UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Targeted Genetics
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Notes:
[LOGO] Logo of Targeted Genetics Corporation
April 2, 2002
Dear Shareholder:
You are cordially invited to attend Targeted Genetics Corporation's 2002
Annual Meeting of Shareholders. The annual meeting will be held on Thursday,
May 9, 2002, at 9:00 a.m. local time, at the Washington Athletic Club, 1325
Sixth Avenue, Seattle, Washington.
At the annual meeting you will be asked to:
. elect three directors to Targeted Genetics' board of directors; and
. amend Targeted Genetics' Restated Articles of Incorporation to increase
the authorized common stock from 80,000,000 shares to 120,000,000 shares.
The board of directors recommends that you vote "FOR" election of the
nominees for director and "FOR" amendment of our Restated Articles of
Incorporation.
You should read carefully the accompanying Notice of Annual Meeting of
Shareholders and the proxy statement for additional information.
Whether or not you plan to attend the annual meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed
postage-prepaid envelope. Your stock will be voted in accordance with the
instructions you give in your proxy. If you attend the annual meeting, you may
vote in person if you wish, even if you previously returned your proxy card.
Your prompt cooperation is greatly appreciated.
Sincerely,
/s/ H. Stewart Parker
H. Stewart Parker
President and Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
TARGETED GENETICS CORPORATION
1100 Olive Way, Suite 100
Seattle, Washington 98101
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NOTICE OF THE 2002 ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 9, 2002
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TO THE SHAREHOLDERS OF TARGETED GENETICS CORPORATION:
We will hold the 2002 Annual Meeting of Shareholders of Targeted Genetics
Corporation on Thursday, May 9, 2002, at 9:00 a.m. local time, at the
Washington Athletic Club, 1325 Sixth Avenue, Seattle, Washington, for the
following purposes:
. to elect three Class 2 directors to Targeted Genetics' board of directors,
to hold office until the third annual meeting of shareholders following
their election or until their successors are elected and qualified;
. to amend Targeted Genetics' Restated Articles of Incorporation to increase
the authorized common stock from 80,000,000 shares to 120,000,000 shares;
and
. to transact such other business as may properly come before the annual
meeting or any adjournments or postponements of the annual meeting.
These items of business are more fully described in the proxy statement
accompanying this notice. The board of directors has fixed the close of
business on March 5, 2002 as the record date for the annual meeting. Only
shareholders of record of common stock on the record date are entitled to
notice of and to vote at the annual meeting and any adjournments or
postponements of the annual meeting.
The directors elected will be the three candidates receiving the greatest
number of votes cast, in person or by proxy, at the annual meeting. Amendment
of the Restated Articles of Incorporation requires the affirmative vote of the
holders of a majority of shares of our outstanding common stock.
You are cordially invited to attend the annual meeting. To ensure your
representation at the annual meeting, however, you should complete, sign, date
and return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope. Your shares will be voted in accordance with the
instructions you give in your proxy. You may revoke your proxy at any time
before it is voted by signing and returning a proxy for the same shares bearing
a later date, by filing with the Secretary of Targeted Genetics a written
revocation or by attending the annual meeting and voting in person.
By order of the board of directors,
/s/ Todd E. Simpson
Todd E. Simpson
Secretary
Seattle, Washington
April 2, 2002
TARGETED GENETICS CORPORATION
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PROXY STATEMENT
This proxy statement is being furnished to holders of shares of common stock
of Targeted Genetics Corporation, a Washington corporation, in connection with
the solicitation of proxies by our board of directors for use at our 2002
Annual Meeting of Shareholders and at any adjournments or postponements of the
annual meeting. We will hold the annual meeting on Thursday, May 9, 2002 at the
Washington Athletic Club, 1325 Sixth Avenue, Seattle, Washington, at 9:00 a.m.
local time. The approximate date of mailing this proxy statement and the
accompanying proxy is April 2, 2002.
Matters to Be Considered at the Annual Meeting
At the annual meeting, shareholders of record of common stock of Targeted
Genetics as of the close of business on March 5, 2002 will consider and vote on:
. the election of three Class 2 directors to the board, to hold office until
the third annual meeting of shareholders following their election or until
their successors are elected and qualified;
. the amendment of our Restated Articles of Incorporation to increase the
authorized common stock from 80,000,000 shares to 120,000,000 shares; and
. such other business as may properly come before the annual meeting or any
adjournments or postponements of the annual meeting.
The board of directors recommends that our shareholders vote "FOR" election
of the nominees for director and "FOR" amendment of our Restated Articles of
Incorporation.
Record Date; Shares Entitled to Vote; Vote Required
Only shareholders of record of our common stock at the close of business on
the record date, March 5, 2002, are entitled to notice of and to vote at the
annual meeting. We have one class of voting securities outstanding, which is
designated as common stock, and each share of common stock is entitled to one
vote. As of the record date, 44,140,145 shares of our common stock were issued
and outstanding. The presence, in person or by proxy, of the holders of a
majority of the shares of common stock entitled to vote is necessary to
constitute a quorum for the transaction of business at the annual meeting.
The directors elected at the annual meeting will be the three candidates
receiving the greatest number of votes cast, in person or by proxy, at the
annual meeting. Holders of common stock are not entitled to cumulate votes in
the election of directors. Amendment of our articles of incorporation requires
the affirmative vote of the holders of a majority of shares of our outstanding
common stock.
Any broker who holds shares of our common stock in street name for a
customer who is the beneficial owner of those shares, and does not receive
specific instructions from the customer on how to vote, may not give a proxy to
vote the customer's shares. These nonvoted shares are referred to as "broker
nonvotes." If your broker holds your Targeted Genetics stock in street name,
your broker will vote your shares only if you provide instructions on how to
vote by filling out the voter instruction form sent to you by your broker with
this proxy statement.
Shares subject to broker nonvotes and abstentions will be counted toward
establishing the presence of a quorum. Broker nonvotes and abstentions will
have no effect on the election of directors because they will not represent
votes cast for that purpose. Broker nonvotes and abstentions have the same
effect as votes against the proposal to amend our articles of incorporation.
1
As of the record date, our directors and executive officers and their
affiliates beneficially own approximately 8% of the outstanding shares of our
common stock, as beneficial ownership is defined under federal securities laws.
Each of our directors and executive officers plans to vote or direct the vote
of all shares of common stock over which he or she has voting control in favor
of the election of the nominees for director and in favor of amending our
articles of incorporation.
Proxies
Shares of common stock represented by properly executed proxies that we
receive at or before the annual meeting that have not been revoked will be
voted at the annual meeting in accordance with the instructions contained in
the proxy. Shares of common stock represented by properly executed proxies for
which no instruction is given will be voted "for" election of the nominees for
director and "for" amendment of our articles of incorporation. To ensure that
your shares are voted, please complete, sign, date and return promptly the
enclosed proxy card in the postage-prepaid envelope we have provided. You may
revoke a proxy by
. submitting a later-dated proxy for the same shares at any time before the
vote on the proposal;
. delivering written notice of revocation to the Secretary of Targeted
Genetics at any time before the vote; or
. attending the annual meeting and voting in person. Merely attending the
annual meeting will not in and of itself revoke a proxy.
If the annual meeting is postponed or adjourned for any reason, at any
subsequent reconvening of the annual meeting all proxies will be voted in the
same manner as the proxies would have been voted at the original convening of
the annual meeting (except for any proxies that have at that time effectively
been revoked or withdrawn), even if the proxies had been effectively voted on
the same or any other matter at a previous meeting.
Proxy Solicitation
The enclosed proxy is solicited on behalf of our board of directors. We will
bear the cost of soliciting proxies from our shareholders. In addition to
solicitation by mail, our directors, officers and employees may solicit proxies
by telephone, facsimile, in person or otherwise. We will not additionally
compensate our directors, officers and employees for this solicitation but will
reimburse them for the out-of-pocket expenses that they incur. We will
reimburse persons who hold our common stock of record but not beneficially,
such as brokerage firms, nominees, fiduciaries and other custodians, for the
reasonable expenses they incur in forwarding solicitation materials to, and
requesting authority for the exercise of proxies from, the persons for whom
they hold the shares.
2
PROPOSAL ONE
ELECTION OF DIRECTORS
Our bylaws provide that our board of directors shall be composed of not less
than one nor more than nine directors. At present, we have eight directors,
each of whom is placed into one of three classes such that, to the extent
possible, there is an equal number of directors in each class. Every director
subsequently elected to the board generally holds office for a three-year term
and until his or her successor is elected and qualified. However, if a director
resigns from the board before his or her term expires, the director elected or
appointed to fill the resulting vacancy may be designated to a class such that
he or she initially must be elected to a shorter term.
At the annual meeting, three Class 2 directors are to be elected, each to
hold office for a three-year term or until his successor is elected and
qualified. Joseph M. Davie, James D. Grant and Louis P. Lacasse have been
nominated for election to the board as Class 2 directors. We intend to cast
votes in accordance with the accompanying proxy for the election of these
nominees unless we receive contrary instructions. If any nominee should become
unavailable for any reason, we intend to cast votes for a substitute nominee
designated by the board. The board of directors has no reason to believe that
any of the nominees named will be unable to serve if elected.
If a quorum is present, the three nominees receiving the highest number of
votes will be elected to serve as Class 2 directors. Abstentions and broker
non-votes will have no effect on the election of directors.
Nominees
Joseph M. Davie (age 62) has served as a director of Targeted Genetics since
October 2000. Dr. Davie was employed by Biogen, Inc., a biopharmaceutical
company, from 1993 to 2000, most recently serving as senior vice president,
research. From 1987 to 1993, Dr. Davie held several positions at G.D. Searle &
Co., including president of research and development and senior vice president
of science and technology. Dr. Davie served as an adjunct professor of
microbiology and immunology at Washington University School of Medicine in St.
Louis from 1987 to 2001 and as an adjunct professor of microbiology and
immunology at Northwestern University School of Medicine in Chicago from 1998
to 2001. He previously served as a professor and head of the department of
microbiology and immunology at Washington University School of Medicine. Dr.
Davie received his A.B., M.A. and Ph.D. in bacteriology from Indiana University
and his M.D. from Washington University School of Medicine.
James D. Grant (age 69) has served as a director of Targeted Genetics since
February 1993. Mr. Grant served as chief executive officer of T Cell Sciences,
Inc., a biotechnology company, from 1986 to 1992 and as chairman of the board
from 1986 until his retirement in 1997. He was vice president of CPC
International, Inc., a multinational food and industrial products company, from
1972 to 1986. He served as deputy commissioner of the Food and Drug
Administration from 1969 to 1972 and was vice chairman of the advisory
committee of the FDA from 1990 to 1991. Mr. Grant currently serves as a
director of Blue Planet Biotech Fund, a U.K.-based unit trust. He previously
served as a director of Zynergy Group Limited, a U.K-based medical device
company, and several biotechnology companies.
Louis P. Lacasse (age 45) has served as a director of Targeted Genetics
since May 1998. Mr. Lacasse has served as president of GeneChem Management,
Inc. and as manager of GeneChem Technologies Venture Fund L.P. and GeneChem
Theraputics Venture Fund, L.P., two venture capital funds, since May 1997. He
served as vice president (Healthcare and Biotechnology) of SOFINOV, an
investment subsidiary of Caisse de depot et placement du Quebec, from July 1987
to May 1997. Mr. Lacasse previously served as a director of several private and
public companies, including Biochem Pharma Inc., and currently serves as a
director of several privately held biotechnology companies.
3
Continuing Class 3 Directors--Terms Expire 2003
Nelson L. Levy (age 60) has served as a director of Targeted Genetics since
May 1999. Since 1993, Dr. Levy has served as chairman of the board and chief
executive officer of CoreTechs Corporation, a private company that focuses on
the development and marketing of early-stage technologies. He served as
president of Fujisawa Pharmaceutical Company, the U.S. subsidiary of Japan's
third-largest pharmaceutical company, from 1992 to 1993, as chief executive
officer of CoreTechs from 1984 to 1992 and as vice president for pharmaceutical
research at Abbott Laboratories from 1981 to 1984. Dr. Levy served as a tenured
professor of microbiology and immunology at Duke University. He currently
serves as a director of several privately held companies and on the scientific
advisory boards of several public and private biotechnology and pharmaceutical
companies. Dr. Levy received his B.A. from Yale University, his M.D. from
Columbia University and his Ph.D. from Duke University.
H. Stewart Parker (age 46) managed the formation of Targeted Genetics as a
wholly owned subsidiary of Immunex Corporation and has served as president,
chief executive officer and a director of Targeted Genetics since our inception
in 1989. She served in various capacities at Immunex from August 1981 through
December 1991, most recently as vice president, corporate development. Ms.
Parker also served as president and a director of Receptech Corporation, a
company formed by Immunex in 1989 to accelerate the development of soluble
cytokine receptor products, from February 1991 to January 1993. Ms. Parker has
served as chairman of the board of CellExSys, Inc., our majority-owned cell
therapy subsidiary, since December 2000. She serves on the board of directors
and the executive committee of BIO, the primary trade organization for the
biotechnology industry, and as a director of several privately held companies.
Ms. Parker received her B.A. and M.B.A. from the University of Washington.
Mark Richmond (age 71) has served as a director of Targeted Genetics since
July 1996. Dr. Richmond is a business consultant and a research fellow of the
School of Public Policy, University College London. From January 1993 until his
retirement in February 1996, he served as director of research at Glaxo
Wellcome plc (previously Glaxo plc), a pharmaceutical company. From October
1990 until December 1993, he served as chairman of the Science and Engineering
Research Council in London. Dr. Richmond currently serves as a director of
Genentech, Inc., OSI Pharmaceuticals and several privately held biotechnology
companies. He received his Ph.D. and D.Sc. from Cambridge University, England.
Continuing Class 1 Directors--Terms Expire 2004
Jack L. Bowman (age 69) has served as a director of Targeted Genetics since
March 1997. From 1987 until his retirement in January 1994, Mr. Bowman was a
company group chairman at Johnson & Johnson, with primary responsibility for a
group of companies in the diagnostic, blood glucose monitoring and
pharmaceutical businesses. From 1980 to 1987, he held various positions at
American Cyanamid Company, a pharmaceutical company, most recently as executive
vice president. Mr. Bowman previously served as a member of the board of
trustees of The Johns Hopkins University and currently serves as a director of
Cell Therapeutics, Inc., Celgene Corporation, Cellegy Pharmaceuticals, Inc.,
NeoRx Corporation and Osiris Therapeutics Inc.
Jeremy L. Curnock Cook (age 52) has served as a director of Targeted
Genetics since July 1995 and as chairman of the board since February 1998. Mr.
Cook founded the International Biochemicals Group in 1975, which was sold to
Royal Dutch Shell in 1985, serving as managing director until 1987. From 1987
to 2000, he was a director of Rothschild Asset Management Limited and was
responsible for the Rothschild Bioscience Unit. He currently serves as chairman
of the board of International Bioscience Managers Ltd. and as a director of
Ribozyme Pharmaceuticals Inc., and several public and privately held companies
outside the United States. Mr. Cook previously served as a director of Cell
Therapeutics, Inc. and Creative BioMolecules Inc. Mr. Cook received his M.A. in
Natural Sciences from Trinity College, Dublin.
4
Director Compensation
Directors who are employees of Targeted Genetics do not receive any fees for
their services as directors. We pay directors who are not employees of Targeted
Genetics an annual retainer of $10,000 ($15,000 in the case of the chairman of
the board) and meeting attendance fees of $1,000 for each board meeting
attended in person, $500 for each board meeting held telephonically, $500 for
each committee meeting held separately from a board meeting and attended in
person ($750 in the case of the chairman) and $250 for each committee meeting
held telephonically or in conjunction with a board meeting ($375 in the case of
the chairman). We also reimburse our directors for travel expenses that they
incur in attending meetings.
Our stock option grant program for nonemployee directors provides that each
elected or appointed director who is not otherwise an employee of Targeted
Genetics is eligible to receive stock option grants under our 1999 Stock Option
Plan, including an initial grant of a nonqualified stock option (an "NSO") to
purchase 25,000 shares of our common stock and an annual grant, given every
year thereafter, immediately following our annual meeting, of an NSO to
purchase 10,000 shares of our common stock. Stock options granted to
nonemployee directors vest over a three year period.
Committees of the Board of Directors and Meetings
We have established an audit committee and a compensation committee of the
board of directors. The functions performed by these committees are as follows:
Audit Committee. The audit committee oversees our corporate accounting and
reporting practices, internal accounting controls, audit plans and results,
investment policies and financial reports to ensure the quality and integrity
of our financial records. In addition, the audit committee recommends to the
board the independent auditors to be retained by Targeted Genetics. The members
of this committee are Jeremy L. Curnock Cook, Louis P. Lacasse and Nelson L.
Levy, each of whom is independent of management as required by applicable NASD
rules. The audit committee held five meetings during 2001, four of which were
held telephonically. The report of the audit committee is set forth below.
Compensation Committee. The compensation committee establishes salaries,
incentives, option grants and other forms of compensation for our directors and
executive officers. This committee also administers our various incentive
compensation and benefit plans, including our stock option plans, and
recommends the establishment of policies relating to our incentive compensation
and benefit plans. The members of this committee are Jack L. Bowman, James D.
Grant and Mark P. Richmond, each of whom are nonemployee directors. This
committee held four meetings during 2001. Dr. Richmond attended one of these
meetings telephonically. The report of the compensation committee is set forth
below.
During 2001, there were five meetings of our board of directors, one of
which was held telephonically. Each of our directors attended 75% or more of
the total number of board meetings held during that director's service on the
board. All but one of our directors who are members of committees attended all
committee meetings held during that director's service on the applicable
committee, with the remaining one director attending 75% or more of the total
number of committee meetings held during that director's service on the
applicable committee.
5
PROPOSAL TWO
AMENDMENT OF TARGETED GENETICS'
RESTATED ARTICLES OF INCORPORATION
The board of directors has approved and adopted, subject to shareholder
approval, an amendment (the "Amendment") to our Restated Articles of
Incorporation, in substantially the form attached to this proxy statement as
Appendix A. The proposed Amendment would increase our authorized common stock
from 80,000,000 shares to 120,000,000 shares, which would increase our total
authorized capital to 126,000,000 shares including 6,000,000 shares of
preferred stock. If approved by our shareholders, the Amendment will become
effective upon filing with the Secretary of State of Washington.
As of the record date, 44,140,145 shares of our common stock were
outstanding and 12,015 shares of our Series B convertible exchangeable
preferred stock were outstanding. As of the record date, we had reserved an
aggregate of 15,160,045 shares of our common stock for future issuance upon (a)
the exercise of options outstanding under our stock option plans, (b) the
exercise of new options granted from the shares currently authorized under our
stock option plans, (c) the conversion of our outstanding Series B preferred
stock and (d) the exercise of outstanding warrants.
To fund our continuing operations, we intend to raise additional capital
through future issuances of common stock or securities convertible into common
stock. We may also issue additional shares of stock in connection with the
acquisition of complementary businesses or technologies or for other general
corporate purposes, including issuances upon the exercise of future stock
options granted under our stock option plans. The board believes that having
the additional shares of common stock authorized and available for issuance
will give us greater flexibility in considering potential future issuances of
stock that may be desirable or necessary to accommodate our business plan.
Except for existing commitments under our current collaboration agreements and
with respect to options outstanding under our stock option plans, we currently
do not have any commitments or understandings that would require the issuance
of additional shares of common stock.
Once authorized, the additional shares of common stock may be issued with
the approval of the board but without further approval of our shareholders,
unless shareholder approval is required under any applicable law or rule of any
securities market on which our securities are traded. The additional shares of
common stock would have rights identical to those of our currently outstanding
common stock. The proposed increase in the number of shares of authorized
common stock, and any future issuance of the additional shares, will not affect
the rights of our current holders of common stock, except for effects that are
incidental to the increase, such as dilution.
Of the 6,000,000 shares of preferred stock authorized under our articles of
incorporation, 800,000 shares are designated Series A participating cumulative
preferred stock, none of which are outstanding, and 12,015 shares are
designated Series B convertible exchangeable preferred stock, all of which are
outstanding. The remaining 5,187,985 shares of authorized preferred stock are
not currently designated but are subject to the board's authority to designate
additional series of preferred stock.
Approval of the Amendment requires the affirmative vote of a majority of the
outstanding shares of common stock. Abstentions and broker nonvotes will have
the same effect as votes against this proposal.
The board believes that approval of the Amendment is in the best interest of
our shareholders and that the Amendment is necessary to provide us with the
flexibility to pursue additional capital financing opportunities and licensing
and other strategic transactions, to provide grants of options and to meet our
general corporate needs. If the Amendment is not approved, we may have
insufficient shares of common stock authorized to complete these types of
transactions in the future.
6
EXECUTIVE OFFICERS
The following table lists the executive officers of Targeted Genetics, who
will serve in the capacities noted until their successors are duly appointed
and qualified.
Name Age Position
---- --- --------
H. Stewart Parker 46 President, Chief Executive Officer and Director
Barrie J. Carter, Ph.D. 57 Executive Vice President and Chief Scientific Officer
Todd E. Simpson 41 Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
H. Stewart Parker's biography is contained in the section of this proxy
statement entitled "Continuing Class 3 Directors--Terms Expire 2003."
Barrie J. Carter has served as an executive vice president of Targeted
Genetics since August 1992. Dr. Carter was appointed chief scientific officer
in January 2001 and served as director of research and development from August
1992 until December 2000. Before joining Targeted Genetics he was employed for
22 years by the National Institutes of Health. He served as chief of the
laboratory of molecular and cellular biology in the National Institute for
Diabetes and Digestive and Kidney Diseases from 1982 to 1992. From 1995 to 2000
he was an affiliate professor of medicine at the University of Washington
Medical School. Dr. Carter received his B.Sc. (Honors) from the University of
Otago, Dunedin, New Zealand and his Ph.D. in biochemistry from the University
of Otago Medical School. He then spent a period of postdoctoral training at the
Imperial Cancer Research Fund Laboratories in London before joining the NIH.
His long-term research interests are in the molecular biology of viruses,
development of AAV vectors and gene therapy. Dr. Carter serves on the editorial
board of Human Gene Therapy, as a section editor of Current Opinion in
Molecular Therapeutics and as an associate editor of Virology. He also serves
as a member of the advisory committee to the director of the NIH and as a
director of the American Society for Gene Therapy.
Todd E. Simpson has served as vice president, finance and administration,
chief financial officer, treasurer and secretary of Targeted Genetics since
October 2001. From January 1996 through October 2001, Mr. Simpson served as
vice president, finance and administration and chief financial officer of
Aastrom Biosciences, Inc., a public life science company focused on the
development of cell-based therapeutics. From August 1995 to December 1995, he
served as treasurer of Integra LifeSciences Corporation, a public biotechnology
company, which acquired Telios Pharmaceuticals, Inc. in August 1995. From 1992
until its acquisition by Integra, he served as the vice president of finance
and chief financial officer of Telios and in various other finance-related
positions. From 1983 to 1992, Mr. Simpson practiced public accounting with the
firm of Ernst & Young, LLP. Mr. Simpson is a certified public accountant. He
received his B.S. in accounting and computer science from Oregon State
University.
7
EXECUTIVE COMPENSATION
Compensation Summary
The following table lists all compensation earned during 2001, 2000 and 1999
by our chief executive officer and our other executive officers whose salary
and bonus exceeded $100,000 for 2001 (collectively, the "Named Executive
Officers").
Summary Compensation Table
Long-Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation($)
--------------------------- ---- --------- -------- ------------ ---------------
H. Stewart Parker................. 2001 $350,000 $ 88,200 160,000 $3,165(1)
President and Chief Executive 2000 278,250 203,123 38,686 2,841
Officer 1999 265,000 104,675 133,079 2,716
Barrie J. Carter, Ph.D............ 2001 233,000 34,000 63,000 3,569(2)
Executive Vice President and Chief 2000 194,250 102,953 21,606 3,177
Scientific Officer 1999 185,000 58,460 67,411 3,052
--------
(1) All Other Compensation consists of matching contributions to a 401(k)
savings plan of $2,625 in each of 2001 and 2000 and $2,500 in 1999 and
excess life insurance premiums of $540 in 2001 and $216 in each of 2000 and
1999.
(2) All Other Compensation consists of matching contributions to a 401(k)
savings plan of $2,625 in each of 2001 and 2000 and $2,500 in 1999 and
excess life insurance premiums of $944 in 2001 and $552 in each of 2000 and
1999.
Option Grants in 2001
The following table provides information regarding options granted to the
Named Executive Officers during 2001.
Option Grants in Last Fiscal Year
Individual Grants
---------------------------------------------
Potential Realizable
Number of Percent of Value at Assumed
Shares Total Options Annual Rates of Stock
Underlying Granted to Price Appreciation for
Options Employees in Exercise Option Term(3)
- Granted Last Fiscal Price Expiration ----------------------
Name (1) Year (2) ($/Share) Date 5%($) 10%($)
---- ---------- ------------- --------- ---------- -------- ----------
H. Stewart Parker...... 160,000 10.6% $6.66 1/24/2011 $670,150 $1,698,292
Barrie J. Carter, Ph.D. 63,000 4.2 6.66 1/24/2011 263,872 668,702
--------
(1) Options are granted at the fair market value on the date of grant and vest
over four years, with 6.25% of each grant becoming exercisable quarterly,
beginning three months after the date of grant. Specified changes in
control of Targeted Genetics can trigger accelerated vesting of stock
options and rights to related payments.
(2) We granted options to purchase 1,510,075 shares of common stock to our
employees during 2001.
(3) The dollar amounts under these columns are calculated based on assumed
rates of appreciation of 5% and 10% and are not intended to forecast future
appreciation. The Named Executive Officers will realize no value if our
stock price does not exceed the exercise price of the options.
8
Option Exercises in 2001 and 2001 Option Values
The following table provides information regarding options exercised in 2001
and unexercised options held as of December 31, 2001 by the Named Executive
Officers.
Aggregated Option Exercises in 2001 and Fiscal Year-End Option Values
Total Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at Fiscal Year-End(#) at Fiscal Year-End ($)(1)
on Value ----------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
H. Stewart Parker............ 40,000 $244,400 368,806 243,738 $317,453 $167,972
Barrie J. Carter, Ph.D....... -- -- 223,948 115,544 173,301 93,415
--------
(1) The value of unexercised options is calculated based on the closing share
price of our common stock on the Nasdaq National Market on December 31,
2001, which was $2.71 per share.
Change in Control Arrangements
Senior Management Employment Agreements. In October 1996, we entered into
Senior Management Employment Agreements with both H. Stewart Parker and Barrie
J. Carter. We entered into a substantially similar agreement with Todd E.
Simpson, our vice president, finance and administration and chief financial
officer, on October 1, 2001. These agreements provide that, following a "change
in control" (as that term is defined in the agreements), each executive who
continues to be employed by the surviving company will be entitled to receive
an annual base salary that is not less than his or her salary in effect before
the change in control and an annual bonus at least equal to the average of his
or her annual bonuses for the three prior years. In addition, each of these
executives will be entitled to insurance coverage and other employee benefits
no less favorable than their benefits in effect before the change in control.
If during the two-year period after a change in control the employment of any
of these executives is terminated for any reason other than death, disability
or "cause" or the executive terminates his or her employment for "good reason"
(as these terms are defined in the agreements), the terminated executive will
be entitled to specified additional benefits, including a lump-sum payment
equal to one and one-half times (or, in the case of Ms. Parker, two times) the
sum of (a) that executive's annual salary before the change in control (or on
the date of termination, if the executive's salary is higher on that date) and
(b) a percentage of that salary equal to the executive's percentage bonus for
the year before the change in control. If no such bonus was paid or if the
bonus cannot be determined, the applicable percentage will be 10%. In addition,
the terminated executive will be entitled to be paid an amount sufficient to
compensate the executive for any excise tax, including interest and penalties,
imposed under Section 4999 of the Internal Revenue Code and will be entitled to
continuation of life insurance, disability, health, dental and other similar
employee benefits for one year after termination. The Senior Management
Employment Agreements may be terminated with 30 days' prior written notice, but
we will remain liable for any obligations arising before the termination.
Option Plans. Our Restated 1992 Stock Option Plan, our 1999 Stock Option
Plan and our 2000 Genovo, Inc. Roll-Over Stock Option Plan each contain
provisions that could result in the accelerated vesting of options granted
under those plans in the event of a "change in control," as that term is
defined in each of the plans.
Agreements with Management
We loaned Mr. Simpson $100,000 under a promissory note dated October 31,
2001 to assist in his relocation. Interest on the principal balance accrues at
a rate of five percent per year, compounded annually, over a term of four
years. Repayment of the principal amount and accrued interest will be due in
five equal installments over the term of the note, with the first four
installments payable annually and the fifth installment due at the same time as
the fourth installment. If, however, on the date an installment becomes due,
Mr. Simpson remains employed by us, was terminated without "cause" or has
terminated his employment with "good
9
reason," as those terms are defined in Mr. Simpson's Senior Management
Employment Agreement, Mr. Simpson will not be obligated to pay that installment.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of our board of directors currently consists of
Jack L. Bowman, James D. Grant and Mark P. Richmond, all of whom are
nonemployee directors. The compensation committee is responsible for our
executive compensation program and for administering our incentive compensation
and benefit plans. On an annual basis, the compensation committee evaluates the
performance and compensation of our executive officers.
Our executive compensation philosophy is to pay competitively to:
. attract qualified executive personnel capable of enabling Targeted
Genetics to achieve its business objectives;
. retain and motivate these executives to achieve superior performance;
. link individual compensation to individual and company performance; and
. align executives' financial interest with those of our shareholders.
Our executive compensation program includes the following components:
. base salaries comparable to those paid by other biotechnology companies of
comparable size and mission, taking into account the qualifications and
performance of our executive officers;
. annual bonuses that are structured to encourage executives to focus on
achieving important short-term corporate and individual objectives; and
. long-term incentives in the form of stock option grants, which provide
financial rewards on the same basis as those realized by our shareholders.
Base Salaries. In late 2000, we engaged the services of a benefits
consulting firm to review our management compensation structure and programs.
This consulting firm interviewed our executives and board members to gather
their perspectives on company compensation, reviewed background information on
Targeted Genetics, including our financial statements and compensation,
reviewed and analyzed competitive practices and analyzed information from proxy
statements of selected comparable organizations. In the course of their review,
the consultants reviewed:
. Radford Associates' 2000 Biotechnology Compensation Survey Report, a
published survey of salaries paid by 171 companies within the
biotechnology industry, in this case using an average of data from two
subsets, for companies with 50 to 149 employees and with 150 to 499
employees;
. Top Five Data Services' 2000 Report on Executive Compensation in the
Biopharmaceutical Industry, a survey of 398 publicly traded companies
engaged in researching, developing, manufacturing or distributing drugs,
therapies or diagnostic products; and
. the salary levels of executives at the following publicly traded "peer
group" companies: Ariad Pharmaceuticals, Inc., Avigen, Inc., Cell Genesys,
Inc., Collateral Therapeutics, Inc., Onyx Pharmaceuticals, Inc., Ribozyme
Pharmaceuticals, Inc., Transkaryotic Therapies Inc., Valentis, Inc. and
Vical Incorporated.
On January 22, 2001, the compensation committee met with the consultants to
review their recommendations and to consider the compensation levels of our
chief executive officer and our other executive
10
officers for 2001. In addition, the compensation committee discussed the
performance of our executive officers with respect to our corporate objectives
that were set in early 2000. The primary objectives covered completion of
transactions to strengthen Targeted Genetics financially and strategically;
progress in the development of tgAAV-CF according to plan; development of
product pipeline opportunities; and conservation of cash reserves. The first
objective, related to strategic and financial transactions, was weighted
significantly more than the other three objectives. The compensation committee
concluded that the chief executive officer and the other executive officers had
performed extremely well in 2000 and that all of the identified corporate
objectives had been substantially achieved.
After reviewing and analyzing the consulting firm's report and reviewing
management's 2000 performance and achievement of goals important to Targeted
Genetics, the compensation committee recommended that Ms. Parker's base salary
for 2001 be increased by 26%, to $350,000 (or 106% of the average market base
salary), and that Dr. Carter's base salary for 2001 be increased by 20%, to
$233,000 (or 109% of the average market base salary).
Short-term incentive bonuses. On January 22, 2002, the compensation
committee met to discuss the performance of our executive officers with respect
to our corporate objectives that were set in early 2001. The primary objectives
consisted of advancing our clinical development programs; successfully
maintaining our current strategic partnerships and executing new strategic
partnerships; strengthening our financial and strategic assets; and further
developing our production and manufacturing capabilities. The first objective,
related to advancing our clinical development programs, was weighted
significantly more than the other three objectives. Performance relative to
these objectives was the basis for determining the amount of the executive
officers' bonuses. In addition, each target bonus amount could be increased by
up to 100% at the discretion of the board. The committee concluded that the
executive officers had substantially achieved several, but not all, of the
corporate objectives identified for 2001. Therefore, the committee recommended
that bonuses for the year 2001 be paid to our executive officers at amounts
ranging from 58% to 72% of the target amounts, which are 35% of 2001 base
salary for Ms. Parker and 25% for Dr. Carter.
Stock Option Grants. We grant stock options to provide a long-term
incentive opportunity that is directly linked to an increase in shareholder
value. We generally grant options with an exercise price equal to the market
value of our common stock on the date of the grant and a term of ten years, and
the options become exercisable over a four-year period in sixteen equal
installments beginning three months after the date of grant. To encourage stock
retention, we grant all options as incentive stock options to the maximum
extent possible under the Internal Revenue Code.
When determining the size of potential option grants to our executive
officers, the compensation committee uses a "range of shares" approach which
utilizes competitive grant guidelines prepared by a benefits consulting firm.
We intend to revise these guidelines, which we first used with respect to 2001
compensation, every three years based on then-current competitive data. We
maintain competitive levels of option holdings by executive officers through
periodic "refresher" grants. In January 2001, we granted an option to purchase
160,000 shares to Ms. Parker and an option to purchase 63,000 shares to Dr.
Carter.
Section 162(m) of the Internal Revenue Code limits the tax deductibility by
a corporation of compensation in excess of $1 million paid to its chief
executive officer and any other of its four most highly compensated executive
officers. Compensation that qualifies as "performance-based," however, is
excluded from the $1 million limit. The compensation committee does not
presently expect total cash compensation payable as salaries to our Named
Executive Officers to exceed the $1 million limit for any individual executive.
In addition, our stock option plans are designed to qualify as
performance-based compensation that is fully deductible by us for income tax
purposes. The compensation committee will continue to monitor the compensation
levels potentially payable under our other compensation programs but intends to
retain the flexibility necessary to provide total compensation in line with
competitive practice, our compensation philosophy and the best interests of
Targeted Genetics.
11
On January 22, 2002, the compensation committee met with the full board of
directors to discuss the committee's recommendations with respect to executive
compensation. These recommendations were accepted and approved by the board of
directors.
Compensation Committee
Jack L. Bowman
James D. Grant
Mark P. Richmond
12
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return for Targeted Genetics, the Nasdaq Stock Market Total Return Index and a
peer group composed of Avigen, Inc., Cell Genesys, Inc., Collateral
Therapeutics, Inc., GenVec, Inc., Introgen Therapeutics, Inc., Onyx
Pharmaceuticals, Inc., Transgene SA, Valentis, Inc. and Vical, Incorporated
(the "Gene Therapy Peer Group"). Since there is no widely recognized standard
industry group comprised of Targeted Genetics and peer companies, this peer
group is composed of companies that are or were in the gene therapy business
and that we believe to be companies that analysts have frequently used to
compare with an investment in Targeted Genetics. The graph shows the value, as
of December 31, 2001, of $100 invested on December 31, 1996 in our common
stock, the Gene Therapy Peer Group and the Nasdaq Stock Market Total Return
Index.
Comparison of Cumulative Total Return Among Targeted Genetics Corporation, Gene
Therapy Peer Group and the Nasdaq Stock Market Total Return Index
[CHART]
Targeted Genetics Gene Therapy Peer Group Nasdaq Stock Market
Dec 31, 1996 100.00 100.00 100.00
Dec 31, 1997 58.33 81.78 122.48
Dec 31, 1998 29.17 53.15 172.72
Dec 31, 1999 87.50 148.95 320.98
Dec 29, 2000 148.61 126.94 193.13
Dec 31, 2001 60.22 105.27 153.15
Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1999 Dec. 29, 2000 Dec. 31, 2001
-----------------------------------------------------------------------------------------------------------
Targeted Genetics...... $100.00 $ 58.33 $ 29.17 $ 87.50 $148.61 $ 60.22
-----------------------------------------------------------------------------------------------------------
Gene Therapy Peer Group $100.00 $ 81.78 $ 53.15 $148.95 $126.94 $105.27
-----------------------------------------------------------------------------------------------------------
Nasdaq Stock Market.... $100.00 $122.48 $172.72 $320.98 $193.13 $153.15
13
PRINCIPAL SHAREHOLDERS
The following table provides information with respect to the beneficial
ownership of shares of our common stock outstanding as of March 1, 2002 by
. each person that we know beneficially owns more than 5% of our common
stock;
. each of our directors;
. each of the Named Executive Officers; and
. all of our directors and executive officers as a group.
The percentage ownership data is based on 44,140,145 shares of our common
stock outstanding as of March 1, 2002. Under the rules of the SEC, beneficial
ownership includes shares over which the indicated beneficial owner exercises
voting and/or investment power. Shares of common stock subject to options or
warrants that are currently exercisable or will become exercisable within 60
days are deemed outstanding for the purpose of computing the percentage
ownership of the person holding the option or warrant, but are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. Except as otherwise noted, we believe that the beneficial owners of the
shares of common stock listed below have sole voting and investment power with
respect to all shares beneficially owned, subject to applicable community
property laws.
Percent of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
------------------------------------ -------------------- ------------
5% Owners:
International Biotechnology Trust plc..................... 4,210,000 (1) 9.3%
c/o Schroder Ventures Life Sciences Advisers (UK) Limited
71 Kingsway
London, England WC2B 6ST
Biogen, Inc............................................... 4,008,868 9.1%
14 Cambridge Center
Cambridge, MA 02142
SOFINOV, Societe Financiere d'Innovation, Inc............. 3,800,000 (2) 8.4%
1981, avenue McGill College
Montreal, Quebec H3A 3C7
The Equitable Life Assurance Company...................... 2,595,000 5.9%
City Place House
55 Basinghall Street
London, England EC2V 5DR
Immunex Corporation....................................... 2,548,814 5.8%
51 University Street
Seattle, WA 98101
Elan International Services, Ltd.......................... 2,531,638 5.7%
102 St. James Court
Flatts
Smiths FL 04
Bermuda
GeneChem Technologies Venture Fund L.P.................... 2,450,185 (1) 5.4%
c/o GeneChem Management Inc.
1001 De Maisonneuve Boulevard West
Suite 920
Montreal, Quebec H3A 3C8
14
Percent of
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
------------------------------------ -------------------- ------------
Directors and Executive Officers:
H. Stewart Parker........................................... 661,369 (3) 1.5%
Barrie J. Carter............................................ 398,014 (4) *
Jack L. Bowman.............................................. 38,335 (5) *
Jeremy L. Curnock Cook...................................... 58,335 (6) *
Joseph M. Davie............................................. 18,334 (7) *
James D. Grant.............................................. 39,335 (8) *
Louis P. Lacasse............................................ 2,478,520 (9) 5.6%
Nelson L. Levy.............................................. 20,001 (6) *
Mark Richmond............................................... 20,001 (10) *
All directors and executive officers as a group (10 persons) 3,754,900 (11) 8.5%
--------
* Less than 1%
(1) Includes 1,000,000 shares subject to warrants that are exercisable
immediately.
(2) Includes 1,333,000 shares subject to warrants that are exercisable
immediately.
(3) Includes 449,614 shares subject to options that are exercisable within 60
days of March 1, 2002.
(4) Includes 265,349 shares subject to options that are exercisable within 60
days of March 1, 2002.
(5) Includes 33,335 shares subject to options that are exercisable within 60
days of March 1, 2002.
(6) Represents shares subject to options that are exercisable within 60 days of
March 1, 2002.
(7) Includes 8,334 shares subject to options that are exercisable within 60
days of March 1, 2002.
(8) Includes 31,335 shares subject to options that are exercisable within 60
days of March 1, 2002.
(9) Includes 28,335 shares subject to options that are exercisable within 60
days of March 1, 2002. Also includes 1,450,185 shares owned by GeneChem
Technologies Venture Fund L.P. ("GeneChem") and warrants held by GeneChem
to purchase 1,000,000 shares of common stock that are exercisable
immediately. Mr. Lacasse is president of GeneChem Management, Inc., the
manager of GeneChem, and thereby has power to vote the securities held by
GeneChem. Mr. Lacasse disclaims beneficial ownership of the securities
owned by GeneChem.
(10) Includes 18,334 shares subject to options that are exercisable within 60
days of March 1, 2002.
(11) Includes 1,450,185 shares owned by GeneChem, 1,000,000 shares subject to
warrants held by GeneChem that are exercisable immediately and 935,628
shares subject to options that are exercisable within 60 days of March 1,
2002.
15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our executive officers
and directors and holders of 10% or more of our equity securities to file
reports of ownership and changes in ownership with the SEC. SEC regulations
require our executive officers, directors and 10%-or-greater shareholders to
give us copies of all Section 16(a) forms they file with the SEC.
Based solely on our review of these forms, or written representations from
reporting persons that no such forms were required for those persons, we
believe that our executive officers, directors and 10%-or-greater shareholders
complied with all applicable filing requirements for the calendar year 2001.
INDEPENDENT AUDITORS
Audit Fees. The aggregate fees billed by Ernst & Young LLP, our independent
auditors, in the year 2001 for its audit of our consolidated financial
statements for the year 2001 and for its reviews of our interim consolidated
financial statements during 2001 was $135,000.
Audit Related Fees. The aggregate fees billed by Ernst & Young in 2001 for
audit related services was $65,000.
Financial Information Systems Design and Implementation Fees. Ernst & Young
billed no fees in 2001 for financial information systems design and
implementation.
All Other Fees. The aggregate fees billed by Ernst & Young in 2001 for all
other professional services was $2,000.
During 2001, none of the hours Ernst & Young expended on our financial audit
were provided by persons other than Ernst & Young's full-time permanent
employees. Our audit committee has determined that Ernst & Young's rendering of
all other non-audit services is compatible with maintaining auditor
independence.
Representatives of Ernst & Young are expected to attend the annual meeting,
have the opportunity to make a statement if they desire to do so and be
available to respond to appropriate questions from shareholders.
16
AUDIT COMMITTEE REPORT
The audit committee of our board of directors is comprised of three
independent directors and operates under a written charter adopted by the
board. The members of the audit committee are Louis P. Lacasse (chairman),
Jeremy L. Curnock Cook and Nelson L. Levy.
Our management is responsible for our internal controls and the financial
reporting process. Our independent auditors, Ernst & Young LLP, are responsible
for performing an independent audit of our consolidated financial statements in
accordance with auditing standards generally accepted in the United States and
issuing a report on its audit. The audit committee's responsibility is to
monitor and oversee these processes. In addition, the audit committee
recommends to the full board of directors the selection of our independent
auditors.
In 2001, the audit committee met and held discussions with management and
the independent auditors. In addition, the members of the audit committee
individually reviewed our consolidated financial statements before we filed
them with the SEC in our periodic reports on Forms 10-Q and Annual Report on
Form 10-K. Management represented to the audit committee that our consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the audit committee reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The audit committee also discussed with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees.
Our independent auditors also provided to the audit committee the written
disclosures required by the Independence Standards Board's Standard No. 1,
Independence Discussions with Audit Committees, and discussed with the audit
committee Ernst & Young's independence.
Based on the audit committee's discussion with management and the
independent auditors and its review of the representation of management and the
report of the independent auditors to the audit committee, the audit committee
recommended that the board include the audited consolidated financial
statements in our Annual Report on Form 10-K for the year ended December 31,
2001, to be filed with the SEC.
Louis P. Lacasse (chairman)
Jeremy L. Curnock Cook
Nelson L. Levy
17
OTHER BUSINESS
We do not intend to present any business at the annual meeting other than
the election of directors and the amendment of our articles of incorporation
described in the accompanying Notice of Annual Meeting of Shareholders, and we
have no present knowledge that any other person intends to present business at
the annual meeting. If, however, other matters requiring the vote of the
shareholders properly come before the annual meeting or any adjournments or
postponements of the annual meeting, the persons named in the accompanying form
of proxy will have discretionary authority to vote the proxies held by them in
accordance with their judgment as to those matters.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Under the SEC's proxy rules and the applicable provisions of our bylaws,
shareholder proposals that meet specified conditions may be included in our
proxy materials for, and may be presented at, the 2003 annual meeting.
Shareholders who intend to present a proposal at our 2003 annual meeting must
give us notice of the proposal no later than December 3, 2002 for the proposal
to be considered for inclusion in the proxy materials for that meeting.
Shareholders that intend to present a proposal that will not be included in the
proxy materials must give us notice of the proposal at least 60 days but no
more than 90 days before the date of the 2003 annual meeting, or if notice or
public disclosure of the date of the 2003 annual meeting is given or made to
the shareholders less than 60 days before the date of the 2003 annual meeting,
we must receive notice of the proposal not later than the tenth day following
the day on which such notice of the meeting was mailed or such public
disclosure was made. Because there are other requirements in the proxy rules,
however, our timely receipt of any such proposal by a qualified shareholder
will guarantee neither the proposal's inclusion in our proxy materials for, nor
presentation of the proposal at, the 2003 annual meeting.
ANNUAL REPORT AND FORM 10-K
Copies of our 2001 Annual Report to Shareholders and Annual Report on Form
10-K for the year ended December 31, 2001 are being mailed with this proxy
statement to each shareholder of record. If you did not receive a copy of the
Annual Report or Form 10-K, you may obtain a copy (without exhibits) without
charge by writing or calling Investor Relations, Targeted Genetics Corporation,
1100 Olive Way, Suite 100, Seattle, Washington 98101, (206) 623-7612. Copies of
the exhibits to the Form 10-K are available for a nominal fee.
18
APPENDIX A
TARGETED GENETICS CORPORATION
AMENDED AND RESTATED ARTICLES OF INCORPORATION
Pursuant to RCW 23B.10.070, the following constitutes Amended and Restated
Articles of Incorporation of the undersigned, a Washington corporation. These
Amended and Restated Articles of Incorporation supersede the original Articles
of Incorporation and all amendments thereto.
These Amended and Restated Articles of Incorporation contain amendments to
the Articles of Incorporation. The date of the adoption of the amendments by
the shareholders of this corporation was , 2002. The date of the
adoption of the amendments by the Board of Directors of this corporation was
March 12, 2002.
The amendments were duly approved by the shareholders of this corporation in
accordance with the provisions of RCW 23B.10.030 and RCW 23B.10.040.
ARTICLE 1. NAME
The name of this corporation shall be Targeted Genetics Corporation.
ARTICLE 2. DURATION
This corporation is organized under the Washington Business Corporation Act
and shall have perpetual existence.
ARTICLE 3. PURPOSE AND POWERS
The purpose and powers of this corporation are as follows:
3.1 To engage in the business of biotechnology research and development.
3.2 To engage in any and all activities that may, in the judgment of the
Board of Directors, at any time be incidental or conducive to the attainment of
the foregoing purpose.
3.3 To exercise any and all powers that a corporation formed under the
Washington Business Corporation Act, or any amendment thereto or substitute
therefor, may at the time lawfully exercise.
ARTICLE 4. CAPITAL STOCK
4.1 Authorized Capital
The total authorized stock of this corporation shall consist of 120,000,000
shares of Common Stock, par value $.01 per share, and 6,000,000 shares of
Preferred Stock, par value $.01 per share.
4.2 Issuance of Preferred Stock in Series
The Preferred Stock may be issued from time to time in one or more series,
the shares of each series to have such voting powers, full or limited, and such
designations, preferences and relative, participating, optional or other
special rights and qualifications, limitations or restrictions thereof as are
stated and expressed herein or in the resolution or resolutions providing for
the issuance of such series adopted by the Board of Directors.
4.2.1 Authority of the Board of Directors
Authority is hereby expressly granted to the Board of Directors of this
corporation, subject to the provisions of this Article 4 and to the limitations
prescribed by law, to authorize the issuance of one or more series of Preferred
Stock, and with respect to each such series to fix by resolution or resolutions
providing for the issuance of each series the number of shares of such series,
the voting powers, full or limited, if any, of the shares of such series and
the designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions thereof. The
authority of the Board of Directors with respect to each series of Preferred
Stock shall include, but shall not be limited to, the determination or fixing
of the following:
(a) The number of shares of such series;
(b) The designation of such series;
(c) The dividends of such series, the conditions and dates upon
which such dividends shall be payable, the relation which such dividends shall
bear to the dividends payable on any other class or classes of stock and
whether such dividends shall be cumulative or noncumulative;
(d) Whether the shares of such series shall be subject to
redemption by this corporation and, if made subject to such redemption, the
times, prices, rates, adjustments, and other terms and conditions of such
redemption;
(e) The terms and amounts of any sinking fund provided for the
purchase or redemption of the shares of such series;
(f) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any other
series of any class or classes of stock of this corporation and, if provision
be made for conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
(g) The extent, if any, to which the holders of the shares of
such series shall be entitled to vote with respect to the election of directors
or otherwise, including the right to elect a specified number or class of
directors, the number or percentage of votes required for certain actions, and
the extent to which a vote by class or series shall be required for certain
actions;
(h) The restrictions, if any, on the issue or reissue of any
Preferred Stock;
(i) The rights of the holders of the shares of such series upon
the dissolution of, or upon the distribution of the assets of, this
corporation; and
(j) The extent, if any, to which any committee of the Board of
Directors may fix the designations and any of the preferences or rights of the
shares of such series relating to dividends, redemption, dissolution, any
distribution of assets of this corporation or the conversion into or exchange
of such shares for shares of any other class or classes of stock of this
corporation or any other series of the same or any other class or classes of
stock of this corporation, or fix the number of shares of any such series or
authorize the increase or decrease in the shares of such series.
4.2.2 Dividends
Subject to any preferential rights granted for any series of Preferred
Stock, the holders of shares of the Common Stock shall be entitled to receive
dividends, out of the funds of this corporation legally available therefor, at
the rate and at the time or times, whether cumulative or noncumulative, as may
be provided by the Board of Directors. The holders of shares of the Preferred
Stock shall be entitled to receive dividends to the extent provided herein or
by the Board of Directors in designating the particular series of Preferred
Stock. The holders of shares of the Common Stock shall not be entitled to
receive any dividends thereon other than the dividends referred to in this
section.
4.2.3 Voting
The holders of shares of the Common Stock, on the basis of one vote per
share, shall have the right to vote for the election of members of the Board of
Directors of this corporation and the right to vote on all other matters,
except those matters on which a separate class of this corporation's
shareholders vote by class or series to the exclusion of the holders of the
shares of the Common Stock. To the extent provided herein or by resolution or
resolutions of the Board of Directors providing for the issue of a series of
Preferred Stock, the holders of each such series shall have the right to vote
for the election of members of the Board of Directors of this corporation and
the right to vote on all other matters, except those matters in which a
separate class of this corporation's shareholders vote by class or series to
the exclusion of the holders of the shares of such series.
4.2.4 Issuance of Shares
This corporation may from time to time issue and dispose of any of the
authorized and unissued shares of the Common Stock or the Preferred Stock for
such consideration as may be fixed from time to time by the Board of Directors,
without action by the shareholders. The Board of Directors may provide for
payment therefor to be received by this corporation in cash, property, services
or such other consideration as is approved by the Board of Directors. Any and
all such shares of the Common Stock or the Preferred Stock of this corporation,
the issuance of which has been so authorized, and for which consideration so
fixed by the Board of Directors has been paid or delivered, shall be deemed
fully paid stock and shall not be liable to any further call or assessment
thereon.
4.3 Designation of Rights and Preferences of Series A Participating
Cumulative Preferred Stock
The following series of Preferred Stock is hereby designated, which series
shall have the rights, preferences and privileges and limitations set forth
below:
4.3.1 Designation of Series A Participating Cumulative Preferred
Stock
The shares of such series shall be designated the "Series A Participating
Cumulative Preferred Stock" (the "Series A Preferred Stock"), par value $.01
per share. The number of shares initially constituting the Series A Preferred
Stock shall be 800,000; provided, however, if more than a total of 800,000
shares of Series A Preferred Stock shall be issuable upon the exercise of
Rights (the "Rights") issued pursuant to the Rights Agreement dated as of
October 17, 1996 between the corporation and ChaseMellon Shareholder Services,
as Rights Agent (the "Rights Agreement"), the corporation's Board of Directors,
pursuant to Section 23B.06.020 of the Revised Code of Washington, shall direct
by resolution or resolutions that Articles of Amendment be properly executed
and filed with the Washington Secretary of State providing for the total number
of shares of Series A Preferred Stock authorized for issuance to be increased
(to the extent that the Restated Articles of Incorporation then permits) to the
largest number of whole shares (rounded up to the nearest whole number)
issuable upon exercise of such Rights. In addition, such number of shares may
be decreased by resolution of the Board of Directors; provided, however, that
no decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the number of
shares reserved for issuance upon the exercise of outstanding options, rights
or warrants or upon the conversion of any outstanding securities issued by the
corporation convertible into Series A Preferred Stock.
4.3.2 Dividends and Distributions
(a) Subject to the prior and superior rights of the holders of
shares of any other series of Preferred Stock or other class of capital stock
of the corporation ranking prior and superior to the shares of Series A
Preferred Stock with respect to dividends, the holders of shares of Series A
Preferred Stock shall be entitled to receive, when, as, and if declared by the
Board of Directors, out of the assets of the corporation legally available
therefor, quarterly dividends payable in cash on the last day of each fiscal
quarter in each year, or such other dates as the corporation's Board of
Directors shall approve (each such date being referred to in this Designation
as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or a fraction of a
share of Series A Preferred Stock, in an amount per share (rounded to
the nearest cent) equal to the greater of (i) $.01 and (ii) the Formula Number
(as hereinafter defined) then in effect times the cash dividends then to be
paid on each share of Common Stock. In addition, if the corporation shall pay
any dividend or make any distribution on the Common Stock payable in assets,
securities or other forms of noncash consideration (other than dividends or
distributions solely in shares of Common Stock), then, in each such case, the
corporation shall simultaneously pay or make on each outstanding whole share of
Series A Preferred Stock a dividend or distribution in like kind equal to the
Formula Number then in effect times such dividend or distribution on each share
of Common Stock. As used in this Designation and in the Rights Agreement, the
"Formula Number" shall be 100; provided, however, that if at any time after
October 17, 1996 the corporation shall (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock or make any distribution on the
Common Stock in shares of Common Stock, (ii) subdivide (by a stock split or
otherwise) the outstanding shares of Common Stock into a larger number of
shares of Common Stock, or (iii) combine (by a reverse stock split or
otherwise) the outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then in each such event the Formula Number shall be
adjusted to a number determined by multiplying the Formula Number in effect
immediately prior to such event by a fraction, the numerator of which is the
number of shares of Common Stock that are outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
are outstanding immediately prior to such event (and rounding the result to the
nearest whole number); and provided further, that if at any time after October
17, 1996 the corporation shall issue any shares of its capital stock in a
merger, reclassification or change of the outstanding shares of Common Stock,
then in each such event the Formula Number shall be appropriately adjusted to
reflect such merger, reclassification or change so that each share of Preferred
Stock continues to be the economic equivalent of a Formula Number of shares of
Common Stock prior to such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in Section 4.3.2(a) immediately prior to
or at the same time it declares a dividend or distribution on the Common Stock
(other than a dividend or distribution solely in shares of Common Stock);
provided, however, that in the event no dividend or distribution (other than a
dividend or distribution in shares of Common Stock) shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of $.01 per
share on the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date. The Corporation's Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a dividend or distribution
declared thereon, which record date shall be the same as the record date for
any corresponding dividend or distribution on the Common Stock and which shall
not be more than 60 days prior to the date fixed for payment thereof.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend
Payment Date next preceding the date of original issue of such shares of Series
A Preferred Stock; provided, however, that dividends on such shares that are
originally issued after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend on
or prior to the next succeeding Quarterly Dividend Payment Date shall begin to
accrue and be cumulative from and after such Quarterly Dividend Payment Date.
Notwithstanding the foregoing, dividends on shares of Series A Preferred Stock
that are originally issued prior to the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend on or prior to the first Quarterly Dividend Payment Date shall be
calculated as if cumulative from and after the last day of the fiscal quarter
(or such other Quarterly Dividend Payment Date as the corporation's Board of
Directors shall approve) next preceding the date of original issuance of such
shares. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding.
(d) So long as any shares of Series A Preferred Stock are
outstanding, no dividends or other distributions shall be declared, paid or
distributed, or set aside for payment or distribution, on the Common Stock
unless, in each case, the dividend required by this Section 4.3.2 to be
declared on the Series A Preferred Stock shall have been declared.
(e) The holders of shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided in
this Designation.
4.3.3 Voting Rights
The holders of shares of Series A Preferred Stock shall have the following
voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to
a number of votes equal to the Formula Number then in effect for each share of
Series A Preferred Stock held of record on each matter on which holders of the
Common Stock or shareholders generally are entitled to vote, multiplied by the
maximum number of votes per share that any holders of the Common Stock or
shareholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided in this Designation or by
applicable law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the
corporation having general voting rights shall vote together as one class for
the election of directors of the corporation and on all other matters submitted
to a vote of shareholders of the corporation.
(c) Except as provided in this Designation or by applicable law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth in this Designation) for
authorizing or taking any corporate action.
4.3.4 Certain Restrictions
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section
4.3.2 are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred
Stock and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such shares
are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred
Stock; provided, however, that the corporation may at any time redeem,
purchase or otherwise acquire shares of any such junior stock in exchange
for shares of any stock of the corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
corporation's Board of Directors) to all holders of such shares upon such
terms as the corporation's Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(b) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any shares of
stock of the corporation unless the corporation could, under paragraph (a) of
this Section 4.3.4, purchase or otherwise acquire such shares at such time and
in such manner.
4.3.5 Liquidation Rights
Upon the liquidation, dissolution or winding up of the corporation, whether
voluntary or involuntary, no distribution shall be made to (a) the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have received
an amount equal to the greater of (i) $.01 per share and (ii) the accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, plus an aggregate amount per share equal to the Formula
Number then in effect times the aggregate amount to be distributed per share to
holders of Common Stock or (b) the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
4.3.6 Consolidation, Merger, etc.
In case the corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case the then outstanding shares of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into
an amount per share equal to the Formula Number then in effect times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common
Stock is exchanged or changed. In the event both this Section 4.3.6 and Section
4.3.2 appear to apply to a transaction, this Section 4.3.6 will control.
4.3.7 No Redemption; No Sinking Fund
(a) The shares of Series A Preferred Stock shall not be subject
to redemption by the corporation or at the option of any holder of Series A
Preferred Stock; provided, however, that the corporation may purchase or
otherwise acquire outstanding shares of Series A Preferred Stock in the open
market or by offer to any holder or holders of shares of Series A Preferred
Stock.
(b) The shares of Series A Preferred Stock shall not be subject
to or entitled to the operation of a retirement or sinking fund.
4.3.8 Ranking
The Series A Preferred Stock shall rank junior to all other series of
Preferred Stock of the corporation, unless the corporation's Board of Directors
shall specifically determine otherwise in fixing the powers, preferences and
relative, participating, optional and other special rights of the shares of
such series and the qualifications, limitations and restrictions thereof.
4.3.9 Fractional Shares
The Series A Preferred Stock shall be issuable upon exercise of the Rights
issued pursuant to the Rights Agreement in whole shares or in any fractional
share that is one one-hundredth (1/100th) of a share or any integral multiple
of such fraction, and shall entitle the holder, in proportion to such holder's
fractional shares, to receive dividends, exercise voting rights, participate in
distributions and have the benefit of all other rights of holders of Series A
Preferred Stock. In lieu of fractional shares, the corporation, prior to the
first issuance of a share or a fractional share of Series A Preferred Stock,
may elect to (a) make a cash payment as provided in the Rights Agreement for a
fractional share other than one one-hundredth (1/100th) of a share or any
integral multiple thereof or (b) issue depository receipts evidencing such
authorized fractional share of Series A Preferred Stock pursuant to an
appropriate agreement between the corporation and a depository selected by the
corporation; provided, however, that such agreement shall provide that the
holders of such depository receipts shall have all the rights, privileges and
preferences to which they are entitled as holders of the Series A Preferred
Stock.
4.3.10 Reacquired Shares
Any shares of Series A Preferred Stock purchased or otherwise acquired by
the corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock, without designation
as to series until such shares are once more designated as part of a particular
series by the corporation's Board of Directors pursuant to the provisions of
Article 4 of the Restated Articles of Incorporation.
4.3.11 Amendment
None of the powers, preferences and relative, participating, optional and
other special rights of the Series A Preferred Stock as provided in this
Designation or in the Restated Articles of Incorporation shall be amended in
any manner that would alter or change the powers, preferences, rights or
privileges of the holders of Series A Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of at least 66 2/3% of
the outstanding shares of Series A Preferred Stock, voting as a separate class.
ARTICLE 5. PREEMPTIVE RIGHTS
No preemptive rights shall exist with respect to shares of stock or
securities convertible into shares of stock of this corporation.
ARTICLE 6. CUMULATIVE VOTING
The right to cumulate votes in the election of Directors shall not exist
with respect to shares of stock of this corporation.
ARTICLE 7. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this corporation subject to approval by a majority of the Continuing
Directors (as defined in Article 13); provided, however, the Board of Directors
may not repeal or amend any bylaw that the shareholders have expressly provided
may not be amended or repealed by the Board of Directors. The shareholders
shall also have the power to adopt, amend or repeal the Bylaws of this
corporation by the affirmative vote of the holders of not less than two-thirds
of the outstanding shares and, to the extent, if any, provided by resolution or
resolutions of the Board of Directors providing for the issuance of a series of
Common or Preferred Stock, not less than two-thirds of the outstanding shares
entitled to vote thereon, voting as a class.
ARTICLE 8. REGISTERED OFFICE AND AGENT
The name of the registered agent of this corporation and the address of its
current registered office are as follows:
H. Stewart Parker
1100 Olive Way, Suite 100
Seattle, Washington 98101
ARTICLE 9. DIRECTORS
The number of Directors of this corporation shall be determined in the
manner provided by the Bylaws and may be increased or decreased from time to
time in the manner provided therein. The Board of Directors shall be divided
into three classes, with such classes to be as equal in number as may be
possible, with any Director or Directors in excess of the number divisible by
three being assigned to Class 3 and Class 2, as appropriate. At each annual
meeting of shareholders, the number of Directors equal to the number of
Directors in the class whose term expires at the time of such meeting shall be
elected to serve until the third ensuing annual meeting of shareholders.
Notwithstanding any of the foregoing provisions of this Article 9, Directors
shall serve until their successors are elected and qualified or until their
earlier death, resignation or removal from office, or until there is a decrease
in the number of Directors.
The Directors of this corporation may be removed only for cause by the
holders of not less than two-thirds of the shares entitled to elect the
Director or Directors whose removal is sought in the manner provided by the
Bylaws.
ARTICLE 10. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal, by the affirmative
vote of the holders of a majority of the outstanding shares and, to the extent,
if any, provided by resolution or resolutions of the Board of Directors
providing for the issuance of a series of Common or Preferred stock, a majority
of the outstanding shares entitled to vote thereon, voting as a class, any of
the provisions contained in these Articles of Incorporation; provided, however,
that amendment or repeal of Article 7, Article 9, Article 10, Article 12 or
Article 13 shall require the affirmative vote of the holders of two-thirds of
the outstanding shares. The rights of the shareholders of this corporation are
granted subject to this reservation; provided, however, that the holders of the
outstanding shares of a class shall be entitled to vote as a class upon a
proposed amendment if the amendment would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value
of the shares of such class, or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely. If
any proposed amendment would alter or change the powers, preferences or special
rights of one or more series of any class so as to affect them adversely, but
shall not affect the entire class, then only the shares of the series so
affected by the amendment shall be considered as a separate class for the
purposes of this Article 10. Notwithstanding the provisions of this Article 10,
the number of authorized shares of any such class or classes of stock may be
increased by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote thereon, if so
provided in any amendment which created such class or classes of stock or which
was adopted prior to the issuance of any shares of such class or classes of
stock, or in any amendment which was authorized by a resolution or resolutions
adopted by the affirmative vote of the holders of a majority of such class or
classes of stock.
ARTICLE 11. LIMITATION OF DIRECTOR LIABILITY
To the full extent that the Washington Business Corporation Act, as it
exists on the date hereof or may hereafter be amended, permits the limitation
or elimination of the liability of Directors, a Director of this corporation
shall not be liable to this corporation or its shareholders for monetary
damages for conduct as a Director. Any amendments to or repeal of this Article
11 shall not adversely affect any right or protection of a Director of this
corporation for or with respect to any acts or omissions of such Director
occurring prior to such amendment or repeal.
ARTICLE 12. SPECIAL MEETINGS OF SHAREHOLDERS
The Chairman of the Board of Directors, the President or the Board of
Directors may call special meetings of the shareholders for any purpose.
Further, a special meeting of the shareholders shall be held if the holders of
not less than thirty percent (30%) of all the votes entitled to be cast on any
issue proposed to be considered at such special meeting have dated, signed and
delivered to the Secretary one or more written demands for such meeting,
describing the purpose or purposes for which it is to be held.
ARTICLE 13. SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, these Articles of
Incorporation or otherwise, any "Business Combination" (as hereinafter defined)
involving this corporation shall be subject to approval in the manner set forth
in this Article 13.
13.1 Definitions.
For the purposes of this Article 13:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of this corporation or any of its Subsidiaries with any other
corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or
other disposition or encumbrance, whether in one transaction or a series of
transactions, by this corporation or any of its Subsidiaries of all or a
substantial part of the corporation's assets otherwise than in the usual and
regular course of business, or (iii) any agreement, contract or other
arrangement providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board of Directors who
was a member of the Board of Directors on January 1, 1994 or who is elected to
the Board of Directors after January 1, 1994 upon the recommendation of a
majority of the Continuing Directors voting separately and as a subclass of
Directors on such recommendation.
(c) "Subsidiary" means a domestic or foreign corporation that has a majority
of its outstanding voting shares owned, directly or indirectly, by this
corporation.
13.2 Vote Required for Business Combinations.
13.2.1 Except as provided in subsection 13.2.2 of this Article 13, the
affirmative vote of not less than two-thirds of the outstanding shares and, to
the extent, if any, provided by resolution or resolutions of the Board of
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than two-thirds of the outstanding shares entitled to vote thereon,
voting as a class, shall be required for the adoption or authorization of a
Business Combination.
13.2.2 Notwithstanding subsection 13.2.1 of this Article 13, if a
Business Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of Directors, and is otherwise
required by law to be approved by this corporation's shareholders, such
Business Combination shall require the affirmative vote of not less than
fifty-one percent (51%) of the outstanding shares entitled to vote thereon and,
to the extent, if any, provided by resolution or resolutions of the Board of
Directors providing for the issuance of a series of Common or Preferred Stock,
not less than fifty-one percent (51%) of the outstanding shares of such series,
voting as a class; provided, however, that if a Business Combination approved
by a majority of the Continuing Directors is not otherwise required by law to
be approved by this corporation's shareholders, then no vote of the
shareholders of this corporation shall be required.
In addition to any affirmative vote required by law, these Articles of
Incorporation or otherwise, any "Business Combination" (as hereinafter defined)
involving this corporation shall be subject to approval in the manner set forth
in this Article 13.
SERIES B CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
DESIGNATION OF RIGHTS AND PREFERENCES
There is hereby designated a series of Preferred Stock to be known as Series
B Convertible Exchangeable Preferred Stock (the "Series B Stock"), consisting
of 12,015 shares, $0.01 par value per share, having the following rights and
preferences:
1. Dividend Rights
(a) When and if this corporation's Board of Directors shall declare a
dividend or distribution payable with respect to the then-outstanding shares of
Common Stock of this corporation, other than any such dividend or distribution
payable in shares of Common Stock or other securities of this corporation
(which is provided for in Sections 3.3 and 3.4), the holders of the Series B
Stock shall be entitled to the amount of dividends per share that would be
payable on the largest number of whole shares of Common Stock into which a
holder's aggregate shares of Series B Stock could then be converted pursuant to
Section 3.1(a) without regard to the provisions of Section 4 (such number to be
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend).
(b) In addition to Section 1(a), subject to the rights of holders, if
any, of shares of Preferred Stock then outstanding having a right to dividends
ranking equal or superior to the rights of holders of Series B Stock, the
holders of the then outstanding Series B Stock shall be entitled to receive,
out of any assets of this corporation legally available therefor, a cumulative
dividend equal to 7.0% per year of $1,000.00 per share (the "Series B Original
Issue Price") (as adjusted for any combinations, consolidations, stock
distributions, stock dividends or other recapitalizations with respect to such
shares) plus accrued dividends thereon, compounded on a semi-annual basis for a
period of six years from the date of issuance. Such dividend shall be payable
solely by the issuance of additional shares of Common Stock upon conversion of
the Series B Stock into Common Stock pursuant to Section 3 hereof; provided,
however, that if the Company exercises the Redemption Right (as defined in
Section 4), such dividend shall be payable in cash upon such redemption in
accordance with Section 4. The dividend to be paid to a holder under this
Section 1 upon a conversion of the Series B Stock shall be equal to that number
of shares of Common Stock determined by dividing the total dividend accrued
with respect such holder's Series B Stock by the Series B Conversion Price,
determined in accordance with Section 3 hereof, then in effect. No dividends
shall be payable under this Section 1 in the event the Exchange Right is
exercised pursuant to Section 5.
(c) In the event of any liquidation, dissolution or winding-up of the
affairs of the Corporation, whether voluntary or involuntary (collectively, a
"Liquidation"), before any payment of cash or distribution of other property
shall be made to the holders of the Common Stock or any other class or series
of stock subordinate in liquidation preference to the Series B Stock, the
holders of the Series B Stock shall be entitled to receive out of the assets of
the Corporation legally available for distribution to its shareholders, the
Series B Original Issue Price (as defined below) per share (as appropriately
adjusted for any combinations or divisions or similar recapitalizations
affecting the Series B Stock after issuance) (the "Series B Liquidation
Preference"), out of funds legally available therefor.
(d) If, upon any Liquidation, the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders of
the B Preferred Stock the full amounts to which they shall be entitled, the
holders of the Series B Stock shall share ratably in any distribution of assets
in proportion to the respective amounts which would be payable to them in
respect of the shares held by them if all amounts payable to them in respect of
such were paid in full pursuant to Section 1(c).
(e) After the distribution described in Section 1(c) above have been
paid, subject to the rights of other series of preferred stock that may from
time to time come into existence, the remaining assets of the Corporation
available for distribution to shareholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
2. Voting Rights
Holders of Series B Stock shall not be entitled to vote together with
holders of Common Stock, including with respect to the election of directors of
this corporation, or as a separate class, except as otherwise provided by the
Washington Business Corporation Act (the "WBCA"). To the extent that, under the
WBCA, the vote of the holders of the Series B Stock, voting separately as a
class or series as applicable, is required to authorize a given action of this
corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series B Stock represented at a duly held meeting
at which a quorum is present or by written consent of a majority of the shares
of Series B Stock (except as otherwise may be required under the WBCA) shall
constitute the approval of such action by the class or series. Holders of the
Series B Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled as of right under
the WBCA which notice would be provided pursuant to the Company's Bylaws and
the WBCA.
3. Conversion
3.1 Right to Convert; Automatic Conversion
(a) Subject to Sections 3.3, 3.4, 3.5 and 3.6, each share of Series B
Stock shall be convertible, without payment of any additional consideration by
the holder thereof and at the option of such holder, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing the
Series B Original Issue Price, plus any accrued and unpaid dividends, by the
Series B Conversion Price (as defined below) in effect at the time of
conversion, at any time from the date hereof, at the office of this corporation
or any transfer agent for such stock. The Series B Conversion Price shall
initially be $3.32 per share, subject to adjustment as provided below.
(b) In the event that a Significant Transaction (as defined below)
occurs, then, in such event, the Series B Stock shall automatically be
converted into such number of fully paid and nonassessable shares of Common
Stock determined by dividing the Series B Original Issue Price, plus accrued
and unpaid dividends, by the Series B Conversion Price then in effect, provided
that the Corporation shall have given the holders of the Series B Stock notice
that such significant transaction shall occur. For purposes of this Certificate
of Designation, "Significant Transaction" shall mean (A) a reorganization,
merger or consolidation in which immediately after (by virtue of securities
issued as consideration for such transaction) the former shareholders of this
corporation do not hold at least 50% of the voting power of the surviving or
acquiring entity in approximately the same relative percentage after such
acquisition or sale as before such acquisition or sale, (B) an acquisition of
all outstanding capital stock of this corporation or (C) a sale or other
transfer of allr substantially all of this corporation's assets, but shall not
include (1) a commencement of any bankruptcy or insolvency proceedings, whether
voluntary or involuntary, (2) a filing for reorganization or relief under
bankruptcy law, (3) a consent to the appointment of a receiver, liquidator or
trustee for this corporation or its assets, (4) a making of a general
assignment by this corporation for the benefit of its creditors or (5) any
other similar corporate action.
3.2 Mechanics of Conversion
Before any holder of Series B Stock shall be entitled to convert the same
into shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of this corporation or of
any transfer agent for the Series B Stock, and shall give written notice by
mail, postage prepaid, to this corporation at its principal corporate office,
of the election to convert the same and shall state the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall, as soon as practicable, issue and deliver at such
office to such holder of Series B Stock or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series B Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date.
3.3 Conversion Price Adjustments for Stock Splits and Combinations
If this corporation shall at any time or from time to time after the date
that the first share of Series B Stock is issued (the "Original Issue Date")
effect a subdivision of the outstanding Common Stock without a corresponding
subdivision of the Series B Stock, the Series B Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Series B
Stock, the Series B Conversion Price in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
Section 3.3 shall become effective at the close of business on the date the
subdivision or combination becomes effective.
3.4 Other Distributions
In the event this corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by this
corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in Section 3.3, then, in each such case for the purpose
of this Section 3.4, the holders of the Series B Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this corporation into which their
shares of Series B Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of this corporation entitled to
receive such distribution.
3.5 Recapitalizations
If the Common Stock issuable upon the conversion of Series B Stock shall be
changed into the same or a different number of shares of any class or classes
of stock of this corporation, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares or stock dividend provided for elsewhere in this Section 3), then and in
each such event each share of Series B Stock shall be convertible into the kind
and amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by the number of shares
of Common Stock into which such share of Series B Stock might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
3.6 No Fractional Shares; Certificates as to Adjustment
(a) No fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon the conversion of shares of Series B Stock, but
this corporation shall pay to the holder of such shares a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of
the market price per share of the Common Stock (as determined in a reasonable
manner prescribed by this corporation's Board of Directors) at the close of
business on the applicable conversion date. The determination as to whether or
not any fractional shares are issuable shall be based upon the total number of
shares of Series B Stock being converted at any one time by any holder, not
upon each share of Series B Stock being converted.
(b) In each case of an adjustment or readjustment of the Series B
Conversion Price, this corporation at its expense will furnish each holder of
Series B Stock with a certificate, signed by this corporation's Chief Financial
Officer, showing such adjustment or readjustment and stating in detail the
facts upon which such adjustment or readjustment is based.
3.7 Notices of Record Date
In the event of any taking by this corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or other securities or property, or to receive any
other right, this corporation shall mail to each holder of Series B Stock, at
least twenty (20) days prior to the date specified therein, a notice specifying
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such dividend,
distribution or right.
3.8 Reservation of Stock Issuable Upon Conversion
This corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock such number of its shares of
Common Stock as shall be sufficient to effect the conversion of all outstanding
shares of the Series B Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Stock, in addition to
such other remedies as shall be available to the holder of such Preferred
Stock, this corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
3.9 Notices
Any notice required by the provisions of this Section 3 to be given to the
holders of shares of Series B Stock shall be deemed given if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
such holder's address appearing on the books of this corporation.
4. Limitation on Issuance of Shares Upon Conversion; Redemption
(a) The following definitions shall apply to this Section 4:
(i) "Maximum Share Amount" shall mean the number of shares of this
corporation's Common Stock equal to 19.99% of this corporation's
Common Stock then outstanding;
(ii) "Excess Shares" shall mean Common Stock of this corporation which,
upon issuance, results in the beneficial ownership (as defined in
Rule 13(d)-3 of the Securities Exchange Act of 1934) by a holder of
shares of Common Stock in excess of the Maximum Share Amount;
(iii) "Exchange Rules" shall mean the rules or regulations of Nasdaq or
any other principal securities market upon which the Common Stock
of this corporation is or becomes traded.
(b) Except as provided in Section 4(c), this corporation shall not be
obligated to issue upon conversion of the Series B Stock, in the aggregate,
Excess Shares if such issuance in excess of the Maximum Shares Amount would
constitute a breach a or violation of the Exchange Rules.
(c) To the extent this corporation will be required, or it appears likely
to the Board of Directors of this corporation that this corporation will be
required, to issue any Excess Shares, this corporation shall promptly use its
best efforts to obtain shareholder approval in accordance with the WBCA, the
applicable rules of the Securities and Exchange Commission and the Exchange
Rules. In the event this corporation does not obtain shareholder approval, this
corporation shall have the right, at its option (the "Redemption Right"), to
redeem, out of funds legally available therefor, all or any part of the Excess
Shares at a redemption price, payable in cash, equal to the Series B Original
Issue Price per share together with accrued and unpaid dividends on any such
shares that are redeemed (the "Redemption Price"). This corporation may
exercise the Redemption Right by providing notice by mail, first class postage
prepaid, to each holder of Series B Stock of record (at the close of business
on the business day preceding the day on which notice is given) of the Series B
Stock to be redeemed, at the address last shown on the records of this
corporation for such holder, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
date that the redemption is to occur (the "Redemption Date"), the place at
which payment may be obtained and calling upon such holder to surrender to this
corporation, in the manner and at the place designated, such holder's
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). On or after the Redemption Date, each holder of Series B
Stock to be redeemed shall surrender to this corporation the certificate or
certificates representing such shares in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of shares of Series B Stock designated for redemption in
the
Redemption Notice as holders of Series B Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates and except as provided in Section 6(c)) shall cease with respect
to such shares, and such shares shall not thereafter be transferred on the
books of this corporation or be deemed to be outstanding for any purpose
whatsoever.
5. Exchange Right
(a) At any time beginning on the date hereof and ending on the later of
April 21, 2003 or six months after the end of the Research and Development Term
(as defined by the Joint Development and Operating Agreement among this
corporation, Elan Pharmaceuticals, plc, a public liability corporation
incorporated under the laws of Ireland, Elan International Services, Ltd., a
Bermuda corporation ("EIS") and Targeted Genetics Newco, Ltd., a Bermuda
corporation ("Newco")), provided that no shares of Series B Stock representing
the shares initially issued and sold by this corporation to EIS and its
affiliates, together with those issued or issuable in respect of dividends
provided for in Section 1, have been converted as provided in Section 3.1(a) or
3.1(b), the holders of the Series B Stock (by act of the holders of a majority
of the Series B Stock) shall have the right to exchange 100% of such shares of
Series B Stock (the "Exchange Right") with this corporation for 100% of the
outstanding preferred shares of Newco, held by this corporation, representing
30.1% of the beneficial interest in the aggregate issued and outstanding
capital stock of Newco on a fully diluted basis, so that, after giving effect
to the exercise of the Exchange Right, such holders will own such issued and
outstanding capital stock of Newco representing 50.0% of the beneficial
interest in the aggregate issued and outstanding capital stock of Newco on a
fully diluted basis.
(b) In order to exercise the Exchange Right, the holders shall provide
written notice thereof to this corporation, setting forth (i) the fact that
such holders intend to exercise the Exchange Right and (ii) the proposed date
for such exercise (the "Exercise Date"), which shall be between 10 and 30 days
after the date of such notice. On the Exercise Date, (x) the holders shall
tender their shares of Series B Stock to this corporation for cancellation and
(y) this corporation shall cause to be delivered to EIS, acting on behalf of
such holders, such shares of Newco. The holders and this corporation shall take
all other necessary or appropriate actions in connection with or to effect such
closing.
(c) If any shares of Series B Stock are converted into shares of Common
Stock pursuant to Section 3.1(a) or 3.1(b), the Exchange Right shall terminate
and be of no further force or effect with respect to such shares or with
respect to those shares of Series B Stock issued as dividends pursuant to
Section 1. If all or any shares of the Series B Stock are converted to shares
of Common Stock upon the occurrence of a Significant Transaction, the Exchange
Right shall be preserved for its full term as provided in Section 5(a), except
that, to exercise the Exchange Right, EIS shall be obligated to tender the
consideration received by EIS upon the automatic conversion of the Series B
Stock in connection with such Significant Transaction. If this corporation
exercises the Redemption Right with respect to any shares of Series B Stock,
the Exchange Right shall be preserved for its full term, except that, to
exercise the Exchange Right, in addition to tendering any shares of Series B
Stock then outstanding, EIS shall be obligated to tender the consideration
received by EIS upon the redemption of any Excess Shares in connection with
this corporation's exercise of its Redemption Right.
6. Protective Provisions
So long as any shares of Series B Stock are outstanding, this corporation
shall not, without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series B Stock, voting as a separate class or series, amend its
Articles of Incorporation so as to adversely affect the rights, preferences or
privileges of the Series B Stock or any holder thereof, including, without
limitation, by creating any series of Preferred Stock (or issuing shares under
any such series) that is senior in right of payment upon liquidation, in
respect of dividends or otherwise to the Series B Stock, or adversely change
the rights of the holders of the Series B Stock in any other respect; provided,
however, that the creation of any series of Preferred Stock (or issuance of
shares under any such series) that is pari passu in respect of dividends or
otherwise with the Series B Stock shall not be deemed to adversely affect the
rights, preferences or privileges of the Series B Stock or any holder thereof
or change the rights of the holders of the Series B Stock in any other respect.
7. Status of Converted, Redeemed or Exchanged Stock
In the event any shares of Series B Stock shall be converted pursuant to
Section 3, redeemed pursuant to Section 4 or exchanged pursuant to Section 5,
the shares so converted, redeemed or exchanged shall be cancelled and shall not
be reissuable by this corporation.
DATED: , 2002
TARGETED GENETICS CORPORATION
By: --------------------------------
H. Stewart Parker,
President
TARGETED GENETICS CORPORATION
This proxy is solicited by Targeted Genetics' board of directors for the
Annual Meeting of Shareholders to be held on May 9, 2002
The undersigned hereby appoint(s) H. Stewart Parker and Todd E. Simpson, and
each of them, as proxies, with full power of substitution, to represent and vote
as designated all shares of common stock of Targeted Genetics Corporation held
of record by the undersigned on March 5, 2002 at the Annual Meeting of
Shareholders of Targeted Genetics to be held at the Washington Athletic Club,
1325 Sixth Avenue, Seattle, Washington, at 9:00 a.m. on Thursday, May 9, 2002,
with authority to vote upon the matters listed below and with discretionary
authority as to any other matters that may properly come before the meeting or
any adjournment or postponement thereof.
IMPORTANT--PLEASE DATE AND SIGN ON THE OTHER SIDE
(1) ELECTION OF THREE CLASS 2 DIRECTORS FOR the WITHHOLD
(Terms to expire in 2005) Nominees AUTHORITY
to vote for the
Nominees: Joseph M. Davie, James D. Grant [ _ ] Nominees
and Louis P. Lacasse [ _ ]
WITHHOLD for the following only (write the name of the nominee in the
space below):
--------------------------------------------------------------------------------
(2) AMENDMENT OF THE TARGETED FOR AGAINST ABSTAIN
GENETICS RESTATED ARTICLES OF
INCORPORATION [ _ ] [ _ ] [ _ ]
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER IN
THE SPACE PROVIDED.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR THE NOMINEES" LISTED IN
PROPOSAL ONE AND "FOR" APPROVAL OF PROPOSAL TWO.
The board of directors recommends a vote "FOR" the nominees listed in Proposal
One and "FOR" approval of Proposal Two.
Date _____________________________________
Signature(s) _____________________________
Date _____________________________________
Signature(s) _____________________________
Please sign exactly as your name appears
on your stock certificate. Attorneys,
trustees, executors and other fiduciaries
acting in a representative capacity must
sign their names and give their titles.
Authorized persons acting on behalf of
corporations, partnerships, associations,
etc. must sign and give their titles. If
your shares are held by two or more
persons, each person must sign. You hereby
acknowledge receipt of the notice of
meeting and proxy statement.
[ _ ] I plan to attend the Annual Meeting