-----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, SA6GXAET/5WTxTt9LhVtNkGXI3EGk0ijhZzUT59hakvLjoDasHlk4nzNG9Z9Ix7n Lzu9d0m8boxPzLKGnvbNSg== 0000898430-99-000030.txt : 19990107 0000898430-99-000030.hdr.sgml : 19990107 ACCESSION NUMBER: 0000898430-99-000030 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19981123 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990106 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: 8-K SEC ACT: SEC FILE NUMBER: 000-23930 FILM NUMBER: 99501647 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 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): November 23, 1998 TARGETED GENETICS CORPORATION (Exact name of registrant as specified in charter) WASHINGTON 0-23930 91-1549568 (State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.) incorporation)
1100 OLIVE WAY, SUITE 100 SEATTLE, WASHINGTON 98101 (Address of principal executive offices) (Zip Code) (206) 623-7612 (Registrant's telephone number, including area code) ITEM 5. OTHER EVENTS On November 23, 1998, Targeted Genetics Corporation (the "Company") formed a collaboration with Medeva PLC and Medeva Pharmaceuticals, Inc. ("Medeva"), an affiliate of Medeva PLC, to develop and commercialize tgAAV-CF, the Company's potential gene therapy product for the treatment of cystic fibrosis. Pursuant to the collaboration, the Company and Medeva entered into a Master Agreement, a License and Collaboration Agreement and a Supply Agreement; the Company, Medeva and Medeva PLC entered into a Common Stock Purchase Agreement; and the Company and Medeva PLC entered into a Credit Agreement (collectively the "Collaboration Agreement"). Pursuant to the Collaboration Agreement, the Company could receive up to $54 million, including $12 million in loans. The consideration being paid by Medeva and Medeva PLC to the Company comprises: a $5 million technology license fee; clinical and regulatory milestone payments totaling $19 million; a loan of $2 million; investment in the Company equity totaling $3 million; and up to a maximum of $15 million in development funding for this project over a three year period. Under certain conditions, Medeva will also make available to the Company a loan of $10 million toward the building of a manufacturing facility for the production of tgAAV-CF. Of the above amounts, a total of $8.5 million is payable upon the signing of the Collaboration Agreement. Medeva will cover the cost of clinical and regulatory activities related to the development of the product for which it is responsible under the Collaboration Agreement. Clinical trials of tgAAV-CF in the United States will be managed by the Company through the completion of Phase I studies. The Company may, under certain conditions, manage Phase II clinical trials in the United States. Medeva will manage all other trials and will be responsible for worldwide registration of tgAAV-CF. Upon registration, Medeva will be responsible for worldwide marketing of the product. A joint development committee, comprised of three individuals from each company, will be formed to oversee the formation and execution of the tgAAV-CF clinical development plan. Assuming successful development and registration of the product, Medeva will purchase tgAAV-CF from the Company under the Supply Agreement. The Master Agreement is attached hereto as Exhibit 1.1, the License and Collaboration Agreement is attached hereto as Exhibit 1.2, the Supply Agreement is attached hereto as Exhibit 1.3, the Common Stock Purchase Agreement is attached hereto as Exhibit 1.4, and the Credit Agreement is attached hereto as Exhibit 1.5. A letter agreement, dated as of November 23, 1998, assigning Medeva's rights and obligations with respect to the initial purchase and sale of the Company's stock under the Common Stock Purchase Agreement to Medeva PLC, is attached as Exhibit 1.6. -2- ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibits.
EXHIBIT NO. DESCRIPTION - ----------- ------------------------------------------------------------------- 1.1* Master Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.2* License and Collaboration Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.3* Supply Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.4 Common Stock Purchase Agreement, dated as of November 23, 1998, by and among the Company, Medeva and Medeva PLC. 1.5 Credit Agreement, dated as of November 23, 1998, by and between the Company and Medeva PLC. 1.6 Letter agreement, dated as of November 23, 1998, assigning Medeva's rights and obligations with respect to the initial purchase and sale of the Company's stock under the Common Stock Purchase Agreement, dated as of November 23, 1998, to Medeva PLC, by and among the Company, Medeva and Medeva PLC.
* Confidential treatment requested; the omitted material has been separately filed with the Commission. -3- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. TARGETED GENETICS CORPORATION By: /s/ James A. Johnson --------------------- James A. Johnson Chief Financial Officer (Authorized Officer and Principal Financial Officer) Dated: January 4, 1999 -4- EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ------------------------------------------------------------------ 1.1* Master Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.2* License and Collaboration Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.3* Supply Agreement, dated as of November 23, 1998, by and between the Company and Medeva. 1.4 Common Stock Purchase Agreement, dated as of November 23, 1998, by and among the Company, Medeva and Medeva PLC. 1.5 Credit Agreement, dated as of November 23, 1998, by and between the Company and Medeva PLC. 1.6 Letter agreement, dated as of November 23, 1998, assigning Medeva's rights and obligations with respect to the initial purchase and sale of the Company's stock under the Common Stock Purchase Agreement, dated as of November 23, 1998, to Medeva PLC, by and among the Company, Medeva and Medeva PLC.
* Confidential treatment requested; the omitted material has been separately filed with the Commission. -5- EX-1.1 2 MASTER AGREEMENT EXHIBIT 1.1 ================================================================================ MASTER AGREEMENT BETWEEN TARGETED GENETICS CORPORATION AND MEDEVA PHARMACEUTICALS, INC. AN AFFILIATE OF MEDEVA PLC DATED NOVEMBER 23, 1998 ================================================================================ "[*]" = omitted, confidential material, which material has been separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 DEFINITIONS.................................................... 4 1.1 "Affiliate".................................................. 4 1.2 "Applicable Laws"............................................ 4 1.3 "Approval Application"....................................... 4 1.4 "Bulk Licensed Product"...................................... 5 1.5 "Contract Manufacturer"...................................... 5 1.6 "Control".................................................... 5 1.7 "Country".................................................... 5 1.8 "Development Period"......................................... 5 1.9 "Development Plan"........................................... 5 1.10 "Development Work"........................................... 6 1.11 "Europe"..................................................... 6 1.12 "FDA"........................................................ 6 1.13 "FFDCA"...................................................... 6 1.14 "Field"...................................................... 6 1.15 "First Commercial Sale"...................................... 6 1.16 "GLP"........................................................ 6 1.17 "GMP"........................................................ 7 1.18 "Government Authority"....................................... 7 1.19 "Improvement"................................................ 7 1.20 "Joint Invention"............................................ 7
1.21 "Joint Patents".............................................. 7 1.22 "Know-How"................................................... 7 1.23 "Licensed Know-How".......................................... 8 1.24 "Licensed Patent Rights"..................................... 8 1.25 "Licensed Product(s)"........................................ 8 1.26 "Major European Country"..................................... 8 1.27 "Manufacturing Cost"......................................... 8 1.28 "Medeva's Manufacturing Rights".............................. 8 1.29 "Medeva Trademarks".......................................... 8 1.30 "Minimum Performance Level".................................. 9 1.31 "Minor European Country"..................................... 9 1.32 "Net Sales".................................................. 9 1.33 "Net Sales Per Annual Dose".................................. 10 1.34 "New Product"................................................ 11 1.35 "Obligations"................................................ 11 1.36 "Outside Contractor"......................................... 11 1.37 "Patent Costs"............................................... 12 1.38 "Patent Rights".............................................. 12 1.39 "Phase I Clinical Trial"..................................... 12 1.40 "Phase II Clinical Trial".................................... 13 1.41 "Phase III Clinical Trial"................................... 13 1.42 "Project Year"............................................... 13 1.43 "Reasonable Commercial Efforts".............................. 13 1.44 "Region"..................................................... 13
ii 1.45 "Regulatory Approval"........................................ 13 1.46 "Responsible Executive"...................................... 13 1.47 "Specifications"............................................. 14 1.48 "Steering Committee"......................................... 14 1.49 "Sublicensee"................................................ 14 1.50 "Third Party"................................................ 14 1.51 "Third Party Agreement(s)"................................... 14 1.52 "Transaction Documents"...................................... 14 1.53 "Transfer Price"............................................. 14 1.54 "U.S." or "United States".................................... 14 ARTICLE 2 CORPORATE STRUCTURE AND CONTRACTUAL RELATIONSHIP............... 14 2.1 General...................................................... 14 2.2 Formation of New TGC Subsidiary.............................. 15 2.3 Pledge of Stock of TG-Sub.................................... 17 2.4 Security Interest............................................ 17 2.5 Cell Lines................................................... 18 2.6 Sublicense................................................... 18 2.7 Limitation................................................... 18 2.8 Further Assurances........................................... 19 ARTICLE 3 CONFIDENTIALITY................................................ 19 3.1 Confidentiality; Exceptions.................................. 19 3.2 Authorized Disclosure........................................ 21 3.3 Return of Confidential Information........................... 21
iii 3.4 Publications and Announcements............................... 22 ARTICLE 4 REPRESENTATIONS AND WARRANTIES................................. 24 4.1 Representations and Warranties of the Parties................ 24 4.2 Representations and Warranties of TGC........................ 24 4.3 Representations and Warranties Specific to Third Party Agreements................................................... 28 4.4 Disclaimer................................................... 31 ARTICLE 5 TERM AND TERMINATION........................................... 31 5.1 Term......................................................... 31 5.2 Termination at Will.......................................... 32 5.3 Termination for Cause........................................ 32 5.4 Limitation on Termination for Cause.......................... 33 5.5 Termination for Insolvency................................... 35 5.6 Rights on Termination........................................ 35 5.7 Accrued Rights............................................... 38 5.8 Survival..................................................... 38 ARTICLE 6 INDEMNIFICATION; INSURANCE; LIMITATION OF LIABILITY............ 38 6.1 Indemnification by Medeva.................................... 39 6.2 Indemnification by TGC....................................... 39 6.3 Indemnification Procedure.................................... 40 6.4 Insurance.................................................... 43 6.5 Limitation of Liability; Remedies Cumulative................. 43 ARTICLE 7 GOVERNING LAW; DISPUTE RESOLUTION.............................. 44 7.1 Governing Law................................................ 44
iv 7.2 Dispute Resolution........................................... 44 7.3 Courts of Law................................................ 44 ARTICLE 8 MISCELLANEOUS.................................................. 45 8.1 Assignment................................................... 45 8.2 Force Majeure................................................ 45 8.3 Further Actions.............................................. 46 8.4 Governmental Approvals; Compliance with Law.................. 46 8.5 Public Announcement.......................................... 46 8.6 Notices...................................................... 47 8.7 Waiver....................................................... 48 8.8 Disclaimer of Agency......................................... 49 8.9 Severability................................................. 49 8.10 Entire Agreement............................................. 50 8.11 Counterparts................................................. 50
List of Schedules and Exhibits Schedule 1.7 Countries and Regions Schedule 1.38A U.S. Patent Rights Schedule 1.38B Non-U.S. Patent Rights Schedule 1.47 Specifications for Bulk Licensed Product Schedule 4.2 Other Patent Rights v MASTER AGREEMENT THIS MASTER AGREEMENT (the "Agreement") is made effective as of the 23rd day of November 1998 (the "Effective Date") by and between TARGETED GENETICS CORPORATION, a corporation organized under the laws of the State of Washington, United States of America, having offices at 1100 Olive Way, Suite 100, Seattle, Washington 98101, United States of America ("TGC"), and MEDEVA PHARMACEUTICALS, INC., having offices at 755 Jefferson Road, Rochester, New York 14632, United States of America ("Medeva"), an Affiliate of MEDEVA PLC, a public limited liability company organized under the laws of England, having offices at 10 St. James's Street, London, SW1A 1EF, England ("Medeva PLC"). TGC and Medeva are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS 1. TGC has entered into the following four license agreements (collectively, the "Third Party Agreements") under which it acquired certain rights relating to cystic fibrosis gene therapy: (a) a non-exclusive license agreement, dated March 28, 1994, with the Regents of the University of Michigan and HSC Research and Development Limited Partnership (the "U. Michigan/HSC Agreement"), (b) a non-exclusive license agreement, dated June 23, 1993, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-232-92 Agreement"), (c) an exclusive license agreement, dated March 8, 1994, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-059-93 Agreement"), and (d) an exclusive sub- license agreement, dated July 23, 1996, with Alkermes, Inc., an exclusive licensee 1 of the Children's Hospital Research Foundation/Children's Hospital, Inc. (the "Alkermes Agreement"). 2. TGC owns or, pursuant to the Third Party Agreements, is a licensee of certain patents, patent applications and valuable technology and know-how relating inter alia to cystic fibrosis gene therapy and the treatment of cystic fibrosis using an adeno-associated viral ("AAV") vector to deliver a gene encoding cystic fibrosis transmembrane regulator ("CFTR") protein. 3. Medeva has valuable intellectual property and technology relating to delivery of pharmaceutical products by inhalation and other means and has experience with the clinical development and marketing of such products. 4. The Parties wish to collaborate in the further development and commercialization of a CFTR gene therapy product for the treatment of cystic fibrosis. 5. It is the intent of the Parties that TGC will manufacture such CFTR gene therapy product in bulk form (defined hereinafter as "Bulk Licensed Product") and supply such Bulk Licensed Product exclusively to Medeva, and that Medeva, after purchase of such Bulk Licensed Product from TGC, will finish and pack such bulk form CFTR gene therapy product to provide a final finished form of the product (defined hereinafter as "Licensed Product") for purposes of marketing, selling and otherwise commercializing such Licensed Product. 6. In furtherance of these objectives, the Parties are concurrently herewith entering into the following agreements: (a) A certain License and Collaboration Agreement (the "LCA"), pursuant to which the Parties will collaborate to develop such a CFTR gene therapy product, and possibly 2 other gene therapy products, for the treatment of cystic fibrosis, on terms and conditions set forth more fully therein. The LCA will also include a license to Medeva of TGC's rights under certain extant and future patents, patent applications and know-how (excluding patents, patent applications and know-how under the Third Party Agreements) to use the Bulk Licensed Product to make, have made, use, have used, offer for sale, lease, market, sell, have sold and import the Licensed Products; (b) A certain Supply Agreement (the "Supply Agreement"), pursuant to which TGC will manufacture Bulk Licensed Product and supply it to Medeva, on terms and conditions set forth more fully therein; (c) A certain Common Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which Medeva will purchase from TGC shares of common stock of TGC, on terms and conditions set forth more fully therein; and (d) A certain Credit Agreement (the "Credit Agreement"), pursuant to which Medeva will extend TGC credit for the purpose of constructing a facility to manufacture Bulk Licensed Product, on terms and conditions set forth more fully therein. 7. The Parties acknowledge and agree that development of human therapeutic products involves risk and, in an effort to reduce the level of risk in connection with the Parties' activities under the several agreements described in paragraph 6 above, the Parties, to the extent consistent with the long-range business objectives of both TGC and Medeva and as may be possible under each of the Parties' separate circumstances, desire to segregate certain assets, rights and liabilities associated with the development, manufacture and commercialization of Bulk Licensed Product and the Licensed Product(s). As a result, TGC intends to organize a new 3 corporate structure and to provide contractual arrangements, as described in further detail in Article 2 hereinbelow, to protect the respective interests of each of the Parties. In consideration of the premises and of the mutual covenants and obligations set forth herein, the Parties agree as set out below. ARTICLE 1 DEFINITIONS The following capitalized terms shall have the following meanings when used in the Transaction Documents (as defined in Section 1.52 below): 1.1 "AFFILIATE" means any individual, corporation, association or other business entity which directly or indirectly controls, is controlled by or is under common control with the Party in question. As used in this definition of "Affiliate," the term "control" means the direct or indirect ownership of more than fifty percent (50%) of the stock having the right to vote for directors thereof or the ability to otherwise control the management of the corporation or other business entity whether through the ownership of voting securities, by contract, resolution, regulation or otherwise. 1.2 "APPLICABLE LAWS" means all laws, statutes, ordinances, codes, rules and regulations which have been enacted by a Government Authority and are in force as of the Effective Date or come into force during the term of this Agreement, in each case to the extent that the same are applicable to the performance by the Parties of their respective obligations under this Agreement. For purposes of the Transaction Documents, GLP and GMP shall be deemed to be within the term "Applicable Laws." 4 1.3 "APPROVAL APPLICATION" means the appropriate application(s) necessary to obtain Regulatory Approval(s), together with all documents, data and information concerning Licensed Products in the Field required to be included with such application(s). 1.4 "BULK LICENSED PRODUCT" means TGC's CFTR gene therapy product, as further described in the Specifications; 1.5 "CONTRACT MANUFACTURER" means any Third Party contracted by TGC or Medeva to provide manufacturing-related products or services which constitute or are material to Bulk Licensed Product or to Licensed Product, or any component or ingredient therein, or which result in any work product or other information that TGC or Medeva would include or might reasonably be expected to include in any document or report, including without limitation an Approval Application, submitted to a Government Authority or be subject to review by a Government Authority including without limitation the FDA. Without limiting the foregoing, the term "Contract Manufacturer" shall include any Third Party, other than an Outside Contractor, contracted by TGC or Medeva whose acts or omissions in connection with its assumption of any obligation of TGC or Medeva under the Supply Agreement would be imputed to, and would therefore be considered, the acts or omissions of TGC or Medeva pursuant to FFDCA or by a Government Authority, including without limitation FDA. 1.6 "CONTROL" means, with respect to intellectual property, that the named Party owns such intellectual property, or otherwise possesses the ability to grant a license or sublicense under such intellectual property without violating the terms of any agreement or other arrangement with a Third Party and to the extent permitted thereby. 1.7 "COUNTRY" means, for each Region, the country or, in the case of Regions 3, 4 and 5, each of the countries, as selected by Medeva, set forth in column (a) of Schedule 1.7. ------------ 5 1.8 "DEVELOPMENT PERIOD" means the term of the Development Plan. 1.9 "DEVELOPMENT PLAN" shall have the meaning set forth in Section 3.1 of the LCA. 1.10 "DEVELOPMENT WORK" shall have the meaning set forth in Section 3.1 of the LCA. 1.11 "EUROPE" means all of the Major European Countries and all of the Minor European Countries. 1.12 "FDA" means the United States Food and Drug Administration, and any successor thereto. 1.13 "FFDCA" means the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. (S) 321 et seq., as amended. 1.14 "FIELD" means the treatment of cystic fibrosis. 1.15 "FIRST COMMERCIAL SALE" means the first sale of a Licensed Product by Medeva, its Affiliates or its Sublicensees for use or consumption of such Licensed Product in a Country where Regulatory Approval of such Licensed Product has been obtained by Medeva. Sale of a Licensed Product by Medeva to an Affiliate of Medeva or a Sublicensee of Medeva shall not constitute a First Commercial Sale unless such Affiliate or such Sublicensee is the end user of the Licensed Product, provided, however, in no event shall any sales for premarketing, testing or sampling be deemed a First Commercial Sale. 1.16 "GLP" means current good laboratory practices equivalent to those applicable in the United States and Europe and in effect from time to time during the term of this Agreement. 6 1.17 "GMP" means current good manufacturing practices equivalent to those applicable in the United States and Europe and in effect from time to time during the term of this Agreement. 1.18 "GOVERNMENT AUTHORITY" means any supranational, national, regional, state or local government, court, governmental agency, authority, board, bureau, instrumentality or regulatory body. 1.19 "IMPROVEMENT" means any improvement in or modification to an existing Licensed Product, including without limitation any intellectual property (whether patented or the subject of patent applications or otherwise) covering such improvement or modification, except to the extent that such improvement or modification results in a molecular sequence that is different from the molecular sequence of such Licensed Product. The term Improvement shall not include any New Product, as defined in Section 1.34. 1.20 "JOINT INVENTION" means any invention, development, or discovery made or created jointly by employees or agents of TGC or any of its Affiliates, and employees or agents of Medeva or any of its Affiliates during the course of performance of Development Work pursuant to the Development Plan. 1.21 "JOINT PATENTS" means (i) all patents that claim Joint Inventions and that are filed by or on behalf of TGC and/or Medeva or an Affiliate of either pursuant to Section 6.4 of the LCA; (ii) any applications for patents that claim improvements on Joint Inventions; (iii) any divisional, continuation, continuation-in-part or substitute application which claims priority from any of the foregoing applications; and (iv) any patent which may issue on any of the foregoing applications and any extensions, reexaminations or re-issues of any of the foregoing patents. 7 1.22 "KNOW-HOW" means information, data and proprietary rights of any type whatsoever (other than the Patent Rights) in any tangible or intangible form whatsoever which is relevant to the development, manufacture and commercialization of Bulk Licensed Products and Licensed Products, including without limitation inventions, practices, methods, techniques, specifications, formulations, formulae, knowledge, know-how, skill, experience, test data (including pharmacological, biological, chemical, biochemical, toxicological and clinical test data), analytical and quality control data, stability data, results of studies, technical drawings and related copyrights, and other similar information. 1.23 "LICENSED KNOW-HOW" means Know-How Controlled by TGC at any time during the term of this Agreement. 1.24 "LICENSED PATENT RIGHTS" means the Patent Rights, excluding any and all patents and patent applications licensed to TGC under the Third Party Agreements. 1.25 "LICENSED PRODUCT(S)" means any product containing Bulk Licensed Product. 1.26 "MAJOR EUROPEAN COUNTRY" means each of [ * ]. 1.27 "MANUFACTURING COST" means the actual cost of manufacturing Bulk Licensed Product, consisting of (i) the direct cost of transport, labor and materials, and (ii) allocable manufacturing related overhead, but excluding general administrative costs relating to the management of the company as opposed to the costs of management of the manufacturing of Bulk Licensed Product. All such costs shall be determined in accordance with generally accepted accounting principles. - ------------------------------------ /*/ Confidential Treatment Requested. 8 1.28 "MEDEVA'S MANUFACTURING RIGHTS" shall have the meaning set forth in Section 2.3. 1.29 "MEDEVA TRADEMARKS" shall have the meaning set forth in Section 4.4 of the LCA. 1.30 "MINIMUM PERFORMANCE LEVEL" means treatment with a Licensed Product of at least (i) [ * ] of the treatable population in the Field in each Country in each of the following Regions: Region 1, Region 2 and Region 3, and (ii) [ * ] -------- -------- -------- of the treatable population in the Field in each Country in each of the following Regions: Region 4 and Region 5. Notwithstanding the above, in the -------- -------- event that competition from a Third Party exists in any Country in any Region for the treatment of the treatable population by a product which generates functional CFTR protein other than a Licensed Product, the percentages set forth as the Minimum Performance Level under (i) and (ii) above shall be reduced to [ * ] and [ * ], respectively. For purposes of this Section 1.30, the phrase "the treatable population in the Field" with respect to a Country shall mean those patients registered as cystic fibrosis patients with a clinic or other treatment center known to Medeva in such Country for whom treatment by Licensed Product is permitted in accordance with a Regulatory Approval in such Country. 1.31 "MINOR EUROPEAN COUNTRY" means each of the countries (other than the Major European Countries) comprising the European Union and the European Free Trade Area as of the Effective Date. 1.32 "NET SALES" means the amount billed or invoiced in U.S. dollars (or converted thereto in accordance with the rate announced by NatWest Bank, London, England, for purchase - ------------------------------------ /*/ Confidential Treatment Requested. 9 of the applicable currency on the last day of the calendar quarter in which such amount was billed or invoiced) on sales of Licensed Products by a Party or Affiliates of a Party or Sublicensees of a Party to independent, unrelated parties in bona fide arm's length transactions, less the following deductions, in each case related specifically to a Licensed Product and, except in respect of clause (viii) below, actually allowed and taken by such parties and not otherwise recovered by or reimbursed to such Party or an Affiliate of such Party or a Sublicensee of such Party: (i) trade, cash, promotional and quantity discounts to the extent that such amounts are set forth separately as such in the total amount billed or invoiced; (ii) taxes on sales (such as sales or use taxes or value added tax) to the extent added to the sales price and set forth separately as such in the total amount billed or invoiced; (iii) freight, insurance, packing costs and other transportation charges to the extent added to the sales price and set forth separately as such in the total amount billed or invoiced; (iv) amounts repaid or credits taken by reason of rejections, defects or returns or because of retroactive price reductions, or due to recalls or government laws or regulations requiring rebates; (v) free goods, rebates taken by or fees paid to distributors, and charge-backs to the extent that such amounts are documented; (vi) documented customs duties actually paid by such Party, Affiliates of such Party or Sublicensees of such Party on import into the country of sale; (vii) [ * ]; and (viii) allowances for doubtful accounts recorded by a Party in its financial books and records, and determined in accordance with GAAP in the U.S. in the case of TGC and in the United Kingdom in the case of Medeva. Net Sales shall also include the amount or fair market value of all other consideration received by a Party or Affiliates of a Party or Sublicensees of a Party in respect of Licensed Products, whether such consideration is in cash, payment in kind, exchange or other form. - ------------------------------------ /*/ Confidential Treatment Requested. 10 1.33 "NET SALES PER ANNUAL DOSE" means the numerical value obtained from (i) Net Sales in a period (i.e., a calendar quarter or a calendar year) in each jurisdiction where Licensed Products were sold, divided by (ii) the number of doses sold in such period in such jurisdiction, multiplied by (iii) the number of doses of Licensed Product to be administered to a patient in a one-year period as indicated under the Regulatory Approval for such Licensed Product in such jurisdiction (or, if such a number of doses is not so indicated, the number of doses per patient generally used). 1.34 "NEW PRODUCT" means any product, including without limitation any intellectual property (whether patented or the subject of patent applications or otherwise) covering such product, with a molecular sequence that is different from the molecular sequence of an existing Licensed Product. For purposes of example, a product which would be the result of a modification of either the promoter, the gene or the vector of an existing Licensed Product would be a New Product. The term New Product shall not include any Improvement, as such term is defined in Section 1.19. 1.35 "OBLIGATIONS" shall have the meaning set forth in Section 2.3. 1.36 "OUTSIDE CONTRACTOR" means any Third Party contracted by TGC or Medeva to provide products or services, including without limitation regulatory services, but excluding manufacturing-related products or services, which are material to the performance of its responsibilities under the Development Plan, or which result in any work product or other information that TGC or Medeva would include or might reasonably be expected to include in any document or report, including without limitation an Approval Application, submitted to a Government Authority or be subject to review by a Government Authority, including without limitation the FDA. Without limiting the foregoing, the term "Outside Contractor" shall include 11 any Third Party, other than a Contract Manufacturer, contracted by TGC or Medeva whose acts or omissions in connection with its assumption of any obligation of TGC or Medeva under the LCA or the Supply Agreement, would be imputed to, and would therefore be considered the acts or omissions of, TGC or Medeva pursuant to FFDCA or by a Government Authority, including without limitation FDA. 1.37 "PATENT COSTS" means all preparation, filing, prosecution and maintenance out-of-pocket fees and expenses, incurred in connection with the establishment and maintenance of rights under the Patent Rights or Joint Patents. 1.38 "PATENT RIGHTS" means (i) the U.S. patents and patent applications listed on Schedule 1.38A attached hereto plus such other U.S. patents and patent -------------- applications Controlled by TGC at any time during the term of this Agreement covering any Licensed Product, including but not limited to Improvements and New Products provided that patents and patent applications covering an Improvement or New Product shall be included hereunder only if such Improvement or New Product has been recommended by the Steering Committee and approved by the Parties for development pursuant to Section 2.4 of the LCA, but excluding any and all U.S. patents and patent applications licensed to TGC under the Third Party Agreements; (ii) any divisional, continuation, continuation-in-part or substitute application which claims priority from any of the foregoing patent applications; (iii) any and all U.S. patents which may issue on any of the patent applications within (i) or (ii) above; (iv) any extensions, re- examinations, or reissues of U.S. patents within (i) or (iii) above; (v) any and all foreign patent applications and patents corresponding to any of the patent applications or patents within (i), (ii), (iii) or (iv) above, including without limitation the patents and patent applications listed on Schedule 1.38B; and -------------- 12 (vi) any and all patents and patent applications licensed to TGC under the Third Party Agreements as of the Effective Date or thereafter. 1.39 "PHASE I CLINICAL TRIAL" shall have the meaning set forth in Section 1 of Exhibit A to the LCA. --------- 1.40 "PHASE II CLINICAL TRIAL" shall have the meaning set forth in Section 1 of Exhibit A to the LCA. --------- 1.41 "PHASE III CLINICAL TRIAL" shall have the meaning set forth in Section 1 of Exhibit A to the LCA. --------- 1.42 "PROJECT YEAR" means the applicable twelve (12) month period beginning on the first day of the calendar quarter in which this Agreement is executed, or on any anniversary thereof. 1.43 "REASONABLE COMMERCIAL EFFORTS" shall be determined under the law of the State of New York, United States of America, and shall mean such efforts as are consistent with good faith efforts made by businesses of similar size and resources in a similar circumstance and context to achieve a particular result in a timely manner, but shall not require a Party to take actions that would be commercially unreasonable to such Party in the circumstances. 1.44 "REGION" means each of the geographical regions set forth in column (b) of Schedule 1.7 attached hereto. ------------ 1.45 "REGULATORY APPROVAL" means, with respect to a nation or multinational jurisdiction, (i) any approvals, licenses, registrations or authorizations necessary for the manufacture (where relevant), marketing and sale of Licensed Products in the Field in such 13 nation or jurisdiction, and (ii) where relevant, pricing approvals necessary to obtain reimbursement from a Government Authority. 1.46 "RESPONSIBLE EXECUTIVE" means the Chief Executive Officer of a Party, or his or her duly appointed representative. 1.47 "SPECIFICATIONS" shall mean the specifications set forth in Schedule -------- 1.47 attached hereto, as amended or otherwise revised from time to time by - ---- mutual agreement of the Parties. 1.48 "STEERING COMMITTEE" shall have the meaning set forth in Section 3.1 of the LCA. 1.49 "SUBLICENSEE" means an authorized or permitted sublicensee of a Party. 1.50 "THIRD PARTY" means any individual or entity other than TGC or Medeva or their respective Affiliates. 1.51 "THIRD PARTY AGREEMENT(S)" means the four (4) license agreements entered into by TGC under which TGC acquired certain rights relating to cystic fibrosis gene therapy, as more fully identified in Recital 1 of this Agreement. 1.52 "TRANSACTION DOCUMENTS" means this Agreement, the LCA, the Supply Agreement, the Credit Agreement and the Stock Purchase Agreement. 1.53 "TRANSFER PRICE" shall have the meaning set forth in Section 2.2.1 of the Supply Agreement. 1.54 "U.S." or "UNITED STATES" means the United States of America and its territories and possessions. ARTICLE 2 14 CORPORATE STRUCTURE AND CONTRACTUAL RELATIONSHIP 2.1 GENERAL. The parties will use their Reasonable Commercial Efforts to consummate the restructuring set forth in this Article 2 promptly after the date hereof. The agreements of TGC in this Article 2 are subject to the condition precedent that TGC shall be reasonably satisfied that performance of these agreements will not (i) result in breach of any material agreement to which TGC is a party, (ii) violate any Applicable Law, (iii) result in the imposition of a lien (except in favor of Medeva or its Affiliates) on or loss of any property rights of TGC, (iv) have a material adverse effect on TGC, its business, properties, or prospects, or (v) require TGC to pay additional royalties or other charges to Third Parties that Medeva will not pay or reimburse to TGC. If any action to be taken by TGC at Medeva's request in pursuit of the transactions set forth in this Article 2 requires that TGC pay royalties or other charges to Third Parties beyond those contemplated by the LCA and the Supply Agreement, Medeva shall reimburse TGC any and all such royalties and other charges. Notwithstanding the previous sentence, if Medeva determines that the cost and expense, including without limitation any such additional royalties and other charges, relating to any of such transactions is not justified, Medeva shall instruct TGC not to enter into such transaction and thereby avoid such cost and expense. 2.2 FORMATION OF NEW TGC SUBSIDIARY. 2.2.1 TGC will (i) organize an entity controlled by TGC ("TG-Sub") as a business entity acceptable to TGC; (ii) contribute to TG-Sub (the form of such investment to be determined by TGC) assets (and related liabilities) which are required by TGC to manufacture Bulk Licensed Product for Phase III Clinical Trials and commercial sale, including without 15 limitation the assets described in this Article 2, but excluding any such assets which are used by TGC in the conduct of its other business so long as TG-Sub shall have the right to use such assets to manufacture Bulk Licensed Product; (iii) except as otherwise may be agreed by TGC, not permit TG-Sub to own any assets other than as contemplated by this Agreement, to have any employees, or conduct any business other than the production of Bulk Licensed Product; and (iv) enter into such management and other agreements with TG-Sub as shall be necessary or useful to TGC and TG-Sub in the conduct of their respective businesses it being understood that although TG-Sub will own the assets herein described it will not be an operating company and that all the operations contemplated by the Transaction Documents will be performed by TGC. The agreements of TGC in Section 2.2.2 through 2.2.7 below are subject to provisions contained in this Section 2.2. 1. 2.2.2 TGC will grant TG-Sub an exclusive sublicense of TGC's rights under the Alkermes Agreement for use in the Field. The Parties believe that Alkermes' consent will not be required for this sublicense pursuant to Section 2.2 of the Alkermes Agreement. 2.2.3 TGC will assign all its rights under the U. Michigan/HSC Agreement to TG-Sub pursuant to Section 13 of such agreement. The Parties acknowledge that the consent of TGC's counterparties to such agreement will be required for such assignment. 2.2.4 TGC will assign all its rights under the NIH/CDC L-059-93 Agreement to TG-Sub pursuant to Section 12.07 of such agreement. The Parties believe that the consent of TGC's counterparties to such agreements will not be required for such assignments. 2.2.5 TGC will assign to TG-Sub, or grant TG-Sub an exclusive sublicense under, TGC's rights under the NIH/CDC L-232-92 Agreement for use in the Field pursuant to Section 14.07 or 3.02 of such agreement. The Parties acknowledge that the consent of TGC's 16 counterparties to such agreement may be required in the case of an assignment and would be required in the case of a sublicense. 2.2.6 TGC will grant TG-Sub an exclusive license for use in the Field under all Licensed Patent Rights and Licensed Know-How following which TG-Sub will become the assignee of TGC under Section 8.1 of this Agreement. 2.2.7 TGC will assign to TG-Sub all TGC's rights in respect of leasehold, contractual, title and other property interests in the manufacturing facilities, equipment and contracts used to manufacture Bulk Licensed Product for Phase III Clinical Trials under the LCA and Supply Agreement and for commercial sale under the Supply Agreement. If at any time, any of such facilities, equipment or contracts are no longer required or reasonably likely to be required to manufacture Bulk Licensed Product, all such rights with respect to such facilities, equipment and contracts may be assigned or otherwise transferred by TG-Sub out of TG-Sub. 2.3 PLEDGE OF STOCK OF TG-SUB. TGC will pledge all the shares of the capital stock of TG-Sub to Medeva to secure Medeva's right to manufacture Bulk Licensed Product pursuant to Section 3.4 of the Supply Agreement, ("Medeva's Manufacturing Rights") and TGC's and TG-Sub's obligations to Medeva under such section (the "Obligations"). Such shares will be held in escrow under terms that will be adequate to perfect Medeva's first priority lien thereon. 2.4 SECURITY INTEREST. TG-Sub will grant Medeva a security interest in substantially all its assets to secure Medeva's Manufacturing Rights and TGC's Obligations; such assets to include a leasehold mortgage on any real property leases and a lien upon TG-Sub's contracts, equipment leases, intangible contract rights, and equipment and all proceeds thereof (the "Collateral"). TGC will likewise grant Medeva a lien on all of its interest, if any, in the Collateral. The Parties acknowledge that the consent of the counterparties to TGC's Collateral 17 consisting of contract rights may be required to grant these liens, including without limitation, the counterparties under the U. Michigan/HSC Agreement pursuant to Section 13 thereof. 2.5 CELL LINES. TGC and TG-Sub will sell to Medeva all cell lines and other bio-material extant or resulting from the Development Work under the LCA (the "Cell Lines"). Medeva will store the Cell Lines in its facilities in the U.S. or U.K. 2.6 SUBLICENSE. TG (and/or TG-Sub) will grant Medeva a sublicense, co- exclusive with itself (and TG-Sub in the case of [ * ] Agreement) of TGC's (and/or TG-Sub's) rights under the [ * ] Agreement and the [ * ] Agreement for use in the Field (the "Sublicense"). The Parties believe that the consent of TGC's counterparties to the [ * ] Agreement will be required. 2.7 LIMITATION. Notwithstanding anything in this Agreement to the contrary, Medeva agrees that, except as necessary to enforce Medeva's Manufacturing Rights or in the event of a breach by TGC of its Obligations, (i) TG-Sub will be at all times under the sole dominion and control of TGC; (ii) TG-Sub may, at any time, pay dividends to, make loans to, investments in and other transfers to TGC from net profits and assets not required to perform its obligations under the Transaction Documents; (iii) TG-Sub may incur obligations, grant liens on its property and acquire assets in the ordinary course of business; (iv) in the ordinary course of business, TGC and/or TG-Sub may enter into agreements with Third Parties, including leases, licenses and agreements, which (notwithstanding the use by TGC of its Reasonable Commercial Efforts to avoid such prohibition) by their terms prohibit encumbrance or assignment; (v) Medeva will execute and deliver such subordination and intercreditor agreements as TGC or TG-Sub may - ------------------------------------ /*/ Confidential Treatment Requested. 18 reasonably request in the exercise of its rights as herein provided (including, without limitation, agreements subordinating liens granted to Medeva to liens granted to parties extending credit to TG-Sub); and (vi) Medeva will agree that it will not exercise its rights in respect of the Collateral or the Sublicense and that it will not use or grant any Third Party the right to use the Cell Lines, except as necessary to exercise Medeva's Manufacturing Rights and to enforce the Obligations. 2.8 FURTHER ASSURANCES. Each Party agrees to use its Reasonable Commercial Efforts to execute, acknowledge and deliver such further instruments, and to do all such other acts as may be necessary or appropriate to carry out the purposes of this Article 2 including without limitation, filing financing statements, mortgages and notices as may be necessary to perfect and give Third Parties notice of Medeva's rights hereunder. ARTICLE 3 CONFIDENTIALITY 3.1 CONFIDENTIALITY; EXCEPTIONS. Except as otherwise provided in the Transaction Documents, the Parties agree that, for the term of this Agreement and for ten (10) years thereafter, all non-public, proprietary or "confidential" marked invention disclosures, know-how, data, and technical, financial and other information of any nature whatsoever, including without limitation all discussions and information exchanged between the Parties pursuant to a certain nondisclosure agreement entered into by the Parties dated September 2, 1997 (collectively, "Confidential Information"), disclosed or submitted, either orally or in writing (including without limitation by electronic means) or through observation, by one Party (the "Disclosing Party") to the other Party (the "Receiving Party") hereunder shall be received and maintained by the Receiving Party in strict confidence, shall not be used for any purpose other than the purposes expressly permitted by the Transaction Documents, and shall not be disclosed to any 19 Third Party (including without limitation in connection with any publications, presentations or other disclosures). Notwithstanding the foregoing, the Receiving Party may, subject to the provisions of the Transaction Documents, disclose the Disclosing Party's Confidential Information to those of its and its Affiliates' or its Sublicensees' directors, officers, employees, agents, consultants and clinical investigators that have a need to know such Confidential Information to achieve the purposes of any of the Transaction Documents and the documents contemplated by Article 2 (the "Restructuring Documents"); provided, however, that such Party shall ensure that its and its Affiliates' or Sublicensees' directors, officers, employees, agents, consultants or clinical investigators to whom disclosure is to be made are bound by, and take reasonable efforts to ensure compliance with, the confidentiality terms hereof. Each Party will promptly notify the other upon discovery of any unauthorized use or disclosure of the Confidential Information. Except as may result in certain circumstances under the Restructuring Documents, Confidential Information belongs to and shall remain the property of the Disclosing Party. The provisions of this Article 3 shall not apply to any information which can be shown by the Receiving Party: 3.1.1 To have been known to or in the possession of the Receiving Party prior to the date of its actual receipt from the Disclosing Party; 3.1.2 To be or to have become readily available to the public other than through any act or omission of the Receiving Party in breach of any of the Transaction Documents or any other agreement between the Parties; 3.1.3 To have been disclosed to the Receiving Party, other than under an obligation of confidentiality, by a Third Party which had no obligation to the Disclosing Party not to disclose such information to others; or 20 3.1.4 To have been subsequently independently developed by the Receiving Party without use of the Confidential Information as demonstrated by competent written records. 3.2 AUTHORIZED DISCLOSURE. Each Party may disclose Confidential Information hereunder solely to the extent such disclosure is reasonably necessary in connection with submissions to any Government Authority for the purposes of any of the Transaction Documents or in filing or prosecuting patent applications contemplated under the Transaction Documents, prosecuting or defending litigation, complying with Applicable Laws or conducting Development Work for the purposes expressly permitted by any of the Transaction Documents; provided that in the event of any such disclosure of the Disclosing Party's Confidential Information by the Receiving Party, the Receiving Party will, except where impracticable, give reasonable advance notice to the Disclosing Party of such disclosure requirement (so that the Disclosing Party may seek a protective order and or other appropriate remedy or waive compliance with the confidentiality provisions of this Article 3) and will use its reasonable efforts to secure confidential treatment of such Confidential Information required to be disclosed. Notwithstanding the above, Medeva may disclose preclinical and clinical data and results relating to Licensed Products to qualified medical professionals for the limited purposes of marketing such Licensed Products and conducting medical education initiatives reasonably designed to increase Net Sales. 3.3 RETURN OF CONFIDENTIAL INFORMATION. The Receiving Party shall keep Confidential Information belonging to the Disclosing Party in appropriately secure locations. Upon the expiration or termination of this Agreement, any and all Confidential Information possessed in tangible form by a Receiving Party, its Affiliates or Sublicensees, or its or any of their officers, directors, employees, agents, consultants or clinical investigators and belonging to 21 the Disclosing Party, shall, upon written request, be immediately returned to the Disclosing Party (or destroyed if so requested) and not retained by the Receiving Party, its Affiliates or Sublicensees, or any of their officers, directors, employees, agents, consultants or clinical investigators; provided however that a Party may retain one (1) copy of any Confidential Information in an appropriately secure location, which by Applicable Laws it must retain, for so long as such Applicable Laws require such retention but thereafter shall dispose of such retained Confidential Information in accordance with Applicable Laws or this Section 3.3. 3.4 PUBLICATIONS AND ANNOUNCEMENTS. Except as otherwise permitted under any of the Transaction Documents or as required by law, regulation, or court order, each Party agrees not to publish any Confidential Information received from the other Party. Except as required by law, regulation or court order, Medeva and TGC each agree that without obtaining the other Party's prior written approval for any publication or any presentation, which shall not be unreasonably withheld, neither Party shall publish or present (i) any Confidential Information generated by that Party and related to the development or commercialization of Licensed Products for use in the Field, or (ii) the results of any clinical trial studies or non-clinical studies or investigations carried out by that Party related to the development of Licensed Products for use in the Field. At least thirty (30) days prior to any such publication or presentation, the Party proposing to publish or present shall provide the other Party a copy of the proposed abstract, manuscript or presentation (including without limitation information to be presented verbally) for review. The other Party shall respond in writing within such time period with either approval of the proposed material or a specific statement of (a) concern based upon the need to seek patent protection, (b) concern regarding competitive disadvantage arising from the proposal, or (c) concern regarding the timing and circumstances of such disclosure in light of such Party's 22 business. In the event that the other Party has concerns about disclosure of Confidential Information, the Party proposing to publish agrees to provide such other Party any additional information relating to the proposed disclosure, as reasonably requested by such other Party. In the event of concern relating to patent protection, the Party proposing to publish agrees not to submit such abstract or manuscript for publication or to make such presentation until the other Party has had a reasonable period of time to seek patent protection for any material in such publication or presentation which it believes is patentable or to resolve any other issues, such period not to exceed sixty (60) additional days. In the event of concern regarding competitive disadvantage or the timing and other circumstances relevant to the disclosure, the Parties will negotiate in good faith to attempt to arrive at a compromise to permit the disclosing Party an opportunity to publish or present the disclosure within a reasonable period of time. The Party proposing to publish also agrees to delete from any such abstract or manuscript or presentation any Confidential Information of the other Party that such other Party reasonably believes has commercial value based upon the secrecy of such information. Once approval for a publication or presentation has been granted, the relevant Party shall be entitled to use information contained in such publication or presentation after the date of its publication or presentation without seeking further approval. It is understood that general comments made by a Party relating to the relationship between Medeva and TGC established by the Transaction Documents, including, for example, general comments made in response to inquiries at professional meetings and other similar circumstances, are not intended to be restricted by the provisions of this Article 3, provided that such information has been disclosed to the public previously or cleared for such disclosure by the other Party. It is understood further that Confidential Information may be disclosed by TGC to Third Parties bound by non-disclosure agreements to the extent such 23 Confidential Information (1) relates to TGC's AAV vector technology generally and is not specific to the Bulk Licensed Products, Licensed Products or to the Field and (2) is disclosed in relation to matters outside the Parties' collaboration efforts, Bulk Licensed Products, Licensed Products or the Field. Prior to any such disclosure, TGC will provide such disclosures to Medeva for Medeva's approval which shall not be unreasonably withheld. ARTICLE 4 REPRESENTATIONS AND WARRANTIES 4.1 REPRESENTATIONS AND WARRANTIES OF THE PARTIES. Each Party represents and warrants to the other Party that: (a) Such Party is duly organized and validly existing and in good standing under the laws of the jurisdiction of its formation. (b) Such Party has the full corporate power and is duly authorized to enter into, execute and deliver the Transaction Documents, and to carry out and otherwise perform its obligations thereunder. (c) The Transaction Documents have been duly executed and delivered by, and are the legal and valid obligations binding upon such Party and the entry into, the execution and delivery of, and the carrying out and other performance of its obligations under the Transaction Documents by such Party (i) does not conflict with, or contravene or constitute any default under, any agreement, instrument or understanding, oral or written, to which it is a party, including without limitation its certificate of incorporation or by-laws, and (ii) does not violate Applicable Law or any judgment, injunction, order or decree of any Government Authority having jurisdiction over it. 24 4.2 REPRESENTATIONS AND WARRANTIES OF TGC. TGC represents and warrants to Medeva that: (a) To the best of TGC's knowledge, as of the Effective Date, TGC Controls, or otherwise has the right to use, all Patent Rights and Know-How necessary to manufacture Bulk Licensed Products and, further, TGC has disclosed, or from time to time will disclose, to Medeva all Patent Rights and all Licensed Know-How of which TGC is aware and which is useful for the production, manufacture or commercialization of Bulk Licensed Products and Licensed Products for use in the Field; (b) TGC has conducted or has caused TGC's Outside Contractors, Contract Manufacturers and consultants to conduct, and will in the future conduct, pre- clinical research, process development and other relevant research and development activities required to support clinical testing, Regulatory Approvals and commercialization of the Licensed Products in the Field in accordance with Applicable Laws, including without limitation, known or published standards of FDA; (c) TGC has conducted or has caused TGC's Outside Contractors, Contract Manufacturers and consultants to conduct, and will in the future conduct, clinical research with Licensed Products in the Field in the U.S. through completion of Phase I Clinical Trials and Phase II Clinical Trials, to the extent such Phase II Clinical Trials are conducted in the U.S., in accordance with Applicable Laws, including without limitation, known or published standards of FDA; (d) Except as otherwise provided in the Transaction Documents, TGC will maintain in effect all governmental permits, licenses, orders, applications and Regulatory Approvals, if applicable, necessary to manufacture, supply and sell Bulk Licensed Product and 25 will manufacture and supply Bulk Licensed Product in accordance with such governmental permits, licenses, orders, applications, Regulatory Approvals and Applicable Laws; (e) TGC has employed and will in the future employ individuals of appropriate education, knowledge, and experience to conduct or oversee the conduct of preclinical research, process development and other relevant research and development activities required to support clinical testing, Regulatory Approvals and commercialization of the Licensed Products in the Field; (f) TGC has employed and will in the future employ individuals of appropriate education, knowledge, and experience to conduct or oversee the conduct of clinical research with Licensed Products in the Field in the U.S. through completion of Phase I Clinical Trials and Phase II Clinical Trials, to the extent such Phase II Clinical Trials are conducted in the U.S.; (g) Except as otherwise provided for in the Transaction Documents, including for example in Sections 3.1 and 3.2 of the Supply Agreement, TGC maintains and shall maintain throughout the term of this Agreement a work force suitably qualified and trained, and facilities and equipment sufficient, to enable TGC to perform its obligations as constituted from time to time under the Transaction Documents; (h) To the best of TGC's knowledge, there are not as of the Effective Date, nor have there been over the five (5) year period immediately preceding the Effective Date, any claims, lawsuits, arbitrations, legal or administrative or regulatory proceedings, charges, complaints or investigations by any Government Authority (except for any Government Authority with authority over the granting of patents and proceedings relating thereto) or other Third Party threatened, commenced or pending against TGC or its licensors relating to, and TGC 26 has not received any notice of infringement with respect to, the Patent Rights, the Licensed Know-How, or Bulk Licensed Product (or Licensed Products to be manufactured by TGC for use by TGC for clinical trial purposes), including TGC's right to manufacture, use or sell Bulk Licensed Products (or Licensed Products for use by TGC for clinical trial purposes). (i) Except as previously disclosed to Medeva, to the best of TGC's knowledge, as of the Effective Date, the exercise by Medeva of the rights and licenses granted to Medeva by TGC under the Transaction Documents will not infringe any rights owned by any Third Party; (j) Except as previously disclosed to Medeva, to the best of TGC's knowledge, as of the Effective Date, TGC is not aware of any patents or patent applications, other than patents and patent applications within the Patent Rights, required for the production, manufacture or commercialization of Bulk Licensed Products and Licensed Products in the Field; and further TGC will promptly disclose to Medeva any knowledge relating to any such patents or patent applications acquired by TGC during the term of this Agreement and, further, the patents and patent applications listed on Schedule 4.2 (the "Other Patent ------------ Rights") and TGC's rights under the Other Patent Rights (i) are not required for the production, manufacture or commercialization of Bulk Licensed Product or Licensed Products in the Field, (ii) will not be assigned, sublicensed or otherwise encumbered by TGC with respect to, or in any way which would impair the application of such rights by TGC or by Medeva in, the Field, and (iii) will be added to the Licensed Patent Rights at any time as such rights are required for the production, manufacture or commercialization of Bulk Licensed Product or Licensed Products in the Field as Medeva may determine in Medeva's sole discretion. 27 (k) Except as previously disclosed to Medeva, to the best of TGC's knowledge, as of the Effective Date, TGC is not aware of any Third Parties that Control any patents or Know-How required for the production, manufacture or commercialization of Licensed Products in the Field; and (l) To the best of TGC's knowledge, as of the Effective Date, TGC Controls or otherwise is entitled to use worldwide all rights in, to and under the Patent Rights and the Licensed Know-How, in all cases free and clear of any lien, claim, charge, encumbrance or right of any Third Party. 4.3 REPRESENTATIONS AND WARRANTIES SPECIFIC TO THIRD PARTY AGREEMENTS. TGC further represents and warrants to Medeva that: (a) No other agreement or understanding, verbal or written, exists to which TGC is legally bound regarding the intellectual property rights granted to TGC pursuant to the Third Party Agreements; (b) The Third Party Agreements, including respective modifications attached thereto, as previously provided to Medeva represent the complete and entire understanding of TGC and, to the knowledge of TGC, its respective Third Party Agreement licensors as of the Effective Date with respect to the intellectual property rights granted to TGC pursuant to the Third Party Agreements, and such Third Party Agreements will not be further modified or amended by TGC unilaterally, or by TGC together with its respective Third Party Agreement licensors, without the prior written consent of Medeva; (c) Except for royalty payments and other fees expressly set forth in the Third Party Agreements, no other royalty, fee or other amount, whatsoever, is due or, to the best of 28 TGC's knowledge as of the Effective Date, will become due to any Third Party as a result of TGC's exercise of the licenses and rights granted to TGC under the Third Party Agreements or Medeva's exercise of the rights granted to Medeva pursuant to the terms of the Transaction Documents; (d) TGC will comply with all terms of each of the Third Party Agreements; (e) To the best of TGC's knowledge, as of the Effective Date, the exercise by Medeva of the rights and licenses granted to Medeva by TGC under the Transaction Documents will not violate, or cause TGC to breach TGC's obligations under, the Third Party Agreements; (f) To the best of TGC's knowledge, there are not now, nor have there been over the five (5) year period immediately preceding the Effective Date, any claims, lawsuits, arbitrations, legal or administrative or regulatory proceedings, charges, complaints or investigations by any Government Authority (except for any Government Authority with authority over the granting of patents and proceedings relating thereto) or other Third Party threatened, commenced or pending against TGC or its licensors relating to the intellectual property rights licensed to TGC, including TGC's right to use such intellectual property rights, whether or not Controlled by TGC, pursuant to the Third Party Agreements; (g) TGC will notify Medeva promptly if any Third Party Agreement licensor of TGC elects not to file a patent application pursuant to such licensor's rights under its respective Third Party Agreement and TGC, upon Medeva's written request, will exercise TGC's right, if available, to participate in the filing or prosecution of any such patent application; (h) TGC will not terminate, amend or assign, nor by act or omission permit the termination, amendment or assignment of, any of the Third Party Agreements without the 29 prior written consent of Medeva, which consent may be granted or withheld in Medeva's sole discretion; (i) TGC will notify Medeva promptly if TGC receives any notice or communication suggesting, threatening or stating that a Third Party Agreement licensor of TGC intends to terminate, modify, assign or otherwise amend its respective Third Party Agreement; (j) TGC will provide Medeva with copies of all communications to Third Party Agreement licensors or from Third Party Agreement licensors, including without limitation communications regarding alleged or actual infringement by a Third Party of intellectual property owned or otherwise controlled by a Third Party Agreement licensor and under which TGC was granted a license and rights under the Third Party Agreement with such licensor; (k) With respect to the [ * ] Agreement, the treatment of cystic fibrosis is not one of the "Optioned Field(s) of Use" (as defined in the [ * ] Agreement); (l) With respect to the [ * ] Agreement, TGC exclusively Controls the Patent Rights licensed to TGC under the [ * ] Agreement; (m) With respect to the [ * ] Agreement and the [ * ] Agreement, TGC shall, upon request by Medeva, (i) provide Medeva with copies of any Commercial Development Plan (as defined in such agreements) and permit Medeva to provide comments and suggestions for consideration by TGC to any future version of a Commercial Development Plan, (ii) appeal a Third Party Agreement licensor's unilateral decision to terminate either or both of these Third Party Agreements, (iii) exercise any and all administrative or judicial remedies that may be available as a result of such termination, (iv) use its best efforts to obtain a direct license for - ------------------------------------ /*/ Confidential Treatment Requested. 30 Medeva with the respective licensors following any such termination, and (v) not elect to surrender any license or rights in any country granted to TGC by a Third Party Agreement licensor under either or both of these Third Party Agreements, without the prior written consent of Medeva; (n) With respect to the [ * ] Agreement, TGC exclusively Controls the Patent Rights licensed to TGC under the [ * ] Agreement; and (o) With respect to the [ * ] Agreement, TGC shall inform Medeva promptly if TGC becomes aware of any Third Party that (i) receives any license and right under the intellectual property under which TGC was granted a license and rights pursuant to the [ * ] Agreement, or (ii) develops and produces any product similar to a Licensed Product. Further, TGC shall exercise its right to request prompt and detailed notification of measures taken in response to allegations or events of infringement of the rights granted to TGC thereunder. 4.4 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 4 OF THIS AGREEMENT, IN SECTION 2.8 OF THE SUPPLY AGREEMENT, IN ARTICLE 6 OF THE CREDIT AGREEMENT AND IN ARTICLE 3 OF THE STOCK PURCHASE AGREEMENT, THE PARTIES MAKE NO REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTY OF NON-INFRINGEMENT. - ------------------------------------ /*/ Confidential Treatment Requested. 31 ARTICLE 5 TERM AND TERMINATION 5.1 TERM. This Agreement and the LCA and Supply Agreement shall commence as of the Effective Date and shall continue in full force and effect until (i) the expiration in the last jurisdiction of the term of the last patent within the Patent Rights or, if sooner, (ii) the determination by a court or administrative agency of competent jurisdiction in the last jurisdiction that the last patent within the Patent Rights is invalid or unenforceable, or (iii) such earlier date as this Agreement, the LCA and the Supply Agreement are terminated in accordance with the terms and conditions of this Article 5. Upon expiration or termination of this Agreement, or the LCA or the Supply Agreement, all three agreements shall simultaneously so expire or terminate. 5.2 TERMINATION AT WILL. 5.2.1 During the Development Period, at any time after the one (1) year anniversary of the Effective Date, Medeva may terminate this Agreement, the LCA and the Supply Agreement upon at least one hundred eighty (180) days' prior written notice to TGC, if in Medeva's sole opinion, Medeva considers that further development of Licensed Products in the Field is not technically or commercially viable. 5.2.2 At any time after the ten (10) year anniversary of the Effective Date, Medeva may terminate this Agreement, the LCA and the Supply Agreement, with or without cause, upon at least one hundred and twenty (120) days' prior written notice to TGC. 5.3 TERMINATION FOR CAUSE. Subject to Section 5.4 below, if either Party commits a material breach of this Agreement, the LCA or the Supply Agreement at any time, which breach is not cured within thirty (30) days in the case of a breach consisting of an undisputed 32 nonpayment of money, or sixty (60) days in the case of any other material breach, after written notice from the non-breaching Party specifying the breach, or if such breach is not susceptible of cure within such period, the breaching Party is not making diligent good faith efforts to cure such breach, the non- breaching Party shall have the right to terminate this Agreement, the LCA and the Supply Agreement by written notice. The Parties acknowledge and agree that failure to exercise any right or option or to take any action expressly within the discretion of a Party shall not be deemed to be a material breach hereunder. 5.4 LIMITATION ON TERMINATION FOR CAUSE. 5.4.1 With respect to any alleged material breach except undisputed payment defaults, a Party may not terminate this Agreement, or the LCA or the Supply Agreement for such alleged material breach unless (i) a court of competent jurisdiction renders a final adjudication affirming the existence of a material breach, or (ii) the breach is an "Established Material Breach" (as defined in Section 5.4.2 of this Agreement) and such Established Material Breach is not cured within sixty (60) days following receipt of an "Arbitration Decision" (as defined in Section 5.4.2 of this Agreement), or if such Established Material Breach is not susceptible of cure within such period, the breaching Party is not making diligent good faith efforts to cure such Established Material Breach. 5.4.2 In order to establish a material breach (other than an undisputed payment default) entitling a Party to terminate this Agreement, or the LCA or the Supply Agreement under Section 5.3 above, the Party alleging the occurrence of such material breach (the "Requesting Party") shall submit the issue to an expedited, non-binding arbitration (the "Material Breach Arbitration") before a mutually agreed upon arbitrator, or in the event the Parties cannot agree upon an arbitrator, before a panel of three (3) American Arbitration Association- approved 33 arbitrators consisting of one (1) arbitrator chosen by each Party and one (1) arbitrator selected by the two Party-chosen arbitrators, (one arbitrator or three arbitrators, the "Arbitration Panel"). The Arbitration Panel will determine whether the other Party (the "Breaching Party") has committed the material breach alleged by the Requesting Party, whether the Requesting Party had committed a prior material breach that justified the subsequent breach by the Breaching Party, and if the material breach alleged by the Requesting Party has been committed, whether any other evidence exists which may excuse the Breaching Party's material breach. An "Established Material Breach" shall mean a determination (the "Arbitration Decision") by the Arbitration Panel that the Breaching Party committed the alleged material breach, that the Requesting Party did not commit a material breach sufficient to excuse the subsequent material breach by the Breaching Party, and that no other sufficient reason exists to excuse the breach by the Breaching Party (such sufficiency to be determined by the Arbitration Panel in its sole discretion). The Arbitration Decision shall identify any ways by which the Established Material Breach may be cured. For purposes of determining an Established Material Breach as contemplated by this Section 5.4.2, the Arbitration Decision shall be deemed final. The rules of the American Arbitration Association shall govern any Material Breach Arbitration. 5.4.3 Notwithstanding the procedure set forth under Section 5.4.2 above and any resulting outcome, the Parties acknowledge and agree that an Arbitration Decision does not constitute a binding decision on either Party with respect to the existence (or non-existence) of a breach of this Agreement or the LCA or the Supply Agreement, nor justify the subsequent termination of this Agreement, or the LCA or the Supply Agreement (or exercise of some other remedy). Either Party may contest the other Party's actions following an Arbitration Decision by commencing a court action pursuant to Section 7.3 of this Agreement. The Parties further 34 acknowledge and agree that the Arbitration Decision, the findings by the Arbitration Panel and any testimony from the Arbitration Panel (or testimony from any person or entity appearing before the Arbitration Panel to the extent that such testimony relates specifically to the Arbitration Decision) shall not be admissible for any reason whatsoever in any court proceedings of any nature whatsoever, including without limitation proceedings related to equitable remedies or damages; provided further that Parties agree to instruct a fact finder, judge or jury in connection with proceedings to resolve disputes hereunder not to give any weight to the fact that an Arbitration Decision was or was not rendered. 5.5 TERMINATION FOR INSOLVENCY. Either Party may terminate this Agreement or the LCA or the Supply Agreement upon written notice to the other Party on or after the occurrence of any of the following events: (i) the appointment of a trustee, receiver or custodian for all or substantially all of the property of the other Party, or for any lesser portion of such property, if the result materially and adversely affects the ability of the other Party to fulfill its obligations hereunder or thereunder, which appointment is not dismissed within sixty (60) days, (ii) the determination by a court or tribunal of competent jurisdiction that the other Party is insolvent, (iii) the filing of a petition for relief in bankruptcy by the other Party on its own behalf, or the filing of any such petition against the other Party if the proceeding is not dismissed or withdrawn within sixty (60) days thereafter, (iv) an assignment by the other Party for the benefit of creditors, or (v) the dissolution or liquidation of the other Party. All rights and licenses granted under or pursuant to this Agreement or the LCA or the Restructuring Agreements by TGC to Medeva are, and shall otherwise be deemed to be, for the purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that Medeva, as a licensee of such rights and 35 licenses, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. 5.6 RIGHTS ON TERMINATION. 5.6.1 In the event that TGC terminates this Agreement, or the LCA or the Supply Agreement pursuant to Section 5.3 above, all rights granted to Medeva hereunder and thereunder shall revert to TGC. 5.6.2 In the event that Medeva terminates this Agreement, or the LCA or the Supply Agreement pursuant to Section 5.3 or 5.5 above, TGC shall be deemed to have granted to Medeva an exclusive worldwide license under the Licensed Patent Rights and the Licensed Know-How, and to the extent Controlled by TGC, intellectual property held by TGC under the Third Party Agreements, as of the date of such termination to make, have made, use, have used, sell, offer for sale, have sold, lease, market and import Licensed Products for use in the Field subject to payment by Medeva to TGC of a royalty of [ * ] of Net Sales after the effective date of termination of this Agreement until the date this Agreement otherwise would have expired pursuant to Section 5.1(i) or (ii) above. Medeva shall have the right to offset Medeva's reasonable damages in connection with such breach, as determined by an independent third party auditor, against any royalty payments made to TGC pursuant to the foregoing [ * ] royalty. TGC shall reasonably assist Medeva in the transfer of the manufacturing of the Bulk Licensed Products, including the transfer of useful biomaterials (e.g., cell ----- lines) and shall provide Medeva with copies of all written or other tangible forms of recorded Licensed Know-How relating to the manufacturing processes for Bulk Licensed Products and Licensed Products. Upon expiration of - ------------------------------------- /*/ Confidential Treatment Requested. 36 Medeva's obligation to pay to TGC royalties under this Section 5.6.2, Medeva shall have a paid-up, irrevocable, worldwide, nonexclusive right and license under the Licensed Know-How granted by TGC to Medeva hereinabove to make, have made, use and sell Licensed Products for use in the Field. 5.6.3 In the event that Medeva terminates this Agreement, or the LCA or the Supply Agreement pursuant to Section 5.2 above, or TGC terminates this Agreement, or the LCA or the Supply Agreement pursuant to Section 5.3 above, then, in addition to any liability or obligation accrued as of the effective date of termination, Medeva shall reimburse TGC for TGC's actual costs associated with terminating any agreed pre-clinical and clinical studies already in progress pursuant to the Development Plan. 5.6.4 Except as otherwise provided in this Section 5.6.4, in the event this Agreement, or the LCA or the Supply Agreement are terminated for any reason, (i) except as otherwise expressly provided in the Transaction Documents, all rights and obligations of the Parties under this Agreement, the LCA and the Supply Agreement shall terminate; (ii) Medeva shall surrender to TGC, or, at TGC's sole option, Medeva shall destroy and provide TGC with a certificate signed by a Responsible Executive of Medeva attesting to the destruction of, all copies of any Licensed Know-How or other Confidential Information provided by TGC hereunder; (iii) TGC shall surrender to Medeva, or, at Medeva's sole option, TGC shall destroy and provide Medeva with a certificate signed by a Responsible Executive of TGC attesting to the destruction of, all copies of any Confidential Information provided by Medeva hereunder; (iv) in addition to any liability or obligation accrued as of the effective date of termination, Medeva shall pay for any Bulk Licensed Product delivered at any time before or after such termination pursuant to any Purchase Order accepted by TGC prior to such termination and shall have the right to use such 37 Bulk Licensed Product to manufacture Licensed Product in the Field and to sell or otherwise dispose of stock of any Licensed Product in the Field then on hand, subject to the payment to TGC of applicable payments hereunder; and (v) except to the extent permitted in clause (iv) above Medeva agrees not to make, have made, use, sell, offer for sale and import the Licensed Products for use in the Field. 5.7 ACCRUED RIGHTS. Termination, relinquishment or expiration of this Agreement, the LCA and the Supply Agreement for any reason shall be without prejudice to any right which shall have accrued to the benefit of either Party prior to such termination, relinquishment or expiration, including damages arising from any breach under the Transaction Documents. Such termination, relinquishment or expiration shall not relieve either Party from obligations which are expressly indicated to survive termination or expiration of the respective Transaction Documents. 5.8 SURVIVAL. 5.8.1 The following Articles and Sections of this Agreement, the LCA and the Supply Agreement shall survive expiration of such agreements: Articles 3, 6, 7 and 8, and Sections 4.5, 5.7 and 5.8.1 of this Agreement, Sections 6.1, 6.2, 6.4 and 6.6, and the last sentence of Section 2.1, of the LCA, and Article 5 of the Supply Agreement. 5.8.2 The following Articles and Sections of this Agreement, the LCA and the Supply Agreement shall survive termination of such agreements and, in each case, shall apply in accordance with the terms and conditions set forth in such Articles and Sections: Articles 3, 6, 7 and 8, and Sections 4.5, 5.6, 5.7 and 5.8.2 of this Agreement, Sections 3.7.4, 6.1, 6.2, 6.4, 6.5, 6.6 and 6.7 of the LCA, and Article 5 and Sections 6.3, 6.4, 7.1 and 7.2 of the Supply Agreement. 38 ARTICLE 6 INDEMNIFICATION; INSURANCE; LIMITATION OF LIABILITY 6.1 INDEMNIFICATION BY MEDEVA. Except for any actions or liabilities arising out of infringement of Third Party patent rights pursuant to Section 6.8 of the LCA, Medeva hereby agrees to save, defend, and hold TGC, its Affiliates and their officers, directors, employees and agents harmless from and against any and all losses, damages, liabilities, costs and expenses, including reasonable attorneys' fees and expenses that arise in connection therewith, ("Losses") resulting from or arising out of: (i) the storage of Bulk Licensed Products, or the conversion of Bulk Licensed Product to Licensed Products, after the date of delivery of such Bulk Licensed Products to Medeva; or (ii) the labeling, marketing and distribution of Licensed Products (subsections (i) and (ii), all except to the extent caused by the negligence or willful misconduct of, or failure to comply with Applicable Laws or breach of this Agreement, or the LCA or the Supply Agreement by, TGC or its Affiliates, Sublicensees, Outside Contractors, Contract Manufacturers, and its or their directors, officers, agents, employees, consultants or clinical investigators, and except to the extent such Losses result from or arise out of any act or omission for which TGC is found to have an indemnification obligation pursuant to Section 6.2 of this Agreement); or (iii) the negligence or willful misconduct of Medeva or its Affiliates, Sublicensees, and its or their directors, officers, agents, employees, or consultants or clinical investigators; or (iv) the material breach by Medeva or its Affiliates of any provision of any of the Transaction Documents. Notwithstanding the above, in the event that Losses arise in connection with an inherent defect in a Licensed Product which is not the direct and proximate 39 cause of either Party, Medeva shall bear [ * ] of such Losses, and TGC shall bear [ * ] of such Losses. 6.2 INDEMNIFICATION BY TGC. TGC hereby agrees to save, defend and hold Medeva, its Affiliates and their officers, directors, employees and agents harmless from and against any and all Losses resulting from or arising out of (i) clinical trials of Licensed Product in the Field conducted by TGC pursuant to the Development Plan, except to the extent such Losses result from or arise out of any act or omission for which Medeva is found to have an indemnification obligation pursuant to Section 6.1, or (ii) the manufacture, use, or consumption of Bulk Licensed Products (or TGC's manufacture and use of Licensed Products), or the storage of Bulk Licensed Products prior to the date of delivery thereof to Medeva (including without limitation for any breach of the warranty in Section 2.8 of the Supply Agreement), all except to the extent caused by the negligence or willful misconduct of, or failure to comply with Applicable Laws or breach of terms of this Agreement, the LCA or the Supply Agreement by, Medeva or its Affiliates or Sublicensees, and its or their directors, officers, agents, employees, consultants or clinical investigators, or (iii) the negligence or intentional misconduct of TGC, or its Affiliates, Sublicensees, Outside Contractors and Contract Manufacturers, and its or their directors, officers, agents, employees, consultants or clinical investigators, or (iv) TGC's material breach of any provision of any of the Transaction Documents. Notwithstanding the above, in the event that Losses arise in connection with an inherent defect in a Licensed Product which is not the direct and proximate cause of either Party, Medeva shall bear [ * ] of such Losses, and TGC shall bear [ * ] of such Losses. - ------------------------------------ /*/ Confidential Treatment Requested. 40 6.3 INDEMNIFICATION PROCEDURE. 6.3.1 Each indemnified Party (the "Indemnitee") agrees to give the indemnifying Party (the "Indemnitor") prompt written notice of any Losses or discovery of fact upon which the Indemnitee intends to base a request for indemnification. Notwithstanding the foregoing, the failure to give timely notice to the Indemnitor shall not release the Indemnitor from any liability to the Indemnitee to the extent the Indemnitor is not prejudiced thereby. 6.3.2 The Indemnitee shall furnish promptly to the Indemnitor copies of all papers and official documents in the Indemnitee's possession or control which relate to any Losses; provided, however, that if the Indemnitee defends or participates in the defense of any Losses, then the Indemnitor shall also provide such papers and documents to the Indemnitee. The Indemnitee shall cooperate with the Indemnitor in providing witnesses and records necessary in the defense against any Losses. 6.3.3 The Indemnitor shall have the right, by prompt notice to the Indemnitee, to assume direction and control of the defense of any Third Party claim forming the basis of such Losses, with counsel reasonably satisfactory to the Indemnitee and at the sole cost of the Indemnitor, so long as (i) the Indemnitor shall promptly notify the Indemnitee in writing (but in no event more than sixty (60) days after the Indemnitor's receipt of notice of the claim) that the Indemnitor intends to indemnify the Indemnitee from and against any Losses the Indemnitee may suffer arising out of the claim absent the development of facts that give the Indemnitor the right to claim indemnification from the Indemnitee and (ii) the Indemnitor diligently pursues the defense of the claim. 6.3.4 If the Indemnitor assumes the defense of the claim as provided in Section 6.3.3 above or Section 6.3.5 below the Indemnitee may participate in such defense with 41 the Indemnitee's own counsel who shall be retained, at the Indemnitee's sole cost and expense; provided, however, that neither the Indemnitee nor the Indemnitor shall consent to the entry of any judgment or enter into any settlement with respect to the claim without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. If the Indemnitee withholds consent in respect of a judgment or settlement involving only the payment of money by the Indemnitor and which would not involve any stipulation or admission of liability or result in the Indemnitee becoming subject to injunctive relief or other relief, the Indemnitor shall have the right, upon notice to the Indemnitee within five (5) days of receipt of the Indemnitee's written denial of consent, to pay to the Indemnitee, or to a trust for its or the Third Party's benefit, as shall be established at trial or by settlement, the full amount of the Indemnitor's obligation under Section 6.1 or Section 6.2, as applicable, with respect to such proposed judgment or settlement, including all interest, costs or other charges relating thereto, together with all attorneys' fees and expenses incurred to such date for which the Indemnitor is obligated under this Agreement, if any, at which time the Indemnitor's rights and obligations with respect to the claim shall cease. 6.3.5 If the Indemnitor does not so assume the defense of such claim, the Indemnitee may conduct such defense with counsel of the Indemnitee's choice but may not settle such case without the written consent of the Indemnitor, such consent not to be unreasonably withheld or delayed. In addition, the Indemnitor shall have the right to assume control of the defense, at its own expense, at any time upon five (5) days' prior notice to the Indemnitee. 6.3.6 Except as provided in Section 6.3.5 above, the Indemnitor shall not be liable for any settlement or other disposition of a Loss by the Indemnitee which is reached without the written consent of the Indemnitor. 42 6.3.7 Except as otherwise provided in this Section 6.3, the portion of costs and expenses, including reasonable fees and expenses of counsel, incurred by any Indemnitee under Section 6.3.5 in connection with any claim corresponding to the Indemnitor's obligation under Section 6.1 or Section 6.2, as applicable, shall be reimbursed on a calendar quarter basis by the Indemnitor, for so long as the Indemnitee controls the defense of the claim, without prejudice to the Indemnitor's right to contest the Indemnitee's right to indemnification and subject to refund in the event the Indemnitor is ultimately held not to be obligated to indemnify the Indemnitee. 6.4 INSURANCE. 6.4.1 For so long as Medeva is conducting clinical trials using Licensed Products in the Field or manufacturing, marketing and promoting Licensed Products for use in the Field, Medeva shall obtain product liability insurance for the benefit of Medeva, naming TGC as an additional party insured, covering such Licensed Products under terms which are similar to that obtained by Medeva for Medeva's other marketed products or products under clinical trials. 6.4.2 For so long as TGC is conducting clinical trials using Licensed Products in the Field or manufacturing and supplying Bulk Licensed Products for use by Medeva in the manufacturing, marketing and promotion of Licensed Products the Field, TGC shall obtain product liability insurance for the benefit of TGC, naming Medeva as an additional party insured, covering such Bulk Licensed Products and Licensed Products obtained therefrom under terms which are similar to that obtained by other companies comparable to TGC for products similar to Bulk Licensed Products and Licensed Products used in similar circumstances under similar conditions. 6.5 LIMITATION OF LIABILITY; REMEDIES CUMULATIVE. 43 6.5.1 EXCEPT FOR EACH PARTY'S INDEMNIFICATION OBLIGATIONS HEREUNDER AND ANY CLAIMS RELATED TO ONE PARTY'S INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY OR BREACH BY A PARTY OF ITS CONFIDENTIALITY OBLIGATIONS HEREUNDER, UNDER NO CIRCUMSTANCES SHALL A PARTY HEREOF BE LIABLE TO THE OTHER PARTY HEREOF FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES. 6.5.2 THE REMEDIES PROVIDED IN THE TRANSACTION DOCUMENTS ARE CUMULATIVE AND NOT EXCLUSIVE OR IN LIMITATION OF ANY OTHER REMEDY AVAILABLE UNDER THE TRANSACTION DOCUMENTS OR AT LAW OR IN EQUITY. ACCORDINGLY, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THE TRANSACTION DOCUMENTS, A REMEDY PROVIDED IN THE TRANSACTION DOCUMENTS AS AVAILABLE EITHER TO TGC OR MEDEVA IS NOT INTENDED AS AN EXCLUSIVE REMEDY. ARTICLE 7 GOVERNING LAW; DISPUTE RESOLUTION 7.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of New York. 7.2 DISPUTE RESOLUTION. In the event of any dispute arising out of or related to this Agreement, or the LCA or the Supply Agreement or any breach of any of such agreements, the Parties shall refer such dispute to the Responsible Executive of Medeva and the Responsible Executive of TGC for attempted resolution by good faith negotiations within thirty (30) days after such referral is made, In the event such officers are unable to resolve such dispute within such thirty (30) day period, either Party may assert its rights in a manner consistent with the 44 provisions of Section 5.3 above and Section 7.3 below, but subject to the procedure set forth in Section 5.4 above if applicable. 7.3 COURTS OF LAW. The state and federal courts situated in the County of New York, State of New York, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the Parties and initiated by TGC. The state and federal courts situated in King County, State of Washington, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the Parties and initiated by Medeva. The Parties irrevocably submit to such jurisdiction and venue, waive any claim to an inconvenient forum posed by such venue, and agree that process may be served in any manner permitted by such court before which a dispute is pending. ARTICLE 8 MISCELLANEOUS 8.1 ASSIGNMENT. 8.1.1 Neither Party may assign or otherwise transfer its rights or obligations under this Agreement, or the LCA or the Supply Agreement without the prior written consent of the other Party, such consent not to be unreasonably withheld, except that a Party may assign or otherwise transfer its rights or obligations in whole or in part without such consent (i) to an Affiliate of such Party, including without limitation, with respect to Medeva, Medeva PLC, provided that no such assignment shall relieve any Party as the primary obligor hereunder, or (ii) to a Third Party in connection with the merger, consolidation, or sale of substantially all of the assets of the assigning Party, or reorganization affecting substantially all of the assets or voting control of the assigning Party. 45 8.1.2 This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties. Any assignment not in accordance with this Agreement shall be void. 8.2 FORCE MAJEURE. With respect to this Agreement, the LCA and the Supply Agreement, neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses on account of failure of performance by the defaulting Party if the failure is occasioned by government action, war, fire, explosion, flood, strike, lockout, embargo, act of God, or any other similar cause beyond the control of the defaulting Party, provided that the Party claiming force majeure shall promptly notify the other Party in writing setting forth the nature of such force majeure, shall use its best efforts to eliminate, remedy or overcome such force majeure and shall resume performance of its obligations hereunder as soon as reasonably practicable after such force majeure ceases. Notwithstanding the above, a force majeure event shall not affect Medeva's obligations in any manner with respect to timely payment of money due TGC pursuant to the terms of this Agreement, or the LCA or the Supply Agreement. Except as provided in the previous sentence, if any force majeure continues for more than one hundred eighty (180) days, the other Party may terminate this Agreement in part, on a country-by-country basis, or in whole, if all countries are affected, upon written notice to the affected Party. 8.3 FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of the Transaction Documents. 8.4 GOVERNMENTAL APPROVALS; COMPLIANCE WITH LAW. The Parties shall make all filings with Government Authorities as shall be required by Applicable Laws in connection with the Transaction Documents and the activities contemplated hereunder or thereunder. In fulfilling 46 its obligations under the Transaction Documents each Party agrees to comply in all material respects with all Applicable Laws. 8.5 PUBLIC ANNOUNCEMENT. Except for such disclosure as is deemed necessary, in the reasonable judgment of a Party, to comply with Applicable Laws, no announcement, news release, public statement, publication or presentation relating to the existence of the Transaction Documents, or the terms hereof or thereof, will be made without the other Party's prior written approval, which approval shall not be unreasonably withheld. The Parties agree that they will coordinate the initial announcement or press release relating to the existence of the Transaction Documents so that such initial announcement or press release is made contemporaneously by each Party. Notwithstanding the foregoing, each Party consents to references to it in reports or documents or other disclosures sent to stockholders or filed with or submitted to any Governmental Authority or stock exchange or as may be required by law to be made. However, the Party making such references shall afford the other Party the prior opportunity to review the text of any such report, document or other disclosure, and shall use its best efforts to comply with any reasonable requests regarding changes to such reports, documents and other disclosures which are provided to it by the other Party in a timely manner. The Parties each agree that once approval for disclosure of information subject to this Section 8.5 has been obtained, the Party that requested such approval shall be entitled to use such information without an obligation to seek further approval. 8.6 NOTICES. All notices required or permitted to be given under this Agreement, the LCA or the Supply Agreement, including without limitation all invoices provided by TGC to Medeva, shall be in writing and shall be deemed given if delivered personally or by facsimile transmission receipt verified, mailed by registered or certified mail return receipt requested, 47 postage prepaid, or sent by express courier service, to the Parties at the following addresses, or at such other address for a Party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof. IF TO TGC, TARGETED GENETICS CORPORATION ADDRESSED TO: 1100 Olive Way, Suite 100 Seattle, Washington 98101 United States of America Attention: H. Stewart Parker President and Chief Executive Officer Telephone: (206) 623-7612 Facsimile: (206) 223-0288 Except for invoices, with a copy to: Morrison & Foerster llp 425 Market Street San Francisco, California 94105-2482 United States of America Attention: Charles F. Hoyng, Esq. Telephone: (415) 268-7000 Facsimile: (415) 268-7522 IF TO MEDEVA MEDEVA PHARMACEUTICALS, INC. ADDRESSED TO: C/O MEDEVA PLC 10 St. James's Street London SW1A 1EF England Attention: Corporate Secretary Telephone: (44) 171-839-3838 Facsimile: (44) 171-930-1516 With a copy to: Medeva Pharmaceuticals, Inc. 755 Jefferson Road Rochester, New York 14632 United States of America Attention: General Counsel Telephone: (716) 274-5370 Facsimile: (716) 482-1495 The date of receipt of any notice given under this Agreement, or the LCA or the Supply Agreement, including without limitation any invoice provided by TGC to Medeva, shall be deemed to be the date given if delivered personally or by facsimile transmission receipt verified, 48 seven (7) days after the date mailed if mailed by registered or certified mail return receipt requested, postage prepaid, and two (2) days after the date sent if sent by express courier service. 8.7 WAIVER. No failure of either Party to exercise and no delay in exercising any right, power or remedy in connection with this Agreement, or the LCA or the Supply Agreement (each a "Right") will operate as a waiver thereof, nor will any single or partial exercise of any Right preclude any other or further exercise of such Right or the exercise of any other Right. 8.8 DISCLAIMER OF AGENCY. The relationship between TGC and Medeva established by this Agreement, the LCA and the Supply Agreement is that of independent contractors, and nothing contained in any such agreement shall be construed to (i) give either Party the power to direct or control the day-to-day activities of the other, (ii) constitute the Parties as the legal representative or agent of the other Party or as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking, or (iii) allow either Party to create or assume any liability or obligation of any kind, express or implied, against or in the name of or on behalf of the other Party for any purpose whatsoever, except as expressly set forth in this Agreement, the LCA and the Supply Agreement. 8.9 SEVERABILITY. If any term, covenant or condition of this Agreement, or the LCA or the Supply Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable by a court or administrative agency of competent jurisdiction, then (i) the remainder of such documents, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of such documents shall be valid and be enforced to the fullest extent permitted by law; and (ii) the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof 49 in good faith in order to provide a reasonably acceptable alternative to the term, covenant or condition of such documents or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 8.10 ENTIRE AGREEMENT. The Transaction Documents, including all schedules and exhibits attached thereto, which are hereby incorporated therein by reference, set forth all covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as set forth herein or therein. No subsequent alteration, amendment, change or addition to the Transaction Documents shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. 8.11 COUNTERPARTS. The Transaction Documents may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 50 IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written. TARGETED GENETICS CORPORATION MEDEVA PHARMACEUTICALS, INC. ("TGC") ("MEDEVA") By: /s/ H. Stewart Parker By: /s/ William Bogie ---------------------- ------------------ Name: H. Stewart Parker Name: William Bogie ----------------- -------------- Title: President, Chief Executive Officer Title: President ----------------------------------- --------- Medeva PLC hereby agrees that, for all purposes of this Agreement, the LCA and the Supply Agreement, it shall be a surety for Medeva Pharmaceuticals, Inc. In any action to enforce Medeva PLC's agreement under this paragraph, Medeva PLC hereby expressly waives any and all defenses of any nature whatsoever which may be available to Medeva PLC as guarantor which are not also available to Medeva as primary obligor. MEDEVA PLC ("MEDEVA PLC") By: /s/ G. Watts ------------ Name: G. Watts ---------- Title: Finance Director ------------------ 51 SCHEDULE 1.7 COUNTRIES AND REGIONS --------------------- - -------------------------------------------------------------------------------- (a) (b) Country Region - -------------------------------------------------------------------------------- [ * ] [ * ] - -------------------------------------------------------------------------------- - -------------------------- /*/ Confidential Treatment Requested. SCHEDULE 1.38A U.S. PATENT RIGHTS ------------------
Patent No. Patent App. No. Issue Date Filing Date Title - ---------- --------------- ---------- ----------- ----- - ------------------------------------------------------------------------------------------------ US 08/564,167 6/12/95 "Packaging Cell Lines for Generation of High Titers of Recombinant AAV Vectors" - ------------------------------------------------------------------------------------------------
[ * ] - ------------------------ /*/ Confidential Treatment Requested. SCHEDULE 1.38B NON-U.S. PATENT RIGHTS ----------------------
Patent No. Patent App. No. Issue Date Filing Date Title - ---------- --------------- ---------- ----------- ----- - ------------------------------------------------------------------------------------------- Aust 45963/96 6/12/95 "Packaging Cell Lines for Generation of High Titers of Recombinant AAV Vectors" Can 2,207,927 6/12/95 Eur 95944069.4 6/12/95 Jap 8-517764 6/12/95 - -------------------------------------------------------------------------------------------
[ * ] - -------------------------- /*/ Confidential Treatment Requested. SCHEDULE 1.47 SPECIFICATIONS FOR BULK LICENSED PRODUCT ---------------------------------------- See Attached [ * ] - -------------------- /*/ Confidential Treatment Requested. SCHEDULE 4.2 OTHER PATENT RIGHTS -------------------
Patent No. Patent App. No. Issue Date Filing Date Title - ---------- --------------- ---------- ----------- ----- - --------------------------------------------------------------------------------------------- US 5,658,776 19/8/97 "Generation of High Titers of Recombinant AAV Vectors" Aust 688428 2/7/98 Can 2,176,117 3/11/94 Eur 95902421.7 3/11/94 Jap 07-513877 3/11/94 - --------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------- US 08/362,608 9/1/95 "Stable Cell Lines Capable of Expressing the Adeno-Associated Virus Replication Gene" Aust 678867 2/10/97 Can 2,176,215 3/11/94 Eur 95900505.9 3/11/94 Jap 07-513874 3/11/94 - ---------------------------------------------------------------------------------------------
EX-1.2 3 LICENSE AND COLLABORATION AGREEMENT EXHIBIT 1.2 ================================================================================ LICENSE AND COLLABORATION AGREEMENT BETWEEN TARGETED GENETICS CORPORATION AND MEDEVA PHARMACEUTICALS, INC. AN AFFILIATE OF MEDEVA PLC DATED NOVEMBER 23, 1998 ================================================================================ "[*]" = omitted, confidential material, which material has been separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 DEFINITIONS..................................................... 3 1.1 Incorporation by Reference..................................... 3 ARTICLE 2 GRANT OF RIGHTS................................................. 3 2.1 Grant of License to Medeva..................................... 3 2.2 Covenant To Take No Action..................................... 4 2.3 Sublicenses.................................................... 4 2.4 Improvements and Other Development Activities.................. 5 2.5 Covenants...................................................... 6 2.6 No Other Rights................................................ 7 ARTICLE 3 PRODUCT DEVELOPMENT............................................. 7 3.1 Steering Committee............................................. 7 3.2 Responsibilities of the Parties................................ 9 3.3 Development R&D Funding........................................ 11 3.4 Other Costs and Expenses....................................... 13 3.5 Reports; Inspection............................................ 15 3.6 Conduct of Development Work; Subcontracting.................... 15 3.7 Approval Applications and Regulatory Approvals................. 16 ARTICLE 4 MARKETING AND COMMERCIALIZATION................................. 18 4.1 Diligence...................................................... 18 4.2 Termination of Exclusivity..................................... 18 4.3 Status Reports................................................. 21 4.4 Trademarks..................................................... 21
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ARTICLE 5 CONSIDERATION................................................... 22 5.1 Equity Purchase................................................ 22 5.2 License and Technology Access Fee.............................. 22 5.3 Other Payments................................................. 22 5.4 Form of Payment; Late Payments................................. 23 ARTICLE 6 INTELLECTUAL PROPERTY MATTERS................................... 24 6.1 Ownership of Intellectual Property............................. 24 6.2 Ownership of Approval Applications and Regulatory Approvals.... 24 6.3 Prosecution and Maintenance of Patent Rights; Abandonment...... 25 6.4 Prosecution and Maintenance of Joint Patents; Abandonment...... 27 6.5 Enforcement of Patent Rights................................... 28 6.6 Enforcement of Joint Patent Rights............................. 30 6.7 Settlement with a Third Party.................................. 32 6.8 Infringement of Third Party Rights............................. 32 6.9 Infringement of Medeva Trademarks.............................. 33 6.10 Offset for Infringement........................................ 33 ARTICLE 7 MASTER AGREEMENT................................................ 35 7.1 Incorporation by Reference..................................... 35
List of Schedules and Exhibits Schedule 3.3.2 Budgeted Development R&D Funding for First Project Year Exhibit A Development Plan Exhibit B Outside Contractor Letter ii LICENSE AND COLLABORATION AGREEMENT THIS LICENSE AND COLLABORATION AGREEMENT (the "Agreement") is made effective as of the 23rd day of November 1998 (the "Effective Date") by and between TARGETED GENETICS CORPORATION, a corporation organized under the laws of the State of Washington, United States of America, having offices at 1100 Olive Way, Suite 100, Seattle, Washington 98101, United States of America, ("TGC") and MEDEVA PHARMACEUTICALS, INC., a corporation organized under the laws of the State of Delaware, United States of America, having offices at 755 Jefferson Road, Rochester, New York 14623, United States of America, ("Medeva") an Affiliate of MEDEVA PLC, a public limited liability company organized under the laws of England, having offices at 10 St. James's Street, London, SW1A 1EF, England ("Medeva PLC"). TGC and Medeva are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS 1. TGC has entered into the following four license agreements (collectively, the "Third Party Agreements") under which it acquired certain rights relating to cystic fibrosis gene therapy, including (a) a non-exclusive license agreement, dated March 28, 1994, with the Regents of the University of Michigan and HSC Research and Development Limited Partnership (the "U. Michigan/HSC Agreement"), (b) a non-exclusive license agreement, dated June 23, 1993, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-232-92 Agreement"), (c) an exclusive license agreement, dated March 8, 1994, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-059-93 Agreement"), and (d) an exclusive sub- license agreement, dated July 23, 1996, with Alkermes, Inc., an exclusive licensee of 1 the Children's Hospital Research Foundation/Children's Hospital, Inc. (the "Alkermes Agreement"). 2. TGC owns or, pursuant to the Third Party Agreements, is a licensee of certain patents, patent applications and valuable technology and know-how relating inter alia to cystic fibrosis gene therapy and the treatment of cystic ----- ---- fibrosis using an adeno-associated viral ("AAV") vector to deliver a gene encoding a cystic fibrosis transmembrane regulator ("CFTR") protein. 3. Medeva has valuable intellectual property and technology relating to delivery of pharmaceutical products by inhalation and other means and has experience with the clinical development and marketing of such products. 4. The Parties wish to collaborate in the further development and commercialization of a CFTR gene therapy product for the treatment of cystic fibrosis on the terms and conditions hereinafter set forth. 5. Concurrently herewith, the Parties are entering into a certain Supply Agreement (the "Supply Agreement"), pursuant to which TGC will supply to Medeva, and Medeva will purchase from TGC, TGC's CFTR gene therapy product for use in the treatment of cystic fibrosis, as more fully set forth therein, a certain Common Stock Purchase Agreement, pursuant to which Medeva will purchase from TGC shares of common stock of TGC, as set forth more fully therein, a Credit Agreement, pursuant to which Medeva will extend TGC credit for the purpose of constructing a manufacturing facility, as set forth more fully therein, and a certain Master Agreement (the "Master Agreement"), pursuant to which the Parties' intent is set forth to organize a new corporate structure and to provide contractual arrangements to protect the interests of each of the Parties and, in addition, which contains provisions which are intended by 2 the Parties to be common to, and to apply to and govern the Parties under, this Agreement and the Supply Agreement and, in certain limited respects, the Common Stock Purchase Agreement and the Credit Agreement, as set forth more fully therein,. In consideration of the premises and of the mutual covenants and obligations set forth herein, the Parties agree as set out below. ARTICLE 1 DEFINITIONS 1.1 INCORPORATION BY REFERENCE. Article 1 (Definitions) of the Master Agreement is hereby incorporated by reference. All capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Article 1 of the Master Agreement. ARTICLE 2 GRANT OF RIGHTS 2.1 GRANT OF LICENSE TO MEDEVA. Subject to the terms and conditions of this Agreement, including without limitation payment of the license fee set forth in Section 5.2, TGC hereby grants Medeva, for the sole purpose of enabling Medeva to exercise Medeva's rights and to perform Medeva's obligations under this Agreement, a worldwide, exclusive license under the Licensed Patent Rights and the Licensed Know-How to use Bulk Licensed Product to make, have made, use, have used, offer for sale, lease, market, sell, have sold and import Licensed Products for use in the Field. It is understood and agreed that, upon expiration of this Agreement in accordance with the terms of Section 5.1 of the Master Agreement, Medeva shall have a paid-up, irrevocable, worldwide, nonexclusive right and license under the Licensed Know-How existing as of the date of such expiration to make, have made, use and sell Licensed Products for use in the Field. 3 2.2 COVENANT TO TAKE NO ACTION. Subject to the terms and conditions of this Agreement, Medeva hereby agrees that, if any intellectual property rights Controlled by Medeva shall be required by TGC or Affiliates of TGC or Sublicensees of TGC to enable TGC or Affiliates of TGC or Sublicensees of TGC to develop and manufacture Bulk Licensed Product for sale to Medeva in accordance with the terms of this Agreement, Medeva will take no action of any nature whatsoever during the term of this Agreement under such intellectual property which would interfere with such activities. 2.3 SUBLICENSES. Medeva shall have the right to grant sublicenses under the license set forth in Section 2.1 and to employ Contract Manufacturers and Outside Contractors in connection with the performance of its obligations hereunder, provided that the execution of a sublicense or a subcontract shall not in any way diminish, reduce or eliminate any of Medeva's obligations under this Agreement, and Medeva shall remain primarily liable for such obligations. The right of Medeva to grant sublicenses pursuant to this Section 2.3 is subject to the following conditions: (a) At least thirty (30) days prior to the anticipated date of execution and delivery of each proposed sublicense by Medeva and the proposed Sublicensee of Medeva, Medeva shall forward to TGC all material terms of the proposed sublicense agreement which relate directly to Medeva's obligations under this Agreement and to the Licensed Products; (b) Each sublicense and proposed Sublicensee of Medeva as so disclosed to TGC in (a) above shall be subject to approval in advance in writing by TGC, which approval shall not be unreasonably withheld or delayed; (c) Each Sublicensee of Medeva shall be expressly prohibited from further sublicensing; and 4 (d) Each sublicense shall contain terms with the same effect as Article 3 of the Master Agreement and, where relevant, Sections 2.5, 4.3 and 6.1 of this Agreement, Sections 6.3 and 7.1 of the Supply Agreement, and Sections 7.1 and 8.4 of the Master Agreement, and TGC shall be expressly acknowledged as a third party beneficiary thereof, and Medeva shall be responsible for the performance by its Sublicensee of the relevant terms of such sublicense and shall take all measures reasonably requested by TGC to enforce such terms against such Sublicensee. 2.4 IMPROVEMENTS AND OTHER DEVELOPMENT ACTIVITIES. 2.4.1 To the extent that it has the right to do so, each Party shall promptly disclose to the Steering Committee and the other Party all Improvements and New Products with utility in the Field which such Party conceives of, makes, acquires, discovers or invents during the term of this Agreement (collectively, "Product Information"). TGC represents and warrants that TGC has the right to disclose to Medeva all Product Information which exists as of the Effective Date, and that TGC shall use Reasonable Commercial Efforts during the term of this Agreement not to enter into any agreement which would restrict TGC's right to make the disclosures contemplated under this Section 2.4.1. 2.4.2 Within thirty (30) days of receipt of any Product Information, the Steering Committee shall determine whether to recommend that an Improvement be adopted or that a New Product be developed. If the Steering Committee determines that an Improvement should be adopted or that a New Product should be developed, the Steering Committee shall recommend whether such adoption or development should occur in lieu of or in addition to the then-current activities with respect to existing Licensed Product(s). 5 2.4.3 If the Steering Committee recommends adoption of an Improvement or development of a New Product, and if Medeva and TGC agree upon such adoption or development and the anticipated cost thereof, the Steering Committee may request that either TGC or Medeva undertake, and such Party shall undertake, development activities leading to adoption of such Improvement or development of such New Product. Such development work shall be (i) conducted pursuant to a development plan established by the Steering Committee, (ii) supported by appropriate research funding, including without limitation, but only in the case of a New Product, other payments similar to those set forth in Section 5.3, and (iii) performed in accordance with parameters for adoption of such Improvement or development of such New Product consistent with parameters set forth herein for development of Licensed Products. 2.5 COVENANTS. Each Party covenants and agrees that, during the term of this Agreement, it shall not, nor shall it enter into or permit or cause its Affiliates, Sublicensees, Contract Manufacturers and Outside Contractors to enter into any agreement or arrangement to, manufacture, develop, use, offer for sale, lease, market, sell, import, commercialize or otherwise exploit, either directly or indirectly, [ * ], including without limitation any Licensed Product or New Product, except in accordance with the terms and conditions of the collaboration provided for in this Agreement (collectively, "Outside Development and Commercialization Work"). Without limiting the foregoing, except for sublicenses and subcontracts entered into under terms and conditions consistent with the terms and conditions of this Agreement, neither Party will grant any Third Party any right under the Patent Rights or the Licensed Know-How which would permit such Third Party to engage in or otherwise exploit Outside Development and Commercialization Work in the Field. If a Party breaches the foregoing covenants, then without - ------------------------------------- /*/ Confidential Treatment Requested. 6 limiting any other remedies available to the other Party, the breaching Party shall, at its sole expense, contribute the Outside Development and Commercialization Work to the other Party for use under the terms of this Agreement and secure for the other Party the exclusive right to use and exploit the Outside Development and Commercialization Work in connection with the development, sale and exploitation of Licensed Products and New Products in the Field. 2.6 NO OTHER RIGHTS. This Agreement confers no license or rights by implication, estoppel, or otherwise under any patents, patent applications, know-how or other intellectual property rights of either Party other than as expressly set forth in this Article 2. Each Party hereby expressly reserves all rights not specifically granted to the other Party hereunder. ARTICLE 3 PRODUCT DEVELOPMENT 3.1 STEERING COMMITTEE. In accordance with the terms and conditions set forth below, the commercial development of Licensed Products in the Field ("Development Work") will be conducted by or on behalf of the Parties pursuant to the mutually agreed development plan to be attached hereto as Exhibit A (the --------- "Development Plan"). Within ten (10) days after the Effective Date, each of the Parties shall appoint three (3) persons to serve as its representatives on a joint steering committee (the "Steering Committee"). Each Party shall have the right to change any or all of its representatives on the Steering Committee upon written notice to the other Party. The Steering Committee shall: (a) Establish the Development Plan, including without limitation milestones, go/no-go criteria, timelines and responsibilities, and ensure that each Party completes its respective work in compliance with the Development Plan; 7 (b) Monitor and make recommendations regarding the performance of the Development Plan and the conduct of the Development Work; (c) Propose modifications to the Development Plan; (d) Establish regulatory strategies; (e) Determine how Improvements should be incorporated into the Development Plan; (f) Determine whether to recommend that an Improvement be incorporated or that a New Product be developed, and if so whether such incorporation or development should occur in lieu of or in addition to the then-current activities with respect to existing Licensed Product(s); and (g) Review any and all proposed publications or communications relating to the Development Plan, and activities relating to an Improvement or a New Product, if applicable, and the results therefrom and any and all proposed filings of patent applications in connection therewith. The Steering Committee shall meet not less frequently than once per calendar quarter during the Development Period, on such dates and at such times as agreed to by the Parties. All decisions made or actions taken by the Steering Committee shall be made unanimously, with each Party entitled to one (1) vote. A quorum of the Steering Committee shall consist of two members, provided that at least one member appointed by each Party is present. Members of the Steering Committee may attend a meeting of the Steering Committee either in person or by telephone conference call, but not by proxy. In the event of a deadlock vote regarding a matter before the 8 Steering Committee, the Responsible Executives of the Parties shall meet to resolve the matter. If resolution of the matter is not achieved by the Responsible Executives of the Parties within thirty (30) days of the deadlock vote, TGC shall have the right to resolve such deadlock until the start of the first Phase II Clinical Trial; provided, however, that Medeva shall have the right to resolve any deadlock with respect to the design and location of Phase II Clinical Trials and the determination of which Party shall be responsible to conduct such trials. Thereafter, Medeva shall have the right to resolve any deadlock. 3.2 RESPONSIBILITIES OF THE PARTIES. 3.2.1 In accordance with the Development Plan, as modified from time to time, TGC shall use Reasonable Commercial Efforts to: (a) Conduct preclinical Development Work, including without limitation pre-clinical research, process development and other relevant research and development activities, required to support clinical testing, Regulatory Approvals and commercialization of the Licensed Products in the Field ("Development R&D"); (b) Conduct clinical research with Licensed Products in the Field in the U.S. through completion of Phase I Clinical Trials; (c) Conduct clinical research with Licensed Products in the Field in the U.S. through completion of Phase II Clinical Trials, to the extent the Steering Committee, in its sole discretion, determines that it is appropriate for TGC to conduct such Phase II Clinical Trials in the U.S. pursuant to Section 3.1 hereinabove; (d) Pursuant to the terms of the Supply Agreement, produce all AAV- CFTR raw material and manufacture therefrom sufficient Bulk Licensed Product for the manufacture of 9 Licensed Products for use in all clinical trials to be conducted by TGC and Medeva in the Field; and (e) Pursuant to the terms of the Supply Agreement, manufacture or have manufactured Licensed Products for use in clinical trials to be conducted by TGC in the Field. 3.2.2 In accordance with the Development Plan, as modified from time to time, Medeva shall use Reasonable Commercial Efforts to: (a) Conduct Development R&D and other Development Work to support commercialization of the Licensed Products in the Field, except to the extent that TGC is responsible therefor as set forth in Section 3.2.1; (b) Conduct all clinical trials (except Phase I Clinical Trials to be conducted by TGC pursuant to Section 3.2.1(b) and Phase II Clinical Trials to be conducted by TGC pursuant to Section 3.2.1(c)) necessary to obtain Regulatory Approvals required for commercialization of Licensed Products in the Field in each of the Countries; (c) Use Bulk Licensed Product supplied to Medeva pursuant to the Supply Agreement, to manufacture or have manufactured Licensed Products in appropriate dosage and appropriate delivery form for clinical trials of such Licensed Products to be conducted by Medeva; (d) Obtain and maintain Regulatory Approvals for Licensed Products in the Field in Regions 1 and 3 by any appropriate means; (e) Launch Licensed Products in the Field in Regions 1 and 3; and 10 (f) Promote and sell Licensed Products in the Field in Regions 1 and 3. 3.3 DEVELOPMENT R&D FUNDING. 3.3.1 Medeva will provide funding to TGC during the first three (3) Project Years of the Development Period to enable TGC to fulfill its responsibilities to conduct Development R&D and any non-aerosol Phase I Clinical Trials to the extent approved by Medeva. The Steering Committee will agree upon the activities to be conducted under the Development Plan (as provided in Section 3.1 above) and upon a budget for funding to cover expenses of such activities to be conducted during each such Project Year, such budget to include a five percent (5%) contingency to cover unforeseen cost overruns or unexpected cost items. Except as provided in the following sentence, TGC will be responsible for expenses incurred in a Project Year by TGC in respect of activities that were not approved by the Steering Committee or in respect of activities approved by the Steering Committee to the extent that such expenses exceed the budgeted amounts therefor, including the five percent (5%) contingency. If, during any Project Year, the Steering Committee agrees to modify or otherwise change the activities to be conducted by TGC or to increase the amount budgeted for activities previously approved, the budget for funding to TGC for that Project Year will be revised to reflect any adjustment in the estimated expenses for such Project Year as a result of the modified or otherwise changed activities or budget. The total funding to TGC from Medeva for Development R&D shall be an amount equal to the lesser of either (i) Five Million U.S. Dollars ($US5,000,000) per Project Year, or (ii) notwithstanding the budget, the expenses actually incurred by TGC in a Project Year with respect to Development R&D, subject to approval by the Steering Committee of the activities to be conducted by TGC and the expenses associated with such activities. During the third Project Year, the Parties will decide Development R&D funding requirements, if any, for a 11 fourth Project Year. Notwithstanding anything to the contrary, if Medeva decides in its sole discretion to provide Development R&D funding for any Project Year after the third Project Year, the Parties, during such Project Year, will decide the funding requirements, if any, for the next Project Year. Medeva has no obligation to provide any Development R&D funding after the third Project Year of the Development Period, unless the Steering Committee recommends that TGC continue its Development Work and, accordingly, that Development R&D funding should be provided. 3.3.2 Budgeted Development R&D funding for the first Project Year is set forth in Schedule 3.3.2. The Development R&D funding payment for the first -------------- quarter of the first Project Year shall be [ * ], representing one-fourth of the budgeted research funding set forth in Schedule 3.3.2, and shall be paid upon -------------- execution of this Agreement. Thereafter and for each Project Year after the First Project Year, research funding payments shall be paid quarterly in advance in equal quarterly installments based upon budgeted Development R&D funding for such Project Year as approved by the Steering Committee. Notwithstanding the previous sentence, after the end of each quarter, the Parties will review the amount of actual expenses incurred by TGC in the just-ended quarter and, in the event that the amount actually spent was less than the Development R&D funding payment advanced by Medeva to TGC for such quarter, the amount not expended shall be applied as a credit toward the next research funding payment to be made by Medeva. In the event that the amount of actual expenses incurred by TGC in the just-ended quarter was more than the research funding payment for such quarter, such excess will be paid by Medeva together with the next scheduled research funding payment. All funding payments to TGC hereunder shall be made in U.S. Dollars by wire transfer of immediately - ------------------------------------- /*/ Confidential Treatment Requested. 12 available funds to such account notified by TGC from time to time to Medeva in writing in accordance with Section 5.4 so long as the total funding payments for a Project Year do not exceed the maximum amount thereof provided in Section 3.3.1. 3.3.3 As per Section 3.3.1 above, the Development R&D activities for which Medeva will provide research funding and the budgeted funding for such activities for each Project Year after the first Project Year shall be recommended by the Steering Committee and agreed upon by Medeva and TGC in advance of the start of each such Project Year. In the event that the budgeted funding for any Project Year has not been agreed upon in advance of the start of such Project Year, the Responsible Executives of the Parties shall meet to resolve the matter. In the interim before resolution of the matter, Medeva will provide funding payments in amounts sufficient to fund the costs and expenses of Development R&D activities previously approved by the Steering Committee under the Development Plan and still ongoing from the previous Project Year. 3.4 OTHER COSTS AND EXPENSES. 3.4.1 Medeva will bear all costs and expenses incurred by Medeva in performance of Medeva's responsibilities under the Development Plan. 3.4.2 Medeva will reimburse TGC for the costs and reasonable expenses of conducting a Phase I Clinical Trial in the Field in the U.S. with an aerosol form of a Licensed Product, but only to the extent that such costs and expenses during the Project Year in which such clinical trial is underway, together with the Development R&D funding provided by Medeva to TGC pursuant to Section 3.3 in such Project Year do not exceed Five Million U.S. Dollars ($US5,000,000). 13 3.4.3 In the event that the Steering Committee decides to have TGC conduct Phase II Clinical Trials in the U.S. as contemplated under Section 3.2.1(c) above, Medeva shall reimburse TGC for all expenses incurred by TGC to conduct such Phase II Clinical Trials in accordance with a budget for such trials prepared by TGC and approved by Medeva prior to initiation of such trials (the "Phase II Expenses"). 3.4.4 Subject to the limitations set forth in this Section 3.4, TGC shall invoice Medeva yearly in arrears for the costs of conducting the Phase I Trials contemplated under Section 3.4.2 above and, if applicable, quarterly in arrears for the Phase II Expenses. Medeva shall pay such invoices within thirty (30) days after receipt thereof in the manner provided in Section 5.4. 3.4.5 Except as provided in Section 3.3 and Sections 3.4.2-3.4.4 above, TGC will bear all of its costs and expenses incurred in performing TGC's responsibilities under the Development Plan as provided in Section 3.2.1. To the extent that Medeva assigns responsibilities to TGC under the Development Plan in addition to those contained in Section 3.2.1 above, Medeva shall reimburse TGC for all expenses incurred by TGC relating to such additional responsibilities pursuant to the budget provided in Section 3.3.1 or in accordance with an additional budget prepared by TGC and approved by Medeva in advance of any required work. 3.5 REPORTS; INSPECTION. Each Party shall maintain, and shall cause its Contract Manufacturers and Outside Contractors to maintain, accurate and complete records of all Development Work and all results of any trials, studies and other investigations conducted under this Agreement by or on behalf of such Party, its Affiliates or Sublicensees, as applicable. For so long as a Party is conducting Development Work hereunder, such Party will prepare and submit 14 to the Steering Committee, on a semi-annual basis, written progress reports summarizing the current status and progress of Development Work. A Party, or such Party's authorized representatives (including members of Steering Committee selected by such Party), may visit the facilities of the other Party where Development Work is being performed during normal business hours upon reasonable notice without undue interruption to normal business operations. 3.6 CONDUCT OF DEVELOPMENT WORK; SUBCONTRACTING. Each Party may contract with one or more Outside Contractors to perform any or all of its non-manufacturing obligations under the Development Plan, provided that (i) the contracting Party permits the other Party to review and comment on, and incorporates the reasonable comments of such other Party in, the drafts of the respective agreements (each an "Outside Contractor Agreement"), (ii) the contracting Party provides the other Party with a true and accurate copy of each such Outside Contractor Agreement, and (iii) the contracting Party uses Reasonable Commercial Efforts to cause each Outside Contractor to agree to execute and deliver to the other Party a letter in the form of Exhibit B hereto, and to include the --------- provisions set forth therein in the relevant Outside Contractor Agreement. As to each Outside Contractor that executes and delivers such a letter to Medeva, TGC agrees that Medeva may seek to enforce TGC's remedies under such Outside Contractor Agreement directly against such Outside Contractor without first exhausting its remedies against TGC if the Outside Contractor breaches such Outside Contractor Agreement so as to cause TGC to become liable to Medeva for damages due to TGC's inability to complete its responsibilities under Section 3.2.1 hereof; provided, however, that if Medeva shall seek to exercise such -------- ------- remedies, TGC shall remain primarily liable and obligated to Medeva under all provisions of this Agreement. Further, TGC agrees to use its Reasonable Commercial Efforts to include in each Outside Contractor Agreement the following provisions: (a) a prohibition against 15 sublicensing by such Outside Contractor of any Patent Rights or Licensed Know- How licensed to such Outside Contractor by TGC; (b) if TGC provides such Outside Contractor any Bulk Licensed Product, a prohibition against the sale by such Outside Contractor of such Bulk Licensed Product to any Third Party; (c) a prohibition, approved by Medeva, against manufacturing, having manufactured, supplying, using or selling any product which generates functional CFTR protein and which is derived from or embodies, in whole or in part, any intellectual property either Controlled by TGC or licensed to TGC pursuant to the Third Party Agreements; and (d) a right for TGC to terminate such Outside Contractor Agreement in the event of a breach of the terms set forth in either of (a), (b) or (c) above. 3.7 APPROVAL APPLICATIONS AND REGULATORY APPROVALS. 3.7.1 TGC, (at Medeva's expense subject to the limitations set forth in Section 3.4.2 and, if applicable, Section 3.4.3) with appropriate assistance from Medeva, will be responsible for assembling all Approval Applications needed to conduct clinical trials with Licensed Products in the Field in the U.S. in accordance with TGC's obligations under Section 3.2.1. Medeva with appropriate assistance from TGC, at Medeva's expense, will be responsible for assembling all Approval Applications needed to conduct clinical trials with Licensed Products in the Field in accordance with Medeva's obligations under Section 3.2.2. The expenses incurred by a Party after the Effective Date in assembling such Approval Applications shall be paid or reimbursed in accordance with Section 3.4.4 above. 3.7.2 Medeva will be responsible for obtaining and thereafter, subject to Reasonable Commercial Efforts and Medeva's obligations with respect to Minimum Performance Levels set forth in Section 4.2, maintaining Regulatory Approval for Licensed Products in the Field in each Country in Region 1 and in Region 3. Medeva shall consult in good faith with TGC with respect 16 to Approval Applications necessary to obtain Regulatory Approval for Licensed Products in the Field in such Countries; and TGC will cooperate with Medeva, at Medeva's expense, in such manner as Medeva may reasonably request in obtaining such Regulatory Approvals. Each Party will promptly send to the other copies of all Regulatory Approvals (including English translations thereof, if applicable) and of any other correspondence with any Government Authority regarding use of Licensed Products in the Field. 3.7.3 In the event that TGC converts the exclusive license granted to Medeva to a non-exclusive license in any Region pursuant to Section 4.2 of this Agreement, Medeva, at Medeva's expense, for a period of six (6) months after the effective date of such conversion, shall cooperate reasonably with TGC and TGC's designee, if applicable, in the issuance (or reissuance, if appropriate) in the name of TGC or TGC's designee of all Regulatory Approvals necessary to market Licensed Product(s) in the Region (or Regions) in which Medeva has lost exclusivity. 3.7.4 In the event that TGC terminates this Agreement pursuant to Section 5.3 of the Master Agreement, or in the event that Medeva terminates this Agreement pursuant to Section 5.2 of the Master Agreement, Medeva, at Medeva's expense, for a period of six (6) months after the effective date of such termination, shall cooperate reasonably with TGC and TGC's designee, if applicable, in the issuance (or reissuance, if appropriate) in the name of TGC or TGC's designee of all Regulatory Approvals theretofore obtained by Medeva. 17 ARTICLE 4 MARKETING AND COMMERCIALIZATION 4.1 DILIGENCE. The Parties acknowledge that Medeva is one of the first companies in the world seeking to obtain Regulatory Approval of a gene therapy product. As such, Medeva may not anticipate all tests or studies which a Government Authority (e.g., FDA) may require during the regulatory approval ---- process of the Licensed Products. 4.2 TERMINATION OF EXCLUSIVITY. 4.2.1 Upon thirty (30) days prior written notice, TGC may convert the exclusive license granted to Medeva hereunder with respect to a Region to a non- exclusive license for such Region if Medeva (i) fails to submit an Approval Application in each Country in such Region [ * ] with Licensed Products in the Field (subject to certain adjustments set forth below), or (ii) fails to launch a Licensed Product in the Field in each Country in a Region [ * ] after Regulatory Approval is obtained in such Country, subject to reasonable delay to take advantage of suitable launch timings (e.g., professional sales meetings and/or congresses), as determined by the Parties; provided, however, that the -------- ------- right of TGC to terminate Medeva's exclusivity pursuant to this Section 4.2 may not be exercised by TGC if Medeva's failure to submit an application for Regulatory Approval or to commence a Licensed Product launch in a Country is due to (a) a request by a Government Authority in or governing such Country to conduct tests or studies not provided for, or other than as provided for, in the Development Plan, or (b) a court order, judgment, ruling, or other similar demand or requirement imposed upon Medeva arising out and as the result of a Third Party Infringement (as defined in Section 6.8.1 below), or (c)TGC's breach of the Supply Agreement. In connection with (i) above, the [ * ] period shall be - ------------------------------------- /*/ Confidential Treatment Requested. 18 extended if, and only if, (1) the treatment protocol for patients enrolled in such Phase III Clinical Trials covers a period of more than [ * ], in which case such [ * ] period shall be extended by the number of months by which the length of such treatment protocol exceeds [ * ]; or (2) the conduct of such Phase III Clinical Trial is delayed due to TGC's failure to perform its obligations hereunder, or under the Supply Agreement, in a timely manner, in which case such [ * ] period shall be extended by a reasonable amount of time to compensate for the delay caused by such TGC failure. In the event that Medeva's failure under this Section 4.2.1 is due to TGC's breach of this Agreement or the Supply Agreement, TGC shall have no right to convert the exclusive license granted to Medeva hereunder with respect to a Region to a non-exclusive license for such Region unless and until TGC has cured such breach and, in such case, the relevant time periods referred to in this Section 4.2.1 above shall be extended by a reasonable amount of time to compensate for the delay caused by TGC. 4.2.2 Upon thirty (30) days prior written notice, TGC may convert the exclusive license granted to Medeva hereunder with respect to a Region to a non- exclusive license for such Region if Medeva fails to achieve the applicable Minimum Performance Level in each Country in such Region within [ * ] after Regulatory Approval is obtained for such Country, unless such failure is due to either (i) a court order, judgment, ruling, or other similar demand or requirement imposed upon Medeva arising out and as the result of a Third Party Infringement, or (ii) TGC's breach of this Agreement or the Supply Agreement. In the event that Medeva's failure is due to TGC's breach of this Agreement or the Supply Agreement, TGC shall have no right to convert the exclusive license granted to Medeva hereunder with respect to a Region to a non-exclusive - ------------------------------------- /*/ Confidential Treatment Requested. 19 license for such Region unless and until TGC has cured such breach and, in such case, the [ * ] period referred to above shall be extended by a reasonable amount of time to compensate for the delay caused by TGC. 4.2.3 In the event that the exclusive license granted to Medeva with respect to a Region is converted to a non-exclusive license for such Region pursuant to this Section 4.2, Medeva will be entitled to reimbursement of a portion of its total development costs (including without limitation Development R & D funding, and the payments under Sections 5.2 and 5.3 of this Agreement) in obtaining all Regulatory Approvals. The amount of reimbursement shall equal the total of such development costs divided by a number corresponding to the specific Region in which the exclusive license was converted to a non-exclusive license. For Region 1, such number shall be "2;" for Region 2, such number shall -------- - -------- be "5;" for Region 3, such number shall be "2;" for Region 4, such number shall - -------- - -------- be "6;" and for Region 5, such number shall be "7." Notwithstanding the above, - -------- - the total amount of reimbursement to Medeva under this Section 4.2.3 shall not exceed [ * ] of Medeva's total development costs in obtaining Regulatory Approvals. Such reimbursement shall be paid by TGC to Medeva in the form of a royalty equal to [ * ] of TGC's Net Sales. TGC's Net Sales shall include sales of Bulk Licensed Products not subsequently manufactured into Licensed Products and, in addition, sales of Licensed Products. 4.2.4 The Parties agree that Medeva cannot be found in breach of Sections 3.2.2(d)-(f) if Medeva has not lost exclusivity pursuant to Sections 4.2.1 and 4.2.2. Further, a loss of exclusivity pursuant to Sections 4.2.1 or 4.2.2 only, without additional facts or information, shall - ------------------------------------- /*/ Confidential Treatment Requested. 20 not constitute ipso facto a material breach of this Agreement entitling TGC to ---- ----- terminate this Agreement. 4.3 STATUS REPORTS. In addition to Medeva's obligation to prepare and submit to the Steering Committee the reports required under Section 3.5 but only to the extent not otherwise covered thereby, Medeva shall prepare and submit to TGC on a semi-annual basis written status reports of Medeva's commercialization programs for Licensed Products in the Field, including without limitation the status of Regulatory Approvals. In addition to the foregoing, at TGC's request from time to time, not to exceed once per quarter, Medeva agrees to provide verbal updates on the status of Medeva's marketing of Licensed Products in the Field. 4.4 TRADEMARKS. Medeva shall at its own expense select, register and maintain the trademark(s) used by Medeva, its Affiliates and Sublicensees (the "Medeva Trademarks") in connection with Licensed Products in the Field. All trademarks used by TGC, its Affiliates or Sublicensees, including without limitation trademarks used by TGC, its Affiliates or Sublicensees after conversion by TGC of the exclusive license granted to Medeva hereunder with respect to a Region to a non-exclusive license for such Region pursuant to Section 4.2, shall not be confusingly similar to the Medeva Trademarks. TGC shall have no rights in respect of Medeva Trademarks, including in the event of a termination of exclusivity under Section 4.2. ARTICLE 5 CONSIDERATION 5.1 EQUITY PURCHASE. In consideration of the grant by TGC of the rights and licenses set forth in Article 2, Medeva or an Affiliate of Medeva, in accordance with terms and conditions set forth in a certain Common Stock Purchase Agreement of even date herewith, shall purchase 21 shares of common stock of TGC corresponding to a total purchase price equal to Three Million U.S. Dollars ($US3,000,000). 5.2 LICENSE AND TECHNOLOGY ACCESS FEE. In addition to the foregoing, and in further consideration of the grant by TGC of the rights and licenses set forth in Article 2, upon the execution of this Agreement by each of the Parties, Medeva will pay to TGC Five Million U.S. Dollars ($US5,000,000). Except as provided in Section 6.10.2, such payment may not be applied to or otherwise credited against any other payments which may be due to TGC under this Agreement. 5.3 OTHER PAYMENTS. In addition to the foregoing, and in further consideration of the grant by TGC of the rights and licenses set forth in Article 2, Medeva shall pay to TGC the amounts specified below upon the occurrence of the events specified below: 5.3.1 [ * ] either (i) within thirty (30) days after the date of written notice by TGC to Medeva that TGC is authorized or otherwise permitted by FDA to commence Phase I Clinical Trials of the first aerosol Licensed Product in the Field, or (ii) upon the execution date of this Agreement if such authorization or permission is obtained prior to such date. 5.3.2 [ * ] within thirty (30) days after the date of the enrollment of the first patient in Phase II Clinical Trials for the first Licensed Product in the Field. 5.3.3 [ * ] within thirty (30) days after the date of the enrollment of the first patient in Phase III Clinical Trials for the first Licensed Product in the Field. - ------------------------------------- /*/ Confidential Treatment Requested. 22 5.3.4 [ * ] within thirty (30) days after the date of the filing of a Product License Application with FDA (or the equivalent thereof) for approval of the first Licensed Product in the Field. 5.3.5 [ * ] within thirty (30) days after the date of Regulatory Approval for sale of the first Licensed Product in the Field. Except as provided in Section 6.10.2, none of the payments specified in this Section 5.3 may be applied to or otherwise credited against any other payments which may be due to TGC under this Agreement. 5.4 FORM OF PAYMENT; LATE PAYMENTS. Each Party shall make all payments due the other Party under this Agreement in U.S. Dollars by wire transfer of immediately available funds to such account notified by the receiving Party from time to time to the other Party in writing. If any sum payable to TGC under this Agreement shall not have been paid on or before the applicable due date, simple interest shall accrue on the unpaid amount at the rate of twelve percent (12%) per annum or, if less, the maximum rate permitted under applicable law from the payment due date until the actual date of payment without prejudice to any other claim or remedy; provided, however, that no interest shall accrue on any portion -------- of an unpaid amount which is the subject of a good faith, legitimate dispute. If any such dispute is resolved against Medeva, the date of resolution shall be deemed the date that payment to TGC is due. - ------------------------------------- /*/ Confidential Treatment Requested. 23 ARTICLE 6 INTELLECTUAL PROPERTY MATTERS 6.1 OWNERSHIP OF INTELLECTUAL PROPERTY. 6.1.1 As between the Parties, subject only to the licenses set forth in Article 2, TGC shall retain all right, title and interest in and to (i) the Patent Rights and the Licensed Know-How, and (ii) all inventions and developments made solely by employees, agents or contractors of TGC in the course of performance of Development Work pursuant to the Development Plan, and all patents and patent applications claiming such inventions or developments. 6.1.2 As between the Parties, subject only to the covenant set forth in Section 2.2, Medeva shall own all Improvements made by Medeva and all inventions and developments made solely by employees, agents or contractors of Medeva in the course of performance of Development Work pursuant to the Development Plan, and all patents and patent applications claiming such inventions or developments. 6.1.3 The Parties shall jointly own any Joint Inventions and all Joint Patents. 6.1.4 Inventorship of inventions shall be determined in accordance with rules and guidelines regarding inventorship as established under U.S. patent law. 6.2 OWNERSHIP OF APPROVAL APPLICATIONS AND REGULATORY APPROVALS. 6.2.1 Subject to the rights granted to or owned by Medeva hereunder, TGC shall own all rights, title and interest in all Approval Applications filed in the U.S. for the conduct of Phase I Clinical Trials in the U.S. and Phase II Clinical Trials, to the extent such Phase II Clinical Trials are conducted in the U.S. Such Approval Applications shall be filed in TGC's name and owned 24 by TGC. Notwithstanding anything to the contrary, including without limitation Section 6.2.2 below, TGC shall own any establishment license application, and any establishment license which may issue therefrom, necessary for TGC to manufacture Bulk Licensed Product; provided that such a license is applicable to the activities contemplated under this Agreement and the Supply Agreement, and is required under Applicable Laws. 6.2.2 Subject to the rights granted to or owned by TGC hereunder, Medeva shall own all right, title and interest in all Approval Applications for the conduct of all Phase II Clinical Trials (except clinical trials to be conducted by TGC) and Phase III Clinical Trials necessary to obtain Regulatory Approvals required for commercialization of Licensed Products in the Field, together with any Regulatory Approval obtained in connection therewith. Such Approval Applications, together with any Regulatory Approvals obtained in connection therewith, shall be filed in Medeva's name and owned by Medeva. 6.2.3 Each Party shall retain ownership and control of any of its Confidential Information included in any Approval Application. Notwithstanding the previous sentence, each Party agrees that it shall not withhold from the other Party any Confidential Information necessary for the filing, maintenance, modification or protection of an Approval Application by such other Party. 6.3 PROSECUTION AND MAINTENANCE OF PATENT RIGHTS; ABANDONMENT. 6.3.1 TGC, or TGC's designee, shall have the responsibility to file, prosecute and maintain the Patent Rights (except as otherwise provided under the Third Party Agreements) and shall bear all Patent Costs associated therewith. TGC shall provide Medeva with an opportunity to review and comment on the nature and text of new or pending applications for Patent Rights (except as otherwise provided under the Third Party Agreements) worldwide. TGC shall 25 consider in good faith any comments from Medeva regarding steps that might be taken to strengthen patent protection with respect to any patent within the Patent Rights, and shall conduct discussions with Medeva on a reasonable basis regarding the patent prosecution strategy for Patent Rights. TGC agrees to keep Medeva informed of the course of patent prosecution or other proceedings relating to the Patent Rights to the extent known by TGC. 6.3.2 In the event TGC elects not to file or continue to prosecute an application for a patent within the Patent Rights or to abandon an issued patent within the Patent Rights in any country, TGC shall notify Medeva not less than two (2) months before any relevant deadline, and thereafter Medeva shall have the right to pursue, at Medeva's expense and in Medeva's sole discretion, prosecution of such patent application or maintenance of such issued patent (except with respect to any patent application or patent licensed to TGC under the Third Party Agreements, in which case Medeva shall only have the right to pursue prosecution or maintenance to the extent permitted in the applicable Third Party Agreement). 6.3.3 TGC shall provide Medeva with a copy of any communications received by TGC, or any communication which TGC intends to provide to any of its licensors under the Third Party Agreements, relating to the preparation, filing, prosecution and maintenance, including without limitation the issuance, lapse, revocation, surrender, invalidation or abandonment, of any patent or patent application under which TGC received a grant of rights pursuant to the Third Party Agreements. To the extent TGC is afforded an opportunity by any such licensor to comment on, or participate in the filing or maintenance of, any such patent or patent application, TGC shall promptly notify Medeva and discuss TGC's comments and TGC's participation in such filing or maintenance with Medeva. Thereafter TGC shall notify its licensor of Medeva's comments and suggestions relating to such filing or maintenance of such patent or patent application and shall use 26 its Reasonable Commercial Efforts to cause such licensor to consider Medeva's comments and suggestions. Without limiting the foregoing, TGC agrees not to abandon any patent or patent application licensed to TGC under the Third Party Agreements for which TGC has responsibility for prosecution and maintenance without Medeva's prior written consent. 6.4 PROSECUTION AND MAINTENANCE OF JOINT PATENTS; ABANDONMENT. The Parties agree to discuss in good faith and implement a mutually agreeable patent strategy with respect to all Joint Inventions that may be patentable. With respect to all Joint Inventions for which the Parties agree patent protection should be sought, the Parties shall cooperate in the preparation, filing and prosecution of Joint Patents and shall discuss and agree on the content and form of relevant patent applications and any other relevant matters before such applications are made. Each Party shall consider in good faith any comments from the other regarding steps that might be taken to strengthen such Joint Patents. Medeva shall have the right to file, prosecute and maintain such Joint Patents worldwide, and the Parties shall bear all Patent Costs associated therewith equally. Medeva shall take no significant steps relating to Joint Patents without the prior approval of TGC for so long as TGC is paying its share of the Patent Costs relating thereto. In the event that Medeva elects not to prosecute a patent application on a particular Joint Invention, TGC may do so at its sole discretion and expense, and all rights in such Joint Invention and the Joint Patent claiming such invention shall be assigned to TGC. Either Party may choose at any time not to continue to pay any such prosecution and maintenance costs with respect to a particular Joint Patent, and shall thereafter assign all its rights in such Joint Patent to the Party that pays all such costs. Such assignment shall take place in a timely manner to enable the non-assigning Party to meet any external requirement concerning prosecution matters and paying prosecution and maintenance costs. In the event that a Party elects, at any time, not to participate in the 27 preparation, filing and prosecution of any patent application covering a Joint Invention, such Party shall provide reasonable assistance to the other Party, at the expense of such other Party, with respect to any activities determined by such other Party as necessary to obtain patent protection for such Joint Invention. 6.5 ENFORCEMENT OF PATENT RIGHTS. 6.5.1 If any patent within the Patent Rights is or might reasonably be infringed by a Third Party through the manufacture, use or sale of any products in the Field (an "Infringement in the Field"), the Party to this Agreement first having knowledge of such infringement shall promptly notify the other Party in writing. The notice shall set forth the facts of that infringement in reasonable detail. 6.5.2 Except as provided in Section 6.5.3, in the event of an Infringement in the Field which, in the Parties' reasonable judgment, if continued, would affect materially the marketing and commercialization of Licensed Product by Medeva, TGC shall institute, prosecute, and control any action or proceeding with respect to such infringement, provided that either (i) the patent allegedly infringed is owned by TGC or (ii) TGC has a right to institute, prosecute and control such action or proceeding. If the patent infringed is not owned by TGC and TGC does not have a right to institute, prosecute and control such action or proceeding, TGC shall use Reasonable Commercial Efforts to cause the owner of such patent (the "Patent Owner") to institute, prosecute and control, or permit TGC to control, any action or proceeding with respect to such infringement. To the extent permitted by Applicable Laws where either (a) TGC has brought suit or (b) the Patent Owner is a party other than TGC and TGC is authorized to permit Medeva to do so, Medeva shall have the right, at its own expense, to be represented in any such action or proceeding by counsel of its own choice. In addition, to the extent that TGC is 28 authorized to permit Medeva to do so, TGC agrees to permit Medeva to control any action or proceeding with respect to such infringement and, if the Patent Owner is not TGC and TGC does not have the right to institute prosecute and control such action or proceeding, TGC shall use Reasonable Commercial Efforts to cause such Patent Owner to permit Medeva to control any such action or proceeding. 6.5.3 If TGC or the Patent Owner fails to bring an action or proceeding with respect to an Infringement in the Field within a period of ninety (90) days after the earlier of (i) the date of the Parties' determination that such infringement, in the Parties' reasonable judgment, if continued, would affect materially the marketing and commercialization of Licensed Product by Medeva, or, (ii) the date of Medeva's request to bring such an action or proceeding, Medeva, to the extent that TGC is authorized to permit Medeva to do so, shall have the right, but not the obligation, to bring and control an action or proceeding in its name against such infringement by counsel of Medeva' own choice. If the Patent Owner is not TGC, and TGC is not authorized to permit Medeva to bring and control such an action or proceeding, TGC shall use Reasonable Commercial Efforts to cause such Patent Owner to permit Medeva to do so. In any such action, TGC and the Patent Owner shall have the right to join as a party (or parties) and be represented in any such action by counsel of their own choice at their own expense. Notwithstanding the above, in the event that it is not possible under relevant local laws for Medeva to bring and control such an action or proceeding, TGC, to the extent that TGC is able to do so, shall bring, or shall cause the Patent Owner to bring, such an action and Medeva shall control such action, at Medeva's expense. In any such case, TGC agrees to be joined as a party plaintiff if necessary for Medeva to prosecute the action and to give Medeva reasonable assistance and authority to file and prosecute the suit. In addition, if the Patent Owner is not TGC and TGC does not have 29 authority to require the Patent Owner to join as a party plaintiff, TGC agrees to use Reasonable Commercial Efforts to cause the Patent Owner to agree to be joined as a party plaintiff if helpful for Medeva to prosecute the action and to give Medeva reasonable assistance and authority to file and prosecute the suit. 6.5.4 TGC, or the Patent Owner if not TGC, shall retain all other rights with respect to enforcement of patents which could give rise to an Infringement in the Field. Any damages or other monetary awards recovered in an action or proceeding against an infringer of the Patent Rights based on an Infringement in the Field shall be applied first to the reimbursement of Medeva and TGC, and the Patent Owner if not TGC, of their respective out-of-pocket expenses (including reasonable attorneys' fees and expenses) incurred in prosecuting such infringement action, on a pro rata basis based upon their respective out-of- pocket expenses, until all such expenses have been recovered. Unless TGC's pre- existing written obligations to the Patent Owner require otherwise, any remaining balance shall be divided (i) equally between the parties in the suit if TGC, or the Patent Owner if not TGC, is controlling the litigation provided Medeva did not have the right to control the litigation, or (ii) in the ratio of [ * ] to Medeva and [ * ] to TGC and the Patent Owner if Medeva is controlling the litigation or TGC is controlling the litigation at Medeva's request. 6.6 ENFORCEMENT OF JOINT PATENT RIGHTS. If any Joint Patent is or might reasonably be infringed by a Third Party in any country in the Territory, the Party to this Agreement first having knowledge of such infringement shall promptly notify the other Party in writing. The notice shall set forth the facts of that infringement in reasonable detail. With respect to Joint Patents that are owned solely by one Party, such Party shall have the sole right, but not the - ------------------------------------- /*/ Confidential Treatment Requested. 30 obligation, to institute, prosecute, and control any action or proceeding with respect to such infringement. The non-owning Party agrees to give the owning Party, at the owning Party's expense, including reimbursement of the non-owning Party's out-of-pocket expenses, all reasonable assistance to defend or settle any such action or proceedings. The owning Party shall bear the costs of such action or proceedings. If such suspected infringement involves a jointly-owned Joint Patent and if the Parties do not agree on a joint plan of action, then Medeva first shall have the right, but not the obligation, to institute, prosecute, and control any action or proceeding with respect to such infringement, by counsel of its own choice and thereafter TGC shall have the right but not the obligation to do so. The Party not bringing the action shall have the right, at its own expense, to join as a party and be represented in any such action by counsel of its own choice. If one Party brings any such action or proceeding with respect to a jointly-owned Joint Patent, the other Party agrees to be joined as a party plaintiff if necessary to prosecute the action and to give the first Party reasonable assistance and authority to file and prosecute the suit. Any damages or other monetary awards recovered in an action against an infringer of a jointly-owned Joint Patent shall be applied to the reimbursement of TGC and Medeva for their respective out-of-pocket expenses (including reasonable attorneys' fees and expenses) incurred in prosecuting such infringement action on a pro rata basis based upon their respective out-of- pocket expenses until all such expenses have been recovered, and any remaining balance shall be divided equally between the Parties. 6.7 SETTLEMENT WITH A THIRD PARTY. A Party may not settle an action or proceeding against an infringer under Section 6.5 or Section 6.6 above with respect to a product in the Field without the written consent of such other Party. Such consent shall not be unreasonably withheld, but 31 may be withheld if such settlement would materially and adversely affect the interest of the other Party. 6.8 INFRINGEMENT OF THIRD PARTY RIGHTS. 6.8.1 In the event that a Third Party alleges that such Third Party's intellectual property rights are being or have been infringed by (i) Medeva's or TGC's selling, manufacturing, having manufactured or using, pursuant to this Agreement or Supply Agreement, Bulk Licensed Product, Licensed Products or products covered by Joint Patents, or (ii) a Third Party's use of Bulk Licensed Product, Licensed Products or products covered by Joint Patents, Medeva shall have the right to defend or settle in its sole discretion any legal action or proceeding arising therefrom (a "Third Party Infringement"). In addition, in the event that a patent application or patent held or otherwise controlled by Third Party may be subject to challenge, opposition or other similar actions or proceedings, including without limitation interference proceedings, Medeva shall have the right to take appropriate steps to initiate and pursue such actions or proceedings. TGC and Medeva shall consult with each other concerning strategy, approaches and the consequences of approaches to be undertaken pursuant to this Section 6.8, and TGC shall provide and shall cause the Patent Owner to provide, if applicable, all reasonable assistance requested by Medeva in connection with any such action or proceeding, provided however that Medeva reimburses the out- of-pocket expenses of TGC and the Patent Owner, if applicable, in providing such assistance. 6.8.2 If a Third Party Infringement alleges infringement of a Third Party intellectual property right about which TGC notified Medeva prior to the execution of this Agreement or a Third Party intellectual property right about which neither Medeva nor TGC was aware prior to the 32 execution of this Agreement, Medeva shall be responsible for [ * ] of the costs and expenses (including without limitation reasonable attorney's fees) incurred in defending or settling such Third Party Infringement, and TGC shall be responsible for [ * ] of such costs and expenses. However, if a Third Party Infringement arises out of a breach of TGC's warranties or representations under this Agreement, then TGC shall be responsible for [ * ] of the costs and expenses actually incurred by Medeva in defending or settling such Third Party Infringement. Payment by TGC of costs and expenses for which TGC is responsible under this Section 6.8.2 shall be made within sixty (60) days after the date of TGC's receipt of Medeva's invoice with respect thereto. 6.9 INFRINGEMENT OF MEDEVA TRADEMARKS. TGC agrees to give Medeva prompt written notice of any unlicensed use by Third Parties of Medeva Trademarks of which TGC has knowledge. 6.10 OFFSET FOR INFRINGEMENT. 6.10.1 If Medeva is required in accordance with Section 6.8.2 of this Agreement, at any time during the term of this Agreement, to pay any damages or other payments (but not milestone payments or payments of ongoing royalties in either case based upon an amount of Licensed Product sold or a percentage of sales of Licensed Product which are to be deducted from Net Sales pursuant to Section 1.32(vii) of the Master Agreement) to any person or entity as a result of a judgment, settlement or agreement relating to the past and/or future use of Bulk Licensed Product by either Party ("Third Party Payments"), except insofar as such Third Party Payments are attributable to the willful misconduct, negligence or breach of this Agreement by Medeva, its Affiliates or Sublicensees, Medeva may offset [ * ] of the amount of such Third - ------------------------------------- /*/ Confidential Treatment Requested. 33 Party Payments actually paid by Medeva against any fees and payments due TGC or payable on behalf of TGC pursuant to (i) Section 5.3 of this Agreement, but not research funding payments to TGC pursuant to Section 3.4, or (ii) Section 2.2.1 and Section 6.2 of the Supply Agreement, or (iii) Section 5.6.2 of the Master Agreement. Such offsets may be made after the date a Third Party Payment was paid by Medeva. 6.10.2 If at any time during the term of this Agreement, as a result of a Third Party Infringement, Medeva (i) is prevented from selling Licensed Products in either Region 1 or Region 3, or both; and (ii) has used its best efforts to defend or settle legal actions relating to such Third Party Infringement, or to otherwise obtain a license under intellectual property rights which are the basis of such Third Party Infringement, then Medeva shall be entitled to offset [ * ] of payments due to TGC pursuant to Section 5.2 and Section 5.3, but not research funding payments to TGC pursuant to Section 3.4, against amounts otherwise due to TGC pursuant to Section 2.2.1 and Section 6.2 of the Supply Agreement. 6.10.3 Offsets by Medeva allowed pursuant to this Section 6.10, cumulatively, shall be limited to, and shall not exceed, a total amount in any calendar year equal to the sum of (i) [ * ] of the amount otherwise due to TGC in such calendar year pursuant to Section 5.3 of this Agreement; (ii) [ * ] of the amount otherwise due to TGC in such calendar year pursuant to Section 6.2 of the Supply Agreement; and (iii) [ * ] of TGC's net profits in such calendar year on sale of Bulk Licensed Product to Medeva pursuant to Section 2.2.1 of the Supply Agreement. For purposes of this Section 6.10.3, the term "net profits" shall mean Transfer Price less TGC's Manufacturing Cost. - ------------------------------------- /*/ Confidential Treatment Requested. 34 ARTICLE 7 MASTER AGREEMENT 7.1 INCORPORATION BY REFERENCE. Article 3 (Confidentiality), Article 4 (Representations and Warranties), Article 5 (Term and Termination), Article 6 (Indemnification; Insurance; Limitation of Liability), Article 7 (Governing Law; Dispute Resolution) and Article 8 ( Miscellaneous) of the Master Agreement are hereby incorporated by reference. The Parties intend and agree that the provisions contained in the articles referred to in the previous sentence, together with the provisions contained in the articles set forth in this Agreement, describe fully the rights and obligations as between the Parties under this Agreement, and that such articles, together with the articles set forth in this Agreement, shall apply to and govern the Parties with respect to this Agreement. IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written. TARGETED GENETICS CORPORATION MEDEVA PHARMACEUTICALS, INC. ("TGC") ("MEDEVA") By: /s/ H. Stewart Parker By: /s/ William Bogie ------------------------------------- -------------------------------- Name: H. Stewart Parker Name: William Bogie ----------------------------------- ------------------------------ Title: President, Chief Executive Officer Title: President ---------------------------------- ----------------------------- 35 SCHEDULE 3.3.2 BUDGETED DEVELOPMENT R&D FUNDING FOR FIRST PROJECT YEAR -------------------------------------------------------
Cost Structure per FTE (US $s) (1): Direct labor [*] Payroll taxes and benefits [*] Lab supplies [*] Indirect costs: Dept. operating costs [*] R&D management [*] R&D facility maintenance/operating costs [*] R&D rent and utilities [*] R&D equipment-related costs [*] Allocated G&A costs [*] ------ Total costs per FTE [*] Less G&A costs [*] ------ Rate per FTE payable by Medeva [*] Estimated level of effort (FTEs): Process development [*] Assay development [*] Preclinical biology [*] Product development [*] ------ Total [*] Total cost of TGC internal effort (thousands of US $s) [*] External costs (animal studies, assays, etc.) [*] ------ Subtotal [*] 5% Contingency [*] ------ Total estimated budget--Project Year 1 (thousands of US $s)
(1) FTE = full time equivalent R&D employee [*] - ------------------------------------- /*/ Confidential Treatment Requested. 36 EXHIBIT A DEVELOPMENT PLAN ---------------- SECTION 1 - --------- 1. For the purposes of the Transaction Documents the definitions of Phase I Clinical Trial, Phase II Clinical Trial and Phase III Clinical Trial shall be as follows: "Phase I Clinical Trial" means the studies currently consisting of Studies AAV9501, AAV9502 and AAV9701 (as described in Section 3 of this Exhibit A), together with all extensions of these studies and any additional studies which the Steering Committee determines (in accordance with the provisions of Article 3 of this Agreement) are required to explore tolerance and, through molecular and biological end points as indicators, designed to demonstrate activity sufficient for the purposes of designing the Phase II Clinical Trial. "Phase II Clinical Trial" means the studies currently consisting of Studies AAV9901 and AAV9902 (as described in Section 3 of this Exhibit A), together with all extensions of these studies and any additional studies which the Steering Committee determines (in accordance with the provisions of Article 3 of this Agreement) are required for the initial demonstration of clinical efficacy (e.g. reduced infection incidents and/or increased FVC) and initial determination of side effects, and designed to be sufficient for the purposes of designing the Phase III Clinical Trial. "Phase III Clinical Trial" means the studies required to provide definitive proof of efficacy/determination of safety profile and to be performed after appropriate evidence has been obtained of efficacy during Phase II Clinical Trials, and designed to be sufficient for the purposes of submitting an Approval Application. 2. The Parties have discussed previously (i) an outline of the clinical portions of the Development Plan, (ii) the timetable for such clinical portion which is attached in Section 2 of this Exhibit A, and the (iii) proposed budgeted Development R&D funding for the first Project Year which is set out in Schedule 3.3.2 to this Agreement. 3. The Parties acknowledge that it is the responsibility of the Steering Committee (to be set up under Article 3 of this Agreement) to establish the Development Plan and carry out the other activities in respect thereof in accordance with the provisions of the Transaction Documents and in particular Article 3 of this Agreement. 4. The draft preliminary Development Plan attached in Section 3 of this Exhibit A has been drawn up by TGC and following discussion with Medeva it has been agreed that such Development Plan will form the basis for discussion and establishment of the Development Plan in accordance with the provisions of Article 3 of this Agreement. SECTION 2 - See Attached - --------- SECTION 3 - See Attached - --------- 37 EXHIBIT A - Section 2 [ * ] - ------------------------------------- /*/ Confidential Treatment Requested. 38 EXHIBIT A SECTION 3 - --------- [ * ] - ------------------------------------- /*/ Confidential Treatment Requested. 39 EXHIBIT B OUTSIDE CONTRACTOR LETTER ------------------------- Medeva Pharmaceuticals, Inc. 755 Jefferson Road Rochester, New York 14623 United States of America Re: Third Party Service Contract Dear Ladies and Gentlemen: This letter will serve as notice to Medeva BV ("Medeva") that pursuant to Section 3.7 of the License and Collaboration Agreement (the "Agreement") dated _______________, between Medeva and Targeted Genetics Corporation ("TGC"), [insert name of third party service provider] (the "Service Provider") has been engaged as a contractor for TGC in connection with the performance of the following obligation of TGC under the Agreement: [insert description of obligation] A copy of our agreement with TGC is attached hereto (the "Service Contract"). Such Service Contract constitutes the entire agreement between Service Provider and TGC, is in full force and to our knowledge neither party is in breach of any of the terms thereof. Service Provider hereby acknowledges that, during the term of the Service Contract, in the event of a breach of the Service Contract by Service Provider which causes TGC to breach its obligations to Medeva, Medeva shall have the right to pursue and seek to enforce TGC's remedies (including equitable remedies) under the Service Contract directly against Service Provider without first exhausting its remedies against TGC. Service Provider acknowledges that any fees or compensation due it pursuant to the Service Contract shall be payable by TGC only. Service Provider represents and warrants to Medeva that it is not an affiliate of TGC. Service Provider further acknowledges that Medeva shall not have any liability to, nor be responsible for the payment of any amounts to, Service Provider. Very truly yours, [Name of Service Provider] By:________________________ Name: Title: Address: Date: 40 EX-1.3 4 SUPPLY AGREEMENT EXHIBIT 1.3 ================================================================================ SUPPLY AGREEMENT BETWEEN TARGETED GENETICS CORPORATION AND MEDEVA PHARMACEUTICALS, INC. AN AFFILIATE OF MEDEVA PLC DATED NOVEMBER 23, 1998 ================================================================================ "[*]" = omitted, confidential material, which material has been separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment. TABLE OF CONTENTS -----------------
PAGE ---- ARTICLE 1 DEFINITIONS 3 1.1 Incorporation by Reference........................................................ 3 ARTICLE 2 PRODUCT SUPPLY..................................................................... 3 2.1 Clinical Supply................................................................... 3 2.2 Commercial Supply................................................................. 5 2.3 Invoices.......................................................................... 7 2.4 Order and Invoice Non-Conformance................................................. 8 2.5 Non-Payment of Invoices........................................................... 9 2.6 Insurance......................................................................... 9 2.7 Records........................................................................... 10 2.8 Product Warranty.................................................................. 10 ARTICLE 3 PRODUCT MANUFACTURE................................................................ 10 3.1 Establishment of Clinical Supply Source........................................... 10 3.2 Establishment of Commercial Supply Source......................................... 11 3.3 Subcontracting.................................................................... 13 3.4 Alternate Manufacturing Source.................................................... 14 ARTICLE 4 QUALITY CONTROL.................................................................... 16 4.1 Product Specifications Amendments................................................. 16 4.2 Product Non-Conformance........................................................... 16 4.3 Manufacturing Process............................................................. 18 4.4 Inspection........................................................................ 18 4.5 Safety Procedures................................................................. 19 4.6 Government Inspection............................................................. 19
ARTICLE 5 ADVERSE EVENTS; RECALL............................................................. 20 5.1 Adverse Experience Reporting...................................................... 20 5.2 Notification and Recall........................................................... 21 5.3 Recall Expense.................................................................... 22 ARTICLE 6 ADDITIONAL COMPENSATION; PAYMENT................................................... 23 6.1 Third Party Agreements............................................................ 23 6.2 Sales Bonus....................................................................... 24 6.3 Reports and Payments.............................................................. 25 6.4 Form of Payment; Late Payments.................................................... 25 ARTICLE 7 RECORDS AND AUDIT RIGHTS........................................................... 26 7.1 Medeva Records and TGC Audit Rights............................................... 26 7.2 TGC Records and Medeva Audit Rights............................................... 27 ARTICLE 8 MASTER AGREEMENT................................................................... 28 8.1 Incorporation by Reference........................................................ 28
List of Schedules and Exhibits Schedule 2.2.1 Transfer Price of Bulk Licensed Product Exhibit A Contract Manufacturer Letter ii SUPPLY AGREEMENT THIS SUPPLY AGREEMENT (the "Supply Agreement") is made effective as of the 23rd day of November 1998 (the "Effective Date") by and between TARGETED GENETICS CORPORATION, a corporation organized under the laws of the State of Washington, United States of America, having offices at 1100 Olive Way, Suite 100, Seattle, Washington 98101, United States of America, ("TGC") and MEDEVA PHARMACEUTICALS, INC., a corporation organized under the laws of the State of Delaware, United States of America, having offices at 755 Jefferson Road, Rochester, New York 14623, United States of America, ("Medeva") an Affiliate of MEDEVA PLC, a public limited liability company organized under the laws of the England, having offices at 10 St. James's Street, London, SW1A 1EF, England ("Medeva PLC"). TGC and Medeva are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS 1. TGC has entered into the following four license agreements (collectively, the "Third Party Agreements") under which it acquired certain rights relating to cystic fibrosis gene therapy, including (a) a non-exclusive license agreement, dated March 28, 1994, with the Regents of the University of Michigan and HSC Research and Development Limited Partnership (the "U. Michigan/HSC Agreement"), (b) a non-exclusive license agreement, dated June 23, 1993, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-232-92 Agreement"), (c) an exclusive license agreement, dated March 8, 1994, with certain agencies of the United States Public Health Service within the Department of Health and Human Services (the "NIH/CDC L-059-93 Agreement"), and (d) an exclusive sub- license agreement, dated July 23, 1996, with Alkermes, Inc., an exclusive licensee of 1 the Children's Hospital Research Foundation/Children's Hospital, Inc. (the "Alkermes Agreement"). 2. TGC owns or, pursuant to the Third Party Agreements, is a licensee of certain patents, patent applications and valuable technology and know-how relating inter alia to cystic fibrosis gene therapy and the treatment of cystic ----- fibrosis using an adeno-associated viral ("AAV") vector to deliver a gene encoding a cystic fibrosis transmembrane regulator ("CFTR") protein. 3. Medeva has valuable intellectual property and technology relating to delivery of pharmaceutical products by inhalation and other means and has experience with the clinical development and marketing of such products. 4. The Parties wish to collaborate in the further development and commercialization of an AAV-CFTR gene therapy product for the treatment of cystic fibrosis. 5. Concurrently herewith, the Parties are entering into a certain License and Collaboration Agreement (the "LCA"), pursuant to which the Parties will collaborate to develop such a gene therapy product, and possibly other gene therapy products for the treatment of cystic fibrosis, on terms and conditions set forth more fully therein, a certain Master Agreement (the "Master Agreement"), pursuant to which the Parties' intent is set forth to organize a new corporate structure and to provide contractual arrangements to protect the interests of each of the Parties and, in addition, which contains provisions which are intended by the Parties to be common to, and to apply to and govern the Parties, under this Supply Agreement and the LCA, as set forth more fully therein, a certain Common Stock Purchase Agreement, pursuant to which Medeva will purchase from TGC shares of common stock of TGC as set forth more fully therein, 2 and a Credit Agreement, pursuant to which Medeva will extend TGC credit for the purpose of constructing a manufacturing facility, as set forth more fully therein. In consideration of the premises and of the mutual covenants and obligations set forth herein, the Parties agree as set out below. ARTICLE 1 DEFINITIONS 1.1 INCORPORATION BY REFERENCE. Article 1 (Definitions) of the Master Agreement is hereby incorporated by reference. All capitalized terms not otherwise defined in this Supply Agreement shall have the meanings set forth in Article 1 of the Master Agreement. ARTICLE 2 PRODUCT SUPPLY 2.1 CLINICAL SUPPLY. 2.1.1 Subject to the terms and conditions of this Section 2.1, and except as otherwise provided in Section 3.4, TGC or a Contract Manufacturer of TGC shall manufacture all Bulk Licensed Product for use in the manufacture of Licensed Products required to conduct all clinical trials pursuant to the Development Plan. In addition, TGC or a Contract Manufacturer of TGC shall manufacture all Licensed Products required to conduct clinical trials for which TGC is responsible pursuant to Section 3.2.1(b) or Section 3.2.1(c) of the LCA. 2.1.2 TGC agrees to supply to Medeva, and Medeva agrees to purchase from TGC, Medeva's total requirements of Bulk Licensed Product for use in the manufacture of Licensed Products for use in clinical trials to be conducted by Medeva pursuant to the Development Plan. The price for Bulk Licensed Product to be paid by Medeva shall be equal to Manufacturing Cost. 3 2.1.3 The Steering Committee shall determine the requirements for Bulk Licensed Product for each year during the Development Period required to conduct and complete clinical trials pursuant to the Development Plan. The Steering Committee shall deliver to TGC a written forecast of the quantities of Bulk Licensed Product required for the manufacture of Licensed Products to be used at each of the anticipated clinical trial stages of the Development Plan, together with a schedule for delivery of such quantities. It is anticipated that such forecast and delivery schedule will require multiple shipments of Bulk Licensed Product. If necessary, the Steering Committee shall deliver a revised forecast and delivery schedule to TGC sufficiently in advance of the first date which a new or revised quantity of Bulk Licensed Product is required so as to enable TGC to satisfy its obligation under this Section 2.1.3 but in no event later than nine (9) months, or such shorter time as may be agreed upon by the Parties, before any requested delivery date for new or revised quantities of Bulk Licensed Product. 2.1.4 TGC shall use its best efforts to provide Bulk Licensed Product corresponding to the quantities and delivery dates set forth in the forecast and delivery schedule delivered to TGC pursuant to Section 2.1.3. In the event that the Steering Committee, at any time within nine (9) months before a requested delivery date determines that the quantity of Bulk Licensed Product corresponding to a particular shipment set forth in such forecast is not adequate to satisfy requirements, the Steering Committee shall notify TGC and shall provide a revised forecast. TGC shall use its Reasonable Commercial Efforts to provide Bulk Licensed Product in excess of the quantity last forecast for such shipment more than nine (9) months before the requested delivery dates but, notwithstanding anything to the contrary herein, TGC shall have no obligation to provide such additional Bulk Licensed Product. TGC shall provide prompt written notice to Medeva in the event of any anticipated delays in the scheduled delivery date and shall cooperate with Medeva to 4 reschedule delivery at the earliest possible date so as to minimize the impact on the conduct and completion of clinical trials pursuant to the Development Plan. 2.1.5 Delivery by TGC of Bulk Licensed Product to Medeva shall be made CIP (Incoterms 1990) at Medeva's facility in Rochester, New York, or such other Medeva facility in the U.S. selected by Medeva. 2.1.6 It is understood that each Party may, for convenience, use its own standard preprinted forms of invoice, purchase order, acknowledgement or acceptance in the performance of its obligations hereunder; provided that any terms, conditions or provisions in such pre-printed forms which are inconsistent with or which modify or supplement this Supply Agreement shall be null and void. 2.2 COMMERCIAL SUPPLY. 2.2.1 Subject to the terms and conditions of this Section 2.2, and except as otherwise provided in Section 3.4, TGC shall manufacture Bulk Licensed Product and supply such Bulk Licensed Product solely to Medeva, and Medeva agrees to purchase from TGC, Medeva's total requirements of Bulk Licensed Product for use in the manufacture of Licensed Products for marketing and commercialization in the Field. The price for Bulk Licensed Product to be paid by Medeva (the "Transfer Price") shall be determined as set forth in Schedule -------- 2.2.1. - ----- 2.2.2 At least nine (9) months prior to the first delivery to Medeva of Bulk Licensed Product for commercial sales is due to occur (the "First Commercial Quarter"), Medeva shall determine its requirements for Bulk Licensed Product and shall deliver to TGC a rolling twelve (12) month forecast (the "Commercial Forecast") of such requirements. The Commercial Forecast shall cover the four (4) succeeding calendar quarters commencing with and including 5 the First Commercial Quarter. After delivery of the initial Commercial Forecast, the Commercial Forecast shall be updated on a calendar quarterly basis by adding a calendar quarter to the previous Commercial Forecast. The quantities of Bulk Licensed Product for the first calendar quarter of each Commercial Forecast shall be firm. The quantities of Bulk Licensed Product for the remaining three (3) calendar quarters in each Commercial Forecast shall be non-binding estimates for planning purposes only. From time-to-time after the Effective Date, the Parties shall consider the timing of the delivery of Commercial Forecasts by Medeva to TGC and, if appropriate in light of market demand, manufacturing capacity, inventory levels, and other pertinent factors, negotiate in good faith a revised time schedule for delivery of Commercial Forecasts. Medeva shall submit to TGC a firm purchase order (a "Commercial Purchase Order") for the purchase of all Bulk Licensed Product at least ninety (90) days prior to the specified delivery date. Each Commercial Purchase Order shall specify the quantity or, if more than one shipment is requested, quantities of Bulk Licensed Product ordered, and the requested delivery date or dates. Medeva shall not order, for any particular calendar quarter, less Bulk Licensed Product than the quantity of Bulk Licensed Product which was set forth in its firm Commercial Forecast for such calendar quarter. 2.2.3 TGC shall accept all Commercial Purchase Orders for a particular calendar quarter, provided the amount of Bulk Licensed Product ordered does not exceed the amount of the firm Commercial Forecast for such calendar quarter plus fifteen percent (15%). TGC shall use its Reasonable Commercial Efforts to fulfill the amount by which a Commercial Purchase Order exceeds a firm Commercial Forecast by more than 15% of such Commercial Forecast, but TGC shall have no obligation to do so beyond use of Reasonable Commercial Efforts. All Commercial Purchase Orders accepted by TGC shall not thereafter be cancelable by either Party. TGC shall 6 use best efforts to meet the delivery date specified in the Commercial Purchase Order. TGC shall provide prompt written notice to Medeva in the event of any anticipated delays in the scheduled delivery date and shall cooperate with Medeva to reschedule delivery at the earliest possible date so as to minimize the impact on Medeva. 2.2.4 Delivery by TGC of Bulk Licensed Product to Medeva shall be made CIP (Incoterms 1990) at Medeva's facility in Rochester, New York, or such other Medeva facility in the U.S. selected by Medeva in the applicable Commercial Purchase Order. 2.2.5 TGC and Medeva each shall establish reasonable inventory levels of Bulk Licensed Product and Licensed Product, respectively, including safety stock, to meet demand for Licensed Products for marketing and commercialization in the Field pursuant to this Supply Agreement and taking into account lead times for manufacture, price and procurement of material inputs, manufacturing capacity, product stability and expiration dating. Such inventory shall be utilized on a first-in-first-out (FIFO) basis. 2.2.6 It is understood that each Party may, for convenience, use its own standard preprinted forms of invoice, purchase order, acknowledgement or acceptance in the performance of its obligations hereunder; provided that any terms, conditions or provisions in such pre-printed forms which are inconsistent with or which modify or supplement this Supply Agreement or the LCA shall be null and void. 2.3 INVOICES. TGC shall promptly invoice Medeva for all Bulk Licensed Product shipped. Invoices shall be accompanied by a certificate of analysis for each invoiced batch or part batch of Bulk Licensed Product. All payments for Bulk Licensed Product shall be made by Medeva to TGC within thirty (30) days after the date of Medeva's receipt of TGC's invoice therefor in the 7 manner provided in Section 6.4. Notwithstanding the above, in the event that Medeva disputes the amount, or any portion thereof, of any invoice submitted to it by TGC, Medeva shall promptly notify TGC of the amount and nature of the disagreement. The Parties shall promptly attempt to resolve such disagreement in good faith in the manner provided in Section 2.4 and Medeva shall make payments with respect to disputed invoices as provided in such section. 2.4 ORDER AND INVOICE NON-CONFORMANCE. 2.4.1 In the event Medeva disputes whether Bulk Licensed Product supplied by TGC conforms to an order placed for such Bulk Licensed Product pursuant to Section 2.1 or Section 2.2 with respect to quantity, Medeva shall provide notice to TGC within fifteen (15) days after receipt thereof. In the case of any non- conformity which results from delivery of less Bulk Licensed Product than ordered, TGC shall supply additional Bulk Licensed Product promptly. In such case, Medeva shall pay for the quantity actually received in accordance with the provisions of Section 2.3. In the case of any non-conformity which results from delivery of more Bulk Licensed Product than ordered, Medeva may elect either to (i) return to TGC, at TGC's expense, any Bulk Licensed Product in excess of the quantity of Bulk Licensed Product ordered, or (ii) accept any Bulk Licensed Product in excess of the quantity ordered as against future orders of Bulk Licensed Product. In such case, Medeva shall pay for the quantity actually received and accepted in accordance with the provisions of Section 2.3 unless otherwise agreed. In the event of any non-conformity under this Section 2.4.1, Medeva shall have no obligation to pay any amount to TGC greater than the amount corresponding to the lesser of either the quantity of Bulk Licensed Product ordered, or the quantity of Bulk Licensed Product actually received. 2.4.2 In the event that Medeva disputes any invoice due to the price at which any quantity of Bulk Licensed Product is invoiced as a result of the Parties being unable to reach 8 agreement with respect to the calculation of Manufacturing Cost or Transfer Price, Medeva shall be obligated to pay the undisputed amount of such invoice in full in accordance with the provisions of Section 2.3 pending resolution of the dispute pursuant to Section 7.2. 2.4.3 In the event that Medeva disputes any invoice due to non-conformance of the Bulk Licensed Product supplied by TGC with the Specifications, such dispute shall be resolved in accordance with Section 4.2 of the Agreement. Pending resolution of such dispute, Medeva shall not be obligated to pay any such invoice. Upon resolution of any such dispute in favor of TGC, Medeva shall pay the invoice amount due within ten (10) days of such resolution. 2.5 NON-PAYMENT OF INVOICES. If Medeva fails to pay any amounts when due pursuant to the provisions of Sections 2.3 and 2.4 above, TGC shall be entitled to charge Medeva interest on any such past due amounts in accordance with Section 6.4 for late payments. Additionally, at TGC's sole option and in TGC's sole discretion, after fifteen (15) days prior written notice to Medeva, TGC shall have a right to suspend delivery of Bulk Licensed Product until such time as such past due amounts are paid by Medeva; provided that amounts not paid by Medeva when due pursuant to this Article 2 exceed the amount past due from TGC to Medeva pursuant to the Transaction Documents by more than Fifty Thousand U.S. Dollars ($US50,000).INSURANCE. TGC shall use Reasonable Commercial Efforts to procure and maintain throughout the term of this Supply Agreement property insurance (in which Medeva shall be named as an additional insured), with such types and amounts of coverage as are customary in the industry, covering all Bulk Licensed Product intended for supply to Medeva pursuant to this Supply Agreement. All such insurance policies shall require at least thirty (30) days prior written notice to Medeva concerning cancellation thereof. Upon request, TGC shall provide Medeva with evidence that such insurance is in effect. 9 2.6 RECORDS. TGC shall maintain, and shall cause its Affiliates, Contract Manufacturers, Outside Contractors and other agents to maintain, all records necessary to comply with all Applicable Laws relating to the manufacture, filling, packaging, storage and shipment of Bulk Licensed Product. All such records shall be maintained for such period as may be required by Applicable Laws; provided, however, that all records relating to the manufacture, stability -------- ------- and quality control of each batch, or part batch, of Bulk Licensed Product shall be retained until the Parties agree to dispose of such records. 2.7 PRODUCT WARRANTY. TGC represents and warrants that, at the time of delivery of any Bulk Licensed Product to Medeva, such Bulk Licensed Product (i) will have been manufactured, filled, packaged, stored and shipped in accordance with the Specifications, applicable Regulatory Approvals and all Applicable Laws, (ii) will not be adulterated or misbranded under the FFDCA, or under any other Applicable Laws, (iii) may be introduced into interstate commerce consistent with the intended use for such Bulk Licensed Product pursuant to the FFDCA, and (iv) will have expiration dating as agreed upon by the Parties. TGC further represents and warrants that it shall obtain and maintain, and cause its Affiliates, Sublicensees, Contract Manufacturers and Outside Contractors to obtain and maintain, all necessary licenses, permits or approvals required by Applicable Laws in connection with the manufacture, filling, package, storage, and shipment of Bulk Licensed Product, including without limitation permits related to manufacturing facilities. ARTICLE 3 PRODUCT MANUFACTURE 3.1 ESTABLISHMENT OF CLINICAL SUPPLY SOURCE. TGC and Medeva intend that TGC will manufacture Bulk Licensed Product at TGC's facilities in Seattle, Washington, United States of America, and pursuant to Section 2.1 supply such Bulk Licensed Products to Medeva. In order 10 to satisfy the anticipated demand for clinical quantities of Bulk Licensed Product (and initial commercial quantities of Bulk Licensed Product, as further described in Section 3.2 below), TGC's present facilities require modification and/or expansion to provide a GMP manufacturing facility suitable for production of Bulk Licensed Product to be used in the manufacture of Licensed Products. In connection with such build-out, Medeva shall provide TGC a loan in the amount of Two Million U.S. Dollars ($US2,000,000). Medeva shall deliver such loan amount in accordance with the terms of a certain Credit Agreement of even date herewith. 3.2 ESTABLISHMENT OF COMMERCIAL SUPPLY SOURCE. 3.2.1 In the event that the Steering Committee reasonably determines that, in addition to the facility utilized by TGC to provide Bulk Licensed Product for clinical trials and initial commercial sales under this Supply Agreement, as further described in Section 3.1 above, a manufacturing facility will be required in order to satisfy the long term commercial demand for supply of Bulk Licensed Product, TGC shall provide for the establishment of such a manufacturing facility (the "Additional Facility"). Notwithstanding the Steering Committee's aforementioned role, TGC agrees to plan for the Additional Facility on a timely basis so as to prevent a shortage of Bulk Licensed Product. TGC anticipates that the cost of establishing the Additional Facility will be in excess of Ten Million U.S. Dollars ($10,000,000) (such undetermined amount to be referred to herein as the "Facility Cost"). 3.2.2 TGC agrees to use its Reasonable Commercial Efforts to raise financing, independent of Medeva, in an amount equal to the Facility Cost. If, despite TGC's Reasonable Commercial Efforts, TGC fails to raise sufficient financing equal to the Facility Cost, TGC shall promptly notify Medeva and the Steering Committee, detailing in its notice its Reasonable Commercial Efforts to date together with an explanation for its inability to raise such financing. 11 TGC shall, in consultation with Medeva, continue to use its Reasonable Commercial Efforts to search for financing and shall provide the Steering Committee with bi-weekly written updates of its efforts in this regard. 3.2.3 During the three (3) months following the notice referred to in Section 3.2.2, the Parties shall discuss the feasibility of using Medeva's biological manufacturing facilities at Speke as the site for the Additional Facility. If the Parties determine that the use of such site is feasible, Medeva shall fund the construction of the Additional Facility, either in whole or in part, subject to the negotiation of satisfactory terms for such arrangement. If the proposal to use such site is not feasible, or if the Parties are not able to agree on terms satisfactory to Medeva, then Medeva shall use its own Reasonable Commercial Efforts to obtain Third Party financing on behalf of TGC (on terms and conditions acceptable to TGC). If, despite these efforts, Medeva is unsuccessful in obtaining or in its sole discretion decides not to seek Third Party financing on behalf of TGC, and TGC has not obtained financing through its own Reasonable Commercial Efforts, then Medeva shall provide TGC with funding of up to Ten Million U.S. Dollars ($US10,000,000) to finance the cost thereof so long as funding of the balance of the cost of establishing the Additional Facility has been committed previously. Such financing shall take the form of, or a debt financing, or another form as may be mutually agreed by the Parties such as an equity investment in TGC at a premium to market, in each case on commercially reasonable terms pursuant to a separate written agreement between the Parties. 3.2.4 Notwithstanding the above, in the event that such manufacturing facility is established within a Medeva facility and, as a consequence of such location, a cost saving in establishing the facility results as compared to the cost of establishing a separate facility, TGC will reduce the Transfer Price for Bulk Licensed Product for use in the manufacture of Licensed 12 Products for commercialization in the Field by [ * ] for a period of time sufficient to permit Medeva to recover the benefit of such cost saving. 3.2.5 If TGC fails to manufacture and supply Medeva with Bulk Licensed Product as required under the terms of this Supply Agreement, due only to its inability, despite its Reasonable Commercial Efforts, to raise financing (which prevents the establishment of the Additional Facility), such failure to manufacture and supply Bulk Licensed Product shall not be deemed a breach of this Supply Agreement. 3.3 SUBCONTRACTING. TGC may contract with one or more Contract Manufacturers to perform any or all of its obligations under this Supply Agreement, provided that (i) TGC permits Medeva to review and comment on, and incorporates the reasonable comments of Medeva in, the drafts of the respective agreements (each a "Contract Manufacturer Agreement"), (ii) TGC provides Medeva with a true and accurate copy of each such Contract Manufacturer Agreement, and (iii) TGC uses Reasonable Commercial Efforts to cause each Contract Manufacturer to agree to execute and deliver to Medeva a letter in the form of Exhibit A hereto, and to --------- include the provisions set forth therein in the relevant Contract Manufacturer Agreement. As to each Contract Manufacturer that executes and delivers such a letter to Medeva, TGC agrees that Medeva may seek to enforce TGC's remedies under such Contract Manufacturer Agreement directly against such Contract Manufacturer without first exhausting its remedies against TGC if the Contract Manufacturer breaches such Contract Manufacturer Agreement so as to cause TGC to become liable to Medeva for damages due to TGC's inability to supply Bulk Licensed Product in accordance with the terms of this Supply Agreement; provided, however, that if Medeva shall seek to exercise such remedies, TGC - -------- ------- shall remain primarily liable and obligated to Medeva - ---------------------------------------- /*/ Confidential Treatment Requested. 13 under all provisions of this Supply Agreement. Further, TGC agrees to use its Reasonable Commercial Efforts to include in each Contract Manufacturer Agreement the following provisions: (a) a prohibition against sublicensing by such Contract Manufacturer of Patent Rights or Licensed Know-How licensed to such Contract Manufacturer by TGC, (b) a prohibition against the sale by such Contract Manufacturer of Bulk Licensed Product to any Third Party; (c) a prohibition, approved by Medeva, against manufacturing, having manufactured, supplying, using or selling any product which generates functional CFTR protein and which is derived from or embodies, in whole or in part, any intellectual property either Controlled by TGC or licensed to TGC pursuant to the Third Party Agreements; and (d) a right for TGC to terminate such Contract Manufacturer Agreement in the event of a breach of the terms set forth in either of (a), (b) or (c) above. 3.4 ALTERNATE MANUFACTURING SOURCE. 3.4.1 If TGC is unable to manufacture or supply Bulk Licensed Product for any reason whatsoever including, for example, because a Government Authority enjoins such manufacture at TGC's facilities, Medeva shall have the right to manufacture such Bulk Licensed Products for TGC in order to attempt to fulfill TGC's manufacturing and supply obligations under this Supply Agreement thereafter through the remaining term of this Supply Agreement. Such right, however, shall be exercisable only if (i) TGC's inability to manufacture or supply Bulk Licensed Product could reasonably be expected to result in a period of time of at least three (3) months during which no Licensed Product would be available to Medeva for commercial sale, (ii) Medeva provides reasonable evidence of its ability to start production of Bulk Licensed Product more rapidly than TGC could restart production of Bulk Licensed Product, and (iii) TGC's 14 inability to manufacture or supply Bulk Licensed Product did not result, wholly or in part, from a breach by Medeva of its obligations hereunder. 3.4.2 If, at any time, Medeva manufactures Bulk Licensed Product on behalf of TGC pursuant to Section 3.4.1, Medeva shall sell such Bulk Licensed Product to TGC at a transfer price equal to Medeva's Manufacturing Cost plus [ * ]. Pursuant to the terms of this Supply Agreement TGC shall then sell such Bulk Licensed Product only to Medeva. Medeva shall at all times use its Reasonable Commercial Efforts to keep its Manufacturing Costs as low as possible. 3.4.3 TGC shall provide Medeva with all reasonable assistance in setting up and overseeing such alternate manufacturing facility including the transfer of cell lines and viral stocks, and copies of all written or other tangible forms of recorded Know-How Controlled by TGC or manufacturing processes. Additionally, to expedite the creation of such a facility, TGC shall keep a second source of critical AAV-CFTR raw materials, including in particular cell lines and viral stocks, at Medeva's Speke facility. 3.4.4 If, at any time subsequent to Medeva's exercise of its rights under Section 3.4.1, Medeva's demand for Bulk Licensed Product exceeds the amount that can be supplied from Medeva's manufacturing facility, TGC will have the right to manufacture Bulk Licensed Product in TGC's facility in order to meet such excess demand. 3.4.5 Any delay occasioned by the transfer of manufacturing hereunder shall be added to the relevant deadlines in Section 4.2 of the LCA. - -------------------------------------- /*/ Confidential Treatment Requested. 15 ARTICLE 4 QUALITY CONTROL 4.1 PRODUCT SPECIFICATIONS AMENDMENTS. The Parties will cooperate to amend or supplement the Specifications in order to incorporate Improvements and New Products approved in accordance with Section 2.4 of the LCA, or for any other reasonable business purpose, subject to the grant of any Regulatory Approvals, including without limitation approvals from FDA, required by Applicable Laws in connection with any such changes. As contemplated by such provisions any and all such amendments or supplements shall require the prior written consent of each of the Parties, such consent not to be unreasonably withheld or delayed. 4.2 PRODUCT NON-CONFORMANCE. 4.2.1 If Medeva determines that any shipment of Bulk Licensed Product from TGC does not conform to the warranty provided in Section 2.8 above, Medeva shall give TGC notice thereof (including a sample from such shipment and copies of the results of any testing supporting Medeva's determination) within fifteen (15) days after receipt thereof, in the case of non-conformities that may be ascertained by the exercise of reasonable diligence (which shall not include laboratory testing or other chemical analysis), and within fifteen (15) days after discovery thereof, in the case of other non-conformities (including, without limitation, non-conformities relating to stability). Notwithstanding anything to the contrary, except as provided in Section 2.4, the sole criteria for a determination that any shipment of Bulk Licensed Product is non-conforming is failure to satisfy the warranty for such Bulk Licensed Product provided in Section 2.8. Medeva may elect in its discretion to conduct routine laboratory testing and other chemical analysis of shipments of Bulk Licensed Product. If TGC confirms such non-conformity, 16 it shall promptly so notify Medeva. If TGC does not confirm such non-conformity, it shall promptly so notify Medeva, and the Parties shall promptly submit the disputed shipment for testing to an independent testing laboratory or other independent Third Party expert that is mutually acceptable to the Parties. The findings of the testing laboratory or Third Party expert shall be binding on the Parties. The expenses of such testing or other investigation shall be borne by TGC if the non-conformity is confirmed, and otherwise by Medeva. 4.2.2 If any Bulk Licensed Product delivered by TGC hereunder does not conform to the warranty provided in Section 2.8 above for any reason other than the willful or negligent acts or omissions of Medeva or its customers or agents which occur after the date of delivery thereof by TGC, TGC shall credit Medeva with the costs incurred by Medeva with respect to such non-conforming Bulk Licensed Product, which costs shall be deemed equal to the sum of any amounts paid on account of such Bulk Licensed Product pursuant to Section 2.1.2 or Section 2.2.1, as applicable, any and all transportation and storage charges incurred by Medeva in connection with such Bulk Licensed Product, any and all costs incurred by Medeva in manufacture of Licensed Products from such Bulk Licensed Product, and any and all transportation and storage charges incurred by Medeva in connection with such Licensed Products, and any and all contractual penalties paid by Medeva to Medeva's customers as a direct result of Medeva's failure to deliver Licensed Products in a timely manner but only to the extent that such penalties are not deducted from amounts billed or otherwise invoiced on sales of Licensed Products in connection with the calculation of Net Sales. In addition, at Medeva's option, (i) TGC shall be relieved of any obligation to deliver any Bulk Licensed Product in replacement of such non-conforming Bulk Licensed Product, or (ii) TGC shall use best efforts to replace the non- conforming Bulk Licensed Product with substitute conforming Bulk Licensed Product immediately after TGC's receipt of Medeva's notice of election of option (ii) of this 17 Section 4.2.2 or, if available inventory levels are not adequate to permit immediate replacement, as much as possible and the balance within ninety (90) days after the date of receipt by TGC of such Medeva notice, in which case Medeva shall pay to TGC any unpaid amounts in respect of the replacement Bulk Licensed Product in accordance with Section 2.1.6 or Section 2.2.5, as applicable, following delivery of such replacement Bulk Licensed Product. 4.3 MANUFACTURING PROCESS. If any process event occurs during the manufacturing of any batch or part batch of Bulk Licensed Product (or Licensed Product manufactured by TGC for use by TGC in clinical trials), which event is likely materially to affect the safety, efficacy or regulatory status of such Bulk Licensed Product (or such Licensed Product), then TGC shall notify Medeva as soon as reasonably possible. Medeva and TGC shall consult with each other as to the disposition of all affected batches or part batches of such Bulk Licensed Product (or such Licensed Product). TGC agrees to report to Medeva, on an annual basis, any atypical process events that are unlikely materially to affect the safety, efficacy or regulatory status of the Bulk Licensed Product (or Licensed Product manufactured by TGC for use by TGC in clinical trials). Further, on an annual basis and to the extent of its knowledge, TGC agrees to provide Medeva with notice of any out of process steps which occur in the manufacture of Bulk Licensed Product (or Licensed Product manufactured by TGC for use by TGC in clinical trials). No Bulk Licensed Product may be reworked unless the rework procedure is in conformity with the applicable Regulatory Approval or the other applicable guidelines of the Government Authority in the country where the Licensed Product is being sold, except with the prior written consent of Medeva, which consent may not be unreasonably withheld. 4.4 INSPECTION. TGC shall permit Medeva representatives to enter TGC's facilities, and shall use Reasonable Commercial Efforts to cause its Contract Manufacturers to do the same with respect 18 to their facilities, upon reasonable prior notice and at reasonable intervals, during normal business hours for the purpose of making quality assurance audits of the facilities and of the procedures and processes used by TGC and such Contract Manufacturers in storing, manufacturing and shipping Bulk Licensed Product (or Licensed Product manufactured on behalf of TGC for use by TGC in clinical trials). 4.5 SAFETY PROCEDURES. TGC shall maintain and enforce health and safety procedures for the handling and manufacture of Bulk Licensed Product that comply in all respects with all Applicable Laws. 4.6 GOVERNMENT INSPECTION. TGC agrees to advise Medeva by telephone and facsimile immediately of any proposed or announced visit or inspection, and as soon as possible but in any case within twenty-four (24) hours (or, in the case of a Contract Manufacturer's, Outside Contractor's or other Third Party's facility, within twenty-four (24) hours after receipt by TGC of notice thereof), of any unannounced visit or inspection, by any Governmental Authority of any facilities used by TGC or its Contract Manufacturers or Outside Contractors in the performance of its obligations hereunder, including the processes or procedures used at such facilities in the manufacture of Bulk Licensed Product (or Licensed Product manufactured by TGC for use by TGC in clinical trials). TGC shall provide Medeva with a reasonable description of each such visit or inspection promptly (but in no event later than five (5) calendar days) thereafter, and with copies of any letters, reports or other documents (including 483's) issued by any such authorities that relate to the Bulk Licensed Product, Licensed Product, or such facilities, processes or procedures. Medeva may review TGC's responses to any such reports and communications, and if practicable, and, insofar as timely received, Medeva's reasonable views and requests shall be taken into account prior to submission of such reports and communications 19 to the relevant Governmental Authority. TGC shall also provide Medeva with the notice, information, documentation, and opportunity to comment provided for above with respect to Contract Manufacturers or Outside Contractors. ARTICLE 5 ADVERSE EVENTS; RECALL 5.1 ADVERSE EXPERIENCE REPORTING. Each Party shall notify, and shall cause its Affiliates and Sublicensees and, with respect to TGC, its Contract Manufacturers or Outside Contractors to notify, the other Party promptly upon receipt of (i) any information concerning any potentially serious or unexpected side effect, injury, toxicity or sensitivity reaction or any unexpected incidence or other adverse experience (an "Adverse Experience") and the severity thereof associated with the clinical uses, studies, investigations, tests and marketing of the Licensed Products, whether or not determined to be attributable to the Bulk Licensed Product or Licensed Product, (ii) any information regarding any pending or threatened action which may affect the safety or efficacy claims of the Licensed Products or the continued marketing of the Licensed Products in any nation or jurisdiction, (iii) any material communications with or notice from a Government Authority indicating that it intends to visit or inspect a Party's facilities, or the facilities of an Affiliate or a Sublicensee of such Party and, with respect to TGC, a Contract Manufacturer or Outside Contractor, for a purpose relevant to the development, manufacture or marketing of the Licensed Products. Without limiting the foregoing, TGC shall and shall use Reasonable Commercial Efforts to require each Affiliate, Sublicensee, Contract Manufacturer and Outside Contractor to notify Medeva's responsible drug safety department by telephone and facsimile within twenty-four (24) hours after TGC first becomes aware of any Adverse Experience that gives cause for concern or is unexpected or that is fatal, life-threatening (as it occurred), 20 permanently disabling, requires (or prolongs) inpatient hospitalization, represents a significant hazard, or is a cancer or a congenital anomaly or represents an overdose, or any other circumstance that might necessitate a recall, expedited notification of FDA or any other relevant Government Authorities or a significant change in the label of the Licensed Product, including without limitation any deviation from the specified environmental conditions for shipping or storage of the Licensed Product. To the extent that Medeva becomes aware of any Adverse Experience that appears to be related to the manufacture of Bulk Licensed Product, Medeva shall provide notification to TGC within forty-eight (48) hours after Medeva becomes aware of such Adverse Experience. Each party shall make such reports as are necessary to comply with laws and regulations applicable to it, at its sole expense. Further, in the event a Party (or its Affiliates or Sublicensees) receives a communication or directive from a Government Authority commencing or threatening seizure of Bulk Licensed Products or Licensed Products, or other removal from the market of Bulk Licensed Products or Licensed Products, such Party shall transmit such information to the other Party within twenty-four (24) hours of receipt. 5.2 NOTIFICATION AND RECALL. If any Governmental Authority issues or requests a recall or takes similar action in connection with Bulk Licensed Product or a Licensed Product, or if either Party determines that an event, incident or circumstance has occurred which may result in the need for a recall or market withdrawal, the Party notified of or wishing to call such recall or similar action shall, within twenty four (24) hours, advise the other Party thereof by telephone or facsimile, after which the Parties shall promptly discuss and work together to effect an appropriate course of action; provided, however, that -------- ------- either Party may initiate a recall or market withdrawal thereafter if it deems such action necessary or appropriate. Notification to FDA (or such other applicable Government Authority with respect to countries other than the United States) and 21 compliance with Applicable Laws in conducting such recall shall be the responsibility of Medeva. 5.3 RECALL EXPENSE. A Party shall bear the full expense of both Parties incurred in any recall resulting from breach of its respective warranties or obligations hereunder. Such expenses of recall shall include, without limitation, the expenses of notification and destruction or return of the recalled Licensed Product and the sum paid by a Third Party for the recalled Licensed Product. Without limitation of the foregoing, if the failure to meet applicable legal requirements is caused by the act or omission of TGC in manufacture and sale of Bulk Licensed Product to Medeva, TGC shall further reimburse Medeva for (i) any amounts paid to TGC by Medeva in purchase of such Bulk Licensed Product and in manufacture of Licensed Products from such Bulk Licensed Products that are recalled or that cannot be shipped by Medeva due to the condition of Bulk Licensed Product requiring the recall, and (ii) all liabilities incurred by Medeva by virtue of being unable to meet its supply obligations to its customers because Licensed Products could not be timely shipped by Medeva due to the condition of Bulk Licensed Product requiring recall. In the event, however, that a recall is partially caused by TGC's actions or omissions and partially caused by Medeva's actions or omissions, then each Party shall be responsible for its proportionate share of the recall expenses based on its proportionate share of causation. In the event that a recall is, or is partially, the result of an inherent defect which is not the direct and proximate cause of either Party, then provided the inherently defective Bulk Licensed Product or Licensed Product has otherwise been manufactured, filled, packaged, stored and shipped in accordance with the Specifications, Applicable Laws and applicable Regulatory Approvals, the parties shall attribute a reasonable percentage of the recall expenses to the 22 inherent defect (such amount, the "Inherent Defect Costs"). Medeva shall be responsible for [ * ] of the Inherent Defect Costs and TGC shall be responsible for [ * ] of the Inherent Defect Costs. ARTICLE 6 ADDITIONAL COMPENSATION; PAYMENT 6.1 THIRD PARTY AGREEMENTS. Medeva shall reimburse to TGC or, at TGC's election, pay the royalties due after the Effective Date by TGC to its licensors pursuant to the Third Party Agreements on sales of Bulk Licensed Products under the following sections of the respective Third Party Agreements: (i) with respect to the U. Michigan/HSC Agreement, Sections 4.2, 4.3 and 4.4 thereof, net of any credits permitted under Section 4.4 thereof or any deductions permitted under Section 4.5 thereof to the extent Medeva pays the Third Party royalties which give rise to TGC's right to take the deduction permitted by such Section 4.5; (ii) with respect to the NIH/CDC L-232-92 Agreement, Sections 5.02 (as amended), 5.03, 5.04 and 5.05 thereof, net of any credits permitted pursuant to Section 5.02 thereof and any credits which may be available under Section 5.09 (new paragraph) thereof to the extent that Medeva pays any patent expenses payable by TGC under Section 5.08 (new paragraph) thereof; (iii) with respect to the NIH/CDC L-059-93 Agreement, Sections 6.02, 6.03, 6.05 (as revised) and 6.06 thereof, net of any credits permitted pursuant to Section 6.02 thereof and any credits which may be available under Section 6.08 or Section 7.01 (revised) thereof to the extent that Medeva pays any expenses payable by TGC under such sections; and (iv) with respect to the Alkermes Agreement, Sections 3.1 and 3.3 thereof, but net of any reductions permitted pursuant to Section 3.2 thereof. All such reimbursements or such payments shall be paid by Medeva within forty- five (45) days - ---------------------------------------- /*/ Confidential Treatment Requested. 23 after written notice thereof by TGC to Medeva. Medeva shall be entitled to deduct any royalty payments actually paid by Medeva pursuant to this Section 6.1 from amounts billed or invoiced on sales of Licensed Products in connection with the calculation of Net Sales. No royalties shall be paid in advance of the corresponding due dates under the applicable Third Party Agreement. 6.2 SALES BONUS. For each calendar year, beginning with the calendar year in which the First Commercial Sale occurs, Medeva shall pay to TGC an annual sales bonus on Net Sales in accordance with the following scale: (a) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; (b) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; (c) [ * ] of Net Sales; provided that Net Sales for such calendar year Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; (d) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; (e) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; (f) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ] but is less than [ * ]; and - ------------------------------------ /*/ Confidential Treatment Requested. 24 (g) [ * ] of Net Sales for such calendar year; provided that Net Sales Per Annual Dose for such calendar year equals at least [ * ]. 6.3 REPORTS AND PAYMENTS. Within thirty (30) days after the end of each calendar quarter during the term of this Supply Agreement, beginning with the calendar quarter in which the First Commercial Sale occurs, Medeva shall deliver to TGC a written report setting forth (i) Net Sales for such calendar quarter, together with all information necessary in order to determine such Net Sales, (ii) the Net Sales Per Annual Dose for such calendar quarter, together with all information necessary in order to determine such Net Sales Per Annual Dose, and (iii) if such calendar quarter is the last calendar quarter of a calendar year, the sales bonus payment due and payable to TGC pursuant to Section 6.2 for such calendar year. Medeva shall deliver full payment of sales bonus payments due and payable to TGC pursuant to Section 6.2 for the calendar year covered by a report under this Section 6.3 at the time of delivery of such report in the manner provided in Section 6.4. 6.4 FORM OF PAYMENT; LATE PAYMENTS. Each Party shall make all payments due the other Party under this Supply Agreement in U.S. Dollars by wire transfer of immediately available funds to such account notified by the receiving Party from time to time to the other Party in writing. If any sum payable to a Party under this Supply Agreement shall not have been paid on or before the applicable due date, or having been paid at the other Party's request is found to be an overpayment pursuant to Article 7 below, simple interest shall accrue on the unpaid (or overpaid) amount at the rate of twelve percent (12%) per annum or, if less, the maximum rate permitted under applicable law from the date that payment was due (or received) until the actual date of payment (or reimbursement) without prejudice to any other claim or remedy; provided, however, -------- - ---------------------------------------- /*/ Confidential Treatment Requested. 25 that no interest shall accrue on any portion of an unpaid (or overpaid) amount which is the subject of a good faith, legitimate dispute. The date of resolution of any such dispute shall be deemed the date that payment (or reimbursement) is due. ARTICLE 7 RECORDS AND AUDIT RIGHTS 7.1 MEDEVA RECORDS AND TGC AUDIT RIGHTS. Medeva shall keep and maintain complete and accurate records and books of account in sufficient detail and form so as to enable verification of sales bonus payments due and payable by Medeva pursuant to Section 6.2 hereof, Net Sales Value (as defined in Schedule 2.2.1) -------------- used in the determination of Transfer Price in accordance with Schedule 2.2.1, -------------- and Medeva's Manufacturing Cost in the event that Medeva manufactures Bulk Licensed Product pursuant to Section 3.4.2. Medeva shall maintain such records and books of account for a period of not less than three (3) years following the year to which the records pertain. Medeva shall permit such records and books of account to be examined at Medeva's premises only by an independent certified public accountant selected by TGC and acceptable to Medeva, such acceptance not to be unreasonably withheld, provided that such independent accountant may not have performed services for either Party at any time within the then last three (3) years and no more than one such examination may be conducted by or on behalf of TGC in any calendar year. Each and any such examination shall be conducted during Medeva's normal business hours and only after ten (10) days' prior written notice to Medeva. In performing the examination, the independent certified public accountant shall consult with the Parties as he/she deems appropriate. Upon completion of the examination, the independent certified accountant shall report to the Parties only whether amounts paid to TGC were underpaid or whether amounts paid by TGC were overpaid (provided that such overpayment was at Medeva's request) 26 and, if so, the amount of such underpayment or overpayment. In the event of underpayment by Medeva, Medeva shall promptly pay TGC all amounts underpaid (or undisputed payments due TGC and not paid), together with interest due on such underpaid amounts. In the event of overpayment by TGC (provided that such overpayment was at Medeva's request), Medeva shall promptly reimburse TGC all amounts overpaid, together with interest due on such overpaid amounts. Such interest, if applicable, shall be paid in accordance with Section 6.4. The cost of such examination shall be borne by TGC, unless such examination reveals a discrepancy of greater than five percent (5%) in Medeva's favor, in which case Medeva shall bear such cost. 7.2 TGC RECORDS AND MEDEVA AUDIT RIGHTS. TGC shall keep and maintain complete and accurate records and books of account in sufficient detail and form so as to enable verification of TGC's Manufacturing Cost, the Transfer Price determined in accordance with Schedule 2.2.1, royalties due and payable by TGC to TGC's -------------- licensors pursuant to the Third Party Agreements, and TGC's Net Sales per Section 4.2 of the LCA. TGC shall maintain such records and books of account for a period of not less than three (3) years following the year to which the records pertain. TGC shall permit such records and books of account to be examined at TGC's premises only by an independent certified public accountant selected by Medeva and acceptable to TGC, such acceptance not to be unreasonably withheld, provided that such independent accountant may not have performed services for either party at any time within the then last three (3) years and no more than one such examination may be conducted by or on behalf of Medeva in any calendar year. Each and any such examination shall be conducted during TGC's normal business hours and only after ten (10) days' prior written notice to TGC. In performing the examination, the independent certified public accountant shall consult with the Parties as he/she deems appropriate. Upon completion of the examination, the independent certified accountant 27 shall report to the Parties only whether amounts paid by Medeva were overpaid (provided that such overpayment was at TGC's request) or whether amounts paid to Medeva were underpaid and, if so, the amount of such overpayment or underpayment. In the event of overpayment by Medeva (provided that such overpayment was at TGC's request), TGC shall promptly reimburse Medeva all amounts overpaid, together with interest due on such overpaid amounts. In the event of underpayment to Medeva, TGC shall promptly pay Medeva all amounts underpaid (or undisputed payments due Medeva and not paid), together with interest due on such underpaid amounts. Such interest, if applicable, shall be paid in accordance with Section 6.4. The cost of such examination shall be borne by Medeva, unless such examination reveals a discrepancy of greater than five percent (5%) in TGC's favor, in which case TGC shall bear such cost. ARTICLE 8 MASTER AGREEMENT 8.1 INCORPORATION BY REFERENCE. Article 3 (Confidentiality), Article 4 (Representations and Warranties), Article 5 (Term and Termination), Article 6 (Indemnification; Insurance; Limitation of Liability), Article 7 (Governing Law; Dispute Resolution) and Article 8 ( Miscellaneous) of the Master Agreement are hereby incorporated by reference. The Parties intend and agree that the provisions contained in the articles referred to in the previous sentence, together with the provisions contained in the articles set forth in this Supply Agreement, describe fully the rights and obligations as between the Parties under this Agreement, and that such articles, together with the articles set forth in this Supply Agreement, shall apply to and govern the Parties with respect to this Supply Agreement. 28 IN WITNESS WHEREOF, the Parties have executed this Supply Agreement in duplicate originals by their proper officers as of the date and year first above written.
TARGETED GENETICS CORPORATION MEDEVA PHARMACEUTICALS, INC. ("TGC") ("MEDEVA") By: /s/ H. Stewart Parker By: /s/ William Bogie ------------------------------------- ------------------------------------- Name: H. Stewart Parker Name: William Bogie ------------------------------------ ------------------------------------- Title: President, Chief Executive Officer Title: President ------------------------------------ -------------------------------------
29 SCHEDULE 2.2.1 TRANSFER PRICE OF BULK LICENSED PRODUCT --------------------------------------- 1. DETERMINATION OF INITIAL TRANSFER PRICE --------------------------------------- Prior to the date of delivery of Medeva's first order of Bulk Licensed Product for use in the manufacture of Licensed Products for commercial sale, the Parties shall negotiate in good faith to establish an initial transfer price based upon available information with the intention of approximating the result of the transfer price calculation described below (the "Initial Transfer Price"). Medeva shall pay the Initial Transfer Price for its purchases of Bulk Licensed Product from TGC until such price is changed in accordance with Paragraph 2 below. 2. CALCULATION OF TRANSFER PRICE ----------------------------- Within thirty (30) days after the end of the first June 30th or December 31st that is at least six (6) months following the date of the First Commercial Sale and each subsequent six-month period ending June 30 or December 31 during the term of this Supply Agreement, Medeva shall deliver to TGC a written report setting forth Net Sales Value (as defined below) for such period. Such calculation of Net Sales Value shall be based upon (i) Net Sales of Licensed Products during such period; (ii) units (e.g. doses) of Licensed Product sold during such period; and (iii) the quantity of Bulk Licensed Product used to manufacture such units of Licensed Products sold during such period. TGC shall calculate Transfer Price (as defined below) based on such Net Sales Value for such six-month period and shall provide such calculation to Medeva no later than fifteen (15) days after receipt by TGC of Medeva's written report setting forth Net Sales Value. The Parties shall thereafter have forty-five (45) days to review and analyze such calculation, and to mutually agree upon any appropriate changes to such calculation. Such Transfer Price will thereafter, beginning October 1 or April 1, as the case may be, be applied to Medeva's purchases of Bulk Licensed Product from TGC for the ensuing six-month period. The calculation is as follows: (A) A transfer price for Bulk Licensed Product supplied by TGC to Medeva will be calculated as follows for a given quantity of Bulk Licensed Product: "TRANSFER PRICE" = Base Transfer Price + Dose-Based Adjustment (if any) (B) A base transfer price will be calculated as follows: "BASE TRANSFER PRICE" = Net Sales Value x [ * ]% (C) If, and only for so long as, Approved Dose is greater than Assumed Dose, and if, and only for so long as, Manufacturing Cost is greater than [ * ]% of Net Sales Value, then a dose-based adjustment will be calculated as follows: - ---------------------------------------- /*/ Confidential Treatment Requested. "DOSE-BASED ADJUSTMENT" = [(Manufacturing Cost / Net Sales Value) - [ * ]] x 50% x Net Sales Value - ------------------------------------ /*/ Confidential Treatment Requested. 2 SCHEDULE 2.2.1 TRANSFER PRICE OF BULK LICENSED PRODUCT --------------------------------------- (continued) 3. RETROACTIVE ADJUSTMENT ---------------------- Beginning with the first calculation of Transfer Price, finalized in accordance with the preceding Paragraph 2, and continuing thereafter with each such Transfer Price calculation, TGC shall calculate a retroactive adjustment as if such Transfer Price had been applied to Medeva's purchases of Bulk Licensed Product from TGC during the period from which Net Sales Value was derived (the "Adjustment Period"). However, with regard to the first such calculation of Transfer Price, such retroactive adjustment will be calculated as if such Transfer Price had been applied to Medeva's purchases of Bulk Licensed Product for the period beginning with the first shipment of Bulk Licensed Product to Medeva for use in the manufacture of Licensed Products for commercial sale and ending on the last day of the six-month period from which Net Sales Value was derived for the respective Transfer Price calculation (the "Initial Adjustment Period"). Each such retroactive adjustment shall be paid by TGC or Medeva, as the case may be, no later than one hundred twenty (120) days after the end of the respective Adjustment Period or Initial Adjustment Period. 4. DEFINED TERMS ------------- For purposes of the above calculations, unless otherwise indicated, defined terms are consistent with those contained in Article 1 of the Master Agreement. "NET SALES VALUE" means, for a quantity of Bulk Licensed Product, the Net Sales of Licensed Product manufactured from such quantity of Bulk Licensed Product. "APPROVED DOSE" means the quantity of DNase Resistant Particles ("DRP") to be administered to an individual patient during a one-year period according to the labeling approved by FDA or the equivalent thereof in countries other than the U.S. "ASSUMED DOSE" means [ * ] DRP. - ---------------------------------------- /*/ Confidential Treatment Requested. 3 SCHEDULE 2.2.1 TRANSFER PRICE OF BULK LICENSED PRODUCT --------------------------------------- (continued) [ * ] In the event that the Approved Dose set forth in a Regulatory Approval in a jurisdiction should exceed the Assumed Dose and the Manufacturing Cost of such Approved Dose is greater than [ * ] of Net Sales Value, but the Approved Dose set forth in another Regulatory Approval in another jurisdiction equals or is less than the Assumed Dose, the Parties agree to negotiate in good faith to determine a weighted average Transfer Price to take into account such a difference. - ---------------------------------------- /*/ Confidential Treatment Requested. 4 EXHIBIT A CONTRACT MANUFACTURER LETTER ---------------------------- Medeva Pharmaceuticals, Inc. 755 Jefferson Road Rochester, New York 14623 United States of America Re: Third Party Manufacturer Dear Ladies and Gentlemen: This letter will serve as notice to Medeva BV ("Medeva") that pursuant to Section 3.3 of the Supply Agreement (the "Supply Agreement") dated _______________, between Medeva and Targeted Genetics Corporation ("TGC"), [insert name of third party manufacturer] (the "Contract Manufacturer") has been engaged as a contractor for TGC in connection with the performance of the following obligation of TGC under the Supply Agreement: [insert description of obligation] A copy of our agreement with TGC is attached hereto (the "Contract Manufacturing Agreement"). Such Contract Manufacturing Agreement constitutes the entire agreement between Contract Manufacturer and TGC, is in full force and to our knowledge neither party is in breach of any of the terms thereof. Contract Manufacturer hereby acknowledges that, during the term of the Contract Manufacturing Agreement, it will not manufacture Licensed Product, or any AAV- CFTR gene therapy product for use in the treatment of cystic fibrosis in humans for, or sell or distribute such products to, any person or entity other than TGC or Medeva. Contract Manufacturer further acknowledges that in the event of a breach of the Contract Manufacturing Agreement by Contract Manufacturer which causes TGC to breach its obligations to Medeva, Medeva shall have the right to pursue and seek to enforce TGC's remedies (including equitable remedies) under the Contract Manufacturing Agreement directly against Contract Manufacturer without first exhausting its remedies against TGC. Contract Manufacturer acknowledges that any fees or compensation due it pursuant to the Contract Manufacturing Agreement shall be payable by TGC only. Contract Manufacturer represents and warrants to Medeva that it is not an affiliate of TGC. Contract Manufacturer further acknowledges that Medeva shall not have any liability to, nor be responsible for the payment of any amounts to, Contract Manufacturer. Very truly yours, [Name of Contract Manufacturer] By:________________________ Name: Title: Address: Date: EX-1.4 5 COMMON STOCK PURCHASE AGREEMENT EXHIBIT 1.4 TARGETED GENETICS CORPORATION COMMON STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 23, 1998 CONTENTS 1. Purchase and Sale of Stock.................................................. 1 1.1 Agreement to Purchase................................................. 1 1.2 Purchase and Sale..................................................... 2 2. Delivery.................................................................... 2 3. Representations and Warranties of the Company............................... 2 3.1 Organization, Good Standing and Qualification, Due Execution and Validity............................................ 3 3.2 Capitalization........................................................ 3 3.3 Authorization......................................................... 3 3.4 Valid Issuance of Stock............................................... 4 3.5 Governmental Consents................................................. 4 3.6 Litigation............................................................ 4 3.7 Compliance With Other Instruments..................................... 5 3.8 SEC Reports; Financial Statements..................................... 5 3.9 Compliance With Laws.................................................. 5 3.10 Changes.............................................................. 6 4. Representations and Warranties of the Investor and Parent................... 6 4.1 Authorization......................................................... 7 4.2 Exemption from Registration........................................... 7 4.3 Purchase Entirely for Own Account..................................... 7 4.4 Access to Information................................................. 8 4.5 Restricted Securities................................................. 8 4.6 Legends............................................................... 8 5. Conditions of the Investor's/Parent's Obligations at Closing................ 8 5.1 Representations and Warranties........................................ 9 5.2 Performance........................................................... 9 5.3 Exemption............................................................. 9 5.4 Compliance Certificate................................................ 9 5.5 Proceedings and Documents............................................. 9 5.6 Opinion of Company Counsel............................................ 10 5.7 No Injunctions or Restraints.......................................... 10 6. Conditions of the Company's Obligations at Closing.......................... 10 6.1 Representations and Warranties........................................ 10
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6.2 Performance................................................................. 10 6.3 Exemption................................................................... 10 6.4 No Injunctions or Restraints................................................ 10 7. Covenants of the Company.......................................................... 11 7.1 Rule 144 Reporting.......................................................... 11 7.2 Demand Registration......................................................... 11 7.3 Company Registration........................................................ 11 7.4 Information................................................................. 12 7.5 Indemnification............................................................. 12 8. Miscellaneous..................................................................... 12 8.1. Amendments................................................................. 12 8.2. Notice..................................................................... 12 8.3. Counterparts............................................................... 12 8.4 No Waiver................................................................... 13 8.5 Courts of Law............................................................... 13 8.6 Benefit of Agreement........................................................ 13 8.7 Severability................................................................ 13 8.8 Entire Agreement; Governing Law............................................. 14
-ii- COMMON STOCK PURCHASE AGREEMENT COMMON STOCK PURCHASE AGREEMENT, dated as of the 23rd day of November, 1998, by and among TARGETED GENETICS CORPORATION, a Washington corporation (the "Company"), MEDEVA PHARMACEUTICALS, INC., a Delaware corporation (the "Investor"), and MEDEVA PLC, a public limited liability company organized under the laws of the United Kingdom ("Parent"). RECITAL A. The Investor is an affiliate of Parent. B. The Investor desires to purchase from the Company, and the Company desires to sell to the Investor, shares of the Company's common stock, par value $.01 per share (the "Common Stock"), upon the terms and subject to the conditions set forth herein and in connection with the execution of a separate Master Agreement (the "Master Agreement"), License and Collaboration Agreement (the "License and Collaboration Agreement"), Supply Agreement and Credit Agreement between the Company and the Investor or Parent, dated as of even date herewith (collectively with this Agreement, the "Transaction Documents"). C. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Master Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties hereto agree as follows: 1. PURCHASE AND SALE OF STOCK 1.1 AGREEMENT TO PURCHASE Upon the terms and subject to the conditions of this Agreement, the Company shall sell and issue to the Investor, and the Investor shall purchase from the Company US$3 million of shares of Common Stock (the "Shares"); provided, however, that if for any reason the Investor fails to purchase the Shares, then Parent shall purchase the Shares subject to the terms and conditions of this Agreement and shall assume all of the rights and obligations of the Investor hereunder. 1.2 PURCHASE AND SALE The purchase and sale of the Shares shall occur at two closings. The first closing (the "First Closing") shall occur on the date of this Agreement, or such other date as to which the parties agree, and the second closing (the "Second Closing") shall occur ten (10) Business Days following the Investor's receipt of the Company's written notice (the "Notice"), or such other date as to which the parties agree; provided that the Notice is received during the period beginning six (6) months, and ending eighteen (18) months, from the date of this Agreement. At the First Closing, the Investor shall purchase 750,000 Shares at US$2.00 per Share for an aggregate purchase price of US$1,500,000. At the Second Closing, the Investor shall purchase US$1,500,000 of Shares at a price per Share equal to one hundred twenty percent (120%) of the average closing price of the Common Stock on the ten (10) trading days immediately preceding the date of the Notice (the "Notice Date") and the ten (10) trading days immediately following the Notice Date. During the period described in the preceding sentence, the Investor and Parent shall not engage in any activity, directly or indirectly, that may adversely affect the trading price of the Common Stock. Accordingly, and without limitation, during such period the Investor and Parent shall not, directly or indirectly, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of Common Stock or any securities convertible into or exchangeable or exerciseable for or any other rights to purchase or acquire Common Stock. The First Closing and the Second Closing shall be referred to herein collectively as the "Closings." 2. DELIVERY At the Closings, subject to the terms and conditions hereof, the Company shall deliver to the Investor a certificate representing the Shares to be purchased by the Investor from the Company at such Closing, dated the date of such Closing and duly registered in the name of the Investor, against payment of the aggregate purchase price therefor by wire transfer to the account specified by the Company in writing. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Investor as of the date hereof and as of the date of each Closing as follows: -2- 3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION, DUE EXECUTION AND VALIDITY The Company is a corporation organized and validly existing under the laws of the state of Washington and has all requisite corporate power and authority to own its properties and carry on its business as currently conducted and as proposed to be conducted as contemplated by the Transaction Documents. The Company is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect on its financial condition, results of operations, business or properties (a "Material Adverse Effect"). The Company has previously provided the Investor with complete and correct copies of its Restated Articles of Incorporation and its Amended and Restated Bylaws as in effect on the date of this Agreement. The Company has no subsidiaries nor does it control, nor is it controlled by or under common control with, any other person or entity. 3.2 CAPITALIZATION As of the date of this Agreement, the authorized capital stock of the Company consists of (a) 6,000,000 shares of preferred stock, par value $.01 per share, no shares of which are outstanding but 400,000 shares of which are designated as Series A Participating Cumulative Preferred Stock, issuable upon exercise of certain preferred stock purchase rights associated with the Common Stock, and (b) 40,000,000 shares of Common Stock, 28,974,741 shares of which were issued and outstanding as of September 30, 1998, 4,470,349 shares of which were subject to warrants outstanding as of September 30, 1998 and 2,564,740 shares of which are reserved for issuance upon the exercise of stock options granted or to be granted under the Company's 1992 Restated Stock Option Plan or the Company's Stock Option Plan for Nonemployee Directors. Except as set forth in this Section 3.2 or in the SEC Documents (as defined herein) and as contemplated by Section 1 of this Agreement, there are no outstanding options, warrants, conversion privileges, preemptive rights, or other rights or agreements to purchase or otherwise acquire or issue any equity securities of the Company. The Company has no obligation to repurchase or redeem any outstanding securities. 3.3 AUTHORIZATION The Company has all requisite power and authority to execute, deliver and perform its obligations under this Agreement. All corporate action on the part of the Company, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the transactions contemplated herein, the performance of all obligations of the Company hereunder and the authorization, issuance and -3- delivery of the Shares being sold hereunder have been taken or will be taken prior to the First Closing. This Agreement has been duly executed and delivered by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except as (a) such enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) the availability of equitable remedies may be limited by equitable principles of general applicability. 3.4 VALID ISSUANCE OF STOCK The Shares, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and free of any liens or encumbrances other than those, if any, created by the Investor, and will be issued in compliance with all applicable state and federal securities laws. The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued in compliance with all applicable state and federal securities laws. 3.5 GOVERNMENTAL CONSENTS No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the qualification or registration (or taking such action as may be necessary to secure an exemption from qualification or registration, if available) of the offer and sale of the Shares under all applicable state securities laws. 3.6 LITIGATION There is no action, suit, claim, proceeding or investigation pending or, to the Company's knowledge, threatened against the Company that relates to or challenges the legality, validity or enforceability of this Agreement or the Shares or that could either individually or in the aggregate have a Material Adverse Effect nor has the U.S. Food and Drug Administration taken any action with respect to the Licensed Products which would prohibit the marketing of the Licensed Products if developed as contemplated by the License and Collaboration Agreement. The Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any Governmental Authority that could have a Material Adverse Effect. -4- 3.7 COMPLIANCE WITH OTHER INSTRUMENTS The Company is not in violation of any provision of its Restated Articles of Incorporation or its Amended and Restated Bylaws or in violation or default of any provision of any instrument, Applicable Law, judgment, order, writ, decree or contract to which it is a party or by which it is bound, which violation or default would adversely affect the legality, validity, or enforceability of this Agreement or have a Material Adverse Effect. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not require any consent under or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a violation or default under any such provision, instrument, Applicable Law, judgment, order, writ, decree or contract or give rise to a right to terminate or accelerate any contract or an event which results in the creation of any lien, charge or encumbrance upon any of the Company's assets. 3.8 SEC REPORTS; FINANCIAL STATEMENTS The Company has furnished the Investor with a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by the Company with the Securities and Exchange Commission (the "SEC") since December 31, 1997 (the "SEC Documents"), which are all the documents that the Company has been required to file with the SEC during such period. As of their respective dates, the SEC Documents complied with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended, as applicable, and the rules and regulations of the SEC thereunder, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents are complete in all material respects and were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of unaudited financial statements, to normal recurring audit adjustments) the financial position of the Company at the dates thereof and the results of its operations and changes in financial position for the periods then ended. 3.9 COMPLIANCE WITH LAWS The Company has complied, and is in compliance with, all Applicable Laws and all federal, state, county, local and foreign, decrees and orders, and possesses all governmental franchises, permits and consents, and has made all governmental filings -5- and declarations, applicable to the operation of its business, to its employees, or to the real property and the personal property that it owns or leases (including, without limitation, all such Applicable Laws, decrees and orders relating to pharmaceutical, antitrust, consumer protection, currency exchange, environmental protection, equal opportunity, health, occupational safety, pension, securities and trading-with-the-enemy matters), the failure to comply with which would, individually or in the aggregate, have a Material Adverse Effect. The Company has not received any notification of any asserted present or past unremedied failure by the Company to comply with any of such Applicable Laws, decrees or orders. 3.10 CHANGES Since June 30, 1998 there has not been: (a) any damage, destruction or loss (whether or not covered by insurance) which has had or is expected to have a Material Adverse Effect; (b) any material change in the accounting methods or practices followed by the Company; (c) any material debt obligation or liability (whether absolute or contingent) incurred by the Company (whether or not presently outstanding) except (i) current liabilities incurred, and obligations under agreements entered into, in the ordinary course of business and (ii) obligations or liabilities entered into or incurred in connection with the execution of the Transaction Documents; (d) any sale, lease, abandonment or other disposition by the Company of any real property or, other than in the ordinary course of business, of any equipment or other operating properties or any sale, assignment, transfer, license or other disposition by the Company of any intellectual property relevant to the Licensed Products or other intangible asset (except any license to Investor pursuant to the Transaction Documents); or (e) any other event or occurrence that has had or is expected to have a Material Adverse Effect. 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR AND PARENT The Investor and Parent hereby represent and warrant to the Company as follows: -6- 4.1 AUTHORIZATION All acts and conditions necessary for the authorization, execution, delivery and consummation by the Investor and Parent of this Agreement and the transactions contemplated hereby have been, or will be prior to the First Closing, taken, performed and obtained. This Agreement constitutes a valid and legally binding obligation of the Investor and Parent, enforceable in accordance with its terms, except as (a) such enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) the availability of equitable remedies may be limited by equitable principles of general applicability. The Investor and Parent have full power and authority to execute, deliver and perform their obligations under this Agreement and to own the Shares. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not conflict with or constitute a violation or default under any provision of the charter or bylaws of either the Investor or Parent, or of any material agreement, indenture or other instrument to which either the Investor or Parent is a party, or by which they or their properties or assets are bound, or of any order, judgment or decree against or binding upon the Investor or Parent. 4.2 EXEMPTION FROM REGISTRATION The Investor and Parent have been advised that none of the Shares to be purchased by the Investor or Parent hereunder are being registered under the Securities Act and the rules and regulations of the SEC promulgated thereunder, or applicable state securities laws, but are being offered and sold pursuant to exemptions from such laws, and that the Company's reliance upon such exemptions is predicated in part on the Investor's and Parent's representations contained herein. 4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT The Shares to be received by the Investor or Parent will be acquired for investment for either the Investor's or Parent's own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and neither the Investor nor Parent has any present intention of selling, granting any participation in, or otherwise distributing the same in a manner contrary to the Securities Act or any applicable state securities law. Neither the Investor nor Parent has any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person with respect to any of the Shares. -7- 4.4 ACCESS TO INFORMATION The Investor and Parent have been furnished such information as they have requested to evaluate an investment in the Shares. The Investor and Parent have been given the opportunity to ask questions of and receive answers from representatives of the Company concerning the terms and conditions of the offering of the Shares and to obtain any additional information, to the extent reasonably available. 4.5 RESTRICTED SECURITIES The Investor and Parent realize that none of the Shares to be purchased by the Investor or Parent hereunder have been registered under the Securities Act and that all of such Shares are characterized under the Securities Act as "restricted securities" and therefore cannot be sold or transferred unless subsequently registered under the Securities Act or an exemption from such registration is available. In this connection, the Investor and Parent represent that they are familiar with Rule 144 of the SEC, as presently in effect, and understand the resale limitations imposed thereby and by the Securities Act. 4.6 LEGENDS It is understood that the certificates evidencing the Shares may bear legends in substantially the following form: The securities evidenced by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or applicable state securities law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (i) there is an effective registration statement under the Act and applicable state securities laws covering any such transaction involving said securities, (ii) this corporation receives an opinion of legal counsel for the holder of these securities reasonably satisfactory to this corporation stating that such transaction is exempt from registration or (iii) this corporation otherwise satisfies itself that such transaction is exempt from registration. 5. CONDITIONS OF THE INVESTOR'S/PARENT'S OBLIGATIONS AT CLOSING The obligations of the Investor and Parent under Section 1 hereof are subject to the fulfillment on or before the date of the First Closing or the Second Closing, as the -8- case may be, of each of the following conditions, unless waived in writing by the Investor and Parent: 5.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of the Company contained in Section 3 hereof and in the Transaction Documents shall be true on and as of the date of the First Closing or the Second Closing, as the case may be. The Company shall have taken all actions on its part to be taken to permit the representations and warranties of the Investor contained in Section 4.4 hereof to be true on the date of the First Closing or the Second Closing, as the case may be. 5.2 PERFORMANCE The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the date of the First Closing or the Second Closing, as the case may be. The Company shall not be in default of any of its obligations under the Transaction Documents or any other agreement entered into with the Investor or any of its affiliates after the date hereof, and all such agreements shall continue to be valid, binding and in full force and effect. 5.3 EXEMPTION The offer and sale of the Shares to the Investor or Parent pursuant to this Agreement shall be exempt from registration under the Securities Act. 5.4 COMPLIANCE CERTIFICATE The Chief Executive Officer or the Chief Financial Officer of the Company shall have delivered to the Investor or Parent, as the case may be, a certificate stating that the conditions specified in Sections 5.1 and 5.2 hereof have been fulfilled. 5.5 PROCEEDINGS AND DOCUMENTS All corporate and other proceedings in connection with the transactions contemplated at the First Closing and the Second Closing and all documents incident thereto shall be reasonably satisfactory to the Investor and the Investor's counsel and the Transaction Documents shall each have been duly executed and delivered by the Company. -9- 5.6 OPINION OF COMPANY COUNSEL The Investor shall have received from Perkins Coie, counsel for the Company, an opinion, dated as of the date of the First Closing or the Second Closing, as the case may be, in form and substance reasonably satisfactory to the Investor. 5.7 NO INJUNCTIONS OR RESTRAINTS There shall be no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the offer, sale and purchase of the Shares contemplated hereby. 6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING The obligations of the Company under Section 1 hereof are subject to the fulfillment on or before the date of the First Closing or the Second Closing, as the case may be, of each of the following conditions, unless waived in writing by the Company: 6.1 REPRESENTATIONS AND WARRANTIES The representations and warranties of the Investor and Parent contained in Section 4 hereof shall be true on and as of the date of the First Closing. 6.2 PERFORMANCE The Investor and Parent shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the date of the First Closing or the Second Closing, as the case may be. 6.3 EXEMPTION The offer and sale of the Shares to the Investor or to Parent pursuant to this Agreement shall be exempt from registration under the Securities Act. 6.4 NO INJUNCTIONS OR RESTRAINTS There shall be no temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the offer, sale and purchase of the Shares contemplated hereby. -10- 7. COVENANTS OF THE COMPANY 7.1 RULE 144 REPORTING The Company shall use its best efforts to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, such that the condition specified in Rule 144(c) is always met after the date of the First Closing. 7.2 DEMAND REGISTRATION In the event the condition specified in Rule 144(c) is not met at any time after the date of the First Closing, the Investor or Parent may request that all of the Shares be registered under the Securities Act. Upon the receipt of such request the Company shall use its Reasonable Commercial Efforts to effect such registration at the Company's expense as soon as practicable. As used in this Agreement, "Reasonable Commercial Efforts" shall be determined under the law of the state of New York, United States of America, and shall mean such good faith efforts as are consistent with efforts made by businesses of similar size and resources in a similar circumstance and context to achieve a particular result in a timely manner, but shall not require a party to take actions that would be commercially unreasonable to such party in the circumstances. 7.3 COMPANY REGISTRATION If at any time or from time to time the Company shall determine to register any of its securities for its own account, other than (a) a registration relating solely to employee benefit plans or (b) a registration relating solely to a Rule 145 transaction, the Company will promptly give the Investor and Parent written notice thereof and include in such registration all Shares held by the Investor and Parent which cannot for whatever reason be sold by the Investor or Parent under Rule 144 as specified in a written request by the Investor or Parent made within twenty (20) days after receipt of such written notice from the Company. Notwithstanding the foregoing, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit or exclude some or all of the Shares to be included in such registration, such limitation or exclusion to be made pro rata with all other shareholders' shares also being registered at such time and on the basis of the number of shares being registered. -11- 7.4 INFORMATION The Company shall furnish to the Investor and Parent a copy of each document filed with the SEC, and each amendment to the Company's Articles of Incorporation and Bylaws adopted, after the date of this Agreement. The covenants set forth in this Section 7.4 shall terminate and be of no further force or effect upon the disposition by the Investor and Parent of seventy-five (75%) or more of the Shares. 7.5 INDEMNIFICATION The Company shall indemnify the Investor and Parent for losses and expenses resulting from any breach of a covenant or of a representation or warranty under this Agreement on the date of the First Closing or the Second Closing or in the event the second or third sentence in Section 3.8 hereof ever prove to be or have been untrue, provided, however, that under no circumstances shall the Investor or Parent be entitled to any indemnification in excess of the amount paid by the Investor or Parent for the Shares. 8. MISCELLANEOUS 8.1. AMENDMENTS Any term of this Agreement may be amended and the observance of any obligation hereunder may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, the Investor and Parent. No failure of any party to exercise and no delay in exercising any right, power or remedy in connection with this Agreement will operate as a waiver thereof, nor will any single or partial exercise of any right preclude any other or further exercise of such right or the exercise of any other right. 8.2. NOTICE All notices required or permitted to be given under this Agreement shall be governed by the terms of Section 8.6 of the Master Agreement. 8.3. COUNTERPARTS This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. -12- 8.4 NO WAIVER No failure or delay on the part of the Investor or Parent in exercising any right, power, or privilege hereunder and no course of dealing between the Company and the Investor or Parent shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power, or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies that the Investor or Parent would otherwise have. 8.5 COURTS OF LAW The state and federal courts situated in the County of New York, State of New York, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the Parties and initiated by the Company. The state and federal courts situated in King County, State of Washington, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the Parties and initiated by the Investor or Parent. The Parties irrevocably submit to such jurisdiction and venue, waive any claim to an inconvenient forum posed by such venue, and agree that process may be served in any manner permitted by such court before which a dispute is pending. 8.6 BENEFIT OF AGREEMENT This Agreement is binding upon and inures to the benefit of the Company, the Investor, Parent and their successors. Notwithstanding the foregoing, the Company, the Investor and Parent are precluded from assigning any of their respective rights or delegating any of their respective obligations hereunder or under any of the other Transaction Documents without the prior written consent of the other party, except that the Investor and Parent may assign and delegate their rights and obligations hereunder to an Affiliate so long as the Investor and Parent remain primarily liable hereunder. 8.7 SEVERABILITY If any provision of the Transaction Documents is held invalid under any Applicable Laws, such invalidity shall not affect any other provision of the Transaction Documents that can be given an effect without the invalid provision, and, to this end, the provisions hereof are severable. -13- 8.8 ENTIRE AGREEMENT; GOVERNING LAW The Transaction Documents and the other documents delivered at the Closings constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof and supersede all prior agreements with respect to the subject matter hereof. This Agreement shall be governed by and construed under the laws of the State of New York. -14- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY TARGETED GENETICS CORPORATION By /s/ H. Stewart Parker --------------------------------------- Its President, Chief Executive Officer --------------------------------------- Address: 1100 Olive Way, Suite 100 Seattle, WA 98101 Fax: (206) 623-7064 INVESTOR MEDEVA PHARMACEUTICALS, INC. By /s/ William Bogie --------------------------------------- Its President --------------------------------------- Address: 755 Jefferson Road Rochester, NY 14623 Fax: (716) 475-1016 PARENT MEDEVA PLC By /s/ G. Watts --------------------------------------- Its Finance Director --------------------------------------- Address: 10 St. James's Street London SW1A 1EF England Fax: (44) 171-930-1514 -15- EX-1.5 6 CREDIT AGREEMENT EXHIBIT 1.5 TARGETED GENETICS CORPORATION CREDIT AGREEMENT DATED AS OF NOVEMBER 23, 1998 CONTENTS EXHIBITS........................................................................... iii 1. Definitions................................................................. 1 1.1 Terms Defined......................................................... 1 1.2 Accounting Terms...................................................... 3 1.3 Currency.............................................................. 3 2. The Loan.................................................................... 3 2.1 Loan Commitment....................................................... 3 2.2 Use of Proceeds....................................................... 3 2.3 The Note.............................................................. 3 2.4 Advance of Proceeds................................................... 4 2.5 Interest Rate......................................................... 4 2.6 Repayment............................................................. 4 2.7 Prepayments........................................................... 5 2.8 Issuance of Common Stock.............................................. 5 3. Conditions Precedent to Funding the Loan.................................... 6 4. Affirmative Covenants of Borrower........................................... 6 4.1 Financial Data; Reporting Requirements................................ 6 4.2 Licenses and Permits.................................................. 7 4.3 Maintenance of Properties............................................. 7 4.4 Payment of Charges.................................................... 7 4.5 Insurance............................................................. 8 4.6 Maintenance of Records................................................ 8 4.7 Inspection............................................................ 8 4.8 Corporate Existence................................................... 8 4.9 Exchange of Note...................................................... 8 4.10 Other Agreements...................................................... 9 4.11 Further Assurances.................................................... 9 5. Negative Covenants of Borrower.............................................. 9 6. Representations and Warranties of Borrower.................................. 9 6.1 Organization, Good Standing and Qualification, Due Execution and Validity.......................................................... 10 6.2 Authorization......................................................... 10 6.3 Governmental Consents................................................. 10 6.4 Litigation............................................................ 11 6.5 Compliance With Other Instruments..................................... 11
-i- 6.6 SEC Reports; Financial Statements..................................... 11 6.7 Compliance With Laws.................................................. 12 6.8 Changes............................................................... 12 7. Events of Default; Remedies................................................. 13 7.1 Events of Default..................................................... 13 7.2 Acceleration; Remedies................................................ 14 8. Miscellaneous............................................................... 15 8.1 Notices............................................................... 15 8.2 Payment of Expenses................................................... 15 8.3 No Waiver............................................................. 16 8.4 Entire Agreement and Amendments....................................... 16 8.5 Benefit of Agreement.................................................. 16 8.6 Severability.......................................................... 17 8.7 Descriptive Headings.................................................. 17 8.8 Courts of Law......................................................... 17 8.9 Counterparts.......................................................... 17 8.10 Governing Law......................................................... 17
-ii- EXHIBITS Exhibit 2.3 -- Promissory Note Exhibit 3(d) -- Opinion of Counsel -iii- CREDIT AGREEMENT CREDIT AGREEMENT, dated as of the 23rd day of November, 1998, by and between TARGETED GENETICS CORPORATION, a Washington corporation ("Borrower"), and MEDEVA PLC, a public limited liability company organized under the laws of the United Kingdom ("Lender"). RECITAL Borrower has requested Lender to extend to Borrower a term loan in the amount of $2,000,000, and Lender is willing to extend such credit facility to Borrower on the terms and conditions set forth in this Agreement. AGREEMENTS NOW, THEREFORE, in consideration of the mutual covenants and conditions set forth herein, the parties hereto agree as follows: 1. DEFINITIONS 1.1 TERMS DEFINED As used herein, the following terms have the meanings set forth below. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Master Agreement: "Affiliate" means any individual, corporation, association or other business entity which directly or indirectly controls, is controlled by or is under common control with the party in question. As used in this definition of "Affiliate," the term "control" means the direct or indirect ownership of more than fifty percent (50%) of the stock having the right to vote for directors thereof of the ability to otherwise control the management of the corporation or other business entity whether through the ownership of voting securities, by contract, resolution, regulation or otherwise. "Business Day" means any day except a Saturday, Sunday, or other day on which national banks in the state of Washington are authorized or required by law to close. "Common Stock" means the common stock of Borrower, $.01 par value per share. "Common Stock Purchase Agreement" means that certain Common Stock Purchase Agreement dated of even date herewith entered into between Borrower and an Affiliate of Lender and includes all amendments thereof. "Default" means any condition or event that constitutes an Event of Default or with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "Event of Default" has the meaning set forth in Section 7.1 hereof. "Governmental Approval" means any authorization, consent, approval, certificate of compliance, license, permit, or exemption from, contract with, registration or filing with, or report or notice to, any Governmental Authority required or permitted by Applicable Laws. "License and Collaboration Agreement" means that certain License and Collaboration Agreement dated of even date herewith entered into between Borrower and an Affiliate of Lender, and includes all amendments thereof. "Loan" has the meaning set forth in Section 2.1 hereof and includes all renewals and amendments of the Loan. "Loan Documents" means this Agreement and the Note, together with all other agreements, instruments, and documents arising out of or relating to this Agreement or the Loan, and includes all amendments thereof. "Manufacturing Facility" has the meaning set forth in Section 2.2 hereof. "Master Agreement" means that certain Master Agreement dated of even date herewith entered into between Borrower and an Affiliate of Lender, and includes all amendments thereto. "Material Adverse Effect" has the meaning set forth in Section 6.1 hereof. "Note" has the meaning set forth in Section 2.3 hereof and includes all renewals, replacements, and amendments of the Note. "Payment Date" has the meaning set forth in Section 2.6 hereof. "Person" means any individual, partnership, joint venture, firm, corporation, association, trust, or other enterprise or any Governmental Authority. -2- "Supply Agreement" means that certain Supply Agreement dated of even date herewith entered into between Borrower and an Affiliate of Lender, and includes all amendments thereof. "Transaction Documents" means this Agreement, the Master Agreement, the License and Collaboration Agreement, the Supply Agreement and the Common Stock Purchase Agreement. 1.2 ACCOUNTING TERMS Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with U.S. generally accepted accounting principles consistently applied. 1.3 CURRENCY All reference to amounts of funds and "$" set forth in the Loan Documents shall constitute references to the currency of the United States of America. 2. THE LOAN 2.1 LOAN COMMITMENT Subject to and upon the terms and conditions set forth herein and in reliance upon the representations, warranties, and covenants of Borrower contained herein or made pursuant hereto, Lender shall lend to Borrower $2,000,000 on a term-loan basis (the "Loan"). 2.2 USE OF PROCEEDS The proceeds of the Loan shall be used by Borrower to finance the design, engineering, and construction of a manufacturing facility (the "Manufacturing Facility") for the production of Bulk Licensed Product to supply Phase III clinical trials and commercial sales (to the extent provided in the License and Collaboration Agreement and the Supply Agreement) and to finance the acquisition of furniture, fixtures, and equipment for such facility. 2.3 THE NOTE The Loan shall be evidenced by a promissory note in the form attached hereto as Exhibit 2.3 (the "Note"). -3- 2.4 ADVANCE OF PROCEEDS Upon satisfaction of the conditions described in Section 3 hereof, Lender shall cause the Loan proceeds to be advanced to Borrower via wire transfer of funds as set forth below within seven (7) Business Days following Borrower's written request specifying the account to receive the funding: (a) no advances shall be made prior to May 2, 1999; (b) on or after May 2, 1999 Borrower may request the advance of $1,000,000, and (c) on or after August 2, 1999 Borrower may request the advance of the remaining $1,000,000 or, if no advance was made to Borrower pursuant to preceding clause (b), the full amount of the Loan. 2.5 INTEREST RATE (a) The Loan shall bear annual interest on the principal amount thereof remaining unpaid from time to time, at the rate of 150 basis points over LIBOR (based on the one-month LIBOR rate, as published in the Wall Street Journal on the first Business Day of each calendar month), provided that, except as provided in Section 2.5(b), the interest rate charge on the Loan shall not be greater than 7% nor less than 5%. (b) Upon the occurrence and during the continuance of any Default, Lender may, at its option, charge interest on the Loan and any interest or other amounts past due hereunder at a rate of up to 2 percent per annum in excess of the rate set forth in Section 2.5(a) hereof from the date of the occurrence of the Default until the Default is cured or waived by Lender or, absent cure or waiver, until the Loan and such other amounts are repaid in full. (c) All computations of interest shall be based on a 365-day year for the actual number of days elapsed. (d) Notwithstanding any provision contained herein or in the Note, the total liability of Borrower for payment of interest pursuant hereto shall not exceed the maximum amount of interest permitted by Applicable Law to be charged, collected, or received from Borrower; and if any payments by Borrower include interest in excess of that maximum amount, Lender shall apply the excess first to reduce the unpaid interest on and principal of the Loan, and any excess shall be returned to Borrower. 2.6 Repayment (a) Accrued interest on the Loan shall be paid annually on the anniversary date of the first advance and, if earlier, on the date the outstanding -4- principal is due. All outstanding principal shall be due and payable in full on the earlier of (a) the five-year anniversary date of this Agreement, or (b) the end of the calendar quarter during which Lender's aggregate cumulative Net Sales, measured from the date hereof, equal or exceed $60,000,000 (the "Payment Date"). In the event that the Payment Date would fall on a day that is not a Business Day, then the Payment Date shall be extended to the next succeeding Business Day. (b) Borrower shall pay to Lender on the Payment Date all outstanding principal and interest on the Loan and any other amounts due hereunder: (i) by paying cash directly to Lender in immediately available United States funds to the account specified by Lender in writing, (ii) by issuing to Lender Common Stock in accordance with the provisions of Section 2.8 hereof, or (iii) any combination of cash or the issuance of Common Stock in accordance with Section 2.8 hereof; provided, however, that Lender may in its sole discretion elect to require payment solely in cash. 2.7 PREPAYMENTS Borrower may prepay all or any portion of the Loan at any time without premium or penalty. All prepayments shall be applied first to any accrued interest on the Loan and then to the outstanding principal balance of the Loan. Prepayments may be made in the form of cash or the issuance of Common Stock or any combination thereof; provided, however, that Lender may in its sole discretion elect to require payment solely in cash. The date of any such prepayment shall be referred to as the "Prepayment Date." 2.8 ISSUANCE OF COMMON STOCK In the event that Borrower elects to pay or prepay all or any portion of the Loan through the issuance of Common Stock, Borrower shall give Lender ten (10) days' written notice. Upon receiving a written notice from Borrower, Lender shall notify Borrower in writing within five (5) Business Days as to whether Lender is willing to accept Common Stock as payment or prepayment of all or any portion of the outstanding principal or interest on the Loan. If Common Stock is to be issued, on or before the Payment Date or the Prepayment Date, Lender shall deliver to Borrower customary representations as to Lender's investment intent. The purchase price per share of Common Stock shall equal the average closing price of the Common Stock on the twenty (20) trading days immediately preceding the Payment Date or the Prepayment Date, as the case may be. Borrower shall grant to Lender registration rights with respect to such Common Stock pursuant to a Registration Rights Agreement in form and substance reasonably satisfactory to Borrower and Lender. -5- 3. CONDITIONS PRECEDENT TO FUNDING THE LOAN Lender shall not be required to make either funding under the Loan unless or until the following conditions have been fulfilled: (a) Lender shall have received this Agreement and the other Transaction Documents and the Note, duly executed and delivered by Borrower. (b) No Default or Event of Default shall exist, and after having given effect to the funding of the Loan, no Default or Event of Default shall exist and no default shall exist under the other Transaction Documents, and after giving effect to the funding of the Loan, no such default shall exist thereunder. (c) All representations and warranties of Borrower contained herein or in the other Loan Documents or the Transaction Documents or otherwise made in writing in connection herewith or therewith shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the funding of the Loan. (d) All corporate proceedings of Borrower shall be satisfactory in form and substance to Lender, and Lender shall have received all information and copies of all documents, including records of all corporate proceedings, and an opinion of counsel to Borrower in the form of Exhibit 3(d) attached hereto, that Lender has requested in connection therewith, such documents where appropriate to be certified by proper corporate authorities or Governmental Authorities. 4. AFFIRMATIVE COVENANTS OF BORROWER Borrower hereby covenants and agrees that so long as this Agreement is in effect, and until the Loan, together with interest thereon, and all other obligations incurred hereunder are paid or satisfied in full, Borrower shall: 4.1 FINANCIAL DATA; REPORTING REQUIREMENTS Keep its books of account in accordance with U.S. generally accepted accounting principles, consistently applied, and furnish to Lender: (a) As soon as practicable and in any event within five (5) days after filing, a copy of all periodic and special reports and forms filed by Borrower with the U.S. Securities and Exchange Commission. -6- (b) Promptly after the commencement thereof, notice of all actions, suits and proceedings before any Governmental Authority, affecting Borrower, which, if determined adversely to Borrower, could have a Material Adverse Effect. (c) With reasonable promptness, such other information regarding the business, operations, and financial condition of Borrower as Lender may from time to time reasonably request. 4.2 LICENSES AND PERMITS Maintain all material Governmental Approvals and all related or other material agreements necessary for Borrower to operate its business, as it now exists or as it may be modified or expanded as contemplated by the Transaction Documents. Borrower shall at all times comply with all material Applicable Laws relating to the operations, facilities, or activities of Borrower. 4.3 MAINTENANCE OF PROPERTIES Keep the Manufacturing Facility and Borrower's material properties in good repair and in good working order and condition, in a manner consistent with past practices and comparable to industry standards; from time to time make all appropriate and proper repairs, renewals, replacements, additions, and improvements thereto; and keep them and all material equipment that may now or in the future be subject to compliance with any Applicable Laws in full compliance with such Applicable Laws. 4.4 PAYMENT OF CHARGES Duly pay and discharge all (a) taxes, assessments, levies, and any other charges of Governmental Authorities imposed on or against Borrower or its property or assets, or upon any property leased by Borrower, prior to the date on which penalties attached thereto, unless and to the extent only that such taxes, assessments, levies, and any other charges of Governmental Authorities, after written notice thereof having been given to Lender, are being contested in good faith and by appropriate proceedings; (b) claims allowed by Applicable Laws, whether for labor, materials, rentals, or anything else, which could, if unpaid, become a lien or charge upon Borrower's property or assets or the outstanding capital stock of Borrower or result in a Material Adverse Effect (unless and to the extent only that the validity thereof is being contested in good faith and by appropriate proceedings after written notice thereof has been given to Lender); (c) trade bills in accordance with the terms thereof or generally prevailing industry standards; and (d) other indebtedness heretofore or hereafter incurred or assumed by Borrower, unless such indebtedness be renewed or -7- extended. In the event any charge is being contested by Borrower as allowed above, Borrower shall establish adequate reserves against possible liability therefor. 4.5 INSURANCE Maintain insurance upon Borrower's properties and business in accordance with prevailing industry standards, including, without limitation, general liability insurance (including products liability and personal injury liability (for bodily injury and death)), upon Borrower's properties, products and business, waiving subrogation, with minimum limits of no less than US$5,000,000 per occurrence. Borrower shall use Reasonable Commercial Efforts to add Lender as an additional insured under such insurance coverage. All such insurance policies shall require at least thirty (30) days' prior written notice to Lender concerning cancellation thereof. At least annually and otherwise upon request by Lender, Borrower shall deliver to Lender a certificate or certificates of insurance evidencing the required coverage. Compliance herewith in no way limits Borrower's indemnity obligations, except to the extent that Borrower's insurance company actually pays Lender or its Affiliates amounts which Borrower would otherwise pay Lender. 4.6 MAINTENANCE OF RECORDS Keep at all times books of account and other records in which full, true, and correct entries will be made of all material dealings or transactions in relation to the business and affairs of Borrower. 4.7 INSPECTION Subject to reasonable notice to Borrower and at reasonable times, allow any representative of Lender to examine the books of account and other records and files of Borrower relevant to the Loan, and to discuss the affairs, business, finances, and accounts of Borrower with its senior officers and inspect the Manufacturing Facility. 4.8 CORPORATE EXISTENCE Maintain and preserve the corporate existence of Borrower. 4.9 EXCHANGE OF NOTE Upon receipt of a written notice of loss, theft, destruction, or mutilation of the Note, and upon surrendering such Note for cancellation if mutilated, execute and deliver a new Note of like tenor in lieu of such lost, stolen, destroyed, or mutilated Note. Lender hereby agrees to indemnify and hold Borrower harmless from all -8- claims, losses, and damages (including reasonable attorneys' fees) incurred by Borrower as a result of loss, theft, or destruction of the Note. 4.10 OTHER AGREEMENTS Comply with all covenants and agreements set forth in or required pursuant to any of the other Loan Documents or Transaction Documents. 4.11 FURTHER ASSURANCES Promptly upon request by Lender, duly execute and deliver or cause to be duly executed and delivered to Lender such further instruments, agreements, and documents and do or cause to be done such further acts as may be necessary to carry out more effectively the provisions and purpose of this Agreement and the other Loan Documents. 5. NEGATIVE COVENANTS OF BORROWER Borrower covenants and agrees that until the Loan, together with interest thereon, and all other obligations incurred hereunder are paid or satisfied in full, Borrower shall not, without the prior written consent of Lender, which consent shall not be unreasonable withheld or delayed: (a) declare or pay any cash distributions or dividends or return any capital to any of Borrower's shareholders; (b) wind up, liquidate, or dissolve Borrower's affairs or enter into any transaction to dispose of (or agree to do any of the foregoing at any time) all or substantially all of its assets; (c) grant any mortgage on or any security interest in any lease agreement relating to the Manufacturing Facility; or (d) grant any security interest in any equipment, personal property, furniture or fixtures associated with the Manufacturing Facility; provided, however, that Borrower may grant such a security interest to any entity providing financing to facilitate the acquisition of such equipment, personal property, furniture or fixtures, limited, however, to the property so acquired and to the acquisition price thereof. 6. REPRESENTATIONS AND WARRANTIES OF BORROWER Borrower hereby represents and warrants to Lender as of the date hereof and the date of each funding of the Loan as follows: -9- 6.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION, DUE EXECUTION AND VALIDITY Borrower is a corporation organized and validly existing under the laws of the state of Washington and has all requisite corporate power and authority to own its properties and carry on its business as currently conducted and as contemplated by the Transaction Documents. Borrower is duly qualified to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect on its financial condition, results of operations, business or properties (a "Material Adverse Effect"). Borrower has previously provided the Investor with complete and correct copies of its Restated Articles of Incorporation and its Amended and Restated Bylaws as in effect on the date of this Agreement. 6.2 AUTHORIZATION Borrower has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the other Loan Documents. All corporate action on the part of Borrower, its officers, directors and shareholders necessary for the authorization, execution and delivery of this Agreement and the other Loan Documents and the transactions contemplated herein and therein and the performance of all obligations of Borrower hereunder and thereunder have been taken or will be taken prior to the initial funding of the Loan. Borrower, its officers, directors, and shareholders will have taken all corporate action necessary for the authorized issuance of Common Stock hereunder, if any, prior to the Payment Date or Prepayment Date on which such Common Stock is to be issued. Each of the Agreement and the other Loan Documents have been duly executed and delivered by Borrower and constitutes a valid and legally binding obligation of Borrower, enforceable in accordance with its terms, except as (a) such enforceability may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (b) the availability of equitable remedies may be limited by equitable principles of general applicability. 6.3 GOVERNMENTAL CONSENTS No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of Borrower is required in connection with the consummation of the transactions contemplated by this Agreement or the other Loan Documents. -10- 6.4 LITIGATION There is no action, suit, claim, proceeding or investigation pending or, to Borrower's knowledge, threatened against Borrower that relates to or challenges the legality, validity or enforceability of this Agreement or the other Loan Documents or that could either individually or in the aggregate have a Material Adverse Effect, nor has the U.S. Food and Drug Administration taken any action with respect to the Licensed Products which would prohibit the marketing of the Licensed Products if developed as contemplated by the License and Collaboration Agreement. Borrower is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or other Governmental Authority that could have a Material Adverse Effect. 6.5 COMPLIANCE WITH OTHER INSTRUMENTS Borrower is not in violation of any provision of its Restated Articles of Incorporation or its Amended and Restated Bylaws or in violation or default of any provision of any instrument, Applicable Lawjudgment, order, writ, decree or contract to which it is a party or by which it is bound, which violation or default would adversely affect the legality, validity, or enforceability of this Agreement or the other Loan Documents or have a Material Adverse Effect. The execution, delivery and performance of this Agreement or the other Loan Documents and the consummation of the transactions contemplated hereby will not require any consent under or be in conflict with or constitute, with or without the passage of time or the giving of notice or both, either a violation or default under any such provision, instrument, Applicable Law, judgment, order, writ, decree or contract or give rise to a right to terminate or accelerate any contract or an event which results in the creation of any lien, charge or encumbrance upon any of Borrower's assets. 6.6 SEC REPORTS; FINANCIAL STATEMENTS Borrower has furnished the Investor with a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Borrower with the Securities and Exchange Commission (the "SEC") since December 31, 1997 (the "SEC Documents"), which are all the documents that Borrower has been required to file with the SEC during such period. As of their respective dates, the SEC Documents complied with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended, as applicable, and the rules and regulations of the SEC thereunder, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were -11- made, not misleading. The financial statements of Borrower included in the SEC Documents are complete in all material respects and were prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of unaudited financial statements, to normal recurring audit adjustments) the financial position of Borrower at the dates thereof and the results of its operations and changes in financial position for the periods then ended. 6.7 COMPLIANCE WITH LAWS Borrower has complied, and is in compliance with, all Applicable Laws and all federal, state, county, local and foreign decrees and orders, and possesses all governmental franchises, permits and consents, and has made all governmental filings and declarations, applicable to the operation of its business, to its employees, or to the real property and the personal property that it owns or leases (including, without limitation, all such Applicable Laws, decrees and orders relating to pharmaceutical, antitrust, consumer protection, currency exchange, environmental protection, equal opportunity, health, occupational safety, pension, securities and trading-with-the-enemy matters), the failure to comply with which would, individually or in the aggregate, have a Material Adverse Effect. Borrower has not received any notification of any asserted present or past unremedied failure by Borrower to comply with any of such Applicable Laws, decrees or orders. 6.8 CHANGES Since June 30, 1998 there has not been: (a) any damage, destruction or loss (whether or not covered by insurance) which has had or is expected to have a Material Adverse Effect; (b) any material change in the accounting methods or practices followed by Borrower; (c) any material debt obligation or liability (whether absolute or contingent) incurred by Borrower (whether or not presently outstanding) except (i) current liabilities incurred, and obligations under agreements entered into, in the ordinary course of business and (ii) obligations or liabilities entered into or incurred in connection with the execution of the Transaction Documents; (d) any sale, lease, abandonment or other disposition by Borrower of any real property or, other than in the ordinary course of business, of any equipment -12- or other operating properties or any sale, assignment, transfer, license or other disposition by Borrower of any intellectual property relevant to the Licensed Products or other intangible asset (except any license to an Affiliate of Lender pursuant to the Transaction Documents); or (e) any other event or occurrence that has had or is expected to have a Material Adverse Effect. 7. EVENTS OF DEFAULT; REMEDIES 7.1 EVENTS OF DEFAULT "Event of Default," wherever used herein, means any one of the following events (whatever the reason for the Event of Default, whether it shall relate to one or more of the parties hereto, and whether it shall be voluntary or involuntary or be pursuant to or affected by operation of Applicable Law): (a) If Borrower fails to pay the principal of or interest on the Note, within ten (10) Business Days after the Payment Date and after written notice to Borrower from Lender of such failure to pay; or (b) If any representation or warranty made by Borrower in this Agreement is breached or is false or misleading; or (c) If Borrower fails to observe or perform any other term, covenant, or agreement to be performed or observed pursuant to the provisions of the Loan Documents and such default either (i) cannot be cured within thirty (30) days of written notice to Borrower from Lender of such default or (ii), if it is capable of being cured within such period, is not cured within thirty (30) days of written notice to Borrower from Lender of such default or, so long as Borrower is diligently pursuing a cure, such longer period of time, not to exceed an additional thirty (30) days, as is reasonably necessary to cure such default; or (d) If custody or control of any substantial part of the property of Borrower is assumed by any Governmental Authority; or (e) If Borrower is generally not able to, or admits in writing its inability to, pay its debts as they become due, or if Borrower suspends or discontinues its business or operations or a substantial part thereof, or if Borrower makes an assignment for the benefit of creditors or a composition with creditors, is unable or admits in writing its inability to pay its debts as they mature, files a petition in bankruptcy, becomes insolvent (howsoever such insolvency may be evidenced), is adjudicated insolvent or bankrupt, petitions or applies to any tribunal for the -13- appointment of any receiver, liquidator, or trustee of or for it or any substantial part of its property or assets, commences any proceeding relating to it under any Applicable Law of any jurisdiction whether now or hereafter in effect relating to bankruptcy, reorganization, arrangement, readjustment of debt, receivership, dissolution, or liquidation; or if there is commenced against Borrower any such proceeding that remains undismissed for a period of sixty (60) days or more, or an order, judgment, or decree approving the petition in any such proceeding is entered; or if Borrower by any act or failure to act indicates its consent to, approval of, or acquiescence in, any such proceeding or any appointment of any receiver, liquidator, or trustee of or for it or for any substantial part of its property or assets, suffers any such appointment to continue undischarged or unstayed for a period of sixty (60) days or more, or takes any corporate action for the purpose of effecting any of the foregoing; or if any court of competent jurisdiction assumes jurisdiction with respect to any such proceeding, or if a receiver or a trustee or other officer or representative of a court or of creditors, or if any Governmental Authority, under color of legal authority, takes and holds possession of all or substantially all of the assets of Borrower; or (f) If an Event of Default shall occur under any of the other Loan Documents or a default shall occur under any of the other Transaction Documents or if Borrower fails to pay when due any other indebtedness with a principal amount in excess of US$500,000 or if an event of default occurs thereunder such that the lender thereof may accelerate the payments due thereunder; or (g) If one or more judgments, decrees or orders for the payment of money in excess of US$100,000 in the aggregate in excess of amounts covered by insurance is rendered against Borrower and such judgments, decrees or orders continue unsatisfied and in effect for a period of thirty (30) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; or (h) If Borrower fails to complete construction of the Manufacturing Facility or commence production of Bulk Licensed Product within ninety (90) days after the scheduled dates for such completion or production as set forth in the Development Plan. 7.2 ACCELERATION; REMEDIES Upon the occurrence of any Event of Default or at any time thereafter, if any Event of Default is then continuing, Lender may, by written notice to Borrower, declare the entire unpaid principal balance or any portion of the principal balance of the Note and interest accrued thereon to be immediately due and payable by the maker thereof; and such principal and interest shall thereupon become and be immediately due and payable, without presentation, demand, protest, notice of protest, or other -14- notice of dishonor of any kind, all of which are hereby expressly waived by Borrower. Lender may proceed to protect and enforce its rights hereunder in any manner or order it deems expedient without regard to any equitable principles of marshaling or otherwise. All rights and remedies given by the Loan Documents are cumulative and not exclusive of any thereof or of any other rights or remedies available to Lender; no course of dealing between Borrower and Lender or any delay or omission in exercising any right or remedy shall operate as a waiver of any right or remedy; and every right and remedy may be exercised from time to time and as often as deemed appropriate by Lender. Lender shall apply any proceeds received by it in connection with its exercise of rights or remedies first to the payment of reasonable costs and expenses incurred by it in - ----- connection with such exercise, including, without limitation (to the extent permitted by law), reasonable attorneys' fees and legal expenses, and second to ------ the payment of the outstanding Loan amount (and accrued interest), as Lender in its sole discretion may elect. Borrower shall remain liable to Lender for and shall pay to Lender any deficiency which may remain between the amount of proceeds received and the sum owed to Lender. Upon the occurrence and during the continuance of any Event of Default, Lender or any of its Affiliates may at any time, and from time to time, without notice to Borrower, set-off and apply any and all amounts at any time owing by Lender or any of its Affiliates to or for the credit of Borrower against any and all obligations of Borrower now or hereafter existing under the Loan Documents, irrespective of whether or not Lender shall have made any demand under the Loan Documents or the obligations thereunder remain unmatured. Although Borrower waives any right to receive notice of Lender's actions under this Section, Lender agrees to notify Borrower promptly after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. Lender's rights hereunder are in addition to any of Lender's other rights or remedies. 8. MISCELLANEOUS 8.1 NOTICES All notices required or permitted to be given under this Agreement shall be governed by the terms of Section 8.6 of the Master Agreement. 8.2 PAYMENT OF EXPENSES If there shall occur any Event of Default, Lender shall be entitled to recover any costs and expenses incurred by Lender in connection with the preservation of rights under, and enforcement of, the Loan Documents, whether or not any lawsuit is commenced, in all such cases, including, without limitation, reasonable attorneys' fees and costs. Reasonable attorneys' fees shall include, without limitation, attorneys' fees -15- and costs incurred in connection with any bankruptcy case or other insolvency proceeding commenced by or against Borrower, including all fees incurred in connection with (a) moving for relief from the automatic stay, to convert or dismiss the case or proceeding, or to appoint a trustee or examiner, or (b) proposing or opposing confirmation of a plan of reorganization or liquidation, in any case without regard to the identity of the prevailing party. 8.3 NO WAIVER No failure or delay on the part of Lender or the holder of the Note in exercising any right, power, or privilege hereunder and no course of dealing between Borrower and Lender or the holder of the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any right, power, or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies that Lender or any subsequent holder of the Note would otherwise have. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances or shall constitute a waiver of the right of Lender to any other or further action in any circumstances without notice or demand. 8.4 ENTIRE AGREEMENT AND AMENDMENTS This Agreement, the other Loan Documents and the Transaction Documents represent the entire agreement between the parties hereto with respect to the Loan and the transactions contemplated hereunder and, except as expressly provided herein, shall not be affected by reference to any other documents. This Agreement and the other Loan Documents, or any provision hereof or thereof, may not be changed, waived, discharged, or terminated orally, but only by an instrument in writing, signed by the party against whom enforcement of the change, waiver, discharge, or termination is sought. 8.5 BENEFIT OF AGREEMENT This Agreement is binding upon and inures to the benefit of Borrower and Lender and their successors. Notwithstanding the foregoing, Borrower and Lender are precluded from assigning any of their respective rights or delegating any of their respective obligations hereunder or under any of the other Loan Documents without the prior written consent of the other party, except that Lender may assign and delegate its rights and obligations hereunder to an Affiliate so long as Lender remains primarily liable hereunder. -16- 8.6 SEVERABILITY If any provision of the Loan Documents is held invalid under any Applicable Laws, such invalidity shall not affect any other provision of the Loan Documents that can be given an effect without the invalid provision, and, to this end, the provisions hereof are severable. 8.7 DESCRIPTIVE HEADINGS The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not affect the meaning or construction of any of the provisions hereof. 8.8 COURTS OF LAW The state and federal courts situated in the County of New York, State of New York, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the parties and initiated by Borrower. The state and federal courts situated in King County, State of Washington, United States of America, shall have sole jurisdiction and venue to resolve all disputes arising hereunder between the Parties and initiated by Lender. The Parties irrevocably submit to such jurisdiction and venue, waive any claim to an inconvenient forum posed by such venue, and agree that process may be served in any manner permitted by such court before which a dispute is pending. 8.9 COUNTERPARTS This Agreement may be executed in one or more counterparts, each of which shall constitute an original agreement, but all of which together shall constitute one and the same instrument. 8.10 GOVERNING LAW This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and shall be governed by the laws of the State of New York. -17- IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be duly executed by the respective, duly authorized signatories as of the date first above written. TARGETED GENETICS CORPORATION By /s/ H. Stewart Parker -------------------------------------- Title President, Chief Executive Officer ----------------------------------- MEDEVA PLC By /s/ G. Watts ------------------------------------ Title Finance Director ----------------- -18- EXHIBIT 2.3 TO CREDIT AGREEMENT PROMISSORY NOTE US $2,000,000 ___________, 1998 For value received, the undersigned, TARGETED GENETICS CORPORATION ("Borrower"), promises to pay to the order of MEDEVA PLC ("Lender"), at 10 St. James's Street, London, United Kingdom SW1A 1EF, or such other place or places as the holder hereof may designate in writing, the principal sum of Two Million United States Dollars (US $2,000,000) or so much thereof as advanced by Lender, in accordance with the terms and conditions of that certain credit agreement of even date herewith by and between Borrower and Lender (together with all supplements, exhibits, amendments and modifications thereto, the "Credit Agreement"). Borrower also promises to pay interest on the unpaid principal balance hereof, commencing as of the first date of an advance hereunder, in like money in accordance with the terms and conditions, and at the rate or rates provided in the Credit Agreement. All such interest is payable annually, commencing one year from the first date of an advance hereunder. All principal, is due and payable in full on the Payment Date (as defined in the Credit Agreement) or such earlier date as provided in the Credit Agreement. Borrower waives presentment for payment, demand, notice of nonpayment, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, dishonor, or enforcement of the payment of this Note except such notices as are specifically required by this Note or by the Credit Agreement, and agrees that its liability shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by Lender. Borrower consents to any and all extensions of time, renewals, waivers, or modifications that may be granted by Lender with respect to the payment or other provisions of this Note and the Credit Agreement. This Note is the Note referred to in the Credit Agreement and as such is entitled to all of the benefits and obligations specified in the Credit Agreement. Reference is made to the Credit Agreement for provisions for the repayment of this Note and the acceleration of the maturity hereof. TARGETED GENETICS CORPORATION By --------------------------------------- Title ------------------------------------ -19- EXHIBIT 3(d) TO CREDIT AGREEMENT OPINION OF COUNSEL November 23, 1998 Medeva PLC 10 St. James's Street London, United Kingdom SW1A 1EF RE: CREDIT AGREEMENT, DATED AS OF NOVEMBER 23, 1998, BY AND BETWEEN TARGETED GENETICS CORPORATION AND MEDEVA PLC Ladies and Gentlemen: We have acted as counsel to Targeted Genetics Corporation, a Washington corporation (the "Company"), in connection with the transactions contemplated by the Credit Agreement dated as of November 23, 1998 (the "Credit Agreement") by and between the Company and Medeva PLC, a public limited liability company organized under the laws of England ("Lender"). We are rendering this opinion letter to you at the request of the Company pursuant to Section 3(d) of the Credit Agreement. Except as otherwise indicated herein, capitalized terms used and not otherwise defined in this opinion letter have the meanings assigned to such terms in the Credit Agreement. For purposes of the opinions set forth below, we have examined copies only of (a) the Credit Agreement and the Note between the Company and the Lender, (collectively, the "Transaction Documents"), (b) the Company's Articles of Incorporation, as amended and filed with the Washington Secretary of State (the "Company's Articles of Incorporation") and Bylaws, as amended (the "Company's Bylaws"), (c) certificates of government officials, corporate officers and other representatives of persons referred to herein, (d) certificates provided to us in connection with delivery of this letter by the Chief Financial Officer and the Secretary of the Company ("Officer's Certificates"), and (e) such other documents as we have deemed necessary for purposes of the opinions expressed below. As to matters of fact bearing upon the opinions set forth below, we have, with your consent, relied solely upon, and have not independently verified the accuracy of, the representations, warranties and other statements of all parties contained in the Transaction Documents and matters of fact set forth in certificates of government -20- officials, corporate officers and other representatives of persons referred to herein. During the course of our representation of the Company, nothing came to our attention that has led us to believe that the representations, warranties or statements upon which we have relied for the purposes of rendering these opinions are inaccurate in any material respect. In rendering such opinions, we have further relied upon the following assumptions, the accuracy of which we have not independently verified: (i) Each signature is genuine; each document submitted to us as an original is authentic; and each document submitted to us as a copy conforms to the original. (ii) All natural persons who executed or delivered the Transaction Documents on behalf of the Company have sufficient legal capacity to perform such acts. (iii) The factual representations and warranties in the Transaction Documents of each of the parties thereto are true, and the facts and circumstances contemplated pursuant to the Transaction Documents are as contemplated therein. (iv) Each certificate provided by a governmental official reviewed by us for the purpose of rendering this opinion letter is accurate, complete and authentic, and all official public records (including their proper indexing and filing) are accurate and complete. (v) All statutes, judicial and administrative decisions, and rules and regulations of governmental agencies, constituting the law examined by us, are generally available (i.e., in terms of access and distribution following publication or other release) to lawyers practicing in such jurisdiction, and are in a format that makes legal research reasonably feasible. (vi) The constitutionality or validity of the relevant statute, rule, regulation or agency action is not in issue unless a reported decision in the opining jurisdiction has specifically addressed but not resolved, or has established, its unconstitutionality or invalidity. (vii) The directors of the Company are Jack L. Bowman, H. Stewart Parker, Jeremy Curnock Cook, Mark P. Richmond, Martin P. Sutter, James D. Grant, and Louis P. Lacasse and there are -21- presently no vacancies on the Board of Directors of the Company. Based upon the examinations, assumptions, qualifications and exceptions stated herein, we are of the opinion that: 1. The Company is a corporation validly existing under the laws of the state of Washington. 2. The Company has the requisite corporate power and corporate authority to execute, deliver and perform its obligations under the Transaction Documents and, to the extent material to the Company's respective performance of its obligations thereunder, to own its properties and to carry on its business as it is now conducted. 3. The Company has authorized, by all necessary corporate action on the part of the Company, the execution, delivery and performance of each of the Transaction Documents. 4. The execution, delivery and performance by the Company of the Transaction Documents do not conflict with or result in a violation of the Company's Articles of Incorporation or Bylaws or any agreement listed as an Exhibit to the Company's most recent Form 10-K, as filed with the Securities and Exchange Commission. 5. The execution, delivery and performance by the Company of the Transaction Documents are not prohibited by, nor do they result in the imposition of a fine, penalty or other similar sanction for a violation under, the provisions of the laws of the state of Washington. 6. Except as disclosed in the Credit Agreement, the execution and delivery to Lender by the Company of the Transaction Documents and the performance by the Company of its obligations thereunder do not require under present law any filing or registration by the Company with, or approval or consent to the Company of, any governmental agency or authority in the state of Washington that has not been made or obtained. 7. The Common Stock that may be issued by the Company as repayment or prepayment of all or any part of the Loan pursuant to Section 2.8 of the Credit Agreement has been duly reserved for issuance and when issued in accordance with the Credit Agreement it will be duly and validly issued, fully paid and nonassessable. -22- 8. The Transaction Documents have been duly and validly executed. The opinions expressed above are subject to the following exclusions and qualifications: a. Our opinions are as of the date hereof, and we have no responsibility to update this opinion for events and circumstances occurring after the date hereof or as to facts relating to prior events that are subsequently brought to our attention. We do not undertake to advise you of any changes in law. b. We are qualified to practice law in the state of Washington and do not express any opinions in this letter concerning any laws other than Washington state law; and we express no opinion with respect to the laws, regulations or ordinances of any county, municipality, or governmental subdivision or agency of whatever description or character, or with respect to matters that may be affected by the laws of any other jurisdiction or that may be affected by pending or proposed legislation. c. Notwithstanding that the opinions expressed herein may refer to any party other than the Company, we are not representing, and do not purport to represent, such party in connection with the transaction described herein. d. In giving the opinion that the Company is validly existing under the laws of the state of Washington, we have relied solely upon a certificate to that effect issued by the Secretary of State of the state of Washington. This opinion is rendered only to you and is solely for your benefit in connection with the above transaction. This opinion may not be relied upon by or disclosed to any other person for any purpose without our prior written consent. Very truly yours, PERKINS COIE LLP -23- EX-1.6 7 LETTER AGREEMENT EXHIBIT 1.6 November 23, 1998 Medeva Pharmaceuticals, Inc. 755 Jefferson Road Rochester, NY 14623 Medeva PLC 10 St. James's Street London SW1EF England RE: COMMON STOCK PURCHASE AGREEMENT (THE "AGREEMENT") DATED AS OF NOVEMBER 23, 1998 AMONG TARGETED GENETICS CORPORATION (THE "COMPANY"), MEDEVA PHARMACEUTICALS, INC. ("INVESTOR"), AND MEDEVA PLC ("PARENT") Gentlemen: We understand that you wish to amend the Agreement to provide for the purchase of Common Stock by Parent at the initial closing. We agree as follows: 1. With respect to the initial purchase and sale of the Company's common stock under the Agreement, Investor hereby assigns to Parent all of Investor's rights and obligations under the Agreement. 2. With respect to the initial purchase and sale of the Company's common stock under the Agreement, Parent shall have and shall perform all of Investor's rights and obligations under the Agreement. 3. All other terms and conditions of the Agreement are hereby confirmed and shall continue in full force and effect. November 23, 1998 Page 2 Please confirm your agreement with the foregoing by signing a copy of this letter in the space provided below and returning it to the undersigned. TARGETED GENETICS CORPORATION, By: /s/ James A. Johnson -------------------- Name: James A. Johnson Its: Vice President, Finance Agreed to and accepted this 23rd day of November, 1998. MEDEVA PHARMACEUTICALS, INC. By: /s/ Mark Glyn Hardy ------------------- Name: Mark Glyn Hardy --------------- Its: Assistant Secretary ------------------- MEDEVA PLC By: /s/ John Murphy --------------- Name: John Murphy ----------- Its: Company Secretary ----------------- SMG:smg -----END PRIVACY-ENHANCED MESSAGE-----