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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1999
or
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from____________to
Commission File Number: 0-23930
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TARGETED GENETICS CORPORATION
-----------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1549568
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Olive Way, Suite 100, Seattle, Washington 98101
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(206) 623-7612
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No [_]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value 33,321,776
- ----------------------------------------- ----------------------------------
(Class) (Outstanding at July 31, 1999)
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TARGETED GENETICS CORPORATION
Quarterly Report on Form 10-Q
For the quarter ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
a) Condensed Balance Sheets - June 30, 1999 and December 31, 1998 3
b) Condensed Statements of Operations - for the three and six months ended
June 30, 1999 and 1998 4
c) Condensed Statements of Cash Flows - for the six months ended
June 30, 1999 and 1998 5
d) Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosure About Market Risk *
PART II OTHER INFORMATION
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
* No information is provided due to inapplicability of the item.
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
TARGETED GENETICS CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,990,565 $ 1,870,841
Securities available for sale 3,578,709 10,085,955
Accounts receivable 1,001,563 102,359
Prepaid expenses and other 223,467 387,408
------------ ------------
Total current assets 6,794,304 12,446,563
Property, plant and equipment, net 3,780,567 3,299,253
Other assets 449,967 458,267
------------ ------------
$ 11,024,838 $ 16,204,083
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,558,148 $ 1,664,074
Accrued payroll and other liabilities 248,956 486,206
Current portion of long-term obligations 1,371,478 1,171,836
------------ ------------
Total current liabilities 3,178,275 3,322,116
Long-term obligations 1,274,582 900,208
Shareholders' equity:
Preferred stock -- --
Common stock (31,172,877 and 30,652,375 shares
outstanding at June 30, 1999 and December 31,
1998, respectively) 91,658,971 88,455,138
Accumulated deficit (85,064,519) (76,501,784)
Accumulated other comprehensive income (loss) (22,471) 28,405
------------ ------------
Total shareholders' equity 6,571,981 11,981,759
------------ ------------
$ 11,024,838 $ 16,204,083
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
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Item 1. Financial Statements (continued)
TARGETED GENETICS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Collaborative agreements $ 1,418,392 $ - $ 2,623,117 $ 8,339
Investment income 94,381 135,020 221,155 177,324
Other - 78,187 - 303,731
----------- ----------- ----------- -----------
Total revenue 1,512,773 213,207 2,844,272 489,394
----------- ----------- ----------- -----------
Expenses:
Research and development 3,482,494 2,628,305 6,660,454 5,834,879
Technology license fee 3,200,000 - 3,200,000 -
General and administrative 654,385 663,768 1,440,850 1,440,560
Interest 54,383 71,822 105,703 144,664
----------- ----------- ----------- -----------
Total expenses 7,391,262 3,363,895 11,407,007 7,420,103
----------- ----------- ----------- -----------
Net loss $(5,878,489) $(3,150,688) $(8,562,735) $(6,930,709)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.19) $ (0.12) $ (0.28) $ (0.29)
=========== =========== =========== ===========
Shares used in computation of
basic and diluted net loss per share 30,804,745 27,305,728 30,730,523 23,778,020
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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Item 1. Financial Statements (continued)
TARGETED GENETICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Operating activities:
Net loss $(8,562,735) $ (6,930,709)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 744,633 851,251
Technology fee paid with common stock and warrants 3,200,000 -
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (899,204) 41,765
Increase (decrease) in accounts payable
and accrued liabilities (377,095) 73,721
Decrease (increase) in other assets 117,244 (88,540)
Decrease (increase) in accrued interest on
securities available for sale 76,015 (24,516)
----------- ------------
Net cash used in operating activities (5,701,142) (6,077,028)
Investing activities:
Sales of securities available for sale 6,881,277 7,076,964
Purchases of securities available for sale (500,922) (12,578,407)
Purchases of property, plant and equipment (1,015,326) (81,782)
Increase in other assets - (15,000)
----------- ------------
Net cash provided by (used in) investing activities 5,365,029 (5,598,225)
Financing activities:
Proceeds from equipment financing 960,283 -
Payments under capital leases and installment loans (508,279) (537,601)
Net proceeds from stock option exercises and other 3,833 40,568
Net proceeds from sale of capital stock - 12,850,318
----------- ------------
Net cash provided by financing activities 455,837 12,353,285
----------- ------------
Net increase in cash and cash equivalents 119,724 678,032
Cash and cash equivalents, beginning of period 1,870,841 1,011,845
----------- ------------
Cash and cash equivalents, end of period $ 1,990,565 $ 1,689,877
=========== ============
Supplemental disclosure of cash:
Equipment financed through capital lease $ 121,705 $ 176,289
Interest paid on capital lease and installment loans 99,163 144,664
</TABLE>
The accompanying notes are an integral part of this statement.
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Item 1. Financial Statements (continued)
TARGETED GENETICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
- ------------------------------
The condensed financial statements included herein have been prepared by
Targeted Genetics Corporation without audit, according to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The financial statements reflect, in the
opinion of management, all adjustments (which consist solely of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations as of and for the periods indicated.
The results of operations for the three months and six months ended June
30, 1999, are not necessarily indicative of the results to be expected for the
full year.
Note 2. Revenue Recognition
- ----------------------------
Revenue under collaborative agreements is recognized as defined under the
terms of the respective collaborative agreements. Nonrefundable signing or
licensing fees that are not dependent on future performance are recognized as
revenue when received. Milestone revenue is recognized upon the achievement of
the related milestone and when collection is probable. Revenue earned from the
performance of research and development is recognized ratably over the period in
which the related work is performed. Advance payments received in excess of
amounts earned are classified as deferred revenue. Revenue from the cystic
fibrosis collaboration with Medeva PLC comprised 90% of total Company
revenue during both the second quarter and six months ended June 30, 1999.
Note 3. Alkermes License
- -------------------------
On June 9, 1999, the Company entered into an agreement with Alkermes, Inc.
to acquire the exclusive rights to a patent for the manufacture of Adeno-
Associated Viral (AAV) vectors. The license to this technology, first developed
by Children's Hospital in Columbus, Ohio, covers the use of cell lines for the
manufacture of AAV vectors, which the Company believes will be key to making AAV
vectors in a commercially viable, cost-effective manner. The Company issued
500,000 shares of its common stock and warrants to purchase a total of up to
2,000,000 additional shares in exchange for this technology license. The
warrants, expiring June 9, 2007 and June 9, 2009 are priced at $2.50 and $4.16
per share, respectively. The Company included a $3.2 million non-cash charge
with respect to the Alkermes AAV license in its results for the second quarter
ended June 30, 1999.
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Note 4. Subsequent Event
- -------------------------
Subsequent to June 30, 1999, the Company announced that it entered into an
agreement to combine its gene delivery expertise with Elan Corporation, plc's
drug delivery expertise to form a joint venture to develop therapeutic gene
delivery products. This joint venture, expected to be named Emerald Gene
Systems ("Emerald"), will be initially owned 80.1% by Targeted Genetics and
19.9% by Elan Corporation, plc ("Elan"). The terms of the agreement include
Elan's purchase of $12 million of Targeted Genetics convertible exchangable
preferred stock. According to terms of the joint venture agreement, the
preferred stock will bear a dividend of 7%, accrued semi-annually and added to
principal, and is convertible, at Elan's option, to Targeted Genetics common
stock at a price equivalent to $3.32 per share until July 21, 2005.
Additionally, Elan has an option to exchange the preferred stock for a 30.1%
interest in Emerald Gene Systems, increasing Elan's ownership in Emerald to 50%.
This exchange option is exercisable up to 6 months after the completion of a
research and development program that is currently anticipated to be 36 to 48
months in length. The Company will use the proceeds of the preferred stock sale
to fund its share of the joint venture's initial capitalization. Elan will also
loan Targeted Genetics up to $12 million to support Targeted Genetics' share of
the joint venture's research and development costs. The loan, a convertible debt
instrument, and earned interest on the loan computed at 12% per annum, will be
convertible to Targeted Genetics' common stock at conversion prices set at 150%
of market price at the time loan proceeds are drawn. The agreement includes
provisions allowing Targeted Genetics to convert this debt into Targeted
Genetics common stock at the current market price at its option.
Emerald will pay a $15 million technology license fee to Elan for the use
of its drug delivery technology. The Company will be consolidating the results
of Emerald and recording its pro rata share of Emerald's net income or loss.
In a related transaction, the Company entered into an agreement with Elan
that requires Elan to purchase up to $10 million of Targeted Genetics common
stock at a premium to the market price. Elan purchased $5 million coincident
with closing the joint venture arrangement, representing 2,148,899 shares of
common stock, and will purchase an additional $5 million at the Company's
option, one year from closing of the joint venture arrangement at 120% of market
at that time.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Risks and Uncertainties
This discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Our future cash requirements and expense
levels will depend on numerous factors, including continued scientific progress
in our research and development programs; the results of research and
development activities; preclinical studies and clinical trials; acquisition of
products or technology, if any; relationships with existing and future corporate
collaborators, if any; competing technological and market developments; the time
and costs involved in obtaining
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regulatory approvals; the costs involved in filing, prosecuting and enforcing
patent claims; the time and costs of manufacturing scale-up and
commercialization activities; and other factors. Please refer to our Annual
Report on Form 10-K for a more detailed description of such factors. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. We undertake 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
Revenue for the quarter ended June 30, 1999 was $1.5 million, compared to
$213,000 in the second quarter of 1998. Revenue for the six-month period ended
June 30, 1999 was $2.8 million, compared to $489,000 in the same period in 1998.
The increase in 1999 revenue primarily reflects our collaboration with Medeva
PLC to develop tgAAV-CF, our potential cystic fibrosis gene therapy product.
This collaboration, which began in the fourth quarter of 1998, contributed $1.4
million and $2.5 million to second quarter 1999 and first half 1999 revenue.
Investment income for the second quarter ended June 30, 1999 was $94,000,
compared to $135,000 in the second quarter of 1998 as average cash balances were
higher a year ago resulting from a private placement of securities early in the
second quarter of 1998. Investment income for the first six months of 1999 was
$221,000, compared to $177,000 for the same period in 1998 due to higher average
balances in the 1999 period.
Research and development expenses increased to $3.4 million and $6.5
million for the three and six months ended June 30, 1999, respectively, compared
to $2.6 million and $5.8 million in the same periods in 1998. These increases
were attributable to the hiring of additional scientists to support our Medeva
collaboration, as well as increased process development costs associated with
tgAAV-CF product development. We expect to see continued modest quarter-to-
quarter increases in costs associated with developing our cystic fibrosis
product, as well as costs related to ongoing clinical trials.
Technology license fees for the second quarter and first half of 1999 were
attributable to a $3.2 million non-cash charge related to the issuance of stock
and warrants to Alkermes, Inc. in exchange for an exclusive sub-license to a
patent for the manufacture of Adeno-Associated Viral (AAV) vectors, which are
used in our tgAAV-CF cystic fibrosis program. The license to this technology,
first developed by Children's Hospital in Columbus, Ohio, covers the use of cell
lines for the manufacture of AAV vectors, which we believe will be key to making
AAV vectors in a commercially viable, cost-effective manner. We issued 500,000
shares of our common stock and warrants to purchase up to 2,000,000 additional
shares in exchange for this technology license.
General and administrative expenses for the second quarter of 1999 and 1998
were generally unchanged at $654,000 and $664,000, respectively, as second
quarter 1999 increases in administrative costs to support the Medeva
collaboration were about equal to second quarter 1998 non-recurring corporate
development costs. General and administrative expenses for the first half of
1999 were also generally unchanged compared to the first half of 1998.
Increased administrative costs in the first half of 1999 supporting our
collaboration activity were about the
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same as the combined costs associated with a first quarter 1998 reduction in
force and the second quarter 1998 corporate development costs.
Interest expense decreased to $54,000 for the quarter ending June 30, 1999
from $72,000 for the quarter ended June 30, 1998. Interest expense was $106,000
and $145,000 for the 6 months ended June 30, 1999 and 1998, respectively. The
decreases in both periods were primarily due to lower average principal balances
as compared to the prior year.
Financial Condition
- -------------------
As of June 30, 1999, we had $5.6 million in cash, cash equivalents and
securities available for sale, compared to a total of $12.0 million at December
31, 1998. This decrease was primarily attributable to operating losses
experienced during the first six months of 1999. Net cash used for operations
was $5.7 million for the first six months ended June 30, 1999, compared to $6.1
million for the first six months of 1998. Our capital expenditures totaled $1.0
million in the quarter ended June 30, 1999 compared to $82,000 in the same
period of 1998. The majority of the expenditures in 1999 related to
construction of our pilot 100-liter scale AAV vector manufacturing facility and
improvements to our information systems. We expect the manufacturing facility
to be substantially complete before the end of the third quarter. We currently
fund substantially all of our equipment purchases with capital leases.
Since we began operations, our primary sources of revenue have been from
license fees and research funding under collaborative agreements and income
earned from investments. These sources have covered less than twenty percent of
our expenses since we started business. Gene and cell therapy products are
subject to long development timelines and the risks of failure inherent in the
development of products based on innovative technologies. Although our
technology appears promising, it is unknown whether any commercially viable
products will result from our research and development activities. Since we do
not anticipate that we will have any product-related revenue for a number of
years, we expect to incur substantial additional losses over the next several
years.
We currently estimate that based on current revenue sources (predominantly
our cystic fibrosis partnership and our newly formed joint venture with Elan)
and our current planned rate of spending, that our existing cash, cash
equivalents and securities available for sale, together with the funding
expected to be provided by our collaborative partners, will be sufficient to
meet our operating and capital requirements into the second quarter of 2001.
There can be no assurance that the underlying assumed levels of revenue and
expense will prove to be accurate. Whether or not these assumptions prove to be
accurate, we will need to raise substantial additional capital. We intend to
seek additional funding through more collaborative arrangements and may seek
additional funding through government grants, public or private equity or debt
financing. There can be no assurance, however, that adequate funds will be
available when needed or on terms favorable to us, if at all.
Impact of Year 2000
- -------------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have date-sensitive software or embedded computer
chips may recognize a date using "00" as the
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year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business activity.
Because we have been in business for a relatively short time, our exposure
to the Year 2000 Issue is limited in comparison to more established companies.
Based on recent and ongoing assessments, we believe that we will not be required
to undertake any major activities or incur any significant costs related to the
Year 2000 Issue.
We are addressing three potential areas of impact for review and
remediation with respect to the Year 2000 Issue: (1) information technology
including computer hardware, networked equipment, PC based software applications
and financial systems (IT systems), (2) operating equipment including research
and development and manufacturing equipment with embedded chips and software
(operations equipment) and (3) third party vendors, suppliers and subcontractors
(external agents).
For our IT systems and operations equipment exposure, we have completed our
assessment of systems that could be affected by the Year 2000 Issue. All of our
software applications are purchased from established vendors and we believe
substantially all IT systems and operations equipment are compliant with Year
2000 requirements or can be remediated with currently available upgrades. We
are approximately 95% finished with implementing the upgrades that we believe
are necessary to make our IT systems and operations equipment year 2000
compliant. No significant issues have been identified to date that cannot be
resolved through minor upgrades that are currently available. We expect to
complete remediation and upgrades for our IT systems and operations equipment by
the third quarter of 1999.
We have queried all significant external agents regarding the status of
their IT systems with respect to the Year 2000 Issue. Responses have not
indicated any external agent with a Year 2000 compliance issue that would
materially impact our operations. To the extent any external agents have Year
2000 issues, we have no means of ensuring that such issues will be identified
and communicated on a timely basis or that external agents will achieve Year
2000 readiness. The inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially impact our operations.
The total estimated cost of our Year 2000 remediation project is expected
to be less than $100,000 and is being expensed as incurred. If we encounter
significant unforeseen Year 2000 problems, in our IT systems and equipment,
operations equipment or with our external agents, actual remediation costs could
be significant. We expect to complete all phases of the Year 2000 readiness
effort by the end of the third quarter of 1999. All parts of the company are
involved in the Year 2000 effort.
Management of the company believes it has an effective program in place to
resolve the Year 2000 issue within an acceptable time frame. As noted above, we
have not yet completed all necessary phases of the Year 2000 program. In the
event that we do not complete the additional work required, our research and
development activities may be adversely impacted. The significance of any such
impact cannot be reasonably estimated at this time.
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We believe that the most reasonably likely worst-case scenario arising from
the Year 2000 issue is impact to our operations resulting from non-compliant
systems of third parties. Where needed, we will establish formal and informal
contingency plans based on results of our evaluation and assessment of our
internal operations risks and risks associated with external agents. We
anticipate the majority of our contingency plans to be in place by early in the
fourth quarter of 1999.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the Company's shareholders ("Shareholders") was held
on May 5, 1999 (the "Annual Meeting"). Of the 30,660,077 shares outstanding as
of the record date, March 8, 1999, 26,196,824 shares, or 85% of the total shares
eligible to vote at the Annual Meeting, were represented in person or by proxy.
Three matters were submitted to a vote of the Shareholders at the Annual
Meeting. First, an amendment of the restated articles of incorporation to
increase the number of authorized shares of common stock by 40,000,000 from
40,000,000 to 80,000,000 was approved by 79% of the shares outstanding. Second,
the adoption of the 1999 Stock Option Plan providing for 1,500,000 shares of
Common Stock available for issuance was approved by 99% of the votes cast at the
meeting. Third, James D. Grant and Louis P. Lacasse were elected as Directors
of the Company, each receiving greater than 93% of the votes cast at the
meeting.
No other matters were submitted to a vote of the Shareholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No. Description
- ----------- -----------
10.36 * Licensing Agreement, dated June 9, 1999, by and between Targeted
Genetics Corporation and Alkermes, Inc.
10.37 Common Stock Purchase Agreement, dated June 9, 1999, by and
between Targeted Genetic Corporation and Alkermes, Inc.
10.38 Warrant Agreements, dated June 9, 1999, by and between Targeted
Genetic Corporation and Alkermes, Inc.
27.1 Financial Data Schedule
* Confidential Treatment Requested
(b) We did not file any reports on Form 8-K during the quarter ended June 30,
1999.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TARGETED GENETICS CORPORATION
-----------------------------
(Registrant)
Date: August 5, 1999 /s/ H. Stewart Parker
-------------- ------------------------------------------
H. Stewart Parker, Chief Executive Officer
(Principal Executive Officer)
Date: August 5, 1999 /s/ James A. Johnson
-------------- --------------------------------------------
James A. Johnson, Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT 10.36
EXCLUSIVE SUBLICENSE AGREEMENT
THIS EXCLUSIVE SUBLICENSE AGREEMENT (the "Agreement") is made and entered
into as of the 9th day of June, 1999 ("Effective Date") by and between ALKERMES,
INC., having its principal place of business located at 64 Sidney Street,
Cambridge, Massachusetts 02139 ("Alkermes") and TARGETED GENETICS CORPORATION,
having its principal place of business located at 1100 Olive Way, Suite 100,
Seattle, Washington 98101 ("Targeted"). Alkermes and Targeted are each referred
to herein by name or as a "Party", or, collectively, as the "Parties".
WHEREAS, Alkermes is the exclusive licensee from the Children's Hospital
Research Foundation/Children's Hospital, Inc. ("Children's Hospital") of certain
"Licensed Patent Rights" and "Licensed Materials" relating to Adeno-Associated
Virus (AAV) packaged cell lines invented by Dr. Philip R. Johnson and has the
right to grant sublicenses under Licensed Patent Rights and to Licensed
Materials (the "AAV License Agreement");
WHEREAS, the Parties are also parties to that certain Exclusive Sublicense
Agreement effective as of July 23, 1996 (the "Prior Agreement"), pursuant to
which Targeted is an exclusive sublicensee of the "Licensed Patent Rights" and
"Licensed Materials" in certain Fields of Use; and
WHEREAS, the Parties desire to enter into this Agreement, pursuant to which
Alkermes will grant to Targeted an exclusive, worldwide license of the Licensed
Patents and Licensed Materials in all of the Fields of Use, terminate the Prior
Agreement and to enter into a related Common Stock and Warrants Issuance
Agreement of even date herewith ("Issuance Agreement"), pursuant to which
Targeted shall deliver to Alkermes shares of Targeted's common stock, par value
$0.01 per share ("Common Stock"), and warrants to acquire additional shares of
Common Stock in the future.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
Section 1 Definitions
1.1 "Additional Fields of Use" means the Fields of Use identified in
subsections (b)-(j) of the definition of Fields of Use herein.
1.2 "Affiliate" means any entity directly or indirectly controlling,
controlled by, or under common control with, either Alkermes or
Targeted. For
[*] 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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purposes of this definition, the term "control" shall mean the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of an entity, whether through
the ownership of at least 50% of the voting stock of such entity, by
contract, or otherwise. Without limiting the generality of the
foregoing, "Affiliate" shall include any research and development
partnership in which Targeted or any of its Affiliates has an interest
of 50% of more, or is the general partner, or any other funding entity
that Targeted or any of its Affiliates controls.
1.3 "Bankruptcy Event" means the Person in question becomes insolvent, or
voluntary or involuntary proceedings by or against such Person are
instituted in bankruptcy or under any insolvency law, or a receiver or
custodian is appointed for such Person, or proceedings are instituted
by or against such Person for corporate reorganization or the
dissolution of such Person, which proceedings, if involuntary, shall
not have been dismissed within sixty (60) days after the date of
filing, or such Person makes an assignment for the benefit of
creditors, or substantially all of the assets of such Person are
seized or attached and not released within sixty (60) days thereafter.
1.4 "FDA" means the United States Food and Drug Administration.
1.5 "Fields of Use" means the following: (a) treatment and prevention of
[*]; (b) treatment and prevention of [*]; (c) treatment of [*]; (d)
treatment and prevention of [*]; (e) treatment and prevention of [*];
(f) treatment and prevention of [*]; (g) [*]; (h) treatment and
prevention of [*]; (i) treatment of [*]; (j) [*]; and (k) [*].
1.6 "Licensed Patent Rights" means all of the following:
(a) U.S. Patent No. 5,658,785 issued August 19, 1997, U.S. Patent No.
5,786,211 issued July 28, 1998, U.S. Patent No. 5,858,775 issued
January 12, 1999, U.S. Patent Application Serial No. USSN
09/012,132 filed January 22, 1998, and U.S. Patent Application
(number to be assigned) filed April 15, 1999, "Adeno-Associated
Virus Materials and Methods", invented by Philip R. Johnson;
(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
[*] Confidential treatment requested
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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.
1.7 "Licensed Materials" means the C12 adeno-associated virus packaging
cell line developed by the Children's Hospital Research
Foundation/Children's Hospital, Inc. and any improvements thereto.
1.8 "Licensed Product(s)" means 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 judgment of a court of competent
jurisdiction or expired.
1.9 "Net Sales" means the gross invoice prices received from customers on
sales of Licensed Products by Targeted, its Affiliates, or
Sublicensee(s) (as defined in Section 2.1 below), as applicable, less
any customary discounts allowed and actually taken, sales and/or use
tax, excise and similar taxes, import or export duties or their
equivalent, outbound transportation prepaid or allowed, insurance, and
amounts allowed or credited due to returns (not exceeding the original
billing). Transfer of a Licensed Product between Targeted and its
Affiliates and/or Sublicensees for resale to end users shall not be
used for the basis of computing royalties.
-3-
<PAGE>
1.10 "Non-Therapeutic Field of Use" means the Field of Use identified in
subsection (k) of the definition of Fields of Use herein.
1.11 "Phase I Clinical Trial" means that portion of the FDA submission and
approval process which provides for the first introduction into
humans of a product with the purpose of determining human toxicity,
metabolism, absorption, elimination and other pharmacological action
as more fully defined in 21 C.F.R. (S) 312.21(a) or equivalent in a
foreign country.
1.12 "Phase II Clinical Trial" means that portion of the FDA submission
and approval process which provides for the initial trials of product
on a limited number of patients for the purpose of determining dose
and evaluating safety and efficacy in the proposed therapeutic
indication as more fully defined in 21 C.F.R. (S) 312.21(b) or
equivalent in a foreign country. Phase I/II or equivalent in a
foreign country will be considered a Phase I trial.
1.13 "Phase III Clinical Trial" means that portion of the clinical
development program which provides for continued trials of a product
on sufficient numbers of patients to establish the safety and
efficacy of a product and generate, if required, pharmacoeconomics
data to support regulatory approval in the proposed therapeutic
indication as more fully defined in 21 C.F.R. (S) 312.21(c) or
equivalent in a foreign country.
1.14 "Person" means an individual, a partnership, a corporation, limited
liability company, an association, a joint stock company, a trust, a
joint venture, any other form of business organization, an
unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
1.15 "PLA" means a Product Licensing Application as that term is used in
Title 21 of the Code of Federal Regulations or any other applicable
FDA filing.
1.16 "Prior Field of Use" means the Field of Use identified in subsection
(a) of the definition of Fields of Use herein.
1.17 "Regulatory Approval" means any approvals (including pricing and
reimbursement approvals), licenses, registrations or authorizations
of any federal, state or local regulatory agency, department, bureau
or other
-4-
<PAGE>
governmental entity, necessary for the manufacture and sale of a
Licensed Product in a regulatory jurisdiction.
Section 2 Grant of License
2.1 Grant of License to Targeted. Subject to the terms and conditions of
-----------------------------
this Agreement, Alkermes hereby grants to Targeted: (a) 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 Fields of Use; (b) the exclusive right to grant one
or more sublicenses to its rights under Licensed Patent Rights and to
Licensed Materials to make, have made, use, lease, have sold and sell
Licensed Products in the Fields of Use (each such sublicense, a
"Sublicense", the sublicensee thereunder, a "Sublicensee", and the
agreement or contract pursuant to which a Sublicense is granted, a
"Sublicense Agreement").
2.2 Reserved Rights of Alkermes. Alkermes reserves unto itself the
---------------------------
personal, non-transferable right to make, have made, and use Licensed
Product(s) and Licensed Material in the Fields of Use for internal
research purposes only, and for no other purpose in the Fields of
Use.
2.3 Grant of License to Alkermes. Automatically upon termination of this
----------------------------
Agreement, Targeted hereby grants to Alkermes an exclusive, worldwide
royalty-free license to make, have made, use and sell products under
any patent rights owned by Targeted as of the date of such
termination for improvements on the C12 cell line.
2.4 Grant of Sublicenses at Option of Targeted. Any Sublicense granted by
------------------------------------------
Targeted of its rights hereunder shall be subject to the terms of
this Agreement and shall provide for the payment of royalties and
other consideration by the Sublicensee as specified in Section 3
below. Targeted shall be responsible for its Sublicensees and shall
not grant any rights which are inconsistent with the rights granted
to and obligations of Targeted hereunder. Any event, act or omission
of a Sublicensee which would be a breach of this Agreement if
performed by Targeted shall be deemed to be a breach by Targeted of
this Agreement. Each Sublicense Agreement granted by Targeted shall
include an audit right by Alkermes of the same scope as provided in
Section 4 below with respect to Targeted. No Sublicense Agreement
shall contain any provision which would be inconsistent with the
terms of this Agreement
-5-
<PAGE>
or the AAV License Agreement. Targeted shall give Alkermes prompt
notification of the identity and address of each Sublicensee with
whom it concludes a Sublicense Agreement and shall supply Alkermes
with a copy of each such Sublicense Agreement. To the extent that any
term or provision of any Sublicense Agreement is found to be
inconsistent with the terms or provisions of this Agreement, Targeted
shall use its best efforts to amend such Sublicense Agreement such
that it is in compliance with the terms or provisions of this
Agreement.
2.5 AAV License Agreement. Targeted hereby acknowledges, on behalf of
---------------------
itself, its Affiliates and any existing or future Sublicensee, that
it is aware of the AAV License Agreement and the obligations of
Alkermes under the AAV License Agreement. Targeted hereby further
acknowledges and agrees, that, in the event Alkermes or Targeted
shall become aware of any fact or circumstance related to this
Agreement or any Sublicense Agreement which is inconsistent with the
obligations of Alkermes under the AAV License Agreement, Alkermes and
Targeted shall cooperate in good faith to amend this Agreement or any
such Sublicense Agreement to insure that Alkermes shall be in
compliance with the terms and provisions of the AAV License
Agreement.
2.6 Grant of Sublicenses at Option of Alkermes. At any time after the
------------------------------------------
date which is the [*] anniversary of the Effective Date, Targeted
shall, upon receipt of notice from Alkermes to such effect, enter
into good faith negotiations to enter into a sublicense agreement
with a proposed sublicensee designated by Alkermes in such notice,
with respect to any of the Additional Fields of Use for which
Targeted, its Affiliates or Sublicensee(s) have not initiated Phase I
Clinical Trials; provided that entering into such negotiations is not
inconsistent with obligations of Targeted to any Sublicensee. Such
sublicense agreement, if entered into, shall be subject to Section
2.4 above.
Section 3 Payments to Alkermes
3.1 Issuance of Common Stock and Warrants. Upon the execution of this
-------------------------------------
Agreement and in consideration of the grant of the license hereunder,
Targeted and Alkermes shall enter into the Issuance Agreement in the
form attached hereto as Exhibit A, pursuant to which Targeted shall
issue and deliver to Alkermes 500,000 shares of Common Stock of
Targeted (the "Shares") and two warrants to acquire an aggregate of up
to 2,000,000 additional shares of Common Stock of Targeted (the
[*] Confidential treatment requested
-6-
<PAGE>
"Warrants"), in each case, subject to the terms and provisions of the
Issuance Agreement and the warrants attached thereto.
3.2 Milestone Payments. Subject to Sections 3.2(c) and (d), Targeted
------------------
shall pay Alkermes the aggregate of the amounts calculated in
accordance with Sections 3.2(a)(i) or 3.2(a)(ii) below with respect to
each Licensed Product whether such Licensed Product is developed by
Targeted, its Affiliates or by any Sublicensee (the "Non Royalty
Fees"). Whether Targeted shall pay to Alkermes the Non-Royalty Fees
pursuant to Section 3.2(a)(i) or 3.2(a)(ii) shall be determined by
Alkermes within twenty (20) days of (i) receipt by Alkermes of written
notice from Targeted advising Alkermes that Targeted has initiated a
Phase I Clinical Trial with respect to a Licensed Product being
developed by Targeted or its Affiliates, and such other relevant
information related to such Phase I Clinical Trial that Alkermes may
reasonably request, or (ii) receipt by Alkermes from Targeted of a
copy of a Sublicense Agreement entered into by Targeted pursuant to
Section 2.4 above, and such other relevant information related to such
Sublicense Agreement that Alkermes may reasonably request.
(a) Upon the election by Alkermes pursuant to Section 3.2 above,
Targeted shall, within thirty (30) days of (x) receipt of Non-
Royalty Fees from a Sublicensee pursuant to Section 3.2(a)(i)
below or (y) the occurrence of each event described in Section
3.2(a)(ii), pay Alkermes the following Non-Royalty Fees:
(i) [*] of any proceeds received by Targeted as consideration
pursuant to any Sublicense Agreement for each Licensed
Product, including without limitation, licensee fees,
milestone payments or other property deemed compensation
(but excluding research and development funding, royalties
and Common Stock purchases at market value) under such
Sublicense Agreement, such as any premium paid over the
market value of Common Stock in the event such Sublicense
Agreement incorporates an equity component; or
(ii) Milestone payments in accordance with the following
schedules of events achieved by Targeted or a Sublicensee
for each Licensed Product related to any Additional Field of
Use and the Prior Field of Use, as the case may be:
[*] Confidential treatment requested
-7-
<PAGE>
(A) With respect to any Licensed Product in any Additional
Field of Use:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Milestone
Event Payment
- --------------------------------------------------------------------------------------------
<S> <C>
1. Completion of first Phase I Clinical Trial $ [*]
- --------------------------------------------------------------------------------------------
2. Completion of first Phase II Clinical Trial [*]
- --------------------------------------------------------------------------------------------
3. Completion of first Phase III Clinical Trial [*]
- --------------------------------------------------------------------------------------------
4. Completion of first Phase III Clinical Trial for which [*]
payment not made pursuant item 2 above
- --------------------------------------------------------------------------------------------
5. First filing of PLA with the FDA (or comparable filing with a [*]
foreign agency, if first)
- --------------------------------------------------------------------------------------------
6. First approval of a PLA by the FDA (or comparable approval of [*]
a foreign agency, if first)
- --------------------------------------------------------------------------------------------
Total: $ [*]
- --------------------------------------------------------------------------------------------
</TABLE>
(B) With respect to any Licensed Product in the Prior Field
of Use:
<TABLE>
<CAPTION>
Milestone
- --------------------------------------------------------------------------------------------
Event Payment
- --------------------------------------------------------------------------------------------
<S> <C> <C>
1. Completion of first Phase I Clinical Trial $ [*]
- --------------------------------------------------------------------------------------------
2. Completion of first Phase II Clinical Trial [*]
- --------------------------------------------------------------------------------------------
3. Completion of first Phase III Clinical Trial [*]
- --------------------------------------------------------------------------------------------
4. Completion of first Phase III Clinical Trial for which [*]
payment not made pursuant item 2 above
- --------------------------------------------------------------------------------------------
5. First filing of PLA with the FDA (or comparable filing with a [*]
foreign agency, if first)
- --------------------------------------------------------------------------------------------
Total: $ [*]
- --------------------------------------------------------------------------------------------
</TABLE>
(b) Notwithstanding anything in this Section 3 to the contrary, the
Parties agree and acknowledge that Targeted is obligated to pay
Alkermes, with respect to each License Product developed by
Targeted, its Affiliates or by any Sublicensee the greater of the
aggregate Non-Royalty Fees calculated pursuant to Sections
3.2(a)(i) and 3.2(a)(ii) above (each a "Non-Royalty Fee Payment
[*] Confidential treatment requested
-8-
<PAGE>
Option"). The Parties agree that to assist Alkermes in the
determination of which Non-Royalty Fee Payment Option shall
result in greater Non-Royalty Fees to Alkermes, Targeted shall,
on an annual basis and with respect to each Licensed Product,
beginning one (1) year following receipt by Alkermes of the
initial payment pursuant to this Section 3.2 with respect to each
Licensed Product, deliver to Alkermes a written status report
with respect to such Licensed Product (each a "Status Report").
Each Status Report shall contain sufficient information to enable
Alkermes to calculate the Non-Royalty Fee that Alkermes would be
entitled to receive with respect to the applicable Licensed
Product pursuant to each Non-Royalty Fee Payment Option. The
Parties further agree that, upon receipt of such Status Report
with respect to each Licensed Product, Alkermes may, upon due
notice to and prior consultation with Targeted, require Targeted
to pay to Alkermes the Non-Royalty Fees payable pursuant to the
Non-Royalty Fee Payment Option which would, in the aggregate,
yield to Alkermes greater Non-Royalty Fees with respect to such
Licensed Product; provided, however, that if Alkermes shall
exercise its right pursuant to this Section 3.2(b) to receive
Non-Royalty Fees pursuant to Section 3.2(a)(i) or 3.2(a)(ii), all
amounts received by Alkermes under the previously applicable Non-
Royalty Fee Payment Option shall be credited to the newly
selected Non-Royalty Fee Payment Option.
(c) The payment schedule set forth in Sections 3.2(a)(i) and
3.2(a)(ii) shall apply to the first product to be developed in
each of the Additional Fields of Use and to receive approval of a
PLA by the FDA (or comparable filing with a foreign agency, if
first) (each such product, the "First Product"). In no event
shall the aggregate payments under this Section 3.2 for each
First Product be less than $[*].
(d) With respect to any product in each of the Additional Fields of
Use which is not the First Product, and only after a First
Product is identified (each such product, an "Additional
Product"), the payments made pursuant to Sections 3.2(a) and (b)
shall be reduced by [*] so long as the First Product is being
marketed and has generated royalties to Alkermes in excess of
$[*] in the twelve-month period preceding the scheduled payment
pursuant to Sections 3.2(a) and (b) with respect to an Additional
Product.
[*] Confidential treatment requested
-9-
<PAGE>
3.3 Royalties; Other Payments
-------------------------
(a) For the rights, privileges and license granted hereunder,
Targeted shall pay royalties to Alkermes 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. Subject to Section 3.3(a)(iv) below:
(i) With respect to any Licensed Product in any Additional Field
of Use, Targeted agrees to pay to Alkermes a royalty of [*]
on the amount of annual Net Sales of Licensed Products
related to any of the Additional Fields of Use that is less
than or equal to [*] and a royalty of [*] on the amount of
annual Net Sales of Licensed Products related to any of the
Additional Fields of Use that exceeds [*].
(ii) With respect to any Licensed Product in the Non-Therapeutic
Field of Use, Targeted agrees to pay to Alkermes:
(A) A royalty of [*] on the amount of annual Net Sales of
Licensed Products from sales by Targeted or its
Affiliates (but not Sublicensees) of Licensed Products
related to the Non-Therapeutic Field of Use that is
less than or equal to [*] and a royalty of [*] on the
amount of annual Net Sales of Licensed Products on
sales by Targeted or its Affiliates (but not
Sublicensees) of Licensed Products related to the Non-
Therapeutic Field of Use that exceeds [*]; and
(B) [*] of any proceeds received by Targeted from
Sublicensees from sales by such Sublicensees (but not
Targeted or its Affiliates) of Licensed Products
related to the Non-Therapeutic Field of Use, including
without limitation, licensee fees, milestone payments
or other property deemed compensation (but excluding
research and development funding, royalties and Common
Stock purchases at market value), such as any premium
[*] Confidential treatment requested
-10-
<PAGE>
paid over the market value of Common Stock in the event
the applicable arrangement incorporates an equity
component.
(iii) With respect to any Licensed Product in the Prior Field of
Use, Targeted agrees to pay to Alkermes a royalty of [*]
on the amount of annual Net Sales of Licensed Products
related to the Prior Field of Use that is less than or
equal to [*] and a royalty of [*] on the amount of annual
Net Sales of Licensed Products related to the Prior Field
of Use that exceeds [*].
(iv) 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.
(b) Notwithstanding Section 3.3(a) above, if Targeted is required to
pay royalties to non-Affiliates for sale of any Licensed Product
for which payments are also due to Alkermes ("Third Party
Royalties"), then the amount of royalties to be paid by Targeted
to Alkermes shall be reduced by the amount that the sum of
royalties for such Licensed Product to be paid to Alkermes and
Third Party Royalties for such Licensed Product, collectively,
exceeds [*] of Net Sales of Licensed Products, but in no event
shall Alkermes' royalty percentage be reduced to less than [*] of
Net Sales for such Licensed Product.
(c) No multiple royalties shall be payable because any Licensed
Product, its manufacture, use, lease or sale is or shall be
covered by multiple claims or more than one Licensed Patent Right
licensed under this Agreement.
(d) Royalty payments due pursuant to Section 3.3(a) above, shall be
calculated 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 by Targeted within forty five (45)
days of the end of each calendar quarter (that is on or before
[*] Confidential treatment requested
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<PAGE>
May 15, August 14, November 15 and February 14 in each calendar
year).
(e) All monies due to Alkermes hereunder shall be paid in United
States Dollars by bank wire transfer in immediately available
funds to the account designated by Alkermes. Targeted shall be
responsible for making the payment to Alkermes. The rate of
exchange to be used in computing the amount of currency
equivalent to United States Dollars due to Alkermes 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. All payments hereunder shall be made net of any
withholding taxes, duties, levies, fees or charges required to be
withheld under the law, on behalf of Alkermes. Targeted shall
make any withholding payments due on behalf of Alkermes and shall
promptly provide Alkermes with written documentation of any such
payment sufficient to satisfy any requirements of the United
States Internal Revenue Service related to an application by
Alkermes for a foreign tax credit for such payment. Targeted
agrees to take reasonable and lawful steps as Alkermes may
request to minimize the amount of tax to which payments to
Alkermes are subject, if such steps are not detrimental to
Targeted.
Section 4 Record Keeping and Reports
4.1 Records. Targeted shall keep accurate records in sufficient detail to
-------
enable the royalties payable by Targeted to Alkermes hereunder to be
determined, and shall 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
designated by Alkermes and reasonably acceptable to Targeted (the
"Auditor"), during normal business hours, and to the extent necessary
to verify the reports and payments required hereunder. The Auditor
shall only disclose to Alkermes 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,
Targeted shall promptly remit the deficiency to Alkermes. In the
event any such audit reveals an overpayment, the excess shall be
credited against any further payments due to Alkermes hereunder.
-12-
<PAGE>
4.2 Reports. Targeted shall furnish to Alkermes quarterly written
-------
reports, which shall be delivered to Alkermes together with the
royalty payments pursuant to Section 3.3(d) (each such report, a
"Report") setting forth separately by Licensed Product or other
identifying 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 Sublicensee's Report received subsequent
to Targeted's prior Report and prior to Targeted's current Report.
4.3 Confidentiality. Alkermes shall maintain in confidence, and shall not
---------------
disclose to any Person or use for any purpose not expressly authorized
by this Agreement, any information provided to Alkermes and/or the
Auditor pursuant to this Section 4 and Section 6. Alkermes shall
obtain written agreement from the Auditor, for Targeted'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.
Section 5 Patent Rights
5.1 Patent Prosecution. Subject to the rights of Children's Hospital
------------------
pursuant to the AAV License Agreement to prepare, file and prosecute
patent applications related to the Licensed Patent Rights made solely
by the employees of Children's Hospital, Targeted shall, in the first
instance, have the sole and exclusive right to file any and all patent
applications, both foreign and domestic, in the Licensed Patent Rights
falling within the scope of this Agreement, and Targeted 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.
5.2 Notice of Patents. Targeted shall notify Alkermes of the issuance of
-----------------
any Licensed Patent Rights, and any expiration, lapse, revocation,
surrender, invalidation or abandonment of any Licensed Patent Rights.
-13-
<PAGE>
5.3 Alkermes' Right to Prosecute Patents. If, at any time during the term
------------------------------------
of this Agreement, Targeted elects not to file a patent application or
to abandon any pending patent application or any patent issued
thereon, either foreign or domestic, in the Licensed Patent Rights it
shall notify Alkermes 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. Thereafter, Alkermes shall have the right and option to
participate in the filing or prosecution of any such patent
application and/or the maintenance of any such patent, at Alkermes'
expense.
5.4 Patent Prosecution after Bankruptcy Event or Termination.
---------------------------------------------------------
Notwithstanding anything herein to the contrary and subject to the
provisions of the AAV License Agreement, in the event Targeted shall
become subject to a Bankruptcy Event or upon termination of this
Agreement, all rights granted or deemed granted to Targeted under this
Section 5 shall immediately terminate and Alkermes shall thereafter
have the sole and exclusive right to file any and all patent
applications, both foreign and domestic, in the Licensed Patent Rights
falling within the scope of this Agreement.
Section 6 Due Diligence
6.1 Targeted, 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
Targeted shall be entitled to exercise prudent business judgment in
meeting its reasonable diligence obligations hereunder.
6.2 Targeted agrees to keep Alkermes 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.
Section 7 Patent Marking
7.1 Targeted shall mark, and shall require its Sublicensee(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.
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<PAGE>
Section 8 Term and Termination
8.1 Term. 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.
8.2 Termination by Targeted. Targeted may terminate this Agreement and
-----------------------
concomitant future obligations upon thirty (30) days written notice to
Alkermes.
8.3 Termination by Alkermes.
-----------------------
(a) If Targeted shall cease to carry on its business, this
Agreement shall terminate upon notice by Alkermes.
(b) Should Targeted fail to make any payment whatsoever due and
payable to Alkermes hereunder, Alkermes shall have the right
to terminate this Agreement effective on thirty (30) days
written notice, unless Targeted shall make all such payments
to Alkermes within said thirty (30) day period. Upon the
expiration of such thirty (30) day period, if Targeted shall
not have made all such payments to Alkermes, the rights,
privileges and license granted hereunder shall automatically
terminate.
8.4 Material Breach. Upon any material breach or default of this
---------------
Agreement by Targeted other than those occurrences set out in Section
8.3 above, Alkermes shall have the right to terminate this Agreement
and the rights, privileges and license granted hereunder effective on
sixty (60) days written notice to Targeted. Such termination shall
become automatically effective unless Targeted shall have cured any
such material breach or default prior to the expiration of such sixty
(60) day period. In the event that Alkermes asserts a breach of this
Agreement under Section 6.1, 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 Section 18.
8.5 AAV License Agreement. This Agreement, and the rights, privileges and
---------------------
licenses granted herein, shall terminate automatically upon the
termination of the AAV License Agreement for any reason whatsoever.
-15-
<PAGE>
8.6 Survival. In the event that this Agreement is terminated in
---------
accordance with Section 8.2 or Section 8.3 or Section 8.4, the
obligation of Targeted pursuant to Section 2.3 and of Targeted to
deliver the Shares, the shares of Common Stock issuable upon the
exercise of the Warrants, and the Issuance Agreement shall survive.
In addition, Sections 4 and 15 shall survive expiration or
termination of this Agreement for any reason. The Parties understand
and agree that Targeted's obligation to pay royalties to Alkermes
under this Agreement shall terminate in the event of a judicial
determination by a decision of a tribunal of competent authority,
where such decision is final or by lapse of time becomes final and
unappealable, that no portion of the Licensed Patent Rights are valid
and/or enforceable.
Section 9 Disposition of Licensed Products On Hand Upon Termination
9.1 In the event of any termination of this Agreement, Targeted and its
Sublicensees shall have the right to use or sell all the Licensed
Products on hand at the time of such termination, provided that
Targeted shall be obligated to pay to Alkermes 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).
Section 10 Patent Enforcement
10.1 AAV License Agreement. The Parties hereby acknowledge that under AAV
---------------------
License Agreement, Alkermes has the affirmative obligation to inform
the Children's Hospital of any infringement of any Licensed Patent
Rights. Accordingly, each Party will promptly notify the other Party
of any infringement or possible infringement of any of the Licensed
Patent Rights or Licensed Materials. The Parties hereby further agree
and acknowledge that under AAV License Agreement, Alkermes has the
initial option to prosecute any such infringement, which option shall
be assumed herein by Targeted.
10.2 Defense of Licensed Patent Rights by Targeted. If Alkermes shall
---------------------------------------------
have supplied Targeted with written evidence demonstrating
infringement of the Licensed Patent Rights by a third party, Alkermes
may, by written notice, request Targeted to take steps to assert such
Licensed Patent Rights against such infringing product. Targeted
shall within ninety
-16-
<PAGE>
(90) days 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. Alkermes shall cooperate with Targeted, at
Targeted's expense, in connection with any such action. Such
cooperation shall include (without limitation) Alkermes' permitting
Targeted to bring the action in Alkermes' name and Alkermes'
executing any consents or assignments necessary or useful to permit
Targeted to enforce the Licensed Patent Rights against the infringer.
10.3 Defense of Licensed Patent Rights by Alkermes. In the event
----------------------------------------------
Targeted fails to terminate the infringement within the ninety (90)
days of written notification from Alkermes informing Targeted of an
alleged infringement, and does not institute litigation against the
infringer for that purpose within such period, then Alkermes shall
have the right to bring an action against the infringer for that
purpose. Targeted shall cooperate fully with Alkermes, at Targeted's
expense, in connection with any such action. Such cooperation shall
include (without limitation) Targeted permitting Alkermes to bring
the action in Targeted's name and Targeted's executing any consents
or assignments necessary or useful to permit Alkermes to enforce the
Licensed Patent Rights against the infringer.
10.4 Patent Enforcement after Bankruptcy Event or Termination.
---------------------------------------------------------
Notwithstanding anything herein to the contrary and subject to the
AAV License Agreement, in the event Targeted shall become subject to
a Bankruptcy Event or upon termination of this Agreement, all rights
granted or deemed granted to Targeted under this Section 10 shall
immediately terminate and Alkermes shall thereafter have the sole and
exclusive right to assert the Licensed Patent Rights against any
infringing product.
Section 11 Publicity
11.1 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, such approval
not to be unreasonably withheld. Notwithstanding the foregoing, each
Party hereby consents to references to it (a) in such reports or
documents sent
-17-
<PAGE>
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 (b) 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. The Parties agree that an announcement or
press release relating to this Agreement will be made, and that they
will coordinate such announcement or press release so that, to the
extent both Parties intend to make such announcement or press
release, such announcement or press release can be made
contemporaneously by each Party.
Section 12 Waiver
12.1 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.
Section 13 Warranties
13.1 Representations and Warranties by Alkermes. Alkermes represents and
------------------------------------------
warrants that:
(a) the execution and delivery of this Agreement and the performance
of the transactions contemplated hereby have been duly
authorized by all appropriate Alkermes corporate action;
(b) this Agreement is a legal and valid obligation binding upon
Alkermes and enforceable in accordance with its terms, and the
execution, delivery and performance of the Agreement by Alkermes
does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by
which it is bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency
having jurisdiction over it;
(c) Alkermes has the lawful right to grant the sublicense set forth
herein; and
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<PAGE>
(d) to the best of Alkermes' knowledge, Alkermes 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 Alkermes nor to the best of Alkermes' knowledge, the
Children's Hospital has granted any licenses, sublicenses, or
other rights in respect of the Licensed Patent Rights or the
Licensed Materials in the Fields of Use.
13.2 Limitations on Warranties of Alkermes.
-------------------------------------
(a) ALKERMES MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS OF THE LICENSED PRODUCTS FOR ANY
PARTICULAR PURPOSE.
(b) Nothing in this Agreement shall be construed as: (i) a warranty
or representation by Alkermes as to the patentability, validity
or scope of any of the Licensed Patent Rights; (ii) except as
provided in Section 13.1, 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.
13.3 Representations and Warranties of Targeted. Targeted represents and
------------------------------------------
warrants that:
(a) the execution and delivery of this Agreement and the performance
of the transactions contemplated hereby have been duly
authorized by all appropriate Targeted corporate action; and
(b) this Agreement is a legal and valid obligation binding upon
Targeted and enforceable in accordance with its terms; the
execution, delivery and performance of the Agreement by Targeted
does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by
which it is bound, nor violate any law or regulation of any
court, governmental body or administrative or other agency
having jurisdiction over it.
-19-
<PAGE>
Section 14 Succession and Assignability
14.1 This Agreement and the rights and benefits conferred upon Targeted
hereunder may not be assigned nor transferred by Targeted without
the prior written consent of Alkermes, except in the event of sale
of all or a portion of the business of Targeted, in which event
Targeted, upon written notification to Alkermes, 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.
14.2 This Agreement shall be binding upon and inure to the benefit of the
successors, representatives and assigns of the parties hereto.
Section 15 Indemnity
15.1 Targeted agrees to indemnify, hold harmless and defend Alkermes, its
officers, employees and agents, against any and all claims, suits,
losses, damages, costs, fees and expenses, including reasonable
attorneys' fees, resulting from or arising out of Targeted's
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, user or
operation of Licensed Products by Targeted its Affiliates or its
Sublicensees or their customers in any manner whatsoever.
15.2 Alkermes agrees to indemnify, hold harmless and defend Targeted and
its officers, employees and agents against any and all claims,
suits, losses, damages, costs, fees and expenses, including
reasonable attorneys' fees, resulting from or arising out of
Alkermes' grant of the Sublicense granted under this Agreement
including, but not limited to, any amounts payable by Alkermes 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.
15.3 In the event of any claim for which indemnification will be sought
pursuant to Section 15.1 or 15.2, 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
-20-
<PAGE>
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.
15.4 Prior to entering clinical trials, Targeted further agrees to obtain
and maintain in force a comprehensive or commercial form general
liability insurance policy supporting its obligations under Section
15.1. This insurance shall provide Alkermes with insurance coverage
that is commensurate with the insurance coverage that Alkermes would
have otherwise been provided had Alkermes been named as additional
insured on the Targeted's comprehensive general liability insurance,
and provided for prior notice to Alkermes before cancellation. The
limits of such insurance shall be commercially reasonable amounts
for personal injury or death, and for property damage. Upon request,
Targeted shall provide Alkermes with Certificates of Insurance
evidencing the same.
Section 16 Notices
16.1 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 address 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 Alkermes:
Alkermes, Inc.
64 Sidney Street
Cambridge, MA 02139
Telephone No. 617-494-0171
Fax No. 617-494-9255 Attn: Chief Financial Officer
In the case of Targeted:
Targeted Genetics Corporation
1100 Olive Way, Suite 100
Seattle, WA 98101
Telephone No. 206-623-7612
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<PAGE>
Fax No. 206-623-7064
Attn: President
Section 17 Arbitration; Applicable Law
17.1 Arbitration. All disputes that may arise, including, but not
-----------
limited to, disputes arising under Article 6.1, in connection with
this Agreement and that are not resolved by the Parties shall be
submitted to binding arbitration under the commercial rules and
regulations then in effect under the American Arbitration
Association rules 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 prevailing Party runs in any court of competent
jurisdiction.
17.2 Applicable Law. In the event of any arbitration as provided in
--------------
Section 18.1 above, (i) the 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 .
Section 18 Miscellaneous
18.1 Headings. The headings of the 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.
18.2 Effective Date. 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.
18.3 Amendments. No amendment or modification of this Agreement shall be
----------
valid or binding upon the Parties unless made in writing and signed
by each Party.
18.4 Merger. This Agreement embodies the entire understanding of the
-------
Parties and supersedes all previous communications, representations
or understandings, either oral or written, including the Prior
Agreement, between the Parties relating to the subject matter
hereof.
-22-
<PAGE>
18.5 Severability. 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.
18.6 Counterparts. This Agreement, may be executed in counterparts by
------------
the Parties duly authorize respective officers, which counterparts
collectively shall be deemed a single contract.
[Signatures appear on following page.]
-23-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement through duly
authorized representatives as of the date first above written.
ALKERMES, INC
By _________________________________
Name: ___________________________
Title: __________________________
TARGETED GENETICS CORPORATION
By _________________________________
Name: ___________________________
Title: __________________________
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<PAGE>
EXHIBIT 10.37
COMMON STOCK AND WARRANTS ISSUANCE AGREEMENT
COMMON STOCK AND WARRANTS ISSUANCE AGREEMENT, dated as of the 9th day of
June, 1999, by and among TARGETED GENETICS CORPORATION, a Washington corporation
(the "Company"), and ALKERMES, INC., a Pennsylvania corporation ("Alkermes").
Each of the Company and Alkermes is referred to herein as a "Party", and
collectively, the "Parties".
RECITAL
1. The Parties hereto of even date herewith are entering into that certain
Exclusive Sublicense Agreement (the "Sublicense Agreement").
2. In connection with the Sublicense Agreement, and as consideration
thereto, Alkermes desires to receive from the Company, and the Company desires
to deliver to Alkermes, shares of the Company's common stock, par value $.01 per
share ("Common Stock"), and two Warrants to acquire additional Common Stock,
upon the terms and subject to the conditions set forth herein.
3. Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Sublicense Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein, the parties hereto agree as follows:
1. Issuance of Stock and Warrants; delivery of the Licensed Patent Rights
----------------------------------------------------------------------
and Licensed Materials.
- ----------------------
1.1 Issuance of Shares of Common Stock. Upon the terms and subject to the
----------------------------------
conditions of this Agreement, the Company shall issue to Alkermes 500,000 shares
of Common Stock (the "Shares").
1.2 Issuance of Warrants to Purchase Common Stock. Upon the terms and subject
---------------------------------------------
to the conditions of this Agreement, the Company shall issue to Alkermes two
warrants in the forms of Exhibit A and B (the "Warrants") attached hereto to
--------- -
acquire an aggregate of up to 2,000,000 shares of Common Stock (the "Warrant
Shares") at per share purchase prices and subject to the express terms of the
Warrants.
1.3 Delivery of Licensed Patent Rights and Licensed Materials. Upon the
---------------------------------------------------------
terms and subject to the conditions of this Agreement, Alkermes shall deliver to
Targeted the executed Sublicense Agreement.
1.4 Delivery. The delivery of the Shares and the Warrants shall occur on
--------
one closing which shall occur on the Effective Day of the Sublicense Agreement
(the "Closing").
2. Delivery. At the Closing, subject to the terms and conditions hereof,
--------
the Company shall deliver to Alkermes a certificate representing the Shares and
the Warrants in the forms
<PAGE>
attached hereto as Exhibits A and B, each dated the date of the Closing and duly
---------- -
registered in the name of Alkermes, against execution and delivery by Alkermes
of the Sublicense Agreement.
3. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to Alkermes as of the date hereof and as of the date of
the Closing as follows:
3.1 Organization; Good Standing and Qualification; Due Execution and Validity.
-------------------------------------------------------------------------
The Company is a corporation organized and validly existing under the laws of
the State of Washington and has all requisite corporate power and authority to
own its properties and carry on its business as currently conducted and as
proposed to be conducted. The Company is duly qualified to transact business and
is in good standing as a foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its financial
condition, results of operations, business or properties (a "Material Adverse
Effect"). The Company has previously provided Alkermes with complete and correct
copies of its Restated Articles of Incorporation and its Amended and Restated
Bylaws as in effect on the date of this Agreement. The Company has no
subsidiaries nor does it control, nor is it controlled by or under common
control with, any other person or entity.
3.2 Capitalization. As of the date of this Agreement, the authorized capital
--------------
stock of the Company consists of (a) 6,000,000 shares of preferred stock, par
value $.01 per share, no shares of which are outstanding but 400,000 shares of
which are designated as Series A Participating Cumulative Preferred Stock,
issuable upon exercise of certain preferred stock purchase rights associated
with the Common Stock, and (b) 80,000,000 shares of Common Stock, 30,672,877
shares of which were issued and outstanding as of May 31, 1999, 4,459,349 shares
of which were subject to warrants outstanding as of May 31, 1999 and 3,991,738
shares of which are reserved for issuance upon the exercise of stock options
granted or to be granted under the Company's 1999 Stock Option Plan, 1992
Restated Stock Option Plan or the Company's Stock Option Plan for Nonemployee
Directors. Except as set forth in this Section 3.2 or in the SEC Documents (as
defined below) and as contemplated by Section 1 of this Agreement, there are no
outstanding options, warrants, conversion privileges, preemptive rights, or
other rights or agreements to purchase or otherwise acquire or issue any equity
securities of the Company. The Company has no obligation to repurchase or redeem
any outstanding securities.
3.3 Authorization. The Company has all requisite power and authority to
-------------
execute, deliver and perform its obligations under this Agreement. All
corporate action on the part of the Company, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement and the transactions contemplated herein, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Shares and Warrants being issued hereunder and the Warrant
Shares upon exercise of the Warrants have been taken or will be taken prior to
the Closing. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and legally binding obligation of the Company,
enforceable in accordance with its terms, except as (a) such enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors'
<PAGE>
rights generally and (b) the availability of equitable remedies may be limited
by equitable principles of general applicability.
3.4 Valid Issuance of Common Stock and Warrants. The Shares, when issued and
-------------------------------------------
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable and free
of any liens or encumbrances other than those, if any, created by Alkermes, and
will be issued in compliance with all applicable state and federal securities
laws. The Warrants, when issued and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued
and free of any liens or encumbrances other than those, if any, created by
Alkermes, and will be issued in compliance with all applicable state and federal
securities laws. The Warrant Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Warrants, will
be duly and validly issued, fully paid and nonassessable and free of any liens
or encumbrances other than those, if any, created by Alkermes, and will be
issued in compliance with all applicable state and federal securities laws. The
outstanding shares of Common Stock are all duly and validly authorized and
issued, fully paid and nonassessable and were issued in compliance with all
applicable state and federal securities laws.
3.5 Governmental Consents. No consent, approval, order or authorization of,
---------------------
or registration, qualification, designation, declaration or filing with, any
supranational, national, regional, state or local government, court,
governmental agency, authority, board, bureau, instrumentality or regulatory
body (each a "Government Authority") on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for the qualification or registration (or taking such action
as may be necessary to secure an exemption from qualification or registration,
if available) of the offer and delivery of the Shares, the Warrants and, when
issued, the Warrant Shares under all applicable state securities laws.
3.6 Litigation. There is no action, suit, claim, proceeding or investigation
----------
pending or, to the Company's knowledge, threatened against the Company that
relates to or challenges the legality, validity or enforceability of this
Agreement, the Shares or the Warrants or that could either individually or in
the aggregate have a Material Adverse Effect. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any Governmental Authority that could have a Material Adverse Effect.
3.7 Compliance with Other Instruments. The Company is not (a) in violation
---------------------------------
of any provision of its Restated Articles of Incorporation or its Amended and
Restated Bylaws or (b) in violation or default of any (i) provision of any
instrument or contract, (ii) law, statute, ordinance, code, rule or regulations
which has been enacted by a Government Authority (each an "Applicable Law" and
collectively, the "Applicable Laws"), or (iii) judgment, order, writ or decree
to which it is a party or by which it is bound, which violation or default would
adversely affect the legality, validity, or enforceability of this Agreement or
have a Material Adverse Effect. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
require any consent under or be in conflict with or
<PAGE>
constitute, with or without the passage of time or the giving of notice or both,
either a violation or default under any such provision, instrument, Applicable
Law, judgment, order, writ, decree or contract or give rise to a right to
terminate or accelerate any contract or an event which results in the creation
of any lien, charge or encumbrance upon any of the Company's assets.
3.8 SEC Reports; Financial Statements. The Company has furnished Alkermes
---------------------------------
with a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by the Company with the Securities and
Exchange Commission (the "SEC") since December 31, 1998 (the "SEC Documents"),
which are all the documents that the Company has been required to file with the
SEC during such period. As of their respective dates, the SEC Documents complied
with the requirements of the Securities Act of 1933, as amended (the "Securities
Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as applicable, and the rules and regulations of the SEC thereunder, and none of
the SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
SEC Documents are complete in all material respects and were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited financial statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of unaudited financial
statements, to normal recurring audit adjustments) the financial position of the
Company at the dates thereof and the results of its operations and changes in
financial position for the periods then ended.
3.9 Compliance with Laws. The Company has complied, and is in compliance
--------------------
with, all Applicable Laws and all federal, state, county, local and foreign,
decrees and orders, and possesses all governmental franchises, permits and
consents, and has made all governmental filings and declarations, applicable to
the operation of its business, to its employees, or to the real property and the
personal property that it owns or leases (including, without limitation, all
such Applicable Laws, decrees and orders relating to pharmaceutical, antitrust,
consumer protection, currency exchange, environmental protection, equal
opportunity, health, occupational safety, pension, securities and trading-with-
the-enemy matters), the failure to comply with which would, individually or in
the aggregate, have a Material Adverse Effect. The Company has not received any
notification of any asserted present or past unremedied failure by the Company
to comply with any of such Applicable Laws, decrees or orders.
3.10 Changes Since March 31, 1999 there has not been:
-------
(a) any damage, destruction or loss (whether or not covered by insurance)
which has had or is expected to have a Material Adverse Effect;
(b) any material change in the accounting methods or practices followed by
the Company;
<PAGE>
(c) any material debt obligation or liability (whether absolute or
contingent) incurred by the Company (whether or not presently outstanding)
except (i) current liabilities incurred, and obligations under agreements
entered into, in the ordinary course of business and (ii) obligations or
liabilities entered into or incurred in connection with the execution of
the Sublicense Agreement and this Agreement;
(d) any sale, lease, abandonment or other disposition by the Company of
any real property or, other than in the ordinary course of business, of any
equipment or other operating properties or any sale, assignment, transfer,
license or other disposition by the Company of any intellectual property or
other intangible asset; or
(e) any other event or occurrence that has had or is expected to have a
Material Adverse Effect.
4. Representations and Warranties of Alkermes. Alkermes hereby represents
------------------------------------------
and warrants to the Company as follows:
4.1 Authorization. All acts and conditions necessary for the authorization,
-------------
execution, delivery and consummation by Alkermes of this Agreement and the
transactions contemplated hereby have been, or will be prior to the Closing,
taken, performed and obtained. This Agreement constitutes a valid and legally
binding obligation of Alkermes, enforceable in accordance with its terms, except
as (a) such enforceability may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (b) the availability of equitable
remedies may be limited by equitable principles of general applicability.
Alkermes has full power and authority to execute, deliver and perform its
obligations under this Agreement and to own the Shares and the Warrants. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not conflict with or constitute a
violation or default under any provision of the charter or bylaws of Alkermes,
or of any material agreement, indenture or other instrument to which Alkermes is
a party, or by which it or its properties or assets are bound, or of any order,
judgment or decree against or binding upon Alkermes.
4.2 Exemption From Registration. Alkermes has been advised that none of the
---------------------------
Shares and Warrants to be issued to Alkermes hereunder or the Warrant Shares to
be issued upon the exercise of the Warrants are being registered under the
Securities Act and the rules and regulations of the SEC promulgated thereunder,
or applicable state securities laws, but are being offered and sold pursuant to
exemptions from such laws, and that the Company's reliance upon such exemptions
is predicated in part on Alkermes' representations contained herein.
4.3 Purchase Entirely for Own Account. The Shares, Warrants and the Warrant
---------------------------------
Shares to be received by Alkermes will be acquired for investment for Alkermes'
own account, not as a nominee or agent, and not with a view to the distribution
of any part thereof, and Alkermes does not have any present intention of
selling, granting any participation in, or otherwise distributing the same in a
manner contrary to the Securities Act or any applicable state
<PAGE>
securities law. Alkermes does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person with respect to any of the Shares or the Warrants.
4.4 Access to Information. Alkermes has been furnished such information as
---------------------
it has requested to evaluate an investment in the Shares, the Warrants and the
Warrant Shares. Alkermes has been given the opportunity to ask questions of and
receive answers from representatives of the Company concerning the terms and
conditions of the offering of the Shares, the Warrants and the Warrant Shares
and to obtain any additional information, to the extent reasonably available.
4.5 Restricted Securities. Alkermes acknowledges that none of the Shares, the
---------------------
Warrants or the Warrant Shares to be issued to Alkermes hereunder have been
registered under the Securities Act and that all of such Shares, Warrants and
the Warrant Shares are characterized under the Securities Act as "restricted
securities" and therefore cannot be sold or transferred unless subsequently
registered under the Securities Act or an exemption from such registration is
available. In this connection, Alkermes represents that it is familiar with
Rule 144 of the SEC, as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
4.6 Legends. It is understood that the certificates evidencing the Shares,
-------
the Warrants or the Warrant Shares may bear legends in substantially the
following form:
The securities evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities law, and no interest therein may be sold,
distributed, assigned, offered, pledged or otherwise transferred
unless (i) there is an effective registration statement under the Act
and applicable state securities laws covering any such transaction
involving said securities, (ii) this corporation receives an opinion
of legal counsel for the holder of these securities reasonably
satisfactory to this corporation stating that such transaction is
exempt from registration or (iii) this corporation otherwise
satisfies itself that such transaction is exempt from registration.
5. Conditions to Alkermes' Obligations at Closing. The obligations of
----------------------------------------------
Alkermes under Section 1 above are subject to the fulfillment on or before the
---------
date of the Closing of each of the following conditions, unless waived in
writing by Alkermes:
5.1 Representations and Warranties. The representations and warranties of the
------------------------------
Company contained in Section 3 above and in the Sublicense Agreement shall be
---------
true on and as of the date of the Closing. The Company shall have taken all
actions on its part to be taken to
<PAGE>
permit the representations and warranties of Alkermes contained in Section 4.4
-----------
above to be true on the date of the Closing.
5.2 Sublicense Agreement. The Company shall have executed the Sublicense
--------------------
Agreement.
5.3 Performance. The Company shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the date of the
Closing. The Company shall not be in default of any of its obligations under
the Sublicense Agreement or any other agreement entered into with Alkermes or
any of its affiliates after the date hereof, and all such agreements shall
continue to be valid, binding and in full force and effect.
5.4 Exemption. The offer and issuance of the Shares and Warrants to Alkermes
---------
pursuant to this Agreement shall be exempt from registration under the
Securities Act.
5.5 Opinion of Company Counsel. Alkermes shall have received from Perkins
--------------------------
Coie, counsel for the Company, an opinion, dated as of the date of the Closing
in form and substance reasonably satisfactory to Alkermes.
5.6 No Injunctions or Restraints. There shall be no temporary restraining
----------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the offer and issuance of the Shares and the Warrants
contemplated hereby.
6. Conditions to the Company's Obligations at Closing. The obligations of
--------------------------------------------------
the Company under Section 1 above are subject to the fulfillment on or before
---------
the date of Closing of each of the following conditions, unless waived in
writing by the Company:
6.1 Representations and Warranties. The representations and warranties of
------------------------------
Alkermes contained in Section 4 above shall be true on and as of the date of the
---------
Closing.
6.2 Sublicense Agreement. Alkermes shall have executed the Sublicense
--------------------
Agreement.
6.3 Performance. Alkermes shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the date of the
Closing.
<PAGE>
6.4 Exemption. The issuance of the Shares and Warrants to Alkermes pursuant
---------
to this Agreement shall be exempt from registration under the Securities Act.
6.5 No Injunctions or Restraints. There shall be no temporary restraining
----------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the issuance of the Shares and Warrants contemplated hereby.
7. Registration of Common Stock
----------------------------
7.1 Form S-3. The Company represents that it is eligible to use Form S-3
--------
under the Securities Act to effect registration of shares of the Shares issued
to Alkermes hereunder (the "Registrable Securities") for resale by Alkermes. The
Company will use its best efforts to effect the registration and qualification
of the Registrable Securities and in connection therewith, the Company shall:
(a) prepare and file with the SEC within ninety (90) days of the date of
the Closing, and use its best efforts to cause to become effective as soon
as possible thereafter, a registration statement on Form S-3 (or any
successor or other appropriate form) under the Securities Act permitting
the Registrable Securities to be offered for resale by Alkermes;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith, as
may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities until the earlier of such time as
all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by Alkermes set forth in such
registration statement or until such time as Alkermes may dispose of such
Registrable Securities pursuant to Rule 144(k) under the Securities Act;
(c) furnish to Alkermes, or each successor who is a holder of Registrable
Securities, and to any underwriter of such Registrable Securities; such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto, such number of copies of the prospectus
included in such registration statement (including each preliminary
prospectus and any summary prospectus) or filed under Rule 424(b) or Rule
424(c) under the Securities Act, in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such
registration statement or prospectus, and such other documents, as Alkermes
or any such underwriter may reasonably request;
(d) use its best efforts (i) to list all Registrable Securities covered by
such registration statement on the Nasdaq National Market, and (ii) to
register or qualify all Registrable Securities covered by such registration
statement under such "blue sky" or other securities law of such
jurisdictions as Alkermes or any underwriter of such Registrable Securities
<PAGE>
will reasonably request, and do any and all other acts and things which may
be necessary to enable Alkermes or any underwriter to consummate the
disposition in such jurisdictions of the Registrable Securities covered by
such registration statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(e) promptly notify Alkermes, at any time of the occurrence, of any event
as a result of which the portion of the prospectus included in such
registration statement which contains information furnished by or relating
to the Company, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing (each such event, a "Material
Event") and, at the request of Alkermes, prepare and furnish to Alkermes a
reasonable number of copies of a supplement to, or an amendment of, such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
(f) The Company may require Alkermes to furnish the Company such
information regarding itself and the distribution of such Registrable
Securities as the Company may from time to time reasonably request in
writing and as will be required by law or by the SEC in connection with any
registration.
7.2 Compliance with Securities Laws. Alkermes acknowledges that it
-------------------------------
will be subject to applicable provisions of the Securities Act and the Exchange
Act.
7.3 Exchange Act Reports and Availability of Rule 144. During the
-------------------------------------------------
period from the date of the Closing until the date which is five (5) years
following the date of the Closing, the Company shall use its best efforts to (i)
timely file all reports required to be filed by the Company under the Exchange
Act and (ii) take such other action and coordinate with Alkermes to ensure that
Rule 144 shall be available to Alkermes for the purpose of disposing of their
Registrable Securities.
7.4 Discontinuation of Disposition of Registrable Securities. Alkermes will,
--------------------------------------------------------
upon receipt of any notice from the Company of the occurrence of any Material
Event, discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until Alkermes'
receipt of (x) the copies of the supplemented or amended prospectus contemplated
by Section 7.1(e) above or (y) notice from the Company that no such supplemented
or amended prospectus is required, which supplemented or amended prospectus
shall be made available or notice shall be delivered to Alkermes as soon as
practicable but in any event within thirty (30) days of receipt by Alkermes of
the notice of a Material Event; provided, however, that the Company shall not
-------- -------
give notice of a Material Event: (i) beginning when Alkermes notifies the
Company that marketing efforts have begun by an
<PAGE>
underwriter on behalf of Alkermes in connection with an offering of the
Registrable Securities and ending when such offering is completed or abandoned
or (ii) within one hundred twenty (120) days of the delivery by the Company to
Alkermes of the supplemented or amended prospectus or notice that no such
supplemented or amended prospectus is required with respect to a prior Material
Event. The period of time during which the Company is obligated to maintain the
effectiveness of a registration statement under Section 7.1(b) above shall be
extended by the number of days of any such discontinuance.
7.5 Obligation of the Company to Indemnify. The Company agrees to indemnify
--------------------------------------
and hold harmless Alkermes or any Person who participates as an underwriter in
the offering or sale of such Registrable Securities, each officer and director
of each underwriter, and each other Person, if any, who "controls" Alkermes or
any such underwriter within the meaning of the Securities Act against any
losses, claims, damages, liabilities and expenses, joint or several, to which
such Person may be subject under the Securities Act or otherwise insofar as such
losses, claims, damages, liabilities (or actions or proceedings in respect
thereof) or expenses arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus included therein
or filed under Rule 424(b) under the Securities Act, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that the
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon (i) an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus or final prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by Alkermes or any such underwriter or any Person who "controls"
Alkermes or underwriter for use in the preparation thereof, or (ii) any breach
by Alkermes of the covenant set forth in Section 7.4 above. Such indemnity will
remain in full force and effect regardless of any investigation made by, or on
behalf of, Alkermes or any such underwriter and will survive the transfer of
such Registrable Securities Alkermes.
7.6 Obligation of Alkermes to Indemnify. Alkermes agrees to indemnify and
-----------------------------------
hold harmless the Company, each director and each officer of the Company, and
each controlling person within the meaning of the Securities Act of any of the
foregoing who will sign such registration statement, against any losses, claims,
damages, liabilities and expenses, joint or several, to which such Person may be
subject under the Securities Act or otherwise insofar as such losses, claims,
damages, liabilities (or actions or proceedings in respect thereof) or expenses
arise out of, or are based upon, (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus included
<PAGE>
therein or filed under Rule 424(b) under the Securities Act, or any amendment or
supplement thereto, or any document incorporated by reference therein, (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iii)
any breach by Alkermes of the covenant set forth in 7.4 above or (iv) any
failure by Alkermes to deliver a prospectus as required under the Securities Act
or any state securities laws. Alkermes will reimburse each such Person for any
legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that Alkermes will be liable in any such case
-------- -------
only to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus or final
prospectus, amendment or supplement, in reliance upon and in conformity with
written information specifically furnished to the Company by Alkermes or any
Person who "controls" Alkermes for use in the preparation thereof. Such
indemnity will remain in full force and effect regardless of any investigation
made by or on behalf of the Company and will survive the transfer of such
Registrable Securities Alkermes.
7.7 Notice and Defense of Claims. Promptly after receipt of notice of any
----------------------------
claim, liability or expense arising out of the registration or sale of the
Registrable Securities for which a Party seeks indemnification hereunder, such
Party shall give written notice thereof to the indemnifying Party, but such
notification shall not be a condition to indemnification hereunder except to the
extent of actual prejudice to the indemnifying Party. The notice shall state the
information then available regarding the amount and nature of such claim,
liability or expense. If within thirty (30) days after receiving such notice the
indemnifying Party gives written notice to the indemnified Party stating that it
intends to defend against such claim, liability or expense at its own cost and
expense, then defense of such matter, including selection of counsel (subject to
the consent of the indemnified Party which consent shall not be unreasonably
withheld), shall be by the indemnifying Party and the indemnified Party shall
make no payment on such claim, liability or expense as long as the indemnifying
Party is conducting a good faith and diligent defense. The indemnifying Party
shall not be liable to indemnify any person for any settlement of any such
action effected without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, the
indemnified Party shall, at all times, have the right to fully participate in
such defense at its own expense directly or through counsel; provided, however,
-------- -------
if the named parties to the action or proceeding include both the indemnifying
Party and the indemnified Party and representation of both parties by the same
counsel would be inappropriate under applicable standards of professional
conduct, the expense of separate counsel for the indemnified Party shall be paid
by the indemnifying Party. If no such notice of intent to dispute and defend is
given by the indemnifying Party, or if such diligent, good faith defense is not
being or ceases to be conducted, the indemnified Party shall, at the expense of
the indemnifying Party, undertake the defense of such claim, liability or
expense with counsel selected by the indemnified Party, and shall have the right
to compromise or settle the same exercising reasonable business judgment. The
indemnified Party shall make available all information and assistance that the
indemnifying Party may reasonably request and shall cooperate with the
indemnifying Party in such defense.
<PAGE>
7.8 Contribution. If the indemnification provided for in this Section 7 is held
------------
by a court of competent jurisdiction to be unavailable to an indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying Party, in lieu of indemnifying such indemnified
Party hereunder, shall contribute to the amount paid or payable by such
indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying Party, on the one hand, and of the indemnified Party, on the other,
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying Party and of the
indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying Party or by the indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
7.9 Other Securities Laws. Indemnification and contribution similar to that
---------------------
specified in Sections 7.5, 7.7 and 7.8 (with appropriate modifications) will be
given by the Company and Alkermes with respect to any required registration or
other qualification of such Registrable Securities under any federal or state
law or regulation of any governmental authority other than the Securities Act.
7.10 Covenant to Register Warrant Shares. The Company will use its best
-----------------------------------
efforts to effect the registration of the Warrant Shares issuable upon exercise
of the Warrants in blocks of not less than 500,000 shares. The Company will
prepare and file with the SEC within forty five (45) days after the date of
exercise of each of the Warrants, and use best efforts to cause to become
effective as soon as possible thereafter, a registration statement on Form S-3
(or any other appropriate form) under the Securities Act. The Company will
prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith, as may
be necessary to keep such registration statement effective until the earlier of
such time as all of the Warrant Shares have been disposed of in accordance with
the intended method of disposition set forth in such registration statement or
until such time as Alkermes may dispose of the Warrant Shares pursuant to Rule
144(k) under the Securities Act. The Company will use its best efforts to list
all of Warrant Shares covered by such registration statement on the Nasdaq
National Market.
8. Indemnification. The Company shall indemnify Alkermes for losses and
---------------
expenses resulting from any breach of a covenant or of a representation or
warranty under this Agreement on the date of the Closing or in the event the
second or third sentence in Section 3.8 hereof ever prove to be or have been
-----------
untrue.
<PAGE>
9. Miscellaneous.
-------------
9.1 Amendments. Any term of this Agreement may be amended and the observance
----------
of any obligation hereunder may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and Alkermes. No failure of any Party to exercise and no
delay in exercising any right, power or remedy in connection with this Agreement
will operate as a waiver thereof, nor will any single or partial exercise of any
right preclude any other or further exercise of such right or the exercise of
any other right.
9.2 Notice. All notices required or permitted to be given under this
------
Agreement shall be governed by the terms of Section 16 of the Sublicense
----------
Agreement.
9.3 Counterparts. This Agreement may be executed and delivered (including by
------------
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
9.4 No Waiver. No failure or delay on the part of Alkermes in exercising
---------
any right, power, or privilege hereunder and no course of dealing between the
Company and Alkermes shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power, or privilege hereunder preclude any other
or further exercise thereof or the exercise of any right, power, or privilege.
The rights and remedies herein expressly provided are cumulative and not
exclusive of any rights or remedies that Alkermes would otherwise have.
9.5 Courts of Law. The state and federal courts situated in the Philadelphia
-------------
County, Commonwealth of Pennsylvania, United States of America, shall have sole
jurisdiction and venue to resolve all disputes arising hereunder between the
Parties and initiated by the Company. The state and federal courts situated in
King County, State of Washington, United States of America, shall have sole
jurisdiction and venue to resolve all disputes arising hereunder between the
Parties and initiated by Alkermes. The Parties irrevocably submit to such
jurisdiction and venue, waive any claim to an inconvenient forum posed by such
venue, and agree that process may be served in any manner permitted by such
court before which a dispute is pending.
9.6 Benefit of Agreement. Neither Party shall assign any of its rights or
--------------------
obligations hereunder except: (i) as incident to the merger, consolidation,
reorganization or acquisition of stock or assets affecting substantially all of
the assets or voting control of the assigning Party; (ii) to an Affiliate of the
assigning Party if the assigning Party remains liable and responsible for the
performance and observance of all of the Affiliates' duties and obligations
hereunder; or (iii) with the prior written consent of the other Party. This
Agreement shall be binding upon the successors and permitted assigns of the
Parties, and the name of a Party appearing herein shall be deemed to include the
names of such Party's successor's and permitted
<PAGE>
assigns to the extent necessary to carry out the intent of this Agreement. Any
assignment not in accordance with this Section 9.6 shall be void.
9.7 Severability. If any provision of this Agreement is held invalid under
------------
any Applicable Laws, such invalidity shall not affect any other provision of
this Agreement that can be given an effect without the invalid provision, and,
to this end, the provisions hereof are severable.
9.8 Entire Agreement; Governing Law. This Agreement, and the Sublicense
-------------------------------
Agreement and the other documents delivered at the Closings constitute the full
and entire understanding and agreement between the parties with respect to the
subject matter hereof and supersede all prior agreements with respect to the
subject matter hereof. This Agreement shall be governed by and construed under
the laws of the State of Washington.
[Signatures Appear on Following Page]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
TARGETED GENETICS CORPORATION
By:
--------------------------
Name:
Title:
ALKERMES, INC.
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.38
EXHIBIT A
EXECUTION COPY
--------------
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED OR REGISTERED
UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR SUCH
SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933,
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND
REGULATIONS THEREUNDER.
________________________________________
TARGETED GENETICS CORPORATION
1100 Olive Way, Suite 100
Seattle, Washington 98101
COMMON STOCK PURCHASE WARRANT
Warrant No. Number of Shares: 1,000,000
----- --
(subject to adjustment)
Date of Issuance: June 9, 1999
TARGETED GENETICS CORPORATION (the "Company"), for value received, hereby
certifies that ALKERMES, INC., or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time on or after June 9, 1999 and on or
before June 9, 2007 at not later than 5:00 p.m. (Pacific Time) (the "Exercise
Period"), 1,000,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price of $2.50 per share. This Warrant is one
of the two warrants issued pursuant to an Exclusive Sublicense Agreement and a
Common Stock and Warrants Issuance Agreement, each dated as of June 9, 1999, and
each between the Company and the Registered Holder (the "License Agreement" and
the "Issuance Agreement", respectively). The number of shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
Section 1. Exercise.
---------
1.1 This Warrant may be exercised by the Registered Holder, in whole or
in part, during the Exercise Period by surrendering this Warrant, with the
purchase form appended hereto as Exhibit I duly executed by such Registered
---------
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of shares of Warrant
Stock purchased upon such exercise.
1.2 Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1.1 above.
--------------
At such time, the person or persons in whose name or names any certificates for
Warrant Stock shall be issuable upon such exercise as provided in subsection 1.3
--------------
below shall be deemed to have become the holder or holders of record of the
Warrant Stock represented by such certificates.
<PAGE>
1.3 As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within 10 days thereafter, the Company at its expense
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may direct:
(a) a certificate or certificates for the number of full shares of
Warrant Stock to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant
to Section 3 hereof, and
---------
(b) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares
purchased by the Registered Holder upon such exercise as provided in
subsection 1.1 above.
--------------
Section 2. Adjustments.
-----------
2.1 If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (a) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in affect immediately prior to
such adjustment, by (b) the Purchase Price in effect immediately after such
adjustment.
2.2 If there shall occur any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value or a subdivision
or combination as provided for in subsection 2.1 above), or any consolidation or
--------------
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof the kind and
amount of shares of stock or other securities or property which such Registered
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests thereafter of the Registered Holder of
this Warrant such that the provisions set forth in this Section 2 (including
---------
provisions with respect to adjustment of the Purchase Price) shall thereafter be
applicable, as nearly as is reasonably practicable, in relation to any shares of
stock or other securities or property thereafter deliverable upon the exercise
of this Warrant.
2.3 When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after
<PAGE>
such adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which this Warrant shall be exercisable
following the occurrence of any of the events specified in subsection 2.1 or 2.2
---------------------
above.
Section 3. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the mean between the low bid and
high asked prices of the Warrant Stock on the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotations
System or the closing market price of the Warrant Stock on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then market
value of the Warrant Stock as shall be reasonably determined by the Board of
Directors of the Company.
Section 4. Limitation on Sales, etc. Each holder of this Warrant acknowledges
------------------------
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or any
Warrant Stock issued upon its exercise in the absence of (a) an effective
registration statement under the Act as to this Warrant or such Warrant Stock
and registration or qualification of this Warrant or such Warrant Stock under
any applicable Blue Sky or state securities law then in effect, or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect, unless there is an effective registration
statement for such Warrant Stock.
Section 5. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
Section 6. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
Section 7. Notices of Record Date, etc. In case:
---------------------------
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to
subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right, or
<PAGE>
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or
any transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least fifteen (15) days prior to the
record date or effective date for the event specified in such notice.
Section 8. Reservation of Stock. The Company will at all times reserve and
--------------------
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
Section 9. Exchange of Warrants. Upon the surrender by the Registered Holder
--------------------
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
---------
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
Section 10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
Section 11. Registration Rights. The shares of Warrant Stock issuable upon the
-------------------
exercise of this Warrant shall be entitled to registration rights as provided in
the Issuance Agreement and each transferee of this Warrant shall be entitled to
such registration rights.
Section 12. Transfers, etc.
--------------
12.1 The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
<PAGE>
12.2 Subject to the provisions of Section 4 hereof, this Warrant and all
---------
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
----------
at the principal office of the Company.
12.3 Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if and when this Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
Section 13. Mailing of Notices, etc. All notices and other communications
-----------------------
from the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
Section 14. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
Section 15. Change or Waiver. Any term of this Warrant may be changed or
----------------
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
Section 16. Headings. The headings in this Warrant are for purposes of
--------
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
Section 17. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of the State of Washington.
<PAGE>
By:______________________________________
[Corporate Seal] Name:
Title:
ATTEST:
____________________________________
<PAGE>
1
EXHIBIT I
---------
PURCHASE FORM
-------------
TO: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ________), hereby irrevocably elects to purchase __________________
shares of the Common Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the price
per share provided for in such Warrant.
Signature___________________________________
Address:___________________________________
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALVE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ________) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _____________________________
_____________________________
Witness _____________________________
<PAGE>
EXHIBIT B
EXECUTION COPY
--------------
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED OR REGISTERED
UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR SUCH
SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933,
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE RULES AND
REGULATIONS THEREUNDER.
________________________________________
TARGETED GENETICS CORPORATION
1100 Olive Way, Suite 100
Seattle, Washington 98101
COMMON STOCK PURCHASE WARRANT
Warrant No. Number of Shares: 1,000,000
----- --
(subject to adjustment)
Date of Issuance: June 9, 1999
TARGETED GENETICS CORPORATION (the "Company"), for value received, hereby
certifies that ALKERMES, INC., or its registered assigns (the "Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time on or after June 9, 1999 and on or
before June 9, 2009 at not later than 5:00 p.m. (Pacific Time) (the "Exercise
Period"), 1,000,000 shares of Common Stock, $.01 par value, of the Company
("Common Stock"), at a purchase price of $4.16 per share. This Warrant is one
of the two warrants issued pursuant to an Exclusive Sublicense Agreement and a
Common Stock and Warrants Issuance Agreement, each dated as of June 9, 1999, and
each between the Company and the Registered Holder (the "License Agreement" and
the "Issuance Agreement", respectively). The number of shares purchasable upon
exercise of this Warrant, and the purchase price per share, each as adjusted
from time to time pursuant to the provisions of this Warrant, are hereinafter
referred to as the "Warrant Stock" and the "Purchase Price," respectively.
Section 1. Exercise.
---------
1.1 This Warrant may be exercised by the Registered Holder, in whole or
in part, during the Exercise Period by surrendering this Warrant, with the
purchase form appended hereto as Exhibit I duly executed by such Registered
---------
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of shares of Warrant
Stock purchased upon such exercise.
<PAGE>
1.2 Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in subsection 1.1 above.
--------------
At such time, the person or persons in whose name or names any certificates for
Warrant Stock shall be issuable upon such exercise as provided in subsection 1.3
--------------
below shall be deemed to have become the holder or holders of record of the
Warrant Stock represented by such certificates.
1.3 As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within 10 days thereafter, the Company at its expense
will cause to be issued in the name of, and delivered to, the Registered Holder,
or as such Holder (upon payment by such Holder of any applicable transfer taxes)
may direct:
(a) a certificate or certificates for the number of full shares of
Warrant Stock to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered
Holder would otherwise be entitled, cash in an amount determined pursuant
to Section 3 hereof, and
---------
(b) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, calling in the aggregate on the face
or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares
purchased by the Registered Holder upon such exercise as provided in
subsection 1.1 above.
--------------
Section 2. Adjustments.
-----------
2.1 If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Purchase Price in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased. When any adjustment is required to be made in the Purchase Price, the
number of shares of Warrant Stock purchasable upon the exercise of this Warrant
shall be changed to the number determined by dividing (a) an amount equal to the
number of shares issuable upon the exercise of this Warrant immediately prior to
such adjustment, multiplied by the Purchase Price in affect immediately prior to
such adjustment, by (b) the Purchase Price in effect immediately after such
adjustment.
2.2 If there shall occur any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value or a subdivision
or combination as provided for in subsection 2.1 above), or any consolidation or
--------------
merger of the Company with or into another corporation, or a transfer of all or
substantially all of the assets of the Company, then, as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Registered Holder of this Warrant
shall have the right thereafter to receive upon the exercise hereof the kind and
amount of shares of stock or other securities or property which such Registered
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined by the Board of Directors of
the Company) shall be made in the application of the provisions set forth herein
with respect to the rights and interests
<PAGE>
thereafter of the Registered Holder of this Warrant such that the provisions set
forth in this Section 3 (including provisions with respect to adjustment of the
---------
Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
2.3 When any adjustment is required to be made in the Purchase Price,
the Company shall promptly mail to the Registered Holder a certificate setting
forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2.1 or 2.2 above.
---------------------
Section 3. Fractional Shares. The Company shall not be required upon the
-----------------
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the mean between the low bid and
high asked prices of the Warrant Stock on the over-the-counter market as
reported by the National Association of Securities Dealers Automated Quotations
System or the closing market price of the Warrant Stock on a national securities
exchange on the trading day immediately prior to the date of exercise, whichever
is applicable, or if neither is applicable, then on the basis of the then market
value of the Warrant Stock as shall be reasonably determined by the Board of
Directors of the Company.
Section 4. Limitation on Sales, etc. Each holder of this Warrant acknowledges
------------------------
that this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge,
distribute, offer for sale, transfer or otherwise dispose of this Warrant or any
Warrant Stock issued upon its exercise in the absence of (a) an effective
registration statement under the Act as to this Warrant or such Warrant Stock
and registration or qualification of this Warrant or such Warrant Stock under
any applicable Blue Sky or state securities law then in effect, or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Each certificate or other instrument for
Warrant Stock issued upon the exercise of this Warrant shall bear a legend
substantially to the foregoing effect, unless there is an effective registration
statement for such Warrant Stock.
Section 5. No Impairment. The Company will not, by amendment of its charter or
-------------
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
Section 6. Liquidating Dividends. If the Company pays a dividend or makes a
---------------------
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Stock purchased upon such exercise, the Liquidating Dividend which would
have been paid to such Registered Holder if he had been the owner of record of
such shares of Warrant Stock immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
Section 7. Notices of Record Date, etc. In case:
---------------------------
<PAGE>
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right, or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least fifteen (15) days prior to the
record date or effective date for the event specified in such notice.
Section 8. Reservation of Stock. The Company will at all times reserve and
--------------------
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such shares of Warrant Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
Section 9. Exchange of Warrants. Upon the surrender by the Registered Holder
--------------------
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
---------
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
Section 10. Replacement of Warrants. Upon receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
Section 11. Registration Rights. The shares of Warrant Stock issuable upon the
-------------------
exercise of this Warrant shall be entitled to registration rights as provided in
the Issuance Agreement and each transferee of this Warrant shall be entitle to
such registration rights.
<PAGE>
Section 12. Transfers, etc.
12.1 The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
12.2 Subject to the provisions of Section 4 hereof, this Warrant and all
---------
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of Exhibit II hereto)
----------
at the principal office of the Company.
12.3 Until any transfer of this Warrant is made in the warrant register,
the Company may treat the Registered Holder of this Warrant as the absolute
owner hereof for all purposes; provided, however, that if and when this Warrant
is properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
Section 13. Mailing of Notices, etc. All notices and other communications
-----------------------
from the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
Section 14. No Rights as Stockholder. Until the exercise of this Warrant, the
------------------------
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
Section 15. Change or Waiver. Any term of this Warrant may be changed or
----------------
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
Section 16. Headings. The headings in this Warrant are for purposes of
--------
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
Section 17. Governing Law. This Warrant will be governed by and construed in
-------------
accordance with the laws of the State of Washington.
By: ______________________________________
[Corporate Seal] Name:
Title:
ATTEST:
<PAGE>
EXHIBIT I
---------
PURCHASE FORM
-------------
TO: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ________), hereby irrevocably elects to purchase __________________
shares of the Common Stock covered by such Warrant and herewith makes payment of
$__________, representing the full purchase price for such shares at the price
per share provided for in such Warrant.
Signature___________________________________
Address:___________________________________
<PAGE>
EXHIBIT II
----------
ASSIGNMENT FORM
---------------
FOR VALVE RECEIVED, __________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ________) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _____________________________
_____________________________
Witness _____________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,990,565
<SECURITIES> 3,578,709
<RECEIVABLES> 1,001,563
<ALLOWANCES> 0
<INVENTORY> 223,467
<CURRENT-ASSETS> 6,974,304
<PP&E> 10,026,854
<DEPRECIATION> (6,246,287)
<TOTAL-ASSETS> 11,024,838
<CURRENT-LIABILITIES> 3,178,278
<BONDS> 0
0
0
<COMMON> 91,658,971
<OTHER-SE> 85,086,990
<TOTAL-LIABILITY-AND-EQUITY> 11,024,838
<SALES> 0
<TOTAL-REVENUES> 2,844,272
<CGS> 0
<TOTAL-COSTS> 11,301,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105,703
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,562,735)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.28)
</TABLE>
