EXHIBIT 1.1
Execution Copy
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of July 21,
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1999, among Targeted Genetics Corporation, a Washington corporation (the
"Company"), and Elan International Services, Ltd., a Bermuda private limited
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company, and a wholly owned subsidiary of Elan ("EIS").
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R E C I T A L S:
A. The Company desires to issue and sell to EIS, and EIS desires to
purchase from the Company, (i) 12,015 shares of a newly-created series of the
Company's Preferred Stock, par value $.01 per share, captioned "Series B
Convertible Exchangeable Preferred Stock" (the "Series B Preferred Stock"), (ii)
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2,148,899 shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"); together with the Series B Preferred Stock, the "Shares"). In
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addition, EIS has agreed to lend certain funds to the Company pursuant to a
convertible promissory note in the form attached hereto as Exhibit A (as amended
at any time, the "Note"; together with the Shares, the "Securities"), with a
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maximum aggregate principal amount of U.S.$12,015,000, amounts in respect of
which shall be disbursed in accordance with its terms and subject to the
conditions contained herein and therein. The rights, preferences and privileges
of the Series B Preferred Stock are as set forth in the Certificate of
Designations, Preferences and Rights (the "Certificate of Designations"), the
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form of which is attached hereto as Exhibit B.
B. The Company and EIS have previously caused to be formed Targeted
Genetics Newco, Ltd., a Bermuda private limited company ("Newco"), and pursuant
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to the terms of a Subscription, Joint Development and Operating Agreement, dated
as of the date hereof (as amended at any time, the "JDOA"), simultaneously with
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the transactions contemplated by this Agreement, (i) the Company shall acquire
3,612 preferred shares of Newco, par value U.S.$1.00 per share (the "Newco
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Preferred Stock") and 6,000 common shares of Newco, par value U.S.$1.00 per
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share (the "Newco Common Stock"), and (ii) EIS shall acquire 897 shares of Newco
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Preferred Stock and 1,491 shares of Newco Common Stock. Additionally, as of the
date hereof, Newco has entered into license agreements with (i) Elan
Corporation, plc, an Irish public limited company and parent corporation of EIS
("Elan;" such agreement, as amended at any time, the "Elan License Agreement"),
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and (ii) the Company (such agreement, as amended at any time, the "Company
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License Agreement" and, together with the Elan License Agreement, the "License
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Agreements").
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C. The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement, in the form attached hereto as Exhibit C
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(as amended at any time, the "Company Registration Rights Agreement"), in
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respect of the Common Stock issued or issuable upon conversion of the Series B
Preferred Stock and the Note, the Common Stock being purchased hereunder, and
any other Common Stock issued to EIS or any of its affiliates or permitted
transferees upon any stock split, stock dividend, recapitalization or similar
event affecting the Securities. The Company, EIS and Newco are also executing
and delivering on the date hereof a Registration Rights Agreement in the form
attached hereto as Exhibit D (as
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amended at any time, the "Newco Registration Rights Agreement"). Additionally,
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the Company and EIS are executing and delivering on the date hereof a Funding
Agreement in the form attached hereto as Exhibit E (the "Funding Agreement;"
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and, together with this Agreement, the Certificate of Designations, the JDOA,
the Company Registration Rights Agreement, the Newco Registration Rights
Agreement, the License Agreements and each other document or instrument executed
and delivered in connection with the transactions contemplated hereby and by the
JDOA, the "Transaction Documents").
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A G R E E M E N T:
The parties hereto agree as follows:
SECTION 1. Closing.
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(a) Time and Place. The closing of the transactions contemplated
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hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at
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the offices of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ LLC, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇.
(b) Issuance of Securities. At the Closing, the Company shall issue
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and sell to EIS, and EIS shall purchase from the Company: (i) 12,015 shares of
Series B Preferred Stock, and (ii) 2,148,889 shares of Common Stock.
(c) Purchase Price. The purchase price (the "Purchase Price") shall
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be the sum of (i) U.S.$12,015,000, the purchase price for the Series B Preferred
Stock, and (ii) U.S.$5,000,000, the purchase price for the Common Stock.
(d) Convertible Note Facility. EIS shall lend up to $12,015,000 to
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the Company pursuant to the terms and conditions of the Note.
(e) Delivery. At the Closing:
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(i) EIS shall pay the Purchase Price by wire transfer to an
account designated by the Company and the parties hereto shall execute and
deliver to each other, as applicable: (A) a certificate or certificates for
the Series B Preferred Stock and the Common Stock; (B) the Note; (C) the
Company Registration Rights Agreement; (D) the Newco Registration Rights
Agreement; (E) the JDOA; (F) the Certificate of Designations, as filed with
the Secretary of State of the State of Washington; (G) the License
Agreements; (H) the Funding Agreement; (I) certificates as to the
incumbency of the officers of the Company executing any of the Transaction
Documents; and (J) any other documents or instruments reasonably requested
by a party hereto; and
(ii) The Company shall cause to be delivered to EIS an
opinion of counsel in the form attached hereto as Exhibit F-1 and EIS shall
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cause to be delivered to the Company an opinion of counsel in the form
attached hereto as Exhibit F-2.
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(f) Subsequent Stock Purchase. At the Company's option, upon the
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first anniversary of the Closing Date, at the request of the Company, EIS shall,
subject to receipt of any required approvals under the Mergers and Takeovers
(Control) Acts 1978-1996, be required to subscribe for additional shares of
Common Stock in the maximum aggregate amount of $5,000,000 (the "Subsequent
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Stock Purchase"), at a price per share equal to 120% of the average closing
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price of the Common Stock for the 60 trading days prior to such date, as listed
on the Nasdaq National Market. The closing of the Subsequent Stock Purchase
shall occur, at the Company's request, within 10 business days of the first
anniversary of the Closing Date.
(g) Exemption from Registration. The Securities and any underlying
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shares of Common Stock will be issued under an exemption or exemptions from
registration under the Securities Act of 1933, as amended (the "Securities
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Act"). Accordingly, the certificates evidencing the Series B Preferred Stock and
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the Common Stock, the Note and any shares of Common Stock or other securities
issuable upon the exercise, conversion or exchange of any of the Securities
shall, upon issuance, contain a legend, substantially in the form as follows:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS AND NO INTEREST MAY BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THERE IS AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE
STATE SECURITIES LAWS OR THIS CORPORATION RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
SATISFACTORY TO THIS CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN
THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED JULY 20,
1999, BY AND BETWEEN TARGETED GENETICS CORPORATION AND ELAN
INTERNATIONAL SERVICES, LTD.
SECTION 2. Representations and Warranties of the Company. The
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Company hereby represents and warrants to EIS, as of the date hereof, as
follows:
(a) Organization. The Company is duly organized, and validly
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existing under the laws of the state of Washington and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. The Company is duly
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qualified as a foreign corporation and in good standing to do business in each
jurisdiction in which the nature of the business conducted or the property owned
by it requires such qualification, except where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the business, assets, liabilities (contingent or otherwise), operations,
condition (financial or otherwise), or prospects of the Company (a "Company
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Material Adverse Effect").
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(b) Capitalization. As of the Closing Date, the Company has reserved
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a sufficient number of shares of Common Stock (i) for issuance upon conversion
of the Series B Preferred Stock being purchased hereunder by EIS (including
dividends in-kind thereon), (ii) for issuance pursuant to the Subsequent Stock
Purchase, and (iii) for issuance upon conversion of the Note (including interest
payable thereon). The Shares, when issued against payment therefor in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable, will not be issued in violation of any preemptive or similar
rights. The shares of Common Stock underlying the Series B Preferred Stock and
the Note (the "Underlying Shares"), when issued upon conversion or exercise in
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accordance with the terms thereof, will be duly and validly issued, fully paid
and nonassessable, and will not be issued in violation of any preemptive or
similar rights.
(c) Authorization of Transaction Documents. The Company has full
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corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement and each of the other Transaction Documents to
which it is a party, including the issuance and sale of the Securities, have
been duly authorized by all requisite corporate action by the Company and, when
executed and delivered by the Company, this Agreement and each of the other
Transaction Documents to which it is a party will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except (A) that enforcement may be limited by (i)
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and (ii) general equity
principles and limitations on the availability of equitable relief, including
specific performance, and (B) that any rights to indemnity or contribution
hereunder or thereunder may be limited by state and federal securities laws and
by public policy considerations.
(d) No Violation. The execution, delivery and performance by the
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Company of this Agreement and each other Transaction Document to which it is a
party, including the issuance and sale of the Securities, and compliance with
the provisions hereof and thereof by the Company, does not conflict with or
constitute or result in a breach of or default under (or an event which with
notice or passage of time or both would constitute a default) or give rise to
any right of termination, cancellation or acceleration under (i) the Articles of
Incorporation, as amended, or by-laws, of the Company, (ii) applicable law,
statute, rule or regulation, or any ruling, writ, injunction, order, judgment or
decree of any court, arbitrator, administrative agency or other governmental
body applicable to the Company or any of its properties or assets, or (iii) any
contract filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (the "1998 Form 10-K"), except where such breach,
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default, termination, cancellation or acceleration would not, individually or in
the aggregate, have a Company Material Adverse Effect.
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(e) Approvals. No material permit, authorization, consent, approval,
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or order of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement or the Transaction Documents,
including the issuance and sale of the Securities, by the Company, other than
the filing of a Form D by the Company pursuant to Regulation D under the
Securities Act ("Regulation D").
(f) SEC Filings. The Company has filed with the Securities and
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Exchange Commission (the "SEC") all forms, reports, schedules, statements,
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exhibits and other documents (collectively, the "SEC Filings") required to be
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filed by the Company on or before the date hereof. At the time filed, the SEC
Filings, including without limitation, any financial statements, exhibits and
schedules included therein or documents incorporated therein by reference (i)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be.
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(g) Financial Statements. The audited balance sheets of the Company
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at December 31, 1997 and 1998, together with the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years ended December 31, 1998, together with the reports and opinions thereon of
Ernst & Young LLP, contained in the 1998 Form 10-K, comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulation of the SEC with respect thereto, and fairly present, in all
material respects, the financial position of the Company and the results of its
operations and its cash flows at such dates and for the years then ended and
were prepared in conformity in all material respects with generally accepted
accounting principles applied on a consistent basis.
(h) Litigation. Except as disclosed in the SEC Filings there is no
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legal, administrative, arbitration or other action or proceeding or governmental
investigation pending, or to the Company's knowledge, threatened against the
Company, or any director, officer or employee of the Company that challenges the
validity or performance of this Agreement or the other Transaction Documents to
which the Company is a party.
(i) Absence of Certain Events. Since December 31, 1998, except as
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contemplated by the Transaction Documents, (A) the Company has not (i) made,
paid or declared any dividend or distribution to any equity holder (in such
capacity) or redeemed any of its capital stock, (ii) varied its business plan or
practices, in any material respect, from past practices, (iii) entered into any
financing, joint venture, license or similar arrangement that would limit or
restrict its ability to perform its obligations hereunder and under each of the
other Transaction Documents to which it is a party, or (iv) suffered or
permitted to be incurred any liability or obligation or any lien or encumbrance
against any of its properties or assets that would limit or restrict its ability
to perform its obligations hereunder and under each of the other Transaction
Documents to which it is a party, and (B) there has not been any change or
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development which has had, or in the Company's reasonable judgment is likely to
have, a Company Material Adverse Effect.
SECTION 3. Representation and Warranties of EIS. EIS hereby
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represents and warrants to the Company, as of the date hereof, as follows:
(a) Organization. EIS is duly organized, validly existing and in
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good standing under the laws of Bermuda and has all requisite corporate power
and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. EIS is duly qualified as a foreign corporation
and in good standing to do business in each jurisdiction in which the nature of
the business conducted or the property owned by it requires such qualification,
except where the failure to be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, assets, liabilities
(contingent or otherwise), operations, condition (financial or otherwise), or
prospects of EIS (an "EIS Material Adverse Effect").
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(b) Authorization of Transaction Documents. EIS has full corporate
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power and authority to execute and deliver this Agreement and each of the other
Transaction Documents to which it is a party, and to perform its obligations
hereunder and thereunder. The execution, delivery, and performance by EIS of
this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, have been duly
authorized by all requisite corporate action by EIS and, when executed and
delivered by EIS, this Agreement and each of the other Transaction Documents to
which it is a party, will be the valid and binding obligations of EIS,
enforceable against it in accordance with their respective terms, except (A)
that enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and (ii) general equity principles and limitations on the
availability of equitable relief, including specific performance, and (B) that
any rights to indemnity or contribution hereunder or thereunder may be limited
by state and federal securities laws and by public policy considerations.
(c) No Violation. The execution, delivery and performance by EIS of
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this Agreement and each other Transaction Document to which it is a party,
including the purchase and acceptance of the Securities, and compliance with
provisions hereof and thereof by EIS, will not conflict with or constitute or
result in a breach of or default under (or an event which with notice or passage
of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the by-laws of EIS, (ii)
applicable law, statute, rule or regulation, or any ruling, writ, injunction,
order, judgment or decree of any court, arbitrator, administrative agency or
other governmental body applicable to EIS or any of its properties or assets, or
(iii) any material contract to which EIS is a party, except where such breach,
default, termination, cancellation or acceleration would not, individually or in
the aggregate, have an EIS Material Adverse Effect.
(d) Approvals. Except for consent required under the Mergers and
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Takeovers (Control) Acts 1978-1996 no material permit, authorization, consent,
approval or order of or by, or any notification of or filing with, any person or
entity (governmental or otherwise) is required
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in connection with the execution, delivery or performance of this Agreement or
the Transaction Documents by EIS.
(e) Investment Representations.
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(i) EIS is sophisticated in transactions of this type and
capable of evaluating the merits and risks of the transactions described
herein and in the other Transaction Documents to which it is a party, and
has the capacity to protect its own interests. EIS has not been formed
solely for the purpose of entering into the transactions described herein
and therein and is acquiring the Securities (and the Underlying Shares) for
investment for its own account, not as a nominee or agent, and not with the
view to, or for resale, distribution or fractionalization thereof, in whole
or in part, and no other person (other than Elan) has a direct or indirect
interest, beneficial or otherwise in the Securities (or the Underlying
Shares); provided, however, that EIS shall be permitted to convert or
exchange such Securities in accordance with their terms.
(ii) EIS has not and does not intend to enter into any
contract, undertaking, agreement or arrangement with any person or entity
to sell, transfer or pledge the Securities (or the Underlying Shares).
(iii) EIS acknowledges its understanding that the private
placement and sale of the Securities (and the Underlying Shares) is exempt
from registration under the Securities Act by virtue of the provisions of
Regulation D. In furtherance thereof, EIS represents and warrants that it
is an "accredited investor" as that term is defined in Regulation D, has
the financial ability to bear the economic risk of its investment, has
adequate means for providing for its current needs and personal
contingencies and has no need for liquidity with respect to its investment
in the Company.
(iv) EIS agrees that it shall not sell or otherwise transfer
any of the Securities (or the Underlying Shares) without registration under
the Securities Act or pursuant to an opinion of counsel reasonably
satisfactory to the Company that an exemption from registration is
available, and fully understands and agrees that it must bear the total
economic risk of its purchase for an indefinite period of time because,
among other reasons, none of the Securities (or the Underlying Shares) have
been registered under the Securities Act or under the securities laws of
any applicable state or other jurisdiction and, therefore, cannot be
resold, pledged, assigned or otherwise disposed of unless subsequently
registered under the Securities Act and under the applicable securities
laws of such states or jurisdictions or an exemption from such registration
is available. EIS understands that the Company is under no obligation to
register the Securities (or the Underlying Shares) on its behalf with the
exception of certain registration rights with respect to certain of the
Securities (and the Underlying Shares), as provided in the Company
Registration Rights Agreement. EIS understands the lack of liquidity and
restrictions on transfer of the Securities (and the Underlying Shares) and
that this investment is suitable only for a person or entity of adequate
financial means that has no need for liquidity of this investment and that
can afford a total loss of its investment.
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(f) Litigation. There is no legal, administrative, arbitration or
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other action or proceeding or governmental investigation pending, or to EIS's
knowledge threatened, against EIS that challenges the validity or performance of
this Agreement or the other Transaction Documents to which EIS is a party.
SECTION 4. Covenants of the Parties.
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(a) Operating Covenants. From and after the Closing Date and until
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the earlier to occur of the exercise or expiration of the EIS Exchange Right (as
such term is defined in Section 6 hereof), the Company shall not without the
prior written consent of EIS: (i) sell, transfer, encumber, pledge or otherwise
affect, in any respect, (A) any shares of Newco Preferred Stock or Newco Common
Stock owned by the Company, including, without limitation, those shares of Newco
Preferred Stock transferable to EIS upon exercise by EIS of the EIS Exchange
Right, or (B) affect, in any respect, the Company's ability to permit EIS to
exercise the EIS Exchange Right in full, as provided herein, or (ii) enter into
any material transaction with a director, officer or more than 20% beneficial
owner of Common Stock on other than an arm's length basis.
(b) Fully-diluted Stock Ownership. Notwithstanding any other
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provision of this Agreement, in the event that EIS shall have determined that at
any time it (together with its affiliates, if applicable) holds or has the right
to receive Common Stock (or securities or rights, options or warrants
exerciseable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of 19.9% of the Company's outstanding Common Stock on
a fully diluted basis (assuming the exercise, exchange or conversion of such
securities beneficially owned by EIS or its affiliates, but not the exercise,
exchange or conversion of any other similar securities), EIS shall have the
right, in its sole discretion, rather than acquiring such securities from the
Company, to exchange such number of securities, as are necessary to bring its
holdings to below 19.9% of the voting securities of the Company, for non-voting,
convertible liquidation preferred stock of the Company (which shall be
reasonably satisfactory to each of the Company and EIS), which equity securities
shall be entitled to all of the other rights and benefits of the Common Stock.
In the event that EIS shall undertake to exercise such right, EIS shall retain
the additional right to exchange such new class of equity security for Common
Stock, in its discretion at any time. Each of the Company and EIS shall use
commercially reasonable effort to effect such transactions and any required
subsequent conversions or adjustments to such securities, on a quarterly basis,
within 15 business days of the end of each of EIS' fiscal quarter.
(c) NASD Requirements. In the event that the conversion of all or any
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portion of either or both of the Series B Preferred Stock or the Note would
trigger NASD requirements that the Company acquire shareholder approval prior to
such conversion, the Company will use its reasonable best efforts to obtain such
approval at or as soon as practicable following such conversion or notice of
EIS's intention to so convert, as the case may be (which conversion shall be
subject to such approval).
(d) Use of Proceeds. The Company shall use the proceeds of (i) the
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issuance and sale of the Series B Preferred Stock solely to meet its initial
capitalization obligations to Newco as described in the JDOA, and (ii) the
issuance and funding of the Note solely to meet its developmental funding
obligations to Newco, as described in the Funding Agreement.
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(e) Confidentiality; Non-Disclosure.
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(i) Subject to clauses (ii) and (iii) below, from and after the
date hereof, neither the Company nor EIS (nor their respective affiliates)
shall disclose to any person or entity this Agreement or the other
Transaction Documents or the contents thereof or the parties thereto,
except that such parties may make such disclosure (x) to their directors,
officers, employees and advisors, so long as they shall have advised such
persons of the obligation of confidentiality herein and for whose breach or
default the disclosing party shall be responsible, or (y) as required by
applicable law, rule, regulation or judicial or administrative process,
provided that the disclosing party uses reasonable efforts to obtain an
order or ruling protecting the confidentiality of confidential information
of the other party contained herein or therein. The parties shall be
entitled to seek injunctive or other equitable relief in respect of any
breach or threatened breach of the foregoing covenant without the
requirement of posting a bond or other collateral.
(ii) Prior to issuing any press release or public disclosure in
respect of this Agreement or the transactions contemplated hereby, the
party proposing such issuance, except as may be required by law, in the
written opinion of such party's outside legal counsel, shall obtain the
consent of the other party to the contents thereof, which consent shall not
be unreasonably withheld or delayed; it being understood that if such
second party shall not have responded to such consent request within five
business days, such consent shall be deemed given.
(iii) This Section 4(d) shall not be construed to prohibit
disclosure by the receiving party of any information which has not been
previously determined to be confidential by the disclosing party, or which
shall have become publicly disclosed (other than by breach of the receiving
party's obligations hereunder).
(f) Market Manipulation. For the 60 trading days prior to the first
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anniversary of the Closing Date, neither EIS, nor any other affiliate of Elan
shall sell, transfer the economic risk of ownership in, make any short sale,
pledge or otherwise dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock.
(g) Further Assurances. From and after the date hereof, each of the
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parties hereto agree to do or cause to be done such further acts and things and
deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable to carry into effect the purposes of this Agreement and the other
Transaction Documents.
SECTION 5. Standstill.
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(a) Provided that nothing contained herein will prevent or prohibit EIS
from purchasing Voting Stock (as defined below) of the Company pursuant to
subsection 5(b) or from acquiring Voting Stock pursuant to the Subsequent Stock
Purchase or conversion of the Series B
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Preferred Stock or the Note in accordance with their respective terms, EIS will
not, directly or indirectly, without the prior consent of a majority of the
Board of Directors of the Company (the "Board"), (i) acquire (or offer or agree
to acquire) any Voting Stock if, as a result, EIS would beneficially own more
than 20% of the then outstanding Voting Stock; (ii) directly or indirectly
solicit proxies or consents or become a participant in a solicitation (as such
terms are defined in Regulation 14A under the Exchange Act) in opposition to the
recommendation of the majority of the Board for a Takeover Event (as defined
below); or (iii) transfer to any third party, other than its "affiliates,"
"associates" (as such terms are defined in Rule 12b-2 under the Exchange Act),
officers, directors or employees, the right to vote any Voting Stock except in
connection with the transfer of ownership of such Voting Stock for fair value.
EIS also agrees that it will not advise, assist or encourage any third party to
do any of the foregoing. Notwithstanding the foregoing, EIS will not be
obligated to dispose of any Voting Stock it owns if its percentage ownership is
increased as a result of a decrease in the number of shares of Voting Stock
outstanding.
(b) The provisions of this Section 5 will terminate: (i) if EIS owns less
than 10% of Voting Stock; (ii) if any person or group, excluding EIS, any
affiliate of Elan, or any group that includes Elan or any such affiliate, makes
a bona fide offer to acquire Voting Stock which would, if successful, result in
the bidder's beneficial ownership of at least 10% of the then outstanding Voting
Stock; or (iii) upon the second anniversary of the date of this Agreement.
(c) The Company will give EIS prompt notice of the receipt by the Company
of any written notice couched in such terms as to put the Company reasonably on
notice of the likelihood that a person or group has acquired or is proposing to
acquire an aggregate position of at least 15% of the Voting Stock, the Company
receiving any bona fide offer to purchase or acquire 15% or more of the Voting
Stock or all or substantially all of the assets of the Company, and any Board
determination to seek an acquiror for in excess of 15% of the Voting Stock.
(d) EIS will cause its affiliates and associates to comply with the
provisions of this Section 5, whether directly or indirectly, individually or as
part of a "group" (as such term is defined in Rule 13d-5 under the Exchange
Act). When used in this Section 5, the term EIS includes EIS together with its
affiliates and associates.
For purposes of this Section 5, the term "Takeover Event" means any
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proposal for any merger or business combination involving the Company or any of
its subsidiaries, the purchase or sale of any assets of the Company or any of
its subsidiaries, or the purchase of any of the Voting Stock, by tender offer or
otherwise (except pursuant to the exercise of rights, warrants, options or
similar securities distributed by the Company to holders of Voting Stock
generally), and the term "Voting Stock" means the Common Stock and any preferred
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stock of the Company possessing voting rights and eligible to participate in
votes of all of the Company's shareholders pursuant to the Company's Articles of
Incorporation and Washington law, and includes any options, convertible
securities or other rights to acquire such stock.
SECTION 6. Certain Rights of EIS. (a) Preemptive Right. Until the
--------------------- ----------------
fourth anniversary of the date hereof, EIS shall have the preemptive right to
participate in any equity financing consummated by the Company, in order for EIS
to maintain its pro rata interest in the Company, based on the actual number of
shares of Common Stock outstanding on the date of
10
such financing is consummated (without, however, giving effect to the shares of
Common Stock underlying the Series B Preferred Stock or the Note). Such
participation by EIS shall be on the same terms and conditions offered to any
other potential investor in such offering.
(b) Company Board of Directors. For so long as (i) EIS and/or its
--------------------------
affiliates or subsidiaries collectively own securities that represent ownership
of at least 10% of the Common Stock (or securities convertible, exchangeable or
exercisable for or into the Common Stock, but excluding the Series B Preferred
Stock) on a fully diluted basis, EIS shall be entitled to nominate one director
("EIS Director") for election to the Company's board of directors who shall be a
------------
member of the senior management of Elan, or otherwise shall be acceptable to the
Company; provided, however, that the Company reserves the right to exclude such
EIS Director from any material or meeting or portion thereof if the other Board
members believe in good faith that such exclusion is reasonably necessary to
protect confidential proprietary information, for competitive or similar
reasons.
(c) Conversion and Exchange Rights. The Certificate of Designations
------------------------------
sets forth certain rights of the holders of shares of Series B Preferred Stock
to convert such shares of preferred stock into newly issued shares of Common
Stock, or to exchange such shares of Series B Preferred Stock for certain shares
of Newco Preferred Stock owned by the Company (the "EIS Exchange Right"), both
------------------
on the terms and conditions set forth therein.
SECTION 7. Survival and Indemnification. (a) Survival. The
----------------------------- --------
representations and warranties of the Company and EIS contained herein shall
survive for a period of 12 months from and after the date hereof.
(b) Indemnification. In addition to all rights and remedies
---------------
available to the parties hereto at law or in equity, the parties (each, in such
capacity, "Indemnifying Party"; together, "Indemnifying Parties") shall
------------------ --------------------
indemnify each other as corporate entities (EIS and the Company), its
stockholders, officers, directors and assigns, their affiliates, and its
affiliates' stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
-----------
Person"), and save and hold each Indemnified Person harmless from and against
and pay on behalf of or reimburse each such Indemnified Person, as and when
incurred, for any and all loss, liability, demand, claim, action, cause of
action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not
arising out of any claims by or on behalf of such Indemnified Person or any
third party, including interest, penalties, reasonable attorneys' fees and
expenses and all amounts paid in investigation, defense or settlement of any of
the foregoing (collectively, "Losses"), that any such Indemnified Person may
------
suffer, sustain incur or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of:
(i) any misrepresentation or breach of warranty on the part of the
Indemnifying Party in the case of the Company under Section 2 of this Agreement
or in the case of EIS under Section 3 of this Agreement or any of the other
Transaction Documents (it being understood that the Company shall not be
responsible for any such misrepresentation or breach of warranty by Newco); or
(ii) any nonfulfillment, default or breach of any covenant or
agreement on
11
the part of the Indemnifying Party under Section 4 of this Agreement or any of
the other Transaction Documents.
(c) Maximum Recovery. Notwithstanding anything in this Agreement
----------------
to the contrary, in no event shall the Indemnifying Parties be liable in the
case of the Company for indemnification under this Section 7 in an amount in
excess of the aggregate of the purchase price paid for the Shares and the
amounts advanced and not repaid under the Note or in the case of EIS for
indemnification hereunder in an amount in excess of such same aggregate. No
Indemnified Person shall assert any such claim unless Losses in respect thereof
incurred by any Indemnified Person, when aggregated with all previous Losses
hereunder, equal or exceed U.S.$50,000, but at such time that an Indemnified
Person is entitled to assert a claim, such claim shall include all Losses
covered by this Section 7.
(d) Exception. Notwithstanding the foregoing, upon judicial
---------
determination that is final and no longer appealable, that the act or omission
giving rise to the indemnification set forth above resulted primarily out of or
was based primarily upon the Indemnified Person's negligence (unless such
Indemnified Person's negligence was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or promises
made by the Indemnifying Party herein) the Indemnifying Party shall not be
responsible for any Losses sought to be indemnified in connection therewith, and
the Indemnifying Party shall be entitled to recover from the Indemnified Person
all amounts previously paid in full or partial satisfaction of such indemnity,
together with all costs and expenses (including reasonable attorneys fees) of
the Indemnifying Party reasonably incurred in connection with the Indemnified
Persons claim for indemnity, together with interest at the rate per annum
publicly announced by ▇▇▇▇▇▇ Guaranty Trust Company as its prime rate from the
time of payment of such amounts to the Indemnified Person until repayment to
the Indemnifying Party.
(e) Investigation. All indemnification rights hereunder shall
-------------
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 7(g) below,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Person or the acceptance of any
certificate or opinion.
(f) Contribution. If the indemnity provided for in this Section 7
------------
shall be, in whole or in part, unavailable to any Indemnified Person, due to
Section 7(b) being declared unenforceable by a court of competent jurisdiction
based upon reasons of public policy, so that Section 7(b) shall be insufficient
to hold each such Indemnified Person harmless from Losses which would otherwise
be indemnified hereunder, then the Indemnifying Party and the Indemnified Person
shall each contribute to the amount paid or payable for such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party on the one hand and the Indemnified Person on the
other, but also the relative fault of the Indemnifying Party and be in addition
to any liability that the Indemnifying Party may otherwise have. The indemnity,
contribution and expense reimbursement obligations that the Indemnifying Party
has under this Section 7 shall survive the expiration of the Transaction
Documents. The parties hereto further agree that the indemnification and
reimbursement commitments set forth in this Agreement shall apply whether or not
the Indemnified Person is a formal party to any such
12
lawsuit, claims or other proceedings.
(g) Limitation. No claim shall be brought by an Indemnified Person
----------
in respect of any misrepresentation or breach of warranty under this Agreement
after one year from the date hereof; and any claim for nonfulfillment, default
or breach of any covenant shall be brought within one year of the date of that
such Indemnified Person became aware or should have become aware of the
nonfulfillment, default or breach. Except as set forth in the previous sentence
and in Section 7(c) above, this Section 7 is not intended to limit the rights or
remedies otherwise available to any party hereto with respect to this Agreement
or the Transaction Documents.
SECTION 8. Withholding Taxes. The Company shall be entitled to
-----------------
withhold from any payments made by the Company with respect to the Shares or the
Notes any taxes required to be withheld under U.S. tax laws and shall have no
obligation to make any additional payments to EIS to cover such taxes. If any
such withholding tax becomes due with respect to interest accrued but not paid
under the Note, the EIS shall on demand by the Company pay to the Company an
amount on an after-tax basis necessary to cover any such withholding tax. EIS
acknowledges that any cash dividend payments with respect to the Shares will be
subject to 30% U.S. federal income withholding tax under current law; provided,
--------
however, that the Shares will not be subject to 30% U.S. federal income
-------
withholding tax if the Company has no earnings or profits or to the extent the
Securities are transferred to a resident of a country that has an income tax
treaty with the United States that exempts dividends from withholding tax and
such person supplies an accurate and timely Internal Revenue Service form
establishing its entitlement to an exemption. The Company agrees that it will
not withhold tax or require payment by EIS of any withholding tax if it receives
from EIS an accurate and timely Internal Revenue Service form W-8 or any
successor or additional form indicating its entitlement to an exemption from
withholding. EIS hereby represents, warrants, and covenants that if at any time
the form so supplied becomes inaccurate and no longer permits an exemption from
withholding tax to apply, it shall promptly notify the Company of that
inaccuracy. At the point, the Company may begin to withhold payments due under
the Note and EIS shall pay to the Company any amount necessary on an after-tax
basis to cover any liability the Company has incurred for taxes due with respect
to payments accrued or paid under the Note after such form no longer permitted
the exemption to apply and before the inaccurate information was corrected by
EIS.
SECTION 9. Notices. All notices, demands and requests of any kind to
-------
be delivered to any party in connection with this Agreement shall be in writing
and shall be deemed to have been duly given if personally or hand delivered or
if sent by an internationally-recognized overnight delivery or by registered or
certified mail, return receipt requested and postage prepaid, or by facsimile
transmission addressed as follows:
(i) if to the Company, to:
Targeted Genetics Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
13
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Coie
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(ii) if to EIS, to:
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL 04
Attention: Director
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 9. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery service, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such communication is posted, and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.
SECTION 10. Entire Agreement. This Agreement and the other
----------------
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings among the parties with respect thereto.
SECTION 11. Amendments. This Agreement may not be modified or
----------
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS.
SECTION 12. Counterparts and Facsimile. The Transaction Documents
--------------------------
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of
14
the Transaction Documents may be signed and delivered to the other party by
facsimile transmission; such transmission shall be deemed a valid signature.
SECTION 13. Headings. The section and paragraph headings contained
--------
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of the Agreement.
SECTION 14. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the substantive (as opposed to procedural) laws of
the State of New York, without giving effect to principles thereof relating to
conflicts of laws
SECTION 15. Disputes. Any dispute under this Agreement or any other
--------
of the Transaction Documents shall be adjudicated on an exclusive basis by
binding arbitration between or among the parties in accordance with the rules
and regulations of the American Arbitration Association in the County, City and
State of New York; provided, that any such dispute that (x) involves a
collection, proceeding in respect of the Convertible Promissory Note or (y) a
request for injunctive or other equitable relief may, in any such case, at the
option of the party seeking such relief, be adjudicated, on an exclusive basis,
in any federal or state court sitting in the County, City and State of New York.
SECTION 16. Expenses. Each of the parties shall be responsible for
--------
its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 17. Assignments and Transfers. This Agreement and all of the
-------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the shares of Series B Preferred Stock and Common Stock being purchased
hereunder by EIS, the Note, and the shares of Common Stock underlying the Series
B Preferred Stock and the Note may be transferred by EIS to its affiliates and
subsidiaries, as well as any off-balance sheet special purpose entity
established by EIS, provided, however, that EIS shall remain liable for its
obligations hereunder after any such assignment. Other than as set forth above,
no party shall transfer or assign this Agreement, the shares of Series B
Preferred Stock and Common Stock being purchased hereunder by EIS, the Note, and
the shares of Common Stock underlying the Series B Preferred Stock and the Note,
or any interest therein, without the prior written consent of the other party.
SECTION 18. Severability. In case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.
15
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement as of the date first written above.
TARGETED GENETICS CORPORATION
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: H. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President & CEO
ELAN INTERNATIONAL SERVICES, LTD.
By /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President & CFO
16