-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RZh2/uJBjDOYvjuF0KCBvfHvyExooLAluKmc35W4Ui8bGqes8ZSlwlGIXNm4nOMm Uv7RRXIGjbgRSSkD+Pa7dA== 0000891020-97-001064.txt : 19970811 0000891020-97-001064.hdr.sgml : 19970811 ACCESSION NUMBER: 0000891020-97-001064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970808 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TARGETED GENETICS CORP /WA/ CENTRAL INDEX KEY: 0000921114 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 911549568 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23930 FILM NUMBER: 97653893 BUSINESS ADDRESS: STREET 1: 1100 OLIVE WAY STREET 2: STE 100 CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2066237612 MAIL ADDRESS: STREET 1: 1100 OLIVE WAY STREET 2: STE 100 CITY: SEATTLE STATE: WA ZIP: 98101 10-Q 1 FORM 10-Q FOR THE PERIOD ENDING 6/30/97 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission File Number: 0-23930 ---------------------------- TARGETED GENETICS CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Washington 91-1549568 - ------------------------------------ -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1100 Olive Way, Suite 100, Seattle, Washington 98101 98101 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (206) 623-7612 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value 20,206,874 - -------------------------------------------------------------------------------- (Class) (Outstanding at August 1, 1997) 2 TARGETED GENETICS CORPORATION Quarterly Report on Form 10-Q For the quarter ended June 30, 1997 TABLE OF CONTENTS
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements a) Condensed Balance Sheets - June 30, 1997 and December 31, 1996 3 b) Condensed Statements of Operations - for the three and six months ended June 30, 1997 and 1996 4 c) Condensed Statements of Cash Flows - for the three and six months ended June 30, 1997 and 1996 5 d) Notes to Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosure About Market Risk * PART II OTHER INFORMATION Item 1. Legal Proceedings * Item 2. Changes in Securities * Item 3. Defaults Upon Senior Securities * Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information * Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11
* No information is provided due to inapplicability of the item. 2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEETS
June 30, December 31, 1997 1996 ------------ ------------ ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 165,953 $ 3,532,568 Securities available for sale 11,695,920 15,518,502 Prepaid expenses and other 350,634 468,671 ------------ ------------ Total current assets 12,212,507 19,519,741 Property, plant and equipment, net 4,488,949 4,991,017 Other assets 567,738 628,294 ------------ ------------ $ 17,269,194 $ 25,139,052 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,347,518 $ 1,887,880 Accrued payroll and other liabilities 283,022 364,964 Current portion of long-term obligations 1,134,538 1,250,263 ------------ ------------ Total current liabilities 2,765,078 3,503,107 Long-term obligations 1,977,015 2,128,157 Shareholders' equity: Preferred stock -- -- Common stock (20,206,874 and 20,136,468 shares outstanding at June 30, 1997 and December 31, 1996, respectively) 73,398,369 73,115,362 Deficit accumulated during development stage (60,871,268) (53,607,574) ------------ ------------ Total shareholders' equity 12,527,101 19,507,788 ------------ ------------ $ 17,269,194 $ 25,139,052 ============ ============
See accompanying notes. 3 4 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended March 9, 1989 June 30, June 30, (date of inception) ---------------------------- ---------------------------- through 1997 1996 1997 1996 June 30, 1997 ------------ ------------ ------------ ------------ ------------ Revenues: Collaborative agreements $ 3,048 $ 75,000 $ 80,430 $ 75,000 $ 1,358,395 Investment income 180,478 155,277 410,814 338,813 3,411,816 Other 98,254 -- 196,509 -- 423,627 ------------ ------------ ------------ ------------ ------------ Total revenues 281,780 230,277 687,753 413,813 5,193,838 ------------ ------------ ------------ ------------ ------------ Expenses: Research and development 3,316,897 2,431,607 6,368,435 4,797,639 40,642,139 In-process research and development -- 13,517,911 -- 13,517,911 13,517,911 General and administrative 644,762 554,111 1,387,332 1,170,973 10,836,368 Interest 94,627 103,125 181,520 195,506 1,073,915 ------------ ------------ ------------ ------------ ------------ Total expenses 4,056,286 16,606,754 7,937,287 19,682,029 66,070,333 ------------ ------------ ------------ ------------ ------------ Net loss $ (3,774,506) $(16,376,477) $ (7,249,534) $(19,268,216) $(60,876,495) ============ ============ ============ ============ ============ Net loss per share $ (0.19) (1.26) $ (0.36) $ (1.52) ============ ============ ============ ============ Shares used in computation of net loss per share 20,205,624 13,031,247 20,183,954 12,690,294 ============ ============ ============ ============
See accompanying notes. 4 5 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended March 9, 1989 June 30, (date of inception) ---------------------------- through 1997 1996 June 30, 1997 ------------ ------------ ------------ Net cash used in operating activities $ (6,614,077) $ (5,558,934) $(40,953,258) Investing activities: Purchases of property, plant and equipment (528,271) (991,593) (9,241,462) Purchases of securities available for sale -- (12,504,553) (78,664,645) Sales of securities available for sale 3,759,715 7,720,112 67,080,742 Net cash acquired in RGene acquisition -- 2,977,185 1,594,386 Increase in other assets -- -- (719,179) ------------ ------------ ------------ Net cash provided by (used in) investing activities 3,231,444 (2,798,849) (19,950,158) Financing activities: Advances from Immunex -- -- 2,807,316 Net proceeds from sale of capital stock 283,007 13,245,848 55,658,007 Proceeds from equipment financing 326,287 646,996 5,270,169 Payments under capital leases and installment loans (593,276) (451,344) (2,666,123) ------------ ------------ ------------ Net cash provided by financing activities 16,018 13,441,500 61,069,369 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,366,615) 5,083,717 165,953 Cash and cash equivalents, beginning of period 3,532,568 2,154,814 -- ------------ ------------ ------------ Cash and cash equivalents, end of period $ 165,953 $ 7,238,531 $ 165,953 ============ ============ ============
See accompanying notes. 5 6 ITEM 1. FINANCIAL STATEMENTS (CONTINUED) TARGETED GENETICS CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed financial statements included herein have been prepared by Targeted Genetics Corporation (the "Company"), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The financial statements reflect, in the opinion of management, all adjustments (which consist solely of normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated. The results of operations for the three and six months ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. Note 2. Loss Per Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share ("Statement 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. The impact of Statement 128 on the calculation of net loss per share for all current and prior periods is not expected to be material. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Risks and Uncertainties This discussion contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. The Company's future cash requirements and expense levels will depend on many factors, including continued scientific progress in its research and development programs; the results of research and development, preclinical studies and clinical trials; acquisition of products or technology, if any; relationships with corporate collaborators; competing technological and market developments; the time and costs involved in filing, prosecuting and enforcing patent claims; the time and costs of manufacturing scale-up and commercialization activities; and other factors. Reference is made to the Company's Annual Report on Form 10-K for more detailed description of such factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Financial Condition The Company had cash, cash equivalents and securities available for sale totaling $11.9 million as of June 30, 1997, compared to $19.0 million at December 31, 1996. The change was primarily attributable to the use of $6.6 million to fund operations and $528,000 to purchase property, plant and equipment during the first six months of 1997, offset by the receipt of $277,000 for the exercise of warrants by existing shareholders. The Company is a development stage company conducting gene and cell therapy research and development. Income earned from investments and, to a lesser degree, revenues under collaborative agreements have been its only sources of revenue, covering less than ten percent of expenses. Gene and cell therapy products are subject to the risks of failure inherent in the development of products based on innovative technologies. Although the Company's technology appears promising, it is unknown whether any commercially viable products will result from the research and development. It is not anticipated that the Company will have any product-related revenues for a number of years. Accordingly, the Company expects to incur substantial additional losses over the next several years and to use its capital resources to fund preclinical and clinical research programs, development of manufacturing capabilities and the preparation for commercialization of its products under development. The Company currently estimates that, at its planned rate of spending, its existing cash, cash equivalents and securities available for sale will be sufficient to meet its operating and capital requirements until at least early 1998. Such estimates include the impact of future milestone payments potentially receivable under existing collaborative agreements. There can be no assurance that such milestone payments will be received or that the underlying assumed levels of revenue and expense will prove to be accurate. In any event, substantial additional funds will be needed to continue the development and commercialization of the Company's products. Accordingly, the Company is seeking to establish additional collaborative agreements with corporate partners that would provide research and development funding and equity investment. The Company also may seek to raise additional equity capital whenever conditions in the financial markets allow it to do so. There can be no assurance, however, that adequate funds will be available when needed or will be available on terms favorable to the Company, if at all. Results of Operations Over the past several years, the Company's net loss has grown, consistent with the growth in the Company's scope and size of operations. In the near term, the Company does not expect additional growth in employee headcount or facilities; however, the Company estimates that operating expenses will continue to increase moderately as a result of continuing with its current operating plan, which includes growth in the level of clinical trial activity. At least until such time as the Company enters into an arrangement providing research and development funding, the net loss will continue to increase as well. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Results of Operations (continued) Revenue under collaborative agreements for the three and six months ended June 30, 1997 primarily consists of amounts earned from Laboratoires Fournier S.C.A. related to tgDCC-E1A process development activities. Investment income for the three and six months ended June 30, 1997 increased to $181,000 and $411,000 compared to $155,000 and $339,000, during the three and six months ended June 30, 1996, respectively. The increase was largely attributable to higher average cash balances for investment in 1997 compared to the same periods in 1996. Other revenue for the three and six months ended June 30, 1997 represents proceeds from Small Business Innovation Research grants awarded by the National Institutes of Health. Research and development expenses were $3,317,000 and $6,368,000 for the three and six months ended June 30, 1997, respectively, and $2,432,000 and $4,798,000 for the three and six months ended June 30, 1996, respectively. Expenses that resulted directly from the acquisition of RGene Therapeutics Inc. ("RGene"), specifically costs related to the continuation of the acquired research, development and clinical programs, were largely responsible for the increases in both the three- and six-month period. To a lesser extent, continued progression of the Company's clinical trial programs and increased activity related to intellectual property also contributed to the increases. In-process research and development expense resulted from the acquisition of RGene in the second quarter of 1996. The RGene purchase price exceeded the fair value of tangible assets acquired and the excess was allocated to RGene's existing in-process technology and written off in the second quarter to in-process research and development. General and administrative expenses for the three- and six-month periods experienced moderate increases primarily attributable to an increased level of corporate development activities focused on the completion of additional corporate collaborations. 8 9 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS An annual meeting of the Company's shareholders ("Shareholders") was held on May 7, 1997 (the "Annual Meeting"). Of the 20,205,434 shares outstanding as of the record date, March 7, 1997, 16,610,986 shares, or 82.21% of the total shares eligible to vote at the Annual Meeting, were represented in person or by proxy. Two matters were submitted to a vote of the Shareholders at the Annual Meeting. First, an amendment to the 1994 Stock Option Plan for Nonemployee Directors providing for an increase in the number of shares available for grant from 120,000 to 300,000 was approved by 99.6% of the votes represented at the meeting. Second, H. Stewart Parker, Mark Richmond, Martin P. Sutter and Jack L. Bowman were elected as Directors of the Company, each receiving greater than 99% of the votes cast at the meeting. No other matters were submitted to a vote of the Shareholders. 9 10 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of this report. Exhibit No. Description ----------- ----------- 4.1 Warrant to purchase 25,000 shares of the Common Stock of Targeted Genetics Corporation, issued to Francis Chisari on May 15, 1997. 27.1 Financial Data Schedule 10 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TARGETED GENETICS CORPORATION ------------------------------------------------- (Registrant) Date August 7, 1997 /s/ H. STEWART PARKER ----------------------- ------------------------------------------------- H. Stewart Parker, Chief Executive Officer (Principal Executive Officer) Date August 7, 1997 /s/ JAMES A. JOHNSON ----------------------- ------------------------------------------------- James A. Johnson, Vice President, Finance (Principal Financial and Accounting Officer) 11 12 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 4.1 Warrant to purchase 25,000 shares of the Common Stock of Targeted Genetics Corporation, issued to Francis Chisari on May 15, 1997. 27.1 Financial Data Schedule EX-4.1 2 COMMON STOCK WARRANT 1 Exhibit 4.1 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE LAWS, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR SUCH TRANSACTION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND LAWS. TARGETED GENETICS CORPORATION COMMON STOCK WARRANT This certifies that for value received, FRANCIS CHISARI ("Chisari"), or registered assigns, is entitled, upon the terms and subject to the conditions hereinafter set forth, at any time on or after the date hereof (subject to the provisions of Section 1) and at or prior to 11:59 p.m., Pacific time, on May 15, 2004 (the "Expiration Time"), but not thereafter, to acquire from TARGETED GENETICS CORPORATION, a Washington corporation (the "Company"), in whole or from time to time in part, up to a maximum of 25,000 fully paid and nonassessable shares of Common Stock ("Warrant Stock") at a purchase price per share (the "Exercise Price") of $3.13. Such number of shares, type of security and Exercise Price are subject to adjustment as provided herein, and all references to "Warrant Stock" and "Exercise Price" herein shall be deemed to include any such adjustment. 1. VESTING OF WARRANTS The rights to purchase Warrant Stock pursuant to this Warrant shall exercisable according to the following schedule: (a) 20% immediately; and (b) an additional 20% on each anniversary date beginning May 15, 1998. 2. EXERCISE OF WARRANT Subject to the vesting requirements set forth in Section 1 hereof and to the termination provisions of Sections 10 and 12 hereof, the purchase rights represented by this Warrant are exercisable by the registered holder hereof, in whole or in part, at any time and from time to time at or prior to the Expiration Time by the surrender of this Warrant and the Notice of Exercise form attached hereto duly executed to the office of the Company at 1100 Olive Way, Suite 100, Seattle, Washington 98101 (or such other office or agency of the Company as it may designate by notice in writing to the registered holder hereof at the address of such holder appearing on the books of the Company), and upon payment of the Exercise Price for the shares thereby purchased (by cash or by check or bank draft payable to the order of the Company or by cancellation of indebtedness of the Company to the holder hereof, if any, at the time of exercise in an amount equal to the purchase price of the shares thereby purchased); whereupon the holder of this Warrant shall be entitled to receive from the Company a stock certificate in proper form representing the number of shares of Warrant Stock so purchased. 3. SECURITIES ACT COMPLIANCE As a condition of its delivery of the certificates for the Warrant Stock, the Company may require the registered holder hereof (or the transferee, if any, of the Warrant Stock in whose name the shares of Warrant Stock are to be registered) to deliver to the Company, in writing, representations regarding the purchaser's sophistication, investment intent, acquisition for his, her or its own account and such other matters as are reasonable and customary for purchasers of securities in an unregistered private offering and the Company may place 12 2 conspicuously upon each certificate representing shares of Warrant Stock a legend substantially in the following form, the terms of which are agreed to by the registered holder hereof (including any transferee of this Warrant or the Warrant Stock): THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE LAW, AND NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (II) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (III) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION. 4. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP Certificates for shares purchased hereunder shall be delivered to the holder hereof within a reasonable time after the date on which this Warrant shall have been exercised in accordance with the terms hereof. The Company agrees that the shares so issued shall be, and be deemed to be, issued to such holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been exercised in accordance with the terms hereof. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the then current price at which each share may be purchased hereunder shall be paid in cash or check to the holder of this Warrant. 5. CHARGES, TAXES AND EXPENSES Issuance of certificates for shares of Warrant Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Warrant Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof. 6. NO RIGHTS AS SHAREHOLDER This Warrant does not entitle the holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 7. EXCHANGE AND REGISTRY OF WARRANT This Warrant is exchangeable, upon the surrender hereof by the registered holder at the above-mentioned office or agency of the Company, for a new Warrant of like tenor and dated as of such exchange. The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered holder of this Warrant. This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms and subject to compliance with applicable laws, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) upon receipt of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental 13 3 thereto, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will make and deliver a new warrant of like tenor and dated as of such cancellation, in lieu of this Warrant. 9. SATURDAYS, SUNDAYS AND HOLIDAYS If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday. 10. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to merge or consolidate with or into any other corporation, effect any reorganization, or sell or convey all or substantially all of its assets to any other entity, in a transaction in which the shareholders of the Company immediately before the transaction will own immediately after the transaction less than a majority of the outstanding voting securities of the entity (or its parent) succeeding to the business of the Company (each such transaction, a "corporate transaction"), then the Company shall give the holder of this Warrant 20 days' prior written notice of the proposed effective date of such corporate transaction. The holder of this Warrant shall have the right, effective as of the consummation of such corporate transaction, to exercise this Warrant in whole or in part whether or not the vesting requirements set forth herein have been satisfied; provided, however, that this Warrant may not be exercised as to any unvested portion if this Warrant is assumed by the successor entity (or its parent) in the corporate transaction or replaced with a substantially equivalent warrant (subject to the same vesting schedule as is contained in Section 1 hereof) for the purchase of an amount of securities of the successor entity (or its parent) which the holder of this Warrant would have received in the corporate transaction had the unexercised portion of this Warrant (including the unvested portion) been exercised in full immediately prior thereto. If this Warrant has not been exercised by or on the effective date of such corporate transaction, it shall terminate. 11. RECLASSIFICATION, CONVERSION, ETC. If the Company at any time shall, by reclassification of securities or otherwise, change the Warrant Stock into the same or a different number of securities of any class or classes, this Warrant shall thereafter entitle the holder to acquire such number and kind of securities as would have been issuable in respect of the Warrant Stock (or other securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change) as the result of such change if this Warrant had been exercised in full for cash immediately prior to such change. The Exercise Price hereunder shall be adjusted if and to the extent necessary to reflect such change. If the Warrant Stock or other securities issuable upon exercise hereof are subdivided or combined into a greater or smaller number of shares of such security, the number of shares issuable hereunder shall be proportionately increased or decreased, as the case may be, and the Exercise Price shall be proportionately reduced or increased, as the case may be, in both cases according to the ratio which the total number of shares of such security to be outstanding immediately after such event bears to the total number of shares of such security outstanding immediately prior to such event. The Company shall give the holder prompt written notice of any change in the type of securities issuable hereunder, any adjustment of the Exercise Price for the securities issuable hereunder, and any increase or decrease in the number of shares issuable hereunder. 12. TERMINATION As consideration for this Warrant, Chisari has entered into that certain Consulting Agreement with the Company, dated as of May 15, 1997 (the "Consulting Agreement"). In the event of the breach of any representation or warranty or covenant of Chisari under the Consulting Agreement, this Warrant shall immediately terminate and shall be of no further force or effect. Unless terminated pursuant to this Section 12, or on the effective date of a corporate transaction as provided in Section 10, this Warrant shall remain in full force and effect. In particular, this Warrant shall remain in full force and effect if the Consulting Agreement is terminated, or if the Company abandons the research program in the Field (as defined in the Consulting 14 4 Agreement), for any reason other than the breach of any representation or warranty or covenant of Chisari contained therein. 13. REPRESENTATIONS AND WARRANTIES The Company hereby represents, warrants and covenants to the holder hereof that: (a) during the period this Warrant is outstanding, the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Warrant Stock upon the exercise of this Warrant; (b) the issuance of this Warrant shall constitute full authority to the Company's officers who are charged with the duty of executing stock certificates to execute and issue, or cause to be issued, the necessary certificates for the shares of Warrant Stock issuable upon exercise of this Warrant; (c) the Company has all requisite legal and corporate power to execute and deliver this Warrant, to sell and issue the Warrant Stock hereunder and perform its obligations under the terms of this Warrant; (d) the Warrant Stock, when issued in compliance with the provisions of this Warrant and the Company's Articles of Incorporation and Bylaws, will be validly issued, fully paid and nonassessable, and free of any liens or encumbrances (other than liens or encumbrances created by or imposed upon the holder of the Warrant Stock), and will be issued in compliance with all applicable federal and state securities laws. 14. COOPERATION The Company will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such reasonable action as may be necessary or appropriate in order to protect the rights of the holder of the Warrant against material impairment. 15. GOVERNING LAW This Warrant shall be governed by and construed in accordance with the laws of the state of Washington. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer. Dated: May 15, 1997 TARGETED GENETICS CORPORATION By /s/ H. Stewart Parker Title President & CEO ACCEPTED: 19 May, 1997 /s/ Francis Chisari - ------------------- Francis Chisari 15 5 NOTICE OF EXERCISE To: Targeted Genetics Corporation (1) The undersigned hereby elects to purchase __________ shares of Common Stock of Targeted Genetics Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: -------------------------------- (Name) -------------------------------- (Address) (3) The undersigned represents that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. - ---------------------------------- ----------------------------------- (Date) (Signature) 16 6 ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to ________________________________________________________________________________ (Please Print) whose address is________________________________________________________________ (Please Print) Dated:____________________________________________ Holder's Signature:_______________________________ Holder's Address:_________________________________ __________________________________________________ Guaranteed Signature:___________________________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. 17 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 165,953 11,695,920 0 0 0 12,212,507 9,920,018 (5,431,069) 17,269,194 2,765,078 0 0 0 73,398,369 0 17,269,194 0 687,753 0 0 7,755,767 0 181,520 0 0 (7,249,534) 0 0 0 (7,249,534) (.36) (.36)
-----END PRIVACY-ENHANCED MESSAGE-----