Document:

AMENDMENT
      NO. 1 TO

     

    AMENDED
      AND RESTATED SECURED CONVERTIBLE DEBENTURE NO. MEP-2

     

    THIS
      AMENDMENT NO. 1 TO AMENDED AND RESTATED SECURED CONVERTIBLE DEBENTURE NO.
      MEP-2
      (this
“Amendment”),
      is
      entered into by and between TECH
      LABORATORIES, INC. a
      New
      Jersey corporation (the “Company”),
      and
      the undersigned Buyer (the “Buyer”).

     

    WHEREAS:

     

    A. The
      Company hereto previously issued to the Buyer that certain Amended and Restated
      Secured Convertible Debenture No. MEP-2 dated December 28, 2005 (the
      "Debenture").

     

    B. The
      parties to the Debenture now desire to amend certain provisions set forth in
      the
      Agreement as more fully described herein.

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and the Buyer hereby agree as
      follows:

     

    1. AMENDMENT
      OF SECTION 3(c)(i) “Conversion
      Price”.
      Section 3 (c)(i) of the Debenture is hereby amended and replaced in its entirety
      with the following: 

     

    “(i)
      The
      Holder shall be entitled to convert, at its sole option, at any time a portion
      or all amounts of principal and interest due and outstanding under this
      Debenture into shares of the Obligor’s Common Stock at the lesser of (i) $0.04
      (the “Fixed
      Conversion Price”)
      or
      (ii) eighty percent (80%) of the lowest Closing Bid Price of the Common Stock
      during the ten (10) Trading Days immediately preceding the Conversion Date
      as
      quoted by Bloomberg, LP (the “Market
      Conversion Price”).
      The
      Fixed Conversion Price and the Market Conversion Price are collectively referred
      to as the “Conversion
      Price”.
      The
      Conversion Price may be adjusted pursuant to the other terms of this
      Debenture.”

     

    2. EFFECT
      ON OTHER TERMS.
      This
      Amendment shall be deemed effective as of May 31, 2007. All other terms set
      forth in the Debenture shall remain unchanged and this Amendment, and the
      Debenture shall be deemed a single integrated agreement for all
      purposes.

     

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
        
        

      

      
        -1-

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties have caused this Amendment to the Debenture to be duly executed as
      of
      day and year first above written.

     

    
      	 	 	 
	 	
              COMPANY:

              
                TECH
                  LABORATORIES, INC.

              

            
	 
 	 
 	 
 
	
            	By:  	/s/
              John
              King
	 	
              

              Name:
                John King

              
                Title: 
                  Chief Executive Officer and

                
                  Chief
                    Financial Officer

                

              

            

    

     

    
      	 	 	 
	 	
              BUYER:

              
                MONTGOMERY
                  EQUITY PARTNERS, LTD.

              

            
	 
 	 
 	 
 
	
            	By:  	Yorkville Advisors, LLC
	 	 Its: 	 General
              Partner

    

     

    
      	 	 	 
	 
 	 
 	 
 
	
            	By:  	/s/ 
              Mark Angelo
	 	
              

              Name:
                Mark Angelo

              
                Title:
                  President and Portfolio
                  Manager

              

            

    

     

    
      
        
        

      

      
        -2-AMENDMENT
      NO. 1 TO

     

    SECURED
      CONVERTIBLE DEBENTURE NO. MEP-3

     

    THIS
      AMENDMENT NO. 1 TO SECURED CONVERTIBLE DEBENTURE NO. MEP-3
      (this
“Amendment”),
      is
      entered into by and between TECH
      LABORATORIES, INC. a
      New
      Jersey corporation (the “Company”),
      and
      the undersigned Buyer (the “Buyer”).

     

    WHEREAS:

     

    A. The
      Company hereto previously issued to the Buyer that certain Secured Convertible
      Debenture No. MEP-3 dated December 28, 2005 (the "Debenture").

     

    B. The
      parties to the Debenture now desire to amend certain provisions set forth in
      the
      Agreement as more fully described herein.

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and the Buyer hereby agree as
      follows:

     

    1. AMENDMENT
      OF SECTION 3(c)(i) “Conversion
      Price”.
      Section 3 (c)(i) of the Debenture is hereby amended and replaced in its entirety
      with the following: 

     

    “(i)
      The
      Holder shall be entitled to convert, at its sole option, at any time a portion
      or all amounts of principal and interest due and outstanding under this
      Debenture into shares of the Obligor’s Common Stock at the lesser of (i) $0.04
      (the “Fixed
      Conversion Price”)
      or
      (ii) eighty percent (80%) of the lowest Closing Bid Price of the Common Stock
      during the ten (10) Trading Days immediately preceding the Conversion Date
      as
      quoted by Bloomberg, LP (the “Market
      Conversion Price”).
      The
      Fixed Conversion Price and the Market Conversion Price are collectively referred
      to as the “Conversion
      Price”.
      The
      Conversion Price may be adjusted pursuant to the other terms of this
      Debenture.”

     

    2. EFFECT
      ON OTHER TERMS.
      This
      Amendment shall be deemed effective as of May 31, 2007. All other terms set
      forth in the Debenture shall remain unchanged and this Amendment, and the
      Debenture shall be deemed a single integrated agreement for all
      purposes.

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        -1-

        
          

        

      

       

    

    

    IN
      WITNESS WHEREOF,
      the
      parties have caused this Amendment to the Debenture to be duly executed as
      of
      day and year first above written.

    

    
      	 	 	
              COMPANY:

            
	 	 	
              TECH
                LABORATORIES, INC.

            
	 	 	 
	 	 	
              By: 
                /s/ John King    

            
	 	 	
              
                

              

              Name: John
                King

            
	 	 	
              Title:  Chief
                Executive Officer and

            
	 	 	
              Chief
                Financial Officer

            
	 	 	 
	 	 	
              BUYER:

            
	 	 	
              MONTGOMERY
                EQUITY PARTNERS, LTD.

            
	 	 	
              By:
                Yorkville Advisors, LLC

            
	
               

            	 	
              Its:
                General Partner

            
	 	 	 
	 	 	
              By: 
                /s/
                Mark Angelo

            
	 	 	
              
                

              

              Name:
                Mark Angelo

            
	 	 	
              Title:
                President and Portfolio Manager

            

    

    

    
      
         

      

      
        -2-Unassociated Document

     

     

     

    

    TARGETED
      GENETICS CORPORATION

     

    STOCK
      INCENTIVE PLAN

     

    EFFECTIVE
      AS OF MAY 17, 2007

     

     

     

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

       

    

    

    TARGETED
      GENETICS CORPORATION

    STOCK
      INCENTIVE PLAN

    EFFECTIVE
      AS OF MAY 17, 2007

    

     

    SECTION
      1.       INTRODUCTION

     

    The
      Board
      hereby amend, restates and renames the Targeted Genetics Corporation 1999 Stock
      Option Plan into the Targeted Genetics Corporation Stock Incentive Plan;
      provided that, the Plan shall become effective upon its approval by the Company
      shareholders. If the Company’s shareholders do not approve the Plan, no Awards
      will be made under the Plan and the Targeted Genetics Corporation 1999 Stock
      Option Plan will continue in effect in accordance with its terms.
      Notwithstanding anything to the contrary, stock options granted prior to the
      date the Plan becomes effective shall be governed by the terms and provisions
      of
      the Targeted Genetics Corporation 1999 Stock Option Plan and the applicable
      stock option agreement.

     

    The
      Targeted Genetics Corporation 1999 Stock Option Plan was originally adopted
      by
      the Board on January 21, 1999 and it was thereafter approved by the Company’s
      shareholders on May 5, 1999. Such plan was last amended by the Board on March
      22, 2004 and approved by the Company’s shareholders on May 20,
      2004.

     

    The
      purposes of the Plan are to promote the long-term success of the Company and
      the
      creation of shareholder value by offering Key Service Providers an opportunity
      to share in such long-term success by acquiring a proprietary interest in the
      Company and to attract and retain the best available personnel for positions
      of
      substantial responsibility, and to provide additional incentive to Employees,
      Consultants and Directors. 

     

    The
      Plan
      seeks to achieve these purposes by providing for discretionary long-term
      incentive Awards in the form of Options (which may constitute Incentive Stock
      Options or Nonstatutory Stock Options), Stock Appreciation Rights, Stock Grants
      and Stock Units.

     

    The
      Plan
      shall be governed by, and construed in accordance with, the laws of the State
      of
      Washington (except its choice-of-law provisions). Capitalized terms shall have
      the meaning provided in Section 2 unless otherwise provided in the Plan or
      any
      related Stock Option Agreement, SAR Agreement, Stock Grant Agreement or Stock
      Unit Agreement.

     

    SECTION
      2.       DEFINITIONS

     

    (a)       “Affiliate”
      means
      any entity other than a Subsidiary, if the Company and/or one or more
      Subsidiaries own not less than 50% of such entity.

     

    (b)       “Applicable
      Laws” means
      all
      applicable laws, rules, regulations and requirements, including, but not limited
      to, all applicable U.S. federal or state laws, any Stock Exchange rules or
      regulations, and the applicable laws, rules or regulations of any other country
      or jurisdiction where Awards are granted under the Plan or where Participants
      reside or provide services, as such laws, rules, and regulations shall be in
      effect from time to time.

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (c)       “Award”
      means
      any
      Grant of an Option, SAR, Stock Grant or Stock Unit under the Plan.

     

    (d)       “Board”
      means
      the Board of Directors of the Company, as constituted from time to
      time.

     

    (e)       “Cashless
      Exercise”
      means,
      to the extent that a Stock Option Agreement so provides and as permitted by
      applicable law, a program approved by the Committee in which payment may be
      made
      all or in part by delivery (on a form prescribed by the Committee) of an
      irrevocable direction to a securities broker to sell Shares and to deliver
      all
      or part of the sale proceeds to the Company in payment of the aggregate Exercise
      Price and, if applicable, the amount necessary to satisfy the Company’s
      withholding obligations at the minimum statutory withholding rates, including,
      but not limited to, U.S. federal, state and local income taxes, payroll taxes,
      and foreign taxes, if applicable.

     

    (f)       “Cause”
      means,
      except as may otherwise be provided in a Participant’s employment agreement or
      Award agreement, a conviction of a Participant for a felony crime or the failure
      of a Participant to contest prosecution for a felony crime, or a Participant’s
      misconduct, fraud or dishonesty (as such terms are defined by the Committee
      in
      its sole discretion), or any unauthorized use or disclosure of confidential
      information or trade secrets, in each case as determined by the Committee,
      and
      the Committee’s determination shall be conclusive and binding.

     

    (g)       “Change
      in Control”
      means
      the occurrence of any one or more of the following:

     

    (i)       the
      sale, transfer or disposition of all or substantially all of the Company’s
      assets other than to (A) a corporation or other entity of which at least a
      majority of its combined voting power is owned directly or indirectly by the
      Company, (B) a corporation or other entity owned directly or indirectly by
      the
      holders of capital stock of the Company in substantially the same proportions
      as
      their ownership of Common Stock, or (C) an Excluded Entity (as defined in
      subsection (ii) below)

     

    (ii)       the
      merger, consolidation or other business combination transaction of the Company
      with or into another corporation, entity or person, other than a transaction
      with
      or
      into another corporation, entity or person in
      which
      the holders of at least a majority of the shares of voting capital stock of
      the
      Company outstanding immediately prior to such transaction continue to hold
      (either by such shares remaining outstanding in the continuing entity or by
      their being converted into shares of voting capital stock of the surviving
      entity) a majority of the total voting power represented by the shares of voting
      capital stock of the Company (or the surviving entity) outstanding immediately
      after such transaction (an “Excluded Entity”); or 

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (iii)       the
      acquisition, directly or indirectly, by any person or related group of persons
      (other than the Company or a person that directly or indirectly controls, is
      controlled by, or is under common control with, the Company) of beneficial
      ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities
      of the Company representing more than 50% of the total combined voting power
      of
      the Company’s then outstanding securities pursuant to a tender or exchange offer
      made directly to the Company’s stockholders which the Board does not recommend
      such stockholders accept. 

     

    A
      transaction (including a Corporate Transaction) shall not constitute a Change
      in
      Control if its sole purpose is to change the state of the Company’s
      incorporation or to create a holding company that will be owned in substantially
      the same proportions by the persons who held the Company’s securities
      immediately before such transactions.

     

    (h)       “Code”
      means
      the Internal Revenue Code of 1986, as amended, and the regulations and
      interpretations promulgated thereunder.

     

    (i)       “Committee”
      means a
      committee described in Section 3.

     

    (j)       “Common
      Stock”
      means
      the Company’s common stock.

     

    (k)       “Company”
      means
      Targeted Genetics Corporation, a Washington corporation, and any
      successor.

     

    (l)       “Consultant”
      means an
      individual who performs bona-fide services to the Company, a Parent, a
      Subsidiary or an Affiliate, other than as an Employee or Director.

     

    (m)       “Corporate
      Transaction” means
      a
      sale of all or substantially all of the Company’s assets, or a merger,
      consolidation or other capital reorganization or business combination
      transaction of the Company with or into another corporation, entity or
      person.

     

    (n)       “Covered
      Employees”
      means
      those persons who are subject to the limitations of Section 162(m) of the
      Code.

     

    (o)       “Director”
      means a
      member of the Board.

     

    (p)       “Disability”
      means
“permanent and total disability” as such term is defined in Section 22(e)(3) of
      the Code. 

     

    (q)       “Employee”
      means
      any individual who is a common-law employee of the Company, a Parent, a
      Subsidiary, or an Affiliate.

     

    (r)       “Exchange
      Act”
      means
      the Securities Exchange Act of 1934, as amended.

     

    (s)       “Exercise
      Price”
      means,
      in the case of an Option, the amount for which a Share may be purchased upon
      exercise of such Option, as specified in the applicable Stock Option Agreement.
      “Exercise Price,” in the case of a SAR, means an amount, as specified in the
      applicable SAR Agreement, which is subtracted from the Fair Market Value in
      determining the amount payable upon exercise of such SAR.

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (t)       “Fair
      Market Value”
      means
      the market price of a Share as established in good faith by the Committee or
      (a)
      if the Common Stock is listed on the Nasdaq National Market, the closing selling
      price for the Common Stock as reported by the Nasdaq National Market for a
      single trading day or (b) if the Common Stock is listed on the New York Stock
      Exchange or the American Stock Exchange, the closing selling price for the
      Common Stock as such price is officially quoted in the composite tape of
      transactions on such exchange for a single trading day. If there is no such
      reported price for the Common Stock for the date in question, then such price
      on
      the last preceding date for which such price exists shall be determinative
      of
      Fair Market Value. the market price of a Share as determined in good faith
      by
      the Committee.

     

    (u)       “Fiscal
      Year”
      means
      the Company’s fiscal year.

     

    (v)       “Grant”
      means
      any grant of an Award under the Plan.

     

    (w)       “Incentive
      Stock Option” or “ISO”
      means an
      incentive stock option described in Section 422 of the Code.

     

    (x)       “Key
      Service Provider”
      means an
      Employee, Director or Consultant who has been selected by the Committee to
      receive an Award under the Plan.

     

    (y)       “Non-Employee
      Director”
      means a
      Director who is not an Employee.

     

    (z)       “Nonstatutory
      Stock Option” or “NSO”
      means a
      stock option that is not an Incentive Stock Option.

     

    (aa)       “Option”
      means an
      ISO or NSO granted under the Plan entitling the Optionee to purchase
      Shares.

     

    (bb)       “Optioned
      Stock” means
      Shares that are subject to an Option or that were issued pursuant to the
      exercise of an Option.

     

    (cc)       “Optionee”
      means an
      individual, estate or other entity that holds an Option.

     

    (dd)       “Parent”
      means
      any corporation (other than the Company) in an unbroken chain of corporations
      ending with the Company, if each of the corporations other than the Company
      owns
      stock possessing 50% or more of the total combined voting power of all classes
      of stock in one of the other corporations in such chain. A corporation that
      attains the status of a Parent on a date after the adoption of the Plan shall
      be
      considered a Parent commencing as of such date.

     

    (ee)       “Participant”
      means an
      individual or an estate or other entity that holds an Award.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (ff)       “Performance
      Goals” means
      one
      or more objective measurable performance factors as determined by the Committee
      with respect to each Performance Period based upon one or more factors,
      including, but not limited to: (i) operating income; (ii) earnings
      before interest, taxes, depreciation and amortization (“EBITDA”);
      (iii) earnings; (iv) cash flow; (v) market share; (vi) sales
      or revenue; (vii) expenses; (viii) cost of goods sold;
      (ix) profit/loss or profit margin; (x) working capital;
      (xi) return on equity or assets; (xii) earnings per share;
      (xiii) economic value added (“EVA”); (xiv) stock price;
      (xv) price/earnings ratio; (xvi) debt or debt-to-equity;
      (xvii) accounts receivable; (xviii) writeoffs; (xix) cash;
      (xx) assets; (xxi) liquidity; (xxii) operations;
      (xxiii) intellectual property (e.g.,
      patents); (xxiv) product development; (xxv) regulatory activity,
      including clinical trial activity; (xxvi) manufacturing, production or
      inventory; (xxvii) mergers and acquisitions or divestitures; (xxviii)
      business development activities; (xxix) financings; (xxx) cash burn; and/or
      (xxxi) cash horizon, each with respect to the Company and/or one or more of
      its
      Affiliates or operating units. Awards issued to persons who are not Covered
      Employees may take into account other factors.

     

    (gg)       “Performance
      Period” means
      any
      period not exceeding thirty-six (36) months as determined by the Committee,
      in
      its sole discretion. The Committee may establish different Performance Periods
      for different Participants, and the Committee may establish concurrent or
      overlapping Performance Periods.

     

    (hh)       “Plan”
      means
      this Targeted Genetics Corporation Stock Incentive Plan, as it may be amended
      from time to time.

     

    (ii)       “Re-Price”
      means
      that the Company has lowered or reduced the Exercise Price of outstanding
      Options and/or outstanding SARs for any Participant(s) in a manner described
      by
      Item 402(i)(1) of SEC Regulation S-K (or its successor provision). 

     

    (jj)       “Retirement”
      means
      retirement as of the individual’s normal retirement date under the Company’s
      401(k) Plan or other similar successor plan applicable to salaried
      employees.

     

    (kk)       “Rule
      16b-3” means
      Rule 16b-3 promulgated under the Exchange Act, as amended from time to time,
      or
      any successor provision.

     

    (ll)       “SAR
      Agreement”
      means
      the agreement described in Section 8 evidencing each Award of a Stock
      Appreciation Right.

     

    (mm)       “SEC”
      means
      the Securities and Exchange Commission.

     

    (nn)       “Section
      16 Persons”
      means
      those officers, directors or other persons who are subject to Section 16 of
      the
      Exchange Act.

     

    (oo)       “Securities
      Act”
      means
      the Securities Act of 1933, as amended.

     

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (pp)       “Service”
      means
      the absence of any interruption or termination of service as an Employee,
      Director or Consultant. Continuous Service Status shall not be considered
      interrupted or terminated in the case of: (i) Company approved sick leave;
      (ii) military leave; (iii) any other bona fide leave of absence
      approved by the Committee, provided that such leave is for a period of not
      more
      than ninety (90) days, unless reemployment upon the expiration of such leave
      is
      guaranteed by contract or statute, or unless provided otherwise pursuant to
      a
      written Company policy. Also, Continuous Service Status as an Employee or
      Consultant shall not be considered interrupted or terminated in the case
      of a transfer between locations of the Company or between the Company, its
      Parents, Subsidiaries or Affiliates, or their respective successors, or a change
      in status from an Employee to a Consultant or from a Consultant to an
      Employee.

     

    (qq)       “Share”
      means
      one share of Common Stock.

     

    (rr)       “Stock
      Appreciation Right” or “SAR”
      means a
      stock appreciation right awarded under the Plan.

     

    (ss)       “Stock
      Exchange” means
      any
      stock exchange or consolidated stock price reporting system on which prices
      for
      the Common Stock are quoted at any give time.

     

    (tt)       “Stock
      Grant”
      means
      Shares awarded under the Plan.

     

    (uu)       “Stock
      Grant Agreement”
      means
      the agreement described in Section 9 evidencing each Award of a Stock
      Grant.

     

    (vv)       “Stock
      Option Agreement”
      means
      the agreement described in Section 6 evidencing each Award of an
      Option.

     

    (ww)       “Stock
      Unit”
      means a
      bookkeeping entry representing the equivalent of one Share, as awarded under
      the
      Plan.

     

    (xx)       “Stock
      Unit Agreement”
      means
      the agreement described in Section 10 evidencing each Award of a Stock
      Unit.

     

    (yy)       “Subsidiary”
      means
      any corporation (other than the Company) in an unbroken chain of corporations
      beginning with the Company, if each of the corporations other than the last
      corporation in the unbroken chain owns stock possessing 50% or more of the
      total
      combined voting power of all classes of stock in one of the other corporations
      in such chain. A corporation that attains the status of a Subsidiary on a date
      after the adoption of the Plan shall be considered a Subsidiary commencing
      as of
      such date.

     

    (zz)       “10-Percent
      Shareholder” means
      an
      individual who owns more than 10% of the total combined voting power of all
      classes of outstanding stock of the Company, its Parent or any of its
      Subsidiaries. In determining stock ownership, the attribution rules of Section
      424(d) of the Code shall be applied.

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    SECTION
      3.       ADMINISTRATION.

     

    (a)       General.
      The
      Plan
      shall be administered by the Board or a Committee, or a combination thereof,
      as
      determined by the Board. The Plan may be administered by different
      administrative bodies with respect to different classes of Participants and,
      if
      permitted by Applicable Laws, the Board may authorize one or more officers
      of
      the Company to make Awards under the Plan to Employees and Consultants (who
      are
      not Section 16 Persons) within parameters specified by the
      Board.

     

    (b)       Committee
      Composition. If
      a
      Committee has been appointed pursuant to this Section 3, such Committee
      shall continue to serve in its designated capacity until otherwise directed
      by
      the Board. From time to time the Board may increase the size of any Committee
      and appoint additional members thereof, remove members (with or without cause)
      and appoint new members in substitution therefor, fill vacancies (however
      caused) and dissolve a Committee and thereafter directly administer the Plan,
      all to the extent permitted by the Applicable Laws and, in the case of a
      Committee administering the Plan in accordance with the requirements of
      Rule 16b-3 or of Section 162(m) of the Code, to the extent permitted
      or required by such provisions.

     

    Unless
      the Board provides otherwise, the Board’s Compensation Committee shall be the
      Committee. Members of the Committee shall serve for such period of time as
      the
      Board may determine and shall be subject to removal by the Board at any time.
      The Board may also at any time terminate the functions of the Committee and
      reassume all powers and authority previously delegated to the
      Committee.

     

    The
      Committee shall have membership composition which enables (i) Awards to Section
      16 Persons to qualify as exempt from liability under Section 16(b) of the
      Exchange Act and (ii) Awards to Covered Employees to qualify as
“performance-based compensation” as provided under Section 162(m) of the
      Code.

     

    The
      Board
      may also appoint one or more separate committees of the Board, each composed
      of
      two or more directors of the Company who need not qualify under Rule 16b-3
      or
      under Section 162(m) of the Code, that may administer the Plan with respect
      to
      Key Service Providers who are not Section 16 Persons or Covered Employees,
      respectively, may grant Awards under the Plan to such Key Service Providers
      and
      may determine all terms of such Awards.

     

    Notwithstanding
      the foregoing, the Board shall constitute the Committee and shall administer
      the
      Plan with respect to Non-Employee Directors, shall grant Awards under the Plan
      to such Non-Employee Directors, and shall determine all terms of such
      Awards.

     

    (c)       Authority
      of the Committee.
      Subject
      to the provisions of the Plan, the Committee shall have full authority and
      sole
      discretion to take any actions it deems necessary or advisable for the
      administration of the Plan. Such actions shall include:

     

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (i)      selecting
      Key Service Providers who are to receive Awards under the Plan;

    (ii)     determining
      the type, number, vesting requirements and other features and conditions of
      such
      Awards and amending such Awards;

    (iii)    correcting
      any defect, supplying any omission, or reconciling any inconsistency in the
      Plan
      or any Award agreement;

    (iv)    accelerating
      the vesting, or extending the post-termination exercise term, of Awards at
      any
      time and under such terms and conditions as it deems appropriate;

    (v)     interpreting
      the Plan;

    (vi)    making
      all other decisions relating to the operation of the Plan; and

    (vii)   adopting
      such plans or sub-plans as may be deemed necessary or appropriate to provide
      for
      the participation by Key Service Providers of the Company and its Subsidiaries
      and Affiliates who reside outside the U.S., which plans and/or sub-plans shall
      be attached hereto as Appendices.

     

    The
      Committee may adopt such rules or guidelines as it deems appropriate to
      implement the Plan. The Committee’s determinations under the Plan shall be final
      and binding on all persons.

     

    (d)       Indemnification.
      To the
      maximum extent permitted by applicable law, each member of the Committee, or
      of
      the Board, shall be indemnified and held harmless by the Company against and
      from (i) any loss, cost, liability, or expense that may be imposed upon or
      reasonably incurred by him or her in connection with or resulting from any
      claim, action, suit, or proceeding to which he or she may be a party or in
      which
      he or she may be involved by reason of any action taken or failure to act under
      the Plan or any Stock Option Agreement, SAR Agreement, Stock Grant Agreement
      or
      Stock Unit Agreement, and (ii) from any and all amounts paid by him or her
      in settlement thereof, with the Company’s approval, or paid by him or her in
      satisfaction of any judgment in any such claim, action, suit, or proceeding
      against him or her, provided he or she shall give the Company an opportunity,
      at
      its own expense, to handle and defend the same before he or she undertakes
      to
      handle and defend it on his or her own behalf. The foregoing right of
      indemnification shall not be exclusive of any other rights of indemnification
      to
      which such persons may be entitled under the Company’s Articles of
      Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or
      under
      any power that the Company may have to indemnify them or hold them
      harmless.

     

    SECTION
      4.       GENERAL.

     

    (a)       General
      Eligibility.
      Only
      Employees, Directors and Consultants shall be eligible for designation as Key
      Service Providers by the Committee, in its sole discretion.

     

    (b)       Incentive
      Stock Options.
      Only Key
      Service Providers who are common-law employees of the Company, a Parent or
      a
      Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Service
      Provider who is a 10-Percent Shareholder shall not be eligible for the grant
      of
      an ISO unless the requirements set forth in Section 422(c)(5) of the Code are
      satisfied.

     

     

    
      
        
        

      

      
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    (c)       Restrictions
      on Shares.
      Any
      Shares issued pursuant to an Award shall be subject to such rights of
      repurchase, rights of first refusal and other transfer restrictions as the
      Committee may determine, in its sole discretion. Such restrictions shall apply
      in addition to any restrictions that may apply to holders of Shares generally
      and shall also comply to the extent necessary with applicable law. In no event
      shall the Company be required to issue fractional Shares under the
      Plan.

     

    (d)       Beneficiaries.
      Unless
      stated otherwise in an Award agreement, a Participant may designate one or
      more
      beneficiaries with respect to an Award by timely filing the prescribed form
      with
      the Company. A beneficiary designation may be changed by filing the prescribed
      form with the Company at any time before the Participant’s death. If no
      beneficiary was designated or if no designated beneficiary survives the
      Participant, then after a Participant’s death any vested Award(s) shall be
      transferred or distributed to the Participant’s estate.

     

    (e)       Performance
      Conditions.
      The
      Committee may, in its discretion, include performance conditions in an Award.
      If
      performance conditions are included in Awards to Covered Employees, then such
      Awards may be subject to the achievement of Performance Goals established by
      the
      Committee. Such Performance Goals shall be established and administered pursuant
      to the requirements of Section 162(m) of the Code. Before any Shares underlying
      an Award or any Award payments subject to Performance Goals are released to
      a
      Covered Employee with respect to a Performance Period, the Committee shall
      certify in writing that the Performance Goals for such Performance Period have
      been satisfied. Awards with performance conditions that are granted to Key
      Service Providers who are not Covered Employees need not comply with the
      requirements of Section 162(m) of the Code.

     

    (f)       No
      Rights
      as a Shareholder.
      A
      Participant, or a transferee of a Participant, shall have no rights as a
      shareholder with respect to any Common Stock covered by an Award until such
      person has satisfied all of the terms and conditions to receive such Common
      Stock, has satisfied any applicable withholding or tax obligations relating
      to
      the Award and the Shares have been issued (as evidenced by an appropriate entry
      on the books of the Company or a duly authorized transfer agent of the
      Company).

     

    (g)       Termination
      of Service.
      Unless
      the applicable Award agreement or, with respect to Participants who reside
      in
      the U.S., the applicable employment agreement provides otherwise, the following
      rules shall govern the vesting, exercisability and term of outstanding Awards
      held by a Participant in the event of termination of such Participant’s Service
      (in all cases subject to the term of the Award as applicable): (i) upon
      termination of Service for any reason, all unvested portions of any outstanding
      Awards shall be immediately forfeited without consideration and the vested
      portions of any outstanding Stock Units shall be settled; (ii) if the Service
      of
      a Participant is terminated for Cause, then all unexercised Options and SARs,
      unvested portions of Stock Units and unvested portions of Stock Grants shall
      terminate and be forfeited immediately without consideration; (iii) if the
      Service of Participant is terminated for any reason other than for Cause, death,
      Retirement or Disability, then the vested portion of his/her then-outstanding
      Options/SARs may be exercised by such Participant or his or her personal
      representative within three (3) months after the date of such termination;
      or
      (iv) if the Service of a Participant is terminated due to death, Retirement
      or
      Disability, the vested portion of his/her then-outstanding Options/SARs may
      be
      exercised within twelve (12) months after the date of termination of
      Service.

     

     

    
      
        
        

      

      
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    (h)       Director
      Fees.
      Subject
      to the consent and approval by the Board, each Non-Employee Director may elect
      to receive a Stock Grant under the Plan in lieu of payment of a portion of
      his
      or her regular annual retainer based on the Fair Market Value of the Shares
      on
      the date any regular annual retainer would otherwise be paid. For purposes
      of
      the Plan, a Non-Employee Director’s regular annual retainer shall not include
      any additional retainer paid in connection with service on any committee of
      the
      Board or paid for any other reason. Such an election may be for any dollar
      or
      percentage amount equal to at least 25% of the Non-Employee Director’s regular
      annual retainer (up to a limit of 100% of the Non-Employee Director’s regular
      annual retainer). The election must be made prior to the beginning of the annual
      B cycle which shall be any twelve (12) month continuous period designated by
      the
      Board. Any amount of the regular annual retainer not elected to be received
      as a
      Stock Grant shall be payable in cash in accordance with the Company’s standard
      payment procedures. Shares granted under this Section 4(h) shall otherwise
      be
      subject to the terms of the Plan applicable to Non-Employee Directors or to
      Participants generally (other than provisions specifically applying only to
      Employees).

     

    SECTION
      5.       SHARES
      SUBJECT TO PLAN AND SHARE LIMITS.

     

    (a)       Basic
      Limitation.
      The
      stock issuable under the Plan shall be authorized but unissued Shares or Shares
      acquired by the Company. The aggregate number of Shares reserved for Awards
      under the Plan shall not exceed 2,200,000 Shares, subject to adjustment pursuant
      to Section 11, which includes the 950,000 Shares reserved for issuance under
      the
      Targeted Genetics Corporation 1999 Stock Option Plan immediately prior to the
      Plan’s approval by the Company shareholders. All of the Shares available for
      issuance under the Plan may be issued as Incentive Stock Options.

     

    (b)       Additional
      Shares.
      If
      Awards are forfeited or are terminated for any other reason before being
      exercised, then the Shares underlying such Awards shall again become available
      for Awards under the Plan. SARs shall be counted in full against the number
      of
      Shares available for issuance under the Plan, regardless of the number of Shares
      issued upon settlement of the SARs. In addition, if a stock option previously
      granted under the Targeted Genetics Corporation 1999 Stock Option Plan
      terminates, expires, or lapses for any reason, any Shares subject to such stock
      option shall again be available to be the subject of an Award under the
      Plan.

     

     

    
      
        
        

      

      
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    (c)       Dividend
      Equivalents.
      Any
      dividend equivalents distributed under the Plan shall not be applied against
      the
      number of Shares available for Awards.

     

    (d)       Share
      Limits.

     

    (i)       Limitation
      on Grants to Participants.
      Subject
      to adjustment as provided in Section 11 below, the maximum aggregate number
      of Shares that may be subject to Awards granted to any one person under the
      Plan
      for any Fiscal Year of the Company shall be 150,000 Shares, provided that such
      limitation shall be 500,000 Shares during the fiscal year of any person’s
      initial year of service with the Company.

     

    (ii)      Limits
      on
      Awards to Non-Employee Directors.
      Subject
      to adjustment pursuant to Section 11, no Non-Employee Director shall receive
      Awards during any Fiscal Year covering, in the aggregate, in excess of 50,000
      Shares; provided that any Shares received pursuant to an election under Section
      4(h) shall not count against such limit.

     

    SECTION
      6.       TERMS
      AND CONDITIONS OF OPTIONS.

     

    (a)       Stock
      Option Agreement.
      Each
      Grant of an Option under the Plan shall be evidenced and governed exclusively
      by
      a Stock Option Agreement between the Optionee and the Company. Such Option
      shall
      be subject to all applicable terms and conditions of the Plan and may be subject
      to any other terms and conditions that are not inconsistent with the Plan and
      that the Committee deems appropriate for inclusion in a Stock Option Agreement
      (including without limitation any performance conditions). The provisions of
      the
      various Stock Option Agreements entered into under the Plan need not be
      identical. The Stock Option Agreement shall also specify whether the Option
      is
      an ISO or an NSO.

     

    (b)       Number
      of
      Shares.
      Each
      Stock Option Agreement shall specify the number of Shares that are subject
      to
      the Option and shall be subject to adjustment of such number in accordance
      with
      Section 11.

     

    (c)       Exercise
      Price.
      An
      Option’s Exercise Price shall be established by the Committee and set forth in a
      Stock Option Agreement. The Exercise Price of an Option shall not be less than
      100% of the Fair Market Value (110% for ISO grants to 10-Percent Shareholders)
      on the date of Grant.

     

    (d)       Exercisability
      and Term.
      The
      Stock Option Agreement shall specify the term of the Option; provided that
      the
      term of an Option shall in no event exceed ten (10) years from the date of
      Grant. If not so established in the instrument evidencing the Option, the Option
      shall vest and become exercisable according to the following schedule, which
      may
      be waived or modified by the Committee at any time:

     

     

    
      
        
        

      

      
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              Period
                of Service

            	
              Percent
                Vested

            
	
               

              After
                3 months

               

            	
               

              6.25%
                of the Shares subject to the Option

               

            
	
               

              For
                each additional 3-month period thereafter

               

            	
               

              An
                additional 6.25% of the Shares subject to the Option

               

            
	
               

              After
                4 years

               

            	
               

              100%
                of the Shares subject to the Option

               

            

    

    

    A
      Stock
      Option Agreement may provide for accelerated vesting in the event of the
      Participant’s death, Disability, or other events. Notwithstanding any other
      provision of the Plan, no Option can be exercised after the expiration date
      provided in the applicable Stock Option Agreement and no Option may provide
      that, upon exercise of the Option, a new Option will automatically be
      granted.

     

    (e)       Modifications
      or Assumption of Options.
      Within
      the limitations of the Plan, the Committee may modify, extend or assume
      outstanding options or may accept the cancellation of outstanding options
      (whether granted by the Company or by another issuer) in return for the grant
      of
      new Options for the same or a different number of Shares, at the same or a
      different Exercise Price, and with the same or different vesting provisions.
      Notwithstanding the preceding sentence or anything to the contrary herein,
      the
      Committee may not Re-Price outstanding Options unless there is approval by
      the
      Company shareholders and no modification of an Option shall, without the consent
      of the Optionee, impair his or her rights or obligations under such
      Option.

     

    (f)       Assignment
      or Transfer of Options.
      Except
      as otherwise provided in the applicable Stock Option Agreement and then only
      to
      the extent permitted by applicable law, no Option shall be transferable by
      the
      Optionee other than by will or by the laws of descent and distribution. Except
      as otherwise provided in the applicable Stock Option Agreement, an Option may
      be
      exercised during the lifetime of the Optionee only by the Optionee or by the
      guardian or legal representative of the Optionee. No Option or interest therein
      may be assigned, pledged or hypothecated by the Optionee during his or her
      lifetime, whether by operation of law or otherwise, or be made subject to
      execution, attachment or similar process.

     

    SECTION
      7.       PAYMENT
      FOR OPTION SHARES.

     

    i)       Cash.
      The
      entire Exercise Price of Shares issued upon exercise of Options shall be payable
      in cash at the time when such Shares are purchased. 

     

    (b)       Surrender
      of Stock.
      To the
      extent provided for in the applicable Stock Option Agreement, payment for all
      or
      any part of the Exercise Price may be made with Shares which have already been
      owned by the Optionee; provided that the Committee may, in its sole discretion,
      require that Shares tendered for payment be previously held by the Optionee
      for
      a minimum duration. Such Shares shall be valued at their Fair Market
      Value.

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (c)       Cashless
      Exercise.
      To the
      extent provided for in the applicable Stock Option Agreement, payment for all
      or
      any part of the Exercise Price may be made through Cashless
      Exercise.

     

    (d)       Other
      Forms of Payment.
      To the
      extent provided for in the applicable Stock Option Agreement, payment for all
      or
      any part of the Exercise Price may be made in any other form that is consistent
      with Applicable Laws, regulations and rules and approved by the
      Committee.

     

    In
      the
      case of an ISO granted under the Plan, payment shall be made only pursuant
      to
      the express provisions of the applicable Stock Option Agreement. The Stock
      Option Agreement may specify that payment may be made in any form(s) described
      in this Section 7. In the case of an NSO granted under the Plan, the Committee
      may, in its discretion at any time, accept payment in any form(s) described
      in
      this Section 7.

     

    SECTION
      8.       TERMS
      AND CONDITIONS OF STOCK APPRECIATION RIGHTS.

     

    (a)       SAR
      Agreement.
      Each
      Grant of a SAR under the Plan shall be evidenced and governed exclusively by
      a
      SAR Agreement between the Participant and the Company. Such SAR shall be subject
      to all applicable terms and conditions of the Plan and may be subject to any
      other terms and conditions that are not inconsistent with the Plan and that
      the
      Committee deems appropriate for inclusion in a SAR Agreement (including without
      limitation any performance conditions). A SAR Agreement may provide for a
      maximum limit on the amount of any payout notwithstanding the Fair Market Value
      on the date of exercise of the SAR. The provisions of the various SAR Agreements
      entered into under the Plan need not be identical. SARs may be granted in
      consideration of a reduction in the Participant’s compensation.

     

    (b)       Number
      of
      Shares.
      Each SAR
      Agreement shall specify the number of Shares to which the SAR pertains and
      shall
      be subject to adjustment of such number in accordance with Section
      11.

     

    (c)       Exercise
      Price.
      Each SAR
      Agreement shall specify the Exercise Price which shall be established by the
      Committee. The Exercise Price of a SAR shall not be less than 100% of the Fair
      Market Value on the date of Grant.

     

    (d)       Exercisability
      and Term.
      The SAR
      Agreement shall specify the term of the SAR which shall not exceed ten (10)
      years from the date of Grant. Unless the applicable SAR Agreement provides
      otherwise, each SAR shall vest and become exercisable with respect to 25% of
      the
      Shares subject to the SAR upon completion of one year of Service measured from
      the vesting commencement date, the balance of the Shares subject to the SAR
      shall vest and become exercisable in thirty-six (36) equal installments upon
      completion of each month of Service thereafter, and the term of the SAR shall
      be
      ten (10) years from the date of Grant. A SAR Agreement may provide for
      accelerated vesting in the event of the Participant’s death, Disability, or
      other events. SARs may be awarded in combination with Options or Stock Grants,
      and such an Award shall provide that the SARs will not be exercisable unless
      the
      related Options or Stock Grants are forfeited. A SAR may be included in an
      ISO
      only at the time of Grant but may be included in an NSO at the time of Grant
      or
      at any subsequent time, but not later than six months before the expiration
      of
      such NSO. No SAR may provide that, upon exercise of the SAR, a new SAR will
      automatically be granted.

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (e)       Exercise
      of SARs.
      If, on
      the date when a SAR expires, the Exercise Price under such SAR is less than
      the
      Fair Market Value on such date but any portion of such SAR has not been
      exercised or surrendered, then such SAR shall automatically be deemed to be
      exercised as of such date with respect to such portion. Upon exercise of a
      SAR,
      the Participant (or any person having the right to exercise the SAR) shall
      receive from the Company (i) Shares, (ii) cash or (iii) any combination of
      Shares and cash, as the Committee shall determine at the time of Grant of the
      SAR, in its sole discretion. The amount of cash and/or the Fair Market Value
      of
      Shares received upon exercise of SARs shall, in the aggregate, be equal to
      the
      amount by which the Fair Market Value (on the date of exercise) of the Shares
      subject to the SARs exceeds the Exercise Price of the Shares.

     

    (f)       Modification
      or Assumption of SARs.
      Within
      the limitations of the Plan, the Committee may modify, extend or assume
      outstanding stock appreciation rights or may accept the cancellation of
      outstanding stock appreciation rights (including stock appreciation rights
      granted by another issuer) in return for the grant of new SARs for the same
      or a
      different number of Shares, at the same or a different Exercise Price, and
      with
      the same or different vesting provisions. Notwithstanding the preceding sentence
      or anything to the contrary herein, unless there is approval by the Company
      shareholders, the Committee may not Re-Price outstanding SARs and no
      modification of a SAR shall, without the consent of the Participant, impair
      his
      or her rights or obligations under such SAR.

     

    (g)       Assignment
      or Transfer of SARs.
      Except
      as otherwise provided in the applicable SAR Agreement and then only to the
      extent permitted by applicable law, no SAR shall be transferable by the
      Participant other than by will or by the laws of descent and distribution.
      Except as otherwise provided in the applicable SAR Agreement, a SAR may be
      exercised during the lifetime of the Participant only by the Participant or
      by
      the guardian or legal representative of the Participant. No SAR or interest
      therein may be assigned, pledged or hypothecated by the Participant during
      his
      or her lifetime, whether by operation of law or otherwise, or be made subject
      to
      execution, attachment or similar process.

     

    SECTION
      9.       TERMS
      AND CONDITIONS FOR STOCK GRANTS.

     

    (a)       Amount
      and Form of Awards.
      Awards
      under this Section 9 may be granted in the form of a Stock Grant. Each Stock
      Grant Agreement shall specify the number of Shares to which the Stock Grant
      pertains and shall be subject to adjustment of such number in accordance with
      Section 11. A Stock Grant may also be awarded in combination with NSOs, and
      such
      an Award may provide that the Stock Grant will be forfeited in the event that
      the related NSOs are exercised.

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (b)       Stock
      Grant Agreement.
      Each
      Stock Grant awarded under the Plan shall be evidenced and governed exclusively
      by a Stock Grant Agreement between the Participant and the Company. Each Stock
      Grant shall be subject to all applicable terms and conditions of the Plan and
      may be subject to any other terms and conditions that are not inconsistent
      with
      the Plan and that the Committee deems appropriate for inclusion in the
      applicable Stock Grant Agreement (including without limitation any performance
      conditions). The provisions of the various Stock Grant Agreements entered into
      under the Plan need not be identical.

     

    (c)       Payment
      for Stock Grants.
      Stock
      Grants may be issued with or without cash consideration or any other form of
      legally permissible consideration approved by the Committee.

     

    (d)       Vesting
      Conditions.
      Each
      Stock Grant may or may not be subject to vesting. Any such vesting provision
      may
      provide that Shares shall vest based on Service over time or shall vest, in
      full
      or in installments, upon satisfaction of performance conditions specified in
      the
      Stock Grant Agreement which may include Performance Goals pursuant to Section
      4(e). Unless the applicable Stock Grant Agreement provides otherwise, each
      Stock
      Grant shall vest with respect to 25% of the Shares subject to the Stock Grant
      upon completion of each year of Service on each of the first through fourth
      annual anniversaries of the vesting commencement date. A Stock Grant Agreement
      may provide for accelerated vesting in the event of the Participant’s death,
      Disability, or other events.

     

    (e)       Assignment
      or Transfer of Stock Grants.
      Except
      as provided in the applicable Stock Grant Agreement, and then only to the extent
      permitted by applicable law, a Stock Grant awarded under the Plan shall not
      be
      anticipated, assigned, attached, garnished, optioned, transferred or made
      subject to any creditor’s process, whether voluntarily, involuntarily or by
      operation of law. Any act in violation of this Section 9(e) shall be void.
      However, this Section 9(e) shall not preclude a Participant from designating
      a
      beneficiary who will receive any vested outstanding Stock Grant Awards in the
      event of the Participant’s death, nor shall it preclude a transfer of vested
      Stock Grant Awards by will or by the laws of descent and
      distribution.

     

    (f)       Voting
      and Dividend Rights.
      The
      holder of a Stock Grant awarded under the Plan shall have the same voting,
      dividend and other rights as the Company’s other shareholders. A Stock Grant
      Agreement, however, may require that the holder of such Stock Grant invest
      any
      cash dividends received in additional Shares subject to the Stock Grant. Such
      additional Shares subject to the Stock Grant shall be subject to the same
      conditions and restrictions as the Stock Grant with respect to which the
      dividends were paid. Such additional Shares subject to the Stock Grant shall
      not
      reduce the number of Shares available for issuance under Section 5.

     

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (g)       Modification
      or Assumption of Stock Grants.
      Within
      the limitations of the Plan, the Committee may modify or assume outstanding
      stock grants or may accept the cancellation of outstanding stock grants
      (including stock granted by another issuer) in return for the grant of new
      Stock
      Grants for the same or a different number of Shares and with the same or
      different vesting provisions. Notwithstanding the preceding sentence or anything
      to the contrary herein, no modification of a Stock Grant shall, without the
      consent of the Participant, impair his or her rights or obligations under such
      Stock Grant.

     

    SECTION
      10.       TERMS
      AND CONDITIONS OF STOCK UNITS.

     

    (a)       Stock
      Unit Agreement.
      Each
      grant of Stock Units under the Plan shall be evidenced and governed exclusively
      by a Stock Unit Agreement between the Participant and the Company. Such Stock
      Units shall be subject to all applicable terms and conditions of the Plan and
      may be subject to any other terms and conditions that are not inconsistent
      with
      the Plan and that the Committee deems appropriate for inclusion in the
      applicable Stock Unit Agreement (including without limitation any performance
      conditions). The provisions of the various Stock Unit Agreements entered into
      under the Plan need not be identical. Stock Units may be granted in
      consideration of a reduction in the Participant’s other
      compensation.

     

    (b)       Number
      of
      Shares.
      Each
      Stock Unit Agreement shall specify the number of Shares to which the Stock
      Unit
      Grant pertains and shall be subject to adjustment of such number in accordance
      with Section 11.

     

    (c)       Payment
      for Stock Units.
      Stock
      Units shall be issued without consideration.

     

    (d)       Vesting
      Conditions.
      Each
      Award of Stock Units may or may not be subject to vesting. Any such vesting
      provision may provide that Shares shall vest based on Service over time or
      shall
      vest, in full or in installments, upon satisfaction of performance conditions
      specified in the Stock Unit Agreement which may include Performance Goals
      pursuant to Section 4(e). Unless the applicable Stock Unit Agreement provides
      otherwise, each Stock Unit shall vest with respect to 25% of the Shares subject
      to the Stock Unit upon completion of each year of Service on each of the first
      through fourth annual anniversaries of the vesting commencement date. A Stock
      Unit Agreement may provide for accelerated vesting in the event of the
      Participant’s death, Disability, or other events.

     

    (e)       Voting
      and Dividend Rights.
      The
      holders of Stock Units shall have no voting rights. Prior to settlement or
      forfeiture, any Stock Unit awarded under the Plan may, at the Committee’s
      discretion, carry with it a right to dividend equivalents. Such right entitles
      the holder to be credited with an amount equal to all cash dividends paid on
      one
      Share while the Stock Unit is outstanding. Dividend equivalents may be converted
      into additional Stock Units. Settlement of dividend equivalents may be made
      in
      the form of cash, in the form of Shares, or in a combination of both. Prior
      to
      distribution, any dividend equivalents which are not paid shall be subject
      to
      the same conditions and restrictions as the Stock Units to which they
      attach.

     

     

    
      
        
        

      

      
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    (f)       Form
      and
      Time of Settlement of Stock Units.
      Settlement of vested Stock Units may be made in the form of (a) cash,
      (b) Shares or (c) any combination of both, as determined by the Committee
      at the time of the grant of the Stock Units, in its sole discretion. Methods
      of
      converting Stock Units into cash may include (without limitation) a method
      based
      on the average Fair Market Value of Shares over a series of trading days. Vested
      Stock Units may be settled in a lump sum or in installments. The distribution
      may occur or commence when the vesting conditions applicable to the Stock Units
      have been satisfied or have lapsed, or it may be deferred, in accordance with
      applicable law, to any later date. The amount of a deferred distribution may
      be
      increased by an interest factor or by dividend equivalents. Until an Award
      of
      Stock Units is settled, the number of such Stock Units shall be subject to
      adjustment pursuant to Section 11.

     

    (g)       Creditors’
      Rights.
      A holder
      of Stock Units shall have no rights other than those of a general creditor
      of
      the Company. Stock Units represent an unfunded and unsecured obligation of
      the
      Company, subject to the terms and conditions of the applicable Stock Unit
      Agreement.

     

    (h)       Modification
      or Assumption of Stock Units.
      Within
      the limitations of the Plan, the Committee may modify or assume outstanding
      stock units or may accept the cancellation of outstanding stock units (including
      stock units granted by another issuer) in return for the grant of new Stock
      Units for the same or a different number of Shares and with the same or
      different vesting provisions. Notwithstanding the preceding sentence or anything
      to the contrary herein, no modification of a Stock Unit shall, without the
      consent of the Participant, impair his or her rights or obligations under such
      Stock Unit.

     

    (i)       Assignment
      or Transfer of Stock Units.
      Except
      as provided in the applicable Stock Unit Agreement, and then only to the extent
      permitted by applicable law, Stock Units shall not be anticipated, assigned,
      attached, garnished, optioned, transferred or made subject to any creditor’s
      process, whether voluntarily, involuntarily or by operation of law. Any act
      in
      violation of this Section 10(i) shall be void. However, this Section 10(i)
      shall
      not preclude a Participant from designating a beneficiary who will receive
      any
      outstanding vested Stock Units in the event of the Participant’s death, nor
      shall it preclude a transfer of vested Stock Units by will or by the laws of
      descent and distribution.

     

    SECTION
      11.       PROTECTION
      AGAINST DILUTION.

     

    (a)       Adjustments.
      Subject
      to any action required under Applicable Laws by the holders of capital stock
      of
      the Company, (i) the numbers and class of Shares or other stock or securities:
      (x) available for future Awards under Section 5(a) above, (y) set forth in
      Section 5(d) above, and (z) covered by each outstanding Award, (ii) the Exercise
      Price of each outstanding Option, and (iii) any repurchase price per Share
      applicable to Shares issued pursuant to any Award, shall be proportionately
      adjusted by the Committee in the event of a stock split, reverse stock split,
      stock dividend, combination, consolidation, recapitalization (including a
      recapitalization through a large nonrecurring cash dividend) or reclassification
      of the Shares, subdivision of the Shares, a rights offering, a reorganization,
      merger, spin-off, split-up, change in corporate structure or other similar
      occurrence. Any adjustment by the Committee pursuant to this Section 11 shall
      be
      made in the Committee’s sole and absolute discretion and shall be final, binding
      and conclusive. Except as expressly provided herein, no issuance by the Company
      of shares of stock of any class, or securities convertible into shares of stock
      of any class, shall affect, and no adjustment by reason thereof shall be made
      with respect to, the number or Exercise Price of an Award. If, by reason of
      a
      transaction described in this Section 11 or an adjustment pursuant to this
      Section 11, a Participant’s Award agreement covers additional or different
      shares of stock or securities, then such additional or different shares, and
      the
      Award agreement in respect thereof, shall be subject to all of the terms,
      conditions and restrictions which were applicable to the Award prior to such
      adjustment. 

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (b)       Participant
      Rights.
      Except
      as provided in this Section 11, a Participant shall have no rights by reason
      of
      any issue by the Company of stock of any class or securities convertible into
      stock of any class, any subdivision or consolidation of shares of stock of
      any
      class, the payment of any stock dividend or any other increase or decrease
      in
      the number of shares of stock of any class. If by reason of an adjustment
      pursuant to this Section 11 a Participant’s Award covers additional or different
      shares of stock or securities, then such additional or different shares and
      the
      Award in respect thereof shall be subject to all of the terms, conditions and
      restrictions which were applicable to the Award and the Shares subject to the
      Award prior to such adjustment.

     

    (c)       Fractional
      Shares.
      Any
      adjustment of Shares pursuant to this Section 11 shall be rounded down to the
      nearest whole number of Shares. Under no circumstances shall the Company be
      required to authorize or issue fractional shares and no consideration shall
      be
      provided as a result of any fractional shares not being issued or
      authorized.

     

    SECTION
      12.       EFFECT
      OF A CORPORATE TRANSACTION.

     

    (a)       Corporate
      Transaction.
      In the
      event that the Company is a party to a Corporate Transaction, outstanding Awards
      shall be subject to the applicable agreement of merger, reorganization, or
      sale
      of assets. Such agreement may provide, without limitation, for the assumption
      or
      substitution of outstanding Options, SARs, or Stock Units by the surviving
      entity or its parent, for the assumption of outstanding Stock Grant Agreements
      by the surviving entity or its parent, for the replacement of outstanding
      Options, SARs, and Stock Units with a cash incentive program of the surviving
      entity which preserves the spread existing on the unvested portions of such
      outstanding Awards at the time of the transaction and provides for subsequent
      payout in accordance with the same vesting provisions applicable to those
      Awards, for accelerated vesting of outstanding Awards, or for the cancellation
      of outstanding Options, SARs, and Stock Units, with or without consideration,
      in
      all cases without the consent of the Participant. Notwithstanding the foregoing,
      if outstanding Options, SARs or Stock Units are not assumed, substituted, or
      replaced with a cash incentive program or any outstanding Stock Grant Agreements
      are not assumed pursuant to Section 12(a), then such Awards shall terminate
      upon
      the consummation of the Corporate Transaction; provided, however, that the
      Committee shall notify the Participant that the Award will terminate at least
      five (5) days prior to the date on which the Award terminates.

     

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (b)       Acceleration.
      The
      Committee may determine, at the time of grant of an Award or thereafter, that
      such Award shall become fully vested as to all Shares subject to such Award
      in
      the event that a Change in Control occurs. Unless otherwise provided in the
      applicable Award agreement, employment agreement or other applicable written
      agreement, in the event that a Change in Control occurs and any outstanding
      Awards held by a current Key Service Provider is to be terminated (in whole
      or
      in part) pursuant to the preceding paragraph, the vesting (and exercisability,
      if applicable) of each such Award shall accelerate such that the Award shall
      become vested (and exercisable, if applicable) in full prior to the consummation
      of the Change in Control at such time and on such conditions as the Committee
      shall determine. 

     

    SECTION
      13.       LIMITATIONS
      ON RIGHTS.

     

    (a)       No
      Entitlements.
      A
      Participant’s rights, if any, in respect of or in connection with any Award is
      derived solely from the discretionary decision of the Company to permit the
      individual to participate in the Plan and to benefit from a discretionary Award.
      By accepting an Award under the Plan, a Participant expressly acknowledges
      that
      there is no obligation on the part of the Company to continue the Plan and/or
      grant any additional Awards. Any Award granted hereunder is not intended to
      be
      compensation of a continuing or recurring nature, or part of a Participant’s
      normal or expected compensation, and in no way represents any portion of a
      Participant’s salary, compensation, or other remuneration for purposes of
      pension benefits, severance, redundancy, resignation or any other
      purpose.

     

    Neither
      the Plan nor any Award granted under the Plan shall be deemed to give any
      individual a right to remain an Employee, Consultant or Director of the Company,
      a Parent, a Subsidiary or an Affiliate. The Company and its Parent and
      Subsidiaries and Affiliates reserve the right to terminate the Service of any
      person at any time, and for any reason, subject to Applicable Laws, the
      Company’s Articles of
      Incorporation and
      Bylaws and a written employment agreement (if any), and such terminated person
      shall be deemed irrevocably to have waived any claim to damages or specific
      performance for breach of contract or dismissal, compensation for loss of
      office, tort or otherwise with respect to the Plan or any outstanding Award
      that
      is forfeited and/or is terminated by its terms or to any future
      Award.

     

    (b)       Shareholders’
      Rights.
      A
      Participant shall have no dividend rights, voting rights or other rights as
      a
      shareholder with respect to any Shares covered by his or her Award prior to
      the
      issuance of such Shares (as evidenced by an appropriate entry on the books
      of
      the Company or a duly authorized transfer agent of the Company). No adjustment
      shall be made for cash dividends or other rights for which the record date
      is
      prior to the date when such Shares are issued, except as expressly provided
      in
      Section 11.

     

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (c)       Issuance
      Requirements.
      Any
      other provision of the Plan notwithstanding, the obligation of the Company
      to
      issue Shares or other securities under the Plan shall be subject to all
      Applicable Laws, rules and regulations and such approval by any regulatory
      body
      as may be required. The Company reserves the right to restrict, in whole or
      in
      part, the delivery of Shares or other securities pursuant to any Award prior
      to
      the satisfaction of all legal requirements relating to the issuance of such
      Shares or other securities, to their registration, qualification or listing
      or
      to an exemption from registration, qualification or listing.

     

    SECTION
      14.       WITHHOLDING
      TAXES.

     

    (a)       General.
      A
      Participant shall make arrangements satisfactory to the Company for the
      satisfaction of any withholding tax obligations that arise in connection with
      his or her Award. The Company shall not be required to issue any Shares or
      make
      any cash payment under the Plan until such obligations are
      satisfied.

     

    (b)       Share
      Withholding. If
      a
      public market for the Company’s Shares exists, the Committee may permit a
      Participant to satisfy all or part of his or her withholding or income tax
      obligations by having the Company withhold all or a portion of any Shares that
      otherwise would be issued to him or her or by surrendering or attesting to
      all
      or a portion of any Shares that he or she previously acquired. Such Shares
      shall
      be valued based on the value of the actual trade or, if there is none, the
      Fair
      Market Value as of the previous day. Any payment of taxes by assigning Shares
      to
      the Company may be subject to restrictions, including, but not limited to,
      any
      restrictions required by rules of the SEC. The Committee may, in its discretion,
      also permit a Participant to satisfy withholding or income tax obligations
      related to an Award through Cashless Exercise or through a sale of Shares
      underlying the Award.

     

    SECTION
      15.       DURATION
      AND AMENDMENTS.

     

    (a)       Term
      of
      the Plan.
      The Plan
      shall become effective upon its adoption by the Board. It shall continue in
      effect for a term of ten (10) years unless sooner terminated under this Section
      15. If required by the Applicable Laws, continuance of the Plan shall be subject
      to approval by the holders of capital stock of the Company within twelve (12)
      months before or after the date the Plan is adopted or, to the extent required
      by Applicable Laws, any date the Plan is amended. Such approval shall be
      obtained in the manner and to the degree required under the Applicable
      Laws.

     

    (b)       Right
      to
      Amend or Terminate the Plan.
      The
      Board may amend or terminate the Plan at any time and for any reason. The
      termination of the Plan, or any amendment thereof, shall not impair the rights
      or obligations of any Participant under any Award previously granted under
      the
      Plan without the Participant’s consent. No Awards shall be granted under the
      Plan after the Plan’s termination. An amendment of the Plan shall be subject to
      the approval of the Company’s shareholders only to the extent such approval is
      otherwise required by Applicable Laws, regulations or rules. 

     

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    SECTION
      16.       ADDENDA.

     

    The
      Committee may approve such addenda to the Plan as it may consider necessary
      or
      appropriate for the purpose of granting Awards to Employees, Consultants or
      Directors, which Awards may contain such terms and conditions as the Committee
      deems necessary or appropriate to accommodate differences in local law, tax
      policy or custom, which, if so required under Applicable Laws, may deviate
      from
      the terms and conditions set forth in the Plan. The terms of any such addenda
      shall supersede the terms of the Plan to the extent necessary to accommodate
      such differences but shall not otherwise affect the terms of the Plan as in
      effect for any other purpose.

     

    SECTION
      17.       SEVERABILITY.

     

    If
      any
      provision of the Plan or any Award is determined to be invalid, illegal or
      unenforceable in any jurisdiction, or as to any person, or would disqualify
      the
      Plan or any Award under any law deemed applicable by the Committee, such
      provision shall be construed or deemed amended to conform to Applicable Laws,
      or, if it cannot be so construed or deemed amended without, in the Committee’s
      determination, materially altering the intent of the Plan or the Award, such
      provision shall be stricken as to such jurisdiction, person or Award, and the
      remainder of the Plan and any such Award shall remain in full force and
      effect.

     

    SECTION
      18.       EXECUTION.

     

    To
      record
      the adoption of the Plan by the Board, the Company has caused its duly
      authorized officer to execute the Plan on behalf of the Company.

    
      	 	 	 
	 	TARGETED
              GENETICS CORPORATION
	 
 	 
 	 
 
	 	By:	/s/ David
              J.
              Poston
	 	
              Title:

            	
              
                

              

               

              Vice
                President, Finance and Chief Financial Officer

            
	 	 	
              

            

    

     

    

    

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    

    
      	 	
              TABLE
                OF CONTENTS

               

            	
              Page

            
	 	 	 
	
              SECTION
                1.

            	
              INTRODUCTION

            	
              1

            
	 	 	 
	
              SECTION
                2.

            	
              DEFINITIONS

            	
              1

            
	 	 	 
	
              SECTION
                3.

            	
              ADMINISTRATION

            	
              7

            
	 	 	 
	
              SECTION
                4.

            	
              GENERAL

            	
              8

            
	 	 	 
	
              SECTION
                5.

            	
              SHARES
                SUBJECT TO PLAN AND SHARE LIMITS

            	
              10

            
	 	 	 
	
              SECTION
                6.

            	
              TERMS
                AND CONDITIONS OF OPTIONS

            	
              11

            
	 	 	 
	
              SECTION
                7.

            	
              PAYMENT
                FOR OPTION SHARES

            	
              12

            
	 	 	 
	
              SECTION
                8.

            	
              TERMS
                AND CONDITIONS OF STOCK APPRECIATION RIGHTS

            	
              13

            
	 	 	 
	
              SECTION
                9.

            	
              TERMS
                AND CONDITIONS FOR STOCK GRANTS.

            	
              14

            
	 	 	 
	
              SECTION
                10.

            	
              TERMS
                AND CONDITIONS OF STOCK UNITS

            	
              16

            
	 	 	 
	
              SECTION
                11.

            	
              PROTECTION
                AGAINST DILUTION

            	
              17

            
	 	 	 
	
              SECTION
                12.

            	
              EFFECT
                OF A CORPORATE TRANSACTION

            	
              18

            
	 	 	 
	
              SECTION
                13.

            	
              LIMITATIONS
                ON RIGHTS

            	
              19

            
	 	 	 
	
              SECTION
                14.

            	
              WITHHOLDING
                TAXES

            	
              20

            
	 	 	 
	
              SECTION
                15.

            	
              DURATION
                AND AMENDMENTS

            	
              20

            
	 	 	 
	
              SECTION
                16.

            	
              ADDENDA

            	
              21

            
	 	 	 
	
              SECTION
                17.

            	
              SEVERABILITY

            	
              21

            
	 	 	 
	
              SECTION
                18.

            	
              EXECUTION

            	
              21

            

    

    

    

    
      
        
        

      

      
        i

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