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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_]Preliminary Proxy Statement
[_]Confidential, for Use of the
Commission Only (as Permitted
by Rule 14a-6(e)(2))
[X]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material
Pursuant to Rule 14a-
11(c) or Rule 14a-12
TARGETED GENETICS CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: ____________
(2) Aggregate number of securities to which transaction applies: _______________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): _________________________________
(4) Proposed maximum aggregate value of transaction: ___________________________
(5) Total fee paid: ____________________________________________________________
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid: ______________ (3) Filing Party: _______________
(2) Form, Schedule orRegistration (4) Date Filed: _______________
Statement No. __________________________
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[LOGO OF TARGETED GENETICS CORPORATION]
March 30, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
(the "Annual Meeting") of Targeted Genetics Corporation ("Targeted Genetics"),
which will be held on Wednesday, May 5, 1999, at 8:30 a.m., local time, at the
Company's headquarters, located at 1100 Olive Way, Suite 100, Seattle,
Washington.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to amend Targeted Genetics' Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock, to adopt the
Targeted Genetics Corporation 1999 Stock Option Plan (the "Option Plan"), and
to elect two directors to Targeted Genetics' Board of Directors.
TARGETED GENETICS' BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION, "FOR" THE ADOPTION OF THE
OPTION PLAN AND "FOR" THE ELECTION OF THE NOMINEES FOR DIRECTOR.
You should read carefully the accompanying Notice of Annual Meeting of
Shareholders and the Proxy Statement for additional related information.
Whether or not you plan to attend the Annual Meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-prepaid envelope. Your stock will be voted in accordance with the
instructions you have given in your proxy. If you attend the Annual Meeting,
you may vote in person if you wish, even though you previously have returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
/s/ H. Stewart Parker
H. Stewart Parker
President and Chief Executive
Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
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TARGETED GENETICS CORPORATION
1100 Olive Way, Suite 100
Seattle, Washington 98101
NOTICE OF THE 1999 ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 5, 1999
TO THE SHAREHOLDERS OF TARGETED GENETICS CORPORATION:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders (the
"Annual Meeting") of Targeted Genetics Corporation, a Washington corporation
("Targeted Genetics"), will be held on Wednesday, May 5, 1999, at 8:30 a.m.,
local time, at the Company's headquarters, located at 1100 Olive Way, Suite
100, Seattle, Washington, for the following purposes:
1. To consider and vote upon a proposal to amend Targeted Genetics'
Restated Articles of Incorporation to increase the number of authorized
shares of Targeted Genetics' common stock, par value $.01 per share (the
"Common Stock") by 40,000,000 shares from 40,000,000 to 80,000,000.
2. To consider and vote upon a proposal to adopt the Targeted Genetics
Corporation 1999 Stock Option Plan (the "Option Plan").
3. To elect two Class 2 directors to Targeted Genetics' Board of
Directors to hold office until the third annual meeting of shareholders
following such election or until their successors are elected and
qualified.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments or postponements thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors has fixed the close
of business on March 8, 1999, as the record date (the "Record Date") for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting. Only shareholders of record on the Record Date are entitled to notice
of and to vote at the Annual Meeting and any adjournments or postponements
thereof.
The affirmative vote of the holders of a majority of the outstanding shares
entitled to vote, in person or by proxy, at the Annual Meeting is required to
approve the amendment to the Restated Articles of Incorporation. The
affirmative vote of the holders of shares representing a majority of the total
votes cast, in person or by proxy, at the Annual Meeting is required to
approve the adoption of the Option Plan. The directors elected will be the two
candidates receiving the greatest number of votes cast, in person or by proxy,
at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the Annual Meeting you are urged to
complete, sign, date, and return the enclosed proxy card as promptly as
possible in the postage prepaid envelope enclosed for that purpose. YOUR STOCK
WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN YOUR
PROXY. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND
RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING WITH
THE SECRETARY OF TARGETED GENETICS A WRITTEN REVOCATION BEARING A LATER DATE
OR BY ATTENDING AND VOTING IN PERSON AT THE ANNUAL MEETING.
By Order of the Board of Directors
/s/ James A. Johnson
James A. Johnson
Secretary
Seattle, Washington
March 30, 1999
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TARGETED GENETICS CORPORATION
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PROXY STATEMENT
This Proxy Statement is being furnished to holders of shares of common
stock, par value $.01 per share (the "Common Stock"), of Targeted Genetics
Corporation, a Washington corporation ("Targeted Genetics" or the "Company"),
in connection with the solicitation of proxies by Targeted Genetics' Board of
Directors (the "Board") for use at the 1999 Annual Meeting of Shareholders to
be held on Wednesday, May 5, 1999, at the Company's headquarters, located at
1100 Olive Way, Suite 100, Seattle, Washington, commencing at 8:30 a.m., local
time, and at any adjournments or postponements thereof (the "Annual Meeting").
The approximate date of the mailing of this Proxy Statement and the
accompanying proxy is March 31, 1999.
Matters to Be Considered at the Annual Meeting
At the Annual Meeting, shareholders of record of Targeted Genetics as of the
close of business on March 8, 1999 will consider and vote upon (i) a proposal
to amend Targeted Genetics' 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; (ii) a proposal to adopt the Targeted Genetics Corporation 1999
Stock Option Plan (the "Option Plan"); (iii) the election of two Class 2
directors to the Board to hold office until the third annual meeting of
shareholders following such election and until their successors are elected
and qualified; and (iv) such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board has approved the amendment to Article 4 of the Restated Articles
of Incorporation and the adoption of the Option Plan, and recommends that the
Company's shareholders vote "FOR" approval of the amendment to Article 4 of
the Restated Articles of Incorporation, "FOR" approval of the adoption of the
Option Plan and "FOR" election of the nominees for director. See "Amendment of
the Restated Articles of Incorporation to Increase the Number of Authorized
Shares of Common Stock," "Adoption of the Option Plan" and "Election of
Directors."
Record Date; Shares Entitled to Vote; Vote Required
Only the shareholders of record at the close of business on March 8, 1999
(the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. The Company has one class of voting securities outstanding which is
designated as Common Stock, $.01 par value per share. As of the Record Date,
30,660,077 shares of Common Stock were issued and outstanding. Each share of
Common Stock is entitled to one vote. The presence, in person or by proxy, of
the holders of shares representing a majority of the voting power of the
shares of Common Stock entitled to vote is necessary to constitute a quorum
for the transaction of business at the Annual Meeting.
The affirmative vote of the holders of a majority of the outstanding shares
entitled to vote, in person or by proxy, is required to approve the amendment
to Article 4 of the Restated Articles of Incorporation. The affirmative vote
of the holders of shares representing a majority of the total votes cast, in
person or by proxy, is required to approve the adoption of the Option Plan.
The directors elected at the Annual Meeting will be the two candidates
receiving the greatest number of votes cast by the holders of shares of Common
Stock present, in person or by proxy, at the Annual Meeting. Holders of shares
of Common Stock are not entitled to cumulate votes in the election of
directors. As of the Record Date, directors and executive officers of Targeted
Genetics and their affiliates may be deemed to be the beneficial owners of
approximately 21% of the outstanding voting shares of Common Stock. Each of
the directors and executive officers of Targeted Genetics plans to vote or
direct the vote of all shares of Common Stock over which he or she has voting
control in favor of the amendment to the Restated Articles of Incorporation,
the adoption of the Option Plan and the election of the nominees for director.
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Abstention and broker non-votes will have no effect on the proposals to
adopt the Option Plan and to elect the directors since they will not represent
votes cast at the Annual Meeting for the purpose of voting on such proposals.
However, for the proposal to amend the Restated Articles of Incorporation,
such abstentions and broker non-votes will count as a vote against the
proposal.
Proposals by Targeted Genetics Shareholders
Shareholder proposals intended to be presented at the Company's 2000 Annual
Meeting of Shareholders must be received by the Company not later than
November 30, 1999 for inclusion in the proxy materials for such meeting.
Proxies
Shares of Common Stock represented by properly executed proxies received at
or prior to the Annual Meeting that have not been revoked will be voted at the
Annual Meeting in accordance with the instructions contained therein. Shares
of Common Stock represented by properly executed proxies for which no
instruction is given will be voted "FOR" approval of the amendment to the
Restated Articles of Incorporation, "FOR" approval of the adoption of the
Option Plan and "FOR" the election of the nominees for director. Targeted
Genetics shareholders are requested to complete, sign, date and return
promptly the enclosed proxy card in the postage-prepaid envelope provided for
this purpose to ensure that their shares are voted. A shareholder may revoke a
proxy by submitting at any time prior to the vote on the approval of the
amendment to the Option Plan and the election of the nominees for director a
later-dated proxy with respect to the same shares, by delivering written
notice of revocation to the Secretary of Targeted Genetics at any time prior
to such vote or by attending the Annual Meeting and voting in person. Mere
attendance at the Annual Meeting will not in and of itself revoke a proxy.
If the Annual Meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the Annual Meeting all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Annual Meeting (except for any proxies that have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting.
Proxy Solicitation
Targeted Genetics will bear the cost of soliciting proxies from its
shareholders. In addition to solicitation by mail, directors, officers and
employees of Targeted Genetics may solicit proxies by telephone, telegram or
otherwise. Such directors, officers and employees of Targeted Genetics will
not be additionally compensated for such solicitation, but may be reimbursed
for out-of-pocket expenses incurred in connection therewith. Brokerage firms,
fiduciaries and other custodians who forward soliciting material to the
beneficial owners of shares of Common Stock held of record by them will be
reimbursed for their reasonable expenses incurred in forwarding such material.
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PROPOSAL ONE
AMENDMENT OF THE RESTATED ARTICLES OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Proposed Amendment
The Board recommends approval of an amendment to Article 4 of the Restated
Articles of Incorporation that increases the number of authorized shares of
Common Stock by 40,000,000 from 40,000,000 to 80,000,000. On January 21, 1999,
the Board unanimously adopted the amendment, subject to approval by Targeted
Genetics' shareholders at the Annual Meeting. A copy of the amended Article 4
of the Restated Articles of Incorporation will be furnished by Targeted
Genetics to any shareholder upon written request to the Secretary of Targeted
Genetics.
The Board believes that the amendment is desirable because it will provide
the Company with sufficient authorized but unissued Common Stock for valid
corporate purposes such as stock dividends, mergers and acquisitions and
financings. The availability of the newly authorized shares of Common Stock
will permit the Company to take timely advantage of market conditions and
favorable opportunities without the delay and expense associated with holding
a special meeting of its shareholders at the time such additional shares are
needed. The description, the effect, and the text of the proposed amendment
are provided below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" ADOPTION OF THE AMENDMENT TO ARTICLE 4 OF THE RESTATED ARTICLES OF
INCORPORATION.
Description of the Proposed Amendment
Section 1 of Article 4 of the Company's Restated Articles of Incorporation
currently provides that the Company shall have the authority to issue up to
40,000,000 shares of Common Stock, par value $.01 per share, and 6,000,000
shares of Preferred Stock, par value $.01 per share. As of the Record Date,
there were 30,660,077 shares of Common Stock issued and outstanding and no
shares of Preferred Stock issued and outstanding. In addition, as of the
Record Date, the Company had outstanding employee stock options for 2,298,274
shares. The Company has reserved an additional 206,264 shares of authorized
but unissued Common Stock for future stock option related issuance and an
additional 4,470,349 shares of authorized but unissued Common Stock for future
warrant related issuance.
Under the proposed amendment, the number of authorized shares of Common
Stock would be increased by 40,000,000 from 40,000,000 to 80,000,000, which
would leave the Company with 42,365,036 shares of Common Stock authorized,
unissued, and not reserved for issuance, based on shares outstanding as of the
Record Date. The number of authorized shares of Preferred Stock would remain
at the same 6,000,000 shares. The holders of Common Stock do not presently
have preemptive rights to subscribe for the additional Common Stock proposed
to be authorized. If the proposed amendment is approved, it will be effective
upon the filing of Articles of Amendment with the Washington Secretary of
State, which will be done as soon as practicable after approval of the
proposal by the shareholders.
Effect of Proposed Amendment
If approved, the amendment will not, by itself, have any effect on the
rights of holders of presently issued and outstanding shares of Common Stock.
However, the issuance of additional shares of Common Stock could have effects
incidental to increasing the number of shares of the Common Stock outstanding,
such as dilution of the earnings per share and voting rights of current
holders of Common Stock, including shares held by any persons who may be
seeking to obtain control of the Company.
The additional shares of Common Stock that would become available for
issuance if the proposed amendment were adopted could be used by the Company
to oppose a hostile takeover attempt or delay or prevent
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changes of control (whether by merger, tender offer, proxy contest or
assumption of control by holder of a large block of the Company's securities)
or changes in or removal of management of the Company. For example, without
further shareholder approval, the Board of Directors could strategically sell
shares of Common Stock in a private transaction to purchasers who would oppose
a takeover or favor the current Board of Directors. Although this proposal to
increase the number of authorized shares of Common Stock has been prompted by
business and financial considerations, not by the threat of any attempt to
accumulate shares or otherwise gain control of the Company (nor is the Board
of Directors currently aware of any such attempts directed at the Company),
shareholders nevertheless should be aware that approval of the proposal could
facilitate future efforts by the Company to deter or prevent changes of
control of the Company, including transactions in which the shareholders might
otherwise receive a premium for their shares over then-current market prices
or benefit in some other manner.
Text of Proposed Amendment
Article 4, Section 1, of the Company's Restated Articles of Incorporation,
if amended, would provide as follows:
4.1 Authorized Capital
The total authorized stock of this corporation shall consist of 80,000,000
shares of Common Stock, par value $.01 per share, and 6,000,000 shares of
Preferred Stock, par value $.01 per share.
PROPOSAL TWO
ADOPTION OF THE OPTION PLAN
Proposed Amendment
On January 21, 1999, the Board unanimously approved the adoption of the
Option Plan subject to approval by Targeted Genetics' shareholders at the
Annual Meeting. The Board believes that it is the best interests of the
Company and its shareholders to approve the Option Plan for several reasons.
The Option Plan will be vital to retaining, motivating and rewarding
employees, executives and consultants by providing them with long-term equity
participation in the Company relating directly to the financial performance
and long-term growth of the Company. Additionally, the Option Plan will be an
important tool in aligning the interests of the Company's executives and
employees with the interests of the shareholders. Finally, the Option Plan
will allow the Company to compete effectively with other companies for
existing and new employees. Competition for qualified employees in the
biotechnology field is extremely intense and, due to the rapid growth of many
companies in this sector, such competion is increasing. The Option Plan will
allow the Company to remain competitive with other biotechnology companies
with regard to long-term incentive plans.
The following summary of the Option Plan and its federal income tax
consequences are qualified in their entirety by reference to the complete text
of the Option Plan, which is available to shareholders upon written request to
the secretary of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" ADOPTION OF THE OPTION PLAN.
Description of the Option Plan
Eligibility to Receive Options. Options may be granted under the Option Plan
to those employees, directors, and officers of the Company and its related
corporations that the Plan Administrator from time to time selects. Options
may also be made to consultants, agents, advisors and independent contractors
who provide services to the Company. Approximately 100 individuals are
expected to be eligible to participate in the Option Plan.
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Stock Subject to the Option Plan. Subject to adjustment as provided in the
Option Plan, a maximum of 1,500,000 shares of Common Stock will be available
for issuance under the Option Plan. Shares issued under the Option Plan will
be drawn from authorized but unissued shares or shares now held or
subsequently acquired by the Company.
Subject to adjustment as provided in the Option Plan, no more than 200,000
shares of Common Stock may be awarded in the aggregate to any one optionee in
a single fiscal year, to the extent required for compliance with Section
162(m) of the Code. Section 162(m) precludes the Company from taking a tax
deduction for compensation payments to certain executives in excess of
$1,000,000, unless such payments qualify for the "performance-based" exemption
from the $1,000,000 limitation.
Any shares of stock that subsequently cease to be subject to an option
(other than because of exercise of the option) will again be available for
issuance in connection with future grants of options under the Option Plan.
Administration. The Board of Directors or a committee appointed by the Board
and consisting of at least two members of the Board will administer the Option
Plan (the "Plan Administrator") and will have the authority to determine all
matters relating to options under the Option Plan, including the persons to
whom options are granted, the type of options, the number of shares of Common
Stock subject to an option, and all terms, conditions, restrictions and
limitations of options. The Plan Administrator shall also have the exclusive
authority to interpret the Option Plan and may from time to time adopt, and
change, rules and regulations of general application for the Option Plan's
administration.
Options. Options granted under the Option Plan may be either incentive stock
options ("ISOs") or nonqualified stock options ("NSOs"). The exercise price
for all ISOs granted under the Option Plan will not be less than 100% of the
Common Stock's fair market value on the date of grant. The exercise price for
all NSOs granted under the Option Plan will not be less than 85% of the Common
Stock's fair market value on the date of grant. "Fair market value," for
purposes of the Option Plan, means the closing selling price for the Common
Stock as reported by the Nasdaq Stock Market for a single trading day. On
March 15, 1999, the last reported sales price for the Company's Common Stock
was $1.81 per share.
The Plan Administrator has broad discretion to determine the terms and
conditions under which options are exercisable, but under no circumstances may
an option have a term exceeding ten years from the date it is granted. The
exercise price for shares purchased under options may be paid in cash or by
check, or, unless the Plan Administrator determines otherwise at any time, by
a combination of cash, check, shares of Common Stock which have been held for
at least six months, or delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker. The Plan Administrator may
also permit payment by a full-recourse promissory note or other forms of
consideration.
Each option will be exercisable according to a vesting schedule determined
by the Plan Administrator. If no vesting schedule is set forth in the
instrument evidencing the option, the option will become exercisable in
sixteen equal quarterly installments beginning three months after the date of
grant. The Plan Administrator will also determine the circumstances under
which an option will be exercisable in the event the optionee ceases to
provide services to the Company or one of its subsidiaries. If not so
established, options generally will be exercisable for one year after
termination of services as a result of retirement, disability or death and for
three months after all other terminations, but in no event later than the
remaining term of the option. An option will terminate automatically if the
optionee's services are terminated for cause, as that term is defined in the
Option Plan.
Transferability. Unless the Plan Administrator determines otherwise in its
sole discretion, and except to the extent permitted by Section 422 of the
Code, no option will be assignable or otherwise transferable by the optionee
other than by will or the laws of descent and distribution and, during the
optionee's lifetime, the option may be exercised only by the optionee.
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Change in Control. In the event of a Change in Control (as defined in the
Option Plan), except as otherwise provided in the instrument that evidences
the option, each option that is at the time outstanding shall automatically
accelerate so that such option shall, immediately prior to the specified
effective date for the Change in Control, become 100% vested, except that such
acceleration will not occur if, in the opinion of the Company's accountants,
it would render unavailable "pooling of interest" accounting for a Change in
Control that would otherwise qualify for such accounting treatment. Such
option shall not so accelerate, however, if and to the extent that (a) such
option is, in connection with the Change in Control, either to be assumed by
the successor corporation or parent thereof (the "Successor Corporation") or
to be replaced with a comparable award for the purchase of shares of the
capital stock of the Successor Corporation or (b) such option is to be
replaced with a cash incentive program of the Successor Corporation that
preserves the spread existing at the time of the Change in Control and
provides for subsequent payout in accordance with the same vesting schedule
applicable to such option. The determination of comparability under clause (a)
above shall be made by the Plan Administrator, and its determination shall be
conclusive and binding. All such options shall terminate and cease to remain
outstanding immediately following the consummation of the Change in Control,
except to the extent assumed by the Successor Corporation. Any such options
that are assumed or replaced in the Change in Control and do not otherwise
accelerate at that time shall be accelerated in the event the Optionee's
employment or services should subsequently terminate within two years
following such Change in Control, unless such employment or services are
terminated by the Successor Corporation for Cause or by the Optionee
voluntarily without Good Reason (as defined in the Option Plan). A "Change in
Control" is defined in the Option Plan to include certain changes in the
composition of the Board, certain significant acquisitions of outstanding
shares of Common Stock, and approval by the Company's shareholders of (i) a
complete liquidation or dissolution of the Company, (ii) certain mergers or
other reorganizations involving significant changes in ownership, or (iii)
certain sales or other dispositions of all or substantially all of the
Company's assets.
Further Adjustment of Options. If the Company splits or consolidates shares
or makes any other similar capital adjustment of the Common Stock, the Company
will proportionately adjust the number and kind of shares subject to the
Option Plan, any outstanding options under the Option Plan and the option
exercise prices.
Withholding. The Company may require an optionee to pay to the Company any
applicable withholding taxes that the Company is required to withhold with
respect to the grant or exercise of any option. The withholding tax may be
paid in cash or, subject to applicable law, the Plan Administrator may permit
the optionee to satisfy such obligations by the withholding or delivery of
shares of Common Stock.
Amendment and Termination. The Option Plan may be amended or terminated at
any time by the Board of Directors, provided that, to the extent required by
Section 422 of the Code or any applicable law or regulation, any amendment
that would increase the number of shares available under the Option Plan,
modify the class of persons eligible to receive options or otherwise require
shareholder approval must be approved by the Company's shareholders.
Federal Income Tax Consequences
The following discussion summarizes the federal income tax consequences of
the Option Plan based on current provisions of the Code, which are subject to
change. Any such changes could be applied on a retroactive basis and could
adversely alter the consequences discussed herein. The summary does not cover
any state or local tax consequences of participation in the Option Plan and
does not address issues related to the tax consequences of any individual
optionee. Optionees are urged to consult with their tax advisors regarding the
effect of participation in the Option Plan based on their particular
circumstances.
Incentive Stock Options ("ISOs"). An optionee will not have any income at
the time an ISO is granted. When an optionee exercises an ISO while employed
by the Company or one of its subsidiaries or within three months (one year in
case of disability) after termination of employment, no ordinary income will
be recognized by the optionee at that time. (However the excess (if any) of
the fair market value of the shares acquired upon such exercise over the
option price is a preference item that may cause the optionee to be subject to
an
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"alternative minimum tax.") If the shares acquired upon exercise are not
disposed of within either one year from the date of transfer and two years
from the date of grant of the option, the excess (if any) of the sales
proceeds over the aggregate option price of such shares will be long-term
capital gain eligible for favorable rates under the Code. If the shares are
sold prior to the expiration of such periods (a "disqualifying disposition"),
the optionee will recognize ordinary income in the year of the disqualifying
disposition equal to the excess of the fair market value of the shares at the
time the ISO is exercised (or, if less, the sales proceeds) over the option
price. Any additional gain will be capital gain. If an ISO is exercised by the
optionee more than three months (one year in the case of disability) after
termination of employment, the tax consequences are the same as those
described below for nonqualified stock options.
The Company is not entitled to a tax deduction as the result of the grant or
exercise of an ISO. If the optionee has ordinary income taxable as
compensation as a result of a disqualifying disposition, the Company will be
entitled to a deduction at the same time and in the same amount as the
optionee, assuming that the deduction is not otherwise disallowed by the Code.
Nonqualified Stock Options ("NSOs"). An optionee will not have any income at
the time an NSO is granted. When an optionee exercises an NSO, the difference
between the option price and the fair market value of the shares on the date
of exercise will be ordinary income (subject to payroll taxes and tax
withholding) to the optionee and will be allowed as a deduction to the Company
for federal income tax purposes, assuming that the deduction is not otherwise
disallowed by the Code. When an optionee disposes of shares acquired by
exercise of the option, any amount received in excess of the market value of
the shares on the date of exercise will be treated as long-term or short-term
capital gain, depending upon the holding period of the shares. If the amount
received is less than the market value of the shares on the date of exercise,
the loss will be treated as long-term or short-term capital loss, depending
upon the holding period of the shares.
Stock-for-Stock Exchanges. Additional special rules apply if the exercise
price for an option is paid for in shares previously owned by the optionee
rather than in cash. Optionees considering the use of previously owned shares
to pay the exercise price of an option should consult their tax advisors.
PROPOSAL THREE
ELECTION OF DIRECTORS
In accordance with the Amended and Restated Bylaws of Targeted Genetics (the
"Bylaws"), the Board shall be composed of not less than one nor more than nine
directors. At present, there are seven directors, each of whom is placed into
one of three classes such that, to the extent possible, there is an equal
number of directors in each class. At the first election of directors to the
classified Board, which took place in 1994, each Class 1 director was elected
to serve a one-year term, each Class 2 director was elected to serve a two-
year term and each Class 3 director was elected to serve a three-year term.
After the first election of directors to the classified Board, generally every
director elected to the Board holds office for a term of three years and until
his or her successor is elected and qualified. However, if a director resigns
from the Board prior to the expiration of his or her term, the director
elected or appointed to fill the resulting vacancy may be designated to a
class such that he or she initially must be elected to a shorter term.
At the Annual Meeting, two Class 2 directors are to be elected, each to hold
office for a term of three years. James D. Grant and Louis P. Lacasse have
been nominated for election to the Board as Class 2 directors. Louis P.
Lacasse has been nominated to fill the vacancy left by the resignation of
Stephen A. Duzan as a director. It is intended that votes will be cast
pursuant to the accompanying proxy for the election of these nominees unless
contrary instructions are received. If any nominee should become unavailable
for any reason, it is intended that votes will be cast for a substitute
nominee designated by the Board. The Board has no reason to believe that any
of the nominees named will be unable to serve if elected.
7
<PAGE>
Nominees
James D. Grant (age 66) has been a director of the Company since February
1993. Mr. Grant served as Chairman and Chief Executive Officer of T Cell
Sciences, Inc. (a biotechnology company) from 1986 to 1992 and as Chairman of
the Board until his retirement in 1997. Previously he was Vice President of
CPC International, Inc. (a multinational food and industrial products company)
from 1972 to 1986. Mr. Grant served as Deputy Commissioner of the Food and
Drug Administration (the "FDA") from 1969 to 1972, and was Vice Chairman of
the Advisory Committee on the FDA ("Edwards Committee") from 1990 to 1991. Mr.
Grant currently serves on the Board of Directors of Biocompatibles, Ltd.
(U.K.) and International Biotechnology Trust plc (U.K.).
Louis P. Lacasse (age 42) has been a director of the Company since May 1998.
Mr. Lacasse has been President of GeneChem Management, Inc., manager of
GeneChem Technologies Venture Fund L.P. (a venture capital fund), since May
1997. Previously, he served as Vice President (Healthcare and Biotechnology)
of SOFINOV, an investment subsidiary of Caisse de depot et placement du
Quebec, from July 1987 to May 1997. Mr. Lacasse has previously served on the
boards of a number of private and public companies, including Biochem Pharma
Inc. He currently serves on the boards of several private biotechnology
companies.
Continuing Directors--Terms Expire 2000
H. Stewart Parker (age 43) managed the formation of Targeted Genetics as a
wholly owned subsidiary of Immunex and has been President, Chief Executive
Officer and a director since the Company's inception in 1989. She served in
various capacities at Immunex from August 1981 through December 1991, most
recently as Vice President, Corporate Development. Ms. Parker also served as
President and a director of Receptech Corporation, a company formed by Immunex
in 1989 to accelerate the development of soluble cytokine receptor products
("Receptech"), from February 1991 to January 1993. Ms. Parker is currently a
member of the board of directors and the executive committee of BIO, the
primary trade organization reprsenting the biotechnology industry. She
received her B.A. and M.B.A. from the University of Washington.
Mark Richmond (age 68) has been a director of the Company since July 1996.
He is a business consultant in addition to a Research Fellow of the School of
Public Policy, University College London. From January 1993 until his
retirement in February 1996, Dr. Richmond was employed by Glaxo Wellcome plc
(previously Glaxo plc) and served as Director of Research. Previously, from
October 1990 until December 1993, he was Chairman of the Science and
Engineering Research Council, London. Dr. Richmond received his Ph.D. and
D.Sc. from Cambridge University, England.
Martin P. Sutter (age 43) has been a director of the Company since July
1996. Mr. Sutter has been a Managing Director of Essex Woodlands Health
Ventures, LLC, a venture capital firm, since September 1994. He has also been
the Managing General Partner of The Woodlands Venture Partners, L.P. since
October 1988. Mr. Sutter is currently a member of the Biomedical Advisory
Board of the Houston Advanced Research Center, Chairman of the Board of
Zonagen, Inc. and a director of Aronex Pharmaceuticals, Inc. and a number of
private biomedical companies.
Continuing Directors--Terms Expire 2001
Jack L. Bowman (age 66) has been a director of the Company since March 1997.
From 1987 until January 1994, Mr. Bowman was a company group chairman at
Johnson & Johnson, having primary responsibility for a group of companies in
the diagnostic, blood glucose monitoring and pharmaceutical businesses. From
1980 to 1987, Mr. Bowman held various positions at American Cyanamid Company,
most recently as Executive Vice President. Mr. Bowman was a member of the
board of trustees of The Johns Hopkins University and currently serves as a
director of Cell Therapeutics, Inc., Celgene Corporation, Cellegy
Pharmaceuticals, Inc., CytRx Corporation, NeoRx Corporation and Osiris
Therapeutics Inc.
8
<PAGE>
Jeremy Curnock Cook (age 50) has been a director of the Company since July
1995 and was elected Chairman of the Board in February 1998. He is a Director
of Rothschild Asset Management Limited and has been responsible for the
Rothschild Bioscience Unit since 1987. Mr. Cook founded the International
Biochemicals Group in 1975, which he subsequently sold to Royal Dutch Shell in
1985, remaining as Managing Director until 1987. He is also a director of Cell
Therapeutics, Inc., Creative BioMolecules Inc., Ribozyme Pharmaceuticals Inc.
and SUGEN, Inc., as well as several public and privately held companies
outside the United States, including International Biotechnology Trust plc
(U.K.). Mr. Cook holds an MA in Natural Sciences from Trinity College Dublin.
Director Compensation
Directors who are employees of Targeted Genetics do not receive any fee for
their services as directors. Directors who are not employees of Targeted
Genetics are compensated pursuant to the Company's 1994 Stock Option Plan for
Nonemployee Directors. Additionally, nonemployee directors are reimbursed for
travel expenses incurred related to attendance at meetings.
Committees of the Board and Meetings
Targeted Genetics has established standing committees of the Board,
including Audit, Compensation and Nominating Committees. Each of these
committees is responsible to the full Board, and its activities are therefore
subject to approval of the Board. The functions performed by these committees
can be summarized as follows.
Audit Committee. The Audit Committee reviews the corporate accounting and
reporting practices, internal accounting controls, audit plans and results,
investment policies, and financial reports of Targeted Genetics in order to
ensure that Targeted Genetics' assets are appropriately safeguarded and to
ensure the quality and integrity of its financial records. Additionally, the
Audit Committee recommends to the Board the independent auditors to be
retained by Targeted Genetics. The members of this committee are Jeremy
Curnock Cook, Martin P. Sutter, and Louis P. Lacasse. The Audit Committee met
twice during 1998.
Compensation Committee. The Compensation Committee establishes salaries,
incentives and other forms of compensation for directors and officers of
Targeted Genetics. This committee also administers Targeted Genetics' various
incentive compensation and benefit plans, including stock option plans, and
recommends the establishment of policies relating to such incentive
compensation and benefit plans. The members of this committee are Jack L.
Bowman, James D. Grant, and Mark P. Richmond. This committee met once during
1998.
Nominating Committee. The Nominating Committee makes recommendations to the
Board concerning the desired qualifications of prospective candidates to fill
vacancies on the Board. The members of this committee are H. Stewart Parker
and James D. Grant. This committee did not meet in 1998. The Nominating
Committee will consider shareholder recommendations for director-nominees that
are submitted in accordance with the procedures established in the Bylaws.
During 1998, there were nine meetings of the Board, five of which were held
telephonically. With the exception of James D. Grant and Louis P. Lacasse,
each of the Company's directors was in attendance at 75% or more of the total
number of Board and committee meetings held during such director's service on
the Board or such committee, as the case may be.
9
<PAGE>
EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth all compensation earned during the fiscal
years ended December 31, 1998, 1997 and 1996 (i) by the Company's Chief
Executive Officer and (ii) the Company's other executive officers whose salary
and bonus exceeded $100,000 for the fiscal year ended December 31, 1998
(collectively the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ ------------
Securities
Name and Principal Underlying All Other
Position Year Salary($) Bonus($) Options(#) Compensation($)
------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
H. Stewart Parker........ 1998 229,000 57,250 95,875 593(1)
President and Chief
Executive Officer 1997 216,000 -- 60,196 2,783
1996 200,000 42,500 35,522 2,783
Barrie J. Carter, Ph.D... 1998 174,000 34,800 59,300 1,365(2)
Executive Vice President
and Director 1997 167,000 -- 37,081 3,527
of Research and
Development 1996 154,000 26,180 24,112 9,027
James A. Johnson......... 1998 159,000 23,850 54,152 640(3)
Senior Vice President, 1997 152,500 -- 33,950 2,783
Finance and
Administration, Chief 1996 141,000 17,978 22,045 2,783
Financial
Officer, Treasurer and
Secretary
</TABLE>
- --------
(1) All Other Compensation consists of matching contributions to a 401(k)
savings plan of $185 in 1998 and $2,375 in 1997 and 1996 and excess life
insurance premiums of $408 in 1998, 1997 and 1996.
(2) All Other Compensation consists of matching contributions to a 401(k)
savings plan of $213 in 1998 and $2,375 in 1997 and 1996, extinguishment
of debt associated with initial purchases of Common Stock of $5,500 in
1996 and excess life insurance premiums of $1,152 in 1998, 1997 and 1996.
(3) All Other Compensation consists of matching contributions to a 401(k)
savings plan of $232 in 1998 and $2,375 in 1997 and 1996 and excess life
insurance premiums of $408 in 1998, 1997 and 1996.
10
<PAGE>
Option Grants in Fiscal 1998
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1998 to the Named Executive
Officers.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Percent of Price
Number of Total Options Appreciation
Shares Granted to for Option
Underlying Employees in Exercise Term(3)
Options last Fiscal Price Expiration ---------------
Name Granted(1) Year(2) ($/Share) Date 5%($) 10%($)
- ---- ---------- ------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
H. Stewart Parker....... 95,875 7.6 1.94 1/15/2008 116,822 296,050
Barrie J. Carter,
Ph.D. ................. 59,300 4.7 1.94 1/15/2008 72,256 183,111
James A. Johnson........ 54,152 4.3 1.94 1/15/2008 65,984 167,215
</TABLE>
- --------
(1) Options are granted at the fair market value on the date of grant and vest
over five years with 20% of each grant becoming exercisable annually
beginning on the first anniversary of the date of grant. Certain changes
in control of Targeted Genetics can trigger accelerated vesting of stock
options and rights to related payments.
(2) Options to purchase 1,269,277 shares of Common Stock were granted by the
Company to its employees during 1998.
(3) The dollar amounts under these columns are the result of calculations at
assumed rates of 5% and 10% and are not intended to forecast future
appreciation. No value will be realized if the stock price does not exceed
the exercise price of the options.
Aggregated Option Exercises in Fiscal 1998 and Fiscal 1998 Option Values
The following table sets forth certain information as of December 31, 1998,
regarding options held by the Named Executive Officers. None of such
individuals exercised any options during the fiscal year ended December 31,
1998.
Aggregated Fiscal 1998 Year-End Option Values
<TABLE>
<CAPTION>
Total Number of Value of Unexercised
Unexercised Options at In-the-Money Options at
Fiscal Year-End(#) Fiscal Year-End($)(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
H. Stewart Parker........... 175,915 144,864 30,500 --
Barrie J. Carter, Ph.D. .... 94,745 92,730 -- --
James A. Johnson............ 113,667 81,518 -- --
</TABLE>
- --------
(1) This amount is the aggregate number of the outstanding options multiplied
by the difference between $1.31 (the closing price of the Common Stock as
reported on the Nasdaq National Market on December 31, 1998) and the
exercise price of such options.
Change in Control Arrangements
Senior Management Employment Agreements. In October 1996, the Company
entered into Senior Management Employment Agreements with each of Ms. Parker,
Dr. Carter and Mr. Johnson. These agreements provide that upon a "change in
control" (as defined in the agreements) each such executive will be entitled
to receive an annual base salary no less than his or her salary in effect
prior to the change in control and an annual bonus at least equal to the
average of his or her annual bonuses for the three prior years. In addition,
each such executive will be entitled to insurance coverage and other employee
benefits no less favorable than the
11
<PAGE>
Company's benefits in effect prior to the change in control. If during the
two-year period after a change in control any such executive's employment is
terminated by the Company for any reason other than death, disability or
"cause" or by the executive for "good reason" (as such terms are defined in
the agreements), such executive will be entitled to certain additional
benefits, including a lump sum payment equal to one and one-half of (or, in
the case of Ms. Parker, two times) the sum of (i) such executive's annual
salary prior to the change in control (or on the date of termination, if such
executive's salary is higher on such date) and (ii) a percentage of such
salary equal to the executive's percentage bonus for the year prior to the
change in control. If no such bonus was paid, or if the bonus cannot be
determined, the applicable percentage will be 10%. In addition, any such
terminated executive will be entitled to payment of an amount sufficient to
compensate such executive for any excise tax, including interest and
penalties, imposed under Section 4999 of the Code and to continuation of life
insurance, disability, health and dental, and other similar employee benefits
for one year following termination. The Senior Management Employment
Agreements may be terminated upon 30 days' prior written notice; provided,
however, that the Company will remain liable for any obligations arising prior
to such termination.
Option Plans. The Targeted Genetics Corporation Restated 1992 Stock Option
Plan and the Targeted Genetics Corporation 1999 Stock Option Plan (the "Option
Plans") both contain provisions that could result in the accelerated vesting
of options granted pursuant to such plans in the event of a Change in Control
(as defined in the Option Plans). See "Adoption of the Option Plan--
Description of the Option Plan."
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
currently consists of Jack L. Bowman, James D. Grant, and Mark P. Richmond,
all of whom are nonemployee directors. Prior to January 16, 1998 Donald E.
O'Neill served on the Committee. After his resignation from the Committee, the
Board appointed Mark P. Richmond to fill the resulting vacancy. The Committee
is responsible for the Company's executive compensation program and for
administering the Option Plans. On an annual basis, the Committee evaluates
the performance and compensation of the Company's executive officers.
The Company's executive compensation philosophy is to pay competitively in
order to attract qualified executive personnel capable of leading the Company
to achievement of its business objectives; retain and motivate these
executives to achieve superior performance; link individual compensation to
individual and company performance; and align executives' financial interests
with those of the Company's shareholders.
The Company's executive compensation program includes the following
components:
. competitive base salaries, targeting the 50th percentile of base salaries
paid by other biotechnology companies of comparable size and mission with
which the Company competes for qualified executives;
. annual bonuses which are structured to encourage executives to focus on
the achievement of important short-term and long-term corporate
objectives; and
. long-term incentives, in the form of stock option grants, which provide
financial rewards on the same basis as those realized by the Company's
shareholders.
Base Salaries. In January 1998, the Committee met to consider the
compensation levels of the Company's executive officers, which were reviewed
in comparison to: (1) Radford Associates' 1997 Biotechnology Compensation
Survey Report, a published survey of salaries paid by 335 companies within the
biotechnology industry, with a subset of data for companies with 51 to 149
employees; (2) an informal survey of reported executive salary information for
30 publicly-held biotechnology companies having total market capitalizations
of less than $150 million; and (3) the salary levels of executives at the
following publicly traded "peer group" companies: Avigen, Inc., Cell Genesys,
Inc., GeneMedicine, Inc., Megabios Corp., Onyx Pharmaceuticals, Inc., Ribozyme
Pharmaceuticals, Inc. and Vical Incorporated. Ms. Parker's base salary was
determined to be significantly below the industry survey medians and below the
average of salaries paid by the other peer group companies. The base salaries
of Dr. Carter and Mr. Johnson were generally determined to be near the
industry survey medians and the averages of salaries paid by the other public
gene therapy companies.
12
<PAGE>
The Committee directed an 6% increase in Ms. Parker's base salary to
$229,000. As a result, Ms. Parker's base salary remained significantly below
the 50th percentile of salaries paid to chief executive officers according to
the industry surveys. The Committee believed that this was appropriate,
because the Company did not achieve its goals in 1997 with respect to the
completion of corporate collaboration transactions. Dr. Carter and Mr. Johnson
each received increases of approximately 4% in their base salaries, to
$174,000 and $159,000. Such increases result in base salaries for such
officers in approximately the 50th percentile of salaries paid to officers in
similar positions according to the industry surveys.
Cash Bonuses. Traditional measures of corporate performance, such as
earnings or sales growth, do not apply to development stage biotechnology
companies. The Committee's view is that it is most appropriate to measure
performance of the Company's executive management based on progress toward
achievement of operating goals which are formulated to promote advancement of
key aspects of the Company's business.
In January 1999, the Committee met to evaluate the performance of the
Company's executive management with respect to a series of corporate
objectives that were set in early 1998. The objectives covered the completion
of a cystic fibrosis corporate collaboration transaction; generation of
additional capital investment; and reductions in operating expenses. The
objective related to completion of a cystic fibrosis collaboration was
weighted heavier than the others, representing approximately 80% of the total.
The Committee concluded that the executive officers of the Company had
performed well in 1998 and that all of the significant corporate objectives
(including executing a major partnership in cystic fibrosis) had been
achieved. Accordingly, the Committee concluded that bonuses would be paid to
the Company's executive officers for 1998 at 100% of target amounts, which
were 25% of base salary for Ms. Parker, 20% for Dr. Carter, and 15% for Mr.
Johnson.
Stock Option Grants. Stock options are granted to provide a long-term
incentive opportunity that is directly linked to increase in shareholder
value. They generally have been granted with an exercise price equal to the
market value of Common Stock on the date of the grant, have a term of ten
years, and become exercisable in 20% annual increments beginning one year
after the date of grant. To encourage stock retention, all options are granted
as incentive stock options to the maximum extent possible under the Code.
As part of the design of the Company's executive compensation program, the
Company has adopted a formula to be used for establishing the number of stock
option grants to be awarded annually to the Company's executives. The formula
is as follows: the number of shares on which options are to be awarded equals
the executive's base salary (multiplied by a factor of 1.25 in the case of Ms.
Parker) divided by the average closing price of the Company's stock over the
twenty trading days ending on the date of the stock option grant. Based on
performance factors, the Committee may adjust the number of options produced
by the formula either upward or downward.
In January 1998, the Committee granted stock options to the Company's
executive officers based on the formula described above, adjusted downward by
10%. Ms. Parker, Dr. Carter and Mr. Johnson received stock options for 95,875
shares, 59,300 shares, and 54,152 shares, respectively.
The Committee has not adopted a policy with respect to the application of
Section 162(m) of the Code, which generally imposes an annual corporate
deduction limitation of $1,000,000 on the compensation of certain executive
officers. Pursuant to Section 162(m), compensation above $1,000,000 may be
deducted if it is "performance-based compensation" within the meaning of the
Code. Stock options granted under the Option Plan qualify as "performance-
based compensation."
Compensation Committee
Jack L. Bowman
James D. Grant
Mark P. Richmond
13
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return for the Company, the Nasdaq Stock Market Total Return Index and a peer
group composed of Avigen, Inc., Cell Genesys, Inc., Collateral Therapeutics,
Inc., GeneMedicine, Inc., Genetic Therapy, Inc., Megabios Corp., Onyx
Pharmaceuticals, Inc., Somatix Therapy Corporation, Transgene SA, Viagene,
Inc., and Vical Incorporated ("Gene Therapy Peer Group"). The graph also
reflects a comparison of such cumulative return for the Nasdaq Pharmaceutical
Stock Index, an index of all companies whose stocks are traded on the Nasdaq
Stock Market and whose Primary Standard Industrial Classification Code Number
is 283, which was utilized by the Company for comparison in last fiscal year's
proxy statement. Since there is no widely recognized standard industry group
comprising the Company and peer companies, the peer group developed is
composed of companies that are or were in the gene therapy business and are
believed by the Company to be companies that analysts frequently use to
compare with an investment in the Company. The change in the Company's peer
group (as compared to the Nasdaq Pharmaceutical Stock Index utilized for the
preceding fiscal year) was made because the Company believes that it is more
appropriate to compare the Company to other competing or like kind
biotechnology companies of similar market capitalization in the same sector of
the biotechnology industry. The graph shows the value of $100 invested on May
20, 1994 (the date of Targeted Genetics' initial public offering) in Targeted
Genetics Common Stock, Gene Therapy Peer Group, the Nasdaq Stock Market Total
Return Index and the Nasdaq Pharmaceutical Stock Index.
Comparison of Cumulative Total Return Among Targeted Genetics
Corporation, Gene Therapy Peer Group, Nasdaq Stock Market Total
Return Index and Nasdaq Pharmaceutical Stock Index
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
May 20, 1994 Dec. 30, 1994 Dec. 29, 1995 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Targeted Genetics....... $100 $ 87.50 $ 93.83 $ 75.00 $ 43.83 $ 21.88
- ---------------------------------------------------------------------------------------------------------------
Gene Therapy Peer Group. $100 $ 62.01 $280.89 $240.37 $168.92 $105.60
- ---------------------------------------------------------------------------------------------------------------
Nasdaq Stock Market..... $100 $104.43 $147.66 $181.64 $222.99 $312.91
- ---------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceutical
Stock.................. $100 $ 96.53 $176.27 $176.46 $182.67 $234.40
</TABLE>
14
<PAGE>
PRINCIPAL TARGETED GENETICS SHAREHOLDERS
The following table sets forth, as of February 1, 1999, certain information
with respect to the beneficial ownership of shares of Common Stock by (i) each
person known by Targeted Genetics to own beneficially more than 5% of the
shares of Common Stock, (ii) each director of Targeted Genetics, (iii) each of
the Named Executive Officers, and (iv) all directors and executive officers of
Targeted Genetics as a group. Except as otherwise noted, Targeted Genetics
believes that the beneficial owners of the shares of Common Stock listed
below, based on information furnished by such owners, have sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
Name and Percent of
Address of Common
Beneficial Amount and Nature of Stock
Owner Beneficial Ownership Outstanding
---------- -------------------- -----------
<S> <C> <C>
5% Owners:
International Biotechnology Trust plc.... 4,450,000(1) 14.1%
c/o Rothschild Asset Management Limited
Five Arrows House
St. Swithin's Lane
London, England EC4N 8NR
SOFINOV.................................. 4,000,000(2) 12.5%
1981, avenue McGill College
Montreal, Quebec H3A 3C7
GeneChem Technologies Venture Fund L.P. . 3,000,000(1) 9.5%
c/o GeneChem Management Inc.
1001 De Maisonneuve Boulevard West
Suite 920
Montreal, Quebec H3A 3C8
The Equitable Life Assurance Society..... 3,000,000(1) 9.5%
City Place House
55 Basinghall Street
London, England EC2V 5DR
Immunex Corporation...................... 2,613,122 8.5%
51 University Street
Seattle, WA 98101
State of Wisconsin Investment Board...... 1,662,500 5.4%
121 E. Wilson Street
P.O. Box 7842
Madison, WI 53707
Directors and Executive Officers:
H. Stewart Parker........................ 330,080(3) 1.1%
Barrie J. Carter, Ph.D. ................. 221,410(4) *
James A. Johnson......................... 116,667(5) *
Jack L. Bowman........................... 10,000(6) *
Jeremy Curnock Cook...................... 4,475,000(7) 14.1%
James D. Grant........................... 25,000(8) *
Louis P. Lacasse......................... 3,000,000(9) 9.5%
Mark Richmond, Ph.D., D.Sc. ............. 11,667(8) *
Martin P. Sutter......................... 733,439(10) 2.4%
All directors and executive officers as a
group (9 persons)....................... 8,949,862(11) 27.0%
</TABLE>
15
<PAGE>
- --------
* Less than 1%.
(1) Includes warrants to purchase 1,000,000 shares of Common Stock.
(2) Includes warrants to purchase 1,333,333 shares of Common Stock.
(3) Includes 175,915 shares subject to options that may be exercised within
60 days.
(4) Includes 94,745 shares subject to options that may be exercised within 60
days.
(5) Includes 113,667 shares subject to options that may be exercised within
60 days.
(6) Includes 5,000 shares subject to options that may be exercised within 60
days.
(7) Represents 3,450,000 shares of Common Stock owned by International
Biotechnology Trust plc ("IBT"), an investment trust the shares of which
are traded on the London Stock Exchange; warrants held by IBT to purchase
1,000,000 shares of Common Stock; and 25,000 shares subject to options
that may be exercised within 60 days. Mr. Cook is a management director
of Rothschild Asset Management Limited, the investment manager and
secretary of IBT, and thereby has power to direct IBT's investments.
Mr. Cook disclaims beneficial ownership of the securities owned by IBT.
(8) Represents shares subject to options that may be exercised within 60
days.
(9) Represents 2,000,000 shares of Common Stock owned by GeneChem
Technologies Venture Fund L.P. ("GeneChem"), and warrants held by
GeneChem to purchase 1,000,000 shares of Common Stock. Mr. Lacasse is
President of GeneChem Management Inc., the manager of GeneChem, and
thereby has power to vote the securities. Although for purposes of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), Mr.
Lacasse is deemed to be the beneficial owner of securities owned by
GeneChem, Mr. Lacasse disclaims that he is, in fact, the beneficial owner
of such securities.
(10) Includes 96,540 shares of Common Stock owned by The Woodlands Venture
Fund, L.P.; 620,125 shares of Common Stock owned by The Woodlands/Essex
Venture Partners III, L.P.; and 11,667 shares subject to options that may
be exercised within 60 days. Mr. Sutter is (i) a General Partner of The
Woodlands/Essex Management Partners, L.P., which is the General Partner
of The Woodlands/Essex Venture Partners III, L.P., and (ii) the Managing
General Partner of The Woodlands Venture Partners, L.P., which is the
General Partner of The Woodlands Venture Fund, L.P., and thereby has the
power to vote the securities. Mr. Sutter has reported beneficial
ownership of 7,554 shares of Company common stock. Although for purposes
of the Exchange Act Mr. Sutter is deemed to be the beneficial owner of
all remaining securities, Mr. Sutter expressly disclaims that he is, in
fact, the beneficial owner of such securities.
(11) Includes 3,450,000 shares of Common Stock owned by IBT; warrants held by
IBT to purchase 1,000,000 shares of Common Stock; 2,000,000 shares of
Common Stock owned by GeneChem; warrants held by GeneChem to purchase
1,000,000 shares of Common Stock; 96,540 shares of Common Stock owned by
The Woodlands Venture Fund, L.P.; 620,125 shares of Common Stock owned by
The Woodlands/Essex Venture Partners III, L.P.; and 462,661 shares
subject to options that may be exercised within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires Targeted Genetics' executive officers, directors and
holders of more than 10% of a registered class of Targeted Genetics' equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Executive officers, directors and greater
than 10% shareholders are required by Securities and Exchange Commission
regulations to furnish Targeted Genetics with copies of all Section 16(a)
forms they file with the Commission.
16
<PAGE>
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no such forms were
required for those persons, Targeted Genetics believes that during calendar
year 1998 its executive officers, directors and greater than 10% shareholders
complied with all applicable filing requirements.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, the Company's independent auditors,
are expected to attend the Annual Meeting and will have an opportunity to make
a statement and to respond to appropriate questions from shareholders.
OTHER BUSINESS
The Board does not intend to present any business at the Annual Meeting
other than as set forth in the accompanying Notice of Annual Meeting of
Shareholders, and has no present knowledge that any others intend to present
business at the Annual Meeting. If, however, other matters requiring the vote
of the shareholders properly come before the Annual Meeting or any adjournment
or postponement thereof, the persons named in the accompanying form of proxy
will have discretionary authority to vote the proxies held by them in
accordance with their judgment as to such matters.
ANNUAL REPORT AND FORM 10-K
Copies of Targeted Genetics' 1998 Annual Report and Form 10-K are being
mailed with this Proxy Statement to each shareholder of record. Targeted
Genetics shareholders not receiving a copy of such Annual Report or Form 10-K
may obtain one without charge by writing or calling Investor Relations,
Targeted Genetics Corporation, 1100 Olive Way, Suite 100, Seattle, Washington
98101, (206) 623-7612.
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Appendix A
TARGETED GENETICS CORPORATION
1999 STOCK OPTION PLAN
SECTION 1. PURPOSE
The purpose of the Targeted Genetics Corporation 1999 Stock Option Plan (the
"Plan") is to enhance the long-term shareholder value of Targeted Genetics
Corporation, a Washington corporation (the "Company"), by offering
opportunities to selected persons to participate in the Company's growth and
success, and to encourage them to remain in the service of the Company and its
Related Corporations (as defined in Section 2) and to acquire and maintain
stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Board" means the Board of Directors of the Company.
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined
by the Plan Administrator, and its determination shall be conclusive and
binding.
"Change in Control" has the meaning set forth in Section 11.1.4.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Disability," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Optionee that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Optionee to be unable, in the opinion of
the Company, to perform his or her duties for the Company or a Related
Corporation and to be engaged in any substantial gainful activity.
"Effective Date" means the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the
Nasdaq National Market for a single trading day or (b) if the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange, the
closing selling price for the Common Stock as such price is officially quoted
in the composite tape of transactions on such exchange for a single trading
day. If there is no such reported price for the Common Stock for the date in
question, then such price on the last preceding date for which such price
exists shall be determinative of Fair Market Value.
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of a Successor Corporation to cure such event or
condition within 30 days after receipt of written notice from the Optionee:
(a) a change in the Optionee's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Optionee's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Optionee of
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any duties or responsibilities that, in the Optionee's reasonable judgment,
are materially inconsistent with such status, title, position or
responsibilities; or any removal of the Optionee from or failure to
reappoint or reelect the Optionee to any of such positions, except in
connection with the termination of the Optionee's employment for Cause, for
Disability or as a result of his or her death, or by the Optionee other
than for Good Reason;
(b) a reduction in the Optionee's annual base salary;
(c) the Successor Corporation's requiring the Optionee (without the
Optionee's consent) to be based at any place outside a 35-mile radius of
his or her place of employment prior to a Change of Control, except for
reasonably required travel on the Successor Corporation's business that is
not materially greater than such travel requirements prior to the Change of
Control;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent
thereof) in which the Optionee was participating at the time of a Corporate
Transaction, including, but not limited to, the Plan, or (ii) provide the
Optionee with compensation and benefits substantially equivalent (in terms
of benefit levels and/or reward opportunities) to those provided for under
each material employee benefit plan, program and practice as in effect
immediately prior to the Change of Control;
(e) any material breach by the Successor Corporation of its obligations
to the Optionee under the Plan or any substantially equivalent plan of the
Successor Corporation; or
(f) any purported termination of the Optionee's employment or service
relationship for Cause by the Successor Corporation that is not in
accordance with the definition of Cause under the Plan.
"Grant Date" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Option and all conditions
precedent to the grant have been satisfied, provided that conditions to the
exercisability or vesting of Options shall not defer the Grant Date.
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
"Nonqualified Stock Option" means an Option to purchase Common Stock granted
under Section 7 other than an Incentive Stock Option.
"Option" means the right to purchase Common Stock granted under Section 7.
"Option Term" has the meaning set forth in Section 7.3.
"Optionee" means (a) the person to whom an Option is granted; (b) for an
Optionee who has died, the personal representative of the Optionee's estate,
the person(s) to whom the Optionee's rights under the Option have passed by
will or by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 10; or (c) the person(s) to whom an
Option has been transferred in accordance with Section 10.
"Parent," except as provided in Section 8.3 in connection with Incentive
Stock Options, means any entity, whether now or hereafter existing, that
directly or indirectly controls the Company.
"Plan Administrator" means the Board or any committee or committees
designated by the Board or any person to whom the Board has delegated
authority to administer the Plan under Section 3.1.
"Related Corporation" means any Parent or Subsidiary of the Company.
"Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) Plan or other similar successor plan applicable to
salaried employees.
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"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary," except as provided in Section 8.3 in connection with Incentive
Stock Options, means any entity that is directly or indirectly controlled by
the Company.
"Successor Corporation" has the meaning set forth in Section 11.1.2.
"Termination Date" has the meaning set forth in Section 7.6.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or
more members of, the Board (a "Plan Administrator"). If and so long as the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act,
the Board shall consider in selecting the members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding
(a) "outside directors" as contemplated by Section 162(m) of the Code and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of two or more members of the Board, subject to such limitations as
the Board deems appropriate. Committee members shall serve for such term as
the Board may determine, subject to removal by the Board at any time. To the
extent consistent with applicable law, the Board may authorize a senior
executive officer of the Company to grant Options to specified eligible
persons, within the limits specifically prescribed by the Board.
3.2 Administration and Interpretation by Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the
number of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the
Plan Administrator pursuant to the Plan, shall be conclusive and binding on
all parties involved or affected. The Plan Administrator may delegate
administrative duties to such of the Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11, the
number of shares of Common Stock that shall be available for issuance under
the Plan shall be 1,500,000 shares. Shares issued under the Plan shall be
drawn from authorized and unissued shares or shares now held or subsequently
acquired by the Company.
4.2 Limitations
Subject to adjustment from time to time as provided in Section 11, not more
than 200,000 shares of Common Stock may be made subject to Options under the
Plan to any individual in the aggregate in any one fiscal year of the Company,
such limitation to be applied in a manner consistent with the requirements of,
and only to the extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section 162(m) of the Code.
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4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise of the
Option to the extent it is exercised for shares) shall again be available for
issuance in connection with future grants of Options under the Plan; provided,
however, that for purposes of Section 4.2, any such shares shall be counted in
accordance with the requirements of Section 162(m) of the Code.
SECTION 5. ELIGIBILITY
Options may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan
Administrator from time to time selects. Options may also be granted to
consultants, agents, advisors and independent contractors ("consultants") who
provide services to the Company and its Related Corporations; provided,
however, that such consultants render bona fide services not in connection
with the offer and sale of the Company's securities in a capital-raising
transaction.
SECTION 6. ACQUIRED COMPANY OPTIONS
Notwithstanding anything in the Plan to the contrary, the Plan Administrator
may grant Options under the Plan in substitution for awards issued under other
plans, or assume under the Plan awards issued under other plans, if the other
plans are or were plans of other acquired entities ("Acquired Entities") (or
the parent of the Acquired Entity) and the new Option is substituted, or the
old award is assumed, by reason of a merger, consolidation, acquisition of
property or of stock, reorganization or liquidation (the "Acquisition
Transaction"). In the event that a written agreement pursuant to which the
Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding
such awards shall be deemed to be Optionees.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole discretion,
to issue Options as Incentive Stock Options or as Nonqualified Stock Options,
which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the option
exercise price shall be as specified in Section 8.2.
7.3 Term of Options
The term of each Option (the "Option Term") shall be as established by the
Plan Administrator or, if not so established, shall be 10 years from the Grant
Date. For Incentive Stock Options, the maximum Option Term shall be as
specified in Sections 8.2 and 8.4.
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7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument that
evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the
Plan Administrator at any time:
<TABLE>
<CAPTION>
Percent of Total
Period of Optionee's Continuous Employment or Service Option That Is
With the Company Vested and
or Its Related Corporations From the Option Grant Date Exercisable
------------------------------------------------------ -------------------
<S> <C>
After 3 months.......................................... 6.25%
Each additional 3-month period of continuous service
completed thereafter................................... An additional 6.25%
After 4 years........................................... 100%
</TABLE>
The Plan Administrator may adjust the vesting schedule of an Option held by
an Optionee who works less than "full-time" as that term is defined by the
Plan Administrator.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by delivery to the Company of a
written stock option exercise agreement or notice, in a form and in accordance
with procedures established by the Plan Administrator, setting forth the
number of shares with respect to which the Option is being exercised, the
restrictions imposed on the shares purchased under such exercise agreement, if
any, and such representations and agreements as may be required by the
Company, accompanied by payment in full as described in Section 7.5. An Option
may not be exercised as to less than a reasonable number of shares at any one
time, as determined by the Plan Administrator.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or
at any time before it is exercised, in any combination of
(a) cash or check;
(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by
attestation) shares of Common Stock already owned by the Optionee for at
least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes) having a Fair Market
Value on the day prior to the exercise date equal to the aggregate Option
exercise price;
(c) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act, delivery of a properly executed exercise
notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise
and (ii) the Company to deliver the certificates for such purchased shares
directly to such brokerage firm, all in accordance with the regulations of
the Federal Reserve Board; or
(d) such other consideration as the Plan Administrator may permit.
In addition, to assist an Optionee (including an Optionee who is an officer
or a director of the Company) in acquiring shares of Common Stock pursuant to
an Option granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Option, (i) the payment by the
Optionee of a full-recourse promissory note, (ii) the payment by the Optionee
of the purchase price, if any, of the Common Stock in installments, or (iii)
the guarantee by the
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Company of a loan obtained by the Optionee from a third party. Subject to the
foregoing, the Plan Administrator shall in its sole discretion specify the
terms of any loans, installment payments or loan guarantees, including the
interest rate and terms of and security for repayment.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument that
evidences an Option whether the Option shall continue to be exercisable, and
the terms and conditions of such exercise, if an Optionee ceases to be
employed by, or to provide services to, the Company or its Related
Corporations, which provisions may be waived or modified by the Plan
Administrator at any time. If not so established in the instrument evidencing
the Option, the Option shall be exercisable according to the following terms
and conditions, which may be waived or modified by the Plan Administrator at
any time:
(a) Any portion of an Option that is not vested and exercisable on the
date of termination of the Optionee's employment or service relationship
(the "Termination Date") shall expire on such date, unless the Plan
Administrator determines otherwise.
(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of:
(i) the last day of the Option Term;
(ii) if the Optionee's Termination Date occurs for reasons other than
Cause, death, Disability or Retirement, the three-month anniversary of
such Termination Date; and
(iii) if the Optionee's Termination Date occurs by reason of death,
Disability or Retirement, the one-year anniversary of such Termination
Date.
Notwithstanding the foregoing, if the Optionee dies after the Termination
Date while the Option is otherwise exercisable, the Option shall expire upon
the earlier to occur of (y) the last day of the Option Term and (z) the first
anniversary of the date of death.
Also notwithstanding the foregoing, in case of termination of the Optionee's
employment or service relationship for Cause, the Option shall automatically
expire upon first notification to the Optionee of such termination, unless the
Plan Administrator determines otherwise. If an Optionee's employment or
service relationship with the Company is suspended pending an investigation of
whether the Optionee shall be terminated for Cause, all the Optionee's rights
under any Option likewise shall be suspended during the period of
investigation.
An Optionee's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from an
employee to a consultant that is evidenced by a written agreement between an
Optionee and the Company or a Related Corporation, shall not be considered a
termination of employment or service relationship for purposes of this Section
7. Employment or service relationship shall be deemed to continue while the
Optionee is on a bona fide leave of absence, if such leave was approved by the
Company or a Related Corporation in writing and if continued crediting of
service for purposes of this Section 7 is expressly required by the terms of
such leave or by applicable law (as determined by the Company). The effect of
a Company-approved leave of absence on the terms and conditions of an Option
shall be determined by the Plan Administrator, in its sole discretion.
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SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and
all other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Optionee holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 More Than 10% Shareholders
If an individual owns more than 10% of the total voting power of all classes
of the Company's stock, then the exercise price per share of an Incentive
Stock Option shall not be less than 110% of the Fair Market Value of the
Common Stock on the Grant Date and the Option Term shall not exceed five
years. The determination of more than 10% ownership shall be made in
accordance with Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and
"subsidiary corporation" shall have the meanings attributed to those terms for
purposes of Section 422 of the Code.
8.4 Term
Except as provided in Section 8.2, the Option Term shall not exceed 10
years.
8.5 Exercisability
An Option designated as an Incentive Stock Option shall cease to qualify for
favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b)
more than one year after the Termination Date by reason of Disability, or (c)
after the Optionee has been on leave of absence for more than 90 days, unless
the Optionee's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.5, Disability shall mean "disability" as that
term is defined for purposes of Section 422 of the Code.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Optionee must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date
and one year from the date of exercise. An Optionee may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Optionee shall give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration
of such holding periods.
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8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate
required to avoid imputation of interest (taking into account any exceptions
to the imputed interest rules) for federal income tax purposes.
SECTION 9. WITHHOLDING
The Company may require the Optionee to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, vesting or exercise of any Option. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Optionee
to satisfy withholding obligations (up to the maximum rate), in whole or in
part, by paying cash, by electing to have the Company withhold shares of
Common Stock or by transferring shares of Common Stock to the Company, in such
amounts as are equivalent to the Fair Market Value of the withholding
obligation. The Company shall have the right to withhold from any shares of
Common Stock issuable pursuant to an Option or from any cash amounts otherwise
due or to become due from the Company to the Optionee an amount equal to such
taxes. The Company may also deduct from any Option any other amounts due from
the Optionee to the Company or a Related Corporation.
SECTION 10. ASSIGNABILITY
No Option granted under the Plan may be assigned, pledged or transferred by
the Optionee and may not be made subject to attachment or similar proceedings
otherwise than by will or by the applicable laws of descent and distribution,
and, during the Optionee's lifetime, such Option may be exercised only by the
Optionee. Notwithstanding the foregoing, and to the extent permitted by
Section 422 of the Code, the Plan Administrator, in its sole discretion, may
permit such assignment, transfer and exercisability and may permit an Optionee
to designate a beneficiary who may exercise the Option after the Optionee's
death; provided, however, that any Option so assigned or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Option.
SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The aggregate number and class of shares for which Options may be granted
under this Plan, the limits set forth in Section 4.2, the number and class of
shares covered by each outstanding Option and the exercise price per share
thereof (but not the total price), and each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split or consolidation
of shares or any like capital adjustment, or the payment of any stock
dividend.
11.1 Effect of Liquidation, Reorganization or Change in Control
11.1.1 Cash, Stock or Other Property for Stock
Except as provided in Section 11.1.2 or Section 11.1.3, upon a merger (other
than a merger of the Company in which the holders of shares of Common Stock
immediately prior to the merger have the same proportionate ownership of
shares of Common Stock in the surviving corporation immediately after the
merger), consolidation, acquisition of property or stock, reorganization
(other than a mere reincorporation or the creation of a holding company) or
liquidation of the Company, as a result of which the shareholders of the
Company receive cash, stock or other property in exchange for or in connection
with their shares of Common Stock, each Option shall terminate, but the
Optionee shall have the right immediately prior to any such merger,
consolidation, acquisition of property or stock, reorganization or liquidation
to exercise such Option in whole or in part whether or not the vesting
requirements set forth in the Option agreement have been satisfied.
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11.1.2 Conversion of Options on Stock for Stock Exchange
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger, consolidation, acquisition of property or
stock, or reorganization, all Options shall be converted into options to
purchase shares of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock (the "Successor Corporation"), in their sole
discretion, determine that any or all such Options shall not be converted into
options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of Section 11.1.1. The amount and price of
converted options shall be determined by adjusting the amount and price of the
Options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of shares of the Common Stock
receive in such merger, consolidation, acquisition of property or stock, or
reorganization. Unless accelerated by the Plan Administrator, the vesting
schedule set forth in the Option agreement shall continue to apply to the
options granted for the Exchange Stock.
Any Options that are converted into options to purchase shares of Exchange
Stock that do not otherwise accelerate at that time shall be accelerated in
the event the Optionee's employment or services should subsequently terminate
within two years of any transaction described in this Section 11.1.2, unless
such employment or services are terminated by the Successor Corporation for
Cause or by the Optionee voluntarily without Good Reason.
11.1.3 Change in Control
In the event of a "Change in Control," as defined below, of the Company,
unless otherwise determined by the Board prior to the occurrence of such
Change in Control, the following acceleration and cash-out provisions shall
apply:
(a) Any Option outstanding as of the date such Change in Control is
determined to have occurred that is not yet fully vested on such date shall
become immediately exercisable in full and
(b) Optionees shall have, as an alternative to the right to exercise any
Option, the right to elect within 90 days following a Change in Control,
or, if during the six months prior to the date of such Change in Control
such Optionee is subject to Section 16 of the Exchange Act, then with
respect to Options held by the Optionee, the period following the Change in
Control during which an election may be made shall be extended for one
month after the end of the six-month period required to avoid any liability
under Section 16(b) of the Exchange Act, to receive in cash an amount equal
to the difference between the Option exercise price and the Fair Market
Value of the shares on the date of exercising this election, times the
number of shares subject to the Option or portion thereof for which this
election is made. The election shall be made by delivering written notice
of making such election to the Company within the 90 day period. The notice
shall specify the Options or portions thereof to which the election
relates. The cash-out proceeds shall be paid to the Optionee or, in the
event of death of an Optionee prior to full payment, to the estate of the
Optionee or to a person who acquired the right to exercise the Option by
designation, bequest or inheritance.
11.1.4 Definition of "Change in Control"
For purposes of this Plan, a "Change in Control" shall mean:
(a) A "Board Change" (for purposes of this Plan, a Board Change shall
have occurred if individuals who, as of the date of the adoption of this
Plan, constitute the Company's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board;
provided, however, that for all purposes of this Plan any individual
becoming a director subsequent to such date whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at
least a majority of
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the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or a threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as defined below) other than the
Board); or
(b) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person")
of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of (i) 20% or more of either (A) the then outstanding shares
of Common Stock (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), in the case of either (A) or (B)
of this clause (i), which acquisition is not approved in advance by a
majority of the Incumbent Board, or (ii) 33% or more of either (A) the
Outstanding Company Common Stock or (B) the Outstanding Company Voting
Securities, in the case of either (A) or (B) of this clause (ii), which
acquisition is approved in advance by a majority of the Incumbent Board;
provided, however, that the following acquisitions shall not constitute a
Change in Control: (x) any acquisition by the Company, (y) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by
the Company or any company controlled by the Company, or (z) any
acquisition by any company pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation,
the conditions described in clauses (i), (ii) and (iii) of the following
subsection (c) are satisfied; or
(c) Approval by the shareholders of the Company of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 60% of,
respectively, the then outstanding shares of common stock of the company
resulting from such reorganization, merger or consolidation and the
combined voting power of the then outstanding voting securities of such
company entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively,
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any employee
benefit plan (or related trust) of the Company or such company resulting
from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 33% or more of,
respectively, the then outstanding shares of common stock of the company
resulting from such reorganization, merger or consolidation or the combined
voting power of the then outstanding voting securities of such company
entitled to vote generally in the election of directors, and (iii) at least
a majority of the members of the board of directors of the company
resulting from such reorganization, merger or consolidation were members of
the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company, other
than to a company, with respect to which following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding
shares of common stock of such company and the combined voting power of the
then outstanding voting securities of such company entitled to vote
generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be,
A-10
<PAGE>
(B) no Person (excluding the Company and any employee benefit plan (or
related trust) of the Company or such company and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 33% or more of the Outstanding Company Common Stock or
Outstanding Company Voting Securities, as the case may be) beneficially
owns, directly or indirectly, 33% or more of, respectively, the then
outstanding shares of common stock of such company and the combined voting
power of the then outstanding voting securities of such company entitled to
vote generally in the election of directors, and (C) at least a majority of
the members of the board of directors of such company were approved by a
majority of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
11.2 Fractional Shares
In the event of any adjustment in the number of shares covered by any
Option, any fractional shares resulting from such adjustment shall be
disregarded and each such Option shall cover only the number of full shares
resulting from such adjustment.
11.3 Determination of Board to Be Final
All Section 11 adjustments, other than those made after a Change in Control
pursuant to Section 11.1.3, shall be made by the Board, and its determination
as to what adjustments shall be made, and the extent thereof, shall be final,
binding and conclusive. Unless an Optionee agrees otherwise, any change or
adjustment to an Incentive Stock Option shall be made in such a manner so as
not to constitute a "modification" as defined in Code Section 424(h) and so as
not to cause his or her Incentive Stock Option issued hereunder to fail to
continue to qualify as an "incentive stock option" as defined in Code Section
422(b).
SECTION 12. AMENDMENT AND TERMINATION OF PLAN
12.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class
of persons eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to the
Plan that would constitute a "modification" to Incentive Stock Options
outstanding on the date of such amendment shall not, without the consent of
the Optionee, be applicable to any such outstanding Incentive Stock Options
but shall have prospective effect only.
12.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan shall have
no fixed expiration date; provided, however, that no Incentive Stock Options
may be granted more than ten years after the later of (a) the Plan's adoption
by the Board and (b) the adoption by the Board of any amendment to the Plan
that constitutes the adoption of a new plan for purposes of Section 422 of the
Code.
12.3 Consent of Optionee
The amendment or termination of the Plan or the amendment of an outstanding
Option shall not, without the Optionee's consent, impair or diminish any
rights or obligations under any Option theretofore granted to the Optionee
under the Plan; provided, however, that adjustments made pursuant to Section
11 shall not be subject to these restrictions. Any change or adjustment to an
outstanding Incentive Stock Option shall not, without the consent of the
Optionee, be made in a manner so as to constitute a "modification" that would
cause such Incentive Stock Option to fail to continue to qualify as an
Incentive Stock Option.
A-11
<PAGE>
SECTION 13. GENERAL
13.1 Evidence of Options
Options granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
13.2 No Individual Rights
Nothing in the Plan or any Option granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Optionee any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation of the Company to
terminate an Optionee's employment or other relationship at any time, with or
without Cause.
13.3 Registration
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or
make any other distribution of benefits under the Plan unless such issuance,
delivery or distribution would comply with all applicable laws (including,
without limitation, the requirements of the Securities Act), and the
applicable requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if
made. The Company may issue certificates for shares with such legends and
subject to such restrictions on transfer and stop-transfer instructions as
counsel for the Company deems necessary or desirable for compliance by the
Company with federal and state securities laws.
To the extent that the Plan or any instrument evidencing an Option provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock
exchange.
13.4 No Rights as a Shareholder
No Option shall entitle the Optionee to any cash dividend, voting or other
right of a shareholder unless and until the date of issuance under the Plan of
the shares that are the subject of such Option.
13.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to
restrict, limit or condition the use of any provision of the Plan to Optionees
who are officers or directors subject to Section 16 of the Exchange Act
without so restricting, limiting or conditioning the Plan with respect to
other Optionees. Additionally, in interpreting and applying the provisions of
the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.
13.6 Optionees in Foreign Countries
The Plan Administrator shall have the authority to adopt such modifications,
procedures and subplans as may be necessary or desirable to comply with
provisions of the laws of foreign countries in which the Company or its
Related Corporations may operate to assure the viability of the benefits from
Options granted to Optionees employed in such countries and to meet the
objectives of the Plan.
A-12
<PAGE>
13.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special
deposits for any immediate or deferred amounts payable to any Optionee, and no
Optionee shall have any rights that are greater than those of a general
unsecured creditor of the Company.
13.8 Severability
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform
to applicable laws, or, if it cannot be so construed or deemed amended
without, in the Plan Administrator's determination, materially altering the
intent of the Plan or the Option, such provision shall be stricken as to such
jurisdiction, person or Option, and the remainder of the Plan and any such
Option shall remain in full force and effect.
13.9 Choice of Law
The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.
SECTION 14. EFFECTIVE DATE
The Effective Date is the date on which the Plan is adopted by the Board, so
long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on January 21 1999 and approved by the Company's
shareholders on , 199 .
A-13
<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
SUMMARY PAGE
<TABLE>
<CAPTION>
Date of
Section/Effect Shareholder
Date of Board Action Action of Amendment Approval
-------------------- ------ -------------- -----------
<S> <C> <C> <C>
, 199 Initial Plan Adoption , 199
</TABLE>
A-14
<PAGE>
TARGETED GENETICS CORPORATION
This Proxy is solicited by the Board of Directors for the
Annual Meeting of Shareholders--May 5, 1999
The undersigned hereby appoint(s) H. Stewart Parker and James A. Johnson
and each of them as proxies, with full power of substitution, to represent and
vote as designated all shares of Common Stock of Targeted Genetics Corporation
held of record by the undersigned on March 8, 1999 at the Annual Meeting of
Shareholders of the Company to be held at the Company's headquarters, located
at 1100 Olive Way, Suite 100, Seattle, Washington, at 8:30 a.m. on Wednesday,
May 5, 1999, with authority to vote upon the matters listed below and with
discretionary authority as to any other matters that may properly come before
the meeting or any adjournment or postponement thereof.
IMPORTANT - PLEASE DATE AND SIGN ON THE OTHER SIDE
- --------------------------------------------------------------------------------
.FOLD AND DETACH HERE.
<PAGE>
Please mark
your votes [X]
as indicated
The Board of Directors recommends a vote "FOR" Item 2 and "FOR the Nominees" in
Item 3.
(1) APPROVAL OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) APPROVAL OF ADOPTION OF THE 1999 STOCK OPTION PLAN
[ ] [ ] [ ]
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER IN
THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
ITEM 1, "FOR" ITEM 2 AND "FOR THE NOMINEES" IN ITEM 3.
(3) ELECTION OF TWO CLASS 2 DIRECTORS NOMINEES: James D. Grant and
Louis P. Lacasse
WITHHOLD
AUTHORITY
FOR the to vote for the
Nominees Nominees
[ ] [ ]
WITHHOLD for the following only: (write the name of the nominee in the space
below)
- ------------------------------------------------------------------------------
unless otherwise directed, all votes will be apportioned equally among those
persons for whom authority is given to vote
I plan to attend the Annual Meeting [ ]
Please sign exactly as your name appears
hereon. Attorneys, trustees, executors and
other fiducieries acting in a representative
capacity should sign their names and give
their titles. An authorized person should sign
on behalf of corporations, partnerships,
associations, etc. and give his or her title.
If your shares are held by two or more
persons, each person must sign. Receipt of the
notice of meeting and proxy statement is
hereby acknowledged.
Date Signature(s)
-------------- ---------------------------
Date Signature(s)
-------------- ---------------------------
- --------------------------------------------------------------------------------
.FOLD AND DETACH HERE.
