Document:

Exhibit 10.2 

“[ * ]” = Portions of this
exhibit have been omitted pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission or SEC. The omitted portions of this exhibit have been
filed separately with the SEC. 

AMENDMENT NO. 3 TO

INDUSTRIAL COLLABORATION AGREEMENT 

        THIS
AMENDMENT TO INDUSTRIAL COLLABORATION AGREEMENT is made the 24th day of
December, 2003 by and among INTERNATIONAL AIDS VACCINE INITIATIVE, INC., a Delaware
not-for-profit corporation with its principal offices at 110 William Street, 27th Floor,
New York, New York 10038 (hereinafter referred to as “IAVI”), CHILDREN’S
RESEARCH INSTITUTE, a not-for-profit corporation with its principal offices at 700
Children’s Drive, Columbus, Ohio 43205 (hereinafter referred to as
“Children’s”), and TARGETED GENETICS CORPORATION, a Washington corporation
with its principal offices at 1100 Olive Way, Suite 100, Seattle, Washington 98101
(hereinafter referred to as “TGC”). 

        WHEREAS,
IAVI, Children’s and TGC entered into an Industrial Collaboration Agreement, dated as
of February 1, 2000, which was amended on March 14, 2003 and August 1, 2003 (collectively,
the “Agreement”); and 

        WHEREAS,
the parties desire to extend the expiration date of the Agreement and the period of
performance for the Research and Development Program thereunder from January 1, 2004 to
December 31, 2006 in accordance with the terms and conditions hereinafter set forth; and; 

        WHEREAS,
the parties desire to provide for a supplemental agreement for the supply of Program
Vaccines to cover the period up to Phase III clinical trials; and 

        NOW,
THEREFORE, in consideration of the foregoing premises, the parties hereto agree as
follows:  

        1.
  Unless otherwise provided herein, all defined terms utilized in this Amendment shall have
the same meanings as set forth in the Agreement.  

        2.  Section
1(e) of the Agreement is hereby amended after the words “Program           Inventions” to
insert the following:  

	  	
“on
a Program Vaccine in the Program Field” 

        
3.  Section
1(o) of the Agreement is hereby amended to insert the following sentence
          between the fourth and final sentences of the paragraph:  

	  	
“Year
5” will run from January 1, 2004 through December 31, 2004. Year 6 will run from
January 1, 2005 to December 32, 2005, and year 7 shall run from January 1, 2006 to
December 31, 2006.  

        
4.  Section
2(b) of the Agreement is hereby amended to add at the end thereof the           following
sentence:  

2 

	  	
The
amount of Collaboration Payments to be made with respect to Year 5 will be prepared and
agreed upon in accordance with the Work Plan and Budget, on the basis of the TGC
Accounting Method and presented in a manner substantially consistent with the Work Plan
and Budget set forth in Attachment C-5 of Amendment No. 3 to this Agreement. A new
budget and work plan will be agreed upon by or before the ninth month of project year 5
for project year 6 and by or before the ninth month of project year 6 for project year 7.
Within [ * ] days from the effective date of this Amendment IAVI shall provide the
parties a draft term sheet for review. Within [ * ] days from the receipt of the draft
term sheet the parties agree in good faith to negotiate and enter into a new Agreement
that will supersede all previous Agreements. IAVI agrees that although a new Agreement
shall be negotiated and executed in 2004, the FTE rate and manufacturing rated stated in
the TGC accounting Method, Attachment D-2, of Amendment No. 3 shall remain in effect for
the entire 2004 project year. If the parties fail to reach mutual agreement on terms of a
new Agreement and therefore, do not fully execute a new Agreement within [ * ] of receipt
of the draft term sheet then IAVI may exercise its termination right as stated in Section
6(c) of the Agreement by providing TGC and Children’s with a written (90) day notice
of termination. IAVI agrees to fund the budget amount in the Work Plan and Budget for
2004, relating to TGC’s and Children’s facility and staff costs during the 90
day notice period.  

        
5.  Section
4 of the Agreement is hereby amended by deleting “Year 4” and
          replacing it with “Year 7".  

        
6.  The
Agreement is hereby amended to add Attachment D-2 annexed hereto as the TGC
          Accounting Method.  

        
7.  Section
11(a) of the Agreement is hereby amended to insert before the last           sentence of
the paragraph the following:  

	  	
The
parties agree that any Program Vaccine comparative studies will be conducted only with
the unanimous consent of the Project Management Committee.  

        
8.  Section
11A is hereby added between Section 11 and 12 in the Agreement as           follows:  

	  	
CLINICAL
MATERIALS. IAVI and TGC shall enter into the Clinical Supply Agreement attached hereto as
Attachment E. Children’s shall sign the Clinical Supply Agreement solely to
acknowledge that it comprises part of this Agreement.  

3 

      
  9.  Section
13 of the Agreement is hereby amended to insert the following sentence           between
the first and second sentences of the paragraph:  

	  	
TGC
and IAVI shall each maintain product liability insurance with coverage of at least
$5,000,000 each occurrence/ $5,000,000 annual aggregate for domestic trials and TGC shall
maintain at least the statutory minimum levels of product liability insurance for
international trials with Program Vaccines. IAVI shall reimburse TGC for the incremental
costs of procuring any insurance coverage covering IAVI trials of Program Vaccines. TGC
shall name IAVI and Children’s as additional insured parties with respect to product
liability insurance for IAVI clinical trials of Program Vaccines and IAVI shall name TGC
and Children’s as additional insured parties with respect to product liability
insurance for IAVI clinical trials of Program Vaccines.  

        
10.  Last
sentence of Section 16 of the Agreement is hereby amended by deleting           “3” and
replacing it with “2".  

        
11.  Attachment
C of the Agreement is hereby amended to add Attachment C-5          annexed hereto
as the Work Plan and Budget for Year 5 (as defined below).  

        
12.  The
Agreement is hereby amended to add Attachment E annexed hereto as the
          Clinical Supply Agreement.  

        
13.  The
parties hereby agree to negotiate a Letter Amendment within 90 days of the
          effective date of this Amendment, as necessary and as mutually agreed upon by
          all parties, that addresses IAVI monies [ * ] and the use of these funds in
          funding the Research and Development Program. All monies to fund Children’s
          work conducted under the 2004 Work Plan shall be paid directly to
          Children’s and shall consist of [ * ] funds only to the extent agreed upon
          in the Letter Amendment. All monies necessary to fund TGC work under the 2004
          Work Plan shall be paid directly to TGC, and shall consist of [ * ] funds only
          to the extent agreed upon in the Letter Amendment. IAVI agrees that it shall
use           funds [ * ] to fund the Research and Development Program as governed by and
          allowed for by the provisions of the grant between IAVI and [ * ] and that
funds           disallowed under [ * ] which are required to fund the work plan and
budget for           2004 shall be provided by IAVI from other funding sources.  

        
14.  Except
as specifically modified or amended hereby, the Agreement shall remain in           full
force and effect. No oral promise, covenant or representation of any           character
or nature has been made to induce any party to enter into this           Amendment. No
provision of this Amendment may be modified or amended except           expressly in a
writing signed by all parties nor shall any term be waived except           expressly in
a writing signed by the party charged therewith. This Amendment           shall be
governed in accordance with the laws of the State of New York, without           regard
to principles of conflicts of laws.  

[Intentionally Left Blank] 

4 

        IN
WITNESS WHEREOF, the parties hereto have signed this Amendment on the day and year first
above written. 

	  	
INTERNATIONAL AIDS VACCINE INITIATIVE, INC.

By:  
/s/ Seth Berkley, M.D.        
            

         Name:  Seth Berkley, M.D.

         Title:   President and CEO

TARGETED GENETICS CORPORATION

By:  

/s/ H. Stewart Parker         
              

         Name:  H. Stewart Parker

         Title:   President and CEO

CHILDREN'S RESEARCH INSTITUTE

By:  
/s/ Daniel Mann           
                    

         Name:   Daniel Mann

         Title:   Vice President 

Acknowledged with respect to

the Research and Development Program

/s/ Dr. Philip R. Johnson       
          

Dr. Philip R. Johnson
 

5 

ATTACHMENT C-5 

WORK PLAN AND BUDGET 

     [*]

ATTACHMENT D-2 

TGC ACCOUNTING METHOD 

     [*]

Attachment E

CLINICAL SUPPLY AGREEMENT 

        THIS
CLINICAL SUPPLY AGREEMENT (the “Supply Agreement”) is made effective as of
the 24th day of December 2003 (the “Effective Date”) by and among the
INTERNATIONAL AIDS VACCINE INITIATIVE, INC., a Delaware not-for-profit corporation with
its principal offices at 110 William Street, 27th Floor, New York, New York 10038
(hereinafter referred to as “IAVI”) and TARGETED GENETICS CORPORATION, a
Washington corporation with its principal offices at 1100 Olive Way, Suite 100, Seattle,
Washington 98101 (hereinafter referred to as “TGC”). TGC and IAVI are sometimes
referred to herein individually as a “Supply Party” and collectively as the
“Supply Parties.” 

Recitals 

        1.   The
Supply Parties have entered into a certain Industrial Collaboration           Agreement
(the “Agreement”), pursuant to which the Supply Parties will
          collaborate to develop a vaccine against HIV, on terms and conditions set forth
          more fully therein. Unless otherwise defined herein, all defined terms utilized
          in this Supply Agreement shall have the same meanings as set forth in the
          Agreement.  

        
2.   IAVI
as the Sponsor of certain clinical trials wishes to have all of its
          requirements for clinical supply of the Program Vaccine (the “Clinical
          Vaccine”) from TGC on an exclusive basis, and TGC wishes to manufacture
and           supply to IAVI all of its requirements for the Clinical Vaccine on an
exclusive           basis, under the terms and conditions set forth herein.  

        
3.   Children’s
Research Institute, a not-for-profit corporation with its           principal offices at
700 Children’s Drive, Columbus, Ohio 43205           (hereinafter referred to as
“Children’s”) is also a Party to the           Agreement and collaborates
with the Supply Parties defined herein to develop a           vaccine against HIV.
Children’s obligations and rights are set forth in the           Agreement.  

        In
consideration of the promises and of the mutual covenants and obligations set forth
herein, the Supply Parties agree as set out below. 

ARTICLE 1 

DEFINITIONS  

        The
following capitalized terms shall have the following meanings when used in this Supply
Agreement. Unless otherwise expressly provided, section references are to sections of this
Supply Agreement. 

        1.1
  “Affiliate” means any individual, corporation, association or other
business entity which directly or indirectly controls, is controlled by or is under common
control with the Supply Party in question. As used in this definition of
“Affiliate,” the term “control” means the direct or indirect ownership
of more than fifty percent (50%) of the stock having the right to vote for directors
thereof or the ability to otherwise control the management of the corporation or other
business entity whether through the ownership of voting securities, by contract,
resolution, 

-1- 

regulation or otherwise;  provided,
 however,  that the term "Affiliate"  shall not include subsidiaries or other entities in
which a Supply Party or its Affiliates owns a majority of the ordinary voting power
necessary to elect a majority of the board of directors or other governing body, but is
restricted from electing such majority by contract or otherwise until the time such
restrictions are no longer in effect. 

        1.2
   “Agreement”  means the Industrial Collaboration Agreement, dated February
1, 2000, by and between TGC, Children’s and IAVI, and as amended from time to time. 

        1.3
  “Applicable Laws” means all laws, statutes, ordinances, codes, rules and
regulations which have been enacted by a Government Authority and are in force as of the
Effective Date or come into force during the term of this Supply Agreement, in each case
to the extent that the same are applicable to the performance by the Supply Parties of
their respective obligations under this Supply Agreement. For purposes of this Supply
Agreement, GLP and GMP shall be deemed to be within the term “Applicable Laws.” 

        1.4
  “Approval Application” means any application necessary and appropriate to
obtain a Regulatory Approval, together with all required documents, data and information
concerning a Clinical Vaccine that is the subject of such application. 

        1.5
  “Clinical Vaccine”  means any Program Vaccine manufactured under this
Supply Agreement and intended for use in [ * ]. 

        1.6
  “Commercial Agreement”    shall have the meaning set forth in Section 3.2. 

        1.7
  “Commercial Vaccine”  means any Program Vaccine to be used in (i) [ * ],
or (ii) which has received Regulatory Approval. 

        1.8
  “Control” means, with respect to intellectual property, that the Supply
Party named as having Control owns such intellectual property, or otherwise possesses the
ability to grant a license or sublicense under such intellectual property without
violating the terms of any agreement or other arrangement with a Third Party. 

        1.9
  “Effective Date” shall have the meaning set forth in the first paragraph
of this Supply Agreement. 

        1.10
  “FDA” means the United States Food and Drug Administration, and any
successor thereto. 

        1.11
  “FFDCA”   means the Federal  Food,  Drug,  and Cosmetic  Act, 21 U.S.C.ss. 321 et seq., as
amended from time to time. 

        1.12
  “GLP” means current good laboratory practices equivalent to those
applicable in the United States and Europe and in effect from time to time during the term
of this Supply Agreement. 

-2- 

        1.13
  “GMP” means current good manufacturing practices equivalent to those
applicable in the United States and Europe and in effect from time to time during the term
of this Supply Agreement. 

        1.14
  “Government Authority” means any supranational, national, regional, state
or local government, court, governmental agency, authority, board, bureau, instrumentality
or regulatory body. 

        1.15
  “Order”  means a written description, delivered by IAVI to TGC no less
than [ * ] in advance of the delivery date specified in the order and accepted or modified
by TGC within [ * ]of its receipt, of Program Vaccines to be supplied for clinical testing
that will cover details of the required preparation including but not limited to
identification of Clinical Vaccine, batch number, concentrations to be prepared, type and
number of vials, labeling, and shipping instructions. 

        1.16
  “Outside Contractor” means any Person contracted by TGC or IAVI to
provide products or services, including, without limitation, clinical trials and
regulatory services, which are material to the performance of its responsibilities under
the Agreement or which result in any work product or other information that TGC or IAVI
would include or might reasonably be expected to include in any document or report,
including, without limitation, an Approval Application, submitted to a Government
Authority or be subject to review by a Government Authority, including, without
limitation, the FDA. Without limiting the foregoing, the term “Outside
Contractor” shall include any Person contracted by TGC or IAVI whose acts or
omissions in connection with its assumption of any obligation of TGC or IAVI under this
Supply Agreement, would be imputed to, and would therefore be considered the acts or
omissions of TGC or IAVI pursuant to FFDCA or by a Government Authority, including,
without limitation, the FDA. 

        1.17
  “Person” means any person or legal entity. 

        1.18   “Reasonable
Commercial Efforts” means, with respect to the efforts to be expended by any
Person with respect to any objective, reasonable, diligent, good faith efforts to
accomplish such objective as such Person would normally use to accomplish a similar
objective under similar circumstances. With respect to any objective relating to the
commercialization of a product by any Person, “Reasonable Commercial Efforts”
means efforts and resources normally used by such Person with respect to a product owned
by such Person or to which such Person has similar rights which is of similar market
potential at a similar stage in the development or life of such product, taking into
account issues of safety, efficacy, product profile, the competitiveness of the
marketplace, the proprietary position of the product, the regulatory structure involved,
profitability of the product and other relevant commercial factors. 

        1.19
  “Regulatory Approval” means, with respect to a nation or, where
applicable, a multinational jurisdiction, any approvals, licenses, registrations or
authorizations necessary for the manufacture, clinical trials, marketing and sale of a
Program Vaccine in such nation or such jurisdiction. 

-3- 

        1.20
  “Standards and Specifications” means a list of tests, references to
analytical procedures or methods, investigations, quality release and acceptance criteria
that are numerical limits, ranges, or other criteria for the quality release of Clinical
Vaccine which will be defined by TGC and reviewed and approved by IAVI and modified as
required with the written approval of both Supply Parties. 

        1.21
  “Third Party” means any Person other than TGC or IAVI or their respective
Affiliates. 

ARTICLE 2

CLINICAL SUPPLY  

        2.1
  Clinical Vaccine Supply. TGC shall maintain the Standards and Specifications and
related records by which Clinical Vaccine will be manufactured, filled, packaged, tested,
stored and shipped. All Clinical Vaccine Orders shall meet the Standards and
Specifications set by TGC and agreed to by IAVI. TGC shall supply to IAVI, IAVI’s
total requirements of Clinical Vaccine for use in the clinical trials to be conducted by
IAVI pursuant to Approval Applications, Regulatory Approvals, and the written consent of
the Project Management Committee. TGC shall manufacture all Clinical Vaccine to be
supplied by TGC to IAVI under this Section 2.1. The Work Plan and Budget for each year of
the Research and Development Program shall set forth the general quantities, manufacturing
schedules and the cost to manufacture the Clinical Vaccine that will be necessary to
conduct clinical trials that are the subject of Approval Applications. Lot failures that
occur during manufacturing or manufactured lots that do not meet the Standards and
Specifications will result in a modification of the Work Plan and Budget to enable
additional manufacturing runs to meet the Clinical Vaccine needs of the program. TGC,or
its designated Outside Contractors, will prepare and package clinical test materials
according to the Order for the Clinical Vaccine. TGC shall ensure that adequate samples of
each Order are retained and stored by TGC as reserved quality control samples. 

        2.2
  Clinical Vaccine Production Records. TGC shall maintain and make available to IAVI
for review, and shall cause its Affiliates, Contract Manufacturers, Outside Contractors
and other agents to maintain and make available to IAVI for review, all records necessary
to comply with all Applicable Laws relating to the manufacture, filling, packaging,
testing, storage and shipment of Clinical Vaccine. All such records shall be maintained
for such period as may be required by Applicable Laws; provided,
however, that all records relating to the manufacture, stability and
quality control of Clinical Vaccine shall be retained until the Parties agree to dispose
of such records. 

        2.3
  Clinical Vaccine Warranty. TGC represents and warrants that, at the time of
shipment of any Clinical Vaccine to IAVI, such Clinical Vaccine (i) will have been
manufactured, filled, packaged, stored and shipped in accordance with applicable
Regulatory Approvals and all Applicable Laws, and (ii) will not be adulterated or
misbranded under the FFDCA, or under any other Applicable Laws. TGC further represents and
warrants that it shall obtain and maintain, and use Reasonable Commercial Efforts to cause
its Affiliates and Outside Contractors to obtain and maintain, all necessary facility
licenses, permits or approvals required by Applicable Laws in connection with the
manufacture, filling, packaging, testing, and storage, of each such Clinical Vaccine,
including, without limitation, permits related to manufacturing facilities, and (iii) will
meet all Standards and Specifications set for the Clinical Vaccine and (iv) 

-4- 

the batch records and the results of
the quality tests have been reviewed and approved by the authorized manufacturing person
at TGC. 

        2.4
  Clinical Vaccine Delivery. The Clinical Vaccine will be shipped by TGC in bulk form
or finished form as specified in the Work Plan and Budget and confirmed in the Order.
Prior to each shipment of Clinical Vaccine, TGC shall perform quality control testing and
quality assurance review on Clinical Vaccine according to the defined Standards and
Specifications. Concurrent with shipment of the Clinical Vaccine, TGC shall deliver to
IAVI a final certificate of analysis which describes the compliance of Clinical Vaccine
with the defined Standards and Specifications. TGC shall package all items in suitable
containers to permit safe transportation and handling. Each shipped container will be
labeled and marked to identify its contents without having to be opened, and all boxes and
packages must contain packing sheets listing the contents. IAVI shall bear [ * ]
associated with the shipping and delivery of Clinical Vaccines to IAVI or its designated
sites. 

        2.5
  Post TGC Inspection. IAVI shall have the right to inspect, analyze and test samples
from each batch of Clinical Vaccine for safety parameters and product identity within [ *
]days of its receipt of same in order to verify that Clinical Vaccine conforms to the
Product warranties [ * ]of this Supply Agreement, provided however, that any safety or
product identity testing, including tests for potency or strength shall be conducted by
qualified vendors approved by TGC. 

        2.6
  Notice of Defects. IAVI shall promptly, following its inspection of any Clinical
Vaccine, notify TGC of any defects therein. If IAVI fails to inspect, analyze and test
samples from any batch of Clinical Vaccine or, if it inspects, analyzes or tests such
batch but fails to notify TGC of defects therein, in each case within [ * ]of its receipt
of the same, it shall be deemed to have irrevocably accepted such Clinical Vaccine. To the
extent that IAVI notifies TGC of defects in any Clinical Vaccine, it shall be deemed to
have irrevocably accepted the Clinical Vaccine other than as to those defects specifically
set forth in such notice. For purposes of this Agreement, Clinical Vaccine shall be
“defective” or have “defects” only to the extent that it fails to
conform to [ * ]this Supply Agreement. Any notice by IAVI of any defects in a batch of
Clinical Vaccine shall specify in reasonable detail how it fails to conform with [ * ]this
Supply Agreement. TGC and IAVI agree to collaborate on any investigation of defective
Clinical Vaccine. 

        2.7
  Defective Clinical Vaccine. Following IAVI’s notification to TGC that a batch
of Clinical Vaccine is defective, IAVI shall continue to hold such batch until it receives
notice from TGC directing it to do otherwise. If TGC does not give IAVI notice to ship,
continue to hold or dispose of such batch within [ * ]of receipt by TGC of IAVI’s
notice to TGC of defects in such batch, IAVI may dispose thereof. If TGC notifies IAVI,
within such [ * ]period, to return such batch to TGC, to continue to hold or to dispose of
such batch, IAVI shall comply with such directions from TGC. If the Clinical Vaccine is
found to be defective as indicated by IAVI in its notice to TGC following the conduct of a
collaborative investigation by TGC and IAVI, and the Clinical Vaccine is found to be
defective due to [ * ]TGC, then TGC shall reimburse IAVI for all reasonable costs and
expenses incurred by IAVI to ship the batch of defective Clinical Vaccine to TGC or to
otherwise dispose of such Clinical Vaccine. 

-5- 

        2.8
  Notice of Defects Dispute. If TGC does not agree that the Clinical Vaccine, which
is the subject of the Notice of Defect, is defective, then IAVI must provide evidence to
The Project Management Committee regarding the validity of the testing performed on the
Clinical Vaccine. If TGC still does not agree that the Clinical Vaccine is defective, then
IAVI shall consent to additional testing by a third party agreed upon in writing by The
Project Management Committee. If the results of the third party testing show that the
Clinical Vaccine is defective then TGC and IAVI shall collaborate on an investigation to
determine the cause of the defect. 

        2.9
  Correction and Replacement. If the cause of a Clinical Vaccine defect, following an
investigation, is found to be due to [ * ]TGC then TGC may, at its election, replace such
batch of Clinical Vaccine ,at its cost, with another batch of identical quantity and a
quality that conforms with [ * ]this Supply Agreement or, if TGC elects to have IAVI
return to it any batch of defective Clinical Vaccine, TGC may correct such Clinical
Vaccine as may be necessary to ensure that such batch no longer has the defects indicated
in the notice provided by IAVI. If TGC corrects or replaces any batch of Clinical Vaccine,
it shall ship such batch as corrected or replaced to IAVI by a route and carrier of
TGC’s choice, at its own cost and expense. Title to and risk of loss of, and damage
to, the corrected or replaced batch of Clinical Vaccine shall pass upon delivery thereof
to IAVI at the location for delivery. If as a result of an investigation it is determined
by the Supply Parties that the cause of the defect in the Clinical Vaccine is not a result
of [ * ] TGC, then [ * ]. The appropriate correction or replacement activities necessary
to supply Clinical Vaccine to meet the applicable Order will be decided upon in writing by
The Project Management Committee and will be reflected in modifications to the Work Plan
and Budget. 

        2.10
  Recall. TGC and IAVI agree to collaborate on any recall of Clinical Vaccine.  

        2.11
  Damages. If TGC receives notice that a batch of Clinical Vaccine is defective and
as a result of a collaborative investigation it is determined the defect is due to [ * ]
TGC, then if TGC fails to deliver a corrected or replaced batch of Clinical Vaccine,
within a period of time agreed upon by the Project Management Committee for delivery of a
corrected or replaced batch then, TGC shall pay the cost of materials and TGC’s
service for manufacture in lieu of correcting or replacing such batch. If TGC notifies
IAVI in writing that TGC will not deliver a corrected or replaced batch of Clinical
Vaccine and will not pay the cost of materials and TGC’s service for manufacture to
IAVI with respect to a batch of Clinical Vaccine, then TGC and IAVI shall collaborate to
resolve filling the defective order. If a reasonable, mutually agreeable resolution is not
reached, then IAVI may operate under [ * ] the Agreement to the extent consistent with the
terms of such [ * ]. 

        2.12
  Distribution of Clinical Vaccine. TGC and IAVI agree to advise the other of any
clinical studies planned with the Clinical Vaccines. No Clinical Vaccines provided by TGC
to IAVI shall be supplied or sent by IAVI to any Third Party, other than those contained
in the appropriate Approval Application, without the unanimous written consent of the
members of The Project Management Committee, except that IAVI may transfer Clinical
Vaccine to IAVI’s Outside Contractors who are performing services specified in the
applicable Work Plan and Budget, Order or Approval Application. 

-6- 

ARTICLE 3

CLINICAL VACCINE MANUFACTURE  

        3.1
  Establishment of Supply Source.  TGC and IAVI agree that TGC will manufacture each
Clinical Vaccine to be supplied by TGC to IAVI under Section 2.1 and Section 2.2 at
TGC’s facilities within the greater metropolitan area of Seattle, Washington. TGC
agrees to provide the IAVI Quality Assurance Manager, as set forth in Section 7.5, advance
written notice of any plans to manufacture Clinical Vaccine at non-TGC facilities or at
TGC facilities outside of the greater metropolitan area of Seattle, Washington. 

        3.2
  Commercial Agreement.  Prior to initiation of Phase III clinical trials of any
Clinical Vaccine, TGC and IAVI shall enter into a mutually acceptable Phase III Clinical
Trials And Commercial Supply Agreement (“Commercial Agreement”), which shall be
subject to Children’s acknowledgement, which acknowledgement shall not be
unreasonably withheld. 

        3.3
  Manufacturing Process Events. Following review by TGC quality assurance personnel of
a manufactured batch of Clinical Vaccine, TGC shall report in writing to IAVI’s
Quality Assurance Manager any out-of-specification event or significant deviation that
occurs during the manufacture or testing of any Clinical Vaccine, which event may affect
the safety, efficacy or GMP compliance of such Clinical Vaccine, and when appropriate,
disposing of any affected Clinical Vaccine. IAVI shall also have the right to review
manufacturing documents as described in Article 2.2. 

        3.4
  IAVI Inspection. TGC shall permit IAVI representatives to enter TGC’s
facilities upon reasonable prior notice and at reasonable intervals, but no more
frequently than [ * ] unless a report is made related to notice of defects covered in
Section 2.6 or manufactured process events covered in Section 3.3, during normal business
hours for the purpose of making quality assurance audits of the facilities and of the
procedures and processes used by TGC or Outside Contractors in storing, manufacturing and
shipping any Clinical Vaccine and to inspect all related records. To the extent any such
inspections, notices, responses, filings, audits and investigations could lead to the
disclosure of any Proprietary Technology to IAVI: (i) access to such Proprietary
Technology shall be limited to the narrowest practicable group of IAVI’s quality
assurance personnel who have a strict need to know the same for the purposes of such
quality assurance inspections, audits and investigations; and (ii) any and all such
Proprietary Technology shall be treated as TGC’s proprietary information and shall be
protected by IAVI under Section 8 of the Agreement. 

        3.5
  TGC Inspection. IAVI shall permit TGC representatives to enter clinical trial sites
upon reasonable prior notice at reasonable intervals, but no more frequently than once a
year per site unless a significant adverse event has been reported to TGC, and with the
approval, such approval shall not be unreasonably withheld, of the appropriate IAVI
medical director, during normal business hours for the purpose of making quality assurance
audits of the clinical trial sites and of the implementation of the clinical trial
protocol according to the appropriate Approval Application. 

-7- 

        3.6
  Safety Procedures. TGC shall maintain and enforce health and safety procedures for
the handling and manufacture of Clinical Vaccines that comply in all respects with all
Applicable Laws. 

        3.7
  Government Inspection.  TGC shall provide prompt notice to IAVI of any inspections
or investigations by the FDA or other regulatory authority directed toward Clinical
Vaccine or facilities used in the manufacture of Clinical Vaccine, and shall provide IAVI
with copies of all correspondence and reports related to such inspection or investigations
as they become available. Further TGC shall provide prompt notice to IAVI of the results
thereof and any material corrective action TGC was required to take in order to comply
with any applicable laws or regulations. IAVI’s rights hereunder shall extend to
facilities, equipment, record-keeping procedures and records of Outside Contractors used
by TGC with respect to the manufacture of Clinical Vaccine and TGC shall ensure that its
agreements with such Outside Contractors are consistent with this Agreement. To the extent
any such inspections, notices, responses, filings, audits and investigations could lead to
the disclosure of any Proprietary Technology to IAVI: (i) access to such Proprietary
Technology shall be limited to the narrowest practicable group of IAVI’s quality
assurance personnel who have a strict need to know the same for the purposes of such
quality assurance inspections, audits and investigations; and (ii) any and all such
Proprietary Technology shall be treated as TGC’s proprietary information and shall be
protected by IAVI under Section 8 of the Agreement. 

        3.8
  TGC Supply Obligations.  If TGC is unable to fulfill its obligations for Supply of
Clinical Vaccine under the appropriate Work Plan and Budget and Order, TGC will promptly
notify IAVI of its determination and the reasons it is unable to do so. IAVI and TGC agree
to use Reasonable Commercial Efforts to arrive at a mutually agreeable resolution. 

ARTICLE 4

APPROVAL APPLICATIONS AND REGULATORY APPROVALS  

        4.1
  Regulatory Process.  TGC, with appropriate assistance from IAVI and funding from
IAVI as and to the extent provided under the appropriate Work Plan and Budget, will use
Reasonable Commercial Efforts to assemble all Approval Applications relating to the
manufacture of any Clinical Vaccine developed or to be developed under the Agreement or
supplied or to be supplied to IAVI under the Supply Agreement. TGC shall have the right to
reference any relevant regulatory documents filed by IAVI, including Approval Applications
and Regulatory Approvals, if required by TGC for the development of a vaccine outside of
the Program Field. IAVI, with appropriate assistance from TGC as and to the extent
provided under the appropriate Work Plan and Budget, will use Reasonable Commercial
Efforts to assemble all Approval Applications needed to conduct clinical trials with any
Clinical Vaccine developed or to be developed under the Agreement or supplied or to be
supplied to IAVI under the Supply Agreement. In connection with any Approval Application,
IAVI will have the right to reference any relevant regulatory documents of TGC. 

        4.2
  Trial Termination. If any Government Authority requests a termination of a clinical
trial or takes similar action in connection with any Clinical Vaccine, or if either Supply
Party determines that an event, incident or circumstance has occurred which may result in
the need for termination of a clinical trial, the Supply Party notified of or wishing to
initiate such  

-8- 

recall or similar action shall,
within twenty-four (24) hours, advise the other Supply Party thereof by telephone or
facsimile, after which the Parties shall promptly discuss, agree upon and work together
to effect an appropriate course of action; provided, however, that
either Supply Party may initiate a termination of a clinical trial if required to do so
under applicable law. Notification to FDA (or such other applicable Government Authority
with respect to countries other than the United States) and compliance with Applicable
Laws in conducting such trial termination shall be the responsibility of IAVI.  

      4.3
  Ownership of Clinical Data, Approval Applications and Regulatory Approvals. 

        
        4.3.1   With the exception of personal and confidential patient medical records, case report
forms, informed consent forms, drug accountability records, source documents, data
correction forms, monitoring logs, correspondence, clinical supplies receipts, dispensing
and final disposition records, IRB correspondence and approvals, statement of investigator
forms and such other documents whose ownership is governed by clinical trial site
agreements of IAVI, which agreements must be consistent with the terms of this Supply
Agreement and the Agreement, IAVI, TGC, and Children’s shall jointly own all rights
and title to all clinical data derived from the Clinical Vaccine and contained on any of
the forms or documents described above in this sentence. IAVI acknowledges that any rights
acquired hereunder relating to the Clinical Vaccine shall be used only to support the
development of a Program Vaccine for use in Developing Countries unless advance written
permission is given by TGC and Children’s. 

        
        4.3.2  
TGC and Children’s shall have the right of prior review of each disclosure
referencing the Clinical Vaccine, whether such disclosure is a presentation, publication
or other disclosure, for patent purposes and to identify and correct any inadvertent
disclosure of TGC’s or Children’s proprietary information or use of TGC’s
or Children’s name which TGC and Children’s, in their sole discretion, considers
inappropriate. IAVI further agrees to promptly publish, consistent with scientific custom,
either itself or with the clinical investigators conducting the clinical trials utilizing
Clinical Vaccine, those results of the clinical trials that, in TGC’s and
Children’s reasonable judgment, may be published without disclosing significant trade
secrets of TGC’s and or Children’s. If IAVI and its clinical investigators
choose not to publish results of the clinical trials conducted with Clinical Vaccine, then
TGC and Children’s shall collaborate with IAVI to publish such results consistent
with scientific custom. IAVI shall have a right of prior review of such publication to
identify and correct any inadvertent disclosure of IAVI’s proprietary information or
use of IAVI’s name which IAVI, in its sole discretion considers inappropriate. If at
any time such rights of any clinical trial site is determined to conflict with the data
ownership rights granted to TGC and Children’s hereunder, TGC, Children’s and
IAVI will work to resolve any disputes or conflict with any such clinical trial site. 

        
        4.3.3  Subject to the rights granted to or owned by TGC and/or Children’s hereunder,
including without limitation the rights owned by TGC set forth in Section 4.3.4 below, all
right and title in all Approval Applications necessary to obtain Regulatory Approvals
required for the conduct of clinical trials of Clinical Vaccine shall be owned and filed
in accordance with Section 11(m) of the Agreement. 

-9- 

        
        4.3.4  Subject to the rights granted to or owned by IAVI and/or Children’s hereunder,
including without limitation a grant of a right to reference TGC’s relevant
regulatory documents in Approval Applications and Regulatory Approvals for a Program
Vaccine in the Program Field, TGC shall own all right, title and interest in all TGC
regulatory documents and all Approval Applications filed by TGC which are necessary to
obtain Regulatory Approvals required for manufacture of Clinical Vaccine by TGC or its
Outside Contractors, together with any Regulatory Approval obtained in connection
therewith. In the instance where TGC and IAVI agree that the regulatory documents related
to Section 4.3.4 must be filed in IAVI’s name, TGC and IAVI agree to collaborate to
manage the related filings and correspondence related to the TGC regulatory documents. 

        
        4.3.5  IAVI agrees to assign ownership of its rights in the clinical data and any regulatory
documents including Approval Applications and Regulatory Approvals if (a) the Clinical
Supply Agreement is terminated due to an uncured breach by IAVI; or (b) the Agreement is
terminated for any reason other than: (i) an uncured TGC breach, in which case IAVI agrees
to assign such rights to Children’s; (ii) by TGC pursuant to Section 6(a) of the
Agreement; or (iii) by Children’s pursuant to Section 6(b) of the Agreement. 

        
        4.3.6  Other than as expressly provided herein, no rights, titles or licenses are conveyed in or
to any intellectual property or confidential information of IAVI, TGC or Children’s,
including with respect to ownership and control of its confidential information included
in any Approval Application. 

        
        4.3.7  All rights of IAVI to regulatory documents filed or created to support the evaluation of
Clinical Vaccine in human clinical trials, including clinical data, Approval Applications
and Regulatory Approvals shall be assigned to TGC for its unrestricted use in continued
development of a Program Vaccine, if TGC so chooses to continue development, in the event
that IAVI: (a) chooses to terminate the further development of a Program Vaccine in the
Program Field; (b) becomes insolvent or suspends its business; (c) files a voluntary
petition or an answer admitting the jurisdiction of a court in the material allegations
of, or consents to, an involuntary petition pursuant to any reorganization or insolvency
law of any jurisdiction; (d) makes an assignment for the benefit of creditors; or (e)
applies or consents to the appointment of a receiver or trustee of a substantial part of
its property, and has not granted IAVI rights to a third party for continued development
of Program Vaccines (if such activities are permitted under the Agreement). All rights of
IAVI to regulatory documents including clinical data, the Approval Applications and
Regulatory Approvals shall be assigned to Children’s in the event that TGC: (a) does
not choose to continue such development; (b) becomes insolvent or suspends its business;
(c) files a voluntary petition or an answer admitting the jurisdiction of a court in the
material allegations of, or consents to, an involuntary petition pursuant to any
reorganization or insolvency law of any jurisdiction; (d) makes an assignment for the
benefit of creditors; (e) applies or consents to the appointment of a receiver or trustee
of a substantial part of its property, and has not granted these rights to a third party
for continued development of Program Vaccines (if such activities are permitted under the
Agreement). 

-10- 

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND COVENANTS  

        
5.1  
Representations and Warranties of TGC Concerning Manufacture and Supply. TGC
represents and warrants to IAVI that TGC will manufacture and supply the Clinical Vaccine
in accordance with GMP, the Standards and Specifications for the Clinical Vaccine and the
requirements of the Order. EXCEPT AS EXPRESSLY SET FORTH IN THIS PARAGRAPH, NEITHER TGC
NOR CHILDREN’S MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EITHER
EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING, WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY, WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, OR WARRANTY OF
NON-INFRINGEMENT. 

        
5.2  
Representations and Warranties of IAVI Concerning Clinical Trial Conduct.   IAVI
represents and warrants to TGC that IAVI will (i) maintain all Approval Applications and
obtain all necessary Regulatory Approvals as Sponsor of the clinical trials for which
Clinical Vaccine is being supplied under this Supply Agreement, (ii) comply with
Applicable Laws as Sponsor of the clinical trials for which Clinical Vaccine is being
supplied under this Supply Agreement, and (iii) only use the Clinical Vaccine to conduct
clinical trials, with the Clinical Vaccine, for which the Project Management Committee has
granted its unanimous consent. 

ARTICLE 6

CLINICAL TRIAL INDEMNIFICATION; LIMITATION OF LIABILITY  

        
6.1   Clinical
Trial Indemnification by IAVI.  IAVI hereby agrees to save, defend, and hold TGC,
Children’s and their respective Affiliates and their officers, directors, trustees,
employees and agents harmless from and against any and all losses, damages, liabilities,
costs and expenses, including reasonable attorneys’ fees and expenses that arise in
connection therewith, (collectively, “Losses”) resulting from or arising out of:
(i) [ * ]; or (iii) the [ * ]misconduct of IAVI or its Affiliates, licensees or
sublicensees, and its or their directors, officers, agents, employees, or consultants or
clinical investigators; or (iv) the material breach by IAVI of any representation,
warranty, covenant or other provision of this Supply Agreement. 

        
6.2  
Clinical Indemnification by TGC. TGC hereby agrees to save, defend and hold IAVI,
Children’s and their respective Affiliates and their officers, directors, trustees,
employees and agents harmless from and against any and all Losses resulting from or
arising out of (i) [ * ]; or (ii) the [ * ] misconduct of TGC or Children’s, or
its or their Affiliates, Outside Contractors, and its or their directors, officers,
agents, trustees, employees or consultants; or (iii) the material breach by TGC of
any representation, warranty, covenant or other provision of this Supply Agreement. For
the purposes of this section, deviations from the terms of a protocol that may arise out
of medical necessity do not constitute negligence, error, omission or malfeasance provided
that IAVI confirms in writing the fact of and provides reasonable details of any such
deviation within a reasonable time thereafter. 

        
6.3  
Clinical Indemnification Procedure. This section 6.3 shall apply solely with
respect to indemnification contemplated under the Supply Agreement. 

-11- 

        
        6.3.1  Each indemnified Supply Party and Children’s (the “Clinical Indemnitee”)
agrees to give the indemnifying Supply Party (the “Clinical Indemnitor”) prompt
written notice of any Losses or discovery of fact upon which the Clinical Indemnitee
intends to base a request for indemnification. Notwithstanding the foregoing, the failure
to give timely notice to the Clinical Indemnitor shall not release the Clinical Indemnitor
from any liability to the Indemnitee to the extent the Clinical Indemnitor is not
prejudiced thereby. 

        
        6.3.2  The Clinical Indemnitee shall furnish promptly to the Clinical Indemnitor copies of all
papers and official documents in the Clinical Indemnitee’s possession or control
which relate to any Losses; provided, however, that if the Clinical
Indemnitee defends or participates in the defense of any Losses, then the Clinical
Indemnitor shall also provide such papers and documents to the Clinical Indemnitee. The
Clinical Indemnitee shall cooperate with the Clinical Indemnitor in providing witnesses
and records necessary in the defense against any Losses. 

        
        6.3.3  The Clinical Indemnitor shall have the right, by prompt notice to the Clinical Indemnitee,
to assume direction and control of the defense of any Third Party claim forming the basis
of such Losses, with counsel reasonably acceptable to the Clinical Indemnitee and at the
sole cost of the Clinical Indemnitor, so long as (i) the Clinical Indemnitor shall
promptly notify the Clinical Indemnitee in writing (but in no event more than thirty (30)
days after the Clinical Indemnitor’s receipt of notice of the claim) that the
Clinical Indemnitor intends to indemnify the Clinical Indemnitee from and against any
Losses the Clinical Indemnitee may suffer arising out of the claim absent the development
of facts that give the Clinical Indemnitor the right to claim indemnification from the
Clinical Indemnitee and (ii) the Clinical Indemnitor diligently pursues the defense
of the claim. 

        
        6.3.4  If the Clinical Indemnitor assumes the defense of the claim as provided in
Section 6.3.3 above or Section 6.3.5 below the Clinical Indemnitee may
participate in such defense with the Clinical Indemnitee’s own counsel who shall be
retained, at the Clinical Indemnitee’s sole cost and expense; provided,
however, that neither the Clinical Indemnitee nor the Clinical Indemnitor
shall consent to the entry of any judgment or enter into any settlement with respect to
the claim without the prior written consent of the other Supply Party, which consent shall
not be unreasonably withheld or delayed. If the Clinical Indemnitee withholds consent in
respect of a judgment or settlement involving only the payment of money by the Clinical
Indemnitor and which would not involve any stipulation or admission of liability or result
in the Clinical Indemnitee becoming subject to injunctive relief or other relief, the
Clinical Indemnitor shall have the right, upon notice to the Clinical Indemnitee within
five (5) days of receipt of the Clinical Indemnitee’s written denial of consent, to
pay to the Clinical Indemnitee, or to a trust for its or the Third Party’s benefit,
as shall be established at trial or by settlement, the full amount of the Clinical
Indemnitor’s obligation under Section 6.1 or Section 6.2, as applicable,
with respect to such proposed judgment or settlement, including all interest, costs or
other charges relating thereto, together with all attorneys’ fees and expenses
incurred to such date for which the Clinical Indemnitor is obligated under this Supply
Agreement, if any, at which time the Clinical Indemnitor’s rights and obligations
with respect to the claim shall cease. 

        
        6.3.5  If the Clinical Indemnitor does not so assume the defense of such claim, the Clinical
Indemnitee may conduct such defense with counsel of the Clinical Indemnitee’s 

-12- 

choice but may not settle such case
without the written consent of the Clinical Indemnitor, such consent not to be
unreasonably withheld or delayed. In addition, the Clinical Indemnitor shall have the
right to assume control of the defense, at its own expense, at any time upon five (5)
days’ prior notice to the Clinical Indemnitee. 

        
        6.3.6  Except as provided in Section 6.3.5 above, the Clinical Indemnitor shall not be
liable for any settlement or other disposition of a Loss by the Clinical Indemnitee which
is reached without the written consent of the Clinical Indemnitor. 

        
        6.3.7  Except as otherwise provided in this Section 6.3, the portion of costs and expenses,
including reasonable fees and expenses of counsel, incurred by any Clinical Indemnitee
under Section 6.3.5 in connection with any claim corresponding to the Clinical
Indemnitor’s obligation under Section 6.1 or Section 6.2, as applicable,
shall be reimbursed on a calendar quarter basis by the Clinical Indemnitor, for so long as
the Clinical Indemnitee controls the defense of the claim, without prejudice to the
Clinical Indemnitor’s right to contest the Clinical Indemnitee’s right to
indemnification and subject to refund in the event the Clinical Indemnitor is ultimately
held not to be obligated to indemnify the Clinical Indemnitee. 

        6.4
  Limitation of Liability; Remedies Cumulative. 

        
        6.4.1  EXCEPT FOR EACH SUPPLY PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER AND ANY CLAIMS
RELATED TO ONE SUPPLY PARTY’S INFRINGEMENT OF THE OTHER SUPPLY PARTY’S
INTELLECTUAL PROPERTY OUTSIDE OF THE RIGHTS AND LICENSES GRANTED HEREUNDER OR BREACH BY A
SUPPLY PARTY OF ITS CONFIDENTIALITY OBLIGATIONS HEREUNDER, UNDER NO CIRCUMSTANCES SHALL A
SUPPLY PARTY HEREOF BE LIABLE TO THE OTHER SUPPLY PARTY HEREOF FOR CONSEQUENTIAL,
INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES. 

        
        6.4.2  THE REMEDIES PROVIDED IN THIS SUPPLY AGREEMENT ARE CUMULATIVE AND NOT EXCLUSIVE OR IN
LIMITATION OF ANY OTHER REMEDY AVAILABLE UNDER THIS SUPPLY AGREEMENT OR AT LAW OR IN
EQUITY. ACCORDINGLY, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS SUPPLY AGREEMENT, A
REMEDY PROVIDED IN THIS SUPPLY AGREEMENT AS AVAILABLE EITHER TO TGC OR IAVI IS NOT
INTENDED AS AN EXCLUSIVE REMEDY. 

ARTICLE 7 

MISCELLANEOUS  

        
7.1  
Other Terms and Conditions. Each Supply Party agrees that all other terms and
conditions of the Agreement that are not inconsistent with the Supply Agreement shall have
the same effect as if they were included as part of the Supply Agreement. 

        7.2
  Further Actions.  Each Supply Party agrees to execute, acknowledge and deliver such
further instruments, and to do all such other acts, as may be necessary or appropriate in
order to carry out the purposes and intent of this Supply Agreement. If any of the
provisions of this Supply Agreement are in conflict with any agreement for clinical
services that IAVI has with 

-13- 

a Third Party, TGC and IAVI will work
together to resolve any disputes or conflict with any such clinical trial site agreement. 

        7.3
  Governmental Approvals; Compliance with Law.  The Parties shall make all filings
with Government Authorities as shall be required by Applicable Laws in connection with
this Supply Agreement and the activities contemplated hereunder or thereunder. In
fulfilling its obligations under this Supply Agreement each Supply Party agrees to comply
in all material respects with all Applicable Laws. 

        7.4
  Survival. The expiration or earlier termination of this Supply Agreement,
(howsoever caused) shall not affect any of the terms, provisions, representations or
warranties hereof which are expressed to continue after such expiration or termination,
nor shall any such expiration or termination affect the rights or obligations of either
party hereto in respect of any antecedent breach of this Supply Agreement. 

        7.5
  Third Party Beneficiary. The Supply Parties agree that Children’s is an
intended third party beneficiary hereunder. Any notice to Children’s shall be sent
to: 

	
CHILDREN'S RESEARCH INSTITUTE

700 Children's Drive

Columbus, Ohio 43205

Phone: 614-722-2000

Fax: 614-722-3945

Attention: Martha D. Johnson
	
with a copy to:

CHILDREN'S RESEARCH INSTITUTE

700 Children's Drive

Columbus, Ohio 43205

Phone: 614-722-2700

Fax: 614-722-2716

Attn: Daniel Mann

         
7.6  Term. The initial term of this Supply Agreement shall commence as of
          the Effective Date and continue until the earlier of: (i) termination of the
          Agreement or (ii) the expiration of the Agreement . 

      7.7
  Quality Notices 

        All
Clinical Vaccine quality notices sent to IAVI shall be addressed to: 

	
INTERNATIONAL AIDS VACCINE   INITIATIVE, INC.

110 William Street, 27th Floor

New York, New York 10038

Attention: Philip Burge

Quality Assurance Manager

pburge@iavi.org

FAX:  212-847- 1113	
with copies to:

INTERNATIONAL AIDS VACCINE   INITIATIVE, INC.

110 William Street, 27th Floor

New York, New York 10038

Attention: Don Gerson Ph.D.

Director of Manufacture

dgerson@iavi.org

FAX:  212-847- 1113

Holland & Knight LLP
 

-14- 

	
 	
195 Broadway

New York, New York 10007

Attention:  Neal N. Beaton, Esq.

nbeaton@hklaw.com

FAX:  212-385-9010
 

        All Clinical
Vaccine quality notices sent to TGC shall be addressed to: 

	  	
Targeted Genetics Corporation

1100 Olive Way, Suite 100

Seattle, WA 98101

Attention: Rae Saltzstein

Director, Quality and Regulatory 

     Affairs

saltzste@targen.com

FAX: 206-521-4783

        All
Orders shall be sent by Don Gerson or his designee as the authorized representative of
IAVI to TGC shall be addressed to: 

	  	
Targeted Genetics Corporation

1100 Olive Way, Suite 100

Seattle, WA 98101

Attention: Pervin Anklesaria

Vice President, Product Development

FAX: 206-521-4783

        7.8
  Entire Agreement. This Supply Agreement, an Order and the Agreement,
including all schedules and exhibits attached thereto, which are hereby incorporated
herein and therein by reference, set forth all covenants, promises, agreements,
warranties, representations, conditions and understandings between the Parties hereto and
supersedes and terminates all prior and contemporaneous agreements and understandings
between the Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between the Parties
other than as set forth herein or therein. No subsequent alteration, amendment, change or
addition to this Supply Agreement shall be binding upon the Parties hereto unless reduced
to writing and signed by the respective authorized officers of the Parties. 

        7.9
  Agreement References. Sections 19, 20, 21 and 23 of the Agreement are
incorporated by reference into this Supply Agreement. 

        7.10
  Counterparts. This Supply Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the
same instrument. 

-15- 

        In
Witness Whereof, the Parties have executed this Supply Agreement by their proper officers
as of the date and year first above written. 

	  	
INTERNATIONAL AIDS VACCINE INITIATIVE, INC.

By:   
/s/ Seth Berkley
            
            
            
            

           Seth Berkley, M.D.

           President and CEO

TARGETED GENETICS CORPORATION

By:   
/s/ H. Stewart Parker
    
            
            
            

           H. Stewart Parker

           President and CEO 

        Children’s
Research Institute hereby agrees acknowledges the Supply Agreement as part of the
Agreement. 

	  	
CHILDREN'S RESEARCH INSTITUTE

By:   
_______________________________________

Neme:  
_____________________________________

Title:  
______________________________________

-16-EXHIBIT 10.3  

“[ * ]” = Portions of this
exhibit have been omitted pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission or SEC. The omitted portions of this exhibit have been
filed separately with the SEC. 

FIFTH LEASE AMENDMENT 

between

BENAROYA CAPITAL COMPANY, LLC 

and 

TARGETED GENETICS CORPORATION  

This Fifth Lease Amendment dated
January 2, 2004, is attached to and made part of that certain Lease dated October 7, 1996,
as amended in that Fourth Lease Amendment dated March 28, 2001, that Third Lease Amendment
dated April 19, 2000, that Second Lease Amendment dated February 25, 2000, and that First
Lease Amendment, dated May 12, 1997 (the “Lease”), by and between Benaroya
Capital Company, LLC, a Washington limited liability company (the “Lessor”), and
Targeted Genetics Corporation, a Washington corporation (the “Lessee”), covering
Suites 100 and 1200 located in the property commonly known as the Metropolitan Park West
Tower, located at 1100 Olive Way, Seattle, Washington (the “Premises”). The
Premises are more particularly described in the Lease. The terms used herein shall have
the same definitions as set forth in the Lease. 

NOW THEREFORE, in consideration of
the mutual covenants and promises contained in this Fifth Lease Amendment and the Lease,
Lessor and Lessee agree as follows: 

	1. 	  	Section
1, Premises. Effective April 1, 2004, Section 1,           Premises, of
the Lease is deleted and replaced with the following:  

	  	
“Lessor
does hereby lease to Lessee those certain Premises, to wit: approximately [*] square feet
of office space located on the first floor in Suite 100 ([*] square feet) and on the
twelfth floor in Suite 1200 ([*] square feet) as outlined on Exhibit A and Exhibit A-1,
respectively, attached to this Fifth Lease Amendment (hereinafter called the
“Premises”) being situated within the project known as the Metropolitan Park
West Tower.” The useable square foot area of suite 100 is [*] square feet and the
current load factor per 1996 BOMA is 3.42%. The useable area for suite 1200 is [*] useable
square feet and the current load factor per 1996 BOMA is 10.36%. 

	2.  	  	Section
2, Term. The term of the Lease is hereby extended                for five
(5) years, commencing April 1, 2004 and expiring March 31, 2009.  

	3.  	  	Section
3, Monthly Minimum Rent. Section 3, Monthly Minimum                Rent,
is amended as follows:  

	
Period 	
Monthly Minimum Rent 
	April 1, 2004 - March 31, 2005	 	$[*]	 
	April 1, 2005 - March 31, 2006	 	$[*]	 
	April 1, 2006 - March 31, 2007	 	$[*]	 
	April 1, 2007 - March 31, 2008	 	$[*]	 
	April 1, 2008 - March 31, 2009	 	$[*]	 

	4.  	  	Section
10, Additional Rent and Monthly Operating Expense                Adjustments.
Section 10 of the Lease, as previously amended, is                hereby further amended
as follows:  

	  	
a)  Effective
April 1, 2004, Lessee’s prorata share of operating expenses will           be [*].  

1 

	  	
b)  Effective
April 1, 2004, the Base Year for operating expenses will be changed to           2004.  

	5.  	  	Exhibit
G, Paragraph 1, Option to Renew. Exhibit G,                Paragraph 1,
Option to Renew is hereby deleted and replaced with the following:  

	  	
“Provided
Lessee is not in default of any material term or condition of the Lease (unless the
default was cured within the applicable cure period), Lessee shall have two (2)
consecutive Options to Extend the lease term, one (1) period of thirty-six (36) months
and, if exercised, followed by one (1) additional period of twenty-four (24) months
(“Option Terms”), upon the same terms and conditions as are set forth in the
Lease, except for the Monthly Minimum Rent which shall be determined as set forth below
and except that the Option to Cancel provisions shall not thereafter apply. The first
option shall be exercised, if at all, by written notice to Lessor before August 1, 2008,
and if applicable, the second option shall be exercised, if at all, by written notice to
Lessor before August 1, 2011 

	  	
The
rent shall be the fair market rent as agreed by Lessee and Lessor. Upon receipt of
Lessee’s notice to extend, Lessor shall provide Lessee notice stating the rental rate
it would be willing to accept for the extended term (the “Lessor’s Notice
Rate”). Lessee shall have ten (10) days after receipt of Lessor’s Notice Rate to
accept or reject such rate. In the event Lessee rejects the Lessor’s Notice Rate such
rejection shall state the rate that Lessee would be willing to pay for the extended term
(the “Lessee’s Notice Rate”). If the parties fail to agree on the fair
market rental rate, then within two (2) days thereafter each party shall select an
appraiser and the two appraisers shall within ten (10) days appoint a third appraiser (the
“Determining Appraiser”). The Determining Appraiser shall make an independent
determination of the rental rate for the extended term (the “New Rent”) which
shall be the average prevailing rental rate for comparable space. The parties agree that
for purposes of determining the New Rent, they will attempt to obtain the economic terms
of any leases signed within the prior six (6) months for space on the first floors and the
upper 35% of the floors of facilities within the perimeter of Denny Road to the North,
Pike Street to the South, Interstate 5 to the East and 3rd Avenue to the West.
New Rent will be computed based on facilities within such geographic perimeter of
comparable size,, condition, age, in-building parking facilities, freeway access, central
HVAC systems, views and for comparable floors and square footage. No leases in buildings
without central HVAC and modern in-building parking will be considered. The Determining
Appraiser will be instructed to contact the owners of those buildings, obtain the most
recent lease rates for the applicable space, average the result (if there are more than
one) and produce the figure which shall be considered the “New Rent” and which
determination will be binding on the parties. The party whose Notice Rate is furthest from
the appraiser’s New Rent shall pay the fee of the appraiser. Lessor shall prepare and
Lessee shall execute a lease amendment for extension within thirty (30) days after
determination of the New Rent.” 

	6.  	  	Exhibit
G, Paragraph 2, Right of First Offer.  Provided                Lessee is
not in default of any material term or condition of the Lease (unless                the
default was cured within the applicable cure period), Lessee shall have the
               Right of First Offer to lease any space that is or will become available
for                lease on the first, twelfth, and adjacent floors of the Metropolitan
Park West                Tower, subject to any rights existing prior to the date of this
Lease Amendment.                Lessee shall have the Right of First offer for the term
of the Lease. Prior to                entering into negotiations for the space that
Lessee has a Right of First offer                on, Lessor shall provide Lessee with
written notification specifying when the                space shall be available for
occupancy and the terms and conditions under which                Lessor will lease the
space (the “First Right Notice”). Lessee shall                respond within
ten (10) days of written notification by Lessor if Lessee wishes                to lease
the space. If Lessee does not respond  

2 

	  	
within
ten (10) days, Lessee shall be deemed to have rejected the offer to lease the space.
Should Lessee accept such offer to lease, Lessee shall execute a Lease Amendment to such
effect within ten (10) days after delivery of the Lease Amendment to Lessee. If Lessee
does not accept the offer, then Lessor shall be free to lease the space to a third party
on terms that are not materially more favorable to the tenant than those specified in the
First Right Notice. For the purpose of this provision “materially more
favorable” shall mean that the net effective rental rate (including tenant
improvement allowances and other economic concessions, if any), to the third party would
be more than [*] less than the net effective rate after factoring in all concessions
provided, or not, by Lessor under the terms contained in the First Right Notice. In the
event that the net effective rental rate to the third party would be materially more
favorable than that provided in the First Right Notice, Lessor will provide Lessee with a
new notice (the “Revised First Right Notice”) offering to lease the space to
Lessee on the terms specified in the third party proposal. The same procedure will apply
with regard to the Revised First Right Notice; except the notice period which will be five
(5) business days following receipt rather than ten (10) days. 

	7.  	  	Exhibit
G, Paragraph 4, Parking. Effective April 1, 2004,                Lessee
shall be entitled to lease a total of fourteen (14) parking stalls for                the
term of the Lease. All parking shall be located in the Building Garage, in
               the Metropolitan North Garage, Metropolitan East Garage, or on nearby
surface                lots and will be at market rates.  

	8. 	  	Option
to Cancel Lease. Provided Lessee has not been in                default of
any material term or condition of the Lease on the date of the notice
               described below on or before the date of Lease cancellation, Lessee shall
have                the Option to Cancel this Lease at any time after April 1, 2006.
Lessee shall                provide not less than eight (8) months prior written notice
of its election to                cancel. Along with its cancellation notice, Lessee
shall pay Lessor a Lease                cancellation fee in an amount equal to the sum
of: (i) [*] of Rent due from the                effective date of the lease cancellation
through April 1, 2007, if any, plus                (ii) [*] of the Rent for the period
from April 1, 2007 to March 31, 2009, plus                (iii) the unamortized portion
of the lease commission.  

	9.  	  	Lessee
Broker Representation . Both parties acknowledge                that
Lessee has engaged Staubach to represent it in this Agreement, hereinafter
               referred to as “Broker.” Broker’s sole compensation for
               representing Lessee shall be paid by Lessor in accordance with the terms
of the                Commission Agreement dated November 10, 2003 between Broker and
Lessor.  

Except as otherwise modified by the
terms of this Fifth Lease Amendment, all other terms and conditions of the Lease remain
unchanged and in full force and effect. 

	
LESSOR:

BENAROYA CAPITAL COMPANY, LLC

/s/ Larry Benaroya
           
           
           

By:   Larry Benaroya 

Its:   Manager

Date:  
1/9/04
         
         

	
LESSEE:

TARGETED GENETICS CORPORATION

/s/ Todd Simpson
           
           
           

         (SIGNATURE)

By:  
Todd Simpson          
         
            

      (PLEASE PRINT)

Its:  VP Finance & CFO

Date:  
January 8, 2004         
           
        

3 

	
STATE OF WASHINGTON

COUNTY OF KING	
)

)

)	

ss.

 

        I
certify that I know or have satisfactory evidence that Larry R. Benaroya is the person who
appeared before me, a Notary Public in and for the State of Washington duly commissioned
and sworn, and acknowledged that he is the Manager of Benaroya Capital Company, LLC, a
Washington limited liability company, who executed the within and foregoing instrument,
and acknowledged the instrument to be the free and voluntary act and deed of said company
for the uses and purposes therein mentioned, and on oath stated that affiant is authorized
to execute said instrument on behalf of said company. 

IN WITNESS WHEREOF I have hereunto
set my hand and affixed my official seal this 9th day of January, 2004. 

	  	

Lori Jo Goodman       
       

Notary Public in and for the

State of Washington

residing at Seattle

Commission expires 4/9/07

Print Name Lori Jo Goodman
 

	
STATE OF WASHINGTON

COUNTY OF KING	
)

)

)	

ss.

 

        I
certify that I know or have satisfactory evidence that Todd E. Simpson is the person
who appeared before me, a Notary Public in and for the State of Washington duly
commissioned and sworn, and acknowledged that he/she is the VP Finance & CFO of
Targeted Genetics Corporation, a Washington Corporation, who executed the within and
foregoing instrument, and acknowledged the instrument to be the free and voluntary act and
deed of said corporation for the uses and purposes therein mentioned, and on oath stated
that affiant is authorized to execute said instrument on behalf of said corporation. 

IN WITNESS WHEREOF I have hereunto
set my hand and affixed my official seal this 8tyh day of January, 2004. 

	  	

/s/ Beverly J. Eckert      
        

Notary Public in and for the

State of Washington

residing at 6115 Harborcrest Dr. N.E., Bainbridge Is.

Commission expires 3/19/05

Print Name  Beverly J. Eckert
 

4 

EXHIBIT A 

FLOOR PLAN OF PREMISES 

EXHIBIT A-1 

FLOOR PLAN OF PREMISES

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