Unassociated Document


    Exhibit
      10.1

     

    Execution
      Copy

    


    AMENDMENT
      NO. 3 TO FUNDING AGREEMENT

    


    This
      Amendment No. 3 (this “Amendment”)
      to the
      Funding Agreement dated August 8, 2000, as amended July 14, 2003 and September
      1, 2005 (together, the “Funding
      Agreement”),
      between Targeted Genetics Corporation, a Washington corporation (“Targeted”),
      and
      Biogen Idec MA Inc., a Massachusetts corporation (“Biogen”),
      is
      made as of November 7, 2006.

     

    AGREEMENT

    


    1.    Definitions.
      Capitalized terms used but not defined in this Amendment shall have the meanings
      given to them in the Funding Agreement.

     

    2.    Amendments.
      The
      Funding Agreement is hereby amended as follows: 

     

    (a)    The
      complete text of the definition of “Final
      Maturity Date”
in
      “Article One, Definitions” is hereby amended and restated as
      follows:

     

    “Final
      Maturity Date”
means
      August 1, 2008, the date on which the final installment of principal and final
      payment of interest is due and payable under the Note. If the Final Maturity
      Date falls on a day that is not a business day, then the Final Maturity Date
      shall be extended to the next succeeding business day.” 


     

    (b)    The
      following shall be added as a new definition in alphabetical order to “Article
      One, Definitions”:

     

    “Change
      of Control”
means
      either of the following events: 

    (a)
      consummation of any merger or consolidation of Targeted in which Targeted is
      a
      party and in which Targeted is not the surviving entity or the shareholders
      of
      Targeted control less than fifty percent of the voting power of Targeted or
      the
      surviving entity; or (b) consummation of any sale, lease, exchange or other
      transfer in one transaction or a series of related transactions of all or
      substantially all of Targeted’s assets or outstanding securities, other than a
      transfer of Targeted’s assets or securities to a majority-owned subsidiary of
      Targeted.”

    


    (c)    The
      complete text of “Article Two, The Loan, Section 2.1 Terms of the Loan,
      Subsection 2.1.5 Repayment” is hereby deleted and replaced in its entirety to
      read as follows:

     

    “Accrued
      and unpaid interest on the Loan shall be paid annually on each August 31
      (provided, that if such date would fall on a day that is not a business day,
      then the interest payment date shall be extended to the next succeeding business
      day) and on the Final Maturity Date. All outstanding principal of the Loan
      shall
      be due and payable in cash according to the following schedule:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              Payment
                Date

            	 	
              Principal
                Amount

            
	 	 	 
	
              November
                7, 2006

            	 	
              $500,000

            
	
              August
                1, 2007

            	 	
              $1,000,000

            
	
              August
                1, 2008

            	 	
              $1,000,000

            


    

    


    In
      addition, Targeted agrees to pay Biogen, no later than the 10th business day
      following receipt thereof, an amount equal to one-third of any Milestone
      Payments received by Targeted or any of its subsidiaries (each such payment,
      a
“Mandatory
      Pre-Payment”).
      Any
      Mandatory Pre-Payment shall be applied (i) first to the payment of any accrued
      and unpaid interest on the principal being repaid, and (ii) second to the
      payment of outstanding principal in reverse order of maturity (i.e.,
      starting with the outstanding principal due on the latest payment date set
      forth
      on the above table).

    


    Targeted
      further
      agrees that upon any Change of Control of Targeted, the payment of $1,000,000
      of
      outstanding principal under the Loan due on August 1, 2007 shall accelerate
      and
      become due and payable in full to Biogen no later than the 30th
      business
      day following such Change of Control.” 

    


    3.    Additional
      Agreements. The parties further agree as follows:

     

    (a)    Partial
      Cancellation of Indebtedness.
      Biogen
      hereby agrees effective as of the date hereof to: (i) cancel in full the
      outstanding principal amount of $650,000 due under the Amended and Restated
      Promissory Note, dated September 1, 2005 (the “Second
      Note”);
      (ii)
      cancel in full outstanding principal amount of $5,000,000 of the Loan maturing
      on August 1, 2008 (such cancellation of an aggregate of $5,650,000 of
      outstanding indebtedness being the “Forgiven
      Debt”);
      and
      (iii) accept payment for the final $2,500,000 due under the Loan according
      to
      the schedule set forth in Section 2(c) hereof. 

     

    (b)    Biogen
      acknowledges receipt as of the date hereof of: (i) $500,000 cash from Targeted
      in payment of principal under the Loan pursuant to the schedule set forth in
      Section 2(c) hereof, and (ii) an Amended and Restated Promissory Note (the
      “Note”)
      from
      Targeted further amending and restating that certain Amended and Restated
      Promissory Note dated September 1, 2005 (the “September
      2005 Note”)
      and
      evidencing Targeted’s aggregate outstanding indebtedness to Biogen, following
      the repayment described in clause (i) above, of $2,000,000. Except for the
      indebtedness of Targeted to Biogen evidenced by the Note, Biogen hereby
      acknowledges that performance by Targeted of the actions contemplated by this
      Amendment shall constitute full repayment and satisfaction of the Forgiven
      Debt
      and that Targeted shall have no further obligation to Biogen to repay the
      Forgiven Debt. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (c)    Issuance
      of the Common Shares.
      In
      consideration of the Forgiven Debt, Targeted hereby agrees to issue 1,000,000
      shares of its unregistered common stock (the “Common
      Shares”)
      to
      Biogen within two (2) business days of the execution and delivery of this
      Amendment and the delivery of the September 2005 Note and the Second Note to
      Targeted for cancellation. 

     

    (d)    Representations
      and Warranties.
      

     

    (i)
      Biogen represents and warrants to Targeted, as of the date of this Amendment,
      as
      follows:

     

    (1)
      Access
      to Information.
      Biogen
      has had access to Targeted’s recent public filings with the SEC which provide
      all material information regarding Targeted including, in particular, the
      current financial condition of Targeted and the risks associated therewith.
      Biogen has been provided reasonable opportunity to ask questions of, and receive
      answers from, management of Targeted concerning the terms and conditions of
      the
      issuance of the Common Shares and any additional information, documents, book
      and records relating to the business, assets, financial condition, results
      of
      operations and liabilities of Targeted that it deemed necessary and to reach
      an
      informed and knowledgeable decision to accept the Common Shares on the terms
      set
      forth herein.

     

    (2)
      Restricted
      Securities.
      Biogen
      understands that the Common Shares are characterized under the Securities Act
      as
“restricted securities” and, therefore, the Common Shares cannot be sold or
      transferred unless they are subsequently registered under the Securities Act
      or
      an exemption from such registration is available. Biogen further understands
      that it must hold the Common Shares indefinitely unless a subsequent disposition
      thereof is registered or qualified under the Securities Act and applicable
      state
      securities laws or is exempt from registration, and that Targeted is under
      no
      obligation to register or qualify any of the Common Shares or to take any action
      to make such an exemption available. In this connection, Biogen represents
      that
      it is familiar with Rule 144 under the Securities Act as presently in effect,
      and understands the resale limitations imposed thereby and by the Securities
      Act.

     

    (3)
      Purchase
      for Own Account.
      Biogen
      represents and warrants that the Common Shares are being purchased for its
      own
      account, not as a nominee or agent, for investment and not with a view to the
      resale or distribution of any part thereof, and that Biogen has no present
      intention of granting any participation in, or otherwise distributing the same.
      Biogen further represents that it does not presently have any contract,
      undertaking, agreement or arrangement with any person to sell, transfer, or
      grant participations to any third person with respect to any of the Common
      Shares. 

     

    (4)
      Accreditation.
      Biogen
      represents and warrants that it is an “accredited investor” within the meaning
      of Regulation D promulgated under the Securities Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ii)
      Targeted represents and warrants to Biogen, as of the date of this Amendment,
      as
      follows:

     

    (1)
      Organization,
      Standing and Power.
      Targeted is a corporation duly organized and validly existing under the laws
      of
      the state of Washington. Targeted has the corporate power and authority to
      own,
      lease and operate its properties and carry on its business as now being
      conducted. Targeted is duly qualified to transact business and is in good
standing
      in each jurisdiction in which the failure to be so qualified and in good
      standing would have a Material Adverse Effect on Targeted. Targeted has
      previously provided to Biogen with complete and correct copies of its articles
      of incorporation and bylaws as in effect on the date of this
      Agreement.

    


    (2)
      Authority.
      Targeted has all requisite power and authority to execute, deliver and
perform
      its obligations under this Amendment and the Funding Agreement. The execution
      and delivery of this Amendment and the consummation of the transactions
      contemplated by this Amendment (including the issuance of Common Stock
pursuant
      to Section 3(c) of this Amendment) have been duly authorized by all necessary
      corporate action on the part of Targeted. This Amendment has been duly
executed
      and delivered by Targeted, and this Amendment constitutes a valid and legally
      binding obligation of Targeted, enforceable in accordance with its terms
      (subject to applicable bankruptcy, insolvency, reorganization, moratorium,
      fraudulent transfer and other similar laws affecting creditors' rights generally
      from time to time in effect and to general principles of equity, including
      concepts of materiality, reasonableness, good faith and fair dealing, regardless
      of whether in a proceeding at equity or at law).

    


    (3)
      SEC
      Reports; Financial Statements.
      

    


    a)
      Targeted has filed with the SEC all reports, forms, registration statements,
      definitive proxy statements and documents required to be filed with the
      SEC
      since December 31, 1999, and has furnished to  Biogen true and complete
copies,
      in the form filed with the SEC, of (i) its Annual Report on Form 10-K
for
      the
      fiscal year ended December 31, 2005, (ii) the proxy statement relating
to
      its
      2006 annual meeting of shareholders, (iii) its annual report to shareholders
      for
      the fiscal year ended December 31, 2005 and (iv) its Quarterly Reports on Form
      10-Q for the quarters ended March 31, 2006 and June 30, 2006 (collectively,
      the
      "Targeted
      SEC Documents").
      As of
      their respective filing dates, the Targeted SEC Documents (including all
      financial statements, exhibits and schedules to and documents incorporated
      by
      reference in the Targeted SEC Documents) (i) complied in all material respects
      with the requirements of the Exchange Act and the Securities Act, and (ii)
      did
      not contain any untrue statement of a material fact or omit to state a material
      fact required to be stated or necessary to make the statements made in the
      Targeted SEC Documents, in light of the circumstances in which they were made,
      not misleading, except to the extent corrected by a subsequently filed Targeted
      SEC Document.

    


    (b)
      The
      financial statements of Targeted, including the notes to the financial
      statements, included or incorporated by reference in the Targeted SEC
Documents
      (the "Targeted
      Financial Statements")
      were
      complete and correct in all material
      respects as of their respective filing dates, complied as to form in all
      material respects with applicable accounting requirements and with the
      applicable published rules and regulations of the SEC as of their respective
      dates, and have been prepared in accordance with GAAP applied on a basis
      consistent throughout the periods indicated and consistent with each other
      (except as may be indicated in the related notes or, in the case of unaudited
      statements, included in Quarterly Reports on Forms 10-Q). The Targeted Financial
      Statements fairly present the consolidated financial condition and operating
      results of Targeted and its subsidiaries at the dates and during the periods
      indicated
      in the Targeted Financial Statements (subject, in the case of unaudited
      statements, to normal, recurring year-end adjustments). There has been no change
      in Targeted accounting policies except in response to SEC Staff Accounting
      Bulletin No. 101 and as described in the Targeted SEC Documents.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (4)
      Valid
      Issuance of Stock.
      The
      Shares, when issued and delivered in accordance with the terms of Section 3(c)
      of this Agreement and for the consideration expressed herein, will
      be
      duly and validly issued, fully paid and nonassessable and free of any liens
      or
      encumbrances other than those, if any, created by Biogen, and will be issued
      in
      compliance with all applicable state and federal securities
      laws.


    


    4.    Demand
      Registration.
      

    


    (a)
      On
      one occasion after the date hereof, Biogen may request that all of the Common
      Shares owned by Biogen as of such date be registered under the Securities Act
      on
      a Registration Statement on Form S-3 (or
      a
      successor form) (the
      "S-3
      Registration Statement").
      Upon
      the receipt of such request Targeted shall use its Reasonable Commercial Efforts
      to effect the S-3 Registration Statement as soon as practicable, at Targeted's
      expense, and to cause the S-3 Registration Statement to remain effective until
      the earlier of 180 days from the effective date of the S-3 Registration
      Statement and the date on which all the Common Shares covered by the S-3
      Registration Statement have been sold; provided, however, that Targeted shall
      not be required to effect the S-3 Registration Statement if (A) if Form S-3
      (or
      a successor form) is not available for such registration; (B) the Common Shares
      to be included in the S-3 Registration Statement would have an aggregate price
      to the public of less than $350,000; (C) Targeted shall furnish to Biogen a
      certificate signed by the president of Targeted stating that (1) Targeted is
      engaged or has bona fide plans to engage in a registered public offering or
      is
      engaged in any other activity that, in the good faith judgment of Targeted's
      board of directors, would be adversely affected by the requested registration
      or
      (2) the requested registration would involve initial or continuing disclosure
      obligations that are not in the best interests of Targeted's shareholders at
      such time, in which event Targeted shall have the right to defer the filing
      of
      the S-3 Registration Statement for a period of not more than 90 days after
      receipt of the request; or (D) Targeted has already effected a registration
      statement on Form S-3 or Form S-1 within the 180-day period preceding the date
      of such request. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b)
      In
      the event Targeted effects the S-3 Registration Statement pursuant to this
      Section 4, Targeted shall indemnify and hold harmless Biogen, each underwriter
      of such Common Shares, if any, and each other person, if any, who controls
      Biogen or such underwriter within the meaning of the Securities Act or the
      Exchange Act against any losses, claims, damages or liabilities, joint or
      several, to which Biogen or such underwriter or controlling person may become
      subject under the Securities Act, the Exchange Act, state securities or blue
      sky
      laws or otherwise, insofar as such losses, claims, damages or liabilities (or
      actions in respect thereof) arise out of or are based on any untrue statement
      or
      alleged untrue statement of a material fact contained in the S-3 Registration
      Statement, any preliminary prospectus or final prospectus contained in the
      S-3
      Registration Statement (the "S-3
      Prospectus"),
      or
      arise out of or are based on the omission or alleged omission to state a
      material fact required to be stated in the S-3 Registration Statement or
      necessary to make the statements in the S-3 Registration Statement not
      misleading; and Targeted will reimburse Biogen or such underwriter or
      controlling person in connection with investigating or defending any such loss,
      claim, damage, liability or action; provided, however, that Targeted will not
      be
      liable in any such case to the extent that any such loss,
      claim, damages or liability arises out of or is based on an untrue statement
      or
      alleged untrue statement or omission or alleged omission made in the S-3
      Registration Statement, the S-3 Prospectus or any amendment or supplement of
      the
      S-3 Registration Statement or the S-3 Prospectus in reliance on and in
      conformity with written information furnished to Targeted by or on behalf of
      Biogen expressly for use in the S-3 Registration Statement or the S-3 Prospectus
      or any untrue statement in such prospectus or omission of a material fact
      required to make a statement not misleading in the S-3 Prospectus that is
      corrected in any subsequent S-3 Prospectus that was delivered to Biogen before
      the pertinent sale or sales by Biogen.

    


    5.    Effect
      of Amendment.
      Except
      as provided in this Amendment, all of the terms and conditions of the Funding
      Agreement shall remain in full force and effect.

     

    6.    Counterparts.
      This
      Amendment may be executed in counterparts, each of which when so executed shall
      be deemed an original, but all such counterparts together shall constitute
      but
      one and the same instrument. 

     

    [signature
      page follows]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, Targeted and Biogen have caused this Amendment to be duly
      executed as of the date first above written.

     

    TARGETED
      GENETICS CORPORATION

    


    By:
      /s/
      H.
      Stewart
      Parker                                              

    Name:
      H.
      Stewart
      Parker                                           
   

    Title:
      President
      and Chief Executive
      Officer           


    


    


    


    BIOGEN
      IDEC MA INC.

    


    By:
      /s/
      Michael F.
      Phelps                                             

    Name:
      Michael
      F.
      Phelps                                          
   

    Title:
      Vice
      President and
      Treasurer