the use of one parking stall per 1,000
rentable square feet leased, for the term of the Lease, in the garage or on the
surrounding lots, at market rates. If the Premises expands to more than 4,720
rentable square feet. Lessee shall be entitled to one (1 additional parking
stall for each additional 1, 000 rentable square feet leased.
5. OPTION TO CANCEL. Provided Lessee is not in default of any term or
condition of the Lease on the date of the notice described below or on the date
of Lease cancellation, Lessor shall provide Lessee with an Option to Cancel this
Lease at the commencement of the sixth, seventh and eighth years of the Lease
Term. Lessee shall provide not less than ten (10) months prior written notice of
its intent to cancel. Also, Lessee shall pay Lessor a Lease cancellation penalty
along with its notice to cancel. The cancellation penalty shall be equal to the
unamortized portion of the tenant improvements and the real estate commission
plus the following payment:
Cancellation Timing Payment
------------------- -------
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Beginning sixth year Six months rent
Beginning seventh year Five months rent
Beginning eighth year Four months rent
In the event that Lessee leases the Expansion Space, Lessee shall occupy the
Expansion Space and the Initial Premises for a minimum of five (5) years from
the date of occupancy of the Expansion Space.
6. ADDITIONAL SPACE. Following execution of this Lease by Lessee and Lessor,
Lessor shall notify Chiyoda of Lessor's intent to relocate Chiyoda from the
Premises pursuant to the provisions of the lease between Chiyoda and Lessor. In
this notice Lessor will notify Chiyoda of its intent to recapture an additional
portion of Chiyoda's Premises (approximately 105 rentable square feet) as
depicted in the Floor Plan attached as Exhibit A. Should Chiyoda consent to
Lessor's acquisition of this Additional Space, Lessor and Lessee shall
immediately amend this Lease to add such additional space to the Premises and
the leasing of this Additional Space by Lessee shall be under the same terms and
conditions of this Lease.
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<PAGE> 29
EXHIBIT G-1
CHIYODA RELOCATION AMENDMENT
AMENDMENT TO LEASE NO. 3
This Amendment To Lease No. 3 dated this 29 day of March, 1995, is between
CHIYODA INTERNATIONAL CORPORATION, hereinafter after referred to as ("Lessee"),
and MARTIN SELIG, hereinafter referred to as ("Lessor"). On the 6th day of
February, 1991, Lessor and Lessee entered into a Lease covering premises (the
"Premises" herein) for Lessee's use in a building located at 1100 Olive Way,
Seattle, Washington 98101 (the "Building" herein), all as more particularly
described in the Lease. Lessor and Lessee desire to modify the Lease in certain
respects.
NOW, THEREFORE, AS PARTIES HERETO, Lessee and Lessor agree:
1. DESCRIPTION. Lessee shall continue to lease 19,960 rentable square
feet on the 5th floor. In addition, Lessee will lease approximately
5,000 rentable square feet (but shall be at least 5,000 rentable
square feet calculated per BOMA Standards) elsewhere in the building.
The exact size and location of the additional space will be mutually
agreed upon by both Lessor and Lessee. In the meantime, Lessee shall
continue to occupy its current 1st floor Premises of approximately
6,510 rentable square feet. However, rent for the 1st floor space will
be calculated as if Lessee were occupying 5,000 rentable square feet
effective March 1, 1995.
2. TERM. Commencing March 1, 1995, the term of the Lease Amendment and
the Master Lease as it applies to the 5th floor shall be extended to
expire May 19th, 2001. The Term of the Lease Amendment and the Master
Lease as it applies to the 1st floor Premises shall be extended to
expire May 19th, 1999. However, if Lessee's 1st floor Premises are
located elsewhere in the building, the Lease term for the relocated
1st floor Premises shall be extended to expire May 19th, 2001.
3. RENT. The annual base rental rate shall be $14.25 per rentable square
foot for the entire Premises effective March 1, 1995.
4. FIRST FLOOR PREMISES. At such time as Lessor has approximately 5,000
contiguous rentable square feet of space available elsewhere in the
building that provides Lessee with reasonably acceptable alternative
space to the 1st floor Premises, Lessor may relocate Lessee from the
1st floor. Lessor will provide Lessee with a minimum of three months
advance written notice of Lessor's desire to relocate Lessee. The cost
of such relocation, including any tenant improvements necessary to
configure the space to Lessee's reasonable requirements, will be borne
by Lessor.
5. FIRST FLOOR REMODEL. It is understood that Lessor has the right to
remodel the 1st floor Premises. It is agreed that access to Lessee's
1st floor Premises shall be provided by a hallway extending from the
western entrance into the 1st floor Premises to the Premises Lessee
occupies on the 1st floor. It is further understood that if Lessor has
need of additional space on the 1st floor
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and there is no other space available in the building to relocate
Lessee's 1st floor Premises to, that Lessor shall have the right to
remodel Lessee's 1st floor Premises into a configuration that is
reasonably satisfactory to Lessee arid is at least 5,000 rentable
square feet. Unless Lessee requests additional space, Lessee's rent
shall be computed on no more than 5,000 rentable square feet. The
reconfigured space will be located on two window walls and have a
similar level and quantity of improvements as now exists in Lessee's
1st floor space. Remodeling expenses and all architectural fees and
costs shall be borne by Lessor. Lessor will use its best efforts to
minimize the disruption to Lessee's day to day activities. The cost of
this remodeling, including a temporary relocation of Lessee if
necessary, together with all costs associated with that relocation
will be performed at Lessor's sole cost and expense.
6. OPTION TO EXTEND. So long as Lessee is not in default under any of the
terms and conditions of the Master Lease as amended, Lessee shall have
the option to extend the Lease on the 1st floor Premises, assuming
that it is still located on the 1st floor, for an additional two year
period. Lessee shall also have the option to extend the Lease term on
just the 5th floor Premises or the 5th and 1st floor Premises,
wherever the 1st floor Premises may be located within the building,
for an additional five year term expiring May 19th, 2006. Lessee
agrees to provide Lessor with a minimum of six months advance written
notice of their intent to exercise this option. The rental rate and
other terms of the extension option shall be as specified in the
Master Lease.
7. OPERATING EXPENSE ESCALATIONS. The base year for calculation of
Lessee's share of the operating expense and real estate tax increases
for the building shall be adjusted to be 1995 and will be based upon
24,960 rentable square feet. All other terms and conditions of
Paragraph 19 of the Lease, Operating Services and Real Estate Taxes,
shall remain the same.
8. RIGHT OF FIRST REFUSAL. Lessee shall have the first right of refusal
to lease either the 4th or the 6th floor subject to any existing
encumbrances as of the execution date of this Lease Amendment. The
rental rate for such right of first refusal space shall be based upon
the fair market rent as further defined in Paragraph 38 of the Master
Lease. Any right of first refusal space would have a term expiring
coterminous with the 5th floor leased Premises.
9. PARKING. Lessor shall provide Lessee with up to thirty (30) parking
stalls in the building's parking garage, ten (10) of which will be
free of charge. The balance will be available at the prevailing market
rates. In addition, an additional thirty (30) stalls shall be provided
within a three block radius of the building at the prevailing market
rate. At such time as Lessor leases the balance of the vacant space on
the 1st floor of the building or relocates Lessee elsewhere in the
building, Lessee's parking allocation shall be adjusted to reflect one
(1) inside parking stall per 1,000 rentable square feet
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2001 WESTERN AVENUE SUITE 330 SEATTLE WA 98121
1130 FAX (206) 72A-0935
January 30, 1997
Mr. Ed Luera
Director Leasing & Marketing
Benaroya Capital Company, LLC
1001 Fourth Avenue, Suite 4700
Seattle, Washington 98154
Dear Ed:
Pursuant to Exhibit F, Section 3 of the office lease between Targeted Genetics
Corporation and Benaroya Capital Company, dated October 7, 1996, and further to
our MEETING of Wednesday, January 22, 1997, the following is agreed to by the
parties:
Targeted Genetics Corporations lease in Metropolitan Park West Tower
commenced on December 1, 1996. The first month of rent was January 1,
1997. However the tenant improvements have not yet begun. The Lease
provides for the Lessor to pay $70,800.00 toward tenant improvements.
TENANT improvements in excess of the $70,800.00 are to be financed by
LESSOR at 12%. The commencement date for the amortization period of the
tenant improvements shall begin upon Lessor issuing a check following
receipt of a draw request by Lessee. Hence, the term for amortizing the
additional tenant improvements shall begin upon issuance of the check
and shall expire upon the expiration date of the lease.
Please indicate your agreement to this clarification by signing below. We look
forward to the beginning of construction work which is scheduled to begin
sometime this summer.
Sincerely,
/s/ Bob Mooney
Robert M. Mooney
Principal
RMM:als
cc: Vicki Cleator, Director of Operations, Targeted Genetics
AGREED TO AND ACCEPTED BY:
Benaroya Capital Company, LLC
Date:
Ed Luera, Director Marketing
Leasing
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January 6, 1997
Teutsch Partners
Robert Mooney
2001 Western Avenue; Suite 330
Seattle, WA 98121
Dear Bob,
Regarding the square foot calculations in our lease with Benaroya for the Met
Park space there are two issues. The first is we need an amendment to the lease
to include the additional space we are taking. The second, is our square foot
determination is slightly different than Benaroya's and we need to have some
sort of reconciliation.
I have attached a SF take-off provided by ARC. ARC calculates the space to be
4,419 SF which includes an additional 89 SF to relocate the demising wall. With
the 6% load factor, this yields a total of 4,684 rentable SF. Our lease
estimates the space to be 4,720 RSF excluding the additional 89 SF.
One option would be to suggest the lease stands as is, but we modify Exhibit A
to show the new demising line. What do you think? Call me so we can discuss.
Regards,
/s/ Vickie Cleator
Vickie Cleator
Director of Operations
TARGETED GENETICS CORPORATION
1100 OLIVE WAY, SUITE 100, SEATTLE, WASHINGTON 98101
PHONE 206.623.7612 FAX 206.223.0288
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[FLOOR PLAN DRAWING]
169
<PAGE> 1
EXHIBIT 10.32
TARGETED GENETICS CORPORATION
1992 RESTATED STOCK OPTION PLAN
AS AMENDED AND RESTATED ON OCTOBER 17, 1996
SECTION 1 PURPOSE
The purpose of the Targeted Genetics Corporation 1992 Restated Stock
Option Plan (this "Plan") is to provide a means whereby selected employees,
directors (subject to the restrictions contained in Sections 2 and 4), officers,
agents, consultants and independent contractors of Targeted Genetics Corporation
(the "Company") or of any parent or subsidiary (as defined in subsection 5.8 and
referred to hereinafter as "related corporations") thereof, may be granted
incentive stock options and nonqualified stock options to purchase the Common
Stock (as defined in Section 3) of the Company, in order to attract and retain
the services or advice of such employees, directors, officers, agents,
consultants and independent contractors and to provide added incentive to them
by providing an opportunity for stock ownership in the Company.
SECTION 2 ADMINISTRATION
2.1 PLAN ADMINISTRATOR
This Plan shall be administered by the Board of Directors of the Company
(the "Board")or a committee or committees (which term includes subcommittees)
appointed by, and consisting of two or more members of the Board. The
administrator of this Plan shall hereinafter be referred to as the "Plan
Administrator."
If and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the Board shall consider in selecting the Plan Administrator and the membership
of any committee acting as Plan Administrator of this Plan with respect to any
persons subject or likely to become subject to Section 16 under the Exchange Act
the provisions regarding (a) "outside directors" as contemplated by Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering this Plan with
respect to designated classes of eligible Participants to different committees,
subject to such limitations as the Board deems appropriate. Committee members
shall serve for such term as the Board may determine, subject to removal by the
Board at any time.
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The members of any committee serving as Plan Administrator shall be
appointed by the Board for such term as the Board may determine. The Board may
from time to time remove members from, or add members to, the committee.
Vacancies on the committee, however caused, shall be filled by the Board.
2.2 PROCEDURES
The Board shall designate one of the members of the Plan Administrator as
chairman. The Plan Administrator may hold meetings at such times and places as
it shall determine. The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists, or acts reduced to
or approved in writing by all Plan Administrator members, shall be valid acts of
the Plan Administrator.
2.3 RESPONSIBILITIES
Except for the terms and conditions explicitly set forth in this Plan, the
Plan Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under this Plan, including
selection of the individuals to be granted options, the number of shares to be
subject to each option, the exercise price, and all other terms and conditions
of the options. Grants under this Plan need not be identical in any respect,
even when made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option issued
hereunder, or of any rule or regulation promulgated in connection herewith,
shall be conclusive and binding on all interested parties, so long as such
interpretation and construction with respect to incentive stock options
correspond to the requirements of Internal Revenue Code of 1986, as amended (the
"Code"), Section 422, the regulations thereunder, and any amendments thereto.
2.4 RULE 16b-3 COMPLIANCE AND BIFURCATION OF PLAN
Notwithstanding anything in this Plan to the contrary, the Board, in its
absolute discretion, may bifurcate this Plan so as to restrict, limit or
condition the application of any provision of this Plan to participants who are
officers and directors subject to Section 16(b) of the Exchange Act without so
restricting, limiting or conditioning this Plan with respect to other
participants.
SECTION 3 SHARES SUBJECT TO THIS PLAN
The shares subject to this Plan shall be the Company's Common Stock, par
value $0.01 (the "Common Stock"), currently authorized but unissued or now held
or subsequently acquired by the Company. Subject to adjustment as provided in
Section 7 hereof, the aggregate amount of Common Stock to be delivered upon the
exercise of all options granted under this Plan shall not exceed 1,400,000
shares.(1) If any option granted under this Plan shall
- --------
(1) The number of shares subject to this Plan and all other share numbers
referred to in this Plan have been adjusted to reflect the 1:2.5 reverse stock
split, which was effective on March 23, 1994.
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expire or be surrendered, exchanged for another option, cancelled or terminated
for any reason without having been exercised in full, the unpurchased shares
subject thereto shall thereupon again be available for purposes of this Plan.
SECTION 4 ELIGIBILITY
An incentive stock option may be granted only to an individual who, at the
time the option is granted, is an employee of the Company or a related
corporation (as defined in subsection 5.8). A nonqualified stock option may be
granted to any employee, director, officer, agent, consultant or independent
contractor of the Company or of any related corporation, whether an individual
or an entity. Any party to whom an option is granted under this Plan shall be
referred to hereinafter as an "Optionee."
SECTION 5 TERMS AND CONDITIONS OF OPTIONS
Options granted under this Plan shall be evidenced by written agreements
which shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and which are not inconsistent with this
Plan. Notwithstanding the foregoing, options shall include or incorporate by
reference the following terms and conditions:
5.1 NUMBER OF SHARES AND PRICE
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator; provided, however, that the maximum number of shares with respect
to which an option or options may be granted to any Optionee in any one fiscal
year of the Company shall not exceed 200,000 shares (the "Maximum Annual
Optionee Grant"); provided further that the Plan Administrator shall act in good
faith to establish an exercise price which shall be not less than the fair
market value per share of the Common Stock at the time the option is granted
and, with respect to incentive stock options granted to greater than 10%
shareholders (as described in Section 6), the exercise price shall be as
required by subsection 6.1.
5.2 TERM AND MATURITY
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the term of
each incentive stock option shall be as established by the Plan Administrator
and, if not so established, shall be ten years from the date it is granted but
in no event shall the term of any incentive stock option exceed ten years. The
term of each nonqualified stock option shall be as established by the Plan
Administrator, and if not so established, shall be ten years. To ensure that the
Company or related corporation will achieve the purpose and receive the benefits
contemplated by this Plan, any option granted to any Optionee shall, unless the
condition of this sentence is waived or modified in the agreement evidencing the
option or by resolution adopted by the Plan Administrator, be exercisable
according to the following schedule:
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<TABLE>
<CAPTION>
Period of Optionee's Continuous
Relationship With the Company or
Related Corporation From the Date Portion of Total Option Which is
the Option Is Granted Exercisable
- ----------------------------------- -----------------------------------
<S> <C>
Less than twelve months 0%
Twelve months 20%
Twenty-four months 40%
Thirty-six months 60%
Forty-eight months 80%
Sixty months or greater 100%
</TABLE>
5.3 EXERCISE
Subject to the vesting schedule described in subsection 5.2 and to any
additional holding period required by applicable law, each option may be
exercised in whole or in part; provided, however, that no fewer than 20% of the
shares purchasable under the option (or the remaining shares then purchasable
under the option, if less than 20%) may be purchased upon any exercise of any
option and that only whole shares will be issued pursuant to the exercise of any
option. An option shall be exercised by delivery to the Company of notice of the
number of shares with respect to which the option is exercised, together with
payment of the exercise price.
5.4 PAYMENT OF EXERCISE PRICE
Payment of the option exercise price shall be made in full at the time the
notice of exercise of the option is delivered to the Company and shall be in
cash, bank certified or cashier's check, or personal check (unless at the time
of exercise the Plan Administrator in a particular case determines not to accept
a personal check) for the shares being purchased. The Plan Administrator may
determine at any time before exercise that additional forms of payment will be
permitted. To the extent permitted by applicable laws and regulations
(including, without limitation, federal tax and securities laws and state
corporate law), and unless the Plan Administrator determines otherwise, an
option may be exercised, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 5.4, by:
(a) tendering (either actually or by attestation) shares of Common Stock
of the Company held by an Optionee having a fair market value equal to the
exercise price, such fair
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market value to be determined in good faith by the Plan Administrator; provided,
however, that payment in shares of Common Stock shall not be made unless the
shares of Common Stock shall have been owned by the Optionee for a period of at
least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial accounting purposes); or
(b) delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, all in accordance with the regulations of
the Federal Reserve Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal, state or local
withholding tax obligations that may arise in connection with the exercise.
In addition, the exercise price for shares purchased under an option may
be paid, either singly or in combination with one or more of the alternative
forms of payment authorized by this Section 5.4, by (y) delivery of a
full-recourse promissory note executed by the Optionee; provided, however, that
(i) such note delivered in connection with an incentive stock option shall, and
such note delivered in connection with a nonqualified stock option may, in the
sole discretion of the Plan Administrator, bear interest at a rate specified by
the Plan Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the imputed
interest rules) for federal income tax purposes, (ii) the Plan Administrator in
its sole discretion shall specify the term and other provisions of such note at
the time an incentive stock option is granted or at any time prior to exercise
of a nonqualified stock option, (iii) the Plan Administrator may require that
the Optionee pledge to the Company for the purpose of securing the payment of
such note the shares of Common Stock to be issued to the Optionee upon exercise
of the option and may require that the certificate representing such shares be
held in escrow in order to perfect the Company's security interest, and (iv) the
Plan Administrator in its sole discretion may at any time restrict or rescind
this right upon notification to the Optionee; or (z) such other consideration as
the Plan Administrator may permit.
5.5 WITHHOLDING TAX REQUIREMENT
The Company or any related corporation shall have the right to retain and
withhold from any payment of cash or shares of Common Stock under this Plan the
amount of taxes required by any government to be withheld or otherwise deducted
and paid with respect to such payment. At its discretion, the Company may
require an Optionee receiving shares of Common Stock to reimburse the Company
for any such taxes required to be withheld by the Company and withhold any
distribution in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any other cash
amounts due or to become due from the Company to the Optionee an amount equal to
such taxes. The Company may also retain and withhold or the Optionee may elect,
subject to approval by the Company in its sole discretion, to have the Company
retain and withhold a number of shares having a market value not less than the
amount of such taxes required to
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be withheld by the Company to reimburse the Company for any such taxes and
cancel (in whole or in part) any such shares so withheld.
5.6 HOLDING PERIODS
5.6.1 SECURITIES EXCHANGE ACT SECTION 16
If an individual subject to Section 16 of the Exchange Act sells shares of
Common Stock obtained upon the exercise of a stock option within six months
after the date the option was granted, such sale may result in short-swing
profit recovery under SectionU16(b) of the Exchange Act.
5.6.2 TAXATION OF STOCK OPTIONS
In order to obtain certain tax benefits accorded to incentive stock
options under Section 422 of the Code, an Optionee must hold the shares issued
upon the exercise of an incentive stock option for two years after the date of
grant of the option and one year from the date of exercise. An Optionee may be
subject to the alternative minimum tax at the time of exercise.
The Plan Administrator may require an Optionee to give the Company prompt
notice of any disposition of shares acquired by the exercise of an incentive
stock option prior to the expiration of such holding periods.
Tax advice should be obtained by an Optionee when exercising any option
and prior to the disposition of the shares issued upon the exercise of any
option.
5.7 TRANSFERABILITY OF OPTION
No option granted under this Plan may be assigned, pledged or transferred
by the Optionee other than by will or by the laws of descent and distribution,
and during the Optionee's lifetime, such options may be exercised only by the
Optionee or a permitted assignee or transferee of the Optionee (as provided
below). Notwithstanding the foregoing, and to the extent permitted by Section
422 of the Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit an Optionee to designate
a beneficiary who may exercise the option after the Optionee's death; provided,
however, that any option so assigned or transferred shall be subject to all the
same terms and conditions contained in the instrument evidencing the option.
5.8 TERMINATION OF RELATIONSHIP
If the Optionee's relationship with the Company or any related corporation
ceases for any reason other than termination for cause, death or total
disability, and unless by its terms the option sooner terminates or expires,
then the portion of the option which is not exercisable at the time of such
cessation shall terminate immediately upon such cessation,
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unless the Plan Administrator determines otherwise, and the portion of the
option which is exercisable at the time of such cessation, (i) may be exercised
for a three-month period after such cessation and (ii) unless the Plan
Administrator determines otherwise, shall terminate at the end of such period
following such cessation as to all shares for which it has not theretofore been
exercised. If, in the case of an incentive stock option, an Optionee's
relationship with the Company or related corporation changes (i.e., from
employee to nonemployee, such as a consultant), such change shall constitute a
termination of an Optionee's employment with the Company or related corporation
and the Optionee's incentive stock option shall terminate in accordance with
this subsection. Upon the expiration of the three-month period following
cessation of employment in the case of an incentive stock option, or at any time
prior to the expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in a particular
circumstance to extend the exercise period following such cessation beyond that
specified above. If, however, in the case of an incentive stock option, the
Optionee does not exercise the Optionee's option within three months after
cessation of employment, the option will no longer qualify as an incentive stock
option under the Code.
If an Optionee is terminated for cause, each option shall automatically
terminate as of the first discovery by the Company of any reason for termination
for cause, and such Optionee shall thereupon have no right to purchase any
shares pursuant to such option. "Termination for cause" shall mean dismissal for
dishonesty, conviction or confession of a crime (except minor violations),
fraud, misconduct or disclosure of confidential information.
If an Optionee's relationship with the Company or any related corporation
is suspended pending an investigation of whether or not the Optionee shall be
terminated for cause, the Optionee's rights under each option likewise shall be
suspended during the period of investigation.
If an Optionee's relationship with the Company or any related corporation
ceases because of a total disability, the portion of Optionee's option which is
exercisable at the time of such cessation shall not terminate or, in the case of
an incentive stock option, cease to be treated as an incentive stock option
until the end of the twelve month period following such cessation (unless by its
terms it sooner terminates or expires). As used in this Plan, the term "total
disability" refers to a mental or physical impairment of the Optionee which is
expected to result in death or which has lasted or is expected to last for a
continuous period of twelve months or more and which causes the Optionee to be
unable, in the opinion of the Company and two independent physicians, to perform
his or her duties for the Company. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
For purposes of this subsection 5.8, a transfer between or among the
Company and any related corporation shall not be deemed to constitute a
cessation of the Optionee's relationship with the Company or any related
corporation. For purposes of this subsection 5.8, with respect to incentive
stock options, employment shall be deemed to
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<PAGE> 8
continue while the Optionee is on military leave, sick leave or other bona fide
leave of absence (as determined by the Plan Administrator). The foregoing
notwithstanding, employment shall not be deemed to continue beyond the first 90
days of such leave, unless the Optionee's reemployment rights are guaranteed by
statute or by contract.
As used herein, the term "related corporation," when referring to a
subsidiary corporation, shall mean any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if, at the time of
the granting of the option, stock possessing 50% or more of the total combined
voting power of all classes of stock of each of the corporations other than the
Company is owned by one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation" shall mean any
corporation in an unbroken chain of corporations ending with the Company if, at
the time of the granting of the option, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in such chain.
5.9 DEATH OF OPTIONEE
If an Optionee dies while he or she has a relationship with the Company or
any related corporation or within the three-month period (or twelve month period
in the case of totally disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent that the Optionee
would have been entitled to exercise such option, may be exercised within one
year after his or her death by the person, if any, designated by the Optionee
pursuant to subsection 5.7 to exercise the option after the Optionee's death, by
the personal representative of his or her estate or by the person or persons to
whom the Optionee's rights under the option shall pass (a) by will or by the
applicable laws of descent and distribution or (b) by a designation or transfer
pursuant to Section 5.7.
5.10 NO STATUS OF SHAREHOLDERS
Neither the Optionee nor any party to which the Optionee's rights and
privileges under the option may pass shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the shares
issuable upon the exercise of any option granted under this Plan unless and
until such option has been exercised.
5.11 CONTINUATION OF EMPLOYMENT
Nothing in this Plan or in any option shall confer upon any Optionee any
right to continue in the employ of the Company or of a related corporation, or
to interfere in any way with the right of the Company or of any such related
corporation to terminate his or her employment or other relationship with the
Company at any time.
5.12 MODIFICATION AND AMENDMENT OF OPTION
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<PAGE> 9
Subject to the requirements of Code Section 422 with respect to incentive
stock options and to the terms and conditions of this Plan, the Plan
Administrator may modify or amend any outstanding options. The modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any of the obligations
of the Company under such option. Except as otherwise provided in this Plan, no
outstanding option shall be terminated without the consent of the Optionee.
Unless the Optionee agrees otherwise, any changes or adjustments made to
outstanding incentive stock options shall be made in such a manner so as not to
constitute a "modification" as defined in Code Section 424(h) and so as not to
cause any incentive stock option to fail to continue to qualify as an incentive
stock option as defined in Code Section 422(b).
5.13 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS
As to all incentive stock options granted under the terms of this Plan, to
the extent that the aggregate fair market value of the shares (determined at the
time the incentive stock option is granted) with respect to which incentive
stock options are exercisable for the first time by the Optionee during any
calendar year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options, to the extent
required by Section 422 of the Code.
SECTION 6 GREATER THAN 10% SHAREHOLDERS
6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS
If an incentive stock option is granted under this Plan to any employee
who owns more than 10% of the total combined voting power of all classes of
stock of the Company or any related corporation, the term of such incentive
stock options shall not exceed five years and the exercise price shall be not
less than 110% of the fair market value of the shares at the time the incentive
stock option is granted. This provision shall control notwithstanding any
contrary terms contained in an option agreement or any other document.
6.2 ATTRIBUTION RULE
For purposes of subsection 6.1, in determining stock ownership, an
employee shall be deemed to own the shares owned, directly or indirectly, by or
for his or her brothers, sisters, spouse, ancestors and lineal descendants.
Shares owned, directly or indirectly, by or for a corporation, partnership,
estate or trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. If an employee or a person related to
the employee owns an unexercised option or warrant to purchase shares of the
Company, the shares subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock ownership. For purposes of
this Section 6, shares owned by an employee shall include all shares actually
issued and outstanding immediately before the grant of the incentive stock
option to the employee.
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SECTION 7. ADJUSTMENTS
7.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a cash dividend,
or other change in the Company's corporate or capital structure results in (a)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator
shall make proportional adjustments in (i) the maximum number and class of
securities subject to this Plan as set forth in Section 3, (ii) the maximum
number and class of securities that may be made subject to options granted to
any individual participant as set forth in Section 5.1, and (iii) the number and
class of securities that are subject to any outstanding option and the per share
price of such securities, without any change in the aggregate price to be paid
therefor. The determination by the Plan Administrator as to the terms of any of
the foregoing adjustments shall be conclusive and binding.
7.2 CHANGE IN CONTROL
Except as otherwise provided in the instrument that evidences the option,
in the event of any Change in Control, each option that is at the time
outstanding shall automatically accelerate so that each such option shall,
immediately prior to the specified effective date for the Change in Control,
become 100% vested, except that such acceleration will not occur, if in the
opinion of the Company's accountants, it would render unavailable "pooling of
interest" accounting for a Change in Control that would otherwise qualify for
such accounting treatment. Such option shall not so accelerate, however, if and
to the extent that (a) such option is, in connection with the Change in Control,
either to be assumed by the successor corporation or parent thereof (the
"Successor Corporation") or to be replaced with a comparable award for the
purchase of shares of the capital stock of the Successor Corporation or (b) such
option is to be replaced with a cash incentive program of the Successor
Corporation that preserves the spread existing at the time of the Change in
Control and provides for subsequent payout in accordance with the same vesting
schedule applicable to such option. The determination of comparability under
clause (a) above shall be made by the Plan Administrator, and its determination
shall be conclusive and binding. All such options shall terminate and cease to
remain outstanding immediately following the consummation of the Change in
Control, except to the extent assumed by the Successor Corporation. Any such
options that are assumed or replaced in the Change in Control and do not
otherwise accelerate at that time shall be accelerated in the event the
Optionee's employment or services should subsequently terminate within two years
following such Change in Control, unless such employment or services are
terminated by the Successor Corporation for Cause or by the Optionee voluntarily
without Good Reason.
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7.3 FURTHER ADJUSTMENT OF OPTIONS
Subject to the preceding Section 7.2, the Plan Administrator shall have
the discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or Change in Control of the Company to take such
further action as it determines to be necessary or advisable, and fair and
equitable to participants, with respect to options. Such authorized action may
include (but shall not be limited to) establishing, amending or waiving the
type, terms, conditions or duration of, or restrictions on, options so as to
provide for earlier, later, extended or additional time for exercise, lifting
restrictions and other modifications, and the Plan Administrator may take such
actions with respect to all participants, to certain categories of participants
or only to individual participants. The Plan Administrator may take such actions
before or after granting options to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
7.4 LIMITATIONS
The grant of options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
7.5 DEFINITIONS
For purposes of this Plan, the following terms shall be defined as set
forth below:
7.5.1 CAUSE
"Cause" means dishonesty, fraud, misconduct, unauthorized use or
disclosure of confidential information or trade secrets, or conviction or
confession of a crime punishable by law (except minor violations), in each case
as determined by the Plan Administrator, and its determination shall be
conclusive and binding.
7.5.2 CHANGE IN CONTROL
"Change in Control" means any of the following events:
(a) A change in the Board such that a majority of the seats (other
than vacant seats) on the Board have been occupied by individuals who were
neither (i) nominated or appointed by a majority of the Incumbent Directors nor
(b) nominated or appointed by directors so nominated or appointed. "Incumbent
Director" means a member of the Board who has been either (x) nominated by a
majority of the directors of the Company then in office or (y) appointed by
directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A
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promulgated under the Exchange Act) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the Board.
(b) The acquisition (whether directly or indirectly, beneficially or
of record) by any Person of (i) fifteen percent (15%) or more of the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors, which acquisition is not
approved in advance by a majority of the Incumbent Directors; or (ii)
thirty-three percent (33%) or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors, which acquisition has been approved in advance by a
majority of the Incumbent Directors; provided, however, that the following
acquisitions shall not constitute a Change in Control: (x) any acquisition by
the Company, (y) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any company controlled by the Company,
or (z) any acquisition by any company pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of the following subsection
(c) are satisfied; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation in which the Company is not the continuing or surviving
corporation, or pursuant to which shares of the Company's Common Stock are
converted into cash, securities or other property, unless following such
reorganization, merger or consolidation (i) at least sixty-six and two-thirds
percent (66-2/3%) of the then outstanding shares of common stock of the company
resulting from such reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such company entitled
to vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the Company's voting securities
immediately prior to such reorganization, merger or consolidation, (ii) no
Person (excluding the Company, any employee benefit plan (or related trust) of
the Company or such company resulting from such reorganization, merger or
consolidation and any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, thirty-three
percent (33%) or more of the Company's voting securities) beneficially owns,
directly or indirectly, thirty-three percent (33%) or more of, respectively, the
then outstanding shares of common stock of the company resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such company entitled to vote generally in the
election of directors, and (iii) at least a majority of the members of the board
of directors of the company resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the execution
of the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the shareholders of the Company of (i) any plan or
proposal for liquidation or dissolution of the Company or (ii) any sale, lease,
exchange or other transfer in one transaction or a series of transactions of all
or substantially all of the
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assets of the Company other than to a company with respect to which following
such sale or other disposition (A) at least sixty-six and two-thirds percent
(66-2/3%) of the then outstanding shares of common stock of such company and the
combined voting power of the then outstanding voting securities of such company
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of the Company's voting securities
immediately prior to such sale or other disposition, (B) no Person (excluding
the Company and any employee benefit plan (or related trust) of the Company or
such company and any Person beneficially owning, immediately prior to such sale
or other disposition, directly or indirectly, thirty-three percent (33%) or more
of the Company's voting securities) beneficially owns, directly or indirectly,
thirty-three percent (33%) or more of, respectively, the then outstanding shares
of common stock of such company and the combined voting power of the then
outstanding voting securities of such company entitled to vote generally in the
election of directors, and (C) at least a majority of the members of the board
of directors of such company were approved by a majority of the Incumbent Board
at the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
7.5.3 GOOD REASON
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice by the Optionee:
"Good Reason" means, without the Optionee's written consent:
(a) (i) the assignment to the Optionee of duties, or limitation of
the Optionee's responsibilities, inconsistent with the Optionee's
title, position, duties, responsibilities and status with the
Company or any related corporation that employs the Optionee as
such duties and responsibilities existed immediately prior to the
date of the Change in Control, or (ii) removal of the Optionee
from, or failure to re-elect the Optionee to, the Optionee's
positions with the Company or any related corporation that
employs the Optionee immediately prior to the Change in Control,
except in connection with the involuntary termination of the
Optionee's employment by the Company for Cause or as a result of
the Optionee's death or disability, as defined by the Plan
Administrator; or
(b) failure by the Company to pay, or reduction by the Company of, the
Optionee's annual base salary, as reflected in the Company's payroll
records for the Optionee's last pay period immediately prior to the
Change in Control;
(c) the relocation of the principal place of the Optionee's employment
to a location that is more than 25 miles further from the Optionee's
principal
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residence than such principal place of employment immediately prior
to the Change in Control; or
(d) the breach by the Company of any material provision of any
material agreement between the Optionee and the Company.
SECTION 8 SECURITIES REGULATION
Shares of Common Stock shall not be issued with respect to any option
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance, including the availability, if
applicable, of an exemption from registration for the issuance and sale of any
shares hereunder.
SECTION 9 AMENDMENT AND TERMINATION
9.1 BOARD ACTION
The Board may at any time suspend, amend or terminate this Plan, provided
that to the extent required for compliance with Section 422 of the Code or any
applicable law or regulation, the shareholders must approve any amendment that
will:
(a) increase the total number of shares which are to be reserved for
issuance in connection with options under this Plan;
(b) modify the class of participants eligible for participation in
this Plan; or
(c) otherwise require shareholder approval under any applicable law
or regulation.
Such shareholder approval must be obtained within twelve months after the
adoption by the Board of such amendment.
Any amendment made to this Plan which would constitute a "modification" to
incentive stock options outstanding on the date of such amendment, shall not be
applicable to such outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees otherwise.
9.2 AUTOMATIC TERMINATION
Unless sooner terminated by the Board, this Plan shall terminate ten years
from the earlier of (a) the date on which this Plan is adopted by the Board or
(b) the date on which this Plan is approved by the shareholders of the Company.
No option may be granted after such
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<PAGE> 15
termination or during any suspension of this Plan. The amendment or termination
of this Plan shall not, without the consent of the Optionee, impair or diminish
any rights or obligations under any option theretofore granted under this Plan.
SECTION 10 EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board so long as it
is approved by the Company's shareholders any time within twelve months after
the adoption of this Plan or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
shareholders after adoption by the Board. Adopted by the Board of Directors on
January 21, 1992 and approved by the shareholders on January 21, 1992. Restated
Plan adopted by the Board of Directors on March 2, 1994, and approved by the
Company's shareholders on March 23, 1994. Amended and restated by the Board on
October 17, 1996.
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<PAGE> 1
EXHIBIT 10.33
TARGETED GENETICS CORPORATION
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
AMENDED AND RESTATED ON OCTOBER 17, 1996
SECTION 1 PURPOSES
The purpose of the Targeted Genetics Corporation Stock Option Plan for
Nonemployee Directors (this "Plan") is to attract and retain the services of
experienced and knowledgeable nonemployee directors for Targeted Genetics
Corporation (the "Company") and to provide added incentive to such directors by
providing an opportunity for stock ownership in the Company.
SECTION 2 ADMINISTRATION
The administrator of this Plan (the "Plan Administrator") shall be the
Board of Directors of the Company (the "Board"). Subject to the terms of this
Plan, the Plan Administrator shall have the power to construe the provisions of
this Plan, to determine all questions arising hereunder and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable.
SECTION 3 SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof, the total
number of shares of the Company's common stock (the "Common Stock") for which
options may be granted under this Plan is 120,000 (the "Shares"). The Shares
shall be shares currently authorized but unissued or subsequently acquired by
the Company and shall include shares representing the unexercised portion of any
option granted under this Plan which expires or terminates without being
exercised in full.
SECTION 4 ELIGIBILITY
4.1 ELIGIBLE DIRECTORS
Each member of the Board elected or appointed who is not otherwise an
employee of the Company or any parent or subsidiary corporation (an "Eligible
Director") shall be eligible to participate in this Plan.
4.2 INITIAL GRANTS
Immediately following his or her initial election or appointment to the
Board, each Eligible Director shall automatically receive an option to purchase
15,000 Shares.
4.3 ANNUAL GRANTS
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<PAGE> 2
Each Eligible Director continuing service as an Eligible Director
immediately following an Annual Meeting of Shareholders shall automatically
receive an option to purchase 5,000 Shares immediately following each year's
Annual Meeting of Shareholders as an annual grant; provided that an Eligible
Director who has received an initial grant of 15,000 Shares on such date shall
not receive an annual grant until the next Annual Meeting.
4.4 AVAILABILITY OF SHARES
No grant shall be made under this Plan if the effect of such grant would
be to obligate the Company to issue more Shares than are reserved under Section
3. If insufficient Shares are reserved under Section 3 to fully fund one or more
grants to be made under this Section 4 on the same date of grant, then the
Shares available shall be divided by the number of Eligible Directors then
entitled to a grant and each such Eligible Director shall be granted an option
for that number of Shares.
SECTION 5 OPTION TERMS
Each option granted to an Eligible Director under this Plan and the
issuance of Shares hereunder shall be subject to the following terms:
5.1 OPTION AGREEMENT
Each option shall be evidenced by an option agreement (an "Agreement")
duly executed on behalf of the Company. Each Agreement shall comply with and be
subject to the terms and conditions of this Plan. Any Agreement may contain such
other terms, provisions and conditions not inconsistent with this Plan as may be
determined by the Plan Administrator.
5.2 OPTION EXERCISE PRICE
The option exercise price for an option shall be the closing price, or if
there is no closing price, the mean between the high and the low sale price of
shares of Common Stock on the Nasdaq Stock Market on the day the option is
granted or, if no Common Stock was traded on such date, on the next succeeding
day on which Common Stock is so traded.
5.3 VESTING AND EXERCISABILITY
Each option granted to an Eligible Director shall vest and become
exercisable in accordance with the following schedule:
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<PAGE> 3
<TABLE>
<CAPTION>
Period of Eligible Director's Continuous Service
as a Director With the Company
From the Date the Option is Granted Portion of Total Option Which Is Exercisable
- ------------------------------------------- -------------------------------------------
<S> <C>
Less than twelve months 0%
Twelve months 33 1/3%
Twenty-four months 66 2/3%
Thirty-six months 100%
</TABLE>
5.4 TIME AND MANNER OF EXERCISE OF OPTION
Each option may be exercised in whole or in part at any time and from time
to time; provided, however, that no fewer than 20% of the Shares purchasable
under the option (or the remaining Shares then purchasable under the option, if
less than 20%) may be purchased upon any exercise of any option hereunder and
that only whole Shares will be issued pursuant to the exercise of any option.
Any option may be exercised by giving written notice, signed by the person
exercising the option, to the Company stating the number of Shares with respect
to which the option is being exercised, accompanied by payment in full for such
Shares, which payment may be in whole or in part (a) in cash or by check, (b) in
shares of Common Stock already owned for at least six months by the person
exercising the option, valued at fair market value at the time of such exercise,
or (c) by delivery of a properly executed exercise notice, together with
irrevocable instructions to a broker, to properly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price, all in accordance
with the regulations of the Federal Reserve Board.
5.5 TERM OF OPTIONS
Each option shall expire ten years from the date of the granting thereof,
but shall be subject to earlier termination as follows:
(a) In the event that an Optionee ceases to be a director of the Company
for any reason other than the death of the Optionee, the unvested portion of the
options granted to such Optionee shall terminate immediately and the vested
portion of the options granted to such Optionee may be exercised by him or her
only within three months after the date such Optionee ceases to be a director of
the Company.
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<PAGE> 4
(b) In the event of the death of an Optionee, whether during the
Optionee's service as a director or during the three-month period referred to in
Section 5.5(a), the unvested portion of the options granted to such Optionee
shall terminate immediately and the vested portion of the options granted to
such Optionee shall be exercisable, and such options shall expire unless
exercised within twelve months after the date of the Optionee's death, by the
legal representatives or the estate of such Optionee, by any person or persons
whom the Optionee shall have designated in writing on forms prescribed by and
filed with the Company or, if no such designation has been made, by the person
or persons to whom the Optionee's rights have passed by will or the laws of
descent and distribution.
5.6 TRANSFERABILITY
During an Optionee's lifetime, an option may be exercised only by the
Optionee. Options granted under this Plan and the rights and privileges
conferred thereby shall not be subject to execution, attachment or similar
process and may not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than by (a) will or by
the applicable laws of descent and distribution, or (b) by gift or other
transfer to either (i) a spouse or other immediate family member or (ii) any
trust or estate in which the Optionee or such Optionee's spouse or other
immediate family member has a substantial beneficial interest. In addition, an
Optionee may designate in writing during the Optionee's lifetime a beneficiary
to receive and exercise options in the event of the Optionee's death (as
provided in Section 5.5(b)). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this Plan or of any right
or privilege conferred thereby, contrary to the provisions of this Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby, shall be null and void.
5.7 HOLDING PERIOD
If an individual subject to Section 16 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") sells shares of Common Stock obtained upon
the exercise of any option granted under this Plan within six (6) months after
the date the option was granted, such sale may result in short-swing profit
recovery under Section 16(b) of the Exchange Act.
5.8 PARTICIPANT'S OR SUCCESSOR'S RIGHTS AS SHAREHOLDER
Neither an Optionee nor the Optionee's successor in interest shall have
any rights as a shareholder of the Company with respect to any Shares subject to
an option granted to the Optionee until such person becomes a holder of record
of such Shares.
5.9 LIMITATION AS TO DIRECTORSHIP
Neither this Plan, nor the granting of an option, nor any other action
taken pursuant to this Plan shall constitute or be evidence of any agreement or
understanding, express or implied,
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<PAGE> 5
that an Optionee has a right to continue as a director for any period of time or
at any particular rate of compensation.
5.10 REGULATORY APPROVAL AND COMPLIANCE
The Company shall not be required to issue any certificate or certificates
for Shares upon the exercise of an option granted under this Plan, or record as
a holder of record of Shares the name of the individual exercising an option
under this Plan, without obtaining to the complete satisfaction of the Plan
Administrator the approval of all regulatory bodies deemed necessary by the Plan
Administrator, and without complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal, state or local law
deemed applicable by the Plan Administrator.
SECTION 6 CAPITAL ADJUSTMENTS
6.1 RECAPITALIZATION
The aggregate number and class of shares for which options may be granted
under this Plan, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total price), shall
all be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or the payment of any
stock dividend.
6.2 EFFECT OF LIQUIDATION OR REORGANIZATION
Upon a merger (other than a merger of the Company in which the holders of
shares of Common Stock immediately prior to the merger have the same
proportionate ownership of shares of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the creation of
a holding company) or liquidation of the Company (each a "corporate
transaction"), as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for or in connection with their shares
of Common Stock, then the Optionee shall have the right immediately prior to any
such merger, consolidation, acquisition of property or stock, reorganization or
liquidation to exercise such option in whole or in part whether or not the
vesting requirements set forth in the option agreement have been satisfied. To
the extent such option is not exercised, it shall terminate, except that in the
event of a corporate transaction in which the shareholders of the Company
receive capital stock of another corporation in exchange for their shares of
Common Stock, such unexercised option shall be assumed or an equivalent option
shall be substituted by the successor corporation or a parent or subsidiary of
such successor corporation. Any such assumed or equivalent option shall be 100%
vested and exercisable with respect to the total number of shares purchasable
under such option; provided that such acceleration will not occur if, in the
opinion of the Company's outside accountants, such acceleration would render
unavailable "pooling of interests" accounting treatment for such transaction for
which pooling of interests accounting treatment is sought by
189
<PAGE> 6
the Company. Upon a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate ownership of Common
Stock in the surviving corporation immediately after the merger, a mere
reincorporation or the creation of a holding company, each option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or subsidiary of such corporation, and the
vesting schedule set forth in the option agreement shall continue to apply to
such assumed or equivalent option.
6.3 FRACTIONAL SHARES
In the event of any adjustment in the number of shares covered by any
option, any fractional shares resulting from such adjustment shall be
disregarded and each such option shall cover only the number of full shares
resulting from such adjustment.
SECTION 7 EXPENSES
All costs and expenses of the adoption and administration of this Plan
shall be borne by the Company; none of such expenses shall be charged to any
Optionee.
SECTION 8 COMPLIANCE WITH RULE 16B-3
It is the intention of the Company that this Plan comply in all respects
with the requirements for a "formula plan" within the meaning attributed to that
term for purposes of Rule 16b-3 promulgated under Section 16(b) of the Exchange
Act. Therefore, if any Plan provision is later found not to be in compliance
with such requirements, that provision shall be deemed null and void, and in all
events this Plan shall be construed in favor of its meeting such requirements.
SECTION 9 TERMINATION AND AMENDMENT
The Board may amend, terminate or suspend this Plan at any time, in its
sole and absolute discretion; provided, however, that if required to qualify
this Plan as a formula plan for purposes of Rule 16b-3 under Section 16(b) of
the Exchange Act, no amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the options, other than to
comply with changes in the Internal Revenue Code of 1986, as amended, or the
rules and regulations thereunder; provided further that no amendment that would
(a) increase the number of Shares that may be issued under this Plan, or (b)
otherwise require shareholder approval under any applicable law or regulation
shall be made without the approval of the Company's shareholders.
SECTION 10 DURATION
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<PAGE> 7
This Plan shall continue in effect until March 2, 2004 unless it is sooner
terminated by action of the Board or the Company's shareholders, but such
termination shall not affect the then-outstanding terms of any options.
Adopted by the Company's Board of Directors on March 2, 1994 and approved
by the Company's shareholders on March 23, 1994. Amended and restated by the
Board on October 17, 1996.
191
<PAGE> 1
Exhibit 11.1
TARGETED GENETICS CORPORATION
COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Net loss $(26,038,042) $(9,922,284) $(8,399,345)
Shares used in calculating net loss per share:
Average common shares outstanding 16,407,928 10,532,950 5,965,728
Net effect of stock options and warrants
granted during the 12 months prior to
the Company's initial public offering
at less than the offering price,
calculated using the treasury stock
method and the offering price of $6.00
per share, and treated as outstanding
through March 31, 1994 0 0 39,413
-------------------------------------------
Total 16,407,928 10,532,950 6,005,141
Net loss per share $ (1.59) (0.94) (1.40)
===========================================
</TABLE>
192
<PAGE> 1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-83064 and 333-03889) pertaining to the Targeted Genetics
Corporation's 1992 Restated Stock Option Plan and the Targeted Genetics
Corporations' Stock Option Plan for Nonemployee Directors of our report dated
February 7, 1997, with respect to the consolidated financial statements of
Targeted Genetics Corporation included in the Annual Report (Form 10-K) for the
year ended December 31, 1996.
ERNST & YOUNG LLP
Seattle, Washington
March 17, 1997
193
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,532,568
<SECURITIES> 15,518,502
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 468,671
<PP&E> 9,669,503
<DEPRECIATION> 4,678,486
<TOTAL-ASSETS> 25,139,052
<CURRENT-LIABILITIES> 3,542,954
<BONDS> 0
0
0
<COMMON> 73,115,362
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,139,052
<SALES> 0
<TOTAL-REVENUES> 2,254,178
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 28,292,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (26,038,042)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,038,042)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,038,042)
<EPS-PRIMARY> (1.59)
<EPS-DILUTED> (1.59)
</TABLE>
