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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PLmkjdEeCPmPzKMZMxYkCutOIGYf2hq3DjKREATMp/iy9bwq4ENFaOLmcU65STL4 95yDrV01ICeo1Urdvqs7gw== 0000891020-06-000270.txt : 20061213 0000891020-06-000270.hdr.sgml : 20061213 20061005171731 ACCESSION NUMBER: 0000891020-06-000270 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20061005 DATE AS OF CHANGE: 20061017 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Trubion Pharmaceuticals, Inc CENTRAL INDEX KEY: 0001298521 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-134709 FILM NUMBER: 061131894 BUSINESS ADDRESS: STREET 1: 2401 14TH AVENUE STREET 2: SUITE 1050 CITY: SEATTLE STATE: WA ZIP: 98121 BUSINESS PHONE: 2068380500 MAIL ADDRESS: STREET 1: 2401 14TH AVENUE STREET 2: SUITE 1050 CITY: SEATTLE STATE: WA ZIP: 98121 S-1/A 1 v18917a5sv1za.htm FORM S-1/A sv1za

As filed with the Securities and Exchange Commission on October 5, 2006

Registration No. 333-134709

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 5 TO

Form S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

Trubion Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)


Delaware	2834	52-2385898
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

2401 4th Avenue, Suite 1050

Seattle, Washington 98121

(206) 838-0500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Peter A. Thompson, M.D., FACP

President & Chief Executive Officer

Trubion Pharmaceuticals, Inc.

2401 4th Avenue, Suite 1050

Seattle, Washington 98121

(206) 838-0500

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Please send copies of all communications to:


Patrick J. Schultheis, Esq. Mark J. Handfelt, Esq. Wilson Sonsini Goodrich & Rosati, Professional Corporation 701 Fifth Avenue, Suite 5100 Seattle, Washington 98104 (206) 883-2500		Bruce K. Dallas, Esq. Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o



		Proposed Maximum	Proposed Maximum	Amount of
Title of Each Class of	Amount to be	Offering Price per	Aggregate	Registration
Securities to be Registered	Registered(1)	Share(2)	Offering Price(2)	Fee(3)

Common Stock $0.001 par value per share	4,600,000	$15.00	$69,000,000	$7,383


(1)	Includes 600,000 shares of common stock that may be purchased by the underwriters to cover over-allotments, if any.
(2)	Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
(3)	$9,229 was previously paid by the registrant.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)

Issued October 5, 2006

4,000,000 Shares

COMMON STOCK

Trubion Pharmaceuticals, Inc. is offering 4,000,000 shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $13.00 and $15.00 per share.

We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “TRBN.”

Concurrent with this offering, Wyeth has agreed to purchase directly from us in a private placement shares of our common stock at the initial public offering price in an amount equal to 20% of the number of shares sold in this offering, excluding shares subject to the underwriters’ over-allotment option.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 8.

PRICE $ A SHARE

Underwriting

Proceeds to

Price to

Discounts and

Trubion

Public

Commissions

Pharmaceuticals

Per Share

Total

We have granted the underwriters the right to purchase up to an additional 600,000 shares of common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2006.

MORGAN STANLEY


	BANC OF AMERICA SECURITIES LLC


	PACIFIC GROWTH EQUITIES, LLC


	LAZARD CAPITAL MARKETS

, 2006

TABLE OF CONTENTS


	Page

Prospectus Summary		1
Risk Factors		8
Special Note Regarding Forward-Looking Statements and Industry Data		23
Use of Proceeds		24
Dividend Policy		25
Capitalization		26
Dilution		28
Selected Financial Data		30
Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Business		46
Management		65
Certain Relationships and Related Party Transactions		76
Principal Stockholders		79
Description of Capital Stock		81
Shares Eligible For Future Sale		85
Material United States Federal Tax Considerations for Non-U.S. Holders of Common Stock		87
Underwriters		90
Legal Matters		94
Experts		94
Where You Can Find Additional Information		94
Index to Financial Statements		F-1
EXHIBIT 5.1
EXHIBIT 10.11
EXHIBIT 10.13
EXHIBIT 23.1

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not authorized anyone to provide you with additional or different information. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Except where the context requires otherwise, in this prospectus “Company,” “Trubion,” “we,” “us” and “our” refer to Trubion Pharmaceuticals, Inc.

Until , 2006 (25 days after the commencement of this offering), all dealers that effect transactions in shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of shares of common stock and the distribution of this prospectus outside of the United States.

-i-

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and the related notes, elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in “Risk Factors.”

TRUBION PHARMACEUTICALS, INC.

Overview

We are a biopharmaceutical company creating a pipeline of product candidates to treat autoimmune disease and cancer. Our product candidates are novel proteins known as single-chain polypeptides and are designed using our SMIP^TM custom drug assembly technology. These product candidates bind to specific antigen targets on a cell’s surface that have been clinically validated as important in disease management either by existing products or by potential products in late stage clinical trials. We believe our product candidates offer the potential for safer and more effective therapies than such existing or potential products. In less than 24 months, we designed, developed and submitted to the FDA an Investigational New Drug application, or IND, for our lead product candidate, TRU-015. Currently, TRU-015 is being tested in a Phase IIb clinical trial for rheumatoid arthritis, which was initiated in September 2006. We completed enrollment of our Phase IIa clinical trial in February 2006. In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of certain therapeutics, including TRU-015.

Our business model is focused on large, established markets and is designed to reduce clinical development risks by developing product candidates directed to validated targets. We, in collaboration with Wyeth, are developing TRU-015 for use in multiple indications such as rheumatoid arthritis and systemic lupus erythematosus. Our TRU-016 program is focused on the development of product candidates directed to CD37, an antigen that is present on B cells, for the treatment of patients with non-Hodgkin’s lymphoma and chronic lymphocytic leukemia. To date, none of our product candidates has been approved for marketing and sale to patients nor have we received any product revenue.

Our Current Development Programs

Our current SMIP product candidates and programs include the following:


	•	TRU-015 for the Treatment of Rheumatoid Arthritis. According to Datamonitor, rheumatoid arthritis, or RA, is estimated to affect approximately 4.3 million people in the United States, Japan and Europe. Total reported worldwide sales of protein therapeutics used for the treatment of RA were $7.6 billion in 2005 and are expected to grow to $10 billion in 2010.


		In February 2006, we completed enrollment in a Phase IIa study in RA patients designed to demonstrate proof of concept that TRU-015 improves disease activity. Clinical disease activity parameters such as tender and swollen joint counts, patient and physician global assessments, patient assessment of pain and disability, and laboratory measures of inflammation may be combined to form composite measures of clinical response derived from the American College of Rheumatology that are known as ACR20, ACR50, and ACR70. In these measures of clinical response, ACR70 indicates a greater response from a baseline measure than ACR20, which is defined as an improvement of at least 20% from baseline in counts of both tender and swollen joints, as well as in at least three of five other disease activity parameters. In the first 24 weeks after receiving intravenous infusions of TRU-015, 72% of the subjects experienced a clinical response that is equal to or greater than that required to achieve an ACR20 response, 28% achieved an ACR50 response and 14% achieved an ACR70 response. In September 2006, we initiated a Phase IIb clinical trial to test a larger dose range.


	•	TRU-015 for the Treatment of Systemic Lupus Erythematosus. According to Datamonitor, systemic lupus erythematosus, or SLE, is estimated to affect 236,000 people in the United States. Worldwide, the prevalence of SLE varies significantly on a country-by-country basis. We have not begun testing of TRU-015 for the treatment of SLE in the clinic. Currently, no protein therapeutics have been approved specifically for the treatment of SLE.

	•	TRU-016 Program. Our TRU-016 program targets CD37 for the treatment of non-Hodgkin’s lymphoma, or NHL, and chronic lymphocytic leukemia, or CLL. According to the American Cancer Society, NHL is the fifth most common cancer and is estimated to affect 350,000 people in the United States, with approximately 56,000 new cases diagnosed each year. Also, according to Datamonitor, CLL is estimated to affect 70,000 people in the United States, with approximately 10,000 new cases diagnosed each year. Total reported worldwide sales of Rituxan^®/ MabThera^®, the leading biologic for NHL, were approximately $3.2 billion in 2005. Subject to satisfactory completion of preclinical testing of TRU-016, we expect to file an IND in the second half of 2007. If the results of these preclinical tests are unsatisfactory, we will not be able to file an IND.

Our Strategic Collaboration with Wyeth

In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable, up-front fee in January 2006 and will purchase directly from us in a private placement concurrent with this offering shares of our common stock at the initial public offering price in an amount equal to 20% of the number of shares sold in this offering. Wyeth’s future financial obligations to us also include collaborative research funding commitments of up to $9 million in exchange for a commitment by us to provide an agreed upon number of full-time employees per year to provide services in furtherance of the research program, which amount is subject to a decrease in the event of an early termination of the research program, or an increase in the event of an extension of such program. In addition, future financial obligations also include additional amounts for reimbursement of agreed external research and development costs. Wyeth is also obligated to make payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to targets other than CD20 and that have been and are to be selected by Wyeth pursuant to the agreement. In addition, we will receive royalty payments on future licensed product sales. Wyeth may terminate the agreement without cause at any time after December 22, 2007.

SMIP Custom Drug Assembly

Our custom drug assembly technology permits us to build to predetermined specifications protein therapeutics we call small immunopharmaceuticals, or SMIP^TM, products. By selecting from our polypeptide libraries and uniquely combining polypeptides called hinge domains, effector domains and binding domains, we create customized SMIP product candidates that are intended to bind to a specified target cell and elicit specific biological activity in a targeted disease state. These SMIP product candidates can be specifically engineered to have an optimal half-life, or the ability to maintain effective concentrations in vivo, and are approximately one-half the size of monoclonal antibodies, or mAbs, a leading form of protein therapeutic directed to the treatment of a wide range of disease states including autoimmune disease and cancer. We believe that our SMIP product candidates retain the beneficial characteristics of mAbs, such as binding to specific target antigens and predictable biological activity, and that the small size of our SMIP product candidates may facilitate tissue penetration in certain disease states such as cancer, resulting in increased

therapeutic benefit. We believe that our custom drug assembly technology enables us to rapidly design and develop SMIP product candidates for a range of targets and biological activity.

Limitations of Other Immunopharmaceuticals

The development of therapeutic immunopharmaceuticals, including mAbs and other antibody alternatives, has advanced and facilitated drug development and treatment for a wide range of disease states. The therapeutic benefits of these compounds, however, is often limited due to their large size, which results in compromised tissue penetration and difficulties in the engineering and optimization of their biological activity. Current alternatives to mAbs, including antibody fragments, have been designed to result in a small size, but have limitations including loss of important biological activity, shortened in vivo half-life and low expression levels that, either alone or in combination, can reduce therapeutic potential and limit commercial feasibility.

Risks Related to our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in “Risk Factors.” For example:


	•	Wyeth may not develop, manufacture and commercialize our lead product candidate, TRU-015, and other selected product candidates as quickly as we would like,

	•	all of our product candidates are in clinical or earlier stages of development and we expect to incur substantial and increasing losses over the next several years,

	•	we have not generated any product sales revenue to date and may never become profitable,

	•	results of early stages of development may not be predictive of results in later stages of development,

	•	clinical trials may fail to demonstrate the safety and efficacy of our product candidates, preventing or delaying the completion of development and regulatory approval, and

	•	we have not received, and may not receive, regulatory approval for, or commercial revenue from, any of our product candidates.

In addition, we can not guarantee that our SMIP technology or product candidates will not conflict with the rights of others. We are aware of intellectual property, including European patent No. EP-B-1176981, in which Genentech has an ownership interest with claims directed to the second medical use of an anti-CD20 antibody for treatment of RA. On August 8, 2006 we filed an opposition to this patent raising objections as to its validity. A copy of our opposition filing has been filed as an exhibit to the registration statement of which this prospectus forms a part.

We cannot provide any assurance that we will be successful in opposing the grant of Genentech’s patent. Other parties also had the right to oppose the grant of the Genentech patent and to file the grounds of their opposition prior to August 30, 2006 with the European patent office and request that the patent office re-examine the validity of the patent. Subsequent to the submission of our opposition, other parties filed oppositions to the Genentech patent prior to August 30, 2006, including MedImmune, Inc., Genmab A/S, Centocor, Inc. Glaxo Group Limited, Serono S.A. and Wyeth. We believe these additional opposition filings will not have a negative effect on our opposition. Final resolution of the opposition proceedings will likely take a number of years. In the meantime, the existence of opposition proceedings does not preclude Genentech from attempting to enforce its patent against third parties, including us and Wyeth.

If the Genentech patent is not held invalid or limited in scope, and if our activities are determined to be covered by the patent, we cannot provide any assurance that Genentech would be willing to grant us or Wyeth a license on terms we or they would consider commercially reasonable, if at all. As a consequence, we and Wyeth could be prevented from manufacturing and marketing TRU-015 for the treatment of RA in the designated and extended states of the European Patent Convention where the patent is validated which could have a material and adverse effect on our business, financial condition and results of operations. The Genentech European patent claims the benefit of priority to two U.S. provisional patent applications that are unpublished and the status of which will remain confidential unless or until a U.S. patent or patent application claiming priority to the provisional patent applications publishes. In the event any such corresponding U.S.

patent issues, and if our activities are determined to be covered by such a patent, we cannot provide any assurance that Genentech would be willing to grant us or Wyeth a license on terms we or they would consider commercially reasonable, if at all, which could have a material adverse effect on our business, financial condition, results of operations and our collaboration with Wyeth.

Concurrent Private Placement

Corporate Information

We were founded in Seattle, Washington in 1999 as a Washington limited liability company and reincorporated in 2002 as a Delaware corporation. Our principal executive offices are located at 2401 4th Avenue, Suite 1050, Seattle, Washington 98121, and our telephone number is (206) 838-0500. Our web site address is www.trubion.com. The information on our web site is not part of this prospectus.

Trubion^tm, SMIP^tm and Small Modular Immunopharmaceuticals^® are trademarks of Trubion Pharmaceuticals, Inc. in the United States and other countries. This prospectus also includes other trademarks of Trubion Pharmaceuticals, Inc. and other persons.

THE OFFERING


Shares of common stock offered in this offering		4,000,000 shares

Shares of common stock sold to Wyeth in the concurrent private placement		800,000 shares

Shares of common stock to be outstanding after this offering and the concurrent private placement to Wyeth		16,905,664 shares

Use of proceeds		We plan to use the net proceeds of this offering and the concurrent private placement to Wyeth for general corporate purposes, including clinical trials, research and development, manufacturing, general and administrative expenses and possible acquisitions of complementary companies, products or technologies. See “Use of Proceeds.”

Proposed NASDAQ Global Market symbol		TRBN

The number of shares of common stock that will be outstanding after this offering is based on 12,091,310 shares of our common stock outstanding at June 30, 2006, and excludes:


	•	1,561,132 shares of common stock issuable upon the exercise of options outstanding at June 30, 2006, at a weighted average exercise price of $3.14 per share,

	•	21,122 shares of common stock issuable upon exercise of options granted after June 30, 2006, at a weighted average exercise price of $10.13 per share, and

	•	558,522 shares of common stock available for future issuance under our 2006 Equity Incentive Plan.

Unless otherwise indicated, all information in this prospectus gives effect to:


	•	the automatic conversion of all shares of our outstanding convertible preferred stock into 10,652,057 shares of common stock effective upon the closing of this offering,

	•	no exercise by the underwriters of their right to purchase 600,000 additional shares of common stock to cover over-allotments, if any,

	•	the issuance and sale of 800,000 shares of common stock in the concurrent private placement to Wyeth at the assumed initial public offering price,

	•	the issuance of 14,354 shares of common stock pursuant to the automatic cashless net exercise of warrants upon the closing of this offering based on the assumed initial public offering price, and

	•	a 6.271 to 1 reverse split of our outstanding convertible preferred stock and common stock to be effective prior to the closing of this offering.

SUMMARY FINANCIAL DATA

The following tables summarize financial data regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the related notes included elsewhere in this prospectus. The statements of operations data for the years ended December 31, 2003, 2004 and 2005 are derived from our audited financial statements included elsewhere in this prospectus. The statements of operations data for the six months ended June 30, 2005 and 2006 and the balance sheet data as of June 30, 2006 are derived from our unaudited financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements contained in this prospectus and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. Our historical results are not necessarily indicative of the results to be expected in any future period, and the results for the six months ended June 30, 2006 are not necessarily indicative of results to be expected for the full year.


												Six Months Ended
			Year Ended December 31,									June 30,

			2003			2004			2005			2005			2006

			(in thousands, except share and per share data)
Statements of Operations Data:
Revenue			$	—		$	294		$	349		$	127		$	13,636

Operating expenses:
	Research and development			3,403			11,640			15,212			6,723			13,881
	General and administrative			2,294			2,851			4,146			1,739			5,069

		Total operating expenses		5,697			14,491			19,358			8,462			18,950

Loss from operations				(5,697	)		(14,197	)		(19,009	)		(8,335	)		(5,314	)
Net interest income (expense)				116			(16	)		278			152			856
Other expense				—			—			(134	)		—			(61	)

Loss before cumulative effect of change in accounting principle				(5,581	)		(14,213	)		(18,865	)		(8,183	)		(4,519	)
Cumulative effect of change in accounting principle				—			—			(62	)		—			—

Net loss			$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)	$	(4,519	)

Basic and diluted net loss per common share			$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)	$	(3.34	)

Shares used in the calculation of basic and diluted net loss per share				489,916			632,587			812,465			735,449			1,352,482
Pro forma net loss (unaudited)(1)									$	(18,731	)				$	(4,458	)

Pro forma net loss per share (unaudited)(1)(2)									$	(1.67	)				$	(0.37	)

Shares used to compute pro forma basic and diluted net loss per share (unaudited)(2)										11,198,723						12,004,539


(1)	Pro forma basic and diluted net loss per share is computed using the pro forma net loss which has been adjusted for other expense of $196,000 for the year ended December 31, 2005 and $61,000 for the six months ended June 30, 2006 attributable to the preferred stock warrants assumed to have been converted to common stock warrants.

(2)	Pro forma basic and diluted net loss per share is computed using the weighted average number of shares of common stock outstanding, after giving effect to (i) the automatic conversion of all shares of our convertible preferred stock outstanding as of December 31, 2005 and June 30, 2006 into 10,652,057 shares of common stock effective upon the closing of this offering, and (ii) the conversion of all convertible preferred stock warrants as of December 31, 2005 and June 30, 2006 into common stock warrants.


	As of June 30, 2006

							Pro Forma
	Actual			Pro Forma(1)			As Adjusted(2)(3)

	(in thousands)
Summary Balance Sheet Data:
Cash, cash equivalents and investments	$	38,563		$	38,563		$	99,615
Working capital		30,660			30,660			91,712
Total assets		51,404			51,404			112,456
Deferred revenue		35,777			35,777			35,777
Non-current portion of notes payable		835			835			835
Preferred stock warrant liability		343			—			—
Convertible preferred stock		45,753			—			—
Accumulated deficit		(44,186	)		(44,186	)		(44,186	)
Total stockholders’ equity (deficit)		(39,351	)		6,745			67,797


(1)	Reflects (i) the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2006 into 10,652,057 shares of common stock effective upon the closing of this offering, and (ii) the conversion of all convertible preferred stock warrants outstanding as of June 30, 2006 into common stock warrants.
(2)	Adjusts the pro forma information to reflect (i) the receipt of $49.9 million from the sale of 4,000,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the receipt of $11.2 million from the sale of 800,000 shares of common stock in the concurrent private placement to Wyeth at the assumed initial public offering price, and (iii) the issuance of 14,354 shares of common stock pursuant to the automatic cashless net exercise of warrants upon the closing of this offering based on the assumed initial public offering price.
(3)	A $1.00 increase (decrease) in the assumed public offering price of $14.00 per share would increase (decrease) each of cash, cash equivalents and investments, working capital, total assets and total stockholders’ equity (deficit) by $4.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

RISK FACTORS

You should carefully consider the risks described below before making an investment decision. Our business, prospects, financial condition or operating results could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks and you may lose all or part of your investment. In assessing the risks described below, you should also refer to the other information contained in this prospectus, including our financial statements and the related notes, before deciding to purchase any shares of our common stock.

Risks Related to our Business

Our success is dependent on the success of our lead product candidate, TRU-015, and we cannot be certain that it will receive regulatory approval or be successfully commercialized.

Our lead product candidate, TRU-015, is currently being evaluated in Phase IIa and Phase IIb clinical trials for the treatment of rheumatoid arthritis, or RA, and will require the successful completion of this and other planned Phase II and Phase III clinical trials before we are able to submit a New Drug Application, or NDA, to the U.S. Food and Drug Administration, or FDA, for approval. This process can take many years and require the expenditure of substantial resources. In December 2005, we entered into a collaboration agreement with Wyeth pursuant to which Wyeth is responsible for the regulatory approval process and any subsequent commercialization of TRU-015. Wyeth may not advance the development and commercialization of TRU-015 as quickly as we would like. Clinical trials involving the number of sites and patients required for FDA approval of TRU-015 may not be successfully completed. If these clinical trials fail to demonstrate that TRU-015 is safe and effective, it will not receive regulatory approval. Even if TRU-015 receives regulatory approval, it may never be successfully commercialized. If TRU-015 does not receive regulatory approval or is not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations.

We are a biopharmaceutical company with a limited operating history, have not generated revenue from product sales and face many risks inherent in our business. If we do not overcome these risks, our business will not succeed.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We commenced operations in March 1999, and since that time we have been engaged in research and development activities in connection with our SMIP custom drug assembly technology and our product candidates. We have never generated any revenue from product sales. We are seeking to design, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. As such, we are subject to all the risks described in this prospectus incident to the creation of new biological products and we may encounter unforeseen expenses, difficulties, complications and delays and other unknown factors. You also should consider that we will need to:


	•	obtain sufficient capital to support our efforts to develop our technology and create a pipeline of product candidates, and

	•	complete and continue to enhance the characteristics and development of our product candidates.

We have incurred operating losses in each year since our inception and expect to continue to incur substantial and increasing losses for the foreseeable future.

We have been engaged in designing and developing compounds and product candidates since 1999 and have not generated any product revenue to date. We had net losses of $5.6 million, $14.2 million, $18.9 million and $4.5 million for the years ended December 31, 2003, 2004, 2005 and the six months ended June 30, 2006, respectively. As of June 30, 2006, we had an accumulated deficit of $44.2 million. Since inception, we have incurred $44.4 million of research and development expenses. We expect our research and development expenses to continue to increase as we continue to design and develop compounds and product candidates. As a result, we expect to continue to incur substantial and increasing losses for the foreseeable future. We are uncertain when or if we will be able to achieve or sustain profitability. Failure to become and remain profitable

would adversely affect the price of our common stock and our ability to raise capital and continue operations. In addition, our net operating loss carry forwards and credits may be substantially exhausted as a result of the payments we received from Wyeth in January 2006 pursuant to our collaboration agreement, and any remaining net operating loss carry forwards and credits may be subject to an annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state law provisions.

There is no assurance that we will be granted regulatory approval for any of our product candidates.

The clinical trials of our product candidates are, and the manufacturing and marketing of our products will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical trials that the product candidate is safe and effective for use in each target indication. This process can take many years and require the expenditure of substantial resources and may include post-marketing studies and surveillance. To date, we have not successfully completed any Phase II or Phase III clinical trials. We are currently testing our lead product candidate, TRU-015, in an ongoing fully-enrolled Phase IIa clinical trial for the treatment of RA, and in September 2006, we initiated a Phase IIb clinical trial in the same indication. All of our other product candidates remain in the discovery and preclinical testing stages. The results from preclinical testing and clinical trials that we have completed may not be predictive of results in future preclinical tests and clinical trials, and there can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. There can be no assurance that regulatory approval will be obtained for any of our product candidates. If our product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing other product candidates and conducting related preclinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.

We are dependent upon our collaborative relationship with Wyeth to develop, manufacture and commercialize our lead product candidate, TRU-015, and other selected product candidates.

In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of our lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. We are also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 and established pursuant to the agreement. In addition, we have the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain the right to develop and commercialize, on our own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Although Wyeth is responsible for the development, manufacture and commercialization of product candidates directed to collaboration targets, including CD20, and the costs associated with such development, manufacture and commercialization, we are obligated to complete the ongoing Phase IIa study in RA, to conduct the recently initiated Phase IIb study in RA and to conduct niche indication registration studies for CD20 directed therapies. Any future payments, including royalties to us, will depend on the extent to which we and Wyeth advance product candidates through development and commercialization.

With respect to control over decisions and responsibilities, the collaboration agreement provides for a research committee and a development committee, consisting of representatives of Wyeth and us. Ultimate decision-making authority as to most matters within the collaboration, however, is vested in Wyeth. At any time after December 22, 2007, Wyeth may terminate the collaboration relationship in whole or in part without cause by giving 90 days written notice to us. Wyeth also has the right to terminate the agreement on a target-by-target basis, upon 60 days written notice, if any safety or regulatory issue arises that would have a material adverse effect on Wyeth’s ability to develop, manufacture or commercialize the product candidate directed to that target.

Our ability to receive any significant revenue from our product candidates covered by the collaboration agreement is dependent on the efforts of Wyeth. We cannot assure you that Wyeth will fulfill its obligations under this agreement or will develop and commercialize our product candidates as quickly as we would like. If Wyeth fails to fulfill its obligations under this agreement, we would need to obtain the capital necessary to fund the development and commercialization of our product candidates or enter into alternative arrangements with a third party. We could also become involved in disputes with Wyeth, which could lead to delays in or termination of our development and commercialization programs and time-consuming and expensive litigation or arbitration. If Wyeth terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing our product candidates would be materially and adversely affected.

Our relationship with Wyeth may have a negative effect on our ability to enter into relationships with third parties.

Any failure or delay in commencing or completing clinical trials for product candidates could severely harm our business.

Each of our product candidates must undergo extensive preclinical studies and clinical trials as a condition to regulatory approval. Preclinical studies and clinical trials are expensive and take many years to complete. To date we have not completed Phase II or Phase III clinical trials of any product candidate. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:


	•	our or our collaborators’ ability to obtain regulatory approval to commence a clinical trial,

	•	our or our collaborators’ ability to manufacture or obtain from third parties materials sufficient for use in preclinical studies and clinical trials,

	•	delays in patient enrollment and variability in the number and types of patients available for clinical trials,

	•	poor effectiveness of product candidates during clinical trials,

	•	unforeseen safety issues or side effects,

	•	governmental or regulatory delays and changes in regulatory requirements, policy and guidelines, and

	•	varying interpretation of data by the FDA and similar foreign regulatory agencies.

It is possible that none of our product candidates will complete clinical trials in any of the markets in which we or our collaborators intend to sell those product candidates. Accordingly, we or our collaborators may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.

We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or commercialize our product candidates.

We do not currently have the ability to conduct clinical trials, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to conduct our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general investigational plan and protocol. Moreover, the FDA requires us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.

Even if our product candidates receive regulatory approval, they could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

Any product candidate for which we receive regulatory approval, together with the manufacturing processes, post-approval clinical data, and advertising and promotional activities for such product, will be subject to continued review and regulation by the FDA and other regulatory agencies. Even if regulatory approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product candidate may be marketed or on the conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product candidate. Later discovery of previously unknown problems with our products or their manufacture, or failure to comply with regulatory requirements, may result in:


	•	restrictions on the products or manufacturing processes,

	•	withdrawal of the products from the market,

	•	voluntary or mandatory recalls,

	•	fines,

	•	suspension of regulatory approvals,

	•	product seizures, or

	•	injunctions or the imposition of civil or criminal penalties.

If we are slow or otherwise unable to adapt to changes in existing regulatory requirements, we may lose marketing approval for any approved products.

Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.

We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market. The approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the

risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.

Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.

Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third-party payors and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:


	•	our ability to provide acceptable evidence of safety and efficacy,

	•	the prevalence and severity of adverse side effects,

	•	availability, relative cost and relative efficacy of alternative and competing treatments,

	•	the effectiveness of our marketing and distribution strategy,

	•	publicity concerning our products or competing products and treatments, and

	•	our ability to obtain sufficient third-party insurance coverage or reimbursement.

If our product candidates do not become widely accepted by physicians, patients, third-party payors and other members of the medical community, our business, financial condition and results of operation would be materially and adversely affected.

If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.

Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:


	•	obtain patent and other proprietary protection for our technology, processes and product candidates,

	•	defend patents once issued,

	•	preserve trade secrets, and

	•	operate without infringing the patents and proprietary rights of third parties.

We currently have one patent that has issued in China. In addition, we have 23 U.S. and 52 foreign pending patent applications, although there is no guarantee that any of these patent applications will issue or grant. The degree of future protection for our proprietary rights is uncertain. For example:


	•	we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications,

	•	we might not have been the first to file patent applications for these inventions,

	•	others may independently develop similar or alternative technologies or duplicate any of our technologies,

	•	it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages,


	•	if our pending applications issue as patents, they may be challenged by third parties as not infringed, invalid or unenforceable under United States or foreign laws,

	•	if issued, the patents under which we hold rights may not be valid or enforceable, or

	•	we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.

The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, we cannot assure you that patent applications owned by or licensed to us will result in patents being issued, or that, if issued, the patents will give us an advantage over competitors with similar technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates.

Even if any or all of our patent applications issue as patents, others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. Further, we cannot assure you that any such challenge would not be successful. Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. We cannot assure you that our patents, if issued, will not be infringed or successfully avoided through design innovation. Intellectual property lawsuits are expensive and would consume time and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents, if issued, are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.

In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and we cannot assure you that others will not independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. We cannot assure you, however, that these agreements will provide effective protection of our information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.

If our SMIP technology or our product candidates, including TRU-015, conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us and on our collaboration agreement with Wyeth.

Our commercial success will depend in part on not infringing the patents or violating the proprietary rights of third parties. We are aware of intellectual property, including European patent No. EP-B-1176981, in which Genentech has an ownership interest with claims directed to the second medical use of an anti-CD20 antibody for treatment of RA. On August 8, 2006 we filed an opposition to this patent raising objections as to its validity. A copy of our opposition filing has been filed as an exhibit to the registration statement of which this prospectus forms a part.

examine the validity of the patent. Subsequent to the submission of our opposition, other parties filed oppositions to the Genentech patent prior to August 30, 2006, including MedImmune, Inc., Genmab A/S, Centocor, Inc. Glaxo Group Limited, Serono S.A. and Wyeth. We believe these additional opposition filings will not have a negative effect on our opposition. Final resolution of the opposition proceedings will likely take a number of years. In the meantime, the existence of opposition proceedings does not preclude Genentech from attempting to enforce its patent against third parties, including us and Wyeth.

Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties and we cannot be certain that we would be able to obtain such licenses at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our SMIP product technology, including the current expression system responsible for the production of the recombinant proteins used in our product candidates and including certain nucleic acids, originated from third party sources. These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and we cannot predict the outcome of any such action.

There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.

We cannot assure you that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.

The cost to us of any litigation or other proceedings relating to intellectual property rights, even if resolved in our favor, could be substantial. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. Uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations. Should third parties file patent applications, or be issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine priority of invention which could result in substantial costs to us or an adverse decision as to the priority of our inventions. An unfavorable outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license made available to us on commercially acceptable terms.

If any products we develop become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, our business could be harmed.

Our ability to commercialize any product candidate profitably will depend in part on the extent to which reimbursement for such product candidate and related treatments will be available from government health administration authorities, private health insurers or private payors, and other organizations in the United States and internationally. Even if we succeed in bringing one or more product candidates to market, these products may not be considered cost-effective, and the amount reimbursed for any product may be insufficient to allow us to sell it profitably. Because our product candidates are in the early stages of development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. There may be significant delays in obtaining coverage for newly approved products, and coverage may be more limited than the purposes for which the product candidate is approved by the FDA or foreign regulatory agencies. Moreover, eligibility for coverage does not mean that any product will be reimbursed in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Increasingly, the third-party payors who reimburse patients, such as government and private payors, are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. If the reimbursement we are able to obtain for any product we develop is inadequate in light of our development and other costs, our business could be harmed.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:


	•	decreased demand for our product candidates,

	•	impairment of our business reputation,

	•	withdrawal of clinical trial participants,

	•	costs of related litigation,

	•	substantial monetary awards to patients or other claimants,

	•	loss of revenues, and

	•	the inability to commercialize our product candidates.

Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $5 million aggregate annual limit, our insurance coverage may not reimburse us or may not be

sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.

We currently rely on a single manufacturer to supply our product candidates, which could delay or prevent the clinical development and commercialization of our product candidates.

We currently depend on a single manufacturer, Lonza Biologics for both the supply of our product candidates as well as certain development activities. Any disruption in production, inability of Lonza to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities, successfully complete preclinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all. The term of our agreement with Lonza for the production of TRU-015 for clinical trials and commercial use ends on December 31, 2010 unless we mutually agree to extend the term. In addition, Lonza may terminate the agreement if we do not file a biologics license application, or BLA, with the FDA for TRU-015, if our BLA is rejected by the FDA, or if we withdraw our BLA after it is accepted by the FDA. We may also terminate the agreement for convenience, if we are enjoined by judicial action from taking further steps to manufacture TRU-015 or if Lonza ceases to own or lawfully control any facility that is required to manufacture TRU-015. Either party may terminate the agreement if the other party breaches the agreement, is unable to perform as a result of circumstances outside of its control, becomes insolvent, is the subject of bankruptcy proceedings or has a receiver appointed for its property. If this agreement with Lonza is terminated, we may incur cancellation fees. On August 22, 2006, in connection with the anticipated transition of manufacturing responsibilities for TRU-015 to Wyeth, we cancelled an order for TRU-015 under our supply agreement with Lonza. Although the amount of cancellation fee, if any, has not yet been determined, to the extent we are liable for any such fee, Wyeth has agreed to reimburse us for all such amounts. The term of our agreement with Lonza for certain other development and manufacturing services ends when the services to be performed under the agreement are completed. We may also terminate the agreement for convenience and either party may terminate the agreement if the other party breaches the agreement, is unable to perform under the agreement, becomes insolvent, is the subject of bankruptcy proceedings or has a receiver appointed for its property. If this agreement with Lonza is terminated, we may incur cancellation fees.

Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize our product candidates, Lonza may need to increase its manufacturing capacity of our product candidates. We or Lonza may be required to fund capital improvements to support the scale-up of manufacturing and related activities. Lonza may not be able to successfully increase its manufacturing capacity for any of our product candidates for which we obtain marketing approval in a timely or economic manner, or at all. If Lonza is unable to provide commercial quantities of our product candidates, we will have to successfully transfer manufacturing technology to a third party. Engaging a new manufacturer could require us to conduct comparative studies or utilize other means to determine bioequivalence between product candidates manufactured by a new manufacturer and those previously manufactured by Lonza, which could delay or prevent our ability to commercialize our product candidates. If Lonza is unable or unwilling to increase its manufacturing capacity or we are unable to establish alternative arrangements on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.

Any manufacturer of our products must comply with current good manufacturing practice, or cGMP, requirements enforced by the FDA through its facilities inspection program. These requirements include

quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.

If we fail to obtain the capital necessary to fund our operations, we may be unable to develop our product candidates and we could be forced to share our rights to these product candidates with third parties on terms that may not be favorable to us.

We need large amounts of capital to support our research and development efforts. If we are unable to secure capital to fund our operations, we will not be able to continue our design and development efforts and we might have to enter into collaborations that could require us to share rights to our product candidates to a greater extent than we currently intend. Based on our current operating plans, we believe that our existing capital resources and the net proceeds from this offering and the concurrent private placement to Wyeth, together with interest thereon, will be sufficient to meet our financial obligations for at least the next 24 months. We may require additional capital after that period.

We may need to raise additional funds if we choose to expand more rapidly than we presently anticipate. We may seek to sell additional equity or debt securities, or both, or incur other indebtedness. The sale of additional equity or debt securities, if convertible, could result in the issuance of additional shares of our capital stock and could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we will be prevented from pursuing research and development efforts. This could harm our business, prospects and financial condition and cause the price of our common stock to fall.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. Our objective is to design, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. Because our strategy is to develop new product candidates for antigen targets on a cell’s surface that have been clinically validated as important in disease management by existing products or by potential products in late-stage clinical trials, our product candidates, if approved for marketing by regulatory authorities, are likely to compete with existing products that have a history of effective and safe use and with new therapeutic agents. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products.

TRU-015 Product. If approved for the treatment of RA, we anticipate that TRU-015 would compete with other marketed protein therapeutics for the treatment of RA including Rituxan^® (Genentech, Biogen Idec and Roche), the recently approved Orencia^® (BMS), Enbrel^® (Amgen and Wyeth), Remicade^® (JNJ and Shering-Plough) and HUMIRA^® (Abbott). Other CD20-directed therapies under development that could potentially be used in the treatment of RA include PRO70769 (Genentech and Biogen Idec), HuMax^®-CD20 (GenMab) and IMMU-106 (Immunomedics). Additional protein therapeutics under development that could potentially compete with TRU-015 include Actemra^® (Chugai and Roche) and CIMZIA^tm (UCB).

TRU-016 Program. If approved for the treatment of NHL or CLL, we anticipate that product candidates currently in our TRU-016 program would compete with other B cell depleting therapeutics. While we are not aware of any CD37-directed therapeutics in development or on the market, other biologic therapies are marketed for the treatment of NHL or CLL or both, such as Rituxan^®/ Mabthera^® (Genentech, Biogen Idec and Roche), Zevalin^® (Biogen Idec and Schering AG), BEXXAR^® (GSK) and Campath^® (Genzyme and Schering AG). Additional protein therapeutics under development that could potentially compete with product candidates in our TRU-016 program for the treatment of NHL or CLL or both include HuMax^®-CD20 (GenMab), HGS-ETR1 (HGSI and GSK), epratuzumab (Immunomedics), IDEC-152 (Biogen Idec), SGN-40 (Seattle Genetics) and CHIR-12.12 (Chiron).

Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:


	•	design and develop products that are superior to other products in the market,

	•	attract qualified scientific, medical, sales and marketing and commercial personnel,

	•	obtain patent and/or other proprietary protection for our processes and product candidates,

	•	obtain required regulatory approvals, and

	•	successfully collaborate with others in the design, development and commercialization of new products.

Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

If we are unable to establish a sales and marketing infrastructure or enter into collaborations with partners to perform these functions, we will not be able to commercialize our product candidates.

We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into collaborations with partners to perform these services for us. In December 2005, we entered into a collaboration agreement with Wyeth to develop and commercialize therapeutics directed to the CD20 protein and other targets. We may not, however, be able to enter into collaborations with respect to our product candidates not covered by the Wyeth collaboration agreement on acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without collaboration partners include:


	•	our inability to recruit and retain adequate numbers of effective sales and marketing personnel,

	•	the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products,

	•	the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines, and

	•	unforeseen costs and expenses associated with creating a sales and marketing organization.

If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.

The loss of members of our management team could substantially disrupt our business operations.

Our success depends to a significant degree upon the continued contributions of our management team, and particularly Peter A. Thompson, M.D. FACP, our President, Chief Executive Officer and Chairman of the Board. The loss of Dr. Thompson, whether from retirement, competing offers or other causes, could prevent us from executing our business strategy, cause us to lose a strategic partner or otherwise materially affect our operations. Dr. Thompson, as well as the rest of our management team and key employees, are at-will employees, and we do not maintain any key-person life insurance policies.

We rely on highly skilled personnel, and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to maintain our operations or grow effectively.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain qualified management, clinical and scientific personnel for all areas of our organization. In this regard, in anticipation of increased development and commercialization activities, we are currently planning to increase the total number of our full time employees from 72 as of September 30, 2006 to approximately 85 by December 31, 2006. As a result, we expect personnel costs to increase in the future. The increase in costs will depend on the timing and compensation of the new hires. If we are unable to hire and train a sufficient number of qualified employees for any reason, we may not be able to implement our development and commercialization activities or grow effectively. We have in the past maintained a rigorous, highly selective and time-consuming hiring process. We believe that our approach to hiring has significantly contributed to our success to date. However, our highly selective hiring process has made it more difficult for us to hire a sufficient number of qualified employees and, as we grow, our hiring process may prevent us from hiring the personnel we need in a timely manner. If we do not succeed in attracting qualified personnel and retaining and motivating existing personnel, our existing operations may suffer and we may be unable to grow effectively.

If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages.

Our research and development activities involve the use of potentially harmful biological materials as well as hazardous materials, chemicals and various radioactive compounds. We cannot completely eliminate the risk of accidental contamination or injury from the use, storage, handling or disposal of these materials. In the event of contamination or injury, we could be held liable for damages that result, and any liability could exceed our resources. We do not maintain liability insurance coverage for our handling of biological or hazardous materials. We, the third parties that conduct clinical trials on our behalf and the third parties that manufacture our product candidates are subject to federal, state and local laws and regulations governing the use, storage, handling and disposal of these materials and waste products. The cost of compliance with these laws and regulations could be significant. The failure to comply with these laws and regulations could result in significant fines and work stoppages and may harm our business.

Our management and auditors have identified a material weakness in our internal controls that, if not properly remediated, could result in material misstatements in our financial statements and the inability of our management to provide its report on the effectiveness of our internal controls as required by the Sarbanes-Oxley Act of 2002 for the year ending December 31, 2007, either of which could cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock.

We are not currently required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. However, in connection with our fiscal 2005 financial statement audit, our independent registered public accounting firm informed us that they had identified a material weakness in our internal controls as defined by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which our internal controls do not reduce to a low level the risk that misstatements caused by error or fraud in amounts that are

material to our audited financial statements may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions.

The material weakness reported by our independent registered public accounting firm relates to our periodic financial statement close process, and the lack of financial accounting and reporting expertise, a lack of sufficient levels of review and approval of the results of the closing procedures and a lack of a formal process to assess the accounting implications of complex transactions. Deficiencies related to the financial statement close process were compounded by our use of an unsophisticated accounting software package.

We are taking remedial measures to improve the effectiveness of our internal controls. Specifically, we will be:


	•	strengthening our internal staffing and technical expertise in financial and Securities Exchange Commission, or SEC, accounting and reporting,

	•	segregating duties within our accounting and finance department,

	•	upgrading our accounting software systems, and

	•	engaging an outside compliance consulting firm to advise us on improving our internal controls to take advantage of best practices.

We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify, including to effect compliance with Section 404 of the Sarbanes-Oxley Act of 2002 when we are required to make an assessment of our internal controls under Section 404 for the year ending December 31, 2007. However, the existence of a material weakness is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period, and the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures taken to date or to be taken in the future will remediate the material weakness noted by our independent public accounting firm or that we will implement and maintain adequate controls over our financial processes and reporting in the future. In addition, we cannot assure you that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

The standards required for a Section 404 analysis under the Sarbanes-Oxley Act of 2002 are significantly more stringent than those for a similar analysis for non-public companies. These more stringent standards require that our audit committee be advised and regularly updated on management’s review of internal controls. Our management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to us as a public company. If we are not able to timely remedy the material weakness identified in connection with our fiscal 2005 audit, or if we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, management may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could result in a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, if we fail to develop and maintain effective controls and procedures, we may be unable to provide the required financial information in a timely and reliable manner or otherwise comply with the standards applicable to us as a public company. Any failure by us to timely provide the required financial information could materially and adversely impact our financial condition and the market value of our securities.

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with corporate governance requirements, including requirements under

the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and The NASDAQ Global Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage than used to be available. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

Risks Related to this Offering


	*An active, liquid and orderly trading market for our common stock may not develop.*

Prior to this offering, there has been no public market for shares of our common stock. We and the underwriters will determine the initial public offering price of our common stock through negotiation. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares following this offering. In addition, the trading price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:


	•	quarterly variations in our results of operations or those of our collaborators or competitors,

	•	our ability to develop and market new and enhanced product candidates on a timely basis,

	•	announcements by us or our collaborators or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments,

	•	commencement of, or our involvement in, litigation,

	•	changes in governmental regulations or in the status of our regulatory approvals,

	•	changes in earnings estimates or recommendations by securities analysts,

	•	any major change in our board or management,

	•	general economic conditions and slow or negative growth of our markets, and

	•	political instability, natural disasters, war and/or events of terrorism.

In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our common stock shortly following this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $9.99 in net tangible book value per share from the price you paid, based on an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus). In addition, new investors who purchase shares in this offering, together with Wyeth, will contribute approximately 59% of the total amount of equity capital raised by us through the date of this offering, but will only own approximately 28% of the outstanding share capital and approximately 28% of the voting rights. The exercise of outstanding options and warrants will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see “Dilution.”


	*Future sales of shares by existing stockholders could cause our stock price to decline.*

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares outstanding as of June 30, 2006, upon completion of this offering, the concurrent private placement to Wyeth and the issuance of stock upon the automatic cashless net exercise of warrants, we will have outstanding a total of 16,905,664 shares of common stock, assuming no exercise of the underwriters’ over-allotment option. Of these shares, only the 4,000,000 shares of common stock sold in this offering by us will be freely tradable, without restriction, in the public market. Our underwriters, however, may, in their sole discretion, permit our officers, directors, Wyeth and other current stockholders who are subject to the contractual lock-up to sell shares prior to the expiration of the lock-up agreements.

We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus, although those lock-up agreements may be extended for up to an additional 34 days under certain circumstances. After the lock-up agreements expire, based on shares outstanding as of June 30, 2006, the concurrent private placement to Wyeth, and the issuance of stock upon the automatic cashless net exercise of warrants, up to an additional 12,905,664 shares of common stock will be eligible for sale in the public market, 10,845,255 of which shares of common stock are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements. In addition, 1,561,132 shares of common stock that are subject to outstanding options as of June 30, 2006 and the 558,522 shares reserved for future issuance under our 2006 Equity Incentive Plan will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the lock-up agreements and Rules 144 and 701 under the Securities Act. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our certificate of incorporation and bylaws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.

We have broad discretion in the use of the net proceeds from this offering and the concurrent private placement and may not use them effectively.

We will have broad discretion in the application of the net proceeds from this offering and the concurrent private placement to Wyeth and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. Our failure to apply these funds effectively could have a material adverse effect on our business, delay the development of our product candidates and cause the price of our common stock to decline.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This prospectus includes forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

This prospectus contains statistical data that we obtained from material published by Datamonitor, the American Cancer Society, the National Cancer Institute and others.

USE OF PROCEEDS

We estimate that we will receive net proceeds of $49.9 million from the sale of shares of common stock in this offering, based upon an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will also receive $11.2 million from the sale of 800,000 shares of common stock at the assumed initial public offering price in the concurrent private placement to Wyeth. A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) the net proceeds to us from this offering and the concurrent private placement to Wyeth by $4.5 million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $68.9 million.

The principal purposes of this offering are to create a public market for our common stock, to facilitate our future access to the public equity markets and to obtain additional capital. We will retain broad discretion in the allocation of the net proceeds of this offering. We currently intend to use the net proceeds of this offering together with the proceeds from the sale of our common stock to Wyeth for the following purposes and in the following amounts:


	•	approximately $39.7 million will be used for the development and commercialization of our research pipeline,

	•	approximately $15.3 million will be used for building infrastructure, such as small scale manufacturing capabilities, to support our business plan, and

	•	approximately $6.1 million will be used for general corporate purposes, including working capital.

In addition, we may choose to repay all or part of our credit facility with Comerica Bank. The credit facility has either a fixed interest rate or variable interest rate, which will be determined at the time of each advance from the facility. The credit facility has a maturity date of September 12, 2012. We will use the proceeds of this loan for tenant improvements and laboratory equipment. We have drawn $2.9 million of the loan as of September 30, 2006.

Notwithstanding the estimates above, the amounts and timing of our actual expenditures will depend upon numerous factors, including the status of our research and development efforts, the timing and success of preclinical testing, the timing and success of any clinical trials we may commence in the future, the timing of regulatory submissions, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, the amount of competition we face and our success in obtaining any required licenses and entering into collaboration arrangements. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business. However, we have no present understandings, commitments or agreements to enter into any potential acquisitions or investments.

We do not expect our existing capital resources and the net proceeds from this offering and the concurrent private placement to Wyeth to be sufficient to enable us to fund the completion of the development of any of our product candidates. We believe that our existing capital resources and the net proceeds from this offering and the concurrent private placement to Wyeth will be sufficient to enable us to complete our ongoing clinical trials and to maintain currently planned operations for the next 24 months, including:


	•	completion of a Phase IIb clinical trial for TRU-015 in rheumatoid arthritis that we initiated in September 2006,

	•	initiation and completion of a proof-of-concept study of TRU-015 for the treatment of SLE, and

	•	filing of an IND for TRU-016 in the second half of 2007.

However, the actual costs and timing of clinical trials are highly uncertain and subject to risk and will change depending upon the clinical indications targeted, the development strategy pursued and the results of earlier clinical trials.

Until we use the net proceeds of this offering, we intend to invest the funds in short-term, investment-grade, interest-bearing securities. We cannot predict whether the proceeds invested will yield a favorable return.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. Our loan and security agreement with Comerica Bank limit our ability to pay dividends. We currently expect to retain future earnings (if any) and do not expect to pay any dividends in the foreseeable future.

CAPITALIZATION

The following table sets forth our cash, cash equivalents and investments and our capitalization as of June 30, 2006, as follows:


	•	on an actual basis,

	•	on a pro forma basis reflecting (i) the automatic conversion of all shares of our convertible preferred stock outstanding as of June 30, 2006 into 10,652,057 shares of our common stock effective upon the closing of this offering, and (ii) the automatic conversion of all convertible preferred stock warrants outstanding as of June 30, 2006 into common stock warrants effective upon the closing of this offering, and

	•	on a pro forma as adjusted basis to give effect (i) to the issuance and sale by us of 4,000,000 shares of common stock in this offering, and the receipt of the net proceeds from our sale of these shares at an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (ii) to the issuance and sale by us of 800,000 shares of common stock in the concurrent private placement to Wyeth at the assumed initial public offering price, and (iii) to the issuance of 14,354 shares of common stock pursuant to the automatic cashless net exercise of warrants upon the closing of this offering based on the assumed initial public offering price.

You should read this table together with the sections of this prospectus entitled “Selected Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the related notes included elsewhere in this prospectus.


				As of June 30, 2006

										Pro Forma As
				Actual			Pro Forma			Adjusted(1)

				(in thousands, except share and per share
				data)
Cash, cash equivalents and investments(1)				$	38,563		$	38,563		$	99,615

Notes payable				$	1,868		$	1,868		$	1,868
Preferred stock warrant liability					343			—			—
Convertible preferred stock, $0.001 par value per share, 10,874,478 shares authorized, actual, none pro forma and pro forma as adjusted; 10,652,057 shares issued and outstanding, actual; no shares issued or outstanding, pro forma and pro forma, as adjusted					45,753			—			—
Stockholders’ equity (deficit):
	Preferred stock, $0.001 par value per share; 5,000,000 shares authorized, no shares issued or outstanding, pro forma and pro forma, as adjusted				—			—			—
	Common stock, $0.001 par value per share, 14,272,046 shares authorized, actual; 150,000,000 shares authorized, pro forma and pro forma as adjusted; 1,439,253 shares issued and outstanding, actual; 12,091,310 shares issued and outstanding, pro forma; 16,905,664 shares issued and outstanding, pro forma as adjusted				1			12			17
	Additional paid-in capital(1)				6,095			52,180			113,227
	Deferred stock-based compensation				(1,238	)		(1,238	)		(1,238	)
	Accumulated other comprehensive loss				(23	)		(23	)		(23	)
	Accumulated deficit				(44,186	)		(44,186	)		(44,186	)

		Total stockholders’ equity (deficit)(1)			(39,351	)		6,745			67,797

			Total capitalization(1)	$	8,613		$	8,613		$	69,665

(footnotes on next page)

(1)

A $1.00 increase (decrease) in the assumed public offering price of $14.00 per share would increase (decrease) each of cash, cash equivalents and investments, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by $4.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The table above excludes the following shares:


	•	1,561,132 shares of common stock issuable upon the exercise of options outstanding at June 30, 2006, at a weighted average exercise price of $3.14 per share,

	•	21,122 shares of common stock issuable upon the exercise of options granted after June 30, 2006, at a weighted average exercise price of $10.13 per share, and

	•	558,522 shares of common stock available for future issuance under our 2006 Equity Incentive Plan.

DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted pro forma net tangible book value per share of our common stock immediately after this offering.

Our historical net tangible book value as of June 30, 2006 was ($39.4) million, or ($27.34) per share, based on 1,439,253 shares of our common stock outstanding as of June 30, 2006. Historical net tangible book value per share is determined by dividing our total tangible assets less total liabilities and convertible preferred stock by the actual number of outstanding shares of our common stock. Our pro forma net tangible book value per share as of June 30, 2006 was $6.7 million, or $0.56 per share, based on 12,091,310 shares of common stock outstanding after giving effect to the automatic conversion of all shares of our outstanding convertible preferred stock into common stock and the conversion of all convertible preferred stock warrants into common stock warrants upon the closing of this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding before giving effect to this offering.

After giving effect to the sale and issuance of 4,000,000 shares of common stock in this offering at an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, the sale and issuance of 800,000 shares of common stock in the concurrent private placement to Wyeth at the assumed initial public offering price and the issuance by us of 14,354 shares of common stock pursuant to the automatic cashless net exercise of warrants upon the closing of this offering based on the assumed initial public offering price, our as adjusted pro forma net tangible book value at June 30, 2006 would have been $67.8 million, or $4.01 per share of common stock. This represents an immediate increase of net tangible book value of $31.35 per share to our existing stockholders and an immediate dilution of $9.99 per share to new investors purchasing shares in this offering. Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by a new investor. The following table illustrates this per share dilution:


Assumed initial public offering price per share of common stock					$	14.00
	Historical net tangible book value per share of common stock at June 30, 2006	$	(27.34	)
	Pro forma increase per share attributable to the automatic conversion of all outstanding shares of convertible preferred stock and the conversion of convertible preferred stock warrants		27.90

	Pro forma net tangible book value per share of common stock at June 30, 2006	$	0.56
	Pro forma decrease per net tangible book value per share attributable to the automatic cashless net exercise of preferred stock warrants	$	—
	Increase in pro forma net tangible book value per share attributable to the new investors		3.45

As adjusted pro forma net tangible book value per share after the offering and the private placement to Wyeth						4.01

Dilution per share to new investors purchasing shares in this offering					$	9.99

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) our as adjusted pro forma net tangible book value by $4.5 million, the as adjusted pro forma net tangible book value per share after the offering and the private placement to Wyeth by $4.28 per share and the dilution per share to the new investors purchasing shares in this offering by $10.72 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, at an assumed offering price of $14.00 per share, the as adjusted pro forma net tangible book value as of June 30, 2006 would have been $4.32 per share, representing an increase to existing stockholders of $31.66 per share and an immediate dilution of $9.68 per share to new investors purchasing shares in this offering.

The following table sets forth on an as adjusted basis, as of June 30, 2006, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid and the average price per share paid or to be paid by existing holders of common stock, by the new investors purchasing shares in this offering, and by Wyeth in the concurrent private placement, before deducting estimated underwriting discounts and estimated offering expenses payable by us.


		Shares Purchased					Total Consideration					Average
												Price Per
		Number		Percent			Amount		Percent			Share

Existing stockholders			12,091,310		72	%	$	45,931,000		41	%	$	3.80
New investors			4,000,000		24			56,000,000		49			14.00
Wyeth			800,000		4			11,200,000		10			14.00

	Total		16,891,310		100	%	$	113,131,000		100	%	$	6.70

A $1.00 increase (decrease) in the assumed initial public offering price of $14.00 per share would increase (decrease) total consideration by new investors and Wyeth by $4.5 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option in full, our existing stockholders would own 70%, our new investors would own 26% and Wyeth would own 4% of the total number of shares of our common stock outstanding after this offering.

The discussion and tables above are based on the number of shares of common stock outstanding at June 30, 2006. The discussion and tables above exclude the following shares:


	•	1,561,132 shares of common stock issuable upon the exercise of options outstanding at June 30, 2006, at a weighted average exercise price of $3.14,

	•	21,122 shares of common stock issuable upon the exercise of options granted after June 30, 2006, at a weighted average exercise price of $10.13 per share, and

	•	558,522 shares of common stock available for future issuance under our 2006 Equity Incentive Plan.

To the extent that outstanding options are exercised, new investors will experience further dilution.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the notes included elsewhere in this prospectus. This financial data includes the accounts of Genecraft, LLC for the years ended December 31, 2001 and 2002. The statements of operations data for the years ended December 31, 2003, 2004 and 2005 and balance sheet data as of December 31, 2004 and 2005 were derived from our audited financial statements that are included elsewhere in this prospectus. The statements of operations data for the six months ended June 30, 2005 and 2006 and balance sheet data as of June 30, 2006 were derived from our unaudited financial statements that are included elsewhere in this prospectus. The statements of operations data for the years ended December 31, 2001 and 2002 and balance sheet data as of December 31, 2001, 2002 and 2003 were derived from our financial statements not included in this prospectus. The financial statement data for the years ended December 31, 2001 and 2002 are unaudited. The unaudited financial statements were prepared on a basis consistent with our audited financial statements contained in this prospectus and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods, and the results for the six months ended June 30, 2006 are not necessarily indicative of results to be expected for the full year.


																		Six Months Ended
			Year Ended December 31,															June 30,

			2001			2002			2003			2004			2005			2005			2006

			(in thousands, except share and per share data)
Statements of Operations Data:
Revenue:
	Collaboration revenue		$	—		$	—		$	—		$	—		$	222		$	—		$	13,636
	Grant revenue			—			—			—			294			127			127			—

		Total revenue		—			—			—			294			349			127			13,636
Operating expenses:
	Research and development			29			278			3,403			11,640			15,212			6,723			13,881
	General and administrative			87			563			2,294			2,851			4,146			1,739			5,069

		Total operating expenses		116			841			5,697			14,491			19,358			8,462			18,950

Loss from operations				(116	)		(841	)		(5,697	)		(14,197	)		(19,009	)		(8,335	)		(5,314	)
Net interest income (expense)				—			(1	)		116			(16	)		278			152			856
Other expense				—			—			—			—			(134	)		—			(61	)

Loss before cumulative effect of change in accounting principle				(116	)		(842	)		(5,581	)		(14,213	)		(18,865	)		(8,183	)		(4,519	)
Cumulative effect of change in accounting principle				—			—			—			—			(62	)		—			—

Net loss			$	(116	)	$	(842	)	$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)	$	(4,519	)

Basic and diluted net loss per share			$	(0.61	)	$	(1.15	)	$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)	$	(3.34	)
Shares used to compute basic and diluted net loss per share				190,294			729,266			489,916			632,587			812,465			735,449			1,352,482


	As of December 31,
																As of June 30,
	2001			2002			2003			2004			2005			2006

	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and investments	$	15		$	13,420		$	7,105		$	13,944		$	9,909		$	38,563
Receivable from collaboration		—			—			—			—			40,000			5,819
Deferred revenue		—			—			—			—			39,778			35,777
Working capital		(76	)		12,713			6,188			11,503			37,881			30,660
Total assets		15			13,435			11,369			17,738			54,009			51,404
Non-current portion of notes payable		—			—			1,210			1,198			1,276			835
Preferred stock warrant liability		—			—			—			—			282			343
Convertible preferred stock		—			13,705			13,740			33,809			45,753			45,753
Total stockholders’ equity (deficit)		(75	)		(992	)		(6,538	)		(20,962	)		(37,902	)		(39,351	)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our financial statements that appear elsewhere in this prospectus. This discussion contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other comparable terminology. For example, statements regarding our expectations as to future financial performance, expense levels and liquidity sources are forward-looking statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.

Overview


	*Background*

We are a biopharmaceutical company creating a pipeline of product candidates to treat autoimmune disease and cancer. Our product candidates are novel proteins known as single-chain polypeptides and are designed using our SMIP custom drug assembly technology. These product candidates bind to specific antigen targets on a cell’s surface that have been clinically validated as important in disease management either by existing products or by potential products in late stage clinical trials. We believe our product candidates offer the potential for safer and more effective therapies than such existing or potential products. In less than 24 months, we designed, developed and submitted to the FDA an Investigational New Drug application, or IND, for our lead product candidate, TRU-015. Currently, TRU-015 is being tested in a Phase IIb clinical trial for the treatment of rheumatoid arthritis, which was initiated in September 2006. We completed enrollment of our Phase IIa clinical trial in February 2006.

In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of our lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. We are also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 and established pursuant to the agreement. In addition, we also have the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain the right to develop and commercialize, on our own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Unless earlier terminated, the collaboration agreement will remain in effect on a licensed product-by-licensed product basis and on a country-by-country basis until the later of, the date that any such product shall no longer be subject to a valid claim of a United States or foreign patent or application or, generally 10 years after the first commercial sale of any product licensed under the agreement.

We were organized in 1999 in the State of Washington as a limited liability company and reincorporated in October 2002 in the State of Delaware. To date, we have funded our operations primarily through the sale of preferred stock, strategic alliances, government grants and equipment financings.

From our inception to 2004, we focused on the development of our technology, the selection and preclinical testing of product candidates and the manufacture of clinical trial supplies. At the end of 2004, we filed our first IND for our lead product candidate, TRU-015. In 2005, we expanded our activities to include the clinical development of TRU-015 in a Phase I study in RA. The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of cGMP material. We expect expenditures associated with these activities to increase in future years as we continue the development of our product candidates. Expenditures associated with our product candidates included in the Wyeth collaboration will be substantially offset by reimbursement revenue from Wyeth.

In September 2006, we, in collaboration with Wyeth, initiated a Phase IIb clinical trial for TRU-015 in the treatment of RA, which we expect will result in expenditures significantly higher than in previous years. If this product candidate continues to progress, expenses for future Phase III clinical trials will be significantly higher than those incurred in Phase II clinical trials. However, these expenses will be substantially offset by reimbursement revenue from Wyeth. In addition, Wyeth is responsible for a substantial portion of costs related to patent prosecution and patent litigation, if any, for products directed to targets selected by Wyeth pursuant to the collaboration agreement.

We expect to hire a significant number of additional employees, increasing our total number of full time employees from 72 as of September 30, 2006 to approximately 85 by December 31, 2006, to support our expanded operations. We expect personnel costs to increase in the future as a result of the increase in the number of full time employees. The increase in costs will depend on the timing and compensation of the new hires.

Research and development expenses for 2003, 2004, 2005 and the six months ended June 30, 2006 were $3.4 million, $11.6 million, $15.2 million and $13.9 million, respectively. These expenses related to developing our SMIP custom drug assembly technology, preclinical studies, manufacturing and, during 2005 and 2006, clinical trials.

We have incurred significant losses since our inception. As of June 30, 2006, our accumulated deficit was $44.2 million and total stockholders’ deficit was $39.4 million. We recognized net losses of $5.6 million, $14.2 million, $18.9 million and $4.5 million in 2003, 2004, 2005 and the six months ended June 30, 2006, respectively. We expect our net losses to increase as we continue our existing preclinical studies, manufacturing and clinical trials, expand our research and development efforts, and add the necessary infrastructure to support operating as a publicly-held company.


	*Revenue*

We have generated approximately $14.3 million in revenue from inception through June 30, 2006, the majority of which was earned through our collaboration with Wyeth. Presently, revenue under our collaboration agreement with Wyeth consists of a non-refundable, non-creditable, up-front fee and collaborative research funding. In the future, revenue under our collaboration agreement with Wyeth may also include regulatory and sales milestones and product royalties. During 2005 and the six months ended June 30, 2006, we recognized as revenue $222,000 and $13.6 million, respectively, from the Wyeth collaboration. The $13.6 million is comprised of $4.0 million for amortization of the $40 million up-front fee and $9.6 million for collaborative research funding. Revenue associated with the up-front fee is deferred and recognized ratably over the estimated research and development period.


	*Research and Development Expenses*

The majority of our operating expenses to date have been for research and development activities. Research and development expenses consist of costs associated with research activities, as well as costs associated with our product development efforts, conducting preclinical studies and clinical trials and manufacturing costs. Research and development expenses, including those paid to third parties, are recognized as incurred. Research and development expenses include:


	•	external research and development expenses incurred pursuant to agreements with third party manufacturing organizations, contract research organizations and investigational sites,

	•	employee and consultant-related expenses, which include salaries and benefits,

	•	third party supplier expenses, and

	•	facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

At any time, we have many ongoing research projects. Our internal resources, employees and infrastructure are not directly tied to any individual research project and are typically deployed across multiple projects. Through our clinical development programs, we are developing each of our product candidates in parallel for multiple disease indications, and through our basic research activities, we are seeking to design potential drug candidates for multiple new disease indications. Due to the number of ongoing projects and our ability to utilize resources across several projects, we do not record or maintain information regarding the costs incurred for our research and development programs on a program specific basis. In addition, we believe that allocating costs on the basis of time incurred by our employees does not accurately reflect the actual costs of a project.

Our research and development activities can be divided into research and preclinical programs and clinical development programs. We estimate the costs associated with research and preclinical programs and clinical development programs approximate the following (in thousands):


							Six Months
	Year Ended December 31,						Ended June 30,

	2003		2004		2005		2005		2006

Research and preclinical programs	$	3,195	$	8,757	$	7,787	$	3,799	$	5,775
Clinical development programs		208		2,883		7,425		2,924		8,106

Total research and development	$	3,403	$	11,640	$	15,212	$	6,723	$	13,881

Research and preclinical program costs consist of costs associated with our product development efforts, conducting preclinical studies, personnel costs, animal studies, lab supplies and indirect costs such as rent, utilities and depreciation. Clinical development costs consist of clinical manufacturing, clinical trial site and investigator fees, personnel costs and indirect costs such as rent, utilities and depreciation. These costs have increased over time as we have increased headcount and scaled our manufacturing operations and clinical trials. Specifically, clinical development expenses increased in 2005 compared to 2004 due to the initiation of clinical trials for our lead product candidate, TRU-015.

The majority of our research and development programs are at an early stage and may not result in any approved products. Product candidates that may appear promising at early stages of development may not reach the market for a variety of reasons. Product candidates may be found to be ineffective or to cause harmful side effects during clinical trials, may take longer to pass through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy, we may enter into collaborative arrangements with third parties to complete the development and commercialization of our product candidates and it is uncertain which of our product candidates may be subject to future collaborative arrangements. The participation of a collaborative partner may accelerate the time to completion

and reduce the cost to us of a product candidate or it may delay the time to completion and increase the cost to us due to the alteration of our existing strategy.

As a result of the uncertainties discussed above, the uncertainty associated with clinical trial enrollments, and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical stages of our product candidates or when, or to what extent, we will generate revenue from the commercialization and sale of any of our product candidates. Development timelines, probability of success and development costs vary widely. Under our collaboration with Wyeth, we are responsible for completing the Phase IIa and IIb trials of TRU-015 for RA. In addition, we are responsible for conducting clinical studies for TRU-015 niche indications. While we are currently focused on developing TRU-015 and other SMIP product candidates with Wyeth and the product candidates in our TRU-016 program together with other SMIP product candidates that are outside of the collaboration, we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each product candidate, as well as an ongoing assessment as to the product candidate’s commercial potential. We anticipate developing additional product candidates, which will also increase our research and development expenses in future periods. We do not expect any of our current product candidates to be commercially available in major markets before 2010, if at all.


	*General and Administrative Expenses*

General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, accounting, business development, information technology, legal and human resources functions. Other general and administrative expenses include facility costs not otherwise included in research and development expenses, patent related costs and professional fees for legal, consulting and accounting services.


	*Cumulative Effect of Change in Accounting Principle*

In the third quarter of 2005, we adopted Financial Accounting Standards Board (“FASB”) Staff Position 150-5, Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable (“FSP 150-5”). This Staff Position affirms that freestanding warrants are subject to the requirements in Statement 150, regardless of the timing of the redemption feature or the redemption price and requires us to classify the warrants on our preferred stock as liabilities and adjust our warrant instruments to fair value at each reporting period. We adopted FSP 150-5 and accounted for the cumulative effect of the change in accounting principle as of the beginning of the third quarter of 2005. We recorded a $62,000 charge for the cumulative effect upon adoption as of July 1, 2005, reflecting the fair value of the warrants as of that date, and $134,000 of additional expense that was recorded in other expense in the period from July 1, 2005 through December 31, 2005, to reflect the increase in fair value of the warrants. For the six months ended June 30, 2006, we recorded $61,000 of additional expense as other expense to reflect the increase in fair value between January 1, 2006 and June 30, 2006.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported revenues and expenses during the reporting periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. The SEC considers an accounting policy to be critical if it is important to a company’s financial condition and results of operations, and if it requires the exercise of significant judgment and the use of estimates on the part of management in its application. We have discussed the selection and development of the critical accounting policies with the audit committee of our board of

directors, and the audit committee has reviewed our related disclosures in this prospectus. Although we believe that our judgments and estimates are appropriate, actual results may differ from those estimates.

We believe the following to be our critical accounting policies because they are both important to the portrayal of our financial condition and results of operations and they require critical management judgment and estimates about matters that are uncertain:


	•	revenue recognition,

	•	preclinical study and clinical trial accruals, and

	•	stock-based compensation.

If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See “Risk Factors” for certain matters that may affect our future results of operations or financial condition.


	*Revenue Recognition*

Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable and collection is reasonably assured. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items. The consideration received is allocated among the separate units of accounting based on their respective fair values when there is reliable evidence of fair value for all elements of the arrangement, otherwise consideration is allocated based on the residual value method. The applicable revenue recognition criteria are then applied to each of the separate units. Payments received in advance of work performed are recorded as deferred revenue and recognized when earned.

We recognize revenue from government grants and from our collaboration agreement with Wyeth. Grant revenue is recognized when the related qualified research and development expenses are incurred up to the limit of the approval funding amounts. Revenue from our collaboration agreement with Wyeth consists of a non-refundable, non-creditable, up-front fee, collaborative research funding, regulatory and sales milestones and future product royalties. Revenue related to the Wyeth collaboration is recognized as follows:


	Up-Front Fees and License Fees: Up-front fees and license fees received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the estimated term of the research and development service period. The basis of the research and development service period is reviewed and adjusted based on the status of the project against the estimated timeline as additional information becomes available.

	Collaborative Research Funding: Internal and external research and development costs are reimbursed in connection with collaboration agreements. Reimbursed costs are recognized as revenue in the same period the costs were incurred.

	Milestones: Payments for milestones based on the achievement of substantive and at risk-performance criteria will be recognized in full at such time as the specified milestone has been achieved according to the terms of the agreement. When payments are not for substantive and at-risk milestones, revenue will be recognized immediately for the proportionate amount of the payment that correlates to services that have already been rendered, with the balance recognized on a straight-line basis over the estimated remaining term of the research and development service period. As additional information becomes available, the basis of the research and development service period is reviewed and adjusted based on the status of the project against the estimated timeline.

	Royalties: Royalties based on reported sales of licensed products and revenues will be recognized based on contract terms when reported sales are reliably measurable and collectibility is reasonably assured.


	*Preclinical Study and Clinical Trial Accruals*

We estimate our preclinical study and clinical trial expenses based on our estimates of the services received pursuant to contracts with multiple research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. Preclinical study and clinical trial expenses include the following:


	•	fees paid to contract research organizations in connection with preclinical studies,

	•	fees paid to contract research organizations and other clinical sites in connection with clinical trials, and

	•	fees paid to contract manufacturers in connection with the production of components and drug materials for preclinical studies and clinical trials.

We record accruals for these preclinical study and clinical trial expenses based upon the estimated amount of work completed. All such costs are included in research and development expenses based on these estimates. Costs of setting up a preclinical study or clinical trial are expensed immediately. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and discussions with research institutions and organizations. However, if we have incomplete or inaccurate information, we may underestimate or overestimate activity levels associated with various preclinical studies and clinical trials at a given point in time. In this event, we could record significant research and development expenses in future periods when the actual activity level becomes known. To date, we have not made any material adjustments to our estimates of preclinical study and clinical trial expenses. We make good faith estimates that we believe to be accurate, but the actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. If any of our product candidates enter Phase III clinical trials, the process of estimating clinical trial costs will become more difficult because the trials will involve larger numbers of patients and clinical sites.


	*Stock-Based Compensation*

On January 1, 2006, we adopted the fair value recognition provisions of FASB Statement No. 123R, Share-Based Payment (“SFAS 123R”), which requires the measurement and recognition of compensation expenses for all future share-based payments made to employees and directors be based on estimated fair values. SFAS 123R supersedes our previous accounting for employee stock options using the minimum-value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), Financial Accounting Standards Board Interpretation (“FIN”) No. 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB 25, and related to interpretations, and the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure. In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123R. We have applied the provisions of SAB 107 in our adoption of SFAS 123R.

We adopted SFAS 123R using the prospective transition method. Under this method, compensation costs recognized during the six months ended June 30, 2006 include: (a) compensation costs for all share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based on the intrinsic value in accordance with the original provisions of APB 25 and (b) compensation costs for all share-based payment awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

As stock-based compensation expense recognized in our statement of operations for the six months ended June 30, 2006 is based on options ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the pro forma information required under SFAS 123 for the periods prior to fiscal 2006, we accounted for forfeitures as they occurred.

We also had a choice of two attribution methods for allocating compensation cost under SFAS 123R: the “straight-line” method, which allocates expense on a straight-line basis over the requisite service period of the last separately vesting portion of an award, or the “graded vesting attribution method,” which allocates expense on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. We chose the straight-line method.

We also chose to continue utilizing the Black-Scholes model as our chosen option-pricing model. We concluded that this was the most appropriate method with which to value our share-based payment arrangements, but if any share-based payment instruments should be granted for which the Black-Scholes method does not meet the measurement objective as stated within SFAS 123R, we will utilize a more appropriate method for valuing that instrument. However, we do not believe that any instruments granted to date and accounted for under SFAS 123R would require a method other than Black-Scholes in order to meet the measurement objective discussed above.

Our determination of the fair value of share-based payment awards on the grant date using option valuation models requires the input of highly subjective assumptions, including the expected price volatility and option life. As we have been operating as a private company, we are unable to use actual price volatility or option life data as input assumptions within our Black-Scholes valuation model.

In regards to the calculation of expected term, we chose to utilize the “simplified” method for “plain vanilla” options as discussed within SAB 107. We believe that all factors listed within SAB 107 as pre-requisites for utilizing the simplified method are true for us and our share-based payment arrangements. We currently intend to utilize the simplified method through December 31, 2007, at which point we anticipate that more detailed information about exercise behavior will be more widely available.

For the calculation of expected volatility, because we are a private company, and therefore lack company specific historical and implied volatility information, we based our estimate of expected volatility on the expected volatility of similar entities whose share prices are publicly available. We used the following factors to identify similar public entities: industry, stage of life cycle and the existence of at least one significant partnership. We intend to continue to consistently apply this process using the same similar entities until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified entities are no longer similar to us. In this latter case, more suitable, similar entities whose share prices are publicly available, would be utilized in the calculation.

In accordance with the prospective transition method, our financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Total employee stock-based compensation expense recognized under SFAS 123R for the six months ended June 30, 2006 was $2.6 million. Of the $2.6 million, $1.0 million was included in research and development expense and $1.6 million was included in general and administrative expense. As a result of the adoption of SFAS 123R, our net loss increased by approximately $1.2 million or $0.89 per share in the six months ended June 30, 2006. In addition, of the $2.6 million, $2.3 million was related to options granted or modified in 2006. As of June 30, 2006, total compensation related to nonvested options not yet recognized in the financial statements is approximately $8.9 million and the weighted-average period over which it is expected to be recognized is approximately 1.4 years. We have not recognized, and do not expect to recognize in the near future, any tax benefit related to employee stock-based compensation costs as a result of the full valuation allowance on our net deferred tax assets and our net operating loss carryforwards. We expect quarterly stock-based compensation expense to increase for the remainder of 2006.

For the year ended December 31, 2005, we granted options to employees to purchase a total of 372,183 shares of common stock at exercise prices ranging from $0.32 to $2.70 per share. For the six months ended June 30, 2006, we granted options to employees to purchase a total of 621,462 shares of common stock at exercise prices ranging from $6.53 to $9.35 per share. We did not obtain a contemporaneous valuation from an unrelated valuation specialist because, at the time these stock options were issued, we believed our estimates of the fair value of our common stock to be reasonable and consistent with our understanding of how similarly situated companies in our industry are valued. Given the absence of an active market for our

common stock, our board of directors determined the estimated fair value of our common stock on the date of grant based on several factors, including:


	•	the grants involved illiquid securities in a private company,

	•	the options are subject to vesting ratably (generally 1/4th after the first year, then ratably per month over the remaining three years or 1/48th per month over four years),

	•	the prices at which Series B preferred stock was issued by us to outside investors in arms-length transactions in July 2004 and February 2005, and the rights, preferences and privileges of the preferred stock relative to the common stock,

	•	important developments relating to advancement of our technology and clinical programs,

	•	our stage of development and business strategy,

	•	the status of our efforts to build our management team,

	•	the likelihood of achieving a liquidity event for the shares of common stock, such as an initial public offering or sale of our company, given prevailing market conditions,

	•	the state of the new issue market for similarly situated life science companies, and

	•	the market prices of various publicly held life science companies and the level of broad based life science stock indices.

In connection with the preparation of our financial statements necessary for this offering, we have reassessed the estimated fair value of our common stock in light of the expected completion of this offering. Stock-based compensation expense per share equals the difference between the reassessed fair value per share of our common stock on the date of grant and the exercise price per share and is amortized over the vesting period of the underlying option, generally four years using the straight-line method. In reassessing the fair value of our common stock for purposes of computing the stock-based compensation expense, we reassessed the fair value of the common stock assuming the successful completion of this offering and then determined the reassessed fair value at previous points in time. We also considered other material factors in reassessing fair value for financial reporting purposes as of the respective option grant dates, including the status of our Phase I/IIa clinical trial of TRU-015 throughout 2005, the nature of our discussions throughout 2005 with Wyeth and others regarding a collaboration arrangement and ultimately the execution of the Wyeth agreement in December 2005, valuations of existing comparable publicly traded companies, the state of the public offering market for early stage life sciences companies and our decision to pursue an initial public offering. In determining the reassessed fair value of our common stock during 2005, we established $15.61 as the reassessed fair value at December 31, 2005. We also then reassessed our estimate of fair value throughout 2005 concluding that the fair value of our common stock appreciated ratably over the twelve months. We believe this approach is consistent with valuation methodologies applied by other life science companies pursuing an initial public offering. For this and other reasons, the reassessed fair value used to compute the stock-based compensation expense may not be reflective of the fair market value that would result from the application of other valuation methods, including accepted valuation methods for tax purposes.

Based upon the reassessment discussed above, we determined that the reassessed fair value of the options to purchase 372,183 shares of common stock granted to employees during the year ended December 31, 2005 ranged from $2.88 to $14.36 per share and the reassessed fair value of the options to purchase 621,462 shares of common stock granted to employees during the six months ended June 30, 2006 ranged from $16.87 to $19.44 per share.

As of June 30, 2006, there were outstanding options to purchase 1,561,132 shares of common stock. Of these, 542,206 were vested with a weighted-average exercise price of $1.44 per share and 1,018,926 were unvested with a weighted-average exercise price of $4.01 per share. The intrinsic value of outstanding vested and unvested options based on the estimated initial public offering price of $14.00 was $17.0 million, based on 1,561,132 options outstanding at June 30, 2006.

We account for stock compensation arrangements with non-employees in accordance with SFAS 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, and

Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair value approach. For stock options granted to non-employees, the fair value of the stock options is estimated using the Black-Scholes valuation model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we make assumptions with respect to the expected life of the option, the volatility of the fair value of our common stock, risk free interest rates and expected dividend yields of our common stock. We have to date assumed that non-employee stock options have an expected life of ten years, representing their full contractual life, and assumed common stock volatility of 100%. Different estimates of volatility and expected life of the option could materially change the value of an option and the resulting expense.

Stock-based compensation expense is recognized over the period of expected service by the non-employee. As the service is performed, we are required to update these assumptions and periodically revalue unvested options and make adjustments to the stock-based compensation expense using the new valuation. These adjustments may result in higher or lower stock-based compensation expense in the statement of operations than originally estimated or recorded. Ultimately, the final compensation charge for each option grant to non-employees is unknown until those options have vested or services have been completed or the performance of services is completed. Stock-based compensation expense associated with these non-employee options was $4,000, $6,000, $242,000 and $97,000 for 2003, 2004, 2005 and the six months ended June 30, 2006, respectively. We expect stock-based compensation expense associated with non-employee options to fluctuate in the future based upon the volatility of our future stock price.

In addition, certain of our founders act as consultants to us and were issued shares of our common stock in 2001, which in November 2002 were made subject to repurchase rights that lapse over time. We record differences between the fair market value of our common stock and the issuance price as compensation expense as those repurchase rights lapse on a monthly basis. During the years ended December 31, 2003, 2004 and 2005 and the six months ended June 30, 2006, we recorded expense of $17,000, $17,000, $492,000 and $291,000, respectively, in conjunction with these shares.

We recorded approximately $3,000, $3,000, $102,000 and $75,000 of stock-based compensation during the years ended December 31, 2003, 2004 and 2005 and the six months ended June 30, 2006, respectively, related to restricted stock awards granted to members of our Scientific Advisory Board. Compensation expense is recorded using straight-line amortization in accordance with FIN No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

Results of Operations


	*Comparison of Six Months Ended June 30, 2005 and 2006*

Revenue. Revenue increased from $127,000 in the six months ended June 30, 2005 to $13.6 million in the six months ended June 30, 2006. This increase was due to revenue from the Wyeth collaboration comprised of $9.6 million for collaborative research funding and $4.0 million for amortization of the $40 million up-front fee. This up-front fee will be amortized over the term of the research and development period. We expect revenue to fluctuate in the future due to the timing of reimbursed legal, clinical and manufacturing development costs and the recognition of the associated collaborative research revenue.

Research and Development Expenses. Research and development expenses increased from $6.7 million in the six months ended June 30, 2005 to $13.9 million in the six months ended June 30, 2006. This increase was due primarily to increased manufacturing costs to support clinical trials for our lead product candidate, TRU-015, increased personnel-related expenses, increased clinical trial costs related to our lead product candidate, TRU-015 and an increase in lab supplies to support our research activities. Total stock-based compensation increased by $1.2 million in the six months ended June 30, 2006 compared to the same period in 2005. Research and development expenses represented 79% and 73% of total operating expenses in the six months ended June, 2005 and 2006, respectively. We expect research and development expenses to increase in the future due to increased manufacturing and clinical development costs primarily related to our TRU-015 product candidates, as well as the related expansion of our research and development organization, advancement of our preclinical programs and product candidate manufacturing costs.

General and Administrative Expenses. General and administrative expenses increased from $1.7 million in the six months ended June 30, 2005 to $5.1 million in the six months ended June 30, 2006. This increase reflects higher accounting and audit fees, an increase in fees related to filings for the protection of our intellectual property and increased personnel-related expenses incurred in anticipation of the requirements of operating as a publicly-held company. Total stock-based compensation increased by $1.5 million in the six months ended June 30, 2006 compared to the same period in 2005. We expect our general and administrative expenses to increase in the future as we add additional personnel and incur additional expense as a result of becoming a publicly traded company.

Net Interest Income (Expense). Net interest income (expense) increased from $152,000 in the six months ended June 30, 2005 to $856,000 in the six months ended June 30, 2006. The increase was due primarily to increases in our average cash balance in the first six months of 2006 compared to the same period in 2005. We expect net interest income (expense) to increase in 2006 as a result of higher cash balances due to our Wyeth collaboration as well as expected proceeds from this offering and the concurrent private placement to Wyeth, which will be partially offset by an increase in equipment financing interest expense.


	*Comparison of Years Ended December 31, 2004 and 2005*

Revenue. Revenue increased from $294,000 in 2004 to $349,000 in 2005. This increase was due to revenue from the Wyeth collaboration, which was partially offset by a reduction in government grant revenue as we completed our research under the grants and did not obtain additional government grants in 2005. Government grant revenue accounted for 100% of our revenue during 2004 and 36% of our revenue in 2005. In 2005, we recognized $222,000 in revenue of the $40 million up-front fee.

Research and Development Expenses. Research and development expenses increased from $11.6 million in 2004 to $15.2 million in 2005. This increase was due primarily to the initiation of clinical trials for our lead product candidate, TRU-015, and an increase in personnel-related expenses, including non-cash amortization of deferred stock-based compensation of $437,000. Research and development expenses represented 80% and 78% of total operating expenses in 2004 and 2005, respectively.

General and Administrative Expenses. General and administrative expenses increased from $2.9 million in 2004 to $4.1 million in 2005. This increase reflects an increase in personnel-related expenses, professional costs incurred in conjunction with the completion of the Wyeth collaboration and non-cash amortization of deferred stock-based compensation of $633,000.

Net Interest Income (Expense). Net interest income (expense) increased from $(16,000) in 2004 to $278,000 in 2005. This increase was due primarily to increases in our average cash balances in 2005 compared to 2004 as a result of our sale of preferred stock, as well as increased interest yields on cash and short-term investments from operating in an increasing interest rate environment.


	*Comparison of Years Ended December 31, 2003 and 2004*

Revenue. We recorded no revenue in 2003 and revenue was $294,000 in 2004. Government grant revenue accounted for 100% of our 2004 revenue.

Research and Development Expenses. Research and development expenses increased from $3.4 million in 2003 to $11.6 million in 2004. This increase was due primarily to increased manufacturing and pre-clinical study costs associated with TRU-015, as well as increased personnel and facilities expenses. Research and development expenses represented 60% and 80% of total operating expenses in 2003 and 2004, respectively.

General and Administrative Expenses. General and administrative expenses increased from $2.3 million in 2003 to $2.9 million in 2004. This increase was due primarily to increased personnel and administrative costs as well as an increase in legal fees.

Net Interest Income (Expense). Net interest income (expense) decreased from $116,000 in 2003 to $(16,000) in 2004. This decrease was due primarily to the initiation of an equipment lease and tenant improvement financing, which was partially offset by increases in our average cash balances in 2004 resulting from sale of preferred stock in July 2004.

Income Taxes

We were founded as a limited liability company in the State of Washington in March 1999, operating as a development stage company. We reincorporated in the State of Delaware in October 2002. Since inception, we have incurred operating losses and, accordingly, have not recorded a provision for income taxes for any of the periods presented. As of December 31, 2005, we had net operating loss carryforwards for federal income tax purposes of $36.5 million. We also had federal research and development tax credit carryforwards of $529,000. If not utilized, the federal net operating loss and tax credit carryforwards will expire beginning in 2025. Utilization of net operating loss and credit carryforwards may be subject to a substantial annual limitation due to limitations provided by the Internal Revenue Code of 1986, as amended, that are applicable if we experience an “ownership change” that may occur, for example, as a result of this offering aggregated with certain other sales of our stock before or after this offering. The annual limitation may result in the expiration of our net operating loss and tax credit carryforwards before they can be used.

In 2005, we recorded the $40 million up-front fee from Wyeth as a receivable and received the payment on January 3, 2006. There were no federal income taxes due in 2005 for this payment which is classified as future services to be performed for federal tax purposes. We are assessing whether there will be a taxable impact to our 2006 federal tax return and if so, what net operating loss carryforwards and tax credit carryforwards would be available and the size of any potential income tax payment. Our assessment will be based upon the financial results up through the effective date of the offering and the impact of a change due to Section 382 of the Internal Revenue Code that may occur as a result of the offering that may limit our ability to utilize our historical net operating loss carryforwards and tax credit carryforwards. Based on our current assessment of potential Internal Revenue Code Section 382 limitations, we expect that we will be able to offset any taxable income with net operating loss and tax credit carryforwards. A tax payment may become due if our net operating loss and tax credit carryforwards are insufficient to cover all of our 2006 taxable income.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through private placements of equity securities, receiving aggregate net proceeds from such sales totaling $45.4 million. We received additional funding from asset-based lease financings, interest earned on investments and government grants. In January 2006, we received $40 million from Wyeth for the payment of the up-front fee. As of June 30, 2006, we had $38.6 million in cash, cash equivalents and short-term investments and a $5.8 million receivable from Wyeth for collaborative research funding. Our cash and investment balances are held in a variety of interest bearing instruments, including obligations of United States government agencies, high credit rating corporate borrowers and money market accounts. Cash in excess of immediate requirements is invested with regard to liquidity and capital preservation.

Net cash used in operating activities was $4.7 million, $12.4 million and $15.2 million in 2003, 2004 and 2005, respectively. Net cash used in each of these periods was primarily a result of external research and development expenses, clinical trial costs, personnel-related costs, third party supplier expenses and professional fees. Net cash provided by operating activities was $31.1 million in the six months ended June 30, 2006 primarily due to the $40 million up-front fee received from Wyeth in January 2006, partially offset by the recognition of deferred revenue and the net loss during the period.

Net cash used in investing activities was $6.2 million and $7.9 million in 2003 and 2004, respectively, and net cash provided by investing activities was $3.2 million in 2005. Net cash used in investing activities for the six months ended June 30, 2006 was $29.3 million. Investing activities consist primarily of purchases and sales of marketable securities and capital purchases. Purchases of property and equipment were $3.4 million, $812,000, $1.5 million and $1.9 million in 2003, 2004, 2005 and the six months ended June 30, 2006, respectively. We expect to continue to make significant investments in property and equipment in 2006 as we expand our operations.

Net cash provided by financing activities was $1.7 million, $20.1 million and $12.7 million in 2003, 2004 and 2005, respectively. Net cash used in financing activities was $589,000 in the six months ended June 30,

2006. Financing activities consist primarily of the net proceeds from the sale of our preferred stock and equipment financing arrangements. In 2004 and 2005, we received net proceeds from the issuance of preferred stock of $20.5 million and $12 million, respectively. Proceeds from equipment financing arrangements, net of payments, were $1.7 million, $266,000 and $512,000 in 2003, 2004 and 2005, respectively.

We entered into a Loan and Security Agreement with Comerica Bank effective September 12, 2006. The terms of the Loan and Security Agreement provide for an $8 million debt facility secured by a security interest in our assets, other than intellectual property. We may request equipment and leasehold facility advances through September 12, 2007. Interest shall accrue from the date of each equipment advance and be payable monthly. Any equipment advances that are outstanding on September 12, 2007 shall be payable in sixty (60) equal installments of principal, plus all accrued interest, beginning on October 12, 2007.

The outstanding balances under the loan bear interest on a monthly basis at a variety of interest rates to be elected by us at the time of each advance ranging from a floating rate of prime to a fixed rate of 8.50% depending on the amount of our deposits with the bank. As of September 30, 2006, we had drawn $2.9 million of the loan.

Based on our current operating plans, we believe that our existing capital resources and the net proceeds from this offering and the concurrent private placement to Wyeth, together with interest thereon, will be sufficient to meet our financial obligations for at least the next 24 months. We have based this estimate on the $40 million non-refundable, non-creditable, up-front fee Wyeth paid to us in January 2006 and Wyeth’s committed annual research funding under the collaboration agreement exclusive of any third party reimbursements or milestones earned. We have estimated increased expenses, however, expense assumptions may prove to be incorrect, and we could utilize our available financial resources sooner than we currently expect. The key assumptions underlying this estimate include:


	•	expenditures related to continued preclinical and clinical development of our product candidates during this period will be within budgeted levels,

	•	unexpected costs related to the development of our manufacturing capability will not be material, and

	•	the hiring of a number of new employees at salary levels consistent with our estimates to support our continued growth during this period.

Our forecast of the period of time that our financial resources will be adequate to support operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in “Risk Factors.” In light of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we enter into collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with product development. Our future funding requirements will depend on many factors, including:


	•	milestone payments projected to be received under the Wyeth collaboration agreement,

	•	the hiring of a number of new employees at salary levels consistent with our estimates to support our continued growth during this period,

	•	the scope, rate of progress, results and costs of our preclinical testing, clinical trials and other research and development activities,

	•	the terms and timing of any additional collaborative or licensing agreements that we may establish,

	•	the cost, timing and outcomes of regulatory approvals,

	•	the number and characteristics of product candidates that we pursue,

	•	the cost of establishing clinical and commercial supplies of our product candidates,

	•	the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, and


	•	the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

We will need to raise additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, we may not be able to continue development of our product candidates or we could be required to delay, scale back or eliminate some or all of our development programs and other operations. We may seek to raise additional funds through public or private financing, strategic partnerships or other arrangements. Any additional equity financing may be dilutive to stockholders and debt financing, if available, may involve restrictive covenants. If we raise funds through collaborative or licensing arrangements, we may be required to relinquish, on terms that are not favorable to us, rights to some of our technologies or product candidates that we would otherwise seek to develop or commercialize ourselves. Our failure to raise capital when needed may harm our business and operating results.

Our future contractual obligations at June 30, 2006 were as follows:


	Payments Due by Period

Contractual Obligations	Total		6 Months		1-3 Years		3-5 Years		Thereafter

	(in thousands)
Notes payable (including interest)	$	2,093	$	678	$	1,321	$	94	$	—
Operating lease obligations		9,601		734		2,809		4,194		1,864
Manufacturing obligations(1)		16,103		7,603		8,500		—		—

Total	$	27,797	$	9,015	$	12,630	$	4,288	$	1,864

(1)

Refer to Note 9 to our financial statements for additional information. On August 22, 2006, in connection with the anticipated transition of manufacturing responsibilities for TRU-015 to Wyeth, we cancelled an order for TRU-015 under our supply agreement with Lonza. Although the amount of cancellation fee, if any, has not yet been determined, to the extent we are liable for any such fee, Wyeth has agreed to reimburse us for all such amounts.

Related Party Transactions

In 2002, as amended in 2004, we entered into a consulting agreement with Dr. Martha Hayden-Ledbetter, one of our co-founders and stockholders and the wife of our chief scientific officer. Dr. Hayden-Ledbetter has provided scientific consulting services to us since our inception. In 2001, Dr. Hayden-Ledbetter purchased 155,479 shares of restricted stock. In 2002, the purchase agreement was amended to restrict the shares with a three-year ratable vesting period. This restricted stock grant resulted in compensation expense of $10,000, $10,000, $227,000 and $0 in 2003, 2004, 2005 and the six months ended June 30, 2006, respectively. During the years 2003, 2004 and 2005 and the six months ended June 30, 2006, we paid $50,000, $83,000, $100,000 and $50,000, respectively, for Dr. Hayden-Ledbetter’s consulting services. As of December 31, 2004 and 2005 and June 30, 2006, no amounts were payable under the agreement.

In 2003, we entered into a consulting agreement with Dr. Lee Brettman, a member our board of directors, pursuant to which he provides, among other things, advisory services with respect to our clinical development planning, implementation and research and development prioritization. In connection with the consulting agreement, on January 28, 2004, Dr. Brettman purchased 15,947 shares of restricted common stock at the estimated fair market value. We have a repurchase right with respect to these shares exercisable upon termination of our relationship with Dr. Brettman. The repurchase right lapsed 25% on the date of the purchase with the remainder over the service period of three years. During 2005 and the six months ended June 30, 2006, we recorded $33,000 and $37,000, respectively, in stock based compensation related to this consulting agreement. We have not made any payments to Dr. Brettman under the consulting agreement.

Recent Accounting Pronouncements

In November 2005, the FASB issued Staff Position No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP 115-1”). FSP 115-1 provides

accounting guidance for identifying and recognizing other-than-temporary impairments of debt and equity securities, as well as cost method investments in addition to disclosure requirements. FSP 115-1 is effective for reporting periods beginning after December 15, 2005, and earlier application is permitted. We do not expect the adoption of FSP 115-1 to have a material effect on our results of operations or net loss per share.

Off-Balance Sheet Arrangements

Since inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

Market Risk Disclosure

Our exposure to market risk is primarily confined to our investment securities. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of investments in a variety of securities of high credit quality. As of June 30, 2006, we had short-term investments of $32.7 million. The securities in our investment portfolio are not leveraged, are classified as available for sale and, due to their very short-term nature, are subject to minimal interest rate risk. We currently do not hedge interest rate exposure. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a material negative impact on the realized value of our investment portfolio. We actively monitor changes in interest rates.

We contract with a manufacturer in Europe for the production and supply of our product candidates. We may be subject to exposure to fluctuations in foreign exchange rates in connections with this agreement. To date, the effect of the exposure to these fluctuations in foreign exchange rates has not been material, and we do not expect it to be material in the foreseeable future. We do not hedge our foreign currency exposures and have not used derivative financial instruments for speculation or trading purposes.

BUSINESS

Overview

We are a biopharmaceutical company creating a pipeline of product candidates to treat autoimmune disease and cancer. Our product candidates are novel proteins known as single-chain polypeptides and are designed using our SMIP custom drug assembly technology. These product candidates bind to specific antigen targets on a cell’s surface that have been clinically validated as important in disease management either by existing products or by potential products in late stage clinical trials. We believe our product candidates offer the potential for safer and more effective therapies than such existing or potential products. In less than 24 months, we designed, developed and submitted to the FDA an Investigational New Drug application, or IND, for our lead product candidate, TRU-015. Currently, TRU-015 is being tested in a Phase IIb clinical trial for the treatment of rheumatoid arthritis which was initiated in September 2006. We completed enrollment of our Phase IIa clinical trial in February 2006. In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of certain therapeutics, including TRU-015.


	•	TRU-015 for the Treatment of Rheumatoid Arthritis. According to Datamonitor, rheumatoid arthritis, or RA, is estimated to affect approximately 4.3 million people in the United States, Japan and Europe. In 2005, total reported worldwide sales of protein therapeutics used for the treatment of RA were $7.6 billion. In February 2006, rituximab (Rituxan^®), a CD20-directed therapy, was approved by the FDA for treatment of refractory RA. Total worldwide sales of protein therapeutics for the treatment of RA are expected to grow to $10 billion in 2010.


		In February 2006, we completed enrollment in a Phase IIa study in RA patients designed to demonstrate proof of concept that TRU-015 improves disease activity. Clinical disease activity parameters such as tender and swollen joint counts, patient and physician global assessments, patient assessment of pain and disability, and laboratory measures of inflammation may be combined to form composite measures of clinical response derived from the American College of Rheumatology that are known as ACR20, ACR50, and ACR70. In these measures of clinical response, ACR70 indicates a greater response from a baseline measure than ACR20, which is defined as an improvement of at least 20% from baseline in counts of both tender and swollen joints, as well as in at least three of five other disease activity parameters. In the first 24 weeks after receiving intravenous infusions of TRU-015, 72% of the subjects experienced a clinical response that is equal to or greater than that required to achieve an ACR20 response, 28% achieved an ACR50 response and 14% achieved an ACR70 response. In September 2006, we initiated a Phase IIb clinical trial to test a larger dose range in the second half of 2006.


	•	TRU-015 for the Treatment of Systemic Lupus Erythematosus. According to Datamonitor, systemic lupus erythematosus, or SLE, is estimated to affect 236,000 people in the United States. Worldwide, the prevalence of SLE varies significantly on a country-by-country basis. Testing of TRU-015 for the treatment of SLE in the clinic has not begun. Currently, no protein therapeutics have been approved specifically for the treatment of SLE.

	•	TRU-016 Program. Our TRU-016 program targets CD37 for the treatment of non-Hodgkin’s lymphoma, or NHL, and chronic lymphocytic leukemia, or CLL. According to the American Cancer Society, NHL is the fifth most common cancer and is estimated to affect 350,000 people, with approximately 56,000 new cases diagnosed each year. Also, according to Datamonitor, CLL is estimated to affect 70,000 people in the United States, with approximately 10,000 new cases

diagnosed each year. Total reported worldwide sales of Rituxan^®/ MabThera^®, the leading biologic for NHL, were approximately $3.2 billion in 2005. Subject to satisfactory completion of preclinical testing of TRU-016, we expect to file an IND for TRU-016 in the second half of 2007. If the results of these preclinical tests are unsatisfactory, we will not be able to file an IND.

In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of our lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. We are also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 established pursuant to the agreement. In addition, we have the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain the right to develop and commercialize, on our own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Unless earlier terminated, the collaboration agreement will remain in effect on a licensed product-by-licensed product basis and on a country-by-country basis until the later of, the date that any such product shall no longer be subject to a valid claim of a United States or foreign patent or application or, generally, 10 years after the first commercial sale of any product licensed under the agreement.

In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable, up-front fee in January 2006 and will purchase directly from us in a private placement concurrent with this offering shares of our common stock at the initial public offering price in an amount equal to 20% of the number of shares sold in this offering. Wyeth’s future financial obligations to us also include collaborative research funding commitments of up to $9 million in exchange for a commitment by us to provide an agreed upon number of full-time employees per year to provide services in furtherance of the research program, which amount is subject to a decrease in the event of an early termination of the research program, or an increase in the event of an extension of such program. These future financial obligations include as well additional amounts for reimbursement of agreed external research and development costs. Wyeth is also obligated to make payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to targets other than CD20 that have been and are to be selected by Wyeth pursuant to the agreement. In addition, we will receive royalty payments on future licensed product sales. Wyeth may terminate the agreement without cause at any time after December 22, 2007.

SMIP Custom Drug Assembly

Our custom drug assembly technology permits us to build to predetermined specifications protein therapeutics we call small immunopharmaceuticals, or SMIP, products. By selecting from our polypeptide libraries and uniquely combining polypeptides called hinge domains, effector domains and binding domains, we create customized SMIP product candidates that are intended to bind to a specified target cell and elicit specific biological activity in a targeted disease state. These SMIP product candidates can be specifically engineered to have an optimal half-life, or the ability to maintain effective concentrations in vivo, and are approximately one-half the size of monoclonal antibodies, or mAbs, a leading form of protein therapeutic directed to the treatment of a wide range of disease states including autoimmune disease and cancer. We believe that our SMIP product candidates retain the beneficial characteristics of mAbs, such as binding to specific target antigens and predictable biological activity, and that the small size of our SMIP product candidates may facilitate tissue penetration in certain disease states such as cancer, resulting in increased therapeutic benefit. As a result, we believe that our custom drug assembly technology enables us to rapidly design and develop SMIP product candidates for a range of targets and biological activity that have the following advantages:


	•	Customizable Biological Activity. SMIP product candidates can be specifically engineered to provide a precise balance of complement dependent cytotoxicity, or CDC, and/or antibody-dependent cellular cytotoxicity, or ADCC, mediated activity. We believe our ability to customize this balance of biological activities will result in safer and more effective immunopharmaceuticals.


	•	Customizable Half-Life. SMIP product candidates can be specifically engineered to have an optimal half-life, or the ability to maintain effective concentrations in vivo, for a given indication. This should permit them to be used in treating both acute and chronic disease indications.

	•	Improved Biodistribution. SMIP product candidates have a particle size that is approximately one-half the size of mAbs. The smaller size of SMIP product candidates enables greater penetration into diseased tissues, which we believe will provide increased therapeutic benefits.

	•	Reliable Manufacturing. We believe that SMIP product candidates can be produced at large scale in mammalian cell expression systems from readily available starting materials.


	*SMIP Product Candidates: Design and Assembly*

Each of our SMIP product candidates contains a binding domain, a hinge domain and an effector domain. Because of the simple structure of SMIP product candidates, our custom drug assembly technology permits us to engineer desired characteristics into each domain so we can rapidly design and develop novel product candidates for a range of targets, as well as a range of differentiated product candidates for any particular target. Each SMIP product candidate is specifically designed to meet predetermined therapeutic specifications for biological activity and binding activity based on our biological assessment of the validated target in the proposed disease indication. Biological activity and binding activity are the two most important characteristics of a protein immunotherapeutic. The diagram below is a representation of the steps in our assembly process.


	•	Biological Activity. Our SMIP product candidates are assembled by first selecting from our polypeptide libraries a Hinge Domain and Effector Domain designed to elicit specific biological activity. For example, one desired biological activity may be for the immune system to kill the cell on which the target antigen is present. We select a unique Hinge Domain and Effector Domain combination based on the targeted disease to trigger the death of the cell to which the SMIP product candidate is bound. This can be through the initiation of the complement cascade causing CDC, by recruiting other immune cells to kill the cell through ADCC, or by using an engineered balance of both activities. In addition, the combination of Hinge Domain and Effector Domain may be engineered to generate cellular signals through the antigen target leading to, for example, the death of the cell through apoptosis or programmed cell death.

	•	Binding Activity. The next step is to pair a selected Hinge Domain and Effector Domain with an appropriate Binding Domain from our polypeptide libraries. The Binding Domain recognizes and attaches to a specific antigen target, which results in initiation of the desired biological activity. Examples of target antigens include cell surface receptors on target cells such as B cells. The Binding

Domain may be composed of any polypeptide that specifically recognizes and binds to the target antigen. Examples of binding domains include polypeptide ligands such as hormones, cytokines, chemokines or cell surface or soluble receptors for such polypeptide ligands as well as binding domains derived from immunogloulin molecules such as single chain Fv polypeptides.


	*Limitations of Other Immunopharmaceuticals*

The development of therapeutic immunopharmaceuticals, including mAbs and other antibody alternatives, has advanced and facilitated drug development and treatment for a wide range of disease states. The therapeutic benefits of these compounds, however, are often limited due to their large size, which results in compromised tissue penetration and difficulties in the engineering and optimization of their biological activity. Current alternatives to mAbs, including antibody fragments, have been designed to result in a small size, but have limitations including loss of important biological activity, shortened in vivo half-life and low expression levels that, either alone or in combination, can reduce therapeutic potential and limit commercial feasibility.

Our Product Candidates

Our current product candidates target B cells. B cells are important to the basic functioning of the body’s immune system. In addition to producing antibodies that attack and kill bacteria and viruses circulating within the body, they also help recruit and coordinate other types of immune system cells to perform specialized functions in the body’s fight against disease and infection. When B cells fail to appropriately distinguish the body’s own cells, tissues or organs from foreign pathogens or proteins, the mistaken identification can result in the B cells initiating an immune response against healthy cells, which results in an autoimmune disease that can lead to progressive disability. Autoimmune diseases include RA, SLE, multiple sclerosis, type 1 diabetes and Graves’ disease. As a group, autoimmune diseases are among the most prevalent illnesses in the United States, affecting up to 8% of the population or up to 24 million people. In addition, when B cells become malignant or otherwise multiply uncontrollably, they can result in cancers known as lymphomas, leukemias and myelomas.

The following table sets forth the development stage of our TRU-015 compound and our TRU-016 program:



Product
Candidate	Disease Indication	Development Stage	Partner

TRU-015	Rheumatoid Arthritis	• Phase IIa enrollment completed • Phase IIb initiated	Wyeth

TRU-015	Systemic Lupus Erythematosus	• Preclinical testing	Wyeth

TRU-016 Program	Non-Hodgkin’s Lymphoma and Chronic Lymphocytic Leukemia	• Preclinical development • IND expected to be filed in the 2nd half of 2007	None


	*TRU-015*

We designed TRU-015 for a desired therapeutic label surrounding B cell depletion in multiple indications, including autoimmune diseases and different types of cancer. TRU-015 binds to its target, CD20, and is engineered to promote specific biological activity designed for safety and efficacy. Specifically, general systemic complement activation is thought to initiate or exacerbate symptoms in RA patients. There is evidence that CDC may be associated with certain side effects, particularly infusion reactions observed in currently marketed protein immunopharmaceuticals. We have designed TRU-015 for reduced CDC activity, while preserving potent ADCC activity and apoptotic signaling.


	*Rheumatoid Arthritis*

Background. RA is an autoimmune disease characterized by inflammation of the joint lining, called the synovium. In RA, a person’s immune system attacks the synovium, resulting in the thickening of the normally thin membrane and degradation of the cartilage and bone at the joint. Though the primary symptoms of RA are pain, stiffness and swelling of joints, additional symptoms may include fatigue, weakness, muscle pain and lumps of tissue under the skin. Tissue damage from the inflammation ultimately results in deformity and disability.

Potential Market. According to Datamonitor, RA is estimated to affect approximately 4.3 million people are affected by RA in the United States, Japan and Europe. Total reported worldwide sales of protein therapeutics used for the treatment of RA were $7.6 billion in 2005 and are expected to grow to $10 billion in 2010. Because approximately two-thirds of the RA patient population experiences pain, stiffness and fatigue on a daily basis notwithstanding the administration of currently available treatments, we believe that there is a large unmet medical need in the RA patient population for an effective drug therapy.

Current Treatments. Initially, a patient presenting symptoms of RA is typically prescribed non-steroidal anti-inflammatory drugs, or NSAIDS. As the disease progresses, the RA patient may be prescribed a regimen of disease modifying antirheumatic drugs, or DMARDS, an anti-tumor necrosis factor, or anti-TNF, or other biologics. Patients taking a combination of therapies that include biologics are estimated to be 20% of the RA population. Most biologics currently on the market for RA attempt to block the activity of immune system cytokines, which are chemical messengers thought to be associated with the autoimmune reactions, joint inflammation and bone damage characteristic of RA. These biologics include anti-TNF drugs such as infliximab (Remicade^®), etanercept (Enbrel^®), adalimumab (HUMIRA^®) and the anti-interleukin-1 drug anakinra (KINERET^®). Biologics are typically administered to patients with moderate to severe RA who need therapy in addition to NSAIDS or DMARDS. In addition to biologics that target immune system cytokines, abatacept (Orencia^®), a drug that targets co-receptors on T cells, has recently been approved for RA, as has rituximab (Rituxan^®), which is a mAb that, like TRU-015, is targeted to the CD20 antigen.

TRU-015 Clinical Trial Results. We initiated clinical development of TRU-015 in January 2005 and completed enrollment in a Phase I dose escalation study in RA patients in July 2005. In February 2006, we completed enrollment in a double-blind, placebo controlled Phase IIa study in RA patients with active disease to evaluate improvement in disease activity. In September 2006, we initiated a double-blind, placebo controlled Phase IIb study in RA patients with active disease to evaluate the effect of a single infusion ranging from 200 mg to 1,600 mg per patient. As of September 30, 2006, a limited number of serious adverse events have been reported from the Phase I and Phase IIa trials, none of which have been considered by the clinical investigator to be associated with TRU-015.

The Phase I study included 37 RA patients on background methotrexate who were enrolled into one of eight dosage groups with each subject receiving TRU-015 as an intravenous infusion. Patients received either a single dose of TRU-015 at 0.015 mg/kg, 0.05 mg/kg, 0.15 mg/kg, 0.5 mg/kg, 1.5 mg/kg, 5 mg/kg or 15 mg/kg. The last cohort received a total dose of 30 mg/kg of TRU-015 as two 15 mg/kg infusions administered one week apart. Endpoints of this study included safety, pharmacokinetic evaluation and pharmacodynamics as measured by the number of circulating B cells in the peripheral blood. Each participant was evaluated for safety during and after the infusion and at pre-specified time points throughout the study period. Blood samples for safety evaluations, pharmacokinetic testing, and pharmacodynamics were obtained at pre-specified intervals. All subjects were maintained in the study until B cell counts returned approximately to baseline or to the normal range.

We observed a dose dependent response in both the degree and duration of B cell depletion, as illustrated in the figure below.

Our Phase IIa study is a double-blinded, placebo-controlled, multi-center trial of TRU-015 administered intravenously to RA patients. All subjects were required to have active disease with background methotrexate and were randomized to receive either TRU-015 or placebo at a ratio of 10 active to two placebo at one of three dosage levels: 5 mg/kg given as a single intravenous infusion; 5 mg/kg given as two intravenous infusions of 2.5 mg/kg administered one week apart; or 15 mg/kg administered as two intravenous infusions of 7.5 mg/kg administered one week apart. Endpoints of this study include safety, pharmacokinetic evaluation and pharmacodynamics. In this study, the pharmacodynamics are measured not only by the number of circulating B cells, but also by clinical disease activity parameters such as tender and swollen joint counts, patient and physician global assessments, patient assessment of pain and disability, and laboratory measures of inflammation. These measures may be combined to form composite measures of clinical response derived from the American College of Rheumatology preliminary definition of improvement, also known as the ACR20, ACR50, and ACR70. In these measures of clinical response, ACR70 indicates a greater response from a baseline measure than ACR20, which is defined as an improvement of at least 20% from baseline in counts of both tender and swollen joints, as well as in at least three of five other disease activity parameters. Historically, demonstrated improvement in ACR20 measurements with minimal toxicity has been the basis for approval from the FDA.

Our ongoing Phase IIa study is designed to demonstrate proof of concept that the B cell depletion associated with TRU-015 therapy translates into improvements of disease activity. This study is not designed to detect differences in clinical responses between different dose cohorts or differences between patients receiving TRU-015 and patients receiving a placebo. To date, 37 subjects have been enrolled in the study, 31 of whom have been treated with TRU-015 and 6 of whom have been treated with placebo. With respect to the 29 subjects with active RA at study baseline who have been treated with TRU-015, in the first 24 weeks after receiving intravenous infusions of TRU-015, 72% of the subjects have experienced a clinical response that is equal to or greater than that required to achieve an ACR20 response, 28% have achieved an ACR50 response and 14% have achieved an ACR70 response.

TRU-015 has been generally well tolerated in clinical trials. No dose limiting toxicities have been observed and all planned dose levels have been administered. Exposure to TRU-015 has been approximately dose proportional and the terminal half-life ranged from 281- 409 hours. Serum concentrations of TRU-015 were measured at pre-determined intervals. To date, we have not observed the development of any neutralizing antibodies against TRU-015 in study patients.

Recent FDA Approval of CD20-Directed Therapies in RA. Rituximab (Rituxan^®) is a mAb that is targeted to the CD20 antigen, and was previously approved for the treatment of non-Hodgkins lymphoma. In February 2006, it was approved for marketing in the United States by the FDA for the treatment of patients with moderate to severe RA who have failed one or more anti-TNF therapies. The recommended dose and schedule for rituximab (Rituxan^®) in RA is two intravenous infusions of 1 gm each separated by two weeks, in combination with continued methotrexate (10 to 25 mg weekly). Patients given this regimen show B cell depletion for at least six months with some showing B cell depletion for over three years. There is no recommended treatment for patients with symptomatic RA and concomitant B cell depletion. We believe that the dose-dependent B cell depletion shown by TRU-015 will allow us to choose a dose and schedule that offers similar or greater efficacy while improving safety as a result of a shorter period of B cell depletion. Additionally, the rituximab (Rituxan^®) product label contains warnings related to infusion reactions, including fatal infusion reactions. We believe that the attenuated CDC activity of TRU-015 relative to rituximab (Rituxan^®) may allow for safer infusion protocols. TRU-015 is a smaller molecule than rituximab (Rituxan^®) and should diffuse more rapidly to disease sites. We believe that this characteristic of TRU-015 may allow it to show greater efficacy or more rapid onset of action in future studies.

TRU-015 Planned Clinical Development. In September we commenced a randomized, double-blind, placebo-controlled Phase IIb clinical trial for the treatment of RA with endpoints including clinical response rates.


	*Systemic Lupus Erythematosus*

Background. SLE is our second major indication for TRU-015. Testing of TRU-015 for the treatment of SLE in the clinic has not yet begun. SLE is a debilitating, chronic inflammatory autoimmune disease characterized by the presence of auto-reactive antibodies. It can cause disease of skin, internal organs, and the nervous system. Some of the most common symptoms include extreme fatigue, painful or swollen joints, fever, skin rashes and kidney problems.

SLE is a chronic condition with episodic periods of disease activity, known as flares, and periods of remission. Currently, there is no cure for SLE, and symptomatic treatment is used in an effort to prevent flares or treat them when they occur. We believe that B cell-depletion therapy is a promising approach towards a targeted therapy in SLE.

Potential Market. According to Datamonitor, SLE is estimated to affect 236,000 people in the United States. We believe there is a large unmet medical need in the SLE patient population in that SLE patients have a death rate three times higher than that of the general population notwithstanding that most patients are young and middle-aged individuals.

Current Treatment. No protein therapeutics have been approved specifically for use in the treatment of SLE. Current drug therapies are predominantly palliative in nature and are targeted to the patient’s specific symptoms. Different medications are used to treat specific manifestations of SLE. Treatments include acetaminophen and/or NSAIDs, immunosuppressants such as methotrexate and cylcophosphamide, corticosteroids such as methylprednisolone and antimalarials such as hydroxychloroquine.


	*Commercialization Rights*

Our collaboration agreement with Wyeth includes a worldwide licensing and commercialization agreement for the development of TRU-015 and other therapies. We retain an option to co-promote with Wyeth, on customary terms to be agreed, CD20-targeted therapies in the United States for niche indications. See “Business — Our Strategic Collaboration with Wyeth.”


	*TRU-016 Program*

Our TRU-016 program is focused on the development of a novel CD37-targeted therapy for NHL and CLL, two types of B cell malignancies. We believe that a CD37-targeted therapy may provide patients with improved therapeutic options or benefits that may work alone or in conjunction with CD20-targeted immunopharmaceuticals. CD37 is a clinically validated target for the treatment of B cell malignancies and the product candidates in our TRU-016 program have been designed for a desired therapeutic label surrounding B cell depletion in these B cell malignancies. CD37 is found at high levels on B cells and at lower levels on a subpopulation of T cells and myeloid cells. Experiments suggest that CD37 plays an important role in B cell regulation. In addition, CD37 is known to be highly overexpressed in patients with CLL.


	*Non-Hodgkin’s Lymphoma and Chronic Lymphocytic Leukemia*

Patients with NHL refractory to chemotherapy have demonstrated partial responses as well as complete responses with an acceptable safety profile when taking a radiolabeled CD37-directed mAb. In our TRU-016 program we have assembled and are designing SMIP product candidates selected for in vivo efficacy in preclinical models. Efficacy has been demonstrated in tumored rodents for monotherapy with selected SMIP product candidates. In addition, as shown below, combination therapy with TRU-016 SMIP product candidates and CD20-directed therapy with rituximab (Rituxan^®) has shown greater efficacy than either therapy alone.

Background. B cells and T cells are the two major types of lymphocytes responsible for defending the body against infection. Lymphocytic malignancies arise when these cells multiply uncontrollably. NHL is a diverse group of lymphocytic malignancies, approximately 85 percent of which are B cell malignancies. CLL is a type of cancer affecting the blood and bone marrow. It is a slowly progressing disease and in most patients the abnormal proliferating lymphocytes are clonal B cells arrested in the differentiation pathway between pre-B cells and mature B cells.

Potential Market. NHL is the fifth most common cancer, and according to the American Cancer Society, affects approximately 350,000 people in the United States, with approximately 56,000 new cases diagnosed each year. According to the National Cancer Institute, CLL is estimated to affect 70,000 people in the United States. Approximately 10,000 new cases of CLL are diagnosed each year according to the American Cancer Society. Rituximab (Rituxan^®/ Mabthera^®) was approved for the treatment of NHL in 1997. Total reported worldwide sales of Rituxan^®/ Mabthera^® were approximately $3.2 billion in 2005.

Despite the success of biologics such as rituximab (Rituxan^®/ Mabthera^®), we believe there is an unmet medical need in the NHL and CLL patient community in that many patients do not respond to current treatments, and for those that do respond, nearly all become refractory. In addition, current biologics such as

rituximab (Rituxan^®/ Mabthera^®) are administered in combination with a chemotherapy protocol which results in severe side effects. Our goal is to design and develop SMIP product candidates that target and deplete B cells through CD37 to provide patients with improved therapeutic options, including therapies that work in conjunction with chemotherapy or CD20-targeted therapies.

Current Treatments. While available NHL and CLL therapies include chemotherapy, radiation therapy, surgery and bone and stem cell transplantation, biologics have become the standard of care to treat these cancers. Biologic therapies for NHL include interferon and mAbs such as rituximab (Rituxan^®/ Mabthera^®), tositumomab (BEXXAR^®) and ibritumomab tiuxetan (Zevalin^®). These mAbs all target CD20 on B cells, and tositumomab and ibritumomab tiuxetan are radiolabeled. Alemtuzumab (Campath^®) is a CD52-targeted mAb indicated for CLL.

Planned Clinical Development. We are currently analyzing our lead compounds to identify a development candidate and we intend to file an IND in the second half of 2007.


	*Other Product Candidates*

We have developed additional proprietary SMIP product candidates, some of which have advanced from design concept to in vitro testing in as few as six weeks. Based on our experience to date, we expect that new product candidates can move from product design to in vivo testing within nine months.

Our Strategic Collaboration with Wyeth

In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of our lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. We are also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 established pursuant to the agreement. In addition, we have the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain the right to develop and commercialize, on our own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Unless earlier terminated, the collaboration agreement will remain in effect on a licensed product-by-licensed product basis and on a country-by-country basis until the later of, the date that any such product shall no longer be subject to a valid claim of a United States or foreign patent or application or, generally, 10 years after the first commercial sale of any product licensed under the agreement.

In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable up-front fee in January 2006 and will purchase directly from us in a private placement concurrent with this offering shares of our common stock at the initial public offering price in an amount equal to 20% of the number of shares sold in this offering. Wyeth’s future financial obligations to us also include collaborative research funding commitments of up to $9 million in exchange for a commitment by us to provide an agreed upon number of full-time employees per year to provide services in furtherance of the research program, which amount is subject to a decrease in the event of an early termination of the research program, or an increase in the event of an extension of such program. These future financial obligations include as well additional amounts for reimbursement of agreed external research and development costs. Wyeth is also obligated to make payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to targets other than CD20 that have been and are to be selected by Wyeth pursuant to the agreement. In addition, we will receive royalty payments on future licensed product sales. Wyeth may terminate the agreement without cause at any time after December 22, 2007.

Our relationship with Wyeth with respect to CD20 is mutually exclusive. This means that neither of us can pursue the development or commercialization of any protein therapeutic directed to CD20 outside of the collaboration. This exclusive arrangement will continue with respect to development activities related to such target until the earlier to occur of the first commercial sale in a major indication of a protein therapeutic directed to such target and developed under the collaboration or the termination of the agreement, if earlier,

and with respect to commercialization activities until the earlier to occur of the five year anniversary of first commercial sale in a major indication of a protein therapeutic directed to such target and developed under the collaboration or the termination of the agreement, if earlier.

Also as part of the agreement, we agreed to continue the clinical development of TRU-015 for RA through completion the Phase IIb study, which commenced in September 2006. Substantially all of the costs we incur in connection with these clinical trials will be reimbursed by Wyeth.

Each of the other targets selected by Wyeth at the time we entered into the collaboration was identified by its GenBank accession number provided by the National Center for Biotechnology Information, or if no accession number existed, by its nucleotide and amino acid sequence, and saved to a secure computer server. Each drug target is potentially associated with various disease indications. Wyeth is required to release an agreed number of target candidates from the list by specified dates and may substitute a limited number of new target candidates for previously designated target candidates.

We are free, by ourselves, or with third parties, to pursue development and commercialization of targets that were initially selected by us to remain outside of the collaboration. Prior to entering into any collaboration with a third party, or advancing any research and development activities beyond a preliminary assessment of the scientific, biochemical, clinical, market and intellectual property rationales supporting a potential product candidate, an employee in our legal department will electronically query the list to determine if at that time it includes the target candidate in which we or such third party collaborator are interested. If the identified target candidate is not on the Wyeth list at the time of our query, we are free, by ourselves, or with third parties, to pursue development and commercialization of such target. In addition, if the identified target candidate is on the list, we may, during the first 18 months of the collaboration agreement, and thereafter without limitation, “put” to Wyeth up to two such target candidates. Upon any such “put”, Wyeth must, during the first year of the collaboration, and after the first year of such collaboration, act within 90 and 30 days, respectively, of each such “put” to designate such target candidate as a Wyeth target within the collaboration. If Wyeth acts to so designate a target, it will have exclusive worldwide development and commercialization rights related to such target. If it fails to make any such designation, we are thereafter free to pursue the development and commercialization of product candidates to that target either by ourselves or in collaboration with others. In addition, upon termination of the research program established under the collaboration agreement, Wyeth will have no further rights under such agreement with respect to target candidates initially listed by it and that have not, at such time, been designated by it as subject to the agreement.

With respect to control over decisions and responsibilities, the collaboration agreement provides for a research committee and a development committee, consisting of representatives of Wyeth and us. Ultimate decision-making authority as to most matters within the collaboration, however, is vested in Wyeth. At any time after December 22, 2007, Wyeth may terminate the collaboration in whole or in part without cause by giving us 90 days written notice. Wyeth also has the right to terminate the agreement on a target by target basis, upon 60 days written notice, if any safety or regulatory issue arises that would have a material adverse effect on Wyeth’s ability to develop, manufacture or commercialize the product candidate directed at that target. Either party may terminate the collaboration in the event of an uncured material breach of the other party.

Upon a change of control of either party, the agreement would remain in effect, subject to the right of the party not undergoing the change in control to terminate specified provisions of the agreement.

Our Business Strategy

Our objective is to leverage the skills of our management team to design, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. Our management, scientific and clinical team has an established record of successful development and commercialization of large market pharmaceuticals. Our business model is designed to reduce clinical development risks by developing product candidates directed to specific antigen targets on a cell’s surface that have been clinically validated as important in disease management either by existing products or by potential products in late-stage clinical trials. As a result, we expect to invest in the clinical development of differentiated product candidates that have demonstrated superior safety and efficacy to existing products in animal models that we believe correlate

to human clinical experience. Finally, our SMIP custom drug assembly technology produces product candidates efficiently both in terms of time and capital, which we believe will permit us to create a large pipeline of product candidates with reduced clinical development risks. In connection with this, the key elements of our strategy are to:


	•	Customize our SMIP Product Candidates to Improve upon Currently Marketed and Development Stage Therapeutics in Large Market Indications. We currently develop product candidates that act against biologic targets that have been clinically validated either by existing products or by potential products in late-stage clinical trials. Because we are able to customize our SMIP product candidates for specific binding, biological activity, and in vivo half-life, and as a result of their smaller size, we believe we can improve upon currently marketed and development stage therapeutics.

	•	Selectively Partner our SMIP Product Candidates. We intend to selectively partner the development and commercialization of product candidates that require a significant capital investment or specialized expertise. For example, we believe that our collaboration with Wyeth will accelerate the clinical development of TRU-015 across multiple autoimmune diseases and cancer types, as well as the development of other product candidates directed to targets included within our collaboration.

	•	Further Develop our own Pipeline of SMIP Product Candidates. We intend to internally develop product candidates from our pipeline that fit within our therapeutic areas of expertise and which we believe we can develop and commercialize successfully on our own.


	•	Maintain and Expand our Proprietary Technology and Intellectual Property Position. We have 23 U.S. and 52 foreign pending patent applications surrounding certain composition of matter and selected methods of use for this novel class of compounds.

Competition

The pharmaceutical and biotechnology industries are intensely competitive, and any product candidate developed by us would compete with existing drugs and therapies. There are many pharmaceutical companies, biotechnology companies, public and private universities, government agencies and research organizations actively engaged in research and development of products targeting the same markets as our product candidates. Many of these organizations have substantially greater financial, technical, manufacturing and marketing resources than we have. Several of them have developed or are developing therapies that could be used for treatment of the same diseases that we are targeting. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:


	•	design and develop products that are superior to other products in the market,

	•	attract and retain qualified scientific, product development and commercial personnel,

	•	obtain patent and/or other proprietary protection for our product candidates and technologies,

	•	obtain required regulatory approvals, and

	•	successfully collaborate with pharmaceutical companies in the design, development and commercialization of new products.

We expect to compete on, among other things, product efficacy and safety, time to market, price, extent of adverse side effects and the basis of and convenience of treatment procedures. In order to compete successfully, we will need to identify, secure the rights to and develop products and exploit these products commercially before others are able to develop competitive products. In addition, our ability to compete may be affected if insurers and other third-party payors seek to encourage the use of generic products, making branded products less attractive to buyers from a cost perspective.

We believe that our product development programs will be subject to significant competition from companies utilizing alternative technologies. In addition, as the principles of our SMIP product candidates become more widely known and appreciated based on patent and scientific publications and regulatory filings,

we expect the field to become highly competitive. Pharmaceutical companies, biotechnology companies and academic and research institutions may succeed in developing products based upon the principles underlying our proprietary technologies earlier than us, obtaining approvals for such products from the FDA more rapidly than us or developing products that are safer, more effective and/or more cost effective than those under development or proposed to be developed by us.

Our research and development efforts are at an early stage. Our objective is to discover, develop and commercialize new protein therapeutics with superior efficacy, convenience, tolerability and safety. To the extent that we are able to develop therapeutics, they are likely to compete with existing drugs that have long histories of effective and safe use and with new therapeutic agents. We expect that any therapeutics that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products.

TRU-015 Product. If approved for the treatment of RA, we anticipate that TRU-015 would compete with other marketed protein therapeutics for the treatment of RA including Rituxan^® (Genentech, Biogen Idec and Roche), which, before its approval for RA, generated $3.2 billion in worldwide sales in 2005; the recently approved Orencia^® (BMS); Enbrel^® (Amgen and Wyeth), which generated $3.7 billion in worldwide sales in 2005; Remicade^® (JNJ and Shering-Plough), which generated $2.5 billion in worldwide sales in 2005; and HUMIRA^® (Abbott), which generated $1.4 billion in worldwide sales in 2005. Other CD20-directed therapies under development that could potentially be used in the treatment of RA, including PRO70769 (Genentech and Biogen Idec), HuMax^®-CD20 (GenMab) and IMMU-106 (Immunomedics). Additional protein therapeutics under development that could potentially compete with TRU-015 include Actemra^® (Chugai and Roche) and CIMZIA^tm(UCB).

TRU-016 Program. If approved for the treatment of NHL or CLL, we anticipate that product candidates currently in our TRU-016 program would compete with other B cell depleting therapies. While we are not aware of any CD37-directed therapeutics in development or on the market, other biologic therapies are marketed for the treatment of NHL or CLL or both, such as Rituxan^®/ Mabthera^® (Genentech, Biogen Idec and Roche), Zevalin^® (Biogen Idec and Schering AG), BEXXAR^® (GSK) and Campath^® (Genzyme and Schering AG). Additional protein therapeutics under development that could potentially compete with product candidates in our TRU-016 program for the treatment of NHL or CLL or both include HuMax^®-CD20 (GenMab), HGS-ETR1 (HGSI and GSK), epratuzumab (Immunomedics), IDEC-152 (Biogen Idec), SGN-40 (Seattle Genetics) and CHIR-12.12 (Chiron).

Intellectual Property

Because of the length of time and expense associated with bringing new products through development and the governmental approval process, pharmaceutical and biotechnology companies have traditionally placed considerable importance on obtaining and maintaining patent protection for significant new technologies, products and processes.

We intend to seek patent protection for appropriate proprietary technologies by filing patent applications when possible in the United States and selected other countries. Our policy is to seek patent protection for the inventions that we consider important to the development of our business. We intend to continue using our scientific expertise to pursue and file patent applications on new developments with respect to uses, methods and compositions to enhance our intellectual property position in the areas that are important to the development of our business. We have applied, and are applying, for patents directed to our SMIP technology and product candidates and aspects of our technology both in the United States and, when appropriate, in other countries. We currently have one patent that has issued in China. In addition, we have 23 U.S. and 52 foreign pending patent applications.

However, even if we are granted patents by government authorities or obtain them through licensing, there can be no assurance that our patents will provide significant protection, competitive advantage or commercial benefit. The validity and enforceability of patents issued to pharmaceutical and biotechnology companies has proven highly uncertain. For example, legal considerations surrounding the validity of patents in the fields of pharmaceuticals and biotechnology are in transition, and we cannot assure you that the

historical legal standards surrounding questions of validity will continue to be applied or that current defenses relating to issued patents in these fields will be sufficient in the future. In addition, we cannot assure you as to the degree and range of protections any of our patents, if issued, may afford us or whether patents will be issued. For example, patents which may issue to us may be subjected to further governmental review that may ultimately result in the reduction of their scope of protection, and pending patent applications may have their requested breadth of protection significantly limited before being issued, if issued at all. Further, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot assure you that we were the first creator of inventions covered by our pending patent applications, or that we were the first to file patent applications for these inventions.

Many pharmaceutical and biotechnology companies and university and research institutions have filed patent applications or have received patents in our areas of product development. Many of these entities’ applications, patents and other intellectual property rights could prevent us from obtaining patents or could call into question the validity of any of our patents, if issued, or could otherwise adversely affect the ability to develop, manufacture or commercialize product candidates. In addition, certain parts of our SMIP product technology, including the current expression system responsible for the production of the recombinant proteins used in our product candidates and including certain nucleic acids, originated from third party sources. These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if a conflicting patent issued to others is upheld in the courts or if a conflicting patent application filed by others is issued as a patent and is upheld, we may be unable to market one or more of our product candidates, or we may be required to obtain a license to market those product candidates. To contend with these possibilities, we may have to enter into license agreements in the future with third parties for technologies that may be useful or necessary for the manufacture or commercialization of some of our product candidates. In addition, we are routinely in discussions with academic and commercial entities that hold patents on technology or processes that we may find necessary in order to engage in some of our activities. However, we cannot assure you that these licenses, or any others that we may be required to obtain to market our product candidates, will be available on commercially reasonable terms, if at all, or that we will be able to develop alternative technologies if we cannot obtain required licenses.

To protect our rights to any of our patents, if issued, and proprietary information, we may need to litigate against infringing third parties, or avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights. These types of proceedings are often costly and could be very time-consuming to us, and we cannot assure you that the deciding authorities will rule in our favor. An unfavorable decision could allow third parties to use our technology without being required to pay us licensing fees or may compel us to license needed technologies to avoid infringing third-party patent and proprietary rights. Although we believe that we would have valid defenses to allegations that our current product candidates, production methods and other activities infringe the valid and enforceable intellectual property rights of any third parties, we cannot be certain that a third party will not challenge our position in the future. Even if some of these activities were found to infringe a third party’s patent rights, we may be found to be exempt from infringement under 35 U.S.C. § 271(e) to the extent that these are found to be pre-commercialization activities related to our seeking regulatory approval for a product candidate. However, the scope of protection under 35 U.S.C. § 271(e) is uncertain and we cannot assure you that any defense under 35 U.S.C. § 271(e) would be successful. Further, the defense under 35 U.S.C. § 271(e) is only available for pre-commercialization activities, and could not be used as a defense for sale and marketing of any of our product candidates. There has been, and we believe that there will continue to be, significant litigation in the biopharmaceutical and pharmaceutical industries regarding patent and other intellectual property rights.

Nevertheless, third parties could bring legal actions against us claiming we infringe their patents or proprietary rights, and seek monetary damages and/or to enjoin clinical testing, manufacturing and marketing of the affected product or products. If we become involved in any litigation, it could consume a substantial portion of our resources, and cause a significant diversion of effort by our technical and management personnel regardless of the outcome of the litigation. If any of these actions were successful, in addition to any potential liability for damages, we could be required to obtain a license to continue to manufacture or market the

affected product, in which case we may be required to pay substantial royalties or grant cross-licenses to our patents. However, there can be no assurance that any such license will be available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations. Further, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses and the identity of the adverse party. This is especially true in intellectual property cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree.

While we pursue patent protection and enforcement of our product candidates and aspects of our technologies when appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, suppliers and collaborators. Our employment policy requires each new employee to enter into an agreement that contains provisions generally prohibiting the disclosure of confidential information to anyone outside of Trubion and providing that any invention conceived by an employee within the scope of his or her employment duties is our exclusive property. Furthermore, our know-how that is accessed by third parties through collaborations and research and development contracts and through our relationships with scientific consultants is generally protected through confidentiality agreements with the appropriate parties. We cannot, however, assure you that these protective arrangements will be honored by third parties, including employees, suppliers and collaborators, or that these arrangements will effectively protect our rights relating to unpatented proprietary information, trade secrets and know-how. In addition, we cannot assure you that other parties will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information and technologies.

We are aware of intellectual property, including European patent No. EP-B-1176981, in which Genentech has an ownership interest with claims directed to the second medical use of an anti-CD20 antibody for treatment of RA. On August 8, 2006 we filed an opposition to this patent raising objections as to its validity. A copy of our opposition filing has been filed as an exhibit to the registration statement of which this prospectus forms a part.

We cannot provide any assurance that we will be successful in opposing the grant of Genentech’s patent. Other parties also had the right to oppose the grant of the Genentech patent and to file the grounds of their opposition prior to August 30, 2006 with the European patent office and request that the patent office re-examine the validity of the patent. Subsequent to the submission of our opposition, other parties filed oppositions to the Genentech patent prior to August 30, 2006, including MedImmune, Inc., Genmab A/S, Centocor, Inc., Glaxo Group Limited, Serono S.A and Wyeth. We believe these additional opposition filings will not have a negative effect on our opposition. Final resolution of the opposition proceedings will likely take a number of years. In the meantime, the existence of opposition proceedings does not preclude Genentech from attempting to enforce its patent against third parties, including us and Wyeth.

Manufacturing

We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates. We currently rely on a small number of third-party manufacturers to produce our compounds and expect to continue to do so to meet the preclinical and clinical requirements of our product candidates and for all of our commercial needs. We do not have long-term agreements with any of these third parties. Our product candidates are currently manufactured in mammalian cell expression systems from readily available starting materials. However, the methods of commercial manufacturing of our existing product candidates or any of our future product candidates have not yet been finalized. In collaboration with Wyeth, we are optimizing and developing the methods of commercial manufacturing of TRU-015, including the starting materials, mammalian cell expression systems, growth conditions and methods of purification. To the extent that TRU-015 or our other existing product candidates advance through clinical trials, and to the extent we bring our future product candidates into clinical trials and partner the development and commercialization of those product candidates, our existing and prospective partners and we will be required to assess the manufacturing of the product candidates for preclinical and clinical requirements as well as for commercial production. We may need to obtain one or more licenses to intellectual property rights held by third parties in order to manufacture each of our product candidates. While such licenses may be available, they may not be available on terms that are commercially acceptable to our existing or prospective partners or us. Should such licenses prove unavailable, we or our existing or prospective partners may choose to modify our manufacturing processes to use alternative manufacturing methods. Such modifications may result in greater expenditures of capital by us or our partners, delay commercialization, or prevent us or our partners from successfully commercializing our product candidates.

We have entered into agreements with Lonza Biologics for certain license rights related to its manufacturing technology, research and development services, and for the manufacture of our lead product candidate, TRU-015. The term of our agreement with Lonza for the production of TRU-015 for clinical trials and commercial use ends on December 31, 2010 unless we mutually agree to extend the term. In addition, Lonza may terminate the agreement if we do not file a biologics license application, or BLA, with the FDA for TRU-015, if our BLA is rejected by the FDA, or if we withdraw our BLA after it is accepted by the FDA. We may also terminate the agreement for convenience, if we are enjoined by judicial action from taking further steps to manufacture TRU-015 or if Lonza ceases to own or lawfully control any facility that is required to manufacture TRU-015. Either party may terminate the agreement if the other party breaches the agreement, is unable to perform as a result of circumstances out of its control, becomes insolvent, is the subject of bankruptcy proceedings or has a receiver appointed for its property. We have reserved future manufacturing capacity from Lonza under pre-specified terms and conditions. If our agreement with Lonza is terminated, we may incur cancellation fees. On August 22, 2006, in connection with the anticipated transition of manufacturing responsibilities for TRU-015 to Wyeth, we cancelled an order for TRU-015 under our supply agreement with Lonza. Although the amount of cancellation fee, if any, has not yet been determined, to the extent we are liable for any such fee, Wyeth has agreed to reimburse us for all such amounts. As of June 30, 2006, we had committed to purchase $16.1 million of manufacturing services from Lonza in 2006 and 2007. These commitments were based on our anticipated preclinical and clinical requirements. The term of our agreement with Lonza for certain other development and manufacturing services ends when the services to be performed under the agreement are completed. We may also terminate the agreement for convenience and either party may terminate the agreement if the other party breaches the agreement, is unable to perform under the agreement, becomes insolvent, is the subject of bankruptcy proceedings or has a receiver appointed for its property. If this agreement with Lonza is terminated, we may incur cancellation fees.

We rely and expect to continue to rely on a number of contract manufacturers to produce sufficient quantities of our product candidates for use in preclinical research. We also depend on these contract manufacturers to manufacture our product candidates in accordance with current good manufacturing practices, or cGMP, for use in clinical trials. We will ultimately depend on contract manufacturers for the manufacture of our products for commercial sale, as well as for process development. Contract manufacturers are subject to extensive governmental regulation. We have multiple potential sources for the manufacturing of

TRU-015, including Wyeth. Wyeth has significant process development capabilities and extensive commercial scale production capabilities at numerous facilities worldwide.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing and export and import of immunopharmaceutical products such as those we are developing.


	*United States Government Regulation*

In the United States, the information that must be submitted to the U.S. Food and Drug Administration, or FDA, in order to obtain approval to market a new drug varies depending on whether the drug is a new product whose safety and effectiveness has not previously been demonstrated in humans or a drug whose active ingredient(s) and certain other properties are the same as those of a previously approved drug. A new drug will follow the New Drug Application, or NDA, route for approval, a new biologic will follow the Biologics License Application, or BLA, route for approval, and a drug that claims to be the same as an already approved drug may be able to follow the abbreviated new drug application, or ANDA, route for approval.


	*NDA and BLA Approval Process*

In the United States, the FDA regulates drugs and biologics under the Federal Food, Drug and Cosmetic Act, and, in the case of biologics, also under the Public Health Service Act, and implementing regulations. If we fail to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, we may become subject to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have a material adverse effect on us.

The steps required before a drug or biologic may be marketed in the United States include:


	•	completion of preclinical laboratory tests, animal studies and formulation studies under the FDA’s good laboratory practices regulations,

	•	submission to the FDA of an Investigational New Drug application, or IND, for human clinical testing, which must become effective before human clinical trials may begin,

	•	performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each indication,

	•	submission to the FDA of a NDA or BLA,

	•	satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practice, or cGMP, and

	•	FDA review and approval of the NDA or BLA.

Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. The IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each clinical protocol must be submitted to the FDA as part of the IND.

Clinical trials typically are conducted in three sequential phases, but the phases may overlap or be combined. Each trial must be reviewed and approved by an independent institutional review board at each site where the trial will be conducted before it can begin at that site. Phase I clinical trials usually involve the initial introduction of the investigational drug into humans to evaluate the product’s safety, dosage tolerance and pharmacodynamics and, if possible, to gain an early indication of its effectiveness.

Phase II clinical trials usually involve controlled trials in a limited patient population to:


	•	evaluate dosage tolerance and appropriate dosage,

	•	identify possible adverse effects and safety risks, and

	•	evaluate preliminarily the efficacy of the drug for specific indications.

Phase III clinical trials usually further evaluate clinical efficacy and further test for safety in an expanded patient population. Phase I, Phase II and Phase III testing may not be completed successfully within any specified period, if at all. The FDA or we may suspend or terminate clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk.

Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the chemistry, manufacture and control criteria of the product, are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use. The FDA reviews a BLA to determine, among other things, whether the product is safe, pure and potent and whether the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. In connection with the submission of an NDA, an applicant may seek a special protocol assessment, which is an agreement between an applicant and the FDA on the design and size of clinical trials that is intended to form the basis of an NDA.

Before approving an application, the FDA will inspect the facility or the facilities at which the product is manufactured. The FDA will not approve the product unless cGMP compliance is satisfactory. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

The testing and approval process requires substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us from marketing our product candidates. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of our product candidates. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval.


	*Priority Review*

The FDA has established priority and standard review classifications for original NDAs and efficacy supplements. Priority review applies to the time frame for FDA review of completed marketing applications and is separate from and independent of orphan drug status and the FDA’s Fast Track and accelerated approval mechanisms. The classification system, which does not preclude the FDA from doing work on other projects, provides a way of prioritizing NDAs upon receipt and throughout the FDA application review process.

Priority designation applies to new drugs that have the potential for providing significant improvement compared to marketed products in the treatment or prevention of a disease. Hence, even if an NDA is initially classified as a priority application, this status can change during the FDA review process, such as in the situation where another product is approved for the same disease for which previously there was no available therapy. In addition, priority review does not guarantee that a product candidate will receive regulatory approval.


	*Post-Approval Requirements*

After regulatory approval of a product is obtained, we are required to comply with a number of post-approval requirements. For example, as a condition of approval of an NDA or BLA, the FDA may require post-marketing testing and surveillance to monitor the product’s safety or efficacy.

In addition, holders of an approved NDA or BLA are required to report certain adverse reactions and production problems to the FDA, to provide updated safety and efficacy information and to comply with requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval. The FDA periodically inspects manufacturing facilities to assess compliance with cGMP, which imposes certain procedural, substantive and recordkeeping requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.

We use, and in at least the near-term will continue to use, third-party manufacturers to produce our product candidates in clinical and commercial quantities. Future FDA inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product or the failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA or BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or judicial action that could delay or prohibit further marketing. Also, new government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product candidates. Whether or not we obtain FDA approval for a product candidate, we must obtain approval of a product candidate by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product candidate in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Under European Union regulatory systems, we may submit marketing authorizations either under a centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.

Reimbursement

Sales of biopharmaceutical products depend in significant part on the availability of third-party reimbursement. Each third-party payor may have its own policy regarding what products it will cover, the conditions under which it will cover such products, and how much it will pay for such products. It is time consuming and expensive for us to seek reimbursement from third-party payors. Reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.

The passage of the Medicare Prescription Drug and Modernization Act of 2003, or the MMA, imposes new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries, which may affect the marketing of our products. The MMA also introduced a new reimbursement methodology, part of which went into effect in 2004. At this point, it is not clear what effect the MMA will have on the prices paid for currently approved drugs and the pricing options for new drugs approved after January 1, 2006. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market.

We expect that there will continue to be a number of federal and state proposals to implement governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.

Employees

As of September 30, 2006, we had 72 full time employees, 18 of whom held Ph.D. or M.D. degrees and 52 of whom were engaged in full time research and development activities. We plan to continue to expand our product candidates and development programs and hire additional staff to facilitate this growth. We continue to search for qualified individuals with interdisciplinary training to address the various aspects and applications of our product candidate development programs and our technology. None of our employees is represented by a labor union and we consider our employee relations to be good.

Facilities

In June 2003, we entered into a lease agreement for 31,507 square feet of office and laboratory facilities in Seattle, Washington. On February 10, 2006, we amended the lease agreement to add an additional 15,892 square feet in the same building. The lease expires in April 2013, subject to our two options to extend the term for up to 10 years. On March 16, 2006, we entered into a sublease for an additional 3,067 square feet in the same building, which sublease expires on December 31, 2006. The annual lease payments for these facilities are approximately $1.3 million. We believe that the facilities we currently lease are sufficient for our current anticipated future needs.

Legal Proceedings

In November 2005, Merck KGaA filed a proceeding with the Office of Harmonisation of the Internal Market opposing our European registration of the trademark TRUBION and seeking to place certain restrictions on the identification of goods and channels of trade description in our European trademark registration. Merck claims rights resulting from its prior trademark registration of TRIBION HARMONIS. We filed a response to the opposition and have commenced negotiations with Merck regarding the matter. We intend to pursue the opposition vigorously if negotiations are unsuccessful.

MANAGEMENT

Executive Officers, Key Employees and Directors

The following table provides information regarding our current executive officers, key employees and directors:


Name		Age		Position(s)

Executive Officers:
	Peter A. Thompson, M.D., FACP		47	President, Chief Executive Officer and Chairman of the Board of Directors
	Michelle G. Burris		41	Senior Vice President and Chief Financial Officer
Key Employees:
	Daniel J. Burge, M.D.		45	Senior Vice President and Chief Medical Officer
	Leander F. Lauffer, Ph.D.		53	Senior Vice President of Business Development & Corporate Strategy
	Jeffrey A. Ledbetter, Ph.D.		56	Chief Scientific Officer
	Kendall M. Mohler, Ph.D.		50	Senior Vice President of Research & Development
	Judith A. Woods, Ph.D.		54	Senior Vice President of Legal Affairs and Chief Patent Counsel
Directors:
	Lee R. Brettman, M.D., FACP(1)		59	Director
	Steven Gillis, Ph.D.(2)(3)		53	Director
	Patrick J. Heron(2)		36	Director
	Anders D. Hove, M.D.(1)		40	Director
	David A. Mann(1)		47	Director
	Samuel R. Saks, M.D.(1)(3)		51	Director
	David Schnell, M.D.(2)(3)		46	Director


(1)	Member of our audit committee
(2)	Member of our compensation committee
(3)	Member of our nominating and corporate governance committee

Peter A. Thompson, M.D., FACP, is one of our founders and has served as our president and chief executive officer since May 2002, as our treasurer since December 2002, as a member of our board of directors since February 2002, and as the chairman of our board of directors since March 2006. From 2003 to 2006, Dr. Thompson served as a venture partner at ATP Capital, a venture capital firm. Previously, Dr. Thompson served as chief executive officer and chairman of the board of directors of iMetrikus, a healthcare technology company, which he co-founded. Prior to iMetrikus, Dr. Thompson served as vice president and general manager of Chiron Informatics, and prior to Chiron, he served as vice president, research and technology development at Becton Dickinson Immunocytometry Systems. Dr. Thompson is a board certified medical oncologist and internist who received an M.D. and a Sc.B. from Brown University.

Michelle G. Burris has served as our senior vice president and chief financial officer since February 2006. From August 2005 to January 2006, Ms. Burris served as senior vice president and chief financial officer of Dendreon Corporation. From 1995 to 2005, Ms. Burris was an employee of Corixa Corporation, where she last served as senior vice president and chief financial officer. Ms. Burris is a member of the board of directors of Sonus Pharmaceuticals, which she joined in 2004. Ms. Burris received an MBA and a Post Graduate Certificate in accounting from Seattle University and a B.S. from George Mason University.

Daniel J. Burge, M.D., has served as our chief medical officer since January 2006 and as a senior vice president since March 2004. From 2002 to 2003, he served as vice president of clinical research and development at Amgen. From 2000 to 2003, Dr. Burge served as vice president of clinical research and development at Immunex Corporation. Dr. Burge received an M.D. from Thomas Jefferson University and a B.A. from Taylor University.

Leander F. Lauffer, Ph.D., has served as our senior vice president of business development and corporate strategy since February 2005. From 1997 to 2004, Dr. Lauffer served as vice president of business development at Chiron Corporation. Dr. Lauffer received a Ph.D. from Free University, Berlin and a M.S. from Konstanz University.

Jeffrey A. Ledbetter, Ph.D., is one of our founders and has served as our chief scientific officer since September 2001. From September 2001 to May 2002, Dr. Ledbetter served as our president and chief executive officer; from September 2001 to December 2002 he served as our secretary; and from September 2001 to July 2004 he served as a member of our board of directors. From 1999 to 2002, Dr. Ledbetter served as a principal investigator at the Pacific Northwest Research Institute. Dr. Ledbetter received a Ph.D. from the University of Wisconsin and a B.A. from Carleton College.

Kendall M. Mohler, Ph.D., is one of our founders and has served as our senior vice president of research and development since November 2002. From November 2002 to July 2004, he served as a member of our board of directors. From 2001 to 2002, Dr. Mohler served as vice president of biological sciences at Immunex Corporation. Dr. Mohler received a Ph.D. from the University of Texas Health Science Center and a B.S. from the University of Kansas.

Judith A. Woods, Ph.D., has served as our senior vice president of legal affairs and chief patent counsel since September 2004. From 2002 to 2004, Dr. Woods served as associate general counsel of intellectual property at Abgenix Incorporated. From 1992 to 2001, Dr. Woods served as chief patent counsel at ICOS Corporation. Dr. Woods received a J.D. from George Mason University, a Ph.D. from the Medical College of Virginia and a B.S. from Virginia Commonwealth University.

Lee R. Brettman, M.D., FACP, has served as a member of our board of directors since November 2002. Dr. Brettman is the president and chief executive officer of Dynogen Pharmaceuticals, a company which he founded in 2002. From 2001 to 2002, Dr. Brettman was an entrepreneur in residence at Oxford Bioscience Partners, a venture capital firm. From 1995 to 1999, he was chief medical officer and senior vice president of medical and regulatory affairs at Leukosite, Inc. and then held the same positions from 1999 to 2001 at Millennium Pharmaceuticals, Inc., both biopharmaceutical companies. Dr. Brettman received an M.D. from the Baylor College of Medicine and two bachelors degrees from the Massachusetts Institute of Technology.

Steven Gillis, Ph.D., has served as a member of our board of directors since January 2006. Since 2005, Dr. Gillis has been a venture partner at ARCH Venture Partners, a venture capital firm. From 1994 to 2005, Dr. Gillis served as chief executive officer and chairman of the board of directors of Corixa Corporation, which he co-founded in October 1994. Previously, Dr. Gillis served as head of research and development, chief executive officer and chairman of the board of directors of Immunex Corporation, which he co-founded. Dr. Gillis serves as a director of Migenix, Inc. Dr. Gillis received a Ph.D. from Dartmouth College and a B.A. from Williams College.

Patrick J. Heron has served as a member of our board of directors since November 2002. Mr. Heron is a general partner with Frazier Healthcare Ventures, a venture capital firm, which he joined in 1999. Mr. Heron received a B.A. from the University of North Carolina at Chapel Hill and received an MBA from Harvard Business School.

Anders D. Hove, M.D., has served as a member of our board of directors since July 2004. Dr. Hove is a general partner of Venrock Associates, a venture capital firm, which he joined in 2004. From 1996 to 2004, Dr. Hove was a fund manager at BB Biotech Fund, an investment firm, and from 2002 to 2003 he served as chief executive officer of Bellevue Asset Management, an investment company. Dr. Hove is a member of the boards of directors of a number of privately-held companies. He received a M.Sc. from the Technical University of Denmark, an M.D. from the University of Copenhagen and an MBA from INSEAD.

David A. Mann has served as a member of our board of directors since April 2006. From 1999 to 2002, Mr. Mann served as the chief financial officer at Immunex Corporation. Since his retirement from Immunex in 2002, Mr. Mann has served on the boards of trustees for the Western Washington University Foundation and the Fred Hutchinson Cancer Research Center. Mr. Mann received an MBA from the University of Washington, and a B.A. from Western Washington University.

Samuel R. Saks, M.D., has served as a member of our board of directors since September 2005. Since 2003, Dr. Saks has been the chief executive officer of Jazz Pharmaceuticals, which he also founded. From 2001 to 2003, he served as the company group chairman of ALZA Corporation and a member of the Johnson & Johnson Pharmaceutical Operating Committee. Dr. Saks received a B.S. from the University of Illinois at Champaign and an M.D. from the University of Illinois Medical Center.

David Schnell, M.D., has served as a member of our board of directors since July 2004. Dr. Schnell is a managing director at Prospect Venture Partners, a venture capital fund, which he co-founded in 1997. Dr. Schnell is a member of the boards of directors of a number of privately-held companies. Dr. Schnell received an M.D. from Harvard Medical School, an M.A. from Stanford University School of Medicine and a B.S. from Stanford University.

Appointment of Officers

Our officers are appointed by our board of directors and serve at the discretion of our board of directors.

Board of Directors

Our board of directors currently consists of eight members. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and eight directors are currently authorized.

As of the completion of this offering, our board of directors will be divided into three classes of directors, each serving staggered three-year terms as follows:


	•	Class I will consist of Dr. Gillis and Mr. Heron, whose terms expire at the annual meeting of stockholders to be held in 2007,

	•	Class II will consist of Drs. Saks and Schnell and Mr. Mann, whose terms expire at the annual meeting of stockholders to be held in 2008, and

	•	Class III will consist of Drs. Brettman, Hove and Thompson, whose terms expire at the annual meeting of stockholders to be held in 2009.

Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which such term expires. Each director’s term is subject to the election and qualification of his successor, or his earlier death, resignation or removal. After the completion of this offering, our certificate of incorporation will provide that the authorized number of directors may be changed only by resolution duly adopted by at least a majority of our entire board of directors. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. Accordingly, this classification of our board of directors may have the effect of delaying or preventing changes in control of management.

Pursuant to a voting agreement originally entered into in November 2002 and amended in July 2004 by and among us and certain of our stockholders, Mr. Heron and Drs. Brettman, Hove, Schnell and Thompson were each elected to serve as members on our board of directors, and, as of the date of this prospectus, continue to so serve. Pursuant to the voting agreement, Dr. Thompson, our president and chief executive officer, was designated as a representative of the holders of our common stock. Robert T. Nelsen and Drs. Brettman, Hove and Schnell and Mr. Heron were initially selected as representatives of our Series A and Series B preferred stock, as designated by ARCH Venture Partners, Oxford Bioscience Partners, Venrock Associates IV, L.P., Prospect Venture Partners II, L.P. and Frazier Healthcare IV, respectively. In January 2006, Mr. Nelsen resigned from our board of directors and Dr. Gillis was elected as ARCH Venture Partners’ representative. The voting agreement will terminate upon completion of this offering, and members previously

elected to our board of directors pursuant to this agreement will continue to serve as directors until their successors are duly elected by holders of our common stock.

There are no family relationships among any of our directors or executive officers.

Committees of the Board of Directors

Our board of directors has an audit committee, a compensation committee and a nominating and governance committee, each of which has the composition and responsibilities described below as of the completion of this offering.


	*Audit Committee*

Drs. Brettman, Hove and Saks and Mr. Mann, each of whom is a non-employee member of our board of directors, comprise our audit committee. Mr. Mann is the chairman of our audit committee. Our board has determined that Dr. Saks and Mr. Mann each meet current SEC and NASDAQ requirements for independence. Our board of directors has also determined that Mr. Mann is an “audit committee financial expert” as defined in SEC rules. The audit committee is responsible for, among other things:


	•	selecting and hiring our independent auditors and approving the audit and non-audit services to be performed by our independent auditors,

	•	evaluating the qualifications, performance and independence of our independent auditors,

	•	monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters,

	•	reviewing the adequacy and effectiveness of our internal control policies and procedures,

	•	acting as our qualified legal compliance committee, and

	•	preparing the audit committee report that the SEC requires in our annual proxy statement.

Under NASDAQ corporate governance standards, no later than the first anniversary of the completion of this offering, each member of our audit committee must be an independent director. We intend to replace or remove Drs. Hove and Brettman as members of our audit committee prior to the first anniversary of the completion of this offering if necessary to comply with this requirement.


	*Compensation Committee*

Dr. Gillis, Mr. Heron and Dr. Schnell, each of whom is a non-employee member of our board of directors, comprise our compensation committee. Mr. Heron is the chairman of our compensation committee. Our board of directors has determined that each member of our compensation committee meets current SEC and NASDAQ requirements for independence. The compensation committee is responsible for, among other things:


	•	reviewing and recommending to our board of directors for our chief executive officer and other executive officers: annual base salary, annual incentive bonus, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control agreements/provisions and any other benefits, compensation or arrangements,

	•	evaluating and recommending to our board of directors compensation plans, policies and programs for our chief executive officer and other executive officers,

	•	administering our equity incentive plans, and

	•	preparing the compensation committee report that the SEC requires in our annual proxy statement.


	*Nominating and Governance Committee*

Drs. Gillis, Saks and Schnell, each of whom is a non-employee member of our board of directors, comprise our nominating and governance committee. Our board of directors has determined that each member of our nominating and governance committee meets current SEC and NASDAQ requirements for independence. The nominating and governance committee is responsible for, among other things:


	•	assisting our board of directors in identifying prospective director nominees and recommending to the board of directors nominees for each annual meeting of stockholders,

	•	developing and recommending to our board of directors governance principles applicable to us,

	•	overseeing the evaluation of our board of directors and management, and

	•	recommending to our board of directors members for each board committee.

Director Compensation

In 2005, we granted an option to purchase 19,135 shares of common stock at an exercise price of $0.32 per share to Dr. Saks. In 2006, we granted an option to purchase 19,135 shares of common stock at an exercise price of $6.53 to Dr. Gillis, an option to purchase 12,757 shares of common stock at an exercise price of $6.53 to Dr. Brettman and an option to purchase 19,135 shares of common stock at an exercise price of $8.35 to Mr. Mann. Each of the options granted to Drs. Saks, Gillis and Brettman has the following 4-year vesting schedule: 1/4th of the shares subject to the option vest on the date of grant and 1/48th of the remaining shares subject to option vest each month thereafter. The option granted to Mr. Mann has the following 4-year vesting schedule: 1/4th of the shares subject to the option vest on the one-year anniversary of the date of grant and 1/48th of the shares subject to the option vest each month thereafter.

After the closing of this offering, each person who first becomes a director after such date will be granted an option to purchase 25,000 shares of common stock and each existing director will thereafter receive an annual option grant to purchase 5,000 shares of common stock. The initial grants will vest annually over a period of three years, and the annual grants will vest one year from the date of grant, in each case conditioned upon the director’s continued service as a director. In addition, effective upon closing of this offering, each of Mr. Heron and Drs. Hove and Schnell will receive an option to purchase 12,500 shares of common stock, which option will vest annually over three years from the date of grant. All such grants shall be made under the Company’s 2006 Equity Incentive Plan. Upon election or reelection to the Board, each director will also receive an annual cash retainer of $25,000 for serving on the board, and an additional cash retainer of $7,500 for serving as the chair of any of our audit, compensation and nominating and governance committees.

Director Consulting Agreement

In 2003, we entered into a consulting agreement with Dr. Brettman, a member of our board of directors, pursuant to which Dr. Brettman provides, among other things, advisory services with respect to our clinical development planning, implementation and research and development prioritization. The consulting agreement may be terminated by either party upon 30 days written notice. In connection with the consulting agreement, Dr. Brettman purchased 15,947 shares of restricted common stock at the price of $0.31 per share in 2004. We have a repurchase right with respect to these shares exercisable upon the termination of our relationship with Dr. Brettman. The repurchase lapsed 25% on the date of the purchase and the remainder lapses over a 3-year period. We have not made any payments to Dr. Brettman under the consulting agreement.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Executive Compensation

The following table provides information regarding the compensation of our chief executive officer and acting chief financial officer during the fiscal year ended December 31, 2005. Dr. Thompson was our sole executive officer in 2005.

Summary Compensation Table

Long-Term

Compensation

Awards

Annual Compensation

Securities

Underlying

All Other

Name and Principal Position

Year

Salary

Bonus(1)

Options

Compensation(2)

Peter A. Thompson, M.D., FACP

2005

312,000

50,000

92,159

2,380

President and Chief Executive

Officer


(1)	The 2005 bonus amount was earned in 2004 based on 2004 company performance targets and paid in 2005.
(2)	The 2005 amount represents payment for life insurance and short- and long-term disability insurance.

Michelle Burris, our senior vice president and chief financial officer joined us in February 2006. Pursuant to the terms of an offer letter with Ms. Burris, she receives an annual base salary of $300,000 and is eligible to receive an annual bonus of up to $100,000 based on the achievement of milestones to be established by our chief executive officer. Ms. Burris is an at-will employee.

Stock Option Grants in 2005

The following table provides information regarding grants of stock options to our named executive officer during the fiscal year ended December 31, 2005. The percentage of total options set forth below is based on options to purchase an aggregate of 372,183 shares of our common stock granted to employees during the fiscal year ended December 31, 2005. All of these options were granted at the fair market value of our common stock, as determined by our board of directors on the date of grant, under our 2002 Stock Plan. See “Employee Benefit Plans—2002 Stock Plan” for a further description of certain terms relating to these options.

The amounts shown in the table as potential realizable value represent hypothetical gains that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with SEC rules based on an assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus), and do not represent our estimate or projection of the future stock price. Potential realizable values are net of exercise price.

Stock Option Grants in 2005


											Potential
											Realizable Value
											at Assumed
				Percent of							Annual Rates of
	Number of			Total							Stock Price
	Securities			Options							Appreciation for
	Underlying			Granted to			Exercise				Option Terms
	Options			Employee			Price Per		Expiration
Name	Granted			in 2005			Share		Date		5%		10%

Peter A. Thompson, M.D., FACP		40,339	(1)		10.84	%	$	0.32		2/3/2015	$	8,118	$	20,573
		11,481	(2)		3.08	%	$	0.32		4/28/2015	$	2,311	$	5,855
		40,339	(3)		10.84	%	$	2.70		11/30/2015	$	68,496	$	173,583


(1)	1/4th of the shares subject to this option vest on July 13, 2005 and an additional 1/48th of the shares subject to this option vest each month thereafter.

(2)	1/12th of the shares subject to this option vest each month from the date of grant.

(3)	13,446 of the shares subject to this option vest on the date of grant and 1/48th of the shares subject to this option vest each month thereafter.

In addition to the options listed in the table above, we granted an option to purchase 79,732 shares of our common stock at a purchase price of $6.53 per share to Michelle Burris, our senior vice president and chief financial officer, with the following 4-year vesting schedule: 1/4th of the shares subject to the option vest on the first anniversary of the vesting commencement date and 1/48th of the shares subject to option vest each month thereafter.

Option Exercises in 2005 and 2005 Fiscal Year-End Option Values

The following table shows, for our sole named executive officer, the number of shares acquired and the value realized upon exercise of stock options during fiscal year 2005 and the exercisable and unexercisable options held at December 31, 2005. The “Value Realized” and the “Value of Unexercised In-the-Money Options at Fiscal Year-End” shown in the table represent an amount equal to the difference between the assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus) and the option exercise price, multiplied by, in the case of “Value Realized,” the number of shares acquired on exercise and, in the case of “Value of Unexercised In-the-Money Options at Fiscal Year-End,” the number of unexercised in-the-money options. These calculations do not take into account the effect of any taxes that may be applicable to the option exercises.

Number of Securities

Underlying Unexercised

Value of Unexercised

Options at Fiscal

In-the-Money Options at

Shares

Year-End

Fiscal Year-End($)

Acquired on

Value

Name

Exercise

Realized($)

Exercisable

Unexercisable

Exercisable

Unexercisable

Peter A. Thompson, M.D., FACP

230,112

3,351,946

111,264

146,996

1,511,730

1,949,774

Employment Agreements and Change in Control Arrangements


	*Employment Agreement*

We have an employment agreement with Dr. Thompson, our president and chief executive officer. Pursuant to the terms of the agreement, Dr. Thompson is an at-will employee with an annual base salary of $345,000 and is eligible to receive an annual incentive bonus of up to $180,000 if certain milestones established at the discretion of our board of directors or the compensation committee are met. Pursuant to the agreement, if we terminate Dr. Thompson’s employment without cause, materially and adversely change his position, materially reduce his base salary or benefits or materially breach the agreement, or if we require Dr. Thompson to relocate more than 40 miles from our current location in Seattle and he refuses, Dr. Thompson will be entitled to receive a lump sum payment of severance pay equal to 25% of his base

salary, additional severance payments for the next twelve months equal to 75% of his base salary and additional employee benefits for up to twelve months.


	*Consulting Agreement with Director*

We have entered into a consulting arrangement with Dr. Brettman, a member of our board of directors. See “Management—Director Consulting Agreement.”


	*Change in Control Arrangements*

Our 2002 Stock Plan, 2002 Equity Incentive Plan and 2006 Equity Incentive Plan provide for the acceleration of vesting of awards in certain circumstances in connection with or following our change in control. See “Employee Benefit Plans.”

Employee Benefit Plans


	*2002 Stock Plan*

Our board of directors adopted our 2002 Stock Plan in December 2002, and our stockholders approved the 2002 Stock Plan in February 2003. Our board of directors will not grant any additional awards under the 2002 Stock Plan following the effective date of this offering. However, the 2002 Stock Plan will continue to govern the terms and conditions of the outstanding options previously granted thereunder.

The 2002 Stock Plan provides for the grant of nonstatutory stock options and stock purchase rights to our employees, directors and consultants, and for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to our employees. Our board of directors administers the 2002 Stock Plan and has the authority to determine the terms and conditions of the options granted thereunder.

A total of 2,123,853 shares of our common stock are authorized for issuance under the 2002 Stock Plan. As of June 30, 2006, options to purchase 1,469,600 shares of our common stock were issued and outstanding, and a total of 525,489 shares of our common stock had been issued upon the exercise of options granted under the 2002 Stock Plan that had not been repurchased by us.

Our 2002 Stock Plan provides that in the event of our merger with or into another corporation or our “change in control,” the successor corporation will assume or substitute an equivalent award for each outstanding award under the plan. If there is no assumption, substitution or replacement of outstanding awards, such awards will become fully vested and exercisable immediately prior to the merger or change in control, and the administrator will provide notice to the recipient that he or she has the right to exercise such outstanding awards for a period of 15 days from the date of the notice. The awards will terminate upon the expiration of the 15-day period.


	*2002 Equity Incentive Plan*

Our board of directors and our stockholders adopted our 2002 Equity Incentive Plan in September 2002. Our board of directors will not grant any additional awards under the 2002 Equity Incentive Plan following the effective date of this offering. However, the 2002 Equity Incentive Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.

Our 2002 Equity Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, stock bonuses and restricted stock to our employees, directors and consultants. Our board of directors or a committee of our board of directors administers our 2002 Equity Incentive Plan and has the authority to determine the terms and conditions of the awards granted thereunder.

A total of 96,316 shares of our common stock are authorized for issuance under the 2002 Equity Incentive Plan. As of June 30, 2006, options to purchase 91,532 shares of our common stock were issued and outstanding, and a total of 4,784 shares of our common stock had been issued upon the exercise of options granted under the 2002 Equity Incentive Plan that had not been repurchased by us.

Our 2002 Equity Incentive Plan provides that our board of directors may set forth in each option agreement the terms and conditions to apply in the event of a “corporate transaction.” If not established in the option agreement and if the option holder has been continuously employed for at least one year, the number of shares that would have been exercisable one year from the “corporate transaction” will become vested, and the administrator will provide notice to the recipient that he or she has the right to exercise such outstanding awards for a period of 30 days from the date of the notice. The awards will terminate upon the expiration of the 30-day period. Upon consummation of the “corporate transaction,” all options granted under the 2002 Equity Incentive Plan terminate.


	*2006 Equity Incentive Plan*

The 2006 Equity Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares.

Share Reserve. A total of 437,500 shares of our common stock are authorized for issuance under the 2006 Equity Incentive Plan plus (a) the number of shares which have been reserved but not issued under the 2002 Stock Plan and the 2002 Equity Incentive Plan as of the effective date of this offering, which as of June 30, 2006 was 121,022 shares, and (b) any shares returned to the 2002 Stock Plan and the 2002 Equity Incentive Plan as a result of termination of options or repurchase of shares issued under such plans.

In addition, on the first day of each fiscal year beginning in 2007, the number of shares available for issuance may be increased by an amount equal to the lesser of:


	•	1,500,000 shares,

	•	5% of the outstanding shares of our common stock on the first day of the fiscal year, and

	•	such other amount as our board of directors may determine.

Appropriate adjustments will be made in the number of authorized shares and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a spin-off, stock split or other change in our capital structure. Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the 2006 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy the purchase price of an award or tax withholding obligations.

Eligibility, Term and Administration of Awards. Our board of directors or a committee of our board administers our 2006 Equity Incentive Plan. In the case of options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, the committee will consist of two or more “outside directors” within the meaning of Section 162(m). The administrator has the power to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards and the form of consideration, if any, payable upon exercise.

Stock Options. Incentive stock options and nonstatutory stock options may be granted under our 2006 Equity Incentive Plan. The administrator determines the exercise price of options granted under our 2006 Equity Incentive Plan, but the exercise price must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator determines the term of all other options.

Upon termination of a participant’s service with us or with a subsidiary of us, he or she may exercise his or her option for the period of time stated in the option agreement. In the absence of a stated period in the option agreement, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases and if not otherwise stated in the option agreement, the option will generally remain exercisable for three months. However, an option may never be exercised later than the expiration of its term.

Restricted Stock. Restricted stock may be granted under our 2006 Equity Incentive Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any participant. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Restricted Stock Units. Restricted stock units may be granted under our 2006 Equity Incentive Plan. An award of restricted stock units provides the participant the right to receive payment at the end of a vesting period based on the value of a share of our common stock at the time of vesting. Restricted stock units are subject to vesting requirements, restrictions and conditions to payment as the administrator determines is appropriate. Such vesting requirements may be based on the attainment of organizational or individual performance goals established by the administrator. Payments of earned restricted stock units may be made in cash, shares or a combination of cash and shares.

Stock Appreciation Rights. Stock appreciation rights may be granted under our 2006 Equity Incentive Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.

Performance Units and Performance Shares. Performance units and performance shares may be granted under our 2006 Equity Incentive Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. Performance units will have an initial dollar value established by the administrator on or before the grant date. Performance shares will have an initial value equal to the fair market value of our common stock on the grant date.

Exchange Program. The administrator, in its sole discretion, may institute an exchange program under which (A) outstanding awards may be surrendered or cancelled in exchange for awards of the same type (which may have lower exercise prices and different terms), awards of a different type, or for cash, or a combination of cash and such other awards, or (B) the exercise price of any outstanding award is reduced.

Effect of a Change in Control. Our 2006 Equity Incentive Plan provides that in the event of our “change in control,” each outstanding award will be treated as the administrator determines, including that the successor corporation will assume or substitute an equivalent award for each outstanding award under the plan. If there is no assumption or substitution of outstanding awards, such awards will become fully vested and exercisable immediately prior to the change in control unless otherwise determined by the administrator, and the administrator will provide notice to the recipient that he or she has the right to exercise such outstanding awards for a period of time stated in the notice. The awards will terminate upon the expiration of such stated notice period. With respect to awards made to a non-employee director that are assumed or substituted for, if on the date of or following such assumption or substitution, such non-employee director ceases to serve on our board of directors due to a reason other than upon his or her voluntary resignation, such awards will become fully vested and exercisable upon termination.

Transferability. Unless otherwise determined by the administrator, our 2006 Equity Incentive Plan does not allow for the sale or transfer of awards under the plan other than by will or the laws of descent and distribution, and only the recipient of an award may exercise an award during his or her lifetime.

Additional Provisions. Our 2006 Equity Incentive Plan will automatically terminate in 2016, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate the 2006 Equity Incentive Plan provided such action does not impair the rights of any participant.


	*Retirement Plans*

401(k) Plan. We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to participate in the 401(k) plan as of the first day of the quarter on or following the date they begin employment and participants are able to defer up to 100% of their eligible compensation subject to applicable annual Internal Revenue Code limits. Pre-tax contributions are allocated to each participant’s individual account and are then invested in selected investment alternatives according to the participant’s directions. Employee elective deferrals are 100% vested at all times. The 401(k) plan allows for matching contributions to be made by us as well as a discretionary profit sharing component for eligible employees starting on the first day of the quarter on or following one year of service. The matching and profit sharing contributions vest over a five year period based on years of service under the 401(k) plan. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Internal Revenue Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan and all contributions are deductible by us when made.

Limitation on Liability and Indemnification Matters

Our certificate of incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:


	•	any breach of the director’s duty of loyalty to us or our stockholders,

	•	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law,

	•	unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law, or

	•	any transaction from which the director derived an improper personal benefit.

Our certificate of incorporation provides that we are required to indemnify our directors and officers and may indemnify our employees and other agents to the fullest extent permitted by Delaware law. Our bylaws also provide that we shall advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity, regardless of whether our bylaws would otherwise permit indemnification. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. These agreements provide for indemnification for related expenses including attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain director and officer liability insurance.

The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following is a description of transactions since January 1, 2003 to which we have been a party, in which the amount involved in the transaction exceeds $60,000 and in which any of our directors, executive officers or holders of more than five percent of our capital stock had or will have a direct or indirect material interest, other than compensation arrangements, which are described under “Management.”

Stock Issuances


	*Common Stock Issuances*

Since January 1, 2003, Dr. Thompson, our president and chief executive officer, has purchased 230,112 shares of our common stock at a price per share of $0.31 by exercising stock options granted under our 2002 Stock Plan, resulting in an aggregate purchase price of $72,150. In 2004, Dr. Brettman, a member of our board of directors, purchased 15,947 restricted shares of our common stock at a price of $0.31 per share under our 2002 Stock Plan, resulting in an aggregate purchase price of $5,000.


	*Preferred Stock Issuances*

In July 2004 and February 2005, we completed the sale of an aggregate of 7,443,572 shares of Series B preferred stock at a per share price of $4.39, resulting in an aggregate purchase price of $32.7 million.

The following table summarizes the shares of our common stock and preferred stock purchased by our executive officers, directors and five percent stockholders and persons associated with them since January 1, 2003. For a description of beneficial ownership, see “Principal Stockholders.”


			Series B
Investor	Common Stock		Preferred Stock

Executive Officers and Directors
Peter A. Thompson, M.D., FACP(1)		230,112		—
Lee R. Brettman, M.D., FACP(2)		15,947		—
5% Stockholders
Entities affiliated with ARCH Venture Partners(3)		—		1,240,762
Entities affiliated with Frazier Healthcare Ventures(4)		—		1,169,295
Entities affiliated with Oxford Bioscience Partners(5)		—		1,169,294
Entities affiliated with Prospect Venture Partners II, L.P.(6)		—		1,822,450
Entities affiliated with Venrock Associates(7)		—		1,822,451


(1)	Represents 230,112 shares of common stock acquired directly by Dr. Thompson upon exercise of stock options.
(2)	Represents shares of common stock acquired in connection with a consulting arrangement.
(3)	Represents: (a) 1,161,459 shares held by ARCH Venture Fund V, L.P.; (b) 7,834 shares held by ARCH V Entrepreneurs Fund, L.P.; and (c) 71,469 shares held by Healthcare Focus Fund, L.P. Dr. Gillis, one of our directors, is an employee of ARCH Venture Corporation, a service provider to ARCH Venture Fund V, L.P., ARCH V Entrepreneurs Fund, L.P. and Healthcare Focus Fund, L.P. Dr. Gillis is also a limited partner in ARCH Venture Fund V, L.P.; however, he disclaims beneficial ownership of these shares.
(4)	Represents: (a) 937,282 shares held by Frazier Healthcare IV, L.P.; (b) 225,557 shares held by Frazier Healthcare III, L.P.; (c) 4,760 shares held by Frazier Affiliates IV, L.P.; and (d) 1,696 shares held by Frazier Affiliates III, L.P. Mr. Heron, one of our directors, holds the title of General Partner at Frazier Healthcare Ventures, which is affiliated with the entities that serve as general partners of Frazier Healthcare IV, L.P., Frazier Affiliates IV, L.P., Frazier Healthcare III, L.P. and Frazier Affiliates III, L.P.; however, he disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein.
(5)	Represents (a) 1,157,717 shares held by Oxford Bioscience Partners IV, L.P.; and (b) 11,577 shares held by mRNA Fund II, L.P.
(6)	Represents (a) 1,795,112 shares held by Prospect Venture Partners II, L.P.; and (b) 27,338 shares held by Prospect Associates II, L.P. Dr. Schnell, one of our directors, is a managing member of Prospect Management Co. II, LLC, the general partner of Prospect Venture Partners II, L.P. and Prospect Associates II, L.P.; however, he disclaims beneficial ownership of these shares, except to the extent of his pecuniary partnership interest therein.


(7)	Represents (a) 1,483,474 shares held by Venrock Associates IV, L.P.; (b) 302,527 shares held by Venrock Partners, L.P.; and (c) 36,450 shares held by Venrock Entrepreneurs Fund IV, L.P. Dr. Hove, one of our directors, is a general partner of Venrock Associates; however, he disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein.

Investor Rights Agreement

We have entered into an investor rights agreement with the purchasers of our outstanding preferred stock, certain of the purchasers of our outstanding common stock, including entities with which certain of our directors are affiliated, and Wyeth. As of June 30, 2006, the holders of 10,731,792 shares of our common stock, including the shares of common stock issuable upon the conversion of all outstanding shares of our preferred stock, were entitled to rights with respect to the registration of their shares under the Securities Act. Wyeth will also be entitled to registration rights with respect to shares of our common stock purchased by Wyeth in the private placement concurrent with this offering. For a more detailed description of these registration rights, see “Description of Capital Stock—Registration Rights.”

Voting Agreement

Pursuant to a voting agreement originally entered into in November 2002 and amended in July 2004 by and among us and certain of our stockholders, Mr. Heron and Drs. Brettman, Hove, Schnell and Thompson were each elected to serve as members on our board of directors, and, as of the date of this prospectus, continue to so serve. Pursuant to the voting agreement, Dr. Thompson, our president and chief executive officer, was designated as a representative of the holders of our common stock. Robert T. Nelsen, Mr. Heron and Drs. Brettman, Hove and Schnell were initially selected as representatives of our Series A and Series B preferred stock, as designated by ARCH Venture Partners, Frazier Healthcare IV, Oxford Bioscience Partners, Venrock Associates IV, L.P. and Prospect Venture Partners II, L.P., respectively. In January 2006, Mr. Nelsen resigned from our board of directors, and Dr. Gillis was elected as ARCH Venture Partners’ representative. The voting agreement will terminate upon completion of this offering, and members previously elected to our board of directors pursuant to this agreement will continue to serve as directors until their successors are duly elected by holders of our common stock.

Wyeth


	*Collaboration Agreement*

In December 2005, we entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of our lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. We are also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 established pursuant to the agreement. In addition, we have the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. We retain the right to develop and commercialize, on our own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Unless earlier terminated, the collaboration agreement will remain in effect on a licensed product-by-licensed product basis and on a country-by-country basis until the later of, the date that any such product shall no longer be subject to a valid claim of a United States or foreign patent or application or, generally, 10 years after the first commercial sale of any product licensed under the agreement.

In connection with the agreement, Wyeth paid us a $40 million non-refundable, non-creditable up-front fee in January 2006. Wyeth’s future financial obligations to us also include Wyeth’s future financial obligations to us also include collaborative research funding commitments of up to $9 million in exchange for a commitment by us to provide an agreed upon number of full-time employees per year to provide services in furtherance of the research program, which amount is subject to a decrease in the event of an early termination of the research program, or an increase in the event of an extension of such program. These future financial obligations include as well additional amounts for reimbursement of agreed external research and development costs. Wyeth is also obligated to make payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to targets other than CD20 that have been and are to be selected by Wyeth pursuant to the agreement. In addition, we will receive royalty payments on future licensed product sales. Wyeth may terminate the agreement without cause at any time after December 22, 2007.


	*Concurrent Private Placement and Standstill Obligations*

In connection with our collaboration agreement with Wyeth, we entered into a stock purchase agreement pursuant to which Wyeth is obligated to purchase in a private placement concurrent with the consummation of this offering shares of our common stock at the initial public offering price in an amount equal to the lesser of $25 million or 20% of the number of shares sold in this offering, excluding shares subject to the underwriters’ overallotment option. Pursuant to the stock purchase agreement, Wyeth has agreed that for the 1-year period following the consummation of this offering it will not without our consent:


	•	acquire more than 19.9% of our outstanding voting securities,

	•	publicly propose (on its own behalf or on behalf of any third party) any merger, business combination or similar transaction involving us or any sale of a material portion of our assets,

	•	solicit proxies in respect of our common stock,

	•	participate in a proxy solicitation in opposition to our proxy solicitations,

	•	seek to advise or intentionally influence any other stockholder with respect to the voting of our common stock in opposition to our proxy solicitations with respect to a “change of control,”

	•	initiate, propose or otherwise solicit our other stockholders for the approval of any stockholder proposal that is opposed by our board of directors,

	•	form or join any group for the purpose of voting, purchasing or disposing of our common stock or for the acquisition of all or substantially all of our assets,

	•	deposit our common stock in a voting trust or subject them to a voting agreement or other arrangement of similar effect, or

	•	publicly seek a waiver of these restrictions,

provided that these restrictions will terminate if any other party commences a bona fide tender offer or exchange offer to acquire a majority of our common stock or if we sign an agreement that would result in our “change of control” or a sale of all or substantially all of our assets.

Employment Agreement

We have entered into an employment arrangement with Dr. Thompson, our president and chief executive officer. See “Management—Employment Agreements and Change in Control Arrangements.”

Stock Option Grants

We have granted stock options to certain of our directors under our 2002 Stock Plan. See “Management—Director Compensation” for a further description of these options.

Consulting Agreement

We have entered into a consulting arrangement with Dr. Brettman, a member of our board of directors. See “Management—Director Consulting Agreement.” We also entered into a consulting agreement with Dr. Martha Hayden-Ledbetter, one of our co-founders, stockholders and wife of our chief scientific officer. See “Management Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transactions.”

Indemnification of Officers and Directors

We enter into indemnification agreements with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. See “Management—Limitations on Liability and Indemnification Matters.”

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock at June 30, 2006, as adjusted to reflect the sale of common stock offered by us in this offering, for:


	•	each person who we know beneficially owns more than five percent of our common stock,

	•	each of our directors,

	•	our named executive officer, and

	•	all of our directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

The share and percentage ownership information under the column entitled “Shares Beneficially Owned Prior to Offering” is based on 12,091,310 shares of common stock outstanding as of June 30, 2006, assuming conversion of all outstanding shares of our preferred stock into 10,652,057 shares of common stock. The share and percentage ownership information under the column entitled “Shares Beneficially Owned After Offering” is based on the sale of 4,000,000 shares of common stock in this offering, the sale of 800,000 shares of common stock in the concurrent private placement to Wyeth and the sale of 14,354 shares of common stock pursuant to the automatic cashless net exercise of warrants upon the closing of this offering. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options, warrants or other convertible securities held by that person or entity that are currently exercisable or exercisable within 60 days of June 30, 2006. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.

The address of each beneficial owner listed in the table below is c/o Trubion Pharmaceuticals, Inc., 2401 4th Avenue, Suite 1050, Seattle, Washington 98121.


		Shares Beneficially					Shares Beneficially
		Owned					Owned
		Prior to Offering					After Offering

		Common Stock					Common Stock

Name of Beneficial Owner		Shares		%			Shares		%

5% Stockholders:
	Entities affiliated with ARCH Venture Partners(1)		2,312,406		19.12	%		2,312,406		13.68	%
	Entities affiliated with Frazier Healthcare Ventures(2)		2,195,556		18.16	%		2,195,556		12.99	%
	Entities affiliated with Oxford Bioscience Partners(3)		2,155,686		17.83	%		2,155,686		12.75	%
	Entities affiliated with Prospect Venture Partners II, L.P.(4)		1,822,450		15.07	%		1,822,450		10.78	%
	Entities affiliated with Venrock Associates(5)		1,822,451		15.07	%		1,822,451		10.78	%
Directors and Executive Officers:
	Peter A. Thompson, M.D., FACP(6)		501,239		4.06	%		501,239		3.10	%
	Lee R. Brettman, M.D., FACP(7)		20,523		*			20,523		*
	Steven H. Gillis(8)		6,876		*			6,876		*
	Patrick J. Heron(9)		2,195,556		18.16	%		2,195,556		12.99	%
	Anders D. Hove, M.D.(10)		1,822,451		15.07	%		1,822,451		10.78	%
	David A. Mann		—		*			—		*
	Samuel R. Saks, M.D.(11)		8,072		*			8,072		*
	David Schnell, M.D.(12)		1,822,450		15.07	%		1,822,450		10.78	%
All executive officers and directors as a group (9 persons)(13)			6,377,167		51.60	%		6,377,167		37.72	%

(footnotes on next page)


*	Less than one percent.


(1)	Represents (a) 2,165,101 shares of common stock held by ARCH Venture Fund V, L.P.; (b) 14,503 shares of common stock held by ARCH V Entrepreneurs Fund, L.P.; and (c) 132,802 shares of common stock held by Healthcare Focus Fund, L.P.
(2)	Represents (a) 1,601,766 shares of common stock held by Frazier Healthcare IV, L.P.; (b) 581,283 shares of common stock held by Frazier Healthcare III, L.P.; (c) 8,134 shares of common stock held by Frazier Affiliates IV, L.P; and (d) 4,373 shares of common stock held by Frazier Affiliates III, L.P.
(3)	Represents (a) 2,134,309 shares of common stock held by Oxford Bioscience Partners IV L.P.; and (b) 21,377 shares of common stock held by mRNA Fund II, L.P. Jeffery T. Barnes, Mark P. Carthy, Jonathan J. Fleming, Michael E. Lytton and Alan G. Walton are the general partners of OBP Management IV L.P., which is the sole general partner of these stockholders, and have voting and investment power over these shares.
(4)	Represents (a) 1,795,112 shares of common stock held by Prospect Venture Partners II, L.P.; and (b) 27,338 shares of common stock held by Prospect Associates II, L.P.
(5)	Represents (a) 1,483,474 shares of common stock held by Venrock Associates IV, L.P.; (b) 302,527 shares of common stock held by Venrock Partners, L.P.; and (c) 36,450 shares of common stock held by Venrock Entrepreneurs Fund IV, L.P.
(6)	Includes 247,207 shares of common stock issuable upon exercise of options exercisable within 60 days of June 30, 2006.
(7)	Includes 4,576 shares of common stock issuable upon exercise of options exercisable within 60 days of June 30, 2006.
(8)	Represents 6,876 shares of common stock issuable upon exercise of options exercisable within 60 days of June 30, 2006. Dr. Gillis is an employee of ARCH Venture Corporation, a service provider to ARCH Venture Fund V, L.P., ARCH V Entrepreneurs Fund, L.P. and Healthcare Focus Fund, L.P., each of which is a stockholder. Dr. Gillis is also a limited partner in ARCH Venture Fund V, L.P. Dr. Gillis disclaims beneficial ownership of shares owned by these entities.
(9)	Represents 2,195,556 shares of common stock held by entities affiliated with Frazier Healthcare Ventures. Mr. Heron holds the title of General Partner at Frazier Healthcare Ventures, which is affiliated with the entities that serve as general partners of Frazier Healthcare IV, L.P., Frazier Affiliates IV, L.P., Frazier Healthcare III, L.P. and Frazier Affiliates III, L.P.; however, he disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein.
(10)	Represents 1,822,451 shares of common stock held by entities affiliated with Venrock Associates. Dr. Hove is a general partner of Venrock Associates; however, he disclaims beneficial ownership of these shares, except to the extent of his proportionate partnership interest therein.
(11)	Represents 8,072 shares of common stock issuable upon exercise of options exercisable within 60 days of June 30, 2006.
(12)	Represents 1,822,450 shares of common stock held by entities affiliated with Prospect Venture Partners II, L.P. Dr. Schnell is a managing member of Prospect Management Co. II, LLC, the general partner of Prospect Venture Partners II, L.P. and Prospect Associates II, L.P.; however, he disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest therein.
(13)	Includes 266,734 shares of common stock issuable upon exercise of options exercisable within 60 days of June 30, 2006.

DESCRIPTION OF CAPITAL STOCK

General

The following is a summary of the rights of our common stock and preferred stock and related provisions of our certificate of incorporation and bylaws, as they will be in effect upon the completion of this offering. For more detailed information, please see our certificate of incorporation and bylaws, which are filed as exhibits to the registration statement of which this prospectus is part.

Immediately following the completion of this offering, our authorized capital stock will consist of 155 million shares, each with a par value of $0.001 per share, of which:


	•	150 million shares are designated as common stock, and

	•	five million shares are designated as preferred stock.

At June 30, 2006, assuming the conversion of all outstanding shares of our preferred stock into common stock, we had outstanding 12,091,310 shares of common stock, held of record by 40 stockholders.

Common Stock

The holders of our common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by our board of directors out of funds legally available therefor. In the event that we liquidate, dissolve or wind up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive, conversion or subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

Our board of directors has the authority, without further action by the stockholders, to issue from time to time preferred stock in one or more series, to fix the number of shares of any such series and the designation thereof and to fix the rights, preferences, privileges and restrictions granted to or imposed upon such preferred stock, including dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption, redemption prices, liquidation preference and sinking fund terms, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments and payments upon liquidation. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock or even the ability to issue preferred stock could have the effect of delaying, deterring or preventing a change in control. We have no present plans to issue any shares of preferred stock.

Warrants

As of June 30, 2006, warrants to purchase a total of 17,163 shares of our Series A preferred stock with an exercise price of $4.08 per share and 3,190 shares of our Series B preferred stock with an exercise price of $4.39 per share were outstanding. Each warrant contains provisions for the adjustment of the exercise price and the number of shares issuable upon the exercise of the warrant in the event of certain stock dividends, stock splits, reclassifications and consolidations. If not exercised prior to the completion of this offering, these warrants will be automatically exercised on a net cashless basis into shares of our common stock upon the completion of this offering based on the assumed initial public offering price of $14.00 per share (the mid-point of the range set forth on the cover page of this prospectus).

Registration Rights

The holders of an aggregate of 10,731,792 shares of our common stock, or their permitted transferees, are entitled to rights with respect to the registration of these shares under the Securities Act. Wyeth, or its permitted transferees, is also entitled to registration rights with respect to the 800,000 shares of our common stock that we are selling to Wyeth in a private placement concurrent with this offering. All of these rights are provided under the terms of a registration agreement between us and the holders of these shares, and include demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

Demand Registration Rights. Under the terms of the investor rights agreement, we will be required, upon the written request of holders of at least 50 percent or more of these shares, to use our best efforts to register all or a portion of these shares for public resale. The demand registration rights are subject to customary limitations, and we are required to effect only two registrations pursuant to this provision of the investor rights agreement. We are not required to effect a demand registration prior to 180 days after the completion of this offering, and Wyeth will not be entitled to demand registration rights prior to 15 months after the completion of this offering; however, Wyeth may include its shares in a registration demanded by the other holders pursuant to the piggyback registration rights described below.

Short-Form Registration Rights. If we are eligible to file a registration statement on Form S-3, these holders have the right, upon written request from holders of these shares to us, to have such shares registered by us at our expense provided that such requested registration has an anticipated aggregate offering price to the public of at least $1,000,000. We are required to effect only four registrations pursuant to this provision of the investor rights agreement.

Piggyback Registration Rights. If we register any of our securities either for our own account or for the account of other security holders, the holders of these shares are entitled to include their shares in the registration. Subject to certain exceptions, we and the underwriters may limit the number of shares included in the underwritten offering if the underwriters believe that including these shares would adversely affect the offering.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Certain provisions of Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquiror outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.


	*Undesignated Preferred Stock*

As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control of us or our management.


	*Limits on Ability of Stockholders to Act by Written Consent or Call a Special Meeting*

We have provided in our certificate of incorporation that our stockholders may not act by written consent. This limit on the ability of our stockholders to act by written consent may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a stockholders meeting.

In addition, our certificate of incorporation provides that, unless otherwise required by law, special meetings of the stockholders may be called only by the chairman of our board of directors, our chief executive officer, our president or our board of directors acting pursuant to a resolution adopted by a majority of the board members. A stockholder may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.


	*Requirements for Advance Notification of Stockholder Nominations and Proposals*

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. The bylaws do not give our board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding business to be conducted at a special or annual meeting of the stockholders. However, our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.


	*Board Vacancies Filled Only by Majority of Directors Then in Office*

Vacancies and newly created seats on our board may be filled only by our board of directors. Only our board of directors may determine the number of directors on our board. The inability of stockholders to determine the number of directors or to fill vacancies or newly created seats on the board makes it more difficult to change the composition of our board of directors, but these provisions promote a continuity of existing management.


	*Board Classification*

Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders. For more information on the classified board, see “Management—Board of Directors.” This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.


	*No Cumulative Voting*

The Delaware General Corporation Law provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our certificate of incorporation and bylaws do not expressly provide for cumulative voting.


	*Directors Removed Only for Cause*

Our certificate of incorporation provides that directors may be removed by stockholders only for cause.


	*Delaware Anti-Takeover Statute*

We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:


	•	prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder,

	•	upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation

outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or

• at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

The provisions of Delaware law, our certificate of incorporation and our bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Listing

We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “TRBN.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is U.S. Stock Transfer Corporation. The transfer agent’s address is 1745 Gardena Avenue, Glendale, California 91204-2991, and its telephone number is (800) 835-8778.

SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has not been a public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.

Upon the completion of this offering and the concurrent private placement to Wyeth, a total of 16,905,664 shares of common stock will be outstanding, assuming that there are no exercises of options after June 30, 2006 and no exercise of the underwriters’ over-allotment option. Of these shares, all shares of common stock sold in this offering will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

The remaining 12,905,664 shares of common stock, including 800,000 shares that we are selling to Wyeth in a private placement concurrent with this offering and 14,354 shares issued upon the automatic cashless net exercise of warrants, will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.

Subject to the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:


	Number of
Date	Shares

On the date of this prospectus		—
Between 90 and 180 days after the date of this prospectus		—
At various times beginning more than 180 days after the date of this prospectus		12,905,664

In addition, as of June 30, 2006, a total of 1,561,132 shares of our common stock were subject to outstanding options. Of the shares issuable upon exercise of options as of June 30, 2006, approximately 832,280 shares will be vested and eligible for sale 180 days after the date of this prospectus.

Rule 144

In general, under Rule 144 as currently in effect, a person who owns shares that were acquired from us or an affiliate of us at least one year prior to the proposed sale is entitled to sell, upon the expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:


	•	1% of the number of shares of common stock then outstanding, which will equal approximately 169,057 shares immediately after the offering, or

	•	the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Rule 144(k)

Under Rule 144(k), a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold immediately upon the completion of this offering.

Rule 701

In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement in a transaction that was completed in reliance on Rule 701 and complied with the requirements of Rule 701, will be eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.

Lock-Up Agreements

We and all of our directors and officers, Wyeth and the other holders of shares of common stock outstanding immediately prior to this offering have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock,

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. This agreement is subject to certain exceptions, and is also subject to extension for up to an additional 34 days, as set forth in “Underwriters.”

Registration Rights

Upon the completion of this offering, certain holders of our common stock including Wyeth, will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares would result in the shares becoming fully tradeable without restriction immediately upon the effectiveness of the registration statement. See “Description of Capital Stock—Registration Rights.”

Registration Statements

We intend to file a registration statement on Form S-8 under the Securities Act covering shares of common stock subject to options outstanding reserved for issuance under our stock plans. We expect to file this registration statement as soon as practicable after this offering. However, none of the shares registered on Form S-8 will be eligible for resale until the expiration of the lock-up agreements to which they are subject.

MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS

FOR NON-U.S. HOLDERS OF COMMON STOCK

This section summarizes material U.S. federal income and estate tax considerations relating to the ownership and disposition of common stock. This summary does not provide a complete analysis of all potential tax considerations. The information provided below is based on existing authorities. These authorities may change, or the IRS might interpret the existing authorities differently. In either case, the tax considerations of owning or disposing of common stock could differ from those described below. For purposes of this summary, a “non-U.S. holder” is any holder other than a citizen or resident of the United States, a corporation organized under the laws of the United States, or any state or the District of Columbia, a trust that is (i) subject to the primary supervision of a U.S. court and the control of one of more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person or an estate whose income is subject to U.S. income tax regardless of source. A “non-U.S. holder” does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition of the common stock and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange of other disposition of common stock. If a partnership or other flow-through entity is a beneficial owner of common stock, the tax treatment of a partner in the partnership or an owner of the entity will depend upon the status of the partner or other owner and the activities of the partnership or other entity. The summary generally does not address tax considerations that may be relevant to particular investors because of their specific circumstances, or because they are subject to special rules. Finally, the summary does not describe the effects of any applicable foreign, state, or local laws.

INVESTORS CONSIDERING THE PURCHASE OF COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE, OR LOCAL LAWS, AND TAX TREATIES.

Dividends

We have not paid nor do we expect to pay dividends in the future, however, any dividend paid to a non-U.S. holder on our common stock will generally be subject to U.S. withholding tax at a 30 percent rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of an applicable income tax treaty between the United States and the non-U.S. holder’s country of residence. A non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder can meet this certification requirement by providing a Form W-8BEN or appropriate substitute form to us or our paying agent. If the holder holds the stock through a financial institution or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to the agent. The holder’s agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a foreign partnership or other flowthrough entity, the certification requirements generally apply to the partners or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners’ or other owners’ documentation to us or our paying agent. Special rules, described below, apply if a dividend is effectively connected with a U.S. trade or business conducted by the non-U.S. holder.

Sale of Common Stock

Non-U.S. holders will generally not be subject to U.S. federal income tax on any gains realized on the sale, exchange, or other disposition of common stock unless:


	•	the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business (in which case the special rules described below apply),

	•	the non-U.S. holder was a citizen or resident of the United States and thus is subject to special rules that apply to expatriates, or


	•	the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, treat the gain as effectively connected with a U.S. trade or business.

The FIRPTA rules may apply to a sale, exchange or other disposition of common stock if we are, or were within five years before the transaction, a “U.S. real property holding corporation,” or USRPHC. In general, we would be a USRPHC if interests in U.S. real estate comprised at least half of our assets. We do not believe that we are a USRPHC or that we will become one in the future.

Dividends or Gain Effectively Connected With a U.S. Trade or Business

If any dividend on common stock, or gain from the sale, exchange or other disposition of common stock, is effectively connected with a U.S. trade or business conducted by the non-U.S. holder, then the dividend or gain will generally be subject to U.S. federal income tax at the regular graduated rates. If the non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the holder’s country of residence, any “effectively connected” dividend or gain would generally be subject to U.S. federal income tax only if it is also attributable to a permanent establishment or fixed base maintained by the holder in the United States. Payments of dividends that are effectively connected with a U.S. trade or business, and therefore included in the gross income of a non-U.S. holder, will not be subject to the 30 percent withholding tax. To claim exemption from withholding, the holder must certify its qualification, which can be done by filing a Form W-8ECI. If the non-U.S. holder is a corporation, that portion of its earnings and profits that is effectively connected with its U.S. trade or business would generally be subject to a “branch profits tax.” The branch profits tax rate is generally 30 percent, although an applicable income tax treaty might provide for a lower rate.

U.S. Federal Estate Tax

The estates of nonresident alien individuals are generally subject to U.S. federal estate tax on property with a U.S. situs. Because we are a U.S. corporation, our common stock will be U.S. situs property and therefore will be included in the taxable estate of a nonresident alien decedent. The U.S. federal estate tax liability of the estate of a nonresident alien may be affected by a tax treaty between the United States and the decedent’s country of residence.

Backup Withholding and Information Reporting

The Internal Revenue Code and the Treasury regulations require those who make specified payments to report the payments to the IRS. Among the specified payments are dividends and proceeds paid by brokers to their customers. The required information returns enable the IRS to determine whether the recipient properly included the payments in income. This reporting regime is reinforced by “backup withholding” rules. These rules require the payors to withhold tax from payments subject to information reporting if the recipient fails to cooperate with the reporting regime by failing to provide his taxpayer identification number to the payor, furnishing an incorrect identification number, or repeatedly failing to report interest or dividends on his returns. The backup withholding tax rate is currently 28 percent. The backup withholding rules do not apply to payments to corporations, whether domestic or foreign.

Payments to non-U.S. holders of dividends on common stock will generally not be subject to backup withholding, and payments of proceeds made to non-U.S. holders by a broker upon a sale of common stock will not be subject to information reporting or backup withholding, in each case so long as the non-U.S. holder certifies its nonresident status. The certification procedures to claim treaty benefits described under “—Dividends” will satisfy the certification requirements necessary to avoid the backup withholding tax as well. We must report annually to the IRS any dividends paid to each non-U.S. holder and the tax withheld, if any, with respect to such dividends. Copies of these reports may be made available to tax authorities in the country where the non-U.S. holder resides.

Any amounts withheld from a payment to a holder of common stock under the backup withholding rules can be credited against any U.S. federal income tax liability of the holder and may entitle the holder to a refund, provided that the required information is furnished to the IRS.

EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING, AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as representative, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:


		Number of
Name		Shares

Morgan Stanley & Co. Incorporated
Banc of America Securities LLC
Pacific Growth Equities, LLC
Lazard Capital Markets LLC

	Total		4,000,000

The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. Any underwriter may allow, and such dealers may reallow, any concession not in excess of $ per share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representative.

We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of 600,000 additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.

The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional 600,000 shares of common stock.

Total

Per Share

No Exercise

Full Exercise

Public offering price

Underwriting discounts and commissions

Proceeds, before expenses, to Trubion Pharmaceuticals

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $2.2 million. We have also agreed to pay up to $60,000 of fees and expenses of European patent counsel for the underwriters.

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.

We have applied to have our common stock listed on The NASDAQ Global Market under the trading symbol “TRBN.”

We and all of our directors and officers, Wyeth and the other holders of shares of common stock, have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock;

	•	file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock,

whether any transaction described above is to be settled by delivery of our common stock or such other securities, in cash or otherwise.

Moreover, if:


	•	during the last 17 days of the 180-day restricted period referred to above we issue an earnings release or disclose material news or a material event relating to us occurs; or

	•	prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period;

the restrictions described in the immediately preceding sentence will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release, the disclosure of the material news or the occurrence of the material event.

The restrictions described in the immediately preceding two paragraphs do not apply to:


	•	the sale of shares to the underwriters;

	•	the sale of shares in the concurrent private placement to Wyeth in an amount equal to 20% of the number of shares sold in this offering;

	•	transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering;

	•	the issuance by us of shares of, or options to purchase shares of, our common stock to employees, officers, directors, advisors or consultants pursuant to employee benefit plans described above in “Management—Employee Benefit Plans” or an employee benefit plan assumed by us in a merger or acquisition transaction;

	•	the issuance by us of shares of common stock or any securities convertible into or exercisable or exchangeable for common stock in connection with a merger or acquisition transaction;

	•	the filing by us of any registration statement on Form S-8 for the registration of shares of common stock issued pursuant to employee benefit plans described above in “Management—Employee Benefit Plans” or an employee benefit plan assumed by us in a merger or acquisition transaction;


	•	the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act by any person other than us relating to the sale of shares of common stock, if then permitted by us, provided that no transfers occur under such plan during the 180-day restricted period, as the same may be extended as provided above;

	•	transfers by any person other than us of shares of common stock or any securities convertible into or exercisable or exchangeable for common stock by gift, will or intestacy;

	•	transfers by any person other than us of shares of common stock or any securities convertible into or exercisable or exchangeable for common stock to an immediate family member or a trust for the benefit of an immediate family member;

	•	transfers by any person other than us of shares of common stock or any securities convertible into or exercisable or exchangeable for common stock if the person is a corporation, partnership or other business entity (a) to another corporation, partnership or business entity that is a direct or indirect affiliate or (b) as part of a distribution without consideration to its equity holders on a pro rata basis;

	•	transfers by any person other than us of shares of common stock or any securities convertible into or exercisable or exchangeable for common stock if the person is a trust, to a trustor or beneficiary of the trust; and

	•	in connection with the “cashless” exercise of options to purchase shares of common stock for purposes of exercising such options pursuant to employee benefit plans described above in “Management—Employee Benefit Plans” or an employee benefit plan assumed by us in a merger or acquisition transaction;

provided that, in the case of the transactions described above, each donee, transferee or recipient agrees to be subject to the restrictions described in the immediately preceding two paragraphs, subject to the applicable exceptions described above in this paragraph and no filing by any party (donor, donee, transferor, transferee or recipient) under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, shall be required or shall be voluntarily made during the restricted period referred to in the immediately preceding two paragraphs. In addition, the restrictions described in the immediately preceding two paragraphs will not prohibit us from repurchasing from any director, officer or other stockholder, or the right of any director, officer or other stockholder to sell to us, shares of common stock issued under our 2002 Stock Plan, our 2002 Equity Incentive Plan or our 2006 Equity Incentive Plan.

In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in this offering if the syndicate repurchases previously distributed common stock to cover syndicate short positions or to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the

common stock. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

Pricing of the Offering

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. The estimated public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Seattle, Washington. Davis Polk & Wardwell, Menlo Park, California, will act as counsel to the underwriters. An investment partnership comprised of members of, and persons associated with, Wilson Sonsini Goodrich & Rosati beneficially holds an aggregate of 6,134 shares of our common stock, which represents less than 0.1% of our outstanding shares of common stock.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given upon their authority as experts in accounting and auditing.

CHANGE IN INDEPENDENT ACCOUNTANTS

On December 14, 2004, with the approval of the audit committee of our board of directors, we selected Ernst & Young LLP as our independent auditors and we dismissed Grant Thornton LLP. Our former independent auditor’s report with respect to our 2003 financial statements contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during 2003 and extending to the date we dismissed our former independent auditors, there were no disagreements with our former independent auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. Ernst & Young LLP has reported on the financial statements for each of the three years in the period ended December 31, 2005 included in this prospectus. Prior to December 14, 2004, we did not consult Ernst & Young LLP on any accounting or financial matters.

We requested Grant Thornton LLP to furnish a letter addressed to the Securities and Exchange Commission stating whether it agrees with these statements made by us and, if not, stating the respects in which it does not agree. A copy of this letter, dated as of May 30, 2006, which states that it agrees with these statements, is filed as exhibit 16.01 to the registration statement of which this prospectus forms a part.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, reference is made to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is www.sec.gov.

TRUBION PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS


	Page

Report of Independent Registered Public Accounting Firm		F-2
Balance Sheets		F-3
Statements of Operations		F-4
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)		F-5
Statement of Cash Flows		F-9
Notes to Financial Statements		F-10

F-1

TRUBION PHARMACEUTICALS, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Trubion Pharmaceuticals, Inc.

We have audited the accompanying balance sheets of Trubion Pharmaceuticals, Inc. (the “Company”) as of December 31, 2004 and 2005 and the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trubion Pharmaceuticals, Inc. at December 31, 2004 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the financial statements, Trubion Pharmaceuticals, Inc. adopted FASB Staff Position 150-5 “Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable,” during the year ended December 31, 2005.


	Ernst & Young LLP

Seattle, Washington

March 31, 2006

except for the last three paragraphs of Note 10,
as to which the date is , 2006

The foregoing report is in the form that will be signed upon the approval by the board of directors of the changes in capitalization and the effective date of the reverse stock split described in the last three paragraphs of Note 10 to the financial statements.


	/s/ Ernst & Young LLP

Seattle, Washington

October 2, 2006

F-2

TRUBION PHARMACEUTICALS, INC.

BALANCE SHEETS

(in thousands, except share and per share data)


												Pro Forma
												Stockholders’
			December 31,									Equity at
									June 30,			June 30,
			2004			2005			2006			2006^{(Note 1)}

									(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	4,020		$	4,681		$	5,868
	Investments			9,924			5,228			32,695
	Receivable from collaboration			—			40,000			5,819
	Grant receivable			294			—			—
	Deferred financing costs			—			—			1,426
	Prepaid expenses			111			119			314

Total current assets				14,349			50,028			46,122
Property and equipment, net				3,311			3,898			5,174
Other assets				78			83			108

Total assets			$	17,738		$	54,009		$	51,404


LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable		$	599		$	833		$	1,720
	Accrued liabilities			1,308			1,954			4,533
	Current portion of notes payable			766			1,187			1,033
	Current portion of deferred rent			173			173			176
	Current portion of deferred revenue			—			8,000			8,000

Total current liabilities				2,846			12,147			15,462
Non-current portion of notes payable				1,198			1,276			835
Non-current portion of deferred rent				847			675			585
Non-current portion of deferred revenue				—			31,778			27,777
Preferred stock warrant liability				—			282			343
Commitments
Convertible preferred stock and preferred stock warrants, $0.001 par value per share; 10,874,478 shares authorized at December 31, 2004, 2005 and June 30, 2006, none pro forma; 7,918,378, 10,652,057 and 10,652,057 issued and outstanding at December 31, 2004, 2005 and June 30, 2006, respectively (aggregate liquidation preference of $33,753, $45,753 and $45,753 at December 31, 2004 and 2005 and June 30, 2006, respectively); no shares issued and outstanding, pro forma				33,809			45,753			45,753		$	—
Stockholders’ equity (deficit):
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized, no shares issued or outstanding, pro forma				—			—			—			—
Common stock, $0.001 par value per share; 13,554,458 shares authorized at December 31, 2004 and 2005 and 14,272,046 shares authorized at June 30, 2006 and 150,000,000 shares authorized, pro forma; 925,033, 1,395,201 and 1,439,253 issued and outstanding at December 31, 2004 and 2005 and June 30, 2006, respectively; 12,091,310 shares issued and outstanding, pro forma				1			1			1			12
Additional paid-in-capital				(211	)		3,357			6,095			52,180
Deferred stock-based compensation				—			(1,591	)		(1,238	)		(1,238	)
Accumulated other comprehensive loss				(12	)		(2	)		(23	)		(23	)
Accumulated deficit				(20,740	)		(39,667	)		(44,186	)		(44,186	)

Total stockholders’ equity (deficit)				(20,962	)		(37,902	)		(39,351	)	$	6,745

		Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	17,738		$	54,009		$	51,404

The accompanying notes are an integral part of these financial statements.

F-3

TRUBION PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)


													Six Months Ended
				Year Ended December 31,									June 30,

				2003			2004			2005			2005			2006

													(unaudited)
Revenue:
	Collaboration revenue			$	—		$	—		$	222		$	—		$	13,636
	Grant revenue				—			294			127			127			—

		Total revenue			—			294			349			127			13,636

Operating expenses:
	Research and development *				3,403			11,640			15,212			6,723			13,881
	General and administrative *				2,294			2,851			4,146			1,739			5,069

		Total operating expenses *			5,697			14,491			19,358			8,462			18,950

Loss from operations					(5,697	)		(14,197	)		(19,009	)		(8,335	)		(5,314	)
Interest income					138			164			478			250			970
Interest expense					(22	)		(180	)		(200	)		(98	)		(114	)
Other expense					—			—			(134	)		—			(61	)

Loss before cumulative effect of change in accounting principle					(5,581	)		(14,213	)		(18,865	)		(8,183	)		(4,519	)
Cumulative effect of change in accounting principle					—			—			(62	)		—			—

Net loss				$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)	$	(4,519	)

Basic and diluted net loss per share				$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)	$	(3.34	)

Shares used to compute basic and diluted net loss per share					489,916			632,587			812,465			735,449			1,352,482

Pro forma net loss per share (unaudited)										$	(1.67	)				$	(0.37	)

Shares used to compute pro forma basic and diluted net loss per share (unaudited)											11,198,723						12,004,539

* Includes stock-based compensation as follows:
			Research and development	$	21		$	23		$	1,079		$	255		$	1,430
			General and administrative		9			17			748			109			1,637

			Total non-cash stock-based compensation	$	30		$	40		$	1,827		$	364		$	3,067

The accompanying notes are an integral part of these financial statements.

F-4

TRUBION PHARMACEUTICALS, INC.

STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share and per share data)


															Accumulated
	Convertible														Other
	Preferred Stock				Common Stock				Additional						Comprehensive						Total
									Paid-in			Deferred			Income			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital			Compensation			(Loss)			Deficit			Equity (Deficit)

Balance at January 1, 2003		3,362,254	$	13,705		900,982	$	1	$	(27	)	$	(20	)	$	—		$	(946	)	$	(992	)
Issuance of common stock upon exercise of stock options		—		—		7,360		—		2			—			—			—			2
Issuance of Series A convertible preferred stock warrants in connection with the issuance of notes payable		—		35		—		—		—			—			—			—			—
Stock-based compensation to non- employees at fair value		—		—		—		—		24			—			—			—			24
Vesting of non- employee restricted stock		—		—		—		—		2			—			—			—			2
Vesting of employee restricted stock		—		—		—		—		2			—			—			—			2
Amortization of deferred stock-based compensation		—		—		—		—		—			6			—			—			6
Unrealized holding loss on available- for-sale securities for the year ended December 31, 2003		—		—		—		—		—			—			(1	)		—			(1	)
Net loss for the year ended December 31, 2003		—		—		—		—		—			—			—			(5,581	)		(5,581	)

Comprehensive loss																						(5,582	)

Balance at December 31, 2003 (carried forward)		3,362,254	$	13,740		908,342	$	1	$	3		$	(14	)	$	(1	)	$	(6,527	)	$	(6,538	)

F-5

TRUBION PHARMACEUTICALS, INC.

STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

(in thousands, except share and per share data)


																	Accumulated
	Convertible																Other
	Preferred Stock						Common Stock				Additional						Comprehensive						Total
											Paid-in			Deferred			Income			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Capital			Compensation			(Loss)			Deficit			Equity (Deficit)

Balance at December 31, 2003 (brought forward)		3,362,254		$	13,740			908,342	$	1	$	3		$	(14	)	$	(1	)	$	(6,527	)	$	(6,538	)
Issuance of common stock upon exercise of stock options		—			—			744		—		—			—			—			—			—
Issuance of Series A convertible preferred stock warrants issued in connection with issuance of notes payable		—			21			—		—		—			—			—			—			—
Repurchase of Series A convertible preferred stock for $4.39 per share		(153,769	)		(627	)		—		—		(48	)		—			—			—			(48	)
Issuance of Series B convertible preferred stock for $4.39 per share, $199 in financing costs		4,709,893			20,675			—		—		(199	)		—			—			—			(199	)
Stock-based compensation to non- employees at fair value		—			—			—		—		26			—			—			—			26
Vesting of non- employee restricted stock		—			—			—		—		2			—			—			—			2
Issuance and vesting of employee restricted stock		—			—			15,947		—		5			—			—			—			5
Amortization of deferred stock-based compensation		—			—			—		—		—			14			—			—			14
Unrealized holding loss on available- for-sale securities for the year ended December 31, 2004		—			—			—		—		—			—			(11	)		—			(11	)
Net loss for the year ended December 31, 2004		—			—			—		—		—			—			—			(14,213	)		(14,213	)

Comprehensive loss																								(14,224	)

Balance at December 31, 2004 (carried forward)		7,918,378		$	33,809			925,033	$	1	$	(211	)	$	—		$	(12	)	$	(20,740	)	$	(20,962	)

F-6

TRUBION PHARMACEUTICALS, INC.

STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

(in thousands, except share and per share data)


																Accumulated
	Convertible															Other
	Preferred Stock					Common Stock				Additional						Comprehensive						Total
										Paid-in			Deferred			Income			Accumulated			Stockholders’
	Shares		Amount			Shares		Amount		Capital			Compensation			(Loss)			Deficit			Equity (Deficit)

Balance at December 31, 2004 (brought forward)		7,918,378	$	33,809			925,033	$	1	$	(211	)	$	—		$	(12	)	$	(20,740	)	$	(20,962	)
Issuance of common stock upon exercise of stock options		—		—			462,194		—		145			—			—			—			145
Issuance of Series B convertible preferred stock for $4.39 per share, $3 in financing costs		2,733,679		12,000			—		—		(3	)		—			—			—			(3	)
Issuance of Series B convertible preferred stock warrants issued in connection with issuance of notes payable		—		5			—		—		—			—			—			—			—
Reclassification of convertible preferred stock warrants to liabilities (Note 2)		—		(61	)		—		—		—			—			—			—			—
Stock-based compensation to non- employees at fair value		—		—			—		—		836			—			—			—			836
Issuance and vesting of non-employee restricted stock		—		—			7,974		—		4			—			—			—			4
Vesting of employee restricted stock		—		—			—		—		4			—			—			—			4
Issuance of stock options to employees		—		—			—		—		2,582			(2,582	)		—			—			—
Amortization of deferred stock-based compensation		—		—			—		—		—			991			—			—			991
Unrealized holding gain on available- for-sale securities for the year ended December 31, 2005		—		—			—		—		—			—			10			—			10
Net loss for the year ended December 31, 2005		—		—			—		—		—			—			—			(18,927	)		(18,927	)

Comprehensive loss																							(18,917	)

Balance at December 31, 2005 (carried forward)		10,652,057	$	45,753			1,395,201	$	1	$	3,357		$	(1,591	)	$	(2	)	$	(39,667	)	$	(37,902	)

F-7

TRUBION PHARMACEUTICALS, INC.

STATEMENT OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

(in thousands, except share and per share data)


															Accumulated
		Convertible													Other
		Preferred Stock				Common Stock				Additional					Comprehensive						Total
										Paid-in		Deferred			Income			Accumulated			Stockholders’
		Shares		Amount		Shares		Amount		Capital		Compensation			(Loss)			Deficit			Equity (Deficit)

Balance at December 31, 2005 (brought forward)			10,652,057	$	45,753		1,395,201	$	1	$	3,357	$	(1,591	)	$	(2	)	$	(39,667	)	$	(37,902	)
Issuance of common stock upon exercise of stock options (unaudited)			—		—		44,052		—		19		—			—			—			19
Stock-based compensation to non- employees at fair value (unaudited)			—		—		—		—		463		—			—			—			463
Vesting of non- employee restricted stock (unaudited)			—		—		—		—		5		—			—			—			5
Stock-based compensation expense (unaudited)			—		—		—		—		2,021		—			—			—			2,021
Stock option modification			—		—		—		—		230		79			—			—			309
Amortization of deferred stock-based compensation (unaudited)			—		—		—		—		—		274			—			—			274
Unrealized holding loss on available- for-sale securities for the six months ended June 30, 2006 (unaudited)			—		—		—		—		—		—			(21	)		—			(21	)
	Net loss for the six months ended June 30, 2006 (unaudited)		—		—		—		—		—		—			—			(4,519	)		(4,519	)

Comprehensive loss (unaudited)																						(4,540	)

Balance at June 30, 2006 (unaudited)			10,652,057	$	45,753		1,439,253	$	1	$	6,095	$	(1,238	)	$	(23	)	$	(44,186	)	$	(39,351	)

The accompanying notes are an integral part of these financial statements.

F-8

TRUBION PHARMACEUTICALS, INC.

STATEMENT OF CASH FLOWS

(in thousands)


													Six Months Ended
				Years Ended December 31,									June 30,

				2003			2004			2005			2005			2006

													(unaudited)
Operating activities
	Net loss			$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)	$	(4,519	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Non-cash stock-based compensation expense			6			14			991			173			2,604
		Non-cash stock-based consulting expense			24			26			836			191			463
		Depreciation and amortization			198			692			928			478			581
		Amortization of debt discount and deferred interest			1			14			17			9			13
		Revaluation of warrants to fair value			—			—			196			—			61
		Changes in operating assets and liabilities:
			Receivable from collaboration		—			—			(40,000	)		—			34,181
			Grant receivable		—			(294	)		294			240			—
			Subscription receivable		8			—			—			—			—
			Deferred financing costs		—			—			—			—			(1,426	)
			Prepaid expenses and other assets		(66	)		(116	)		(13	)		(40	)		(220	)
			Accounts payable		(155	)		86			234			24			887
			Accrued liabilities		701			559			651			579			2,584
			Deferred revenue		—			—			39,778			—			(4,001	)
			Deferred rent		198			822			(172	)		(86	)		(87	)

Net cash provided by (used in) operating activities					(4,666	)		(12,410	)		(15,187	)		(6,615	)		31,121
Investing activities
	Purchase of property and equipment				(3,389	)		(812	)		(1,515	)		(698	)		(1,857	)
	Purchase of investments				(5,997	)		(22,905	)		(26,012	)		(20,878	)		(50,352	)
	Maturities of investments				3,162			15,804			30,718			19,774			22,864

Net cash provided by (used in) investing activities					(6,224	)		(7,913	)		3,191			(1,802	)		(29,345	)
Financing Activities
	Proceeds from issuance of notes payable				1,797			869			1,401			621			—
	Payments on notes payable				(58	)		(603	)		(889	)		(407	)		(608	)
	Proceeds from issuance of convertible preferred stock, net of issuance costs				—			20,476			11,997			11,997			—
	Repurchase of Series A convertible preferred stock				—			(675	)		—			—			—
	Proceeds from issuance of common stock and exercise of stock options				2			5			148			1			19

Net cash provided by (used in) financing activities					1,741			20,072			12,657			12,212			(589	)

	Net increase (decrease) in cash and cash equivalents				(9,149	)		(251	)		661			3,795			1,187
	Cash and cash equivalents at beginning of period				13,420			4,271			4,020			4,020			4,681

	Cash and cash equivalents at end of period			$	4,271		$	4,020		$	4,681		$	7,815		$	5,868

Supplemental disclosure information:
		Cash paid for interest		$	21		$	166		$	181		$	90		$	101
Non-cash investing and financing activities:
		Issuance of warrants in connection with the issuance of notes payable		$	35		$	21		$	30		$	7		$	—

The accompanying notes are an integral part of these financial statements.

F-9

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

December 31, 2005


1.	Organization and Summary of Significant Accounting Policies


	*Organization*

Trubion Pharmaceuticals, Inc. (“Trubion” or the “Company”) (formerly Genecraft, LLC), was originally organized in 1999 in the State of Washington as a limited liability company and reincorporated in October 2002 in the State of Delaware. In September 2003, the Company changed its name to Trubion Pharmaceuticals, Inc.

Trubion is a biopharmaceutical company creating a pipeline of product candidates to treat autoimmune disease and cancer. The Company’s product candidates are single-chain polypeptides designed using its SMIP custom drug assembly technology. These product candidates bind to biologic targets that have been clinically validated either by existing products or by potential products in late stage clinical trials. Trubion designed and developed and submitted to the FDA an Investigational New Drug application for its lead product candidate, TRU-015. Currently, TRU-015 is being tested in a Phase IIb clinical trial for rheumatoid arthritis, which was initiated in September 2006. We completed enrollment of our Phase IIa clinical trial in February 2006. In order to fund ongoing development activities and commercialize its products, the Company will, in some cases, enter into collaboration agreements which would likely include licenses to technology and arrangements to provide research and development services for others. In December 2005, Trubion entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of certain therapeutics, including TRU-015. To date, none of the Company’s product candidates have been approved for marketing and sale and the Company has not received any product revenue.


	*Development Stage Enterprise*

Prior to December 2005, the Company operated as a development stage company as defined in Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises. As a result of the Company’s progress in establishing its operations during 2005 and the initiation of the Wyeth collaboration, Trubion is no longer considered to be a development stage company.


	*Unaudited Interim Financial Information*

The accompanying balance sheet as of June 30, 2006, statements of operations and cash flows for the six months ended June 30, 2005 and 2006 and statement of convertible preferred stock and stockholders’ equity for the six months ended June 30, 2006, and related information contained in the notes to financial statements are unaudited. These unaudited interim financial statements and notes have been prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the six months ended June 30, 2005 and 2006. The results for the six months ended June 30, 2006 are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2006.


	*Unaudited Pro Forma Stockholders’ Equity*

The Company filed a registration statement with the Securities and Exchange Commission (“SEC”) for the Company to sell shares of its common stock in an initial public offering. Shares of Series A and Series B preferred stock outstanding at June 30, 2006 will automatically convert into 10,652,057 shares of common stock upon the closing of the initial public offering. Unaudited pro forma stockholders’ equity, as adjusted for the assumed conversion of the preferred stock and the conversion of 20,353 preferred stock warrants into

F-10

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

common stock warrants and the related reclassification of the preferred stock warrant liability to additional paid in capital, is set forth on the accompanying balance sheets. The warrants to purchase 20,353 shares of convertible preferred stock that, if not exercised prior to the initial public offering, will be automatically exercised on a net cashless basis upon the closing of this offering into shares of common stock based on the initial public offering price, are not reflected as additional shares outstanding in the accompanying unaudited pro forma statement of stockholders’ equity.


	*Use of Estimates*

Trubion’s financial statements have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires Trubion to make estimates and judgments in certain circumstances that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. On an ongoing basis, Trubion evaluates its estimates, including those related to revenue recognition, classification of investments, fair values of assets, income taxes, clinical trial and manufacturing accruals and other contingencies. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results could differ from these estimates.


	*Fair Value of Financial Instruments*

The Company carries cash, cash equivalents and investments available-for-sale at fair value. The Company’s other financial instruments, including accounts receivable, accounts payable and accrued liabilities, are carried at cost, which approximates fair value given their short-term nature.


	*Cash, Cash Equivalents and Investments*

The Company considers all highly liquid investments with original maturities of three months or less from date of purchase to be cash equivalents. Cash equivalents consist of interest-bearing instruments, including obligations of U.S. government agencies, high credit rating corporate borrowers and money market funds, which are carried at market value.

The Company classifies its investment portfolio as available-for-sale. Available-for sale securities are carried at estimated fair value, with the unrealized gains and losses, if any, reported in stockholders’ equity (deficit) and included in accumulated other comprehensive income (loss). The Company considers an investment with a maturity greater than twelve months as long-term and a maturity less than twelve months as short-term at the balance sheet date. The cost of securities in this category is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are also included in interest income. The cost of securities sold is based on the specific identification method.


	*Property and Equipment*

Property and equipment, including leasehold improvements, are stated at cost, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the related lease term ranging from five to seven years.

F-11

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


	*Impairment of Long-Lived Assets*

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), requires losses from impairment of long-lived assets used in operations to be recorded when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Trubion periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered.


	*Deferred Rent*

Lease incentives, including rent holidays and tenant improvement allowances provided by lessors, and rent escalation provisions are accrued as deferred rent. The Company recognizes rent expense on a straight-line basis over the term of the lease. The related benefits are included in research and development expense or general and administrative expense based on the nature of the related expense.


	*Revenue Recognition*

Trubion recognizes revenue from government grants and its collaboration agreement with Wyeth. Grant revenue is recognized when the related qualified research and development expenses are incurred up to the limit of the approval funding amounts. Revenue from its collaboration agreement with Wyeth consists of a non-refundable, non-creditable, up-front fee, collaborative research funding, and regulatory and sales milestones and future product royalties. Revenue related to the Wyeth collaboration is recognized as follows:


	Up-Front Fees and License Fees: Non-refundable, non-creditable up-front fees and license fees received in connection with collaborative research and development agreements are deferred and recognized on a straight-line basis over the estimated term of the research and development service period. The estimated term of the research and development service period is reviewed and adjusted based on the status of the project against the estimated timeline as additional information becomes available.

	Collaborative Research Funding: Internal and external research and development costs are reimbursed in connection with collaboration agreements. Reimbursed costs are recognized as revenue in the same period the costs were incurred.


	Milestones: Payments for milestones that are based on the achievement of substantive and at risk-performance criteria will be recognized in full at such time as the specified milestone has been achieved according to the terms of the agreement. When payments are not for substantive and at-risk milestones, revenue will be recognized immediately for the proportionate amount of the payment that correlates to services that have already been rendered, with the balance recognized on a straight-line basis over the remaining estimated term of the research and development service period. The basis of the research and development service period is reviewed and adjusted based on the status of the project against the estimated timeline as additional information becomes available.

F-12

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


	Royalties: Royalties that are based on reported sales of licensed products and revenues will be calculated based on contract terms when reported sales are reliably measurable and collectibility is reasonably assured.


	*Research and Development*

All research and development costs, including those funded by third parties, are expensed as incurred. Research and development costs include, but are not limited to, salaries and benefits, lab supplies, preclinical fees, clinical trial and related clinical manufacturing costs, allocated overhead costs and professional service providers.


	*Income Taxes*

The Company accounts for income taxes under the liability method in accordance with the provision of SFAS No. 109, Accounting for Income Taxes (“SFAS 109”). SFAS 109 requires recognition of deferred taxes to provide for temporary differences between financial reporting and tax basis of assets and liabilities. Deferred taxes are measured using enacted tax rates expected to be in effect in a year in which the basis difference is expected to reverse. Trubion continues to record a valuation allowance for the full amount of deferred assets, which would otherwise be recorded for tax benefits relating to operating loss and tax credit carryforwards, as realization of such deferred tax assets cannot be determined to be more likely than not.


	*Comprehensive Income (Loss)*

Comprehensive income (loss) is comprised of net loss and unrealized gains (losses) on marketable securities. Total comprehensive income (loss) for all other periods presented has been disclosed in the statements of stockholders’ equity.


	*Stock-Based Compensation*

On January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”), Statement No. 123R, Share-Based Payment (“SFAS 123R”), under the prospective method which requires the measurement and recognition of compensation expenses for all future share-based payments made to employees and directors be based on estimated fair values. Through December 31, 2005, the Company accounted for employee stock options using the minimum-value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and, accordingly, recognized compensation expense only for options that had an exercise price below the fair market value at the date of grant. Also, through December 31, 2005, the Company had adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as amended by SFAS No. 148, Accounting for Stock Based Compensation — Transition and Disclosure (“SFAS 148”).

The Company accounts for stock options issued to non-employees using the fair value method of accounting prescribed by Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), and EITF Consensus No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. The Company believes that the fair value of the stock options is more readily measurable than the fair value of the services rendered. The stock compensation costs of these options granted to non-employees are re-measured over the vesting terms as earned, and the resulting value is recognized as an expense over the period of services received. During 2003 and 2004, the Company granted non-employees options to purchase 7,973 and 23,121 shares of common stock, respectively, with exercise prices equal to the estimated fair value on the date of grant. During 2005, the Company granted 14,354 options to non-employees to

F-13

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

purchase shares of common stock, at an exercise price of $2.70 per share and an estimated Black-Scholes fair value of $14.99 per share. During the six months ended June 30, 2006, the company granted 9,571 options to non-employees to purchase shares of common stock, at an exercise price of $8.34 per share and an estimated Black-Scholes fair value of $14.99 per share.

The Company valued the non-employee stock options granted during 2003, 2004, 2005 and the six months ended June 30, 2006, using the Black-Scholes valuation model, using a volatility rate of 100%, an expected life representing the remaining contractual life of ten years, an expected dividend yield of 0% and a risk-free interest rate ranging from 3.86% to 5.10%. Stock-based compensation expense associated with these non-employee options was $4,000, $6,000 and $242,000 for the years ended December 31, 2003, 2004 and 2005, respectively, and $28,000 and $97,000 for the six months ended June 30, 2005 and 2006, respectively.

In accordance with SFAS 123, as amended by SFAS 148, the Company has provided below pro forma disclosures of the effect on net loss as if SFAS 123 had been applied in measuring employee compensation expense for the years ended December 31, 2003, 2004 and 2005 and for the six months ended June 30, 2005.


										Six Months
										Ended
	Year Ended December 31,									June 30,

	2003			2004			2005			2005

										(unaudited)
	(in thousands, except per share data)
Net loss, as reported	$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)
Add back: stock-based employee compensation expense included in net loss		6			14			991			173
Deduct: stock-based employee compensation expense determined under the fair value method		(17	)		(15	)		(1,106	)		(191	)

Pro forma net loss	$	(5,592	)	$	(14,214	)	$	(19,042	)	$	(8,201	)

Basic and diluted net loss per share, as reported	$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)

Pro forma basic and diluted net loss per share	$	(11.41	)	$	(22.47	)	$	(23.44	)	$	(11.15	)

The fair value of these employee options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


										Six Months
	Year Ended									Ended
	December 31,									June 30,

	2003			2004			2005			2005

										(unaudited)
Risk-free interest rate		3.25	%		4.25	%		4.35	%		4.35	%
Weighted-average expected life (in years)		4.85			5.16			4.87			4.87
Expected dividend yield		0	%		0	%		0	%		0	%
Expected volatility rate		0	%		0	%		0	%		0	%
Weighted-average estimated fair value of employee options	$	0.06		$	0.06		$	7.15		$	3.83

F-14

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


	*Concentration of Credit Risk*

Financial instruments that subject the Company to potential credit risk consist of cash, cash equivalents and investments. The Company’s cash, cash equivalents and investments are placed with high credit-quality financial institutions and issuers. The Company believes that its established guidelines for investment of its excess cash maintain safety and liquidity through its policies on diversification and investment maturity.


	*Freestanding Preferred Stock Warrants*

Freestanding warrants and other similar instruments related to shares that are redeemable are accounted for in accordance with FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Under Statement 150, the freestanding warrants that are related to the Company’s convertible preferred stock are classified as liabilities on the balance sheet. The warrants will be subject to re-measurement at each balance sheet date and any change in fair value will be recognized as a component of other expense. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering, at which time the liability will be reclassified as additional paid-in-capital.


	*Recent Accounting Pronouncements*

In November 2005, the FASB issued Staff Position No. FAS 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP 115-1”). FSP 115-1 provides accounting guidance for identifying and recognizing other-than-temporary impairments of debt and equity securities, as well as cost method investments in addition to disclosure requirements. FSP 115-1 is effective for reporting periods beginning after December 15, 2005, and earlier application is permitted. The Company does not expect the adoption of FSP 115-1 to have a material effect on our results of operations or net loss per share.


2.	Cumulative Effect of Change in Accounting Principle

On June 29, 2005, the FASB issued Staff Position 150-5, Issuer’s Accounting under FASB Statement No. 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable. This Staff Position affirms that freestanding warrants are subject to the requirements in Statement 150, regardless of the timing of the redemption feature or the redemption price. Therefore, under Statement 150, the freestanding warrants that are related to the Company’s convertible preferred stock are liabilities that should be recorded at fair value. As discussed in Note 10, the Company previously accounted for freestanding warrants for the purchase of our convertible preferred stock under EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” The Company adopted FSP 150-5 and accounted for the cumulative effect of the change in accounting principle as of the beginning of the third quarter of 2005. For the year ended December 31, 2005, the impact of the change in accounting principle was to increase net loss by $196,000, or $0.24 per share. The impact consists of a $62,000 charge for the cumulative effect upon adoption as of July 1, 2005, reflecting the fair value of the warrants as of that date, and $134,000 of additional expense that has been recorded in other expense to reflect the increase in fair value between July 1, 2005 and December 31, 2005. In the six months ended June 30, 2006, the Company recorded $61,000 of additional expense reflected as other expense to reflect the increase in fair value between January 1, 2006 and June 30, 2006.

F-15

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

The impact of the cumulative effect of change in accounting principle on net loss per common share was as follows:


											Six Months Ended
		Year Ended December 31,									June 30,

		2003			2004			2005			2005			2006

											(unaudited)
Net loss per common share, basic and diluted:
	Loss before cumulative effect of change in accounting principle	$	(11.39	)	$	(22.47	)	$	(23.22	)	$	(11.13	)	$	(3.34	)
	Cumulative effect of change in accounting principle		—			—			(0.08	)		—			—

	Net loss	$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)	$	(3.34	)

Shares used in computing basic and diluted net loss per common share (in thousands)			490			633			812			735			1,352

The pro forma effect of the adoption of Statement 150 on the Company’s results of operations for 2003, 2004 and 2005, if applied retroactively, assuming Statement 150 had been adopted in those years, has not been disclosed, as these amounts would not be materially different from the reported amounts.


3.	Net Loss per Share

Basic and diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the period less weighted average shares subject to repurchase. Stock options, warrants and common stock subject to repurchase by the Company, and shares to be issued upon conversion of the convertible preferred stock were not included in the net loss per share calculation for the years ended December 31, 2003, 2004 and 2005 and the six months ended June 30, 2006 because the inclusion of such shares would have had an anti-dilutive effect. The unaudited pro forma basic and diluted net loss per common share calculations assume the conversion of all outstanding shares of preferred stock into shares of common stock and all outstanding warrants to purchase preferred stock into common stock warrants using the as-if-converted method as of January 1, 2005 and 2006 or the date of issuance, if later.

F-16

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


												Six Months Ended
			Year Ended December 31,									June 30,

			2003			2004			2005			2005			2006

												(unaudited)
			(in thousands, except share and per share data)
Historical
Numerator:
		Net loss	$	(5,581	)	$	(14,213	)	$	(18,927	)	$	(8,183	)	$	(4,519	)
Denominator:
		Weighted average common shares outstanding		903,877			923,485			972,856			926,185			1,423,854
	Less: Weighted-average unvested restricted common shares subject to repurchase			(413,961	)		(290,898	)		(160,391	)		(190,736	)		(71,372	)

Denominator for basic and diluted loss per share				489,916			632,587			812,465			735,449			1,352,482

Basic and diluted net loss per share			$	(11.39	)	$	(22.47	)	$	(23.30	)	$	(11.13	)	$	(3.34	)

Pro forma
Numerator:
Net loss									$	(18,927	)				$	(4,519	)
	Plus: other expense attributable to the preferred stock warrants assumed to have been converted to common stock warrants									196						61

Pro forma net loss									$	(18,731	)				$	(4,458	)

Denominator for pro forma basic and diluted net loss per share:
		Shares used above								812,465						1,352,482
Pro forma adjustments to reflect assumed weighted-average effect of conversion of preferred stock (unaudited)										10,386,258						10,652,057

Shares used to compute pro forma basic and diluted net loss per common share (unaudited)										11,198,723						12,004,539

Pro forma basic and diluted net loss per share (unaudited)									$	(1.67	)				$	(0.37	)

F-17

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

Potentially dilutive securities include the following:


	As of December 31,						As of June 30,

	2003		2004		2005		2005		2006

							(unaudited)
Stock options		548,261		1,049,873		974,151		1,267,432		1,561,132
Warrants to purchase convertible preferred stock		10,772		17,163		20,353		18,576		20,353
Common shares subject to repurchase		345,393		222,482		96,108		156,404		44,583
Convertible preferred stock		3,362,254		7,918,378		10,652,057		10,652,057		10,652,057

		4,266,680		9,207,896		11,742,669		12,094,469		12,278,125


4.	Collaboration Agreement

In December 2005, the Company entered into a collaboration agreement with Wyeth for the development and worldwide commercialization of its lead product candidate, TRU-015, and other therapeutics directed to CD20, an antigen that is a validated clinical target that is present on B cells. The Company is also collaborating with Wyeth on the development and worldwide commercialization of other SMIP product candidates directed to targets other than CD20 established pursuant to the agreement. In addition, the Company has the option to co-promote with Wyeth, on customary terms to be agreed, CD20-directed therapies in the United States for niche indications. The Company retains the right to develop and commercialize, on its own or with others, SMIP product candidates directed to targets not included within the agreement, including CD37 and other specified targets. Unless earlier terminated, the collaboration agreement will remain in effect on a licensed product-by-licensed product basis and on a country-by-country basis until the later of, the date that any such product shall no longer be subject to a valid claim of a United States or foreign patent or application or, generally, 10 years after the first commercial sale of any product licensed under the agreement.

In connection with the agreement, Wyeth paid the Company a $40 million non-refundable, non-creditable up-front fee in January 2006 and will purchase directly from the Company in a private placement concurrent with the initial public offering shares of the Company’s common stock at the initial public offering price in an amount equal to 20% of the number of shares sold in the initial public offering. The agreement provides that the Company is to provide research and development services for a period of three years with the option for Wyeth to extend the service period for two additional one year periods. Wyeth’s future financial obligations to the Company also include payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to Wyeth’s future financial obligations to us also include collaborative research funding commitments of up to $9 million in exchange for a commitment by us to provide an agreed upon number of full-time employees per year to provide services in furtherance of the research program, which amount is subject to a decrease in the event of an early termination of the research program, or an increase in the event of an extension of such program. These future financial obligations include as well additional amounts for reimbursement of agreed external research and development costs. Wyeth is also obligated to make payments of up to $250 million based on regulatory and sales milestones for CD20-directed therapies and payments of up to $535 million based on regulatory and sales milestones for therapies directed to targets other than CD20 and that have been and are to be selected by Wyeth pursuant to the agreement. In addition, the Company will receive royalty payments on future licensed product sales. Wyeth may terminate the agreement without cause at any time after December 22, 2007. The $40 million up-front fee is being recognized ratably over the estimated term of the related research and development period of five years.

F-18

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

During 2005 and the six months ended June 30, 2006, the Company recognized as revenue $222,000 and $13.6 million, respectively, for research and development services pursuant to the Company’s Wyeth collaboration. The $13.6 million is comprised of $4.0 million for amortization of the $40 million up-front fee received from Wyeth and $9.6 million for collaborative research funding from the Wyeth collaboration.


5.	Investments

The Company invests in a variety of highly liquid investment-grade securities. The following is a summary of the Company’s available-for-sale securities at December 31, 2004, 2005 and June 30, 2006 (in thousands):


				Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair Market
December 31, 2004	Cost			Gains		Losses			Value

Corporate debt securities	$	8,188		$	—	$	(12	)	$	8,176
Government securities		1,748			—		—			1,748
Money market funds		3,952			—		—			3,952

Total		13,888					(12	)		13,876
Less: cash equivalents		(3,952	)		—		—			(3,952	)

Amounts classified as investments	$	9,936		$	—	$	(12	)	$	9,924


				Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair Market
December 31, 2005	Cost			Gains		Losses			Value

Corporate debt securities	$	4,719		$	—	$	(2	)	$	4,717
Government securities		511			—		—			511
Money market funds		3,322			—		—			3,322

Total		8,552					(2	)		8,550
Less: cash equivalents		(3,322	)		—		—			(3,322	)

Amounts classified as investments	$	5,230		$	—	$	(2	)	$	5,228


				Gross		Gross			Estimated
	Amortized			Unrealized		Unrealized			Fair Market
June 30, 2006	Cost			Gains		Losses			Value

	(unaudited)
Corporate debt securities	$	34,183		$	6	$	(29	)	$	34,160
Money market		3,546			—		—			3,546

Total		37,729			6		(29	)		37,706
Less: cash equivalents		(5,011	)		—		—			(5,011	)

Amounts classified as investments	$	32,718		$	6	$	(29	)	$	32,695

The estimated fair market value amounts have been determined by the Company using available market information. At December 31, 2003, 2004, 2005 and at June 30, 2006, all marketable securities matured within twelve months. Unrealized gains and losses on available-for-sale securities were reported as a component of stockholders’ equity (deficit).

F-19

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


6.	Property and Equipment

Property and equipment consisted of the following (in thousands):


	December 31,
							June 30,
	2004			2005			2006

							(unaudited)
Lab equipment	$	1,983		$	3,056		$	3,928
Leasehold improvements		1,795			2,148			2,147
Furniture and fixtures		131			180			178
Computer equipment and software		318			358			523
Construction in progress		—			—			823

		4,227			5,742			7,599
Accumulated depreciation and amortization		(916	)		(1,844	)		(2,425	)

	$	3,311		$	3,898		$	5,174

Property and equipment included equipment acquired under equipment financing agreements of $2.7 million, $4.1 million and $4.1 million at December 31, 2004, 2005 and June 30, 2006, respectively. Accumulated depreciation related to assets under the equipment financing loans was $581,000, $1.2 million and $1.6 million at December 31, 2004, 2005 and June 30, 2006, respectively. Amortization of property and equipment under equipment financing agreements is included in depreciation and amortization expense in the statement of cash flows.


7.	Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	December 31,
					June 30,
	2004		2005		2006

					(unaudited)
Accrued compensation	$	163	$	291	$	293
Accrued professional fees		55		273		1,132
Accrued pre-clinical studies and manufacturing		1,017		975		1,692
Accrued clinical trials		—		324		646
Other		73		91		770

	$	1,308	$	1,954	$	4,533


8.	Notes Payable—Equipment Financing Arrangements

During 2003, 2004 and 2005, the Company entered into various equipment financing arrangements with a lender, each of which is secured by the underlying equipment financed through the arrangement.

As of December 31, 2004 and 2005, the Company financed $2.7 million and $4.1 million, respectively, of equipment purchased under the lender credit facilities. There was no equipment financed during the six months ended June 30, 2006. The credit facilities bear interest at annual rates between 8.83% and 9.67% and are payable in monthly installments ranging from 36 to 42 months. In conjunction with these financing arrangements, the Company is obligated to issue warrants to purchase convertible preferred stock equal to 2% of the first $1 million, 3% of the second $1.7 million and 1% of the third $2.0 million of the actual loan amount using an exercise price equal to the most recent convertible preferred stock round price per share (see Note 10

F-20

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

for additional information). Warrants are recorded as debt issuance costs based on the relative estimated fair value. Debt issuance costs are amortized to interest expense over the term of the debt using the effective interest rate method. As of June 30, 2006, $0 remained available under the equipment financing arrangements.

The future minimum payments due under the equipment financing arrangements were as follows as of December 31, 2005 (in thousands):


	Notes
	Payable

Year ending December 31, 2006	$	1,387
2007		859
2008		462
2009		94

Total payments		2,802
Less amount representing interest		(286	)
Less amount attributable to debt issuance costs		(53	)

Present value of payments		2,463
Less current portion of notes payable		(1,187	)

Long-term portion of notes payable	$	1,276


9.	Commitments and Contingencies


	*Operating Lease Commitments*

The Company leases office and laboratory space under one operating lease agreement, which expires on September 30, 2010. Under the lease, the Company has two options to extend the term of the lease, each for an additional term of five years at the then fair market value of the leased premises. Future minimum lease payments under these leases as of December 31, 2005, were as follows (in thousands):


	Operating
	Leases

Year ending December 31, 2006	$	1,009
2007		1,016
2008		1,013
2009		1,008
2010		756
Thereafter		—

Total minimum lease payments	$	4,802

Rent expense was $389,000, $629,000, $778,000, $376,000 and $497,000 for the years ended December 31, 2003, 2004, 2005 and the six months ended June 30, 2005 and 2006, respectively.

The Company has a facilities lease for its headquarters in Seattle, Washington. The Company took occupancy in June 2003 and from June through September 2003 it had a rent free period. The Company did not start paying monthly rent payments until October 2003. Accordingly, the Company recorded rent expense and accrued a liability for deferred rent of $242,000 in 2003 based upon the ratable recognition of total rent payments under this lease over the total time of occupancy, including the months for which the Company did not pay rent. During 2003, the lessor provided the Company with a $1 million reimbursement for tenant

F-21

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

improvements to its lab space. This lease incentive is recorded as deferred rent and recognized as a reduction of research and development expense on a straight-line basis over the lease term.

On February 10, 2006, the Company amended its facilities lease to add an additional 15,892 square feet of space in the same building it currently leases space effective May 1, 2006. In addition, the Company has extended the lease on all of its facilities space from September 30, 2010 to April 30, 2013. The annual impact of this additional commitment is an increase in operating expenses of approximately $397,000 per year.

On March 16, 2006, the Company entered into a sublease to add an additional 3,067 square feet of space in the same building it currently leases space effective March 16, 2006 and expiring December 31, 2006. The impact of this additional commitment is an increase in operating expenses of approximately $49,000 in 2006.


	*Manufacturing Commitments*

On January 8, 2004, the Company entered into an agreement with Lonza Biologics (“Lonza”) for certain development and manufacturing services with respect to the Company’s lead product candidate. On November 21, 2005, Trubion entered into a manufacturing services agreement with Lonza whereby Lonza will manufacture Trubion’s lead product candidate for use in clinical trials and, upon regulatory approval, for commercial use. Trubion reserves manufacturing capacity under pre-specified terms and conditions up to one year or more in advance. As of June 30, 2006, Trubion had committed to purchase $16.1 million of manufacturing services from Lonza in 2006 and 2007. If the Company terminates its agreement with Lonza without providing adequate notice to Lonza under the agreement, the Company may incur cancellation fees.


	*Guarantees and Indemnifications*

In November 2002, the FASB issued FASB Interpretation No. 45, (“FIN 45”) Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligations it assumes under that guarantee.

The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, the Company intends to obtain director and officer insurance that limits its exposure and may enable it to recover a portion of any future amounts paid. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of June 30, 2006.

The Company has certain agreements with certain research organizations with which it does business that contain indemnification provisions pursuant to which the Company typically agrees to indemnify the party against certain types of third-party claims. The Company accrues for known indemnification issues when a loss is probable and can be reasonably estimated. The Company also accrues for estimated incurred but unidentified indemnification issues based on historical activity. There were no accruals for or expenses related to indemnification issues for any period presented.

F-22

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)


10.	Stockholders’ Equity (Deficit)


	*Common Stock*

As of December 31, 2004 and 2005, the Company was authorized to issue 13,554,458 shares of common stock. As of June 30, 2006, the Company was authorized to issue 14,272,046 shares of common stock. As of December 31, 2004, 2005 and June 30, 2006, respectively, the Company had 925,033, 1,395,201 and 1,439,253 shares of common stock outstanding.

The Company had reserved shares of common stock for future issuances as follows:


		December 31,		June 30,
		2005		2006

				(unaudited)
Convertible preferred stock
	Shares outstanding		10,652,057		10,652,057
	Shares authorized, but unissued		222,421		222,421
Warrants
	To purchase Series A preferred stock		17,418		17,418
	To purchase Series B preferred stock		4,556		4,556
2002 Equity Incentive Plan and 2002 Stock Plan
	Options outstanding		974,151		1,561,132
	Shares available for grant		60,622		128,631

			11,931,225		12,586,215


	*Convertible Preferred Stock*

At December 31, 2004, 2005 and June 30, 2006, the Company was authorized to issue 10,874,478 shares of convertible preferred stock.

In July 2004, the Company closed a Series B preferred stock financing which took place in two tranches. The Company issued the first tranche of 4,709,893 shares at $4.39 per share in July 2004. The Company issued the second tranche of 2,733,679 shares at $4.39 per share in February 2005.

As of December 31, 2005 and June 30, 2006, convertible preferred stock consisted of the following (in thousands, except share data):


					Aggregate
	Designated		Shares Issued		Liquidation
Series	Shares		and Outstanding		Preference

Series A		3,379,660		3,208,485	$	13,078
Series B		7,494,818		7,443,572		32,675

		10,874,478		10,652,057	$	45,753

Conversion. Preferred stock is convertible into common stock at the option of the holder, or by vote or written consent of the holders of a majority of the shares of preferred stock by the then applicable conversion price in effect at the time of conversion, subject to anti-dilution provisions. Conversion is automatic upon a firm underwritten public offering of the Company’s common stock at a price not less than $13.17 per share and having aggregate gross proceeds not less than $35 million. The preferred stock outstanding at June 30, 2006 will automatically convert into 10,652,057 shares of common stock upon the closing of the initial public offering.

F-23

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

Dividends. Holders of Series A and Series B preferred stock (“Preferred Stockholders”) have preferential rights to common stockholders to non-cumulative dividends of 0.326 and $0.351 per share, respectively, when and if declared by the board of directors.

Voting. The holder of each share of common stock issued and outstanding shall be entitled to one vote and each holder of convertible preferred stock is entitled to the number of votes equal to the number of shares of common stock into which the convertible preferred stock could be converted as of the record date.

Liquidation. In the event of a liquidation event, rights to liquidation payments are as follows: the holders of Series B have preferential rights over holders of Series A and holders of Series A have preferential rights over holders of common stock. Series B holders are entitled to liquidation payments of their original issuance price of $4.39 per share of Series B, plus any declared and unpaid dividends. After liquidation payments are complete to Series B holders, Series A holders are entitled to liquidation payments of their original issuance price of $4.08 per share of Series A, plus any declared and unpaid dividends. Any additional distribution will be made to the holders of common stock and convertible preferred stock on a pro rata as-converted basis; provided that the maximum aggregate amount that the Series A holders may receive is $12.23 per share and the maximum aggregate amount that the Series B holders may receive is $13.17 per share (in both cases including the preferential liquidation payments described above).

The convertible preferred stock is entitled to weighted average anti-dilution protection for future issuances at prices below the then effective conversion price of such series, subject to standard exceptions for shares issued to employees, directors and consultants, shares issued in connection with equipment leases, loans and strategic transactions and shares sold pursuant to an effective registration statement.

The Company’s Amended and Restated Certificate of Incorporation provides that a change in control is deemed to be a liquidation event. As a result, cash redemption of the convertible preferred stock could be triggered by a change in control, which would be considered to be outside the control of the Company. Accordingly, the convertible preferred stock and preferred stock warrants have been presented outside of permanent equity in the accompanying balance sheets.


	*Convertible Preferred Stock Warrants*

During 2003, in connection with an equipment financing agreement, the Company issued an immediately exercisable and fully vested series of warrants to purchase 10,772 shares of Series A preferred stock at a per share price of $4.08. The warrant terms are seven years and expire during 2010. The Company recorded a debt discount against the note payable balance on the accompanying balance sheets related to the issuance of these warrants. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $4.08, an expected volatility of 100%, a contractual life of seven years, an expected dividend yield of 0% and a risk-free rate interest rate of 3.79%. The relative fair value of these warrants was estimated to be $35,000 and was recorded as a debt discount against the note payable balance. The relative fair value of the warrants is being amortized to interest expense using the effective interest method over the term of the financing arrangement. As of June 30, 2006, these warrants remained outstanding.

During 2004, in connection with an equipment financing agreement, the Company issued an immediately exercisable and fully vested series of warrants to purchase 6,391 shares of Series A preferred stock at a per share price of $4.08. The warrant terms are seven years and expire during 2011. The Company recorded a debt discount against the note payable balance in the accompanying balance sheet related to the issuance of these warrants. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $4.08, an expected volatility of 100%, a contractual life of seven years, an expected dividend yield of 0% and a risk-free rate interest rate of between 3.51% and 4.39%. The relative fair value of these warrants was estimated to be $21,000 and was recorded as a debt discount against the note payable

F-24

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

balance. The relative fair value of the warrants is being amortized to interest expense using the effective interest method over the term of the financing arrangement. As of June 30, 2006, these warrants remained outstanding.

During 2005, in connection with an equipment financing agreement, the Company issued an immediately exercisable and fully vested series of warrants to purchase 3,190 shares of Series B preferred stock at a per share price of $4.39. The warrant terms are seven years and expire during 2012. The Company recorded a debt discount against the note payable balance in the accompanying balance sheet related to the issuance of these warrants. The Company valued these warrants using the Black-Scholes valuation model, assuming an exercise price and fair value of $4.39, an expected volatility of 100%, a contractual life of seven years, an expected dividend yield of 0% and a risk-free rate interest rate of between 4.33% and 4.74%. The relative fair value of these warrants was estimated to be $30,000 and was recorded as a debt discount against the note payable balance. The relative fair value of the warrants is being amortized to interest expense using the effective interest method over the term of the financing arrangement. As of June 30, 2006, these warrants remained outstanding.

As discussed in Note 2, in 2005 we have reclassified the convertible preferred stock warrants as a liability and began adjusting the warrants to fair value at each reporting period.


	*Equity Incentive Plans*

The Company’s 2002 Equity Incentive Plan (the “Equity Plan”) was replaced by the 2002 Stock Plan (the “Stock Plan”) (collectively “the Plans”) in December 2002. A total of 96,316 shares were granted pursuant to the Equity Plan prior to the adoption of the Stock Plan. Of the initial 883,271 shares reserved under the Equity Plan, the remaining 786,955 shares available for grant were transferred to the Stock Plan.

As of December 31, 2005 and June 30, 2006 a total of 1,424,811 and 2,123,853 shares of the Company’s common stock remained available for issuance to employees, directors and consultants under the Stock Plan, respectively. Options granted under the Plans may be designated as qualified or non-qualified at the discretion of the Plan administrator and vest over periods defined in each option agreement generally from one to five years; they expire no later than ten years from the date of grant. Also, with respect to the Plans, qualified stock options are exercisable at not less than the estimated fair value of the stock at the date of grant, and non-qualified stock options are exercisable at prices determined at the discretion of the plan administrator.

F-25

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

The following is a summary of employee, consultant and director options issued under the Plans:


	Options Outstanding

	Shares						Weighted-
	Available for			Number of			Average
	Grant			Options			Exercise Price

Balance at January 1, 2003		643,254			239,907		$	0.19
Granted		(358,156	)		358,156			0.26
Exercised		—			(7,360	)		0.32
Cancelled		42,417			(42,417	)		0.32

Balance at December 31, 2003		327,515			548,286			0.25
Authorized increase in Plan		637,856			—			—
Issuance of restricted shares		(15,946	)		—			—
Granted		(519,263	)		519,263			0.32
Exercised		—			(744	)		0.32
Cancelled		16,909			(16,909	)		0.32

Balance at December 31, 2004		447,071			1,049,896			0.32
Granted at less than fair value		(386,537	)		386,537			1.13
Exercised		—			(462,194	)		0.32
Cancelled		88			(88	)		0.32

Balance at December 31, 2005		60,622			974,151			0.63
Authorized increase in Plan (unaudited)		699,042			—			—
Granted at less than fair value (unaudited)		(631,033	)		631,033			6.84
Exercised (unaudited)		—			(44,052	)		0.44

Balance at June 30, 2006 (unaudited)		128,631			1,561,132		$	3.14

There were 112,930, 377,667, 348,586 and 542,206 options exercisable at December 31, 2003, 2004, 2005 and June 30, 2006, respectively, at a weighted-average exercise price of $0.26, $0.32, $0.64 and $1.44, respectively. The intrinsic value of outstanding vested options at December 31, 2005 and June 30, 2006 based on the estimated fair value of common stock at December 31, 2005 and June 30, 2006 of $15.61 and $19.44 per share, was $5.2 million and $9.8 million, respectively. The Company issued 15,947 shares of restricted stock in 2004 at a weighted average fair value of $0.31 per share. In addition, the Company issued 7,974 shares of restricted stock in 2005 at a weighted average fair value of $5.39 per share.

The following summarizes information about employee, consultant and director options outstanding:


	December 31, 2005						June 30, 2006

			Weighted-Average						Weighted-Average
			Remaining						Remaining
	Options		Contractual Life		Options		Options		Contractual Life		Options
Exercise Price Per Share	Outstanding		(in years)		Exercisable		Outstanding		(in years)		Exercisable

							(Unaudited)
$0.07		91,532		6.74		91,532		91,532		6.24		91,532
$0.32		753,633		8.64		201,056		711,641		8.12		307,712
$2.70		128,986		9.92		55,998		127,059		9.42		67,281
$6.53		—		—		—		540,697		9.66		75,681
$8.35		—		—		—		55,812		9.76		—
$9.35		—		—		—		34,391		9.82		—

$0.07 - $9.35		974,151		8.64		348,586		1,561,132		8.75		542,206

F-26

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

The following is a summary of restricted stock award activity:


		Outstanding
		Stock
		Awards

Balance at January 1, 2003			477,612
	Units granted		—
	Units vested		(132,219	)

Balance at December 31, 2003			345,393
	Units granted		15,947
	Units vested		(138,858	)

Balance at December 31, 2004			222,482
	Units granted		7,974
	Units vested		(134,348	)

Balance at December 31, 2005			96,108
	Units granted		—
	Units vested		(51,525	)

Balance at June 30, 2006			44,583

In connection with the preparation of a registration statement for the Company to sell shares of its common stock in an initial public offering, the Company reassessed the estimated fair value of the common stock in light of the expected completion of the offering. The Company did not obtain a contemporaneous valuation from an unrelated valuation specialist. The Company has not historically obtained contemporaneous valuations by an unrelated valuation specialist because, at the time of the issuances of stock options, the Company believed its estimates of the fair value of its common stock to be reasonable and consistent with its understanding of how similarly situated companies in its industry are valued. Based upon the reassessment, the Company determined that the reassessed fair value of the options granted to employees from January 2005 to June 2006 was greater than the exercise price of those options. Prior to January 1, 2005, the exercise price of the Company’s employee stock options equaled the estimated fair value of the common stock on the date of grant. Information on employee stock options granted during 2005 and the first quarter of 2006 is summarized as follows:


					Fair Value
					Estimate Per		Intrinsic
	Number of		Exercise		Common		Value Per
Date of Issuance	Options Granted		Price		Share		Option Share

February 2005		114,768	$	0.32	$	2.89	$	2.57
April 2005		107,526	$	0.32	$	5.40	$	5.08
July 2005		39	$	0.32	$	9.22	$	8.90
September 2005		35,082	$	0.32	$	11.79	$	11.47
November 2005		114,768	$	2.70	$	14.37	$	11.67
January 2006		47,201	$	6.53	$	16.87	$	10.34
March 2006		493,495	$	6.53	$	19.45	$	12.92
March 2006		27,108	$	8.35	$	19.45	$	11.10
April 2006		19,135	$	8.35	$	19.45	$	11.10
May 2006		32,610	$	9.35	$	19.45	$	10.10
June 2006		1,913	$	9.35	$	19.45	$	10.10

The Company recorded approximately $3,000, $3,000, $102,000 and $75,000 of stock-based compensation during the years ended December 31, 2003, 2004, 2005 and the six months ended June 30, 2006, respectively,

F-27

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

related to restricted stock awards granted to members of the Company’s Scientific Advisory Board. Compensation expense is recorded using straight-line amortization in accordance with FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.

In addition, the Company issued shares of common stock to certain of its founders who act as consultants to Trubion. These shares are subject to repurchase rights by the Company that lapse over time. The Company records differences between the fair market value of its common stock and the issuance price as compensation expense as those repurchase rights lapse on a monthly basis. During the years ended December 31, 2003, 2004, 2005 and the six months ended June 30, 2006, the Company recorded expense of $17,000, $17,000, $492,000 and $291,000, respectively, in conjunction with these shares. As of June 30, 2006, there were 44,583 shares of the Company’s common stock subject to the Company’s right to repurchase at the original purchase price.


	*Stock Options under SFAS 123R (unaudited)*

In December 2004, the FASB issued SFAS 123R, which replaced SFAS 123 and superseded APB 25. SFAS 123R requires all future share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values, and was effective beginning January 1, 2006. Effective January 1, 2006, the Company began accounting for grants of stock options to employees utilizing the fair value recognition provisions of SFAS 123R.

Adoption of SFAS 123R was implemented utilizing the prospective transition method. Under this method, compensation costs recognized during the six months ended June 30, 2006 include: (a) compensation costs for all share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based on the minimum-value method in accordance with the original provisions of APB 25 and (b) compensation costs for all share-based payment awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

As stock-based compensation expense recognized in the Statement of Operations for the six months ended June 30, 2006 is based on options ultimately expected to vest, it has been reduced for estimated forfeitures. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

The Company chose the straight-line method of allocating compensation cost under SFAS 123R.

The Company also chose to continue utilizing the Black-Scholes model as its chosen option-pricing model.

In regards to the calculation of expected term, the Company chose to utilize the “simplified” method for “plain vanilla” options as discussed within SAB 107.

For the calculation of expected volatility, the Company based its estimate of expected volatility on the estimated volatility of similar entities whose share prices are publicly available. The Company used the following factors to identify similar public entities: industry, stage of life cycle and the existence of at least one significant partnership. The result of the adoption of SFAS 123R is an increase in the value of estimated non-cash stock-based compensation reflected in the Company’s Statements of Operations in the six months ended June 30, 2006.

In accordance with the prospective transition method, the Company’s Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123R. Total employee stock-based compensation expense recognized under SFAS 123R for the six months ended June 30, 2006 was $2.6 million. Of the $2.6 million, $1.0 million was included in research and development expense and $1.6 million was included in general and administrative expense. The $2.6 million of employee stock-based compensation expense includes $309,000 related to the accelerated vesting of options in the first quarter of 2006. In addition, of the $2.6 million, $2.3 million was related to options granted or modified in 2006. As a

F-28

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

result of the adoption of FAS 123R, the Company’s net loss increased by approximately $1.2 million or $0.89 per share in the six months ended June 30, 2006. As of June 30, 2006, total compensation related to nonvested options not yet recognized in the financial statements is approximately $8.9 million and the weighted average period over which it is expected to be recognized is approximately 1.4 years. The Company recorded no tax benefit related to these options during the first six months of 2006 since the Company currently maintains a full valuation allowance.

The fair value of each employee option grant in the quarter ended June 30, 2006 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions.


	June 30,
	2006

	(unaudited)
Risk-free interest rate		5.04%
Weighted-average expected life (in years)		6.25
Expected dividend yield		0%
Expected volatility		75%


	*Changes in Capitalization*

On , 2006, the board of directors of the Company approved the 2006 Equity Incentive Plan, which will become effective in connection with the Company’s initial public offering.

On , 2006, the board of directors of the Company, subject to stockholder approval, approved the filing of a certificate of amendment to the Company’s amended and restated certificate of incorporation to provide for 5,000,000 authorized shares of preferred stock and 150,000,000 authorized shares of common stock, which will become effective prior to the Company’s initial public offering.

On , 2006, the board of directors of the Company, subject to stockholder approval, approved a reverse stock split of the Company’s common and convertible preferred stock at a ratio of one share for every six shares previously held. The 6.271 to 1 reverse stock split will become effective prior to the Company’s initial public offering. All common and convertible preferred stock share and per-share data included in these financial statements have been retroactively restated to reflect the proposed reverse stock split.


11.	401(k) Plan

The Company sponsors a 401(k) Plan that stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations, up to 100% of eligible compensation on a pretax basis. Pursuant to the 401(k) Plan, the Company does not match any employee contributions.


12.	Income Taxes

At December 31, 2005, the Company had a net operating loss and research and development (“R&D”) tax credit carryforwards of approximately $36.5 million and $529,000, respectively. These net operating loss carryforwards and R&D tax credits may be used to offset future federal taxable income through the year ending December 31, 2025. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has recognized a valuation allowance equal to its deferred tax assets due to the uncertainty of realizing the benefits of the assets. The increase in the valuation allowance on the deferred tax asset was $6.5 million and $4.7 million for 2005 and 2004, respectively.

F-29

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

The effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities are as follows (in thousands):


		December 31,

		2004			2005

Deferred tax assets
	Net operating loss carryforwards	$	6,883		$	12,767
	R&D tax credit carryforwards		161			529
	Other current assets and liabilities (net)		79			107
	Other non-current assets and liabilities (net)		233			303
Less: Valuation allowance			(7,356	)		(13,706	)

Net deferred tax asset (liability)		$	—		$	—

Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the change in the Company’s ownership under Section 382 of the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of net operating losses and credits before utilization.


13.	Related Party Transactions

In 2002, as amended in 2004, the Company entered into a consulting agreement with Dr. Martha Hayden-Ledbetter, one of its co-founders and stockholders and the wife of the Company’s chief scientific officer. Dr. Hayden-Ledbetter has provided scientific consulting services to the Company since inception. In 2001, Dr. Hayden-Ledbetter purchased 155,479 shares of restricted stock. In 2002, the purchase agreement was amended to restrict the shares with a three year ratable vesting period. This resulted in restricted stock compensation expense of $10,000, $10,000, $227,000 and $0 in 2003, 2004 and 2005 and the six months ended June 30, 2006, respectively. During 2003, 2004 and 2005 and the six months ended June 30, 2006, the Company paid $50,000, $83,000, $100,000 and $50,000, respectively, for Dr. Hayden-Ledbetter’s consulting services. As of December 31, 2004 and 2005 and June 30, 2006, no amounts were payable under the agreement.

In 2003, the Company entered into a consulting agreement with Dr. Lee Brettman, a member of its board of directors, pursuant to which he provides, among other things, advisory services with respect to the Company’s clinical development planning, implementation and research and development prioritization. In connection with the consulting agreement, on January 28, 2004, Dr. Brettman purchased 15,947 shares of restricted common stock at the estimated fair market value. The Company has a repurchase right with respect to the shares. The repurchase right lapsed 25% on the date of the purchase with the remainder over the service period of three years. During 2005 and in the six months ended June 30, 2006, the Company recorded $33,000 and $37,000, respectively, in stock based compensation related to this consulting agreement.


14.	Subsequent Events (unaudited)

Loan and Security Agreement

The Company entered into a Loan and Security Agreement (“Loan and Security Agreement”) with Comerica Bank (“Bank”) effective September 12, 2006 and executed on September 20, 2006. The terms of the Loan and Security Agreement provide for an $8 million debt facility secured by a security interest in the Company’s assets, other than intellectual property. The Company may request equipment and leasehold facility advances through September 12, 2007. Interest shall accrue from the date of each equipment advance

F-30

TRUBION PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

(Information as of June 30, 2006 and for the six months ended June 30, 2005 and 2006 is unaudited)

and be payable monthly. Any equipment advances that are outstanding on September 12, 2007 shall be payable in sixty (60) equal installments of principal, plus all accrued interest, beginning on October 12, 2007.

The outstanding balances under the loan bear interest on a monthly basis at a variety of interest rates to be elected by the Company at the time of each advance ranging from a floating rate of prime to a fixed rate of 8.50% depending on the amount of deposits with the Bank. As of September 30, 2006, the Company had drawn $2.9 million of the loan.

The Loan and Security Agreement contains representations and warranties and affirmative and negative covenants that are customary for credit facilities of this type. The Loan and Security Agreement could restrict the Company’s ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends and make investments. The Loan and Security Agreement also contains events of default that are customary for credit facilities of this type, including payment defaults, covenant defaults, insolvency type defaults and events of default relating to liens, judgements, material misrepresentations and the occurrence of certain material adverse events.

Manufacturing Commitments

On August 22, 2006, in connection with the anticipated transition of manufacturing responsibilities for TRU-015 to Wyeth, the Company cancelled an order for TRU-015 under the Company’s supply agreement with Lonza. Although the amount of cancellation fee, if any, has not yet been determined, to the extent the Company is liable for any such fee, Wyeth has agreed to reimburse the Company for all such amounts.

F-31

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS


Item 13.	*Other Expenses of Issuance and Distribution.*

The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, The NASDAQ Global Market listing fee and the NASD filing fee.


SEC registration fee		$	9,229
The NASDAQ Global Market listing fee		$	100,000
NASD filing fee		$	9,125
Printing and engraving		$	150,000
Legal fees and expenses		$	1,247,978
Accounting fees and expenses		$	604,522
Transfer agent and registrar fees		$	6,000
Director and officer insurance		$	10,300
Miscellaneous		$	91,125

	Total	$	2,228,279


Item 14.	*Indemnification of Directors and Officers.*

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to officers, directors and other corporate agents in terms sufficiently broad to permit such indemnification under certain circumstances and subject to certain limitations.

As permitted by Section 145 of the Delaware General Corporation Law, the registrant’s certificate of incorporation includes provisions that eliminate the personal liability of its directors and officers for monetary damages for breach of their fiduciary duty as directors and officers.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, the bylaws of the registrant provide that:


	•	The registrant shall indemnify its directors and officers for serving the registrant in those capacities or for serving other business enterprises at the registrant’s request, to the fullest extent permitted by Delaware law, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

	•	The registrant may, in its discretion, indemnify employees and agents in those circumstances where indemnification is not required by law.

	•	The registrant is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

	•	The registrant will not be obligated pursuant to the bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by the registrant’s board of directors or brought to enforce a right to indemnification.

	•	The rights conferred in the bylaws are not exclusive, and the registrant is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons.

	•	The registrant may not retroactively amend the bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

II-1

The registrant’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also provides for certain additional procedural protections. The registrant also maintains directors and officers insurance to insure such persons against certain liabilities.

These indemnification provisions and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.


Item 15.	*Recent Sales of Unregistered Securities.*

Since March 1, 2003, the registrant has issued the following unregistered securities:


	1. Since March 1, 2003, the registrant has sold and issued to directors, officers, employees and consultants options and stock purchase rights to purchase 1,753,261 shares of common stock with per share exercise prices ranging from $0.32 to $11.86, and has issued 558,777 shares of common stock upon exercise of such options and stock purchase rights.

	2. From July 2003 to December 2004, the registrant sold and issued to an accredited investor warrants to purchase 17,163 shares of Series A preferred stock for an aggregate exercise price of $69,979.00.

	3. From March 2005 to December 2005, the registrant sold and issued to an accredited investor warrants to purchase 3,190 shares of Series B preferred stock for an aggregate exercise price of $14,009.10.

	4. In July 2004, the registrant sold and issued 4,709,893 shares of Series B preferred stock for $20,674,993.50 to accredited investors.

	5. In February 2005, the registrant sold and issued 2,733,679 shares of Series B preferred stock for $11,999,997.80 to accredited investors.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes that each transaction was exempt from the registration requirements of the Securities Act in reliance on Rule 701 thereunder, with respect to item (1) above, and Section 4(2) thereof, with respect to items (2) through (5) above, as transactions by an issuer pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701 or transactions not involving a public offering. The recipients of securities in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients either received adequate information about the registrant or had access, through their relationships with the registrant, to such information.

II-2


Item 16.	*Exhibits and Financial Statement Schedules.*

(a) Exhibits. The following exhibits are included herein or incorporated herein by reference:


Exhibit
Number			Description

	1	.1*	Form of Underwriting Agreement.
	3	.1*	Form of Amended and Restated Certificate of Incorporation of the registrant, to be in effect upon the completion of this offering.
	3	.2*	Form of Amended and Restated Bylaws of the registrant, to be in effect upon the completion of this offering.
	4	.1*	Form of registrant’s common stock certificate.
	4	.2*	Amended and Restated Investor Rights Agreement, dated July 13, 2004.
	4	.3*	Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005.
	5	.1	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
	10	.1*	Form of Indemnification Agreement to be entered into between the registrant and its directors and officers.
	10	.2*	2002 Stock Plan.
	10	.3*	Form of Stock Option Agreement under the 2002 Stock Plan.
	10	.4*	2002 Equity Incentive Plan.
	10	.5*	Form of Stock Option Agreement under the 2002 Equity Incentive Plan.
	10	.6*	2006 Equity Incentive Plan, to be in effect upon the completion of this offering.
	10	.7*	Form of Stock Option Agreement under the 2006 Equity Incentive Plan.
	10	.8*	Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated April 28, 2003.
	10	.9*	Amendment to Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated December 8, 2004.
	10	.10*	Amendment to Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated February 1, 2006.
	10	.11†	Collaboration and License Agreement between the registrant and Wyeth, acting through Wyeth Pharmaceuticals Division, dated December 19, 2005.
	10	.12*	Common Stock Purchase Agreement between the registrant and Wyeth, dated December 19, 2005.
	10	.13†	Development and Manufacturing Service Agreement between the registrant and Lonza Biologics, dated January 8, 2004.
	10	.14†*	Amendment No. 1 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated June 4, 2004.
	10	.15†*	Amendment No. 2 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated July 20, 2004.
	10	.16†*	Amendment No. 3 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated February 7, 2005.
	10	.17†*	Amendment No. 4 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated January 4, 2005.
	10	.18†*	Amendment No. 5 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated February 18, 2005.
	10	.19†*	Amendment No. 6 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated April 28, 2005.
	10	.20†*	Amendment No. 7 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated May 12, 2005.
	10	.21†*	Amendment No. 8 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated October 5, 2005.
	10	.22†*	Amendment No. 9 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated October 31, 2005.

II-3


Exhibit
Number			Description

	10	.23†*	Amendment No. 10 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated December 20, 2005.
	10	.24†*	Amendment No. 11 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated March 31, 2006.
	10	.25†*	Amendment No. 12 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated March 31, 2006.
	10	.26*	Amended and Restated Employment Agreement between the registrant and Peter A. Thompson, M.D., dated March 29, 2006.
	10	.27*	Offer Letter with Michelle Burris, dated January 20, 2006.
	10	.28*	Consulting Agreement with Lee R. Brettman, M.D., dated January 1, 2003.
	10	.29*	Restricted Stock Purchase Agreement with Lee R. Brettman, M.D., dated January 28, 2004.
	10	.30*	Letter from Oxford Finance Corporation, dated April 2, 2003.
	10	.31*	Letter from Oxford Finance Corporation, dated November 3, 2004.
	10	.32*	Master Security Agreement with Oxford Finance Corporation, dated June 18, 2003.
	10	.33*	Form of Oxford Finance Corporation Promissory Note.
	10	.34†*	Manufacturing Services Agreement between the registrant and Lonza Biologics, dated November 21, 2005.
	10	.35†*	Portsmouth Quality Agreement relating to the Manufacturing Services Agreement between the registrant and Lonza Biologics, dated November 21, 2005.
	10	.36†*	Technology and Investment Agreement by and among the registrant, Jeffrey A. Ledbetter, Martha Hayden-Ledbetter and the Pacific Northwest Research Institute, dated December 31, 2001.
	10	.37*	Independent Contractor Agreement between the registrant and Martha Hayden-Ledbetter dated May 1, 2004.
	10	.38*	Loan and Security Agreement between the registrant and Comerica Bank, dated September 20, 2006.
	16	.1*	Letter from Grant Thornton LLP.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	23	.2	Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
	24	.1*	Power of Attorney (see page II-6 to this Form S-1).
	99	.1*	Opposition Brief filed August 8, 2006.


*		Previously filed.
†		Confidential treatment will be requested for portions of this exhibit. These portions will be omitted from this Registration Statement and will be filed separately with the Securities and Exchange Commission.


	(b)	Financial Statement Schedules

Financial statement schedules have been omitted because they are inapplicable or not required or because the information is included elsewhere in the Company’s financial statements and the related notes.


Item 17.	*Undertakings.*

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification by the registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforce-

II-4

able. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:


	(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

	(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on this 5th day of October 2006.


	TRUBION PHARMACEUTICALS, INC.


	By:	/s/ Hans van Houte




	Hans van Houte


	Vice President, Finance and Administration

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:


Signature		Title	Date


* Peter A. Thompson, M.D., FACP		President, Chief Executive Officer, Chairman of the Board and Director (Principal Executive Officer)	October 5, 2006

* Michelle Burris		Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)	October 5, 2006

* Lee R. Brettman		Director	October 5, 2006

* Patrick Heron		Director	October 5, 2006

* Anders D. Hove, M.D.		Director	October 5, 2006

* Steven Gillis, Ph.D.		Director	October 5, 2006

* David A. Mann		Director	October 5, 2006

* Samuel R. Saks, M.D.		Director	October 5, 2006

* David Schnell, M.D.		Director	October 5, 2006

*By:	/s/ Hans van Houte Hans van Houte Attorney-in-Fact

II-6

EXHIBIT INDEX


Exhibit
Number			Description

	1	.1*	Form of Underwriting Agreement.
	3	.1*	Form of Amended and Restated Certificate of Incorporation of the registrant, to be in effect upon the completion of this offering.
	3	.2*	Form of Amended and Restated Bylaws of the registrant, to be in effect upon the completion of this offering.
	4	.1*	Form of registrant’s common stock certificate.
	4	.2*	Amended and Restated Investor Rights Agreement, dated July 13, 2004.
	4	.3*	Amendment No. 1 to Amended and Restated Investor Rights Agreement, dated December 19, 2005.
	5	.1	Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
	10	.1*	Form of Indemnification Agreement to be entered into between the registrant and its directors and officers.
	10	.2*	2002 Stock Plan.
	10	.3*	Form of Stock Option Agreement under the 2002 Stock Plan.
	10	.4*	2002 Equity Incentive Plan.
	10	.5*	Form of Stock Option Agreement under the 2002 Equity Incentive Plan.
	10	.6*	2006 Equity Incentive Plan, to be in effect upon the completion of this offering.
	10	.7*	Form of Stock Option Agreement under the 2006 Equity Incentive Plan.
	10	.8*	Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated April 28, 2003.
	10	.9*	Amendment to Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated December 8, 2004.
	10	.10*	Amendment to Lease Agreement between the registrant and Selig Real Estate Holdings Eight, dated February 1, 2006.
	10	.11†	Collaboration and License Agreement between the registrant and Wyeth, acting through Wyeth Pharmaceuticals Division, dated December 19, 2005 .
	10	.12*	Common Stock Purchase Agreement between the registrant and Wyeth, dated December 19, 2005.
	10	.13†	Development and Manufacturing Service Agreement between the registrant and Lonza Biologics, dated January 8, 2004.
	10	.14†*	Amendment No. 1 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated June 4, 2004.
	10	.15†*	Amendment No. 2 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated July 20, 2004.
	10	.16†*	Amendment No. 3 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated February 7, 2005.
	10	.17†*	Amendment No. 4 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated January 4, 2005.
	10	.18†*	Amendment No. 5 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated February 18, 2005.
	10	.19†*	Amendment No. 6 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated April 28, 2005.
	10	.20†*	Amendment No. 7 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated May 12, 2005.
	10	.21†*	Amendment No. 8 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated October 5, 2005.
	10	.22†*	Amendment No. 9 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated October 31, 2005.
	10	.23†*	Amendment No. 10 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated December 20, 2005.
	10	.24†*	Amendment No. 11 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated March 31, 2006.


Exhibit
Number			Description

	10	.25†*	Amendment No. 12 to the Development and Manufacturing Services Agreement between the registrant and Lonza Biologics, dated March 31, 2006.
	10	.26*	Amended and Restated Employment Agreement between the registrant and Peter A. Thompson, M.D., dated March 29, 2006.
	10	.27*	Offer Letter with Michelle Burris, dated January 20, 2006.
	10	.28*	Consulting Agreement with Lee R. Brettman, M.D., dated January 1, 2003.
	10	.29*	Restricted Stock Purchase Agreement with Lee R. Brettman, M.D., dated January 28, 2004.
	10	.30*	Letter from Oxford Finance Corporation, dated April 2, 2003.
	10	.31*	Letter from Oxford Finance Corporation, dated November 3, 2004.
	10	.32*	Master Security Agreement with Oxford Finance Corporation, dated June 18, 2003.
	10	.33*	Form of Oxford Finance Corporation Promissory Note.
	10	.34†*	Manufacturing Services Agreement between the registrant and Lonza Biologics, dated November 21, 2005.
	10	.35†*	Portsmouth Quality Agreement relating to the Manufacturing Services Agreement between the Registrant and Lonza Biologics, dated November 21, 2005.
	10	.36†*	Technology and Investment Agreement by and among the registrant, Jeffrey A. Ledbetter, Martha Hayden-Ledbetter and the Pacific Northwest Research Institute, dated December 31, 2001.
	10	.37*	Independent Contractor Agreement between the registrant and Martha Hayden-Ledbetter dated May 1, 2004.
	10	.38*	Loan and Security Agreement between the registrant and Comerica Bank, dated September 20, 2006.
	16	.1*	Letter from Grant Thornton LLP.
	23	.1	Consent of Independent Registered Public Accounting Firm.
	23	.2	Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
	24	.1*	Power of Attorney (see page II-6 to this Form S-1).
	99	.1*	Opposition Brief filed August 8, 2006.


*		Previously filed.
†		Confidential treatment will be requested for portions of this exhibit. These portions will be omitted from this Registration Statement and will be filed separately with the Securities and Exchange Commission.

EX-5.1 2 v18917a5exv5w1.txt EXHIBIT 5.1 October 5, 2006 Trubion Pharmaceuticals, Inc. 2401 4th Avenue Suite 1050 Seattle, Washington 98121 RE: REGISTRATION STATEMENT ON FORM S-1 Ladies and Gentlemen: We are acting as counsel to Trubion Pharmaceuticals, Inc., a Delaware corporation (the "Company"), in connection with the registration of 4,600,000 shares of the Company's Common Stock, par value $0.001 per share (the "Shares"), pursuant to a Registration Statement on Form S-1 (Registration No. 333-134709), as amended (the "Registration Statement"), filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. As counsel for the Company, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments as we have deemed necessary for the purposes of rendering this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the originals of all documents submitted to us as copies. Based upon the foregoing, we are of the opinion that the Shares have been duly authorized by the Company, and when issued, delivered and paid for in accordance with the terms of the underwriting agreement referred to in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of the Company, will be, validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and we consent to the reference of our name under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement. Very truly yours, /s/ WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-10.11 3 v18917a5exv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 REDACTED COPY COLLABORATION AND LICENSE AGREEMENT by and between WYETH acting through its Wyeth Pharmaceuticals Division and TRUBION PHARMACEUTICALS, INC. December 19, 2005 REDACTED COPY TABLE OF CONTENTS

i REDACTED COPY 4.8 Joint Project Team; Development Plan......................................................... 36 4.9 Manufacturing................................................................................ 37 4.10 Commercialization............................................................................ 37 4.11 Co-Promotion Option.......................................................................... 38 4.12 Co-Promotion Committee....................................................................... 38 4.13 Co-Branding.................................................................................. 39 4.14 Marking...................................................................................... 39 5. CONSIDERATION............................................................................................ 39 5.1 Initial Research and Development Expense Payment............................................. 39 5.2 Equity....................................................................................... 39 5.3 Additional Research and Development Expense Payments......................................... 39 5.4 Royalties.................................................................................... 39 5.4.1 Product Royalties................................................................ 39 5.4.2 CD20 Product Royalties........................................................... 40 5.4.3 ***.............................................................................. 42 5.4.4 Other Product Royalties.......................................................... 44 5.4.5 Expiration of Royalty Period..................................................... 45 5.4.6 Royalty Adjustments.............................................................. 46 5.5 Reports and Payments......................................................................... 46 5.5.1 Cumulative Royalties............................................................. 46 5.5.2 Royalty Statements and Payments.................................................. 47 5.5.3 Taxes and Withholding............................................................ 47 5.5.4 Currency......................................................................... 48 5.5.5 Additional Provisions Relating to Royalties...................................... 48 5.5.6 Interest on Past Due Payments.................................................... 48 5.6 Maintenance of Records; Audits............................................................... 48 5.6.1 Record Keeping................................................................... 48 5.6.2 Audits........................................................................... 49 5.6.3 Underpayments/Overpayments....................................................... 49 5.6.4 Confidentiality.................................................................. 49 6. INTELLECTUAL PROPERTY.................................................................................... 50 6.1 Inventions; Joint Patent Committee........................................................... 50 6.1.1 Ownership and Inventorship............................................................. 50 6.1.2 SMIP Improvements................................................................ 50 6.1.3 Joint Patent Committee........................................................... 51 6.2 Patent Rights................................................................................ 52 6.2.1 Filing, Prosecution and Maintenance of Patent Rights............................. 52 6.2.2 Enforcement of Patent Rights..................................................... 59 6.2.3 Infringement and Third Party Licenses............................................ 62 6.2.4 Patent Certifications............................................................ 64 6.2.5 Patent Term Restoration.......................................................... 64 6.3 Trademarks................................................................................... 64 7. CONFIDENTIALITY.......................................................................................... 65 7.1 Confidentiality.............................................................................. 65 7.2 Authorized Disclosure and Use................................................................ 65 7.2.1 Disclosure....................................................................... 65 7.2.2 Use.............................................................................. 66 7.3 SEC Filings.................................................................................. 67 7.4 Public Announcements; Publications........................................................... 67 7.4.1 Coordination..................................................................... 67 7.4.2 Announcements.................................................................... 67 7.4.3 Publications..................................................................... 67

ii REDACTED COPY 8. REPRESENTATIONS AND WARRANTIES........................................................................... 68 8.1 Representations and Warranties of Each Party................................................. 68 8.2 Additional Representations and Warranties of Trubion......................................... 69 8.3 Mutual Covenant.............................................................................. 70 8.4 Additional Covenants of Trubion.............................................................. 70 8.5 Representation by Legal Counsel.............................................................. 70 8.6 No Inconsistent Agreements................................................................... 70 8.7 Disclaimer................................................................................... 70 9. GOVERNMENT APPROVALS; TERM AND TERMINATION............................................................... 71 9.1 HSR Filing................................................................................... 71 9.2 Other Government Approvals................................................................... 71 9.3 Term......................................................................................... 71 9.4 Termination Upon HSR Denial.................................................................. 71 9.5 Material Breach.............................................................................. 72 9.6 Termination by Wyeth......................................................................... 72 9.6.1 Termination Without Cause........................................................ 73 9.6.2 Termination for a Material Safety or Regulatory Issue............................ 73 9.7 Effects of Termination....................................................................... 73 9.7.1 Effect of Termination by Wyeth for Cause......................................... 73 9.7.2 Effect of Termination by Trubion for Cause....................................... 77 9.7.3 Effect of Termination by Wyeth Without Cause..................................... 80 9.7.4 Effect of Termination by Wyeth for a Material Safety or Regulatory Issue......... 82 9.7.5 Post-Termination Rights to Wyeth Technology and Trubion Technology............... 83 9.7.6 Post-Termination Licenses to Wyeth Technology.................................... 84 9.7.7 Post-Termination Transfer of Product Data and Filings and Existing Trademarks.... 84 9.7.8 Manufacturing of Licensed Products After Termination............................. 85 9.7.9 Post-Termination Disposition of Inventories of Licensed Products................. 86 9.7.10 Continuation of Rights and Licenses Under Sections 6.1.1 and 6.1.2............... 86 9.7.11 Continuation of Other Rights and Obligations..................................... 86 9.8 Modification of Agreement Terms by Wyeth..................................................... 86 9.9 Survival of Certain Obligations.............................................................. 87 9.10 Change of Control............................................................................ 88 9.10.1 Definition....................................................................... 88 9.10.2 Change of Control of Wyeth....................................................... 89 9.10.3 Change of Control of Trubion..................................................... 91 10. INDEMNIFICATION AND INSURANCE............................................................................ 91 10.1 Indemnification by Wyeth..................................................................... 91 10.2 Indemnification by Trubion................................................................... 91 10.3 Procedure.................................................................................... 92 10.4 Insurance.................................................................................... 93 11. DISPUTE RESOLUTION....................................................................................... 93 11.1 General...................................................................................... 93 11.2 Failure of Executive Officers to Resolve Dispute............................................. 93 11.3 Disclaimer of Consequential and Punitive Damages............................................. 93 12. MISCELLANEOUS............................................................................................ 93 12.1 Periodic Executive Meetings.................................................................. 93 12.2 Assignment................................................................................... 94 12.3 Further Actions.............................................................................. 94 12.4 Force Majeure................................................................................ 94

iii REDACTED COPY 12.5 Non-Solicitation............................................................................. 94 12.6 Correspondence and Notices................................................................... 95 12.6.1 Ordinary Notices................................................................. 95 12.6.2 Extraordinary Notices............................................................ 95 12.7 Amendment.................................................................................... 96 12.8 Waiver....................................................................................... 96 12.9 Severability................................................................................. 96 12.10 Descriptive Headings......................................................................... 96 12.11 Governing Law................................................................................ 97 12.12 Entire Agreement of the Parties.............................................................. 97 12.13 Independent Contractors...................................................................... 97 12.14 Counterparts................................................................................. 97

iv REDACTED COPY EXHIBITS Exhibit 1.122 - TRU-015 Exhibit 1.129 - Trubion Patent Rights Exhibit 1.132 - Trubion Third Party Agreements Exhibit 3.2.1 - Trubion's "Milestone One" Exhibit 3.2.4 - Excluded Targets Exhibit 4.4 - Adverse Event Reporting Procedures Exhibit 5.2A - Stock Purchase Agreement Exhibit 5.2B - Amendment to Investor Rights Agreement Exhibit 5.3 - Additional Research and Development Expense Payments Exhibit 8.2(d) - Third Party Rights Exhibit 8.2(e) - Government Funding Agreements v REDACTED COPY COLLABORATION AND LICENSE AGREEMENT This Collaboration and License Agreement (the "Agreement") is entered into as of December 19, 2005 (the "Signing Date"), by and between Wyeth, together with its Affiliates (as defined below), acting through its Wyeth Pharmaceuticals Division, a corporation organized and existing under the laws of the State of Delaware and having a place of business at 500 Arcola Road, Collegeville, Pennsylvania 19426 (collectively, "Wyeth") and Trubion Pharmaceuticals, Inc., together with its Affiliates (as defined below), a corporation organized and existing under the laws of the State of Delaware and having a principal place of business at 2401 4th Avenue, Suite 1050, Seattle, Washington 98121 (collectively, "Trubion"). Wyeth and Trubion may each be referred to herein individually as a "Party" and collectively as the "Parties". WHEREAS, Wyeth is engaged in the research, development and commercialization of pharmaceutical and health care products; WHEREAS, as of the Signing Date, Trubion has developed certain SMIPs (as defined below) and CD20 Products (as defined below), as well as certain Patent Rights (as defined below) and Know-How (as defined below) pertaining to Trubion's SMIP technology platform; WHEREAS, Wyeth and Trubion desire to collaborate to discover, research and develop, and Wyeth desires to research, develop, manufacture and commercialize, Licensed Products (as defined below) as provided herein; and WHEREAS, Wyeth desires to obtain from Trubion, and Trubion desires to grant to Wyeth, certain exclusive rights so that Wyeth may develop, manufacture and commercialize such Licensed Products, as provided herein. NOW THEREFORE, in consideration of the mutual promises and covenants set forth below and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby agree as follows: 1. DEFINITIONS. 1.1. "ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENT" shall have the meaning set forth in Section 5.3 hereof. 1.2. "ADDITIONAL THIRD PARTY LICENSES" shall have the meaning set forth in Section 6.2.3(a) hereof. REDACTED COPY 1.3. "AFFILIATE(S)" shall mean, with respect to any Person, any other Person which controls, is controlled by or is under common control with such Person. A Person shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the equity securities of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, that the term "Affiliate" shall not include subsidiaries or other entities in which a 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 board, but is restricted from electing such majority by contract or otherwise, until such time as such restrictions are no longer in effect. 1.4. "AGREEMENT" shall have the meaning set forth in the preamble hereof. 1.5. "BANKRUPTCY CODE" shall have the meaning set forth in Section 2.7 hereof. 1.6. "BLA" shall have the meaning set forth in Section 1.100 hereof. 1.7. "CALENDAR QUARTER" shall mean the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31, for so long as this Agreement is in effect. 1.8. "CATEGORY 1 COVERED SMIP IMPROVEMENT" shall have the meaning set forth in Section 6.1.3(b) hereof. 1.9. "CATEGORY 2 COVERED SMIP IMPROVEMENT" shall have the meaning set forth in Section 6.1.3(b) hereof. 1.10. "CD20 ANTIGEN" shall mean the human protein antigen that is known as CD20, and identified as a full length CD20 protein antigen in ***, and any other protein that *** as the foregoing. 1.11. "CD20 EFFECTIVE ROYALTY RATE" shall have the meaning set forth in Section 5.4.2(a) hereof. 1.12. "CD20 PRODUCT" shall mean any TRU-015 Product and/or Follow-On CD20 Product (as the context requires). 1.13. "CELL LINES" shall mean the cell lines and any other expression systems that produce or express any SMIP. 1.14. "CHANGE OF CONTROL" shall have the meaning set forth in Section 9.10.1 hereof. 1.15. "CLINICAL STUDY SUPPLIES" shall have the meaning set forth in Section 4.9 hereof. 2 REDACTED COPY 1.16. "COMBINATION PRODUCT" shall mean any product containing as active ingredients both (a) a Product and (b) one or more other pharmaceutically active compounds or substances. 1.17. "COMBINATION SALE" shall have the meaning set forth in Section 1.76 hereof. 1.18. "COMMERCIALIZATION" OR "COMMERCIALIZE" shall mean activities directed to marketing, promoting, distributing, importing or selling a product. Commercialization shall not include any activities related to Manufacturing or Development. 1.19. "COMMERCIALLY REASONABLE EFFORTS" shall mean, with respect to the efforts to be expended by any Party with respect to any objective, those reasonable, diligent, good faith efforts to accomplish such objective as such Party would normally use to accomplish a similar objective under similar circumstances. With respect to any objective relating to the Development and/or Commercialization of a Licensed Product by any Party, "Commercially Reasonable Efforts" shall mean those efforts and resources normally used by such Party with respect to a product owned or controlled by such Party, or to which such Party has similar rights, which product is of similar market potential and is at a similar stage in its development or life as is such Licensed Product, taking into account issues of safety, efficacy, product profile, the competitiveness of the marketplace, the proprietary position of the Licensed Product, the regulatory structure involved, profitability of the Licensed Product and other relevant commercial factors. A "COMMERCIALLY REASONABLE" action or decision of a Party refers in this Agreement to an action or decision taken or made by such Party using its Commercially Reasonable Efforts. 1.20. "CONFIDENTIAL INFORMATION" of a Party shall mean all Know-How or other information, including, without limitation, proprietary information and materials (whether or not patentable) regarding such Party's technology, products, business information or objectives, that is communicated in any way or form by the Disclosing Party to the Receiving Party, either prior to or after the Effective Date of this Agreement, and whether or not such Know-How or other information is identified as confidential at the time of disclosure; provided that, information not identified as confidential by the Disclosing Party shall be deemed to be Confidential Information of the Disclosing Party if the Receiving Party knows, or should have had a reasonable expectation, that the information communicated by the Disclosing Party is Confidential Information of the Disclosing Party. The terms and conditions of this Agreement shall be considered Confidential Information of both Parties. 3 REDACTED COPY 1.21. "CONJUGATE(S)" shall mean SMIP(s) fused genetically or linked, either directly or through a linker molecule, with any biological, cytostatic, cytotoxic or radioactive agent. 1.22. "CONTROL" OR "CONTROLLED" shall mean with respect to any (a) item of information, including, without limitation, Know-How, or (b) intellectual property right, the possession (whether by ownership or license, other than pursuant to this Agreement) by a Party of the ability to grant to the other Party a license or to extend other rights as provided herein, under such item or right without violating the terms of any agreement or other arrangements with any Third Party. 1.23. "CO-PROMOTION" shall mean the joint promotion of a CD20 Product in the United States by both Parties and/or their respective Affiliates under the same CD20 Product Trademark(s). "CO-PROMOTE," when used as a verb, shall mean to engage in such Co-Promotion. 1.24. "CO-PROMOTION PERIOD" shall have the meaning set forth in Section 4.11 hereof. 1.25. "COVERED SMIP IMPROVEMENT" shall have the meaning set forth in Section 6.1.2 hereof. 1.26. "DEPOSITED PROTEIN" shall have the meaning set forth in Section 1.45 hereof. 1.27. "DESIGNATED TARGET(S)" shall have the meaning set forth in Section 9.8 hereof. 1.28. "DEVELOPMENT" OR "DEVELOP" shall mean non-clinical and clinical drug development activities pertaining to a product, including, without limitation, toxicology, pharmacology, test method development and stability testing, process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical studies (including pre- and post-approval studies), regulatory affairs, pharmacovigilance and Regulatory Approval and clinical study regulatory activities (including regulatory activities directed to obtaining pricing and reimbursement approvals). 1.29. "DEVELOPMENT PLAN" shall mean the written plan for the Development of CD20 Products described in Section 4.8 hereof. 1.30. "DISCLOSING PARTY" shall have the meaning set forth in Section 7.1 hereof. 1.31. "EFFECTIVE DATE" shall mean the later to occur of (a) the Signing Date and (b) the HSR Clearance Date. 4 REDACTED COPY 1.32. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. 1.33. "EXCLUDED TARGET(S)" shall mean the Target(s) described in Section 3.2.4 hereof as Excluded Target(s). 1.34. "EXCLUSIVITY COVENANTS" shall have the meaning set forth in Section 9.10.2(c) hereof. 1.35. "EXECUTIVE OFFICERS" shall mean the President of Wyeth Pharmaceuticals (or an executive officer of Wyeth designated by such President of Wyeth Pharmaceuticals) and the Chief Executive Officer of Trubion (or an executive officer of Trubion designated by such Chief Executive Officer). 1.36. "EXERCISE NOTICE" shall have the meaning set forth in Section 9.10.2(c) hereof. 1.37. "EXISTING ACTIVITIES" shall have the meaning set forth in Section 9.10.2(c) hereof. 1.38. "EXISTING TRADEMARKS" shall have the meaning set forth in Section 9.7.1(a). 1.39. "FDA" shall mean the United States Food and Drug Administration or any successor agency thereto. 1.40. "FD&C ACT" shall mean the United States Federal Food, Drug, and Cosmetic Act (21 U.S.C. Section 301 et seq.), as amended, and the rules and regulations promulgated thereunder. 1.41. "FIRST COMMERCIAL SALE" shall mean, with respect to a given Licensed Product and any country in the Territory, the first sale or transfer for value of such Licensed Product under this Agreement by Wyeth or its sublicensees to a Third Party in such country following receipt of marketing authorization from the appropriate Regulatory Authority permitting commercial sale of such Licensed Product in such country. 1.42. "FOLLOW-ON CD20 PRODUCT" shall mean any product containing a Follow-On CD20 SMIP. 1.43. "FOLLOW-ON CD20 SMIP" shall mean any SMIP (other than TRU-015) directed against the CD20 Antigen or a portion thereof. 1.44. "FTE" shall mean a full time equivalent scientific person (M.S. or Ph.D. level) year, consisting of a minimum of a total of one thousand eight hundred eighty (1,880) hours per year of scientific work by an employee of Trubion on or directly related to and in support of the Research Program. Work on or directly related to the Research Program can include, but is not 5 REDACTED COPY limited to, experimental preclinical laboratory and research work, recording and writing up results, reviewing literature and references, holding scientific discussions, managing and leading scientific staff and carrying out management duties, in each case where such activities are directly related to the Research Program. 1.45. "HAS THE SAME SEQUENCE" shall mean, with respect to a specific protein (as described by an amino acid sequence identified by a GenBank accession number; a "New Protein"), that another specific protein (as described by an amino acid sequence identified by a GenBank accession number; each, a "Deposited Protein") has at least *** amino acid sequence identity over at least *** of the length of the New Protein. By way of example only, if the New Protein consists of *** amino acids, and any contiguous sequence of *** amino acids contained in the Deposited Protein has at least *** sequence identity to any contiguous sequence of *** amino acids in the New Protein (that is, at least *** of the *** contiguous amino acids in such Deposited Protein sequence are identical to any *** of any *** contiguous amino acids in such New Protein), then the New Protein Has The Same Sequence as the Deposited Protein. 1.46. *** 1.47. *** 1.48. *** 1.49. *** 1.50. "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder. 1.51. "HSR FILING" shall mean filings by Wyeth and Trubion with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice of a Notification and Report Form for Certain Mergers and Acquisitions (as that term is defined in the HSR Act) with respect to the matters set forth in this Agreement, together with all required documentary attachments thereto. 1.52. "HSR CLEARANCE DATE" shall mean the earliest date on which the Parties have actual knowledge that all applicable waiting periods under the HSR Act with respect to the transactions contemplated hereunder have expired or have been terminated. 1.53. "IND" shall mean an Investigational New Drug Application, as defined in the FD&C Act, that is required to be filed with the FDA before beginning clinical testing of a Licensed Product in human subjects, or an equivalent foreign filing. 6 REDACTED COPY 1.54. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.3 hereof. 1.55. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.3 hereof. 1.56. "INITIAL TERM" shall have the meaning set forth in Section 3.3.1 hereof. 1.57. "JDC" shall have the meaning set forth in Section 4.7 hereof. 1.58. "JOINT INVENTION(S)" shall have the meaning set forth in Section 6.1.1 hereof. 1.59. "JOINT KNOW-HOW" shall mean that Know-How related to the Licensed Products that is jointly owned by the Parties in accordance with Section 6.1.1 of this Agreement. 1.60. "JOINT PATENT COMMITTEE" shall mean the committee described in Section 6.1.3 hereof. 1.61. "JOINT PATENT RIGHT(S)" shall mean those Patent Right(s) that claim Joint Know-How or Joint Invention(s). 1.62. "JOINT TECHNOLOGY" shall mean the Joint Patent Rights, the Joint Inventions and the Joint Know-How. 1.63. "JPT" shall have the meaning set forth in Section 4.8 hereof. 1.64. "JRC" shall have the meaning set forth in Section 3.4.1 hereof. 1.65. "JRC LIAISON" shall mean a JRC member designated by a Party as its "JRC Liaison" in accordance with Section 3.4.3 hereof. 1.66. "KNOW-HOW" shall mean inventions, discoveries, data, information, processes, methods, techniques, materials, technology, results or other know-how, whether or not patentable. 1.67. "LIABILITIES" shall have the meaning set forth in Section 10.1 hereof. 1.68. "LICENSED PRODUCT(S)" shall mean any Product(s) or Combination Product(s). 1.69. "LICENSED TARGET(S)" shall mean any Trubion Target(s) or Wyeth Target(s), so long as they remain the subject of the licenses granted to Wyeth under this Agreement. 1.70. "MAJOR INDICATION(S)" shall mean, with respect to any CD20 Product, any indication with a prevalence-based patient population of at least two hundred thousand (200,000) patients in the United States, including, 7 REDACTED COPY without limitation, non-Hodgkin's lymphoma, rheumatoid arthritis, systemic lupus erythematosus, Crohn's disease and multiple sclerosis. 1.71. "MAJOR MARKET COUNTRY" shall mean any of the United States, the United Kingdom, France, Germany, Italy, Spain or Japan. 1.72. "MANUFACTURING" or "MANUFACTURE" shall mean activities directed to producing, manufacturing, processing, filling, finishing, packaging, labeling, quality assurance testing and release, shipping and storage of a product. 1.73. "NCBI" shall have the meaning set forth in Section 3.2.1 hereof. 1.74. "NDA" shall have the meaning set forth in Section 1.100 hereof. 1.75. "NET COMBINATION SALE AMOUNT" shall have the meaning set forth in Section 1.76 hereof. 1.76. "NET SALES" shall mean the gross amounts charged for sales of Licensed Products (on which payments are due under this Agreement) by Wyeth or its sublicensees to Third Parties, less the sum of (a) and (b) where (a) is a provision, determined under Generally Accepted Accounting Principles in the United States and in accordance with Wyeth's customary and usual accrual procedures, consistently applied, for the accrual of (i) trade, cash, quantity and wholesaler discounts or rebates (other than price discounts granted at the time of sale), if any, allowed or paid, (ii) credits or allowances given or made for rejection or return of, previously sold Licensed Products or for retroactive price reductions (including Medicaid, managed care and similar types of rebates), (iii) taxes, duties or other governmental charges levied on or measured by the billing amount (excluding income and franchise taxes), as adjusted for rebates and refunds, and (iv) charges for packing, freight, and shipping to the extent included in the invoice price and (b) is a periodic adjustment (positive or negative, as applicable), determined under Generally Accepted Accounting Principles in the United States and in accordance with Wyeth's customary and usual adjustment procedures, consistently applied, of the provision determined in (a) to reflect amounts actually incurred for (i), (ii), (iii) and (iv) based on amounts actually invoiced or as separately set forth in agreements with Third Parties or as deducted or paid as required by applicable law or regulations. (The deductions described in (i), (ii), (iii) and (iv) are referred to herein as "Permitted Deductions.") In the case of any sale of Licensed Products for consideration other than cash, Net Sales shall be calculated on the fair market value of the consideration received. Notwithstanding the foregoing, if a Licensed Product is sold as a Combination Product (a "Combination Sale"), the Net Sales for such 8 REDACTED COPY Combination Product shall be the portion of such Combination Sale allocable to the Licensed Product determined as follows: Except as provided below, the Net Sales amount for a Combination Sale shall equal the gross amount invoiced for the Combination Sale, reduced by the Permitted Deductions (the "Net Combination Sale Amount"), multiplied by the fraction A/(A+B), where: A is the invoice price, in the country where such Combination Sale occurs, of the Licensed Product contained in the Combination Product, if sold as a separate product in such country by Wyeth or its sublicensees, as the case may be, and B is the aggregate of the invoice price or prices, in such country, of products which collectively contain as their respective sole active ingredient such other pharmaceutically active compounds or substances, as the case may be, included in the Combination Product, if sold separately in such country by Wyeth or its sublicensees, as applicable. In the event that Wyeth or its sublicensees sell the Licensed Product included in a Combination Product as a separate product in a country, but do not separately sell all of the other pharmaceutically active compounds or substances, as the case may be, included in such Combination Product in such country, the calculation of the Net Sales amount for such Combination Sale shall be determined by multiplying the Net Combination Sale Amount by the fraction A/C where: A is the average wholesale price, in such country, charged by Wyeth or its sublicensees, as the case may be, for the Licensed Product contained in such Combination Product, when sold as a separate product by Wyeth or its sublicensees, as applicable, and C is the average wholesale price, in such country, charged by Wyeth or its sublicensees, as applicable, for the entire Combination Product. In the event that Wyeth or its sublicensees do not sell the Licensed Product included in a Combination Product as a separate product in a country where such Combination Sale occurs, but do separately sell products which collectively contain as their respective sole active ingredient all of the other pharmaceutically active compounds or substances, as the case may be, included in the Combination Product in such country, the calculation of Net Sales resulting from such Combination Sale shall be determined by multiplying the Net Combination Sale Amount by the fraction (C-D)/C, where: C is the average wholesale price, in such country, charged by Wyeth or its sublicensees, as the case may be, for the entire 9 REDACTED COPY Combination Product, and D is the average wholesale price charged by Wyeth or its sublicensees, as the case may be, for the products which collectively contain as their sole active ingredient such other pharmaceutically active compounds or substances, as the case may be, included in the Combination Product. Where active ingredient portions of a Combination Product are sold separately as other products but in different dosage strengths than are in the Combination Product, the calculation of the Net Sales amount for such Combination Product shall be based on appropriate proration of the amounts of each active ingredient component included therein when applying the formulas set forth above. Where the calculation of Net Sales resulting from a Combination Sale in a country cannot be determined by any of the foregoing methods, the calculation of Net Sales for such Combination Sale shall be that portion of the Net Combination Sale Amount reasonably determined in good faith by the Parties as properly reflecting the value of the Licensed Product included in the Combination Product. Notwithstanding the foregoing, Net Sales shall not include any reimbursement received by Wyeth or its sublicensees in respect of the use of a Licensed Product in a country solely as part of a clinical trial prior to the receipt of marketing authorization required to commence commercial sales of such Licensed Product in such country. 1.77. "NEW PROTEIN" shall have the meaning set forth in Section 1.45 hereof. 1.78. "NICHE INDICATION(S)" shall mean, with respect to any CD20 Product, any indication, including, but not limited to, ***, for such CD20 Product other than a Major Indication. 1.79. "NOTICE OF BREACH" shall have the meaning set forth in Section 9.5 hereof. 1.80. "NOTICE OF MODIFICATION" shall have the meaning set forth in Section 9.5 hereof. 1.81. "NOTICE OF TERMINATION" shall have the meaning set forth in Section 9.5 hereof. 1.82. "OTHER PRODUCT" shall mean any product containing a SMIP directed against a Wyeth Target or a portion thereof. 1.83. "PART(Y/IES)" shall have the meaning set forth in the preamble hereof. 1.84. "PATENT RIGHTS" shall mean any and all (a) patents, (b) pending patent applications, including, without limitation, all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, and 10 REDACTED COPY all patents granted thereon, (c) all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms, including, without limitation, supplementary protection certificates or the equivalent thereof, (d) inventor's certificates, and (e) all United States and foreign counterparts of any of the foregoing. 1.85. "PERSON" shall mean an individual, sole proprietorship, partnership, limited partnership, limited liability partnership, corporation, limited liability company, business trust, joint stock company, trust, incorporated association, joint venture or similar entity or organization, including a government or political subdivision, department or agency of a government. 1.86. "PERMITTED DEDUCTION" shall have the meaning set forth in Section 1.76 hereof. 1.87. "PHASE I CLINICAL STUDY" shall mean a study of a Licensed Product in human subjects with the endpoint of determining initial tolerance, safety or pharmacokinetic information in single dose, single ascending dose, multiple dose and/or multiple ascending dose regimens. 1.88. "PHASE II CLINICAL STUDY" shall mean a study of a Licensed Product in human patients to determine initial efficacy and dose range finding before embarking on Phase III Clinical Studies. 1.89. "PHASE IIA CLINICAL STUDY" shall mean Trubion's TRU-015 Protocol 15001. 1.90. "PHASE IIB CLINICAL STUDY" shall mean Trubion's TRU-015 Protocol 15002. 1.91. "PHASE III CLINICAL STUDY" shall mean a pivotal study (whether or not denominated a "Phase III" clinical study under applicable regulations) in human patients with a defined dose or a set of defined doses of a Licensed Product designed to ascertain efficacy and safety of such Licensed Product for the purpose of enabling the preparation and submission of Regulatory Approval Applications to the competent Regulatory Authorities in a country of the Territory. 1.92. "PREVIOUSLY DEPOSITED PROTEIN" shall have the meaning set forth in Section 3.2.4(b) hereof. 1.93. "PRODUCT" shall mean any CD20 Product, ***, or Other Product, or any Conjugate of any CD20 Product, ***, or Other Product. 1.94. "PRODUCT DATA AND FILINGS" shall mean (a) all clinical protocols, studies, clinical data and results used in or resulting from any clinical trial of any 11 REDACTED COPY Licensed Product and (b) all INDs, Regulatory Approval Applications and Regulatory Approvals regarding any Licensed Product. 1.95. "PRODUCT LICENSE" shall have the meaning set forth in Section 2.1.1 hereof. 1.96. "PRODUCT-RELATED PATENT RIGHTS" shall have the meaning set forth in Section 6.2.1(a) hereof. 1.97. "PROVISIONAL EXCLUDED TARGET" shall mean a Target described in Section 3.2.4 hereof as a Provisional Excluded 1.98. "RECEIVING PARTY" shall have the meaning set forth in Section 7.1 hereof. 1.99. "RECOMBINANT DNA" shall mean the DNA sequences encoding any SMIP including, without limitation, any DNA plasmid expression construct encoding any such SMIP. 1.100. "REGULATORY APPROVAL" shall mean the technical, medical and scientific licenses, registrations, authorizations and approvals (including, without limitation, approvals of New Drug Applications ("NDAs") or Biologic License Applications ("BLAs"), supplements and amendments, pre- and post- approvals, pricing approvals, and labeling approvals) of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, necessary for the commercial Manufacture, distribution, marketing, promotion, offer for sale, use, import, export and sale of Licensed Product(s) in a regulatory jurisdiction in the Territory. For the sake of clarity, Regulatory Approval shall not be deemed to have been obtained in a country other than the United States until any applicable governmental pricing approvals have also been obtained in such country. Regulatory Approval of a Licensed Product shall be deemed to have been obtained in the United States immediately upon BLA approval for such Licensed Product in the United States. 1.101. "REGULATORY APPROVAL APPLICATION" shall mean an application submitted to the appropriate Regulatory Authority seeking Regulatory Approval of a Licensed Product for use in one or more therapeutic indications in a regulatory jurisdiction within the Territory. 1.102. "REGULATORY AUTHORIT(Y/IES)" shall mean any national (e.g., the FDA), supra-national (e.g., the European Commission, the Council of the European Union, or the European Agency for the Evaluation of Medicinal Products), regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity in each country of the Territory involved in the granting of Regulatory Approval for a Licensed Product. 1.103. "RELEASED TARGET" shall have the meaning set forth in Section 3.2.2 hereof. 12 REDACTED COPY 1.104. "REPLACEMENT TARGET" shall have the meaning set forth in Section 3.2.3 hereof. 1.105. "RESEARCH BUDGET" shall have the meaning set forth in Section 3.5 hereof. 1.106. "RESEARCH PLAN" shall mean the written plan for the conduct of the Research Program described in Section 3.5 hereof as approved and amended by the Parties in accordance with Section 3.5 hereof. 1.107. "RESEARCH PROGRAM" shall have the meaning set forth in Section 3.1 hereof. 1.108. "RESEARCH PROGRAM DATA" shall have the meaning set forth in Section 3.7 hereof. 1.109. "RESEARCH TERM" shall have the meaning set forth in Section 3.3.1 hereof. 1.110. "ROYALTY PERIOD" shall mean the period of time beginning on the date of the First Commercial Sale of a Licensed Product in any country and, on a Licensed Product-by-Licensed Product and country-by-country basis, extending until the earlier of (a) the termination of this Agreement pursuant to Article 9 hereof with respect to such Licensed Product in such country or (b) the later of (i) the date on which the last Valid Claim included within the Trubion Technology ceases to be a Valid Claim, which Valid Claim would be infringed by the composition, Manufacture, use, sale, offer for sale or importing of such Licensed Product in such country, or (ii)(A) with respect to CD20 Products, the ten (10) year anniversary of the First Commercial Sale for the first Major Indication of such CD20 Product in such country (provided, however, that if such CD20 Product has received Regulatory Approval for a Niche Indication in such country but has not received Regulatory Approval for a Major Indication in such country, the Royalty Period as defined under and for purposes of this clause (ii)(A) for such CD20 Product in such country shall be suspended beginning on the ten (10) year anniversary of the First Commercial Sale of such CD20 Product in such country until such time, if at all, as Regulatory Approval has been obtained permitting the marketing of such CD20 Product for a Major Indication in such country, at which point such Royalty Period shall commence with respect to such CD20 Product for a Major Indication) and (B) with respect to each other Licensed Product, the ten (10) year anniversary of the First Commercial Sale of such Licensed Product in such country. 1.111. "SIGNING DATE" shall have the meaning set forth in the preamble hereof. 1.112. "SMIP(S)" or small modular immuno-pharmaceutical(s) shall mean a single chain polypeptide that (i) *** (ii) binds with specificity to a target antigen, (iii) has a binding domain, and (iv) may have an effector domain which may or may not have effector function, ***. 13 REDACTED COPY 1.113. "SMIP IMPROVEMENT" shall mean an invention consisting of any modification to the polynucleotide sequence encoding or the amino acid sequence of a SMIP, if the practice of such invention would infringe Patent Rights Controlled by Trubion at the time such invention is made. 1.114. "SPECIFICALLY BINDS" shall mean, in the case of a SMIP or other protein, the binding of such SMIP or other protein to a Target (or a portion thereof) above the level of background binding and wherein such SMIP or other protein is designed or being developed to exert its biological effect through binding to such Target (or such portion thereof). 1.115. "SUCCESSOR PARTY" shall have the meaning set forth in Section 9.10.2(a) hereof. 1.116. "SUED PARTY" shall have the meaning set forth in Section 6.2.3(b) hereof. 1.117. "TARGET" shall mean a specific named human protein that is identified as a full length protein of that name and further identified by up to *** GenBank accession numbers for its amino acid sequence, as well as any additional protein(s) that Has The Same Sequence as such specific named human protein. 1.118. "TARGET CANDIDATE" shall have the meaning set forth in Section 3.2.1 hereof. 1.119. "TERRITORY" shall mean the entire world. 1.120. "THIRD PART(Y/IES)" shall mean any Person(s) other than Wyeth or Trubion. 1.121. "TRADEMARK" shall mean those trademarks used in connection with the Commercialization of any Licensed Product by Wyeth or its sublicensees hereunder. 1.122. "TRU-015" shall mean the chimeric SMIP directed against the CD20 Antigen that is currently designated by Trubion as "TRU-015," as further described on Exhibit 1.122 attached hereto. 1.123. "TRU-015 PRODUCT" shall mean any product containing TRU-015. 1.124. "TRUBION" shall have the meaning set forth in the preamble hereof. 1.125. "TRUBION ADDITIONAL THIRD PARTY LICENSE" shall have the meaning set forth in Section 6.2.3(a) hereof. 1.126. "TRUBION INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.1 hereof. 14 REDACTED COPY 1.127. "TRUBION KNOW-HOW" shall mean any Know-How, other than the Joint Know-How, that (a) Trubion Controls as of the Effective Date or that comes into the Control of Trubion during the term of this Agreement (other than through the grant of a license by Wyeth) and (b) relates to any Cell Lines, Conjugates, Licensed Products, Recombinant DNA, SMIPs, Licensed Targets, Target Candidates or the Development, Manufacture or use of any of the foregoing. 1.128. "TRUBION LAWYERS" shall have the meaning set forth in Section 3.2.1 hereof. 1.129. "TRUBION PATENT RIGHTS" shall mean Patent Rights, other than Joint Patent Rights, that (a) Trubion Controls as of the Effective Date or that come into the Control of Trubion during the term of this Agreement and (b) claim any Trubion Know-How. Those Trubion Patent Rights known to be existing as of the Signing Date are listed on Exhibit 1.129 attached hereto. 1.130. "TRUBION TARGET" shall mean each of the human CD20 Antigen and/or ***, as the context may require. 1.131. "TRUBION TECHNOLOGY" shall mean Trubion's interest in the Trubion Patent Rights, the Trubion Know-How, the Joint Technology and the Research Program Data. 1.132. "TRUBION THIRD PARTY AGREEMENT(S)" shall mean the agreements specified on Exhibit 1.132 between Trubion and the indicated Third Parties that relate to the research, Development, Manufacture and/or Commercialization of Licensed Products under this Agreement. 1.133. "U.S. WYETH PHARMACEUTICALS" shall have the meaning set forth in Section 12.5 hereof. 1.134. "VALID CLAIM" shall mean a claim that (a) in the case of any unexpired United States or foreign patent, shall not have been dedicated to the public, disclaimed, nor held invalid or unenforceable by a court or government agency of competent jurisdiction in an unappealed or unappealable decision, or (b) in the case of any United States or foreign patent application, (i) shall not have been cancelled, withdrawn or abandoned, without being refiled in another application in the applicable jurisdiction, (ii) shall not have been finally rejected by an administrative agency or other governmental action from which no appeal can be taken and (iii) shall not have been pending for more than ***, in either case which claim (if issued) would cover the Manufacture, use or sale of any Licensed Product. For purposes of this definition, the time period for which a claim is pending shall begin on the priority date for such claim, and shall continue until such claim is either issued or is no longer deemed to be a Valid Claim in accordance with the preceding sentence regardless of whether such claim is 15 REDACTED COPY amended or refiled in another application in the applicable jurisdiction. If a claim of a patent application which ceased to be a Valid Claim under (b) due to the passage of time later issues as part of a patent described within (a) then it shall again be considered to be a Valid Claim effective as of the issuance of such patent. 1.135. "WYETH" shall have the meaning set forth in the preamble hereof. 1.136. "WYETH APPLIED TECHNOLOGY" shall mean, with respect to any Licensed Product, that Wyeth Technology which (a) Wyeth had applied to such Licensed Product prior to any termination of any rights under this Agreement with respect to such Licensed Product, provided that such Wyeth Technology is necessary or useful for the continued research, Development, Manufacture or Commercialization of such Licensed Product as it exists at the time of such termination, or (b) Wyeth had incorporated into such Licensed Product prior to any termination of rights under this Agreement with respect to such Licensed Product; provided that Wyeth shall use its Commercially Reasonable Efforts to sublicense or otherwise transfer rights under any Third-Party license to which the use or exploitation of such Wyeth Applied Technology is subject; and further provided, however, that with respect to each of clauses (a) and (b) of this Section 1.136, such Wyeth Technology shall not include any of Wyeth's conjugation technology. 1.137. "WYETH INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.2 hereof. 1.138. "WYETH KNOW-HOW" shall mean any Know-How, other than the Joint Know-How, that (a) Wyeth Controls as of the Effective Date or that comes into the Control of Wyeth (other than as a result of the licenses granted by Trubion to Wyeth under Section 2.1 hereof) during the term of this Agreement and (b) relates to the Cell Lines, Conjugates, Recombinant DNA, Licensed Products, SMIPs, Target Candidates or Licensed Targets or the Development, Manufacture, use or Commercialization of any of the foregoing. 1.139. "WYETH PATENT RIGHTS" shall mean Patent Rights, other than the Joint Patent Rights, that (a) Wyeth Controls as of the Effective Date or that come into the Control of Wyeth (other than as a result of the licenses granted by Trubion to Wyeth under Section 2.1 hereof) during the term of this Agreement and (b) claim any Wyeth Know-How. 1.140. "WYETH TARGETS" shall mean the Targets designated by Wyeth under the Research Program, as described in Section 3.2 hereof. 16 REDACTED COPY 1.141. "WYETH TECHNOLOGY" shall mean Wyeth's interest in the Wyeth Patent Rights, the Wyeth Know-How, the Joint Technology and the Research Program Data. 2. LICENSES. 2.1. LICENSES TO WYETH. 2.1.1. EXCLUSIVE LICENSES. Subject to the terms and conditions of this Agreement, Trubion, effective as of the Effective Date, hereby grants to Wyeth an exclusive license (exclusive even as to Trubion, except to the extent necessary for Trubion to perform its obligations under this Agreement), with the right to grant sublicenses in accordance with the provisions of Section 2.4 hereof, under the Trubion Technology, to research, Develop, have Developed, make, have made, Manufacture, use, have used, import, have imported, export, have exported, distribute, have distributed, market, have marketed, offer and have offered for sale, sell, have sold and Commercialize (subject to Section 4.11) Licensed Products in the Territory (the license granted under this Section 2.1.1 is sometimes referred to herein as the "Product License"). 2.1.2. RETAINED RIGHTS OF TRUBION. For the avoidance of doubt, but subject to Sections 2.3 and 3.2 hereof, Trubion shall retain: (a) all rights under the Trubion Technology with respect to the research, Development, Manufacture, use and Commercialization of SMIPs that (i) *** to Targets that are not Licensed Targets and (ii) do not *** to any Licensed Targets; and (b) the right to use SMIPs which *** to one or more Licensed Targets in in vitro studies conducted solely as part of Trubion's internal research efforts, provided, however, that Trubion shall not provide any such SMIP (that *** to a Licensed Target) to any Third Party or utilize any such SMIP (that *** to a Licensed Target) in a collaboration with any Third Party, except with Wyeth's prior written consent. 2.2. LICENSE TO TRUBION. Wyeth hereby grants to Trubion a royalty-free non-exclusive license, with no right to grant sublicenses, under the Wyeth Technology, solely for the purpose of, and limited to, Trubion's use of the Wyeth Technology in connection with the Trubion Technology to research, Develop, have Developed, make, have made, use and have used Licensed Products to fulfill its obligations under this Agreement. In addition, Wyeth hereby grants to Trubion the non-exclusive license under Wyeth's rights to Covered SMIP Improvements as set forth in greater detail in Section 6.1.2. 2.3. EXCLUSIVITY. 17 REDACTED COPY 2.3.1. CD20 PRODUCT EXCLUSIVITY. Subject to Section 2.3.3, and except for Development of the CD20 Products pursuant to the terms of this Agreement, neither Party shall Develop any human therapeutic product that contains a protein that *** to the CD20 Antigen during the time period beginning on the Effective Date and ending on the earlier of: (a) the First Commercial Sale of any CD20 Product for a Major Indication in a Major Market Country or (b) the termination of the licenses granted by Trubion to Wyeth under this Agreement with respect to all CD20 Products. Subject to Section 2.3.3, and except for Commercialization of the CD20 Products pursuant to the terms of this Agreement, neither Party shall Commercialize any human therapeutic product that contains a protein that *** to the CD20 Antigen during the time period beginning on the Effective Date and ending on the earlier of: (a) five (5) years after the First Commercial Sale of any CD20 Product for a Major Indication in a Major Market Country or (b) the termination of the licenses granted by Trubion to Wyeth under this Agreement with respect to all CD20 Products. 2.3.2. *** EXCLUSIVITY. Subject to Section 2.3.3, and except for Development of the *** pursuant to the terms of this Agreement, neither Party shall Develop any human therapeutic product that contains a protein that *** to the *** during the time period beginning on the Effective Date and ending on the earlier of: (a) the First Commercial Sale of any *** in any Major Market Country or (b) the termination of the licenses granted by Trubion to Wyeth under this Agreement with respect to all ***. Subject to Section 2.3.3, and except for Commercialization of the *** pursuant to the terms of this Agreement, neither Party shall Commercialize any human therapeutic product that contains a protein that *** to the *** during the time period beginning on the Effective Date and ending on the earlier of: (a) five (5) years after the First Commercial Sale of any *** in any Major Market Country or (b) the termination of the licenses granted by Trubion to Wyeth under this Agreement with respect to all ***. 2.3.3. LIMITATIONS. The exclusivity provisions of Sections 2.3.1 and 2.3.2 above (a) shall not apply to Wyeth's Manufacture of any product for a Third Party pursuant only to a contract manufacturing or supply agreement between Wyeth and such Third Party where Wyeth is acting only as a contract manufacturer or supplier for such Third Party, (b) shall in no 18 REDACTED COPY way limit any of the licenses granted by Trubion to Wyeth under Section 2.1 hereof, and (c) shall in no way limit any of the retained rights of Trubion set forth in Section 2.1.2 hereof. 2.4. SUBLICENSING. Wyeth may grant to one or more Third Parties sublicenses of the rights granted to it under Section 2.1 hereof at any time; provided that Wyeth shall execute a written agreement with each such sublicensee and shall comply with the following: Each such sublicense (a) shall be subject and subordinate to, and consistent with, the terms and conditions of this Agreement, (b) shall not in any way diminish, reduce or eliminate any of Wyeth's obligations under this Agreement, (c) shall require each such sublicensee to comply with all applicable terms of this Agreement, including to keep books and records, and permit Wyeth to audit (either directly or through an independent auditor) such books and records, and (d) shall provide that any such sublicensee shall not further sublicense except on terms consistent with this Section 2.4. Wyeth shall provide Trubion with a copy of each such sublicense agreement within thirty (30) days after the execution thereof. Such copy may be redacted to exclude confidential, non-Licensed Product-related information and financial information (other than such financial information that is necessary for assessing the obligations to Trubion under this Agreement). Upon Trubion's request and at Trubion's expense, Wyeth shall exercise its right to conduct an audit of a sublicensee's books and records pertaining to the sale of a Licensed Product under any such sublicense agreement at the next time that conducting such an audit is permissible under such sublicense agreement. Wyeth shall provide Trubion with a copy of the report of the findings made in any such audit. If such audit reveals that such sublicensee has understated its Net Sales by *** or more, Wyeth shall be responsible for the costs of the audit. Wyeth shall remain responsible for its obligations hereunder and for the performance of its sublicensees (including, without limitation, making all payments due Trubion by reason of any Net Sales of Licensed Products), and shall ensure that any such sublicensees comply with all relevant provisions of this Agreement. In the event of any uncured material breach by any sublicensee under a sublicense agreement that would constitute a breach of Wyeth's obligations under this Agreement, Wyeth will promptly inform Trubion in writing and shall take such action which in Wyeth's reasonable business judgment will address such default; provided, however, any such uncured material breach by such sublicensee of an obligation that would constitute a breach of Wyeth's obligations under this Agreement shall be deemed an uncured material breach of Wyeth hereunder unless Wyeth cures such material breach within the time provided under Section 9.5 hereof. 2.5. DIRECT LICENSES TO AFFILIATES. Wyeth may at any time request and authorize Trubion to grant licenses within the scope of Section 2.1 directly to Affiliates of Wyeth by giving written notice designating to which Affiliate a direct license is to be granted. Upon receipt of any such notice, 19 REDACTED COPY Trubion shall enter into and sign a separate direct license agreement with such designated Affiliate of Wyeth. All such direct license agreements shall be consistent with the terms and conditions of this Agreement, except for such modifications as may be required by the laws and regulations in the country in which the direct license will be exercised; provided, however, that Trubion shall have no obligation to enter into any such direct license agreement if the effect of entering into such agreement (and continuing as a Party to this Agreement) would be to increase the level of obligations owed by Trubion, decrease the obligations owed to Trubion or the enforceability thereof, or decrease the consideration owed to Trubion relative to the obligations owed by or to, or the consideration owed to, Trubion under this Agreement, had such direct license(s) not been granted. In countries where the validity of such direct license agreement requires prior government approval or registration, such direct license agreement shall not become binding between the parties thereto until such approval or registration is granted, which approval or registration shall be obtained by Wyeth. All costs of making such direct license agreement(s), including Trubion's reasonable attorneys' fees, under this Section 2.5 shall be borne solely by Wyeth. 2.6. RIGHT OF REFERENCE. Trubion hereby grants to Wyeth a "Right of Reference," as that term is defined in 21 C.F.R. Section 314.3(b), to any data Controlled by Trubion that relates to any CD20 Product (and any other Licensed Product, to the extent applicable), and Trubion shall provide a signed statement to this effect, if requested by Wyeth, in accordance with 21 C.F.R. Section 314.50(g)(3). 2.7. SECTION 365(N) OF BANKRUPTCY CODE. All rights and licenses now or hereafter granted under or pursuant to any Section of this Agreement, including Sections 2.1 and 2.5 hereof, are rights to "intellectual property" (as defined in Section 101(35A) of Title 11 of the United States Code, as amended (such Title 11, the "Bankruptcy Code")). In the event this Agreement is rejected under Section 365 of the Bankruptcy Code, Trubion hereby grants to Wyeth, subject to Wyeth's obligations under Sections 365(n)(2)(A) and (B), a right of access and to obtain possession of and to benefit from each of the following embodiments to the extent related to Wyeth's exercise of its license rights to any Licensed Products or otherwise related to any rights or licenses granted under or pursuant to any Section of this Agreement: (i) copies of pre-clinical and clinical research data and results, (ii) aliquots of laboratory samples, (iii) Licensed Product samples and inventory, (iv) Cell Lines expressing Licensed Products, libraries encoding Licensed Products or components thereof and sequences thereof, (v) copies of laboratory notes and notebooks pertaining to Licensed Products, (vi) copies of data and results related to clinical trials of Licensed Products, (vii) regulatory filings and approvals of Licensed Products, (viii) rights of reference in respect of regulatory filings and approvals of Licensed Products, and (ix) plasmid and vectors encoding Licensed Product SMIPs, 20 REDACTED COPY all of which constitute "embodiments" of intellectual property pursuant to Section 365(n) of the Bankruptcy Code, and (xi) all other embodiments of such intellectual property in Trubion's possession or control. Recognizing that the embodiments described above may be useful or necessary to Trubion in connection with its continued operation of its business, and that a Third Party may also have a right of access to such embodiment under Section 365(n) of the Bankruptcy Code or applicable non-bankruptcy law, where there is a fixed or limited quantity of any biological material or other tangible item of such embodiment described above, Wyeth shall be entitled to a pro rata portion thereof. Trubion agrees not to interfere with Wyeth's exercise under the Bankruptcy Code of rights and licenses to intellectual property licensed hereunder and embodiments thereof in accordance with this Agreement and agrees to use Commercially Reasonable Efforts (short of any obligation of Trubion to incur expenses in connection therewith) to assist Wyeth to obtain such intellectual property and embodiments thereof in the possession or control of Third Parties as reasonably necessary or useful for Wyeth to exercise such rights and licenses in accordance with this Agreement; provided, however, that Trubion's Commercially Reasonable Efforts for purposes of this Section 2.7 shall not be deemed to include an obligation to make payments to Third Parties to obtain such intellectual property rights and embodiments thereof. The Parties hereto acknowledge and agree that reimbursement payments pursuant to Sections 3.6 and 4.6 and all other payments by Wyeth to Trubion hereunder other than royalty payments pursuant to Section 5.4 and Additional Research and Development Expense Payments under Section 5.3 do not constitute royalties within the meaning of Bankruptcy Code Section 365(n) or relate to licenses of intellectual property hereunder. 2.8. NO IMPLIED RIGHTS. Except as expressly provided in this Agreement, neither Party shall be deemed by estoppel or implication to have granted the other Party any license or other right with respect to any intellectual property of such Party. 3. RESEARCH PROGRAM. 3.1. SCOPE AND CONDUCT OF THE RESEARCH PROGRAM. Under the terms and conditions set forth herein, Trubion and Wyeth shall collaborate through one or more joint project teams in the conduct of a pre-clinical research program to identify and evaluate (a) SMIPs directed against Licensed Targets and (b) Licensed Products, including CD20 Products, *** and Other Products (collectively, the "Research Program"). Such activities shall include, but not be limited to, the following: *** Subject to and in accordance with the Research Plan and the Development Plan (to the extent applicable), the JRC shall determine the appropriate 21 REDACTED COPY activities to be undertaken by Trubion and Wyeth; provided, however, that, as of the Signing Date, the Parties anticipate that Trubion shall conduct activity (i) above (with input from Wyeth), Wyeth shall conduct activities (v), (vi) and (vii) above, and Trubion and Wyeth shall jointly conduct activities (ii), (iii) and (iv) above. The Research Program shall be conducted in accordance with the Research Plan, and each Party shall use its Commercially Reasonable Efforts to perform all of its obligations under the Research Program in accordance with the Research Plan and current good laboratory practices. 3.2. DESIGNATION OF TARGETS. 3.2.1. TARGET CANDIDATES. Within thirty (30) days after the Effective Date, Wyeth shall provide Trubion's Vice President, Legal Affairs & Chief Patent Counsel with a list of up to *** Targets (each a "Target Candidate") from which Wyeth shall have the exclusive right, until ***, to designate up to *** Wyeth Targets, in accordance with the following provisions (subject to Wyeth's right under Section 3.2.3 to designate as Wyeth Targets up to *** Targets (of the *** Targets that Wyeth may designate as Wyeth Targets) that are not Target Candidates at the time of selection). In the case of protein Targets that are Target Candidates, Wyeth shall designate each such Target Candidate on the list by its GenBank accession number provided by the National Center for Biotechnology Information ("NCBI") (including any nomenclature describing such Target Candidate that is provided therewith) or, if an NCBI GenBank accession number is not available for such Target Candidate, by its nucleotide and amino acid sequences. For the avoidance of doubt, Wyeth may not designate as Target Candidates any Targets that are Excluded Targets. Subject to the following procedures, Trubion shall not undertake any research or Development activities beyond Milestone One (as defined on Exhibit 3.2.1 attached hereto) of Trubion's internal product development process, or propose to enter into or enter into any agreement with any Third Party with respect to any SMIP directed against any Target Candidate or with respect to any Licensed Product containing such a SMIP, unless and until such Target Candidate becomes a Released Target, Excluded Target or Provisional Excluded Target. Trubion, through its Legal Department, shall maintain a copy of the list of Target Candidates in a secure location. Trubion shall take reasonable measures and implement reasonable procedures to ensure that only its inside attorneys who are employees of its Legal Department and its outside patent counsel (collectively, "Trubion Lawyers") have knowledge of and access to Wyeth's Target Candidate list. The Target Candidate list shall be 22 REDACTED COPY considered Confidential Information of Wyeth, and except as expressly permitted under this Section 3.2 or otherwise under this Agreement, Trubion shall not use or disclose the Target Candidate list or the information set forth therein to any of its Affiliates, to any Third Party, or to any employees, officers or agents of Trubion other than Trubion Lawyers. For so long as a Target remains a Target Candidate, Trubion, through its Legal Department, shall implement reasonable procedures to maintain records of all Third Party inquiries to Trubion and Trubion's responses to same, relating to the Target Candidate list made pursuant to this Section 3.2. The Trubion Legal Department shall also maintain the list of Released Targets, Excluded Targets and Provisional Excluded Targets in accordance with the provisions of Sections 3.2.2 and 3.2.4. In the event of a bona fide dispute arising under this Agreement relating to the Target selection process described in this Section 3.2, Trubion shall provide to an independent Third Party selected by Wyeth and reasonably acceptable to Trubion access to the lists of Target Candidates, Released Targets, Excluded Targets and Provisional Excluded Targets and records and processes related thereto (to the extent relevant to the bona fide dispute) maintained by Trubion in accordance with this Section 3.2. Such independent Third Party may only communicate to Wyeth whether or not the Target selection process was properly performed by Trubion's Lawyers. 3.2.2. RELEASED TARGETS. On or before the ***, Wyeth, by written notice to Trubion's Vice President, Legal Affairs & Chief Patent Counsel, shall identify *** Target Candidates from the list delivered pursuant to Section 3.2.1 (inclusive of any Target Candidates that have become Released Targets during such period pursuant to Section 3.2.4 hereof), which from the date of such identification shall cease to be Target Candidates (each, a "Released Target"). At the time that a Target Candidate becomes a Released Target, Trubion, subject to Section 2.8, shall be free to undertake research and Development activities independent of obligations under this Agreement, and to enter into discussions or an agreement with a Third Party, with respect to SMIPs directed against any such Released Target or any other activities in connection with such Released Target. On or before the ***, Wyeth, by written notice to Trubion, shall identify such additional Target Candidates from the list delivered pursuant to Section 3.2.1, if any, as additional Released Targets, such that there are no more than *** Target Candidates remaining on the list delivered pursuant to Section 3.2.1 (less the number of Wyeth Targets that were Target Candidates at the time of selection as a Wyeth Target(s) pursuant to Section 3.2.3), which 23 REDACTED COPY from the date of such identification shall cease to be Target Candidates and, thereafter each shall also become a Released Target. At the end of the Research Term, all remaining Target Candidates, if any, shall become Released Targets. 3.2.3. WYETH TARGETS. Wyeth Targets shall be designated only from either (a) Target Candidates that have not become Released Targets, or (b) any other Target (including a Released Target that is or becomes available, as described below) that is not then an Excluded Target or a Provisional Excluded Target; provided, however, that no more than *** of the Targets designated by Wyeth as Wyeth Targets may be Targets that are not Target Candidates at the time of selection. Subject to the foregoing sentence, Wyeth shall designate: (y) *** Target Candidates or other Targets as Wyeth Targets on or before ***; and (z) up to *** Target Candidates or other Targets (inclusive of those designated as Wyeth Targets during the ***) as Wyeth Targets on or before the second anniversary of the Effective Date; provided, however, if Wyeth does not designate a total of *** Wyeth Targets on or before such ***, then the lesser number of Wyeth Targets so designated shall be the total number of Wyeth Targets under this Agreement unless Wyeth extends the Research Program, in which case Wyeth may designate, before ***, one or more additional Wyeth Targets (up to a cumulative *** in the aggregate). For the avoidance of doubt and subject to the following sentence, Wyeth may designate only up to a *** Wyeth Targets from the Effective Date of this Agreement through the end of the Research Program (even if extended). During the term of the Research Program, Wyeth shall have the right to ***; provided that *** (a "Replacement Target") must be ***. In the event that Wyeth nominates as a Wyeth Target (whether as a proposed initial designation of a Wyeth Target or as a replacement designation as a Wyeth Target) a Target that is not then a Target Candidate, Trubion's Legal Department, within ten (10) business days after receiving written notice of such nomination, shall determine and advise Wyeth in writing whether such Target is an Excluded Target or a Provisional Excluded Target, as described below (and shall indicate whether such Target is an Excluded Target or is a Provisional Excluded Target). If such Target is an Excluded Target or a Provisional Excluded Target, it shall not be eligible to be considered a Wyeth Target. If a proposed Replacement Target is not an Excluded Target or a Provisional Excluded Target, then the JRC shall either approve or disapprove designation of such proposed Replacement Target as a Wyeth Target; provided that the original Wyeth Target that Wyeth proposes to replace shall be 24 REDACTED COPY automatically deemed a Released Target upon the JRC's approval of the designation of the Replacement Target. 3.2.4. EXCLUDED TARGETS. Excluded Targets are not eligible to be Wyeth Targets for so long as they remain Excluded Targets. The Targets deemed "Excluded Targets" as of the Effective Date are set forth in Exhibit 3.2.4 attached hereto. Trubion may add additional Targets as Excluded Targets or Provisional Excluded Targets (which may be selected from Released Targets and other Targets, but would not include any Wyeth Targets or any Target Candidate that has not become a Released Target) in accordance with the following procedures: (a) During the period when ***, and upon the written request of a potential Third Party collaborator and/or licensee of Trubion pertaining to the identification, generation and/or Development of SMIPs directed against a Target or Targets, Trubion's Legal Department shall promptly determine whether or not any of such Targets is a Wyeth Target. (b) With respect to any Target newly submitted by a Party to Trubion's Legal Department hereunder, Trubion's Lawyers will determine whether such submitted Target *** Licensed Targets, Target Candidates, Released Targets, Excluded Targets and Provisional Excluded Targets available to Trubion's Lawyers (each a "Previously Deposited Protein"). By way of example only, *** Should Wyeth designate a Target that is not a protein, the Parties agree to negotiate in good faith the procedure for identifying and testing whether a subsequent proposed non-protein Target is the "same as" such designated non-protein Target for purposes of this Section 3.2. (c) If Trubion's Legal Department determines, in accordance with Section 3.2.4(b) above, that any such Target is a Wyeth Target, Trubion shall not proceed with such potential Third Party collaboration or license with respect to such Target. If any of such Targets is not a Wyeth Target or a Target Candidate, such Target shall automatically be deemed a "Provisional Excluded Target". If such Target is a Target Candidate, Trubion shall notify Wyeth in writing of Trubion's request that a Target Candidate be recategorized as a Released Target, in order for Trubion to be able to enter substantive negotiations with such Third Party regarding such Target that is a Target Candidate (i.e., Trubion shall "Put" such Target Candidate 25 REDACTED COPY to Wyeth). Trubion shall have no obligation to notify Wyeth of the identity of such Third Party or the purpose of the proposed collaboration or license. From the date that Trubion "Puts" such Target Candidate to Wyeth, Wyeth shall have *** with respect to such Puts made to Wyeth prior to ***, and shall have *** with respect to such Puts made thereafter, to notify Trubion in writing whether Wyeth designates such Target Candidate as a Wyeth Target or recategorizes such Target Candidate as a Released Target. If Wyeth fails to notify Trubion within such *** period, respectively, then such Target Candidate shall automatically be deemed a Released Target. Any such Released Targets shall be deemed to be Provisional Excluded Targets. (d) If Trubion and such potential Third Party collaborator and/or licensee do not enter into a definitive agreement regarding such Provisional Excluded Target within *** after the date that such Target is deemed a Provisional Excluded Target (such *** being subject to a *** extension by Trubion, if Trubion declares, in writing, to Wyeth that at least one draft definitive agreement has been exchanged between Trubion and such potential Third Party collaborator and/or licensee), thereafter such Provisional Excluded Target would revert to being a Released Target. If Trubion and such potential Third-Party collaborator and/or licensee enter into a definitive agreement within the time period provided above, such Provisional Excluded Target shall be deemed an Excluded Target. (e) During the period when ***, if Trubion itself identifies internally a Target that has progressed to Milestone One (as defined in Exhibit 3.2.1 attached hereto) of Trubion's internal product development process, Trubion's Legal Department shall promptly determine whether or not such Target is a Target Candidate. If such Target is not a Target Candidate, such Target shall be deemed an Excluded Target. If Trubion thereafter abandons work on such Excluded Target, Trubion shall notify Wyeth in writing that Trubion has abandoned work on such Excluded Target and such Excluded Target shall thereafter be deemed a Released Target. If such Target is a Target Candidate, Trubion may Put such Target Candidate to Wyeth. From the date that Trubion Puts such Target Candidate to Wyeth, Wyeth shall have *** with respect to such Puts made to Wyeth prior to ***, and shall have *** with respect to such Puts made thereafter, to notify Trubion in writing whether 26 REDACTED COPY Wyeth designates such Target Candidate as a Wyeth Target or recategorizes such Target Candidate as a Released Target. If Wyeth fails to notify Trubion within such ***, respectively, then such Target Candidate shall automatically be deemed a Released Target. Any such Released Target shall be deemed to be Excluded Target. If Trubion thereafter abandons work on any such Excluded Target, Trubion shall notify Wyeth in writing that Trubion has abandoned work on such Excluded Target and such Excluded Target shall thereafter be deemed a Released Target. (f) With respect to the Puts described in (c) and (e) above, Trubion shall not be permitted to Put more than *** Target Candidates to Wyeth during the first *** of the Research Program. 3.3. TERM AND TERMINATION OF THE RESEARCH PROGRAM. 3.3.1. RESEARCH TERM. The term of the Research Program (the "Research Term") shall begin on the Effective Date and shall continue until *** (the "Initial Term"), subject to extension as described below. At Wyeth's option (exercisable by providing written notice to Trubion no later than *** prior to the end of the Initial Term of the Research Program or any extension year thereof), the Research Term may be extended for up to *** additional *** periods and, thereafter, shall be renewable annually only upon mutual written agreement of the Parties. 3.3.2. TERMINATION OF RESEARCH PROGRAM BY WYETH. Commencing on the first anniversary of the Effective Date, Wyeth shall have the right to terminate the Research Program, at will, at any time, in its entirety, upon one (1) year prior written notice to Trubion; provided that Trubion shall have no obligation after the effective termination date to complete any Research Program activities in connection with any Trubion Target, Wyeth Target, SMIP or Licensed Product. Such termination of the Research Program shall not constitute termination of this Agreement and shall not affect the Parties' rights and obligations under this Agreement other than those relating to the Research Program. 27 REDACTED COPY 3.4. JOINT RESEARCH COMMITTEE. 3.4.1. COMPOSITION. Within thirty (30) days after the Effective Date, the Parties shall establish a Joint Research Committee (the "JRC") to oversee the Research Program. The JRC will be in effect only during the Research Term. The JRC shall be composed of three (3) representatives from each Party. Each Party may replace any of its representatives at any time upon written notice to the other Party. From time to time, the JRC may establish subcommittees to oversee particular projects or activities, and such subcommittees shall be constituted as the JRC decides. 3.4.2. RESPONSIBILITIES. The JRC shall be responsible for establishing, reviewing and recommending modifications and updates to the Research Plan, including the Research Budget, in accordance with Section 3.5 hereof, monitoring and reporting to the Parties on activities conducted pursuant to the Research Plan, and for such other functions as agreed by the Parties. 3.4.3. MEETINGS. The JRC shall meet as soon as practicable after it is established by the Parties and, thereafter, at such additional times as the Parties deem appropriate, not less frequently than quarterly. Each Party shall designate one of its JRC members as its "JRC Liaison" to co-chair meetings, prepare and circulate JRC meeting agendas and JRC meeting minutes. The meetings of the JRC shall be held in the United States, and shall alternate between the Parties' business locations or as otherwise decided by the JRC. JRC meetings may be conducted in person, by telephone or by videoconference. Each Party shall use reasonable efforts to cause its representatives to attend the meetings of the JRC. If a representative of a Party is unable to attend a meeting, such Party may designate an alternate member to attend such meeting in place of the absent member. 3.4.4. VOTING. Decisions of the JRC shall be made by unanimous consent, with each Party having one vote. The JRC may act without a meeting if an action by unanimous written consent is signed by each Party's JRC Liaison. 3.4.5. DISPUTE RESOLUTION. If the JRC is unable to reach agreement on a matter, the matter may be referred, at the request of either Party, for resolution through good faith discussions between Wyeth's Executive Vice President of Discovery Research and Trubion's Senior Vice President of Research and Development or their respective designees. Notwithstanding the foregoing, in the event the JRC cannot promptly resolve a disagreement or a 28 REDACTED COPY voting deadlock regarding the Research Program, Wyeth's Executive Vice President of Discovery Research shall have the right to cast a tie-breaking vote to resolve any such disagreement or voting deadlock, such right and tie-breaking authority being subject to the terms and conditions of this Agreement. 3.4.6. MINUTES. The JRC shall keep accurate and complete minutes of its meetings that record all proposals and recommendations made, and all actions and decisions taken. The JRC minutes shall not be effective until approved in writing by each Party's JRC Liaison. All records of the JRC shall be available at all times to each Party. 3.5. RESEARCH PLAN. The Parties shall use their Commercially Reasonable Efforts to develop and approve a complete Research Plan (including a corresponding Research Budget) within sixty (60) days of the Effective Date. The Parties shall ensure that the Research Plan is consistent with the terms and conditions of this Agreement, and the Research Plan shall not impose obligations on either Party that are inconsistent with the terms of this Agreement. The Research Plan shall set forth generally (a) the activities to be undertaken by the Parties under the Research Program consistent with the terms of Section 3.1, (b) the utilization of *** Trubion FTEs in conducting such activities, (c) the anticipated schedule on which such activities are to be conducted, (d) the desired deliverables to be provided by each Party with respect to each Licensed Target that is the subject of the Research Program, and (e) the annual budget for non-ordinary expenses (as described in Section 3.6.1 below) to be incurred by Trubion under the Research Program (the "Research Budget"). The JRC shall review the Research Plan, including the Research Budget, on at least an annual basis and submit any proposed modifications or updates to the Parties for review and approval; any such modifications or updates shall not become effective until approved in writing by an authorized officer of each of the Parties. The Parties shall review and consider any such proposed modifications or updates on an expeditious basis. The Parties shall promptly amend the Research Plan from time to time to address the performance of the Research Program as it relates to any Licensed Targets designated by Wyeth in accordance with Section 3.2 above. 3.6. FUNDING OF THE RESEARCH PROGRAM. 3.6.1. RESEARCH FUNDING. During each year of the Research Term (as it may be extended), Wyeth shall pay Trubion *** per year for services performed in accordance with the Research Plan. Trubion shall commit to the Research Program ten (10) FTEs per year to provide services in furtherance of the Research Program in accordance with the Research Plan. For the avoidance of doubt, Trubion may, at its sole expense and 29 REDACTED COPY discretion, devote more than *** FTEs from time to time to provide services in furtherance of the Research Program. The *** in research funding described above shall be increased automatically once per calendar year by the percentage change in the U.S. Consumer Price Index, All Urban Consumers over the previous year; provided, however, that no increase shall be effective prior to January 1, 2007. ***. Trubion shall provide to Wyeth, prior to the first day of each Calendar Quarter, a forecast of such expenses (by major expense category, on an accrual basis) reimbursable under this Section 3.6.1 which Trubion expects to incur during such Calendar Quarter and the subsequent three Calendar Quarters, in each case shown by month. Other than the foregoing amounts and except as otherwise expressly provided in this Agreement, each Party shall be solely responsible for its costs and expenses incurred in performing its obligations under the Research Program. 3.6.2. REIMBURSEMENT PAYMENTS. Reimbursement to be made to Trubion by Wyeth pursuant to Section 3.6.1 will be made pursuant to invoices submitted by Trubion to Wyeth no more often than once with respect to any Calendar Quarter, within thirty (30) days of the end of such Calendar Quarter. Payment shall be due within forty-five (45) days after Wyeth receives such an invoice from Trubion. Each invoice must be accompanied by supporting documentation sufficiently demonstrating the expense so paid on a cash basis (such as receipts for out-of-pocket expenses and other written documentation reasonably acceptable to Wyeth) and by a certificate executed by Trubion's VP, Finance & Administration, of the number of FTEs used by Trubion in such Calendar Quarter in performing Trubion's obligations under the Research Program. Except as approved in writing in advance by Wyeth, Wyeth shall not be obligated to reimburse Trubion for amounts in excess of the applicable budgeted amounts in the Research Budget. 3.6.3. RECORDS AND AUDITS. During the Research Term, Trubion shall keep books and accounts of record in connection with the expenses reimbursable under Section 3.6.1 hereof in accordance with GAAP and in sufficient detail to permit accurate determination of all figures necessary for verification of costs to be reimbursed hereunder. Trubion shall maintain such cost records for a period of at least three (3) years after the end of the calendar year in which they were generated in order to enable audit of such records as set forth below. Upon thirty (30) days prior written notice from Wyeth, Trubion shall permit an independent certified public accounting firm of nationally recognized standing selected by Wyeth and reasonably acceptable to Trubion, to examine, at Wyeth's sole expense, the relevant books and records of Trubion 30 REDACTED COPY as may be reasonably necessary to verify the amount of reimbursable out-of-pocket expenses incurred. An examination by Wyeth under this Section 3.6.3 shall occur not more than once in any calendar year and shall be limited to the pertinent books and records for any calendar year ending not more than thirty six (36) months before the date of the request. The accounting firm shall be provided access to such books and records at Trubion's facility(ies) where such books and records are normally kept and such examination shall be conducted during Trubion's normal business hours. Trubion may require the accounting firm to sign a standard non-disclosure agreement before providing the accounting firm access to Trubion's facilities or records. The accounting firm shall provide both Trubion and Wyeth a written report disclosing whether the certificates and invoices submitted by Trubion under Section 3.6.2 are correct or incorrect and the specific details concerning any discrepancies. No other information shall be provided to Wyeth. If the accounting firm determines that the aggregate amount of out-of-pocket expenses actually incurred by Trubion was less than the amount reimbursed by Wyeth during the period covered by the audit, Trubion shall refund the excess payments to Wyeth within thirty (30) days of its receipt of the auditor's report so concluding (or, if later, within fifteen (15) days after resolution of a bona fide objection by Trubion to the findings in such report). If the amount to be refunded exceeds more than ten percent (10%) of the amount that was properly payable, Trubion shall reimburse Wyeth for the cost of the audit. All information of Trubion which is subject to review under this Section 3.6.3 shall be deemed to be Confidential Information of Trubion subject to the provisions of Article 7, and such Confidential Information shall not be disclosed to any Third Party or used for any purpose other than verifying the information provided by Trubion to Wyeth; provided, however, that such Confidential Information may be disclosed to Third Parties only to the extent necessary to enforce Wyeth's rights under this Agreement, as may be necessary for Wyeth to exercise its rights under this Agreement, or as otherwise expressly permitted under this Agreement. 3.7. DATA AND DELIVERABLES. During the Research Term, each Party will use Commercially Reasonable Efforts to promptly provide to the other Party the data or desired deliverables specified in the Research Plan, including, without limitation, (a) SMIPs, Recombinant DNA, and Cell Lines, to the extent related to Licensed Targets and/or Licensed Products, (b) activity evaluation of the items listed in (a) obtained from in vitro or in vivo assays, pharmacology studies, process development data, drug product formulation data, toxicology and safety studies, and evaluation of chemotherapy conjugates, but only to the extent and in the manner that items listed in (a) 31 REDACTED COPY and (b) are set forth in the Research Plan. Each Party shall also disclose to the other Party in writing all data, information, inventions, techniques and discoveries (whether patentable or not) arising out of the conduct of the Research Program. Disclosure of all such aforementioned inventions and discoveries shall be delivered to the other Party in a manner mutually agreed upon by the Joint Patent Committee. Subject to the terms and conditions of this Agreement, each Party shall have the right to use any data or information generated under the Research Program for its permitted activities under the Research Program and this Agreement (collectively, "Research Program Data"). TRUBION MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, THAT IT WILL BE ABLE TO SUCCESSFULLY DISCOVER, DEVELOP OR DELIVER ANY SMIP DIRECTED AGAINST A LICENSED TARGET OR ANY LICENSED PRODUCT. 3.8. ALLIANCE MANAGERS. Each Party shall designate a single alliance manager, who shall perform such duties relating to the day-to-day worldwide coordination of the collaboration contemplated by this Agreement as are determined by the JRC and the JDC. Such alliance managers shall have experience and knowledge appropriate for managers with such project management responsibilities. Such alliance managers may attend, as non-voting members, any meetings of the committees contemplated by this Agreement as deemed fit by such committees. Each Party may change its designated alliance manager from time to time upon notice to the other Party. 4. PRODUCT DEVELOPMENT, MANUFACTURING, COMMERCIALIZATION AND REGULATORY MATTERS. 4.1. PRODUCT DEVELOPMENT. Except as otherwise expressly provided in Articles 2 and 3 hereof and in this Article 4, Wyeth shall have the sole authority, at its expense, for the Development of Licensed Products, including the initiation and conduct of clinical trials. Wyeth shall be responsible for the Development of and shall use its Commercially Reasonable Efforts to Develop Licensed Products throughout the Territory where it is Commercially Reasonable to do so (it being understood that Wyeth shall have the sole discretion to select those countries in which it will conduct clinical studies of Licensed Products and, when Commercially Reasonable to do so, to delay or discontinue the Development of any Licensed Product directed against a particular Licensed Target in favor of pursuing Development of another Licensed Product directed against such Licensed Target). When appropriate based on the data obtained during Development, Wyeth shall use its Commercially Reasonable Efforts to secure Regulatory Approval for Licensed Products in the Territory. 32 REDACTED COPY 4.2. TRANSFER OF PRODUCT DATA AND FILINGS. Upon Wyeth's reasonable request and in consultation with the JDC from time to time during the term of this Agreement and to the extent permitted by applicable law, Trubion shall assign and transfer to Wyeth Trubion's entire right, title and interest in and to any of the Product Data and Filings pursuant to an instrument to such effect in form and substance reasonably satisfactory to Wyeth and shall perform all other actions reasonably requested by Wyeth to effect and confirm such transfer. The Parties shall cooperate through the JDC to ensure that assignment and transfer of Trubion's right, title and interest in and to Product Data and Filings relating to CD20 Products is made in a manner that does not impede Trubion's activities and responsibilities under Section 4.6. After receipt of Wyeth's request consistent with the foregoing, Trubion shall provide to Wyeth, at Wyeth's expense, within sixty (60) days of receipt of such request, complete copies of such Product Data and Filings, including, without limitation, relevant clinical data, INDs, additional regulatory filings with FDA or other Regulatory Authorities, supplements or amendments thereto, all written correspondence with FDA or other Regulatory Authorities regarding the regulatory filings, and all existing written minutes of meetings and memoranda of conversations between Trubion (including, to the extent practicable, Trubion's investigators) and FDA or other Regulatory Authorities in Trubion's possession (or in the possession of any of Trubion's agents and subcontractors, such as contract research organizations used by Trubion), to the extent Trubion has the right to access and provide to Wyeth such Product Data and Filings, regarding such regulatory filings, each to the extent they relate to Licensed Products. Within thirty (30) days (or such later date as Wyeth may request) after the date of receipt of Wyeth's reasonable request after consultation with the JDC, Trubion shall execute and deliver a letter to the FDA or other Regulatory Authorities, in a form approved by Wyeth, transferring ownership to Wyeth of such regulatory filings, if any, filed in the name of Trubion that are related to Licensed Products. After such transfer of ownership of regulatory filings relating to a Licensed Product, during the term of this Agreement all regulatory filings with the FDA or other Regulatory Authorities pertaining to such Licensed Product shall be made in the name of Wyeth, in accordance with the terms of Section 4.3 below. 4.3. REGULATORY APPROVALS. Wyeth shall have the sole authority to file, in its own name, at its sole expense, all Regulatory Approval Applications for Licensed Products. Wyeth shall have the sole authority and responsibility for communicating with any Regulatory Authority regarding any Regulatory Approval Application, or any Regulatory Approval once granted. To the extent necessary to satisfy applicable regulatory requirements with respect to the INDs for the clinical studies of CD20 Products described in Section 4.6, Wyeth hereby grants to Trubion a "Right of Reference," as that term is defined in 21 C.F.R. Section 314.3(b), to any data Controlled by Wyeth that relates to any CD20 Products that are the subject 33 REDACTED COPY of the clinical studies described in Section 4.6 hereof, and Wyeth shall provide a signed statement to this effect, if requested by Trubion, in accordance with 21 C.F.R. Section 314.50(g)(3). Copies of Section all Wyeth regulatory filings that relate to Trubion's Development activities under this Agreement will be provided by Wyeth to Trubion upon request, subject to reasonable resource and time constraints. 4.4. REGULATORY REPORTING. Wyeth shall be responsible for preparing and filing all reports required to be filed in order to maintain any Regulatory Approvals granted for Licensed Products in the Territory, including, without limitation, adverse drug experience reports. To the extent Trubion has or receives any information regarding any adverse drug experience which may be related to the use of any Licensed Product or to Licensed Product Development, Trubion shall promptly provide Wyeth with all such information in accordance with the Adverse Event Reporting and pharmacovigilance procedures set forth in Exhibit 4.4 attached hereto (as may be amended from time to time upon written mutual agreement of the Parties). From time to time after the Effective Date, representatives from both Parties shall meet to review and revise or replace such Adverse Event Reporting and pharmacovigilance procedures. 4.5. PROGRESS REPORTS. (a) Wyeth shall provide Trubion with confidential summary reports of its and its sublicensees' Development activities, on a Licensed Product-by-Licensed Product basis, on a ***, with respect to CD20 Products and ***, and on an ***, with respect to Other Products. The form of the summary reports, and the type of information and the appropriate and reasonable level of detail to be included in such reports, shall be mutually and reasonably agreed by the Parties; provided that the Parties agree that such reports shall include information regarding progress towards and achievement of any event set forth in Exhibit 5.3 attached hereto. (b) Wyeth shall provide Trubion with confidential summary reports of its and its sublicensees' CD20 Product Commercialization activities on a *** after the First Commercial Sale of a CD20 Product. Beginning *** prior to the anticipated First Commercial Sale of a CD20 Product, and thereafter on a ***, Wyeth shall meet with Trubion and provide updates on CD20 Product Commercialization activities. (c) Wyeth shall provide Trubion with confidential summary reports of its and its sublicensees' *** Commercialization 34 REDACTED COPY activities on a *** after the First Commercial Sale of a ***. Beginning *** prior to the anticipated First Commercial Sale of a ***, and thereafter on a ***, Wyeth shall meet with Trubion and provide updates on *** Commercialization activities. (d) Wyeth shall provide Trubion with confidential summary reports of its and its sublicensees' Other Product Commercialization activities on an *** after the First Commercial Sale of an Other Product. Beginning *** prior to the anticipated First Commercial Sale of an Other Product, and thereafter on an ***, Wyeth shall meet with Trubion and provide updates on Other Product Commercialization activities. (e) The meetings described in clauses (b) - (d) above shall be coordinated to occur at the same time, to the extent practicable. 4.6. CD20 PRODUCT DEVELOPMENT. Subject to Section 4.7 hereof, Trubion shall use its Commercially Reasonable Efforts to conduct the following Development activities for CD20 Products: (a) Trubion shall continue the Phase I Clinical Studies and Phase IIa Clinical Studies of TRU-015 ongoing at the Effective Date for treatment of rheumatoid arthritis until completion or termination of such studies, including the re-treatment periods of such studies; (b) Trubion shall initiate and perform the planned Phase IIb Clinical Study of TRU-015 for treatment of rheumatoid arthritis through the completion or termination of such study; (c) Trubion shall continue the Phase I Clinical Study ongoing at the Effective Date, and shall initiate and perform the planned Phase III Clinical Studies (or the appropriate subsequent clinical study) of TRU-015 for the treatment of *** through the completion or termination of such studies; (d) Trubion shall have responsibility for and shall perform the clinical studies for at least two (2) additional Niche Indications selected by the Parties and set forth in the Development Plan; and (e) Trubion shall continue to perform the ongoing bioprocess development activities, and in each case (a-e) such activities and responsibilities of Trubion shall be performed in accordance with the Development Plan. None of the clinical studies described in this Section 4.6 shall be terminated prior to completion before discussion of such matter by the JDC. Trubion shall keep accurate records of its clinical study activities under this Section 4.6 in accordance with applicable laws and, upon reasonable request, shall provide Wyeth with access to such records. Trubion shall maintain such records for a period of at least three (3) years after the end of the calendar year in which they were generated. The Development Plan shall provide that Trubion is responsible for conducting the clinical trials for rheumatoid arthritis, *** and additional Niche Indications through the completion or termination of such clinical studies 35 REDACTED COPY described above and shall contain a budget for such clinical trials. Trubion shall be solely responsible for its internal FTE and other internal costs for such Development activities, but Wyeth shall reimburse Trubion for all out-of-pocket costs incurred by Trubion in connection with the foregoing Development activities in accordance with the budget contained in the Development Plan (which shall include, without limitation, all expenses paid to one or more contract research organizations for such Development activities). Trubion shall provide to Wyeth, on or before the first day of each Calendar Quarter, a forecast of such out-of-pocket costs (by major expense category, on an accrual basis) reimbursable under this Section 4.6 that Trubion expects to incur during such Calendar Quarter and the subsequent three (3) Calendar Quarters, in each case shown by month. Reimbursement to be made to Trubion by Wyeth pursuant to this Section 4.6 will be made pursuant to invoices submitted by Trubion to Wyeth no more often than once with respect to any Calendar Quarter, within forty-five (45) days of the end of such Calendar Quarter. Payment shall be due within forty-five (45) days after Wyeth receives such an invoice from Trubion. Each invoice must be accompanied by supporting documentation sufficiently demonstrating the expense so incurred (such as receipts for out-of-pocket expenses). The provisions of Section 3.6.3 shall apply to the expenses reimbursable by Wyeth under this Section 4.6 in the same manner as they apply to expenses reimbursable under Section 3.6.1. 4.7. JOINT DEVELOPMENT COMMITTEE. Within thirty (30) days of the Effective Date, Wyeth and Trubion shall establish a CD20 Product Joint Development Committee (the "JDC"), comprised of appropriate representatives of both Parties, to review and provide input to Wyeth regarding CD20 Product Development in the Territory, including the strategic direction of the overall CD20 Product Development program. Wyeth shall consider in good faith any of Trubion JDC members' comments and recommendations regarding CD20 Product Development, but Wyeth shall have final decision-making authority with respect to how the Parties proceed with CD20 Product Development, subject to Wyeth's obligations under Section 4.1 in connection therewith. If Trubion disagrees with an action or decision by the JDC, Trubion may express its concerns through good faith discussions between the Executive Officers of Trubion and Wyeth, with Wyeth Research's President having the final decision-making authority with respect to such matter. For the avoidance of doubt, the JDC may not impose different or greater CD20 Product Development obligations on Trubion than those specified in Section 4.6. 4.8. JOINT PROJECT TEAM; DEVELOPMENT PLAN. Trubion and Wyeth shall form a Joint Project Team ("JPT") comprised of appropriate representatives of both Parties to plan and implement the CD20 Product Development activities in accordance with the Development Plan. The JPT shall report to the JDC. If the JPT cannot promptly resolve a disagreement or a voting deadlock regarding the CD20 Product Development activities, the matter 36 REDACTED COPY shall be brought before the JDC for resolution. Wyeth shall prepare the Development Plan with input and advice from Trubion through the JPT. The Development Plan will define each Party's roles and responsibilities, provide a mechanism to coordinate each Party's and/or joint activities, and provide a process for monthly meetings of the JPT to monitor and report on all activities of the Parties conducted under the Development Plan. The Development Plan shall not impose different or greater CD20 Product Development obligations on Trubion than those specified in Section 4.6. The Development Plan shall be updated annually by the JPT. 4.9. MANUFACTURING. Wyeth shall have the exclusive right to Manufacture Licensed Products itself or through one or more Third Parties selected by Wyeth; provided, however, that Trubion shall use its Commercially Reasonable Efforts to Manufacture and supply Wyeth with its requirements of the TRU-015 Product in accordance with the Development Plan under Trubion's existing contract Manufacturing arrangements for use in pre-clinical studies and clinical trials ("Clinical Study Supplies"); provided that Trubion cannot guarantee as of the Effective Date that it will be able to Manufacture and supply such requirements. Wyeth shall reimburse Trubion for its direct out-of-pocket cost of Clinical Study Supplies, including, without limitation, out-of-pocket expenses incurred by Trubion prior to the Effective Date that are directly related to the Manufacture, testing and release of Clinical Study Supplies to be used after the Effective Date (such pre-Effective Date out-of-pocket expenses not to exceed ***). Reimbursement of such pre-Effective Date expenses shall be due within thirty (30) days after the first patient is dosed in the first Phase IIb Clinical Study for rheumatoid arthritis using such Clinical Study Supplies. Upon Wyeth's written request, Trubion shall provide reasonable assistance to Wyeth, until the first cGMP batch of TRU-015 Product is Manufactured in a Wyeth facility (or the facility of a Third Party designated by Wyeth), in support and facilitation of Wyeth's efforts to Manufacture TRU-015 Products and to secure appropriate TRU-015 Product Manufacturing arrangements with Third Parties. Such assistance shall be at no cost to Wyeth; provided that Wyeth shall reimburse Trubion for all of its reasonable out-of-pocket expenses related thereto. If applicable, upon Wyeth's written request, Trubion shall assign or otherwise transfer to Wyeth (to the extent allowable under such agreements) its TRU-015 Product Manufacturing agreements with Third Parties. 4.10. COMMERCIALIZATION. Subject to the terms and conditions of this Agreement, Wyeth shall have the sole authority and the exclusive right to Commercialize Licensed Products itself or through one or more Third Parties selected by Wyeth and shall have sole authority and responsibility in all matters relating to the Commercialization of Licensed Products. Wyeth shall use Commercially Reasonable Efforts to Commercialize Licensed Products in the Territory in each country where Wyeth has obtained Regulatory Approval for such Licensed Product(s) and for each indication 37 REDACTED COPY of such Licensed Product(s) for which Regulatory Approval has been obtained in such country. 4.11. CO-PROMOTION OPTION. Subject to the foregoing, in the event of a BLA filing with the FDA for Regulatory Approval of a CD20 Product for a Niche Indication in the United States, Trubion shall have the option to Co-Promote the CD20 Product in the United States for such Niche Indication in accordance with Wyeth's marketing plan for up to five (5) years after the First Commercial Sale of the first CD20 Product for any Niche Indication in the United States (the "Co-Promotion Period"). The Trubion Co-Promotion option shall be exercisable by Trubion giving written notice to Wyeth no later than *** after the date of the first BLA filing with the FDA for the first Niche Indication for the first CD20 Product (or such longer time as the Parties may mutually agree). Promptly after Trubion's exercise of such option, the Parties shall negotiate, in good faith, a definitive Co-Promotion Agreement, which shall require Trubion and Wyeth to use Commercially Reasonable Efforts to Co-Promote such CD20 Product. Such Co-Promotion Agreement shall contain customary provisions relating to relative sales force efforts, responsibility for sales calls, sales force training, promotional materials and samples, detailing and the number and qualifications of sales force personnel (including medical science liaisons) that will be devoted to such Co-Promotion activities. The Parties hereby agree, inter alia, that such Co-Promotion Agreement, and Wyeth's marketing plan for such CD20 Product, shall provide (a) Trubion's sales force with a meaningful role in the Commercialization of such CD20 Product; (b) that Wyeth shall provide CD20 Product-related sales training to Trubion's sales force, at no cost to Trubion; and (c) that Trubion's sales force shall use CD20 Product promotional materials and samples, to be provided by Wyeth at no cost, in connection with their sales efforts. As compensation for sales force support provided by Trubion in connection with such Co-Promotion, Wyeth shall pay Trubion a fixed fee (to be set forth in the definitive Co-Promotion Agreement) for each Product sales detail performed by members of Trubion's sales force in accordance with Wyeth's marketing plan for such CD20 Product. Trubion will not have the right to contract out for or otherwise delegate to any Third Party any responsibility for such sales force support. Trubion's sales force activities shall be conducted in accordance with Wyeth's policies and the marketing and promotion plan for the CD20 Product. 4.12. CO-PROMOTION COMMITTEE. If Trubion exercises its Co-Promotion option with respect to a CD20 Product in accordance with Section 4.11 hereof, a Co-Promotion Committee shall be formed by the Parties within thirty (30) days after such exercise. The Co-Promotion Committee shall oversee all aspects of Co-Promotion-related activities and reasonably relevant aspects of Commercialization of such CD20 Product during the Co-Promotion Period, and shall include Trubion's Chief Executive Officer and Wyeth's Executive Vice President and General Manager, Wyeth BioPharma. 38 REDACTED COPY 4.13. CO-BRANDING. To the extent allowed by applicable law, all product labeling for CD20 Products shall include both Parties' names, which shall be of similar size and prominence to the extent practicable (except (i) with respect to labeling of vials or other components of a CD20 Product that do not include either Party's name or (ii) with respect to labeling of diluent or other components packaged together with the CD20 Product that do not customarily contain another Person's name). 4.14. MARKING. All Licensed Products shall be marked with the patent numbers of issued patents within Trubion Patent Rights and Wyeth Patent Rights that cover such Licensed Products, to the extent practicable and permitted by law in countries in which such markings have notice value against infringers of patents. 5. CONSIDERATION. 5.1. INITIAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENT. In consideration of Trubion's agreement to conduct the Research Program and to participate on the JRC and JDC, Wyeth shall pay to Trubion Forty Million Dollars ($40,000,000.00) within ten (10) days after the Effective Date, which payment shall be non-refundable and non-creditable. 5.2. EQUITY. Wyeth shall purchase from Trubion common stock of Trubion at such time, in such amounts and for such price as specified in the Stock Purchase Agreement, attached hereto as Exhibit 5.2A. Concurrent with the execution of the Stock Purchase Agreement, the Parties shall enter into an amendment of Trubion's Amended and Restated Investor Rights Agreement, attached hereto as Exhibit 5.2B. 5.3. ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENTS. In further consideration of Trubion's contributions under the Research Program and the Development Program, as provided in Articles 3 and 4 above, Wyeth shall pay to Trubion the payments specified in Exhibit 5.3 attached hereto (each an "Additional Research and Development Expense Payment") in the amounts and at such times as specified in Exhibit 5.3. Wyeth shall notify Trubion promptly upon the achievement of each event specified in Exhibit 5.3. 5.4. ROYALTIES. 5.4.1. LICENSED PRODUCT ROYALTIES. In consideration for the licenses granted to Wyeth under Section 2.1 hereof, and in addition to those payments required to be made by Wyeth pursuant to Section 5.1, Section 5.2 and Section 5.3, Wyeth shall pay to Trubion royalties during the Royalty Period as set forth in Sections 5.4.2, 5.4.3 and 5.4.4 below, subject to the adjustments provided in Section 5.4.6 below. 39 REDACTED COPY 5.4.2. CD20 PRODUCT ROYALTIES. (a) Except as provided in Sections 5.4.2(b) and 5.4.2(c) below, Wyeth shall pay to Trubion royalties in the amount of the Marginal Royalty Rates (set forth below) of the aggregate Net Sales collectively obtained by Wyeth and its sublicensees from the sale of CD20 Products in the Territory during each calendar year in the applicable Royalty Period:
Marginal Royalty Rate (% of the Applicable Portion of Annual Net Sales Level Annual Net Sales) - ---------------------- -------------------------------- Less than *** *** From *** *** From *** *** From *** *** Greater than *** ***
Each Marginal Royalty Rate set forth in the table above shall apply only to that portion of the annual Net Sales that falls within the indicated range. By way of example only, if the aggregate Net Sales of CD20 Products during a calendar year equaled ***, the total royalty for CD20 Products during such year would equal the specified Marginal Royalty Rate (***) of the first *** of Net Sales, plus the specified Marginal Royalty Rate (***) of the next *** of Net Sales, plus the specified Marginal Royalty Rate (***) of the remaining *** of Net Sales (that is, ***, which would equal ***). For purposes of this Section 5.4.2, the "CD20 Effective Royalty Rate" for a particular time period shall mean the weighted average, expressed as a percentage, of the Marginal Royalty Rates that would apply under the provisions of this Section 5.4.2(a) to the aggregate CD20 Product Net Sales in the Territory during such time period (without regard, for these purposes, to any adjustments made under Sections 5.4.2(b) or 5.4.2(c)). By way of example only, if the aggregate Net Sales of CD20 Products in the Territory during a calendar year equaled ***, the CD20 Effective Royalty Rate for such calendar year would be calculated as follows: ((*** of ***) plus (*** of ***) plus (*** of ***)) divided by ***, expressed as a percentage, which would equal ***. By way of further example only, if the aggregate Net Sales of CD20 Products in the Territory during each of the four Calendar Quarters 40 REDACTED COPY of such calendar year were ***, respectively (for a total of ***), the CD20 Effective Royalty Rates for each of the four Calendar Quarters would be ***, respectively. (b) Subject to the provisions of Section 5.4.2(c) below, in the event that, at any time during the term of the Product License, no issued Valid Claim is included within the Trubion Patent Rights in a country where a CD20 Product is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such CD20 Product in such country), Wyeth shall pay to Trubion royalties with respect to such CD20 Product in such country during such time period, in lieu of the royalties described in Section 5.4.2(a), equal to the following amount: (i) the CD20 Effective Royalty Rate of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such CD20 Product in such country during such time period minus (ii) *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such CD20 Product in such country during such time period. By way of example only, if the aggregate Net Sales of such a CD20 Product in such country during the relevant time period were *** and the CD20 Effective Royalty Rate (based on Net Sales of CD20 Products throughout the Territory) for such time period were ***, the royalties payable under this Section 5.4.2(b) on Net Sales in such country would equal (i) ***of ***, (or ***), minus (ii) *** of ***, (or ***), which would equal ***. By way of further example only, if the aggregate Net Sales of such a CD20 Product in such country during the relevant time period were *** and the CD20 Effective Royalty Rate (based on Net Sales of CD20 Products throughout the Territory) for such time period were ***, the royalties payable under this Section 5.4.2(b) on Net Sales in such country would equal (i) *** of ***, (or ***), minus (ii) *** of ***, (or ***), which would equal ***. (c) In the event that at any time during the term of the Product License: (i) no issued Valid Claim is included within the Trubion Patent Rights in a country where a CD20 Product is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such CD20 Product in such country), (ii) a product is sold by a Third Party in such country, which product would, if sold by such Third Party in the United 41 REDACTED COPY States, infringe an issued Valid Claim included within the Trubion Patent Rights in the United States, and (iii) such product sold by the Third Party has a *** or greater unit market share in such country (where the market is defined as the sum of the unit sales of such CD20 Product and of the product described in clause (ii)), Wyeth shall pay to Trubion royalties with respect to such CD20 Product in such country during such time period, in lieu of the royalties described in Section 5.4.2(a) and Section 5.4.2(b), equal to the following amount: (i) *** of (ii) the CD20 Effective Royalty Rate of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such CD20 Product in such country during such time period. By way of example only, if the aggregate Net Sales of such a CD20 Product in such country during the relevant time period were *** and the CD20 Effective Royalty Rate for such time period were ***, the royalties payable under this Section 5.4.2(c) would equal (i) *** of (ii) *** of ***, (or ***), which would equal ***. 5.4.3. ***. (a) Except as provided in Sections 5.4.3(b) and 5.4.3(c) below, Wyeth shall pay to Trubion royalties in the amount of the Marginal Royalty Rates (set forth below) of the aggregate Net Sales collectively obtained by Wyeth and its sublicensees from the sale of each *** in the Territory during each calendar year in the applicable Royalty Period:
Marginal Royalty Rate (% of the Applicable Portion of Annual Net Sales Level Annual Net Sales) - ---------------------- ------------------------------- Less than *** *** From *** *** From *** *** From *** *** Greater than *** ***
Each Marginal Royalty Rate set forth in the table above shall apply only to that portion of the annual Net Sales for a particular *** that falls within the indicated range. By way of example only, if the aggregate Net Sales of a *** during a calendar year equaled ***, the total royalty for such *** during such calendar year would equal the specified Marginal Royalty Rate (***) of the first *** of Net Sales, plus the specified Marginal Royalty Rate *** of the next *** of Net Sales, plus the specified Marginal Royalty Rate 42 REDACTED COPY *** of the remaining *** of Net Sales (that is, ***, which would equal ***). For purposes of this Section 5.4.3, the "*** Royalty Rate" for a particular time period for a particular *** shall mean the weighted average, expressed as a percentage, of the Marginal Royalty Rates that would apply under the provisions of this Section 5.4.3(a) to the Net Sales in the Territory of such *** during such time period (without regard, for these purposes, to any adjustments made under Sections 5.4.3(b) or 5.4.3(c)). By way of example only, if the Net Sales of a *** in the Territory during a calendar year equaled***, the *** Royalty Rate for such calendar year for such *** would be calculated as follows: ((***) plus (***) plus (***)) divided by ***, expressed as a percentage, which would equal ***. By way of further example only, if the Net Sales of such *** in the Territory during each of the four Calendar Quarters of such calendar year were ***, respectively (for a total of *** in such calendar year), the *** Royalty Rates for each of the four Calendar Quarters would be ***, respectively. (b) Subject to the provisions of Section 5.4.3(c) below, in the event that, at any time during the term of the Product License, no issued Valid Claim is included within the Trubion Patent Rights in a country where a *** is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such *** in such country), Wyeth shall pay to Trubion royalties with respect to such *** in such country during such time period, in lieu of the royalties described in Section 5.4.3(a), equal to the following amount: (i) the *** Royalty Rate for such *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such *** in such country during such time period minus (ii) *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such *** in such country during such time period. By way of example only, if the aggregate Net Sales of such a *** in such country during the relevant time period were *** and the *** Royalty Rate (based on Net Sales of such *** throughout the Territory) for such time period for such *** were ***, the royalties payable under this Section 5.4.3(b) on Net Sales in such country would equal (i) ***, (or ***), minus (ii) ***, (or ***), which would equal ***. By way of further example only, if the Net Sales of such *** in such country during the relevant time period were 43 REDACTED COPY *** and the *** Royalty Rate (based on Net Sales of such *** throughout the Territory) for such time period were ***, the royalties payable under this Section 5.4.3(b) on Net Sales in such country would equal (i) ***, (or ***), minus (ii) ***, (or ***), which would equal ***. (c) In the event that at any time during the term of the Product License: (i) no issued Valid Claim is included within the Trubion Patent Rights in any country where a *** is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such *** in such country), (ii) a product is sold by a Third Party in such country, which product would, if sold by such Third Party in the United States, infringe an issued Valid Claim included within the Trubion Patent Rights in the United States, and (iii) such product sold by a Third Party has a *** or greater unit market share in such country (where the market is defined as the sum of the unit sales of such *** and of the product described in clause (ii)), Wyeth shall pay to Trubion royalties with respect to such *** in such country during such time period, in lieu of the royalties described in Section 5.4.3(a) and Section 5.4.3(b), equal to the following amount: (i) *** of (ii) the *** Royalty Rate for such *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such *** in such country during such time period. By way of example only, if the aggregate Net Sales of such a *** in such country during the relevant time period were *** and the *** Royalty Rate for such time period for such *** were ***, the royalties payable under this Section 5.4.3(c) on Net Sales in such country would equal (i) *** of (ii) *** of ***, (or ***), which would equal ***. By way of further example only, if the Net Sales of such *** in such country during the relevant time period were *** and the *** Royalty Rate (based on Net Sales of such *** throughout the Territory) for such time period were ***, the royalties payable under this Section 5.4.3(c) on Net Sales in such country would equal (i) *** multiplied by (ii) *** of ***, (or ***), which would equal ***. 5.4.4. OTHER PRODUCT ROYALTIES. (a) Except as provided in Sections 5.4.4(b) and 5.4.4(c) below, Wyeth shall pay Trubion a royalty of *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the 44 REDACTED COPY sale of each Other Product in the Territory during each calendar year in the applicable Royalty Period. (b) Subject to the provisions of Section 5.4.4(c) below, in the event that, at any time during the term of the Product License, no issued Valid Claim is included within the Trubion Patent Rights in a country where an Other Product is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such Other Product in such country), Wyeth shall pay to Trubion, with respect to such Other Product in such country during such time period, in lieu of the royalty described in Section 5.4.4(a), a royalty of *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such Other Product in such country during such time period. (c) In the event that at any time during the term of the Product License: (i) no issued Valid Claim is included within the Trubion Patent Rights in any country where an Other Product is sold (which claim, but for the licenses granted hereunder to Wyeth, would be infringed by Wyeth's or its sublicensees' Manufacture, use, sale, offer for sale or import of such Other Product in such country), (ii) a product is sold by a Third Party in such country, which product would, if sold by such Third Party in the United States, infringe an issued Valid Claim included within the Trubion Patent Rights in the United States, and (iii) such product sold by a Third Party has a *** or greater unit market share in such country (where the market is defined as the sum of the unit sales of such Other Product and of the product described in clause (ii)), Wyeth shall pay to Trubion, with respect to such Other Product in such country during such time period, in lieu of the royalties described in Section 5.4.4(a) and Section 5.4.4(b), a royalty of *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such Other Product in such country during such time period. 5.4.5. EXPIRATION OF ROYALTY PERIOD. After the expiration of the Royalty Period for any Licensed Product in any country in the Territory, no further royalties shall be payable in respect of sales of such Licensed Product in such country and thereafter the licenses granted to Wyeth under Section 2.1 with respect to such Licensed Product in such country shall be fully paid-up, perpetual, irrevocable, royalty-free, exclusive licenses. 45 REDACTED COPY 5.4.6. ROYALTY ADJUSTMENTS. (a) CERTAIN THIRD PARTY AGREEMENTS. On a country-by-country basis in a given calendar year, Wyeth shall deduct from CD20 Product royalties otherwise payable to Trubion under Section 5.4.2 *** of the aggregate amount of royalties actually paid to Third Parties under Additional Third Party Licenses with respect to the Development, Manufacture or Commercialization of CD20 Products in such country in such calendar year; provided, however, that (i) the amount of such deduction shall not exceed *** of the amount of the CD20 Product royalties otherwise payable to Trubion under Section 5.4.2 in a given calendar year and (ii) such deduction shall not have the effect, under any circumstances, of reducing the CD20 Product royalties payable under Section 5.4.2 below *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of CD20 Products in such country in a given calendar year (before taking into account the operation of Sections 5.4.2(b) and 5.4.2(c)). On a country-by-country basis in a given calendar year, Wyeth shall deduct from *** royalties otherwise payable to Trubion under Section 5.4.3 *** of the aggregate amount of royalties actually paid to Third Parties under Additional Third Party Licenses with respect to the Development, Manufacture or Commercialization of such *** in such country in such calendar year; provided, however, that (i) the amount of such deduction shall not exceed *** of the amount of the *** royalties otherwise payable to Trubion under Section 5.4.3 in a given calendar year and (ii) such deduction shall not have the effect, under any circumstances, of reducing the *** royalties payable under Section 5.4.3 below *** of the aggregate Net Sales obtained by Wyeth and its sublicensees from the sale of such *** in such country in a given calendar year (before taking into account the operation of Sections 5.4.3(b) and 5.4.3(c)). *** (b) OTHER THIRD PARTY AGREEMENTS. Wyeth shall be solely responsible for all payment obligations related to ***. Trubion shall be solely responsible for all payment obligations related to ***. 5.5. REPORTS AND PAYMENTS. 5.5.1. CUMULATIVE ROYALTIES. The obligation to pay royalties under Section 5.4 of this Agreement shall be imposed only once with respect to a single unit of a Licensed Product, regardless of how 46 REDACTED COPY many Valid Claims included within the Trubion Technology would, but for this Agreement, be infringed by the Manufacture, use, import, offer for sale or sale of such Licensed Product in the countr(y)ies of such Manufacture, use or sale. For the avoidance of doubt, if a single Licensed Product is both a CD20 Product and an Other Product, such Licensed Product shall be deemed to be a CD20 Product for purposes of the royalty obligations under Section 5.4. If a single Licensed Product is both a *** and an Other Product, such Licensed Product shall be deemed to be a *** for purposes of the royalty obligations under Section 5.4. 5.5.2. ROYALTY STATEMENTS AND PAYMENTS. Within *** after the end of each Calendar Quarter, Wyeth shall deliver to Trubion a report setting forth for such Calendar Quarter the following information, on a Licensed Product-by-Licensed Product and country-by-country basis: (a) the gross sales amount (by Wyeth and its sublicensees) for each category of Licensed Product sold in the United States and the number of units of Licensed Product sold in the United States and other countries in the Territory, on a country-by-country basis; (b) the Net Sales for each Licensed Product; (c) any adjustments (including the basis therefor) made pursuant to Sections 5.4.2(b), 5.4.2(c), 5.4.3(b), 5.4.3(c), 5.4.4(b), 5.4.4(c) or 5.4.6(a) to the royalty amount payable for the sale of each Licensed Product, the applicable Marginal Royalty Rates and the CD20 Effective Royalty Rate or *** Royalty Rate (as the case may be) payable on the Net Sales, and (d) the royalty amount due hereunder for the sale of each Licensed Product. No such reports shall be due for any Licensed Product before the First Commercial Sale of such Licensed Product. The total royalty due for the sale of Licensed Products during such Calendar Quarter shall be remitted at the time such report is made. 5.5.3. TAXES AND WITHHOLDING. All payments due Trubion under this Agreement will be made without any deduction or withholding for or on account of any tax unless such deduction or withholding is required by applicable laws or regulations to be assessed against Trubion. If Wyeth is so required to deduct or withhold, Wyeth will (a) promptly notify Trubion of such requirement, (b) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Trubion, (c) promptly forward to Trubion an official receipt (or certified copy) or other documentation reasonably acceptable to Trubion evidencing such payment to such authorities, and (d) otherwise reasonably cooperate with Trubion in connection with 47 REDACTED COPY Trubion's attempts to obtain favorable tax treatment and credit therefor (where appropriate) in accordance with applicable laws. 5.5.4. CURRENCY. All amounts payable and calculations hereunder shall be in United States Dollars. As applicable, Net Sales and any royalty deductions shall be translated into United States dollars in accordance with Wyeth's customary and usual translation procedures, consistently applied, which procedures are in accordance with Generally Accepted Accounting Principles in the United States. 5.5.5. ADDITIONAL PROVISIONS RELATING TO ROYALTIES. Trubion acknowledges and agrees that nothing in this Agreement (including, without limitation, any exhibits or attachments hereto) shall be construed as representing an estimate or projection of either (a) the number of Licensed Products that will or may be successfully Developed or Commercialized or (b) anticipated sales or the actual value of any Licensed Product and that the figures set forth in Section 5.4 or elsewhere in this Agreement or that have otherwise been discussed by the Parties are merely intended to define Wyeth's royalty obligations to Trubion in the event such sales performance is achieved. WYETH MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, THAT IT WILL BE ABLE TO SUCCESSFULLY DEVELOP OR COMMERCIALIZE ANY LICENSED PRODUCT OR, IF COMMERCIALIZED, THAT IT WILL ACHIEVE ANY PARTICULAR SALES LEVEL OF SUCH LICENSED PRODUCT(S). 5.5.6. INTEREST ON PAST DUE PAYMENTS. If either Party fails to pay any payment due under this Agreement on or before the date such payment is due, as provided in this Agreement, such late payment shall bear interest, to the extent permitted by applicable law, *** as reported from time to time in The Wall Street Journal, effective for the first date on which payment was delinquent and calculated on the number of days such payment is overdue or, if such rate is not regularly published, as published in such source as the Parties agree. 5.6. MAINTENANCE OF RECORDS; AUDITS. 5.6.1. RECORD KEEPING. Wyeth shall keep accurate books and accounts of record in connection with the sale of Licensed Products, in sufficient detail to permit accurate determination of all figures necessary for verification of royalties and other payments to be paid to Trubion hereunder. Wyeth shall keep accurate records of its activities under this Agreement that relate 48 REDACTED COPY to the events with respect to which Additional Research and Development Expense Payments may be made under Section 5.3 hereof. Wyeth shall maintain such records for a period of at least three (3) years after the end of the calendar year in which they were generated. 5.6.2. AUDITS. Upon thirty (30) days prior written notice from Trubion, Wyeth shall permit an independent certified public accounting firm of nationally recognized standing selected by Trubion and reasonably acceptable to Wyeth, to examine, at Trubion's sole expense, the relevant books and records of Wyeth as may be reasonably necessary to verify the accuracy of the reports submitted by Wyeth in accordance with Section 5.5 and the payment of royalties hereunder. An examination by Trubion under this Section 5.6.2 shall occur not more than once in any calendar year and shall be limited to the pertinent books and records for any calendar year ending not more than three (3) years before the date of the request. The accounting firm shall be provided access to such books and records at Wyeth's facility(ies) where such books and records are normally kept and such examination shall be conducted during Wyeth's normal business hours. Wyeth may require the accounting firm to sign a standard non-disclosure agreement before providing the accounting firm access to Wyeth's facilities or records. Upon completion of the audit, the accounting firm shall provide both Wyeth and Trubion a written report disclosing whether the reports submitted by Wyeth are correct or incorrect, whether the royalties paid are correct or incorrect, and in each case, the specific details concerning any discrepancies. No other information shall be provided to Trubion. 5.6.3. UNDERPAYMENTS/OVERPAYMENTS. If such accounting firm concludes that additional royalties were due to Trubion, Wyeth shall pay to Trubion the additional royalties within thirty (30) days of the date Wyeth receives such accountant's written report so concluding. If such royalty underpayment exceeds ten percent (10%) of the royalties that were to be paid to Trubion, Wyeth also shall reimburse Trubion for the out-of-pocket expenses incurred in conducting the audit. If such accounting firm concludes that Wyeth overpaid royalties to Trubion, Trubion, within thirty (30) days of the date Trubion receives such account's report so concluding, will refund such overpayments to Wyeth less the reasonable out-of-pocket costs incurred by Trubion in conducting the audit. 5.6.4. CONFIDENTIALITY. All financial information of Wyeth which is subject to review under this Section 5.6 shall be deemed to be 49 REDACTED COPY Wyeth's Confidential Information subject to the provisions of Article 7 hereof, and Trubion shall not disclose such Confidential Information to any Third Party or use such Confidential Information for any purpose other than verifying payments to be made by Wyeth to Trubion hereunder; provided, however, that such Confidential Information may be disclosed by Trubion to Third Parties only to the extent necessary to enforce Trubion's rights under this Agreement. 6. INTELLECTUAL PROPERTY. 6.1. INVENTIONS; JOINT PATENT COMMITTEE. 6.1.1. OWNERSHIP AND INVENTORSHIP. A Party shall own all inventions and Know-How made solely by employees of such Party, and shall jointly own with the other Party any invention, whether or not patentable, made jointly by employees of both Parties (a "Joint Invention"), all Joint Patent Rights directed thereto, and any Know-How made jointly by employees of both Parties ("Joint Know-How"). All determinations of inventorship under this Agreement shall be made in accordance with United States patent law. Each Party shall disclose promptly in writing to the other any Joint Inventions and any candidate Joint Inventions of which it becomes aware. Subject to (a) the grant of licenses to Wyeth under Section 2.1 and to Trubion under Section 2.2, (b) the exclusivity provisions of Section 2.3, and (c) the Parties' other rights and obligations under this Agreement, each Party shall be free to exploit (including to research, Develop, Manufacture, Commercialize and enforce), either itself or through the grant of licenses to Third Parties (which Third Party licenses are further sublicensable), Joint Patent Rights and Joint Know-How throughout the world without restriction, without the need to obtain further consent from the other Party, and without payment of any compensation to the other Party. 6.1.2. SMIP IMPROVEMENTS. All SMIP Improvements made by Wyeth, whether independently or jointly with Trubion, in the course of performing Wyeth's obligations under this Agreement during the term of the Agreement (each, a "Covered SMIP Improvement") shall be promptly disclosed by Wyeth to Trubion. Wyeth, subject to the rights and licenses granted by Trubion to Wyeth hereunder, hereby grants to Trubion a worldwide, royalty-free (other than as expressly set forth in this Section 6.1.2), irrevocable, non-exclusive license (with the right to sublicense), under Wyeth's rights to such Covered SMIP Improvements, to practice, exploit and use such Covered SMIP Improvements in connection with the research, Manufacture, Development, Commercialization or use of SMIPs 50 REDACTED COPY (***); provided, however, for the avoidance of doubt, that the license granted to Trubion pursuant to this sentence shall not be deemed to constitute or include a license with respect to any underlying Wyeth technology or any Wyeth Technology (including without limitation Manufacturing, delivery, formulation and conjugation technology) other than Wyeth's rights to such Covered SMIP Improvements. In the event, and to the extent, that Wyeth is obligated to pay a Third Party any royalties or other payments as a result of the licensing of a Covered SMIP Improvement to Trubion pursuant to this Section 6.1.2 or as a result of Trubion's or its sublicensees' (excluding Wyeth's) practice of such Covered SMIP Improvement, the license by Wyeth to Trubion pursuant to this Section 6.1.2 with respect to such Covered SMIP Improvement shall be conditioned on Trubion's continuing obligation to pay Wyeth the amount of such royalties and other payments according to the terms of the applicable agreement between Wyeth and such Third Party. In the event that Trubion grants a sublicense to any Third Party with respect to a Covered SMIP Improvement that is not a Joint Invention (but rather was invented solely by Wyeth), Trubion shall pay Wyeth a royalty of *** of the net sales by such sublicensee (or its affiliates or sublicensees) of any product that incorporates such Covered SMIP Improvement. For purposes of the preceding sentence, "net sales" shall be defined in a manner substantially similar to the definition of "Net Sales" under this Agreement. 6.1.3. JOINT PATENT COMMITTEE. (a) ESTABLISHMENT; MEETINGS; DECISIONS. Within thirty (30) days after the Effective Date, the Parties shall establish a Joint Patent Committee composed of at least one (1) representative from each Party with experience in the prosecution of biotechnology patents. The Joint Patent Committee will have such duties and responsibilities as are expressly assigned to it under this Article 6. The Joint Patent Committee shall meet as soon as practicable after it is established by the Parties and, thereafter, at such additional times as the Parties deem appropriate, not less frequently than quarterly. The meetings of the Joint Patent Committee shall alternate between the Parties' business locations or as otherwise decided by the Joint Patent Committee; provided that Joint Patent Committee meetings may be conducted in person, by telephone or by videoconference. Each Party shall use reasonable efforts to cause its representative(s) to attend each Joint Patent Committee meeting. Decisions of the Joint Patent Committee shall be made by unanimous consent, with each 51 REDACTED COPY Party having one vote. The Joint Patent Committee may act without a meeting if an action by unanimous written consent is signed by each committee member. If the Joint Patent Committee is unable to reach agreement on a matter for which it has decision-making authority pursuant to Section 6.1.3(b), 6.2.1(c) or 6.2.2(c), the matter may be referred, at the request of either Party, for resolution by outside patent counsel mutually selected by the Parties (wherein such outside patent counsel shall be knowledgeable and experienced in the subject matter of the matter so referred), and such resolution shall be deemed the decision of the Joint Patent Committee. Unless otherwise agreed by the Parties, the patent counsel selected will not have served as primary outside IP counsel to either Party prior to being selected to resolve the Joint Patent Committee disagreement. *** (b) CATEGORY 1 COVERED SMIP IMPROVEMENTS AND CATEGORY 2 COVERED SMIP IMPROVEMENTS. Without limiting Wyeth's obligation under Section 6.1.1 and Section 6.1.2 to disclose promptly to Trubion any inventions and candidate inventions made hereunder (including, without limitation, any Covered SMIP Improvements), each Party shall report on a quarterly basis to the Joint Patent Committee whether any of its activities hereunder during the prior Calendar Quarter involved a new Covered SMIP Improvement. The Joint Patent Committee shall decide whether a given Covered SMIP Improvement (i) is solely applicable to SMIP coding regions (a "Category 1 Covered SMIP Improvement"), or (ii) is not solely applicable to SMIP coding regions (a "Category 2 Covered SMIP Improvement"). ***. 6.2. PATENT RIGHTS. 6.2.1. FILING, PROSECUTION AND MAINTENANCE OF PATENT RIGHTS. (a) TRUBION PATENT RIGHTS. (i) TRUBION PATENT RIGHTS. Trubion shall use its Commercially Reasonable Efforts to prepare, file, prosecute and maintain, throughout the Territory, all of the Trubion Patent Rights, using patent counsel of Trubion's choice; provided, however, that Trubion shall give Wyeth before filing a reasonable opportunity to review and comment upon the text of any applications for Trubion Patent Rights to the 52 REDACTED COPY extent related to any Licensed Product, any SMIPs directed against any Licensed Target, or the Development, Manufacture, use or Commercialization thereof (collectively, "Product-Related Patent Rights"); and provided further, however, that patent counsel for patent applications for Product-Related Patent Rights that are prepared or filed on or after the Signing Date and that do not rely on the priority date of a patent or patent application filed before the Signing Date will be mutually agreed upon by the Parties. Trubion shall reasonably consider and address Wyeth's comments on patent applications included in Product-Related Patent Rights. Trubion shall consult with Wyeth with respect to such patent applications, and shall supply Wyeth with a copy of such patent applications as filed, together with notice of each filing date and serial number. Trubion shall also keep Wyeth advised of the status of prosecution of all such patent applications included in the Product-Related Patent Rights, and shall consult with Wyeth and provide Wyeth with a reasonable opportunity to comment on all correspondence received from and all submissions to be made to any government patent office or authority with respect to any such patent application or patent. Trubion shall reasonably consider and address Wyeth's comments on such correspondence and submissions. Each Party shall be responsible for *** of Trubion's out-of-pocket expenses incurred in connection with preparing, filing, prosecuting and maintaining such Product-Related Patent Rights throughout the Territory, including, but not limited to, out-of-pocket expenses for inventorship determinations and inventorship disputes (other than between the Parties); provided, however, that in the event Trubion grants a license(s) in a given country or countries to one or more Third Parties under any patent application or patent that is included in the Product-Related Patent Rights, Wyeth shall be responsible for a pro rata portion, based on a total number of parties that includes Trubion, Wyeth and all Third Party licensees under such patent application or patent (e.g., if there are two (2) Third Party licensees in addition to Wyeth and Trubion, then Wyeth shall be responsible for twenty-five 53 REDACTED COPY percent (25%)), of Trubion's out-of-pocket expenses incurred in a given country in connection with preparing, filing, prosecuting and maintaining such patent application or patent. (As used in this Article 6, "out-of-pocket expenses" shall be deemed to include, without limitation, reasonable attorneys' fees.) Wyeth shall reimburse Trubion on a quarterly basis within *** of receiving an invoice accompanied by supporting documentation demonstrating the out-of-pocket expenses so incurred. On an annual basis, during the last Calendar Quarter of each year, Trubion shall provide Wyeth with a good faith, written estimate of the out-of-pocket expenses reimbursable by Wyeth under this Section 6.2.1(a) that Trubion expects to incur in the following calendar year. In addition, if Trubion elects not to file a patent application on Trubion Know-How that, if filed, would be a Product-Related Patent Right, or to cease the prosecution and/or maintenance of any Product-Related Patent Rights, (except for abandonment of a patent application in favor of a patent application subsequently filed for purposes of continuing the prosecution of Patent Rights claiming the inventions included in the abandoned patent application), Trubion shall provide Wyeth with written notice immediately upon the decision to not file or continue the prosecution of such patent application or maintenance of such patent. In such event, Trubion shall permit Wyeth, at Wyeth's sole discretion, to file and/or continue prosecution and/or maintenance of such Product-Related Patent Right on Trubion's behalf and at Wyeth's own expense. If Wyeth elects to file or to continue such prosecution or maintenance, it shall notify Trubion in writing of such decision within *** of receipt of Trubion's written notice, in which case Trubion shall assign to Wyeth such Product-Related Patent Right abandoned by Trubion and shall execute such documents and perform such acts, at Wyeth's expense, as may be reasonably necessary to permit Wyeth to file, prosecute and/or maintain such Product-Related Patent Right. In the event that Wyeth files or continues the prosecution or maintenance of any such Product-Related Patent Right pursuant to this Section 6.2.1(a), then Wyeth 54 REDACTED COPY shall no longer be obligated to pay to Trubion any royalty payments that would be due solely with respect to such Product-Related Patent Right. (b) WYETH PATENT RIGHTS. Subject to Section 6.2.1(d), and except with respect to Covered SMIP Improvements, Wyeth, at its own expense, shall have the sole right, but not the obligation, to prepare, file, prosecute and maintain, throughout the Territory, all Wyeth Patent Rights, using patent counsel of Wyeth's choice. (c) JOINT PATENT RIGHTS. Subject to Section 6.2.1(d), in the event the Parties make any Joint Invention (excluding a Covered SMIP Improvement), the Joint Patent Committee shall promptly meet to discuss and determine whether to seek patent protection thereon. If the Joint Patent Committee decides to seek patent protection on such Joint Invention, then Wyeth shall have the primary obligation to prepare, file, prosecute and maintain any corresponding Joint Patent Rights throughout the Territory using patent counsel mutually agreeable to the Parties, such agreement not to be unreasonably withheld. Wyeth shall give Trubion a reasonable opportunity to review and comment on the text of any patent application with respect to such Joint Patent Right before filing, shall consult with Trubion with respect thereto, shall reasonably consider and address any of Trubion's comments, and shall supply Trubion with a copy of each such patent application as filed, together with notice of its filing date and serial number. Wyeth shall keep Trubion advised of the status of the actual and prospective patent filings (including, without limitation, the grant of any Joint Patent Rights), shall provide Trubion with a reasonable opportunity to comment on all correspondence received from and all proposed submissions to be made to any government patent office or authority related to the filing, prosecution and maintenance of such patent filings, shall consult with Trubion with respect thereto, and shall reasonably consider and address any of Trubion's comments on such correspondence and submissions. Trubion shall reimburse Wyeth for *** of the out-of-pocket expenses incurred by Wyeth in connection with preparing, filing, prosecuting and maintaining such Joint Patent Rights (other than out-of-pocket expenses for inventorship determinations and inventorship disputes), which reimbursement will be made within *** of receiving invoices, such invoices to be submitted by Wyeth no more often than once per Calendar Quarter and to be 55 REDACTED COPY accompanied by supporting documentation demonstrating and detailing the expenses so incurred. On an annual basis, during the last Calendar Quarter of each year, Wyeth shall provide Trubion with a good faith, written estimate of the out-of-pocket expenses reimbursable by Trubion under this Section 6.2.1(c) that Wyeth expects to incur in the following calendar year. If Wyeth elects not to file a patent application on any such Joint Patent Rights, or to cease the prosecution and/or maintenance of any such Joint Patent Rights (except for abandonment of a patent application in favor of a patent application subsequently filed for purposes of continuing the prosecution of Patent Rights claiming the inventions included in the abandoned patent application), Wyeth shall provide Trubion with written notice immediately upon the decision to not file or continue the prosecution of such patent application or maintenance of such patent. In such event, Wyeth shall permit Trubion, at Trubion's sole discretion, to file and/or continue prosecution and/or maintenance of such Joint Patent Rights at Trubion's own expense. If Trubion elects to continue such prosecution or maintenance, it shall notify Wyeth in writing of such decision within *** of receipt of Wyeth's written notice, in which case, Wyeth shall assign to Trubion such Joint Patent Rights abandoned by Wyeth and shall execute such documents and perform such acts, at Trubion's expense, as may be reasonably necessary to permit Trubion to file, prosecute and/or maintain such Joint Patent Rights. (d) CATEGORY 1 AND CATEGORY 2 COVERED SMIP IMPROVEMENTS. (i) CATEGORY 1 COVERED SMIP IMPROVEMENTS. In the event that Wyeth makes any Category 1 Covered SMIP Improvement (whether it is an invention solely by Wyeth or a Joint Invention), Trubion shall have the first right and primary obligation to prepare, file, prosecute and maintain any Patent Rights covering such Category 1 Covered SMIP Improvement, using patent counsel mutually agreeable to the Parties, such agreement not to be unreasonably withheld. Trubion shall give Wyeth a reasonable opportunity to review and comment on the text of any patent application with respect to such Category 1 Covered SMIP Improvement before filing, shall consult with Wyeth with respect thereto, shall reasonably consider and address any of Wyeth's comments, and shall supply 56 REDACTED COPY Wyeth with a copy of the patent application as filed, together with notice of its filing date and serial number. Trubion shall keep Wyeth advised of the status of the actual and prospective patent filings (including, without limitation, the grant of any Patent Rights covering such Category 1 Covered SMIP Improvements), shall provide Wyeth with a reasonable opportunity to comment on all correspondence received from and all proposed submissions to be made to any government patent office or authority related to the filing, prosecution and maintenance of such patent filings, shall consult with Wyeth with respect thereto, and shall reasonably consider and address any of Wyeth's comments on such correspondence and submissions. Each Party shall be responsible for *** of Trubion's out-of-pocket expenses incurred in connection with preparing, filing, prosecuting and maintaining such Category 1 Covered SMIP Improvement-related Patent Rights throughout the Territory, other than out-of-pocket expenses for inventorship determinations and inventorship disputes. Wyeth shall reimburse Trubion on a quarterly basis within *** of receiving an invoice accompanied by supporting documentation demonstrating the out-of-pocket expenses so incurred. On an annual basis, during the last Calendar Quarter of each year, Trubion shall provide Wyeth with a good faith, written estimate of the out-of-pocket expenses reimbursable by Wyeth under this Section 6.2.1(d)(i) that Trubion expects to incur in the following calendar year. In addition, if Trubion elects not to file a patent application on a Category 1 Covered SMIP Improvement, or to cease the prosecution and/or maintenance of any Category 1 Covered SMIP Improvement-related Patent Right (except for abandonment of a patent application in favor of a patent application subsequently filed for purposes of continuing the prosecution of Patent Rights claiming the inventions included in the abandoned patent application), Trubion shall provide Wyeth with written notice immediately upon the decision to not file or continue the prosecution of such patent application or maintenance of such patent. If Wyeth elects to continue such prosecution or maintenance, it shall notify Trubion in writing of such decision within *** of receipt of Trubion's written notice, in which case Trubion shall assign to 57 REDACTED COPY Wyeth the right to file, prosecute and maintain such Category 1 Covered SMIP Improvement-related Patent Right, and shall execute such documents and perform such acts, at Wyeth's expense, as may be reasonably necessary to permit Wyeth to file, prosecute and/or maintain such Category 1 Covered SMIP Improvement-related Patent Right. In the event that Wyeth continues the prosecution or maintenance of any Category 1 Covered SMIP Improvement-related Patent Right pursuant to this Section 6.2.1(d)(i), Wyeth shall do so at its own expense, and Wyeth shall no longer be obligated to pay to Trubion any royalty payments that would be due solely with respect to any such Category 1 Covered SMIP Improvement-related Patent Right. (ii) CATEGORY 2 COVERED SMIP IMPROVEMENTS. In the event that Wyeth makes any Category 2 Covered SMIP Improvement (whether it is an invention solely by Wyeth or a Joint Invention), Wyeth shall have the first right and primary obligation to prepare, file, prosecute and maintain any Patent Rights covering such Category 2 Covered SMIP Improvement, at its own expense, using patent counsel mutually agreeable to the Parties, such agreement not to be unreasonably withheld. Wyeth shall give Trubion a reasonable opportunity to review and comment on the text of any patent application with respect to such Category 2 Covered SMIP Improvement before filing, shall consult with Trubion with respect thereto, shall reasonably consider and address any of Trubion's comments, and shall supply Trubion with a copy of the patent application as filed, together with notice of its filing date and serial number. Wyeth shall keep Trubion advised of the status of the actual and prospective patent filings (including, without limitation, the grant of any Patent Rights covering such Category 2 Covered SMIP Improvement), shall provide Trubion with a reasonable opportunity to comment on all correspondence received from and all proposed submissions to be made to any government patent office or authority related to the filing, prosecution and maintenance of such patent filings, shall consult with Trubion with respect thereto, and shall reasonably consider and address any of Trubion's comments on such correspondence and submissions. If Wyeth elects not to file a patent application on a 58 REDACTED COPY Category 2 Covered SMIP Improvement, or to cease the prosecution and/or maintenance of any Category 2 Covered SMIP Improvement-related Patent Right (except for abandonment of a patent application in favor of a patent application subsequently filed for purposes of continuing the prosecution of Patent Rights claiming the inventions included in the abandoned patent application), Wyeth shall provide Trubion with written notice immediately upon the decision to not file or continue the prosecution of such patent application or maintenance of such patent. If Trubion elects to continue such prosecution or maintenance, it shall notify Wyeth in writing of such decision within *** of receipt of Wyeth's written notice, in which case Wyeth shall assign to Trubion such Category 2 Covered SMIP Improvement-related Patent Right abandoned by Wyeth and shall execute such documents and perform such acts, at Trubion's expense, as may be reasonably necessary to permit Trubion to file, prosecute and/or maintain such Category 2 Covered SMIP Improvement-related Patent Right. 6.2.2. ENFORCEMENT OF PATENT RIGHTS. (a) NOTICE. If either Wyeth or Trubion becomes aware of any infringement, anywhere in the Territory, of any issued patent within the Trubion Patent Rights (including Product-Related Patent Rights), Wyeth Patent Rights or Joint Patent Rights, which infringing activity adversely affects or is reasonably expected to adversely affect any SMIP or Licensed Product hereunder, it will promptly notify the other Party in writing to that effect and the Parties will consult with each other through the Joint Patent Committee regarding any actions to be taken with respect to such infringing activity; provided, however, that neither Party is obligated to disclose confidential information of a Third Party (other than a sublicensee under this Agreement, to the extent such Party is permitted to do so under the terms of the sublicense). (b) PRODUCT-RELATED PATENT RIGHTS. To the extent permitted under the Trubion Third Party Agreements, if applicable, Wyeth shall have the first right, but not the obligation, to take action to obtain a discontinuance of infringement or bring suit against a Third Party infringer of Product-Related Patent Rights under which Wyeth has an exclusive license 59 REDACTED COPY to make, use and sell Licensed Products under this Agreement, to the extent such infringement involves a product directed against a Licensed Target. Wyeth shall have such first right within three (3) months from the date of notice and the right to join Trubion as a party plaintiff. Wyeth shall be responsible for, and shall bear, all the out-of-pocket expenses of any suit brought by it claiming infringement of any such Product-Related Patent Rights; provided that Trubion shall reimburse Wyeth for *** of the out-of-pocket expenses incurred in connection therewith. Trubion will cooperate with Wyeth in any such suit and shall have the right to consult with Wyeth and to participate in and be represented by independent counsel in such litigation at its own expense. Wyeth shall incur no liability to Trubion as a consequence of such litigation or any unfavorable decision resulting therefrom, including any decision holding any of the Product-Related Patent Rights invalid or unenforceable. Any recoveries obtained by Wyeth as a result of any proceeding against such Third Party infringer shall be allocated as follows: (i) Such recovery shall first be used to reimburse each Party for all out-of-pocket litigation expenses in connection with such litigation paid by that Party; and (ii) With respect to any remaining recovery, *** shall go to Wyeth and *** shall go to Trubion. If, after the expiration of the three (3) month period (or, if earlier, the date upon which Wyeth provides written notice that it does not plan to bring suit), Wyeth has not obtained a discontinuance of such infringement of Product-Related Patent Rights or filed suit against any such Third Party infringer hereunder, then Trubion shall have the right, but not the obligation, to bring suit against such Third Party infringer of the Product-Related Patent Rights under which Wyeth has an exclusive license under this Agreement, provided that each Party shall bear *** of the out-of-pocket expenses of such suit. Wyeth will cooperate with Trubion in any such suit for infringement of such Product-Related Patent Rights brought by Trubion against a Third Party, and shall have the right to consult with Trubion and to participate in and be represented by independent counsel in such litigation at its own expense. Trubion shall incur no liability to Wyeth as a consequence of such litigation or any 60 REDACTED COPY unfavorable decision resulting therefrom, including any decision holding any of the Product-Related Patent Rights invalid or unenforceable. Any recoveries obtained by Trubion as a result of any such proceeding against a Third Party infringer shall be allocated as follows: (iii) Such recovery shall first be used to reimburse each Party for all out-of-pocket litigation expenses in connection with such litigation paid by that Party; and (iv) With respect to any remaining recovery, *** shall go to Trubion. (c) JOINT PATENT RIGHTS. With respect to any notice of a Third Party infringer of the Joint Patent Rights, the Joint Patent Committee shall meet as soon as reasonably practicable to discuss such infringement and determine an appropriate course of action. Wyeth shall have the first right but not the obligation to bring an action against such Third Party infringer or otherwise address such alleged infringement within *** from the date of notice and to control such litigation or other means of addressing such infringement. Wyeth shall be responsible for, and shall bear, all the out-of-pocket expenses of any suit brought by it claiming infringement of any such Joint Patent Rights; provided that Trubion shall reimburse Wyeth for *** of the out-of-pocket expenses incurred in connection therewith. Trubion shall cooperate with Wyeth, at Wyeth's expense, in any such suit brought by Wyeth and shall have the right to consult with Wyeth and participate in and be represented by independent counsel in such litigation at its own expense. Wyeth shall incur no liability to Trubion as a consequence of such litigation or any unfavorable decision resulting therefrom, including any decision holding any of the Joint Patent Rights invalid or unenforceable. Any recoveries obtained by Wyeth as a result of any proceeding against such Third Party infringer shall be allocated as follows: (i) Such recovery shall first be used to reimburse each Party for all out-of-pocket litigation expenses in connection with such litigation paid by that Party; and (ii) With respect to any remaining recovery, *** shall go to Wyeth and *** shall go to Trubion. 61 REDACTED COPY If, after the expiration of the three (3) month period (or, if earlier, the date upon which Wyeth provides written notice that it does not plan to bring suit) Wyeth elects not to take action against a Third Party infringer of the Joint Patent Rights and Trubion elects to bring an action, then Wyeth shall cooperate, at Trubion's expense, in such action. Trubion shall incur no liability to Wyeth as a consequence of such litigation or any unfavorable decision resulting therefrom, including any decision holding any of the Joint Patent Rights invalid or unenforceable. Any recoveries obtained by Trubion shall go to Trubion. 6.2.3. INFRINGEMENT AND THIRD PARTY LICENSES. (a) INFRINGEMENT OF THIRD PARTY PATENTS - COURSE OF ACTION. If the research, Development, Manufacture or Commercialization of any Licensed Product is alleged by a Third Party to infringe a Third Party's patent, the Party becoming aware of such allegation shall promptly notify the other Party. Additionally, if either Party determines (with consultation by the Joint Patent Committee) that, based upon the review of a Third Party's patent or patent application or other intellectual property rights, it may be desirable to obtain a license from such Third Party with respect thereto, such Party shall promptly notify the other Party of such determination. In the event Wyeth determines, after good faith consultation with Trubion through the Joint Patent Committee, that it is necessary or useful to obtain licenses under intellectual property rights from Third Parties ("Additional Third Party Licenses") in order to Develop, Manufacture or Commercialize Licensed Products under this Agreement, Wyeth shall be solely responsible for negotiating and obtaining any such Additional Third Party Licenses, but shall not be obligated to do so. Trubion may elect, in its sole discretion, to obtain one or more Third Party licenses that are applicable to Trubion Technology in general but are not Licensed Product-specific ("Trubion Additional Third Party Licenses"); if Trubion so elects, then Trubion shall be solely responsible for negotiating and obtaining any such licenses, but shall not be obligated to do so. (b) THIRD PARTY INFRINGEMENT SUIT. If a Third Party sues a Party (the "Sued Party") alleging that the Sued Party or its Affiliates' or sublicensees' research, Development, 62 REDACTED COPY Manufacture or Commercialization of any Licensed Product during the term of and pursuant to this Agreement infringes or will infringe said Third Party's patent, then, upon the Sued Party's request and in connection with the Sued Party's defense of any such Third Party infringement suit, the other Party shall provide reasonable assistance to the Sued Party for such defense. If both Wyeth and Trubion are sued by a Third Party, then the Parties shall consult with one another through the Joint Patent Committee. Unless otherwise determined by the Joint Patent Committee, Wyeth will control the defense of any suit relating to Licensed Products (whether one or both Parties are Sued Parties) and shall select counsel for such suit after consultation through the Joint Patent Committee. Trubion shall have the right to participate in and be represented by independent counsel in such litigation at its own expense. If the alleged infringement is of claims related to the Trubion Technology utilized by Wyeth hereunder, Wyeth shall be responsible for, and shall bear, all the out-of-pocket expenses of such actions; provided that Trubion shall reimburse Wyeth for *** of the out-of-pocket expenses incurred in connection therewith. In the event Trubion is the Party paying such expenses, Trubion shall periodically, but no more than once per Calendar Quarter, invoice Wyeth for its *** share of expenses incurred. All invoices shall be accompanied by supporting documentation reasonably showing the expenses so incurred. Such invoices shall be paid within *** of receipt. In the event Wyeth is the Party paying such expenses, Wyeth shall receive a credit in the amount of Trubion's share of such expenses, which credit shall be applied to royalties due to Trubion under Section 5.4, as adjusted under Section 5.4.6; provided that, no such royalty payment to Trubion shall be reduced by more than *** in any Calendar Quarter as a result of such credit. Any portion of the credit not utilized due to the limitations of the preceding sentence shall be carried over and credited to future royalty payments. (c) INTERFERENCE, OPPOSITION, REVOCATION, AND DECLARATORY JUDGMENT ACTIONS. If the Parties, through the Joint Patent Committee, mutually determine that, based upon the review of a Third Party's patent or patent application or other intellectual property rights, it may be desirable to provoke or institute an interference, opposition, revocation or declaratory judgment action with respect thereto, then the Parties shall consult with one another and shall reasonably 63 REDACTED COPY cooperate in connection with such an action. Unless otherwise determined by the Joint Patent Committee, Wyeth will control such action and shall select counsel for such action. Wyeth shall be responsible for, and shall bear, all the out-of-pocket expenses of such action; provided that Trubion shall reimburse Wyeth for *** of the out-of-pocket expenses incurred in connection therewith. Wyeth shall submit invoices to Trubion for such expenses, such invoices to be accompanied by supporting documentation reasonably showing the expenses so incurred. Trubion shall have the right to participate in and be represented by independent counsel in such action at its own expense. 6.2.4. PATENT CERTIFICATIONS. Each Party shall immediately give written notice to the other of any certification of which it becomes aware filed pursuant to 21 U.S.C. Section 355(b)(2)(A) or Section 355(j)(2)(A)(vii) (or any amendment or successor statute thereto), any similar statutory or regulatory requirement enacted in the future regarding biologic products, or any similar statutory or regulatory requirement in any non-U.S. country in the Territory claiming that a Joint Patent Right, Wyeth Patent Right or a Trubion Patent Right covering a Licensed Product is invalid or that infringement will not arise from the Manufacture, use or sale of a product by a Third Party. Upon the giving or receipt of such notice, Wyeth shall have the first right, but not the obligation, to bring an infringement action against such Third Party. In such a case, Wyeth shall notify Trubion at least ten (10) days prior to the date set forth by statute or regulation of its intent to exercise, or not exercise, this right. Any infringement action against a Third Party arising under this Section 6.2.4 shall be governed by the provisions of Section 6.2.2(b) hereof. 6.2.5. PATENT TERM RESTORATION. The Parties hereto shall cooperate with each other in obtaining patent term restoration, or its equivalent anywhere in the Territory, including under 35 U.S.C. Section 156 and its foreign counterparts, where applicable to the Trubion Patent Rights, Wyeth Patent Rights and Joint Patent Rights. If elections with respect to obtaining such patent term restoration are to be made, Wyeth shall make such election (after consultation with Trubion through the Joint Patent Committee) and Trubion shall abide by such election. 6.3. TRADEMARKS. Wyeth shall, in its sole discretion select and own all Licensed Product-related Trademarks, trade dress, logos and copyrights and names to be used in connection with the Commercialization of any Licensed Product hereunder. Trubion shall neither use nor seek to register, anywhere in the Territory, any trademarks which are confusingly similar to 64 REDACTED COPY any Trademark or any other trademarks, trade names, trade dress or logos used by or on behalf of Wyeth or its sublicensees in connection with any Licensed Product; provided, however, that nothing in this Section 6.3 shall be construed to prevent Trubion from enforcing its own trademark, trade name, trade dress or logo rights or affect the Parties' obligations under Section 4.13. 7. CONFIDENTIALITY. 7.1. CONFIDENTIALITY. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing, the Parties agree that, for the term of this Agreement and for *** thereafter, each Party (the "Receiving Party"), receiving any Confidential Information of the other Party (the "Disclosing Party") hereunder shall keep such Confidential Information confidential and shall not publish or otherwise disclose or use such Confidential Information for any purpose other than as provided for in this Agreement except for Confidential Information that the Receiving Party can establish: (a) was already known by the Receiving Party (other than under an obligation of confidentiality), at the time of disclosure by the Disclosing Party and such Receiving Party has documentary evidence to that effect; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure or development, as the case may be, and other than through any act or omission of a Party in breach of this confidentiality obligation; (d) was disclosed to that Party, other than under an obligation of confidentiality, by a Third Party who had no obligation to the Disclosing Party not to disclose such information to others; or (e) was independently discovered or developed by or on behalf of the Receiving Party without the use of the Confidential Information belonging to the other Party and the Receiving Party has documentary evidence to that effect. 7.2. AUTHORIZED DISCLOSURE AND USE. 7.2.1. DISCLOSURE. Notwithstanding the foregoing Section 7.1, each Party may disclose Confidential Information belonging to the 65 REDACTED COPY other Party to the extent such disclosure is reasonably necessary to: (a) file or prosecute patent applications covering Trubion Know-How, Wyeth Know-How or Joint Know-How as contemplated by this Agreement, in a manner consistent with decisions and recommendations of the Joint Patent Committee under Article 6, if the affected Party consents to such disclosure (such consent not to be unreasonably withheld or delayed); provided that a disclosure of a Party's Confidential Information under this Section 7.2.1(a) shall be treated as a publication under Section 7.4.3, and shall be subject to the requirements of advance notice, review period and opportunity to file patent application(s), as set forth in Section 7.4.3, (b) prosecute or defend litigation, (c) exercise rights hereunder provided such disclosure is covered by terms of confidentiality similar to those set forth herein, (d) facilitate discussions with prospective investors (other than pharmaceutical or biotechnology companies) in connection with financing arrangements (not involving any license, collaboration or other arrangement relating to such Party's technology or products) or a proposed acquisition of such Party, subject to appropriate confidentiality agreements and limiting such disclosure to disclosure of the terms and conditions of this Agreement and Know-How to the extent contained in such Party's patent applications; and (e) comply with applicable governmental laws and regulations. In the event that a Party shall reasonably deem it necessary to disclose, pursuant to this Section 7.2.1, Confidential Information belonging to the other Party, the Disclosing Party shall to the extent possible give reasonable advance notice of such disclosure to the other Party and take reasonable measures to ensure confidential treatment of such information. 7.2.2. USE. Notwithstanding the foregoing Section 7.1, each Party shall have the right to use Confidential Information of the other Party in carrying out its responsibilities under this Agreement in the research, Development, Manufacture and Commercialization of Licensed Products. 66 REDACTED COPY 7.3. SEC FILINGS. Either Party may disclose the terms of this Agreement to the extent required, in the reasonable opinion of such Party's legal counsel, to comply with applicable laws, including, without limitation, the rules and regulations promulgated by the United States Securities and Exchange Commission. Notwithstanding the foregoing, before disclosing this Agreement or any of the terms hereof pursuant to this Section 7.3, the Parties will reasonably consult with one another on the terms of this Agreement to be redacted in making any such disclosure. If a Party discloses this Agreement or any of the terms hereof in accordance with this Section 7.3, such Party agrees, at its own expense, to seek confidential treatment of portions of this Agreement or such terms, as may be reasonably requested by the other Party. 7.4. PUBLIC ANNOUNCEMENTS; PUBLICATIONS. 7.4.1. COORDINATION. The Parties agree on the importance of coordinating their public announcements respecting this Agreement and the subject matter thereof (other than academic, scientific or medical publications that are subject to the publication provision set forth below). Trubion and Wyeth shall, from time to time, and at the request of the other Party, discuss and agree on the general information content relating to this Agreement (including relating to the Research Program and Development Program, and/or to research, Development, Manufacture and/or Commercialization of Licensed Products) which may be publicly disclosed (including, without limitation, by means of any printed publication or oral presentation). 7.4.2. ANNOUNCEMENTS. Except as may be expressly permitted under Section 7.3 or Section 7.4.3 or as may be appropriate for Wyeth to make in connection with its Commercialization activities as contemplated hereunder, subject to Sections 7.1 and 7.2 hereof, neither Party will make any public announcement regarding this Agreement, the Research Program or the Development Program, and/or the research, Development, Manufacturing or Commercialization of Licensed Products without the prior written approval of the other Party. 7.4.3. PUBLICATIONS. During the term of this Agreement, each Party will submit to the other Party for review and approval all proposed academic, scientific and medical publications and public presentations relating to the Research Program, the Development Program and/or to the research, Development, Manufacture and/or Commercialization of any Licensed Product, or any proposed disclosure under Section 7.2.1(a), for review in connection with preservation of Patent Rights and/or to determine whether any of such other Party's Confidential 67 REDACTED COPY Information should be modified or deleted. Written copies of such proposed publications and presentations shall be submitted to the non-publishing Party no later than thirty (30) days before submission for publication or presentation and the non-publishing Party shall provide its comments with respect to such publications and presentations within fifteen (15) business days of its receipt of such written copy. The review period may be extended for an additional thirty (30) days in the event the non-publishing Party can demonstrate reasonable need for such extension, including, but not limited to, the preparation and filing of patent applications. By mutual agreement, this period may be further extended. Wyeth and Trubion will each comply with standard academic practice regarding authorship of scientific publications and recognition of contribution of other parties in any publications relating to the Research Program, the Development Program and/or to the research, Development, Manufacture and/or Commercialization of any Licensed Product. 8. REPRESENTATIONS AND WARRANTIES. 8.1. REPRESENTATIONS AND WARRANTIES OF EACH PARTY. Each of Trubion and Wyeth hereby represents and warrants to the other Party hereto as follows: (a) it is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation or formation; (b) the execution, delivery and performance of this Agreement by such Party has been duly authorized by all requisite corporate action and does not require any shareholder action or approval; (c) it has the power and authority to execute and deliver this Agreement and to perform its obligations and to grant the licenses granted by it to the other Party pursuant to this Agreement; (d) the execution, delivery and performance by such Party of this Agreement and its compliance with the terms and provisions hereof does not and will not conflict with or result in a breach of any of the terms and provisions of or constitute a default under (i) any agreement or instrument binding or affecting it or the subject matter of this Agreement; (ii) the provisions of its charter or operative documents or bylaws; or (iii) any order, writ, injunction or decree of any court or governmental authority entered 68 REDACTED COPY against it or by which any of its property is bound, except where such conflict, breach or default would not materially impact (A) the Party's ability to meet its obligations hereunder or (B) the rights granted to the other Party hereunder; and (e) it has not granted to any Third Party any right or license which would conflict in any material respect with the rights granted by it to the other Party hereunder. 8.2. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF TRUBION. In addition to the representations and warranties made by Trubion in Section 8.1, Trubion, subject to Section 8.7, hereby represents and warrants to Wyeth that as of the Signing Date: (a) except as disclosed in Exhibit 8.2(d) attached hereto, Trubion is the sole and exclusive owner of the Trubion Patent Rights and Trubion has not placed, or suffered to be placed, any liens, charges or encumbrances on or against the Trubion Patent Rights; (b) Exhibit 1.129 is a true and complete list of Trubion Patent Rights that pertain to Licensed Products, provided that an inadvertent omission from such list may be cured by amending Exhibit 1.129; (c) the Trubion Patent Rights are existing and, to Trubion's knowledge, no issued or granted patents within the Trubion Patent Rights are invalid or unenforceable; (d) ***; (e) except as set forth in Exhibit 8.2(e) attached hereto, no Trubion Patent Right listed in Exhibit 1.129 attached hereto is subject to any funding agreement with any government or government agency; (f) Trubion has received no written notice alleging infringement of a Third Party Patent Right in connection with its research and Development of SMIPs directed against a Trubion Target, and Trubion has disclosed to Wyeth all material information of which Trubion is aware as to whether the research, Development, Manufacture, use or sale of SMIPs directed against a Trubion Target, in the form that is the subject of the clinical studies ongoing as of the Signing Date, if such SMIPs were researched, Developed, Manufactured, used or sold as of the Signing 69 REDACTED COPY Date, infringes or would infringe issued or granted patents owned by a Third Party as of the Signing Date; (g) the Trubion Patent Rights are not subject to any litigation, judgments or settlements against or owed by Trubion, nor has Trubion received written notice of any threats of such litigation; (h) Trubion is in compliance in all material respects with all agreements with Third Parties relating to Licensed Products that are sublicensed to Wyeth hereunder; (i) *** (j) the Trubion Patent Rights are not the subject of any interference, opposition, reissue or reexamination proceeding in the United States or, to the knowledge of Trubion, any opposition proceeding outside of the United States. 8.3. MUTUAL COVENANT. Each Party covenants to the other Party that it shall at all times comply with all applicable material laws and regulations relating to its activities under this Agreement. 8.4. ADDITIONAL COVENANTS OF TRUBION. During the term of this Agreement, Trubion will use diligent efforts not to materially breach any agreement between Trubion and a Third Party that provides Trubion Patent Rights pertaining to the research, Development, Manufacture or Commercialization of any Licensed Product, and it will provide Wyeth promptly with notice of any such alleged breach. ***. During the term of this Agreement, Trubion will not knowingly use any Know-How misappropriated from a Third Party in connection with any Licensed Product being provided for Commercialization under this Agreement. 8.5. REPRESENTATION BY LEGAL COUNSEL. Each Party hereto represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting hereof. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption shall exist or be implied against the Party which drafted such terms and provisions. 8.6. NO INCONSISTENT AGREEMENTS. Neither Party has in effect and after the Signing Date neither Party shall enter into any oral or written agreement or arrangement that would be inconsistent with its obligations under this Agreement. 8.7. DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN SECTIONS 8.1, 8.2 AND 8.5, THE PARTIES MAKE NO 70 REDACTED COPY REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, AND PARTICULARLY THAT LICENSED PRODUCTS WILL BE SUCCESSFULLY DEVELOPED HEREUNDER, AND IF LICENSED PRODUCTS ARE DEVELOPED, WITH RESPECT TO SUCH LICENSED PRODUCTS, THE PARTIES DISCLAIM ALL IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 9. GOVERNMENT APPROVALS; TERM AND TERMINATION. 9.1. HSR FILING. Each Party shall be responsible for its own costs, expenses, and filing fees associated with any HSR Filing; provided, however, that Wyeth shall be solely responsible for any fees (other than penalties that may be incurred as a result of actions or omissions on the part of Trubion) required to be paid to any government agency in connection with making any such HSR Filing. 9.2. OTHER GOVERNMENT APPROVALS. Trubion and Wyeth will cooperate and use respectively all reasonable efforts to make all registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby. 9.3. TERM. The term of this Agreement will commence on the Signing Date and shall extend, unless this Agreement is terminated earlier in accordance with this Article 9, on a Licensed Product by Licensed Product and country by country basis until such time as the Royalty Period with respect to the sale of such Licensed Product in such country expires. 9.4. TERMINATION UPON HSR DENIAL. This Agreement shall terminate (a) at Wyeth's option, immediately upon written notice to Trubion, in the event that the United States Federal Trade Commission and/or the United States Department of Justice shall seek a preliminary injunction under the HSR Act against Trubion and Wyeth to enjoin the transactions contemplated by this Agreement, (b) at the election of either Party, immediately upon written notice to the other Party, in the event that the United States Federal Trade Commission and/or the United States Department of Justice shall obtain a preliminary injunction under the HSR Act against Trubion and Wyeth to enjoin the transactions contemplated by this Agreement, or (c) at the election of either Party, immediately upon written notice to the other Party, in the event that the HSR Clearance Date shall not have occurred on or prior to *** after the effective date of the HSR Filing. 71 REDACTED COPY 9.5. MATERIAL BREACH. In the event that either Party commits a material breach of its representations, warranties or obligations under this Agreement, the other Party may terminate this Agreement (a) on a Licensed Target by Licensed Target and country by country basis, to the extent that such material breach relates to Licensed Product(s) directed against such Licensed Target(s) in such country(ies) or (b) in its entirety only if such material breach fundamentally frustrates the objectives or transactions contemplated by this Agreement taken as a whole. If a Party elects to exercise such right to terminate, it shall do so by providing written notice of the alleged breach (the "Notice of Breach") to the breaching Party. If such material breach pertains to the payment of undisputed amounts payable under this Agreement and remains uncured for *** after the breaching Party's receipt of such Notice of Breach or, if such material breach pertains to another material breach (other than for non-payment) and remains uncured for *** after the breaching Party's receipt of such Notice of Breach, then the non-breaching Party may terminate this Agreement, as and to the extent permitted in (a) or (b) above, on *** notice by giving a written notice of termination ("Notice of Termination") to the breaching Party; provided, however, that if such breach (other than for non-payment) is not susceptible to cure within the initial *** period and the breaching Party uses continuous, diligent, good faith efforts to cure such breach, it shall document such efforts by written notice to the non-breaching Party on or before the end of such *** period, and the stated cure period will be extended by an additional ***. This Agreement shall be deemed terminated (as and to the extent permitted in (a) or (b) above) *** after the breaching Party's receipt of such Notice of Termination, unless the breaching Party has fully cured the breach prior to the expiration of such *** period. In the event that Trubion is the breaching Party and fails to cure any such material breach within the applicable time period(s) set forth above, Wyeth, within *** after the expiration of the cure period for such breach, may elect, in lieu of terminating this Agreement, by written notice to Trubion (a "Notice of Modification"), to modify the terms of this Agreement, as (and only to the extent) provided in Section 9.8, on a Licensed Target-by-Licensed Target and country-by-country basis (but only to the extent such material breach relates to Licensed Product(s) directed against such Licensed Target(s) in such country(ies)), in which event, Wyeth shall be deemed to have waived its right to terminate this Agreement under this Section 9.5 with respect to such Licensed Target(s) in such country(ies) only with respect to the material breach giving rise to such action under this Section 9.5. Notwithstanding the foregoing, a Party shall not be in breach of its obligations under this Agreement to the extent that such breach was caused by the other Party's failure to perform its obligations hereunder. 9.6. TERMINATION BY WYETH. 72 REDACTED COPY 9.6.1. TERMINATION WITHOUT CAUSE. Commencing on the second anniversary of the Effective Date, Wyeth shall have the right, exercisable upon ninety (90) days prior written notice to Trubion, to terminate this Agreement either (a) in its entirety, or (b) on a Licensed Target by Licensed Target and country by country basis. Wyeth's rights under this Section 9.6.1 are separate from and in addition to its rights to terminate the Research Program under Section 3.3.2 hereof. 9.6.2. TERMINATION FOR A MATERIAL SAFETY OR REGULATORY ISSUE. Wyeth shall have the right to terminate this Agreement, at any time, on a Licensed Target by Licensed Target basis, by giving *** prior written notice to Trubion in the event of any safety or regulatory issue that would have a material adverse effect on Wyeth's ability to research, Develop, Manufacture or Commercialize any Licensed Product directed against such Licensed Target, as determined in Wyeth's reasonable judgment and according to Wyeth's standard internal procedures for evaluating such safety or regulatory issues. Effects of such termination shall be as set forth in Section ***. 9.7. EFFECTS OF TERMINATION. 9.7.1. EFFECT OF TERMINATION BY WYETH FOR CAUSE. (a) Without limiting any other legal or equitable remedies that Wyeth or Trubion may have, subject to Section 11.3, if this Agreement is terminated in its entirety by Wyeth for cause under Section 9.5, the following provisions shall apply: (i) all licenses granted by each Party to the other Party under this Agreement shall terminate (except as provided in Section 9.7.10 below); (ii) during the *** period after the effective date of such termination, Trubion shall have the right to negotiate with Wyeth an agreement which grants to Trubion a non-exclusive license (with the right to grant sublicenses) to practice, use and exploit the Wyeth Applied Technology with respect to the research, Development, Manufacture and Commercialization of Licensed Products on commercially reasonable terms. If Trubion exercises such right, Wyeth shall negotiate the terms of such license with Trubion diligently and in good faith; provided that, if Trubion and Wyeth negotiate, but do not enter into, such non-exclusive license, Wyeth shall not enter into any agreement 73 REDACTED COPY granting a license to a Third Party under the Wyeth Applied Technology within *** after the end of such negotiations on terms more favorable to such Third Party than those last offered by Wyeth to Trubion, without first offering Trubion, for a period of not less than ***, the opportunity to review such terms after full disclosure thereof and enter into a non-exclusive license on such more favorable terms, and, if Trubion accepts such more favorable terms, the Parties shall promptly negotiate definitive agreements relating thereto; (iii) during the *** period after the effective date of such termination, Trubion shall have the right to negotiate with Wyeth for the transfer of Product Data and Filings to Trubion, and for the grant by Wyeth to Trubion of the right and license to use the Licensed Product-specific Trademarks and Product-specific names pertaining to the Licensed Product(s) as existing at the time of termination (collectively, "Existing Trademarks"), on commercially reasonable terms. If Trubion exercises such right, Wyeth shall negotiate the terms of such transfer and license with Trubion diligently and in good faith; provided that, if Trubion and Wyeth negotiate but do not enter into such an agreement, Wyeth shall not enter into any agreement granting such rights to a Third Party within *** after the end of such negotiation on terms more favorable to such Third Party than those last offered by Wyeth to Trubion, without first offering Trubion, for a period of not less than ***, the opportunity to review such terms after full disclosure thereof and enter into such an agreement on such more favorable terms, and, if Trubion accepts such more favorable terms, the Parties shall promptly negotiate definitive agreements relating thereto; and (iv) subject to the provisions of Section 9.9, this Agreement shall be of no further force or effect. (b) Without limiting any other legal or equitable remedies that Wyeth or Trubion may have, subject to Section 11.3, if this Agreement is terminated by Wyeth for cause under Section 9.5 with respect to a Licensed Target in all countries, but not in its entirety, the following provisions shall apply: 74 REDACTED COPY (i) if such Licensed Target is a Trubion Target, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (ii) if such Licensed Target is a Wyeth Target, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall continue, subject to Wyeth's option, exercisable in its sole discretion, to terminate the Research Program as follows: Wyeth shall exercise such option to terminate the Research Program (if it so elects) by a written statement to that effect included in Wyeth's Notice of Termination (described in Section 9.5 above). If Wyeth exercises such option to terminate the Research Program, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety *** after Trubion's receipt of such Notice of Termination; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (iii) if such terminated Licensed Target is the CD20 Antigen, Wyeth shall have no further obligation to reimburse Trubion under Section 4.6 with respect to expenses incurred after the effective date of termination; (iv) all licenses granted by each Party to the other Party under this Agreement with respect to Licensed Products directed against such Licensed Target shall terminate (except as provided in Section 9.7.10 below); (v) the provisions of Section 9.7.1(a)(ii), with such changes as are appropriate in the context of such limited termination, shall apply with respect to the Licensed Products directed against such Licensed Target; and (vi) the provisions of Section 9.7.1(a)(iii), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product 75 REDACTED COPY limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, relating to the Licensed Products directed against such Licensed Target. (c) Without limiting any other legal or equitable remedies that Wyeth or Trubion may have, subject to Section 11.3, if this Agreement is terminated by Wyeth for cause under Section 9.5 with respect to all Licensed Targets in a country, but not in its entirety, the following provisions shall apply: (i) if such country is a Major Market Country, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (ii) if such country is not a Major Market Country, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall continue, subject to Wyeth's option, exercisable in its sole discretion, to terminate the Research Program as follows: Wyeth shall exercise such option to terminate the Research Program (if it so elects) by a written statement to that effect included in Wyeth's Notice of Termination (described in Section 9.5 above). If Wyeth exercises such option to terminate the Research Program, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety *** after Trubion's receipt of such Notice of Termination; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (iii) all licenses granted by each Party to the other Party under this Agreement with respect to such country shall terminate (except as provided in Section 9.7.10 below); and (iv) the term "Territory" as used in this Agreement shall thereafter exclude such country; 76 REDACTED COPY (v) except as provided in Section 9.9, neither Wyeth nor Trubion shall have any further obligations under this Agreement with respect to such country; (vi) the provisions of Section 9.7.1(a)(ii), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Licensed Products in such country; and (vii) the provisions of Section 9.7.1(a)(iii), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, relating to Licensed Products in such country. 9.7.2. EFFECT OF TERMINATION BY TRUBION FOR CAUSE. (a) Without limiting any other legal or equitable remedies that Trubion or Wyeth may have, subject to Section 11.3, if this Agreement is terminated in its entirety by Trubion for cause under Section 9.5, the following provisions shall apply: (i) all licenses granted by each Party to the other Party under this Agreement shall terminate (except as provided in Section 9.7.10 below); (ii) Wyeth and Trubion shall, upon Trubion's request, such request made within ninety (90) days after such termination, enter into negotiations of a non-exclusive license from Wyeth to Trubion under which Wyeth will grant to Trubion a non-exclusive license (with the right to grant sublicenses) to practice, use and exploit the Wyeth Applied Technology with respect to the research, Development, Manufacture and Commercialization of Licensed Products as constituted at the time of termination of this Agreement. The Parties hereby agree that such license shall include, inter alia, provisions whereby Trubion shall agree (A) to comply with the applicable requirements of any Third Party license to which the use or exploitation of such Wyeth Applied Technology is subject including, but not limited to the payment of royalties; (B) with respect to any CD20 Products ***, to pay to Wyeth (I) if such termination occurs prior to BLA filing in a Major Market Country, royalties and Additional Research and Development Expense Payments in 77 REDACTED COPY amounts equal to *** of those amounts Wyeth would have been obligated to pay Trubion had this Agreement remained in full force and effect or (II) if such termination occurs after BLA filing in a Major Market Country, royalties and Additional Research and Development Expense Payments in amounts equal to *** of those amounts Wyeth would have been obligated to pay Trubion had this Agreement remained in full force and effect; (C) with respect to any Licensed Products other than CD20 Products ***; to pay to Wyeth royalties and other non-royalty payments on commercially reasonable terms; (D) that Trubion shall have no other financial obligations to Wyeth; (iii) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks) shall apply; (iv) the provisions of Section 9.7.8 (Manufacturing of Licensed Products After Termination) shall apply; and (v) subject to the provisions of Section 9.9, this Agreement shall be of no further force or effect. (b) Without limiting any other legal or equitable remedies that Trubion or Wyeth may have, subject to Section 11.3, if this Agreement is terminated by Trubion for cause under Section 9.5 with respect to a Licensed Target in all countries, but not in its entirety, the following provisions shall apply: (i) all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (ii) if such terminated Licensed Target is the CD20 Antigen, Wyeth shall have no further obligation to reimburse Trubion under Section 4.6 with respect to expenses incurred after the effective date of termination; (iii) all licenses granted by each Party to the other Party under this Agreement with respect to Licensed Products directed against such Licensed Target shall 78 REDACTED COPY terminate (except as provided in Section 9.7.10 below); (iv) the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology), with such changes as are appropriate in the context of such limited termination, shall apply to Licensed Products directed against such Licensed Target; (v) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, related to Licensed Products directed against such Licensed Target; and (vi) the provisions of Section 9.7.8 (Manufacturing of Licensed Products After Termination), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Licensed Products directed against such Licensed Target. (c) Without limiting any other legal or equitable remedies that Trubion or Wyeth may have, subject to Section 11.3, if this Agreement is terminated by Trubion for cause under Section 9.5 with respect to all Licensed Targets in a country, but not in its entirety, the following provisions shall apply: (i) all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; (ii) all licenses granted by each Party to the other Party under this Agreement with respect to such country shall terminate (except as provided in Section 9.7.10 below); (iii) the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology), with such changes as are 79 REDACTED COPY appropriate in the context of such limited termination, shall apply to a non-exclusive license to research, Develop, Manufacture and Commercialize Licensed Products in such country; (iv) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, related to Licensed Products in such country; and (v) the term "Territory" as used in this Agreement shall thereafter exclude such country. 9.7.3. EFFECT OF TERMINATION BY WYETH WITHOUT CAUSE. (a) If this Agreement is terminated in its entirety by Wyeth under Section 9.6.1, the following provisions shall apply: (i) all licenses granted by each Party to the other Party under this Agreement shall terminate (except as provided in Section 9.7.10 below); (ii) the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology) shall apply; (iii) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks) shall apply; (iv) the provisions of Section 9.7.8 (Manufacturing of Licensed Products After Termination) shall apply; and (v) subject to the provisions of Section 9.9, this Agreement shall be of no further force or effect. (b) If this Agreement is terminated by Wyeth under Section 9.6.1 with respect to a Licensed Target in all countries, but not in its entirety, the following provisions shall apply: (i) all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date 80 REDACTED COPY of such termination shall remain payable in accordance with the provisions of Article 3; (ii) if such terminated Licensed Target is the CD20 Antigen, Wyeth shall have no further obligation to reimburse Trubion under Section 4.6 with respect to expenses incurred after the effective date of termination; (iii) all licenses granted by each Party to the other Party under this Agreement with respect to Licensed Products directed against such Licensed Target shall terminate (except as provided in Section 9.7.10 below); (iv) the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology), with such changes as are appropriate in the context of such limited termination, shall apply to a non-exclusive license to research, Develop, Manufacture and Commercialize Licensed Products directed against such Licensed Target; (v) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, related to Licensed Products directed against such Licensed Target; and (vi) the provisions of Section 9.7.8 (Manufacturing of Licensed Products After Termination), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Licensed Products directed against such Licensed Target. (c) If this Agreement is terminated by Wyeth under Section 9.6.1 with respect to all Licensed Targets in a country, but not in its entirety, the following provisions shall apply: (i) if such country is a Major Market Country, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their entirety; provided that all amounts due for research performed and costs incurred prior to the date 81 REDACTED COPY of such termination shall remain payable in accordance with the provisions of Article 3; and if such country is not a Major Market Country, all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall continue; (ii) all licenses granted by each Party to the other Party under this Agreement with respect to such country shall terminate (except as provided in Section 9.7.10 below); (iii) the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology), with such changes as are appropriate in the context of such limited termination, shall apply to a non-exclusive license to research, Develop, Manufacture and Commercialize Licensed Products in such country; (iv) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, related to Licensed Products in such country; and (v) the term "Territory" as used in this Agreement shall thereafter exclude such country. 9.7.4. EFFECT OF TERMINATION BY WYETH FOR A MATERIAL SAFETY OR REGULATORY ISSUE. If this Agreement is terminated with respect to a Licensed Target by Wyeth under Section 9.6.2, the following provisions shall apply: (a) all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall continue; (b) if such terminated Licensed Target is the CD20 Antigen, Wyeth shall have no further obligation to reimburse Trubion under Section 4.6 with respect to with respect to expenses incurred after the effective date of termination; (c) all licenses granted by each Party to the other Party under this Agreement with respect to Licensed Products directed against such Licensed Target shall terminate (except as provided in Section 9.7.10 below); 82 REDACTED COPY (d) unless the basis of termination under Section 9.6.2 is the imposition of a clinical hold by a Regulatory Authority, a determination by Wyeth to place a hold on further clinical studies of a Licensed Product directed against such Licensed Target (such determination to be made by Wyeth in accordance with its standard procedures of addressing such safety issues) or a withdrawal of a Licensed Product from the market for patient safety reasons, whether voluntary or otherwise, the provisions of Section 9.7.2(a)(ii) (Wyeth's grant of a non-exclusive license to Trubion under Wyeth Applied Technology), with such changes as are appropriate in the context of such limited termination, shall apply to a non-exclusive license to research, Develop, Manufacture and Commercialize Licensed Products directed against such Licensed Target; (e) the provisions of Section 9.7.7 (Post-Termination Transfer of Product Data and Filings and Existing Trademarks), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Product Data and Filings, and Existing Trademarks, related to Licensed Products directed against such Licensed Target; and (f) unless the basis of termination under Section 9.6.2 is the imposition of a clinical hold by a Regulatory Authority, a determination by Wyeth to place a hold on further clinical studies of a Licensed Product directed against such Licensed Target (such determination to be made by Wyeth in accordance with its standard procedures of addressing such safety issues) or a withdrawal of a Licensed Product from the market for patient safety reasons, whether voluntary or otherwise, the provisions of Section 9.7.8 (Manufacturing of Licensed Products After Termination), with such changes as are appropriate in the context of such limited termination, shall apply with respect to Licensed Products directed against such Licensed Target. 9.7.5. POST-TERMINATION RIGHTS TO WYETH TECHNOLOGY AND TRUBION TECHNOLOGY. Except as otherwise expressly set forth in this Agreement, expiration or termination of this Agreement for any reason shall have no effect on Wyeth's rights with respect to the Wyeth Technology, and Trubion shall have no right, title or interest in or to any of the Wyeth Technology, and such expiration or termination shall have no effect on Trubion's rights with respect to the Trubion Technology, and Wyeth shall 83 REDACTED COPY have no right, title or interest in or to any of the Trubion Technology. 9.7.6. POST-TERMINATION LICENSES TO WYETH TECHNOLOGY. In the event that Wyeth grants to Trubion a license under any Wyeth Technology pursuant to Section 9.7.1, 9.7.2, 9.7.3 or 9.7.4, such license shall include, inter alia, provisions whereby Trubion shall agree to comply with the applicable requirements of any Third Party license to which the use or exploitation of any such items may be subject including, but not limited to, the payment of royalties. 9.7.7. POST-TERMINATION TRANSFER OF PRODUCT DATA AND FILINGS AND EXISTING TRADEMARKS. The following provisions shall apply in the event of termination by Trubion under Section 9.5 or termination by Wyeth under Section 9.6. To the extent permitted by applicable law, Wyeth shall assign and transfer to Trubion Wyeth's entire right, title and interest in and to Product Data and Filings, provide copies of all the Research Program Data, and license or otherwise transfer rights to Existing Trademarks that are necessary or useful for Trubion to continue to research, Develop, Manufacture or Commercialize Licensed Products as constituted at the time of termination. To the extent such Research Program Data, Product Data and Filings and other rights or items were previously transferred from Trubion to Wyeth, Wyeth shall perform such transfer at no cost to Trubion. To the extent such Research Program Data and Product Data and Filings were not previously transferred from Trubion to Wyeth, Trubion shall reimburse Wyeth for its reasonable out-of-pocket expenses in connection with such transfer, and such transfer shall be pursuant to an instrument in form and substance reasonably satisfactory to Trubion. Wyeth shall perform all other actions reasonably requested by Trubion to effect and confirm such transfer. After receipt of Trubion's request consistent with the foregoing, Wyeth shall provide to Trubion, within *** of receipt of such request, complete copies of such Product Data and Filings, including, without limitation, relevant clinical data, INDs, additional regulatory filings with FDA or other Regulatory Authorities, supplements or amendments thereto, all written correspondence with FDA or other Regulatory Authorities regarding the regulatory filings, and all existing written minutes of meetings and memoranda of conversations between Wyeth (including, to the extent practicable, Wyeth's investigators) and FDA or other Regulatory Authorities in Wyeth's possession (or in the possession of any of Wyeth's agents and subcontractors, such as contract research organizations used by Wyeth), to the extent Wyeth has the right 84 REDACTED COPY to access and provide to Trubion such Product Data and Filings, regarding such regulatory filings, each to the extent they relate to Licensed Products. Within thirty (30) days (or such later date as Trubion may request) after the date of receipt of Trubion's request, Wyeth shall execute and deliver a letter to the FDA or other Regulatory Authorities, in a form approved by Trubion, transferring ownership to Trubion of such regulatory filings, if any, filed in the name of Wyeth that are related to Licensed Products. 9.7.8. MANUFACTURING OF LICENSED PRODUCTS AFTER TERMINATION. If (a) with respect to a particular Licensed Target, Trubion terminates this Agreement pursuant to Section 9.5 hereof or Wyeth terminates this Agreement pursuant to Section 9.6 hereof, and (b) Wyeth is engaged in the Manufacturing of a Licensed Product directed against such Licensed Target on the date the terminating Party gives notice of termination under Section 9.5 or Section 9.6, as the case may be, then Wyeth shall Manufacture such Licensed Product for Trubion and use Commercially Reasonable Efforts to supply Trubion with its entire requirements of such Licensed Product until (i) the *** anniversary of the effective date of such termination if at the time of such notice there shall have been filed a Regulatory Approval Application for such Licensed Product or (ii) the *** anniversary of the effective date of such termination if at the time of such notice there shall not have been filed a Regulatory Approval Application for such Licensed Product; provided, however, that (w) Wyeth shall not be required to conduct any activities to increase the scale on which it is then Manufacturing such Licensed Product, (x) Wyeth shall not be required to Manufacture or supply such Licensed Product in an amount in excess of its available capacity in the Manufacturing suite that was used by Wyeth for the Manufacture of such Licensed Product (taking into account the other uses Wyeth is making of the manufacturing suite as of the date of the Notice of Termination) or to change the location of the Manufacturing activities, (y) Wyeth shall have no obligation to maintain idle capacity in such manufacturing suite for purposes of meeting such Manufacturing obligations and (z) Wyeth may at its option assign to Trubion one or more of its Licensed Product manufacturing agreements with Third Parties, to the extent assignable, in lieu of continuing to contract directly with such Third Parties. The purchase price for such Licensed Product units actually Manufactured by Wyeth shall be at Wyeth's fully absorbed manufacturing cost plus ***, and Wyeth's obligations under this Section 9.7.8 shall be subject to the execution of a supply agreement and a quality agreement, each mutually 85 REDACTED COPY acceptable to both Parties, which agreements shall contain the terms set forth in this Section 9.7.8 and such other reasonable terms as mutually agreed by the Parties. 9.7.9. POST-TERMINATION DISPOSITION OF INVENTORIES OF LICENSED PRODUCTS. Following termination of this Agreement with respect to one or more Licensed Targets, Wyeth and its sublicensees shall have the right to continue to sell their existing inventories of Licensed Products directed against such Licensed Targets for a period not to exceed *** after the effective date of such termination. Wyeth shall pay royalties and report on such sales, and maintain records thereon, in accordance with Sections 5.4, 5.5 and 5.6, which shall survive termination for such purpose. 9.7.10. CONTINUATION OF RIGHTS AND LICENSES UNDER SECTIONS 6.1.1 AND 6.1.2. Notwithstanding anything in this Section 9.7 to the contrary, the Parties' rights and licenses set forth in Sections 6.1.1 and 6.1.2 shall survive any expiration or termination of this Agreement. 9.7.11. CONTINUATION OF OTHER RIGHTS AND OBLIGATIONS. Except as expressly provided to the contrary in this Section 9.7, in the event that a Party exercises any right that results in the termination of some, but not all, of the Parties' rights and obligations under this Agreement, all non-terminated rights and obligations of the Parties shall continue in full force and effect. 9.8. MODIFICATION OF AGREEMENT TERMS BY WYETH. Without limiting any other legal or equitable remedies that Wyeth or Trubion may have, subject to Section 11.3, in the event that Wyeth elects to modify the terms of this Agreement as provided in Section 9.5, in lieu of terminating this Agreement under Section 9.5, with respect to one or more Licensed Targets identified by Wyeth in its Notice of Modification (the "Designated Target(s)"), the following terms shall apply: 9.8.1. except as set forth in Section 9.8.4 below, all rights and obligations of the Parties under this Agreement shall continue in full force and effect, and shall not be subject to any unilateral modification by Wyeth; provided that, ***; 9.8.2. all licenses granted by Trubion to Wyeth under this Agreement with respect to Licensed Products directed against each Designated Target shall remain in effect; 9.8.3. all of the Parties' rights and obligations under Article 3 in connection with the Research Program shall cease in their 86 REDACTED COPY entirety; provided that all amounts due for research performed and costs incurred prior to the date of such termination shall remain payable in accordance with the provisions of Article 3; and 9.8.4. only in the event of (i) a material breach by Trubion of Section 2.3.1 or 2.3.2; or (ii) a material breach by Trubion of Section 8.1(e), 8.2(c) or 8.2(d); or (iii) a material breach by Trubion of Section 8.2(a) (and, in the case of a material breach by Trubion of Section 8.2(a), only where Wyeth establishes that Trubion had knowledge, as of the Signing Date, that Trubion was not the sole and exclusive owner of the Trubion Patent Rights or that Trubion had placed, or suffered to be placed, any liens, charges or encumbrances on or against the Trubion Patent Rights); or (iv) if during the term of this Agreement, Trubion grants to a Third Party a right or license that conflicts in a material respect with Wyeth's then-existing rights under this Agreement pertaining to such Licensed Target(s), and thereby materially breaches Trubion's obligations hereunder, then: (a) Wyeth's diligence obligations to use Commercially Reasonable Efforts under Sections 4.1 and 4.10 shall no longer apply to Licensed Products directed against such Designated Target; (b) the amount of any Additional Research and Development Expense Payment that Wyeth thereafter becomes obligated to pay under Section 5.3 relating to Licensed Products directed against such Designated Target shall be reduced by fifty percent (50%) of such amount; and (c) the amounts of any royalties that Wyeth thereafter becomes obligated to pay under Section 5.4 relating to Licensed Products directed against such Designated Target shall be reduced by fifty percent (50%) of such amounts. 9.9. SURVIVAL OF CERTAIN OBLIGATIONS. Expiration or termination of this Agreement shall not relieve the Parties of any obligation accrued or accruing before such expiration or termination (including situations where it becomes clear only after the time of such expiration or termination that such obligation had already accrued). The following provisions shall survive the expiration or termination of this Agreement: Article 1 (to the extent definitions are embodied in the following listed Articles and Sections); Sections 3.6.3, 3.7, 5.6, 6.1.1, 6.1.2, 9.2, 9.5, 9.6, 9.7, 9.9, 9.10.2, 12.3, 12.6, 12.8, 12.9, 12.10, 12.11 and 12.12; and Articles 7, 10 and 11. Any expiration or early termination of this Agreement shall be without prejudice to the rights of either Party against the other accrued or accruing 87 REDACTED COPY under this Agreement before expiration or termination, including, without limitation, the obligations (1) to provide research funding and reimbursement of expenses for activities undertaken prior to such expiration or termination under and in accordance with Sections 3.6.1, 3.6.2, 4.6, 4.9, 6.1.3, 6.2.1(a), (c) and (d), 6.2.2(b) and (c), and 6.2.3(b) and (c); and (2) to pay royalties for Licensed Products sold before such expiration or termination, and, to the extent permitted under Section 9.7.9, after expiration or termination in accordance with Section 5.4 (and subject to the related obligations under Section 5.5); and (3) to pay any Additional Research and Development Expense Payments in connection with any events specified on Exhibit 5.3 that are achieved prior to such expiration or termination, but with respect to which the corresponding payments under Exhibit 5.3 were not paid prior to such expiration or termination. 9.10. CHANGE OF CONTROL. 9.10.1. DEFINITION. With respect to any Party, a "Change of Control" means an event in which: (a) any other person or group of persons (as the term "person" is used for purposes of Section 13(d) or 14(d) of the Exchange Act) not then beneficially owning more than fifty percent (50%) of the voting power of the outstanding securities of such Party acquires or otherwise becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities of such Party representing more than fifty percent (50%) of the voting power of the then outstanding securities of such Party with respect to the election of directors of such Party; or (b) such Person (i) consummates a merger, consolidation or similar transaction with another Person where the voting securities of such Party outstanding immediately preceding such transaction (or the voting securities issued with respect to the voting securities of such Party outstanding immediately preceding such transaction) represent less than fifty percent (50%) of the voting power of such Party or surviving entity, as the case may be, immediately following such transaction, (ii) sells or otherwise transfers to any Person(s) in one or more related transactions more than fifty percent (50%) of its consolidated total assets, or assets from which more than fifty percent (50%) of its consolidated operating income for its most recent financial year was derived, (iii) disposes by sale, assignment, exclusive license or otherwise of all or substantially all of its intellectual property rights, except for licenses under such intellectual property rights in the ordinary course of business and any isolated sale or assignment of specific items of intellectual property, or (iv) liquidates, dissolves or winds-up; or (c) with respect to Wyeth and with respect to Trubion, (at any time following any public offering of voting securities by Trubion), any "person" (as the 88 REDACTED COPY term "person" is used for the purposes of Sections 13(d) or 14(d) of the Exchange Act) other than Wyeth acquires nineteen and nine-tenths percent (19.9%) or more of the voting power of the then-outstanding voting securities of such Party. 9.10.2. CHANGE OF CONTROL OF WYETH. (a) In the event that any transaction results in a Change of Control of Wyeth, Trubion shall be entitled to request further written assurances from the successor in interest to Wyeth (the "Successor Party") re-affirming the commitment of the Successor Party to comply with the terms and conditions of the Agreement. Such further written assurances shall be delivered within *** of written request by Trubion. Trubion may so request at any time during the *** period following completion of the subject transaction. Subject to the operation of Section 9.10.2(b) below, the failure of such Successor Party to provide the requested written assurance shall be deemed to be a material breach of the Agreement. (b) In the event that in connection with, or during the *** period following, a Change of Control of Wyeth, Wyeth or the Successor Party is required, or voluntarily decides, to divest itself of one or more Licensed Products, Wyeth or the Successor Party, subject to any restrictions or limitations imposed by the Federal Trade Commission or other governmental agency on such divestiture, shall offer to Trubion an exclusive opportunity to negotiate the acquisition or license of all rights of Wyeth or such Successor Party, as the case may be, to such Licensed Product(s) on commercially reasonable terms. In the event that Trubion and the Successor Party, after *** good faith negotiations, are unable to conclude a definitive agreement regarding the acquisition or license of such Licensed Product(s), the Successor Party shall be entitled to divest itself of such Licensed Product(s) to a party other than Trubion; provided, however, no such divestiture to a Third Party shall take place on terms more favorable to such Third Party than those last offered by the Successor Party to Trubion, without first offering such Licensed Product(s) to Trubion on such more favorable terms. Such Third Party shall be required to assume all of the Successor Party's obligations owed to Trubion pursuant to this Agreement with respect to the Licensed Product(s) so divested. 89 REDACTED COPY (c) In the event of a Change of Control of Wyeth, the restrictive covenants set forth in Sections 2.3.1 and 2.3.2 (the "Exclusivity Covenants") shall apply to the Successor Party's then-existing Development and Commercialization activities that otherwise would violate the Exclusivity Covenants (the "Existing Activities"). In such event, Trubion shall have the right, exercisable upon written notice given by Trubion (an "Exercise Notice") within *** after consummation of the Change of Control, to require such Successor Party to engage in good faith discussions regarding the terms and conditions on which such Successor Party would pay reasonable financial consideration to Trubion with respect to such Existing Activities. If Trubion and such Successor Party do not agree on such terms and conditions within *** after Trubion gives the Exercise Notice (or such longer period as may be agreed to by such parties), or if such Successor Party notifies Trubion in writing during such *** period that it does not desire to engage in such discussions, Trubion shall have the right, exercisable upon written notice given by Trubion within ten (10) days (i) after the end of such *** period (or such longer period as agreed to by such parties) or (ii) after receipt of such notice from such Successor Party, to require such Successor Party to enter into an agreement to divest to a Third Party either (a) the Existing Activities or (b) the relevant CD20 Products or ***, as the case may be (such Third Party, in the case of a divestiture of the relevant CD20 Products or ***, to be reasonably acceptable to Trubion) within *** after the date of such notice by Trubion, subject to applicable governmental and regulatory approval. If such Successor Party does not enter into an agreement with a Third Party (such Third Party, in the case of a divestiture of the relevant CD20 Products or ***, to be reasonably acceptable to Trubion) to divest such Existing Activities or such Products within such *** period (or if such Successor Party does enter into such an agreement but such agreement terminates after such *** period and such divestiture is not consummated) or if such Successor Party notifies Trubion in writing that it does not intend to divest such Existing Activities or such Products, Trubion shall have the right, exercisable within *** after the end of such *** period (or upon termination of such agreement, if later) to terminate, in its sole discretion, all CD20-related licenses (only where such Existing Activities relate to products directed against the CD20 Antigen which would otherwise violate Wyeth's 90 REDACTED COPY exclusivity covenants in Section 2.3.1 hereof) and/or all *** (only where such Existing Activities relate to products directed against the *** which would otherwise violate Wyeth's exclusivity covenants in Section 2.3.2 hereof) granted to Wyeth under the Agreement, on those terms and subject to those conditions that would apply to a termination by Wyeth without cause. 9.10.3. CHANGE OF CONTROL OF TRUBION. In the event of a Change of Control of Trubion where the acquiring party is a top fifteen (15) pharmaceutical company (measured by market capitalization), Wyeth shall have the right to *** 10. INDEMNIFICATION AND INSURANCE. 10.1. INDEMNIFICATION BY WYETH. Wyeth will indemnify, defend and hold harmless Trubion, and each of its respective employees, officers, directors and agents (each, a "Trubion Indemnified Party") from and against any and all liability, loss, damage, expense (including reasonable attorneys' fees and expenses) and cost (collectively, "Liabilities") that the Trubion Indemnified Party may be required to pay to one or more Third Parties resulting from or arising out of: (a) any claims of any nature pertaining to any act or omission related to performance under this Agreement by, on behalf of, or under the authority of Wyeth (other than by any Trubion Indemnified Party) including, but not limited to, research, Development, Manufacture or Commercialization of Licensed Product(s) or any violation of applicable law, rule or regulation by, on behalf of, or under the authority of Wyeth (other than by any Trubion Indemnified Party); and/or (b) any Wyeth representation or warranty set forth herein being untrue in any material respect when made; except in each case, to the extent caused by the negligence or willful misconduct of Trubion or any other Trubion Indemnified Party. 10.2. INDEMNIFICATION BY TRUBION. Trubion will indemnify, defend and hold harmless Wyeth and its sublicensees, distributors and each of its and their respective employees, officers, directors and agents (each, a "Wyeth Indemnified Party") from and against any and all Liabilities that the Wyeth Indemnified Party may be required to pay to one or more Third Parties resulting from or arising out of: 91 REDACTED COPY (a) any claims of any nature pertaining to any act or omission related to performance under this Agreement by, on behalf of, or under the authority of Trubion (other than by any Wyeth Indemnified Party) or any violation of applicable law, rule or regulation by, on behalf of, or under the authority of Trubion (other than by any Wyeth Indemnified Party); and/or (b) any Trubion representation or warranty set forth herein being untrue in any material respect when made; except in each case, to the extent caused by the negligence or willful misconduct of Wyeth or any other Wyeth Indemnified Party. 10.3. PROCEDURE. Each Party will notify the other in the event it becomes aware of a claim for which indemnification may be sought hereunder. In case any proceeding (including any governmental investigation) shall be instituted involving any Party in respect of which indemnity may be sought pursuant to this Article 10, such Party (the "Indemnified Party") shall promptly notify the other Party (the "Indemnifying Party") in writing within fifteen (15) days and the Indemnifying Party and Indemnified Party shall meet to discuss how to respond to any claims that are the subject matter of such proceeding. The Indemnifying Party, upon request of the Indemnified Party, shall retain counsel reasonably satisfactory to the Indemnified Party to represent the Indemnified Party and shall pay the fees and expenses of such counsel related to such proceeding. The Indemnified Party agrees to cooperate fully with the Indemnifying Party in the defense of any such claim, action or proceeding, or any litigation resulting from any such claim. In any such proceeding, the Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (a) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (b) the named parties to any such proceeding (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both Parties by the same counsel would be inappropriate due to actual or potential differing interests between them. All such fees and expenses shall be reimbursed as they are incurred. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from and against any loss or liability by reason of such settlement or judgment. The Indemnifying Party shall not, without the written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which the Indemnified Party is, or arising out of the same set of facts could have been, a party and indemnity could have been sought hereunder by the Indemnified Party, unless such settlement includes an unconditional release 92 REDACTED COPY of the Indemnified Party from all liability on claims that are the subject matter of such proceeding. 10.4. INSURANCE. Each Party shall use Commercially Reasonable Efforts to obtain and maintain, during the term of this Agreement, commercial general liability insurance, including products liability insurance, with reputable and financially secure insurance carriers to cover its indemnification obligations under Sections 10.1 or 10.2, as applicable, or self-insurance, in each case with limits of not less than *** per occurrence and in the aggregate. Insurance shall be procured with carriers having an A.M. Best Rating of A-VII or better. 11. DISPUTE RESOLUTION. 11.1. GENERAL. Any controversy, claim or dispute arising out of or relating to this Agreement shall be settled, if possible, through good faith negotiations between the Parties. If, however, the Parties are unable to settle such dispute after good faith negotiations, the matter shall be referred to the Executive Officers to be resolved by negotiation in good faith as soon as is practicable but in no event later than thirty (30) days after referral. Such resolution, if any, of a referred issue shall be final and binding on the Parties. 11.2. FAILURE OF EXECUTIVE OFFICERS TO RESOLVE DISPUTE. If the Executive Officers are unable to settle the dispute after good faith negotiation in the manner set forth above, either Party (including its successors and permitted assigns but excluding its Affiliates unless an Affiliate is a successor or permitted assign) may seek resolution of the dispute through any remedies available at law or in equity from any court of competent jurisdiction. 11.3. DISCLAIMER OF CONSEQUENTIAL AND PUNITIVE DAMAGES. Subject to and without limiting the indemnification obligations of each Party under Article 10, under no circumstances shall either Party be liable to the other Party for consequential or punitive damages arising out of or relating to this Agreement or any breach thereof. Both Parties hereby disclaim such damages. 12. MISCELLANEOUS. 12.1. PERIODIC EXECUTIVE MEETINGS. The Chief Executive Officer of Trubion, the Senior Vice President, Research and Development of Trubion, the Executive Vice President and General Manager of the Wyeth Pharmaceuticals Biopharma Business Unit and the Executive Vice President and Operating Officer of Wyeth's Research Division (and such other executive officers of the Parties as may be designated from time to time by the Parties) shall meet from time to time during the first *** of the term of this Agreement to review and discuss the Parties' activities under 93 REDACTED COPY this Agreement. Such meetings will be held on a quarterly basis or such other periodic basis as such executive officers decide, and will take place in locations selected by such executive officers. Such meetings may take place by telephone or video conference. 12.2. ASSIGNMENT. Neither this Agreement nor any interest hereunder shall be assignable by either Party, without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed, except a Party may make such an assignment without the other Party's consent to Affiliates or to a successor to substantially all of the business of such Party to which this Agreement relates, whether in merger, sale of stock, sale of assets or other transaction. This Agreement shall be binding upon the successors and permitted assigns of the Parties, and the name of a Party appearing herein shall be deemed to include the names of such Party's successors and permitted assigns to the extent necessary to carry out the intent of this Agreement. In addition to the foregoing, Trubion may assign its right, in whole or part, to receive payments under this Agreement; provided, however, Trubion shall notify Wyeth of its intention to do so and shall provide Wyeth an opportunity for at least *** to negotiate in good faith the purchase of any such right Trubion intends to so assign. Any assignment not in accordance with this Section 12.2 shall be void. 12.3. FURTHER ACTIONS. Each 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 the Agreement. 12.4. FORCE MAJEURE. Neither Party shall be liable to the other for delay or failure in the performance of the obligations on its part contained in this Agreement if and to the extent that such failure or delay is due to circumstances beyond its control which it could not have avoided by the exercise of reasonable diligence. It shall notify the other Party promptly should such circumstances arise, giving an indication of the likely extent and duration thereof, and shall use all Commercially Reasonable Efforts to resume performance of its obligations as soon as practicable; provided, however, that neither Party shall be required to settle any labor dispute or disturbance. 12.5. NON-SOLICITATION. During the period between the Effective Date and the later of (a) the end of *** or (b) the date ***, but in the case of (a) and (b) not later than the *** of the Effective Date, neither Trubion nor the Wyeth pharmaceuticals business operating in the United States ("U.S. Wyeth Pharmaceuticals") shall solicit for employment any key or technical employee(s) of the other Party who become known to U.S. Wyeth Pharmaceuticals or Trubion, as the case may be, through the transactions contemplated by this Agreement without the other's prior written consent (which consent may be granted or denied in the other's sole discretion); 94 REDACTED COPY provided, however, that nothing in this Section 12.5 shall prohibit U.S. Wyeth Pharmaceuticals or Trubion, as the case may be, from hiring any employees of the other who respond to general employment solicitations not targeted at the employees of the other, advertised employment opportunities, or hiring by the other by personnel not working on the transactions contemplated by this Agreement or who are not otherwise directly or indirectly exposed to the personnel working thereon. 12.6. CORRESPONDENCE AND NOTICES. 12.6.1. ORDINARY NOTICES. Correspondence, reports, documentation, and any other communication in writing between the Parties in the course of ordinary implementation of this Agreement shall be delivered by hand, sent by facsimile transmission (receipt verified), or by airmail to the employee or representative of the other Party who is designated by such other Party to receive such written communication. 12.6.2. EXTRAORDINARY NOTICES. Extraordinary notices and other communications hereunder (including, without limitation, any notice of force majeure, breach, termination, change of address, etc.) shall be in writing and shall be deemed given if delivered personally or by facsimile transmission (receipt verified), mailed by registered or certified mail (return receipt requested), postage prepaid, or sent by nationally recognized express courier service, to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided, however, that notices of a change of address shall be effective only upon receipt thereof): All correspondence to Wyeth shall be addressed as follows: Wyeth Pharmaceuticals 500 Arcola Road Collegeville, Pennsylvania 19426 Attn: Senior Vice President, Corporate Business Development Fax: (484) 865-6476 with a copy to: Wyeth 5 Giralda Farms Madison, New Jersey 07940 Attn: Executive Vice President and General Counsel Fax: (973) 660-7156 95 REDACTED COPY All correspondence to Trubion shall be addressed as follows: Trubion Pharmaceuticals, Inc. 2401 4th Avenue Suite 1050 Seattle, Washington 98121 Attn: President & CEO Fax: (206) 838-0503 with a copy to: Trubion Pharmaceuticals, Inc. Vice President, Legal Affairs 2401 4th Avenue Suite 1050 Seattle, Washington 98121 Fax: (206) 838-0503 12.7. AMENDMENT. No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 12.8. WAIVER. No provision of the Agreement shall be waived by any act, omission or knowledge of a Party or its agents or employees except by an instrument in writing expressly waiving such provision and signed by a duly authorized officer of the waiving Party. The waiver by either of the Parties of any breach of any provision hereof by the other Party shall not be construed to be a waiver of any succeeding breach of such provision or a waiver of the provision itself. 12.9. SEVERABILITY. If any clause or portion thereof in this Agreement is for any reason held to be invalid, illegal or unenforceable, the same shall not affect any other portion of this Agreement, as it is the intent of the Parties that this Agreement shall be construed in such fashion as to maintain its existence, validity and enforceability to the greatest extent possible. In any such event, this Agreement shall be construed as if such clause of portion thereof had never been contained in this Agreement, and there shall be deemed substituted therefor such provision as will most nearly carry out the intent of the Parties as expressed in this Agreement to the fullest extent permitted by applicable law. 12.10. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are for convenience only, and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement. 96 REDACTED COPY 12.11. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the substantive laws of the State of New York, without regard to conflict of law principles thereof. 12.12. ENTIRE AGREEMENT OF THE PARTIES. This Agreement constitutes and contains the complete, final and exclusive understanding and agreement of the Parties and cancels and supersedes any and all prior negotiations, correspondence, understandings and agreements, whether oral or written, among the Parties respecting the subject matter hereof and thereof, including, but not limited to, that certain Non-Disclosure Agreement of the Parties effective May 27, 2004. For the avoidance of doubt, disclosures made under such Confidentiality Agreement shall continue to be subject to the terms of this Agreement as if first disclosed pursuant hereto. Except as expressly set forth in this Agreement, neither Party shall have any other obligations, whether by implication or otherwise, with respect to the research, Development, Manufacture or Commercialization of Licensed Products. 12.13. INDEPENDENT CONTRACTORS. Both Parties are independent contractors under this Agreement. Nothing herein contained shall be deemed to create an employment, agency, joint venture or partnership relationship between the Parties hereto or any of their agents or employees, or any other legal arrangement that would impose liability upon one Party for the act or failure to act of the other Party. Neither Party shall have any express or implied power to enter into any contracts or commitments or to incur any liabilities in the name of, or on behalf of, the other Party, or to bind the other Party in any respect whatsoever. 12.14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement. Facsimile signatures shall be binding upon the Parties and shall be treated as if originals. IN WITNESS WHEREOF, duly authorized representatives of the Parties have duly executed this Agreement to be effective as of the Signing Date. WYETH, TRUBION PHARMACEUTICALS, INC. ACTING THROUGH ITS WYETH PHARMACEUTICALS DIVISION By /s/ William M. Haskel By /s/ Peter A. Thompson ------------------------------ ------------------------------ Name: William M. Haskel Name: Peter A. Thompson, M.D. Title: Vice President Title: President & CEO 97 EXECUTION COPY EXHIBIT 1.122 TRU-015 *** As of the Signing Date, TRU-015 is investigated in the Phase IIa Clinical Study. EXECUTION COPY EXHIBIT 1.129 TRUBION PATENT RIGHTS *** EXECUTION COPY EXHIBIT 1.132 TRUBION THIRD PARTY AGREEMENTS *** EXECUTION COPY EXHIBIT 3.2.1 TRUBION'S "MILESTONE ONE" MILESTONE #1 Defined in Trubion's internal project management process, which may be modified from time to time. The following specifications are determined: - Scientific Rationale that supports the therapeutic potential - Mechanism of Action (MOA) - Specific biochemical and therapeutic properties (targeted) - Binding Domain - Target - In vivo activity - Safety - pk - Market rationale (preliminary) for product profile - Economics (COGs) - Clinical rationale (preliminary) for product profile - Alliance Opportunity assessment - Intellectual property assessment EXECUTION COPY EXHIBIT 3.2.4 EXCLUDED TARGETS GENBANK ACCESSION NUMBER (AMINO ACID SEQUENCE) *** EXECUTION COPY EXHIBIT 4.4 ADVERSE EVENT REPORTING PROCEDURES The terms adverse event or experience (AE) and adverse drug reaction (ADR), used in this Exhibit 4.4 shall have the meanings set forth in worldwide reporting regulations. The Parties agree to comply with any and all governmental laws, regulations and orders that are applicable now and in the future in connection with product safety collection and reporting. The Parties agree to meet after the Effective Date to establish a detailed Safety Agreement outlining the pharmacovigilance responsibilities of each Party including but not limited to: AE or ADR reporting including literature review and associated reporting; AE or ADR follow-up reporting; preparation and submission of all safety reports to the Regulatory Authorities as required by local laws and/or regulations in the Territory; maintaining the global safety database; all interactions with health authorities regarding safety; periodic submissions; labeling modifications; safety monitoring and detection; and safety measures (e.g., Dear Doctor Letter, restriction on distribution). Wyeth shall maintain the global safety database for the Licensed Products. Notwithstanding the foregoing and until such time as the Safety Agreement is executed, to the extent Trubion has or receives any information regarding any AE/ADR which may be related to the use of any Licensed Product or to Licensed Product Development, Trubion shall promptly forward such information as follows: - Fatal or life-threatening serious AE(s)/ADR(s) judged by either the investigator and/or sponsor to be reasonably related to the Licensed Product(s) Development/protocol shall be transmitted to Wyeth within three (3) calendar days from the date received by Trubion. - All other serious AE(s)/ADR(s) not fatal or life-threatening but judged by either the investigator and/or sponsor to be reasonably related to the Licensed Product(s) Development/protocol shall be transmitted to Wyeth within five (5) calendar days from the date received by Trubion. AE/ADR information may be transmitted to Wyeth by: a. Facsimile: 610-989-5544 OR b. Overnight courier to: Global Safety Surveillance & Epidemiology Wyeth Research GSSE Triage Unit Dock E 500 Arcola Road Collegeville, PA 19426 EXECUTION COPY EXHIBIT 5.2A STOCK PURCHASE AGREEMENT TRUBION PHARMACEUTICALS, INC. COMMON STOCK PURCHASE AGREEMENT This Common Stock Purchase Agreement (this "Agreement") is made as of December __, 2005 by and between Trubion Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Wyeth, a Delaware corporation (the "Purchaser"). RECITALS A. The Purchaser and the Company are entering into a collaboration agreement of even date herewith (the "Collaboration Agreement"); B. In connection with the Collaboration Agreement, Purchaser desires to purchase from the Company shares of its Common Stock (the "Common Stock"), concurrently with and conditioned upon the closing of the Company's initial public offering, upon the terms and conditions set forth herein; C. The Company and the Purchaser wish to set forth the terms and conditions upon which the Company will sell the Common Stock to the Purchaser; and D. Concurrent with the execution of this Agreement, the Company and Purchaser are entering into an amendment (the "Rights Agreement Amendment") to the Company's Amended and Restated Investor Rights Agreement (the "Rights Agreement") to provide Purchaser with certain rights and obligations thereunder upon the issuance of the Common Stock hereunder. NOW, THEREFORE, in consideration of the premises and mutual covenants and conditions contained herein, the Company and the Purchaser hereby agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.1 Purchase Price and Closing. Subject solely to the conditions set forth in Sections 1.2 - 1.5 and Article IV hereof, the Company will issue and sell to the Purchaser and, subject to the terms and conditions set forth in this Agreement, the Purchaser will purchase from the Company (the "Sale"), that number of shares of Common Stock (the "Shares") equal to the quotient obtained by dividing Twenty-Five Million Dollars ($25,000,000) (the "Investment Amount") by the per-share price to the public (the "IPO Price") of shares of Common Stock in the Company's first underwritten, firm commitment public offering (the "IPO") pursuant to an effective registration statement (the "Registration Statement") under REDACTED COPY the Securities Act of 1933, as amended (the "Securities Act"). The per share price to Purchaser shall be the IPO Price. The purchase and sale will take place at a closing (the "Closing") to be held on the date, at the location and simultaneously with the closing of the IPO, subject to the satisfaction of all of the conditions to the Closing specified in Article IV herein. At the Closing the Company will issue and deliver a certificate evidencing the Shares to the Purchaser against payment of the full purchase price therefor by wire transfer of immediately available funds to an account designated by the Company. 1.2 Maximum Share Number. Notwithstanding Section 1.1 above, in the event the number of Shares would otherwise constitute more than (i) nineteen and nine-tenths percent (19.9%) of the Actual Voting Power (as defined in Section 5.1(i)) or (ii) twenty percent (20%) of the number of shares issued in the IPO (including any shares covered by a related registration statement filed pursuant to Rule 462(b) of the Securities Act but excluding any shares issued or to be issued in an overallotment option), then in either case (i) or (ii) above the Investment Amount (and correspondingly the number of shares purchased by the Purchaser) shall be reduced by the minimum dollar amount and share amount necessary to avoid either such event. 1.3 Restrictions on Transfer. Pursuant to the Rights Agreement Amendment, Purchaser agrees and acknowledges that the restrictions set forth in Sections 2.1 and 2.12 of the Rights Agreement shall apply to Purchaser and the Shares. 1.4 HSR Act. Prior to the execution of the Collaboration Agreement and this Agreement, the parties made certain filings under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"). If either party concludes in good faith that additional filings or proceedings are necessary or desirable as a result of the transactions contemplated hereby either as a result of the signing of this Agreement or in connection with the Closing or otherwise, the parties agree to promptly file such additional notices, applications and documents that may be required under the HSR Act, or any other required foreign or domestic competition law (collectively, the "Competition Laws") and all applicable additional filings fees associated therewith shall be paid by the party required to so pay such additional filing fees under the applicable Competition Law(s). In connection therewith, the Company and Purchaser each shall use their commercially reasonable efforts to take such actions as may be required to cause the expiration or early termination of the notice periods under the Competition Laws as promptly as possible and to resolve such objections, if any, as may be asserted with respect to the transactions contemplated by this Agreement under the Competition Laws; provided, however, that notwithstanding the foregoing, neither party shall agree to any change or amendment to this Agreement unless such change or amendment is agreed by the other party in advance. Nothing in this Agreement shall require either party or any subsidiary or affiliate of either party to sell, hold separate, license or otherwise dispose of any assets or conduct its business in a specified manner, or agree or proffer to sell, hold separate, license or otherwise dispose of any assets or conduct its business in a specified manner, or permit or agree to the sale, holding separate, licensing or other disposition of any assets of either party or any subsidiary or affiliate of either party, whether as a condition to obtaining any approval from, or to avoid potential litigation or administrative action by, a governmental entity or any other person or for any other reason. 1.5 Termination of Purchase Right and Obligation. Notwithstanding any provision of this Agreement to the contrary, Purchaser's right and obligation to purchase, and the Company's right and obligation to sell, the Shares shall terminate if the closing of the IPO has not occurred prior to the earliest to occur of the following: (a) The termination of the Collaboration Agreement; or (b) The Company (1) undergoes a Change of Control (as defined in Section 5.1(iv));; provided, however, the following shall be deemed to not be a Change of Control for purposes of this 2 REDACTED COPY Section 1.5(b): (i) a transaction effected exclusively for the purpose of changing the domicile of the Company, or (ii) an equity financing in which the Company is the surviving corporation, or (2) engages in a merger, consolidation, reorganization or similar transaction in which the surviving entity has a class of equity securities registered under Section 12 of the Exchange Act (as defined below). ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchaser as follows: 2.1 Corporate Action. The Company has all necessary corporate power and has taken all corporate action required to enter into and perform this Agreement and the Rights Agreement Amendment (collectively, the "Financing Documents"). The Financing Documents have been duly executed and delivered, and constitute valid, legal, binding and enforceable obligations of the Company, enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The issuance, sale and delivery of the Shares in accordance with this Agreement have been duly authorized by all necessary corporate action on the part of the Company. The issuance of the Shares is not subject to preemptive rights or other preferential rights in any present stockholders of the Company that have not been waived and will not conflict with any provision of any agreement or instrument to which the Company is a party or by which it or its property is bound and to which the Company has not obtained appropriate waivers. 2.2 No Conflict. The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation, modification or acceleration of any obligation under (i) any provision of the Certificate of Incorporation of the Company or Bylaws of the Company, (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, or license to which the Company or any of its properties or assets is subject or (iii) any judgment, order, decree, applicable to the Company or its properties or assets. To the Company's knowledge as of the date hereof, no provision of any applicable law, rule or regulation and no judgment, order, decree or injunction applicable to the Company or its properties or assets shall prohibit the consummation of the Closing nor shall the Closing result in any violation of any such law, rule, regulation, judgment, order, decree or injunction. 2.3 Status of Shares. The Shares, when issued and delivered in accordance with the terms hereof and after payment of the purchase price therefor, will be duly authorized, validly issued, fully-paid and non-assessable, issued in compliance with applicable state and federal securities laws (subject, in part, to the representations and warranties of Purchase in Article III hereof) and free of restrictions on transfer other than restrictions on transfer under the Financing Documents and applicable state and federal securities laws. 2.4 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business. 2.5. Collaboration Agreement. The Collaboration Agreement has been duly authorized, executed, and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, 3 REDACTED COPY reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 2.6 Final Prospectus and Registration Statement. The Company, acknowledging that the Purchaser will be relying on the accuracy and completeness of the Company's disclosure in connection with the IPO, warrants to the Purchaser that the Prospectus (as defined below) used in connection with the Company's IPO will comply, at the time of filing or use, with the requirements of the Securities Act, and the Prospectus filed or used in connection with the IPO will not, at such time, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; the Registration Statement, when it becomes effective, will comply, in all material respects, with the requirements of the Securities Act; and the Registration Statement will not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein; provided, however, that the Company makes no warranty with respect to any statement contained in the Registration Statement or a prospectus in reliance upon and in conformity with information concerning the Purchaser that is furnished by the Purchaser expressly for use therein. "Prospectus" means the final prospectus (as such term is defined in Section 2(a)(10) of the Securities Act) as first filed with the SEC pursuant to paragraph (1) or (4) of Rule 424(b) of the Securities Act. ARTICLE III REPRESENTATIONS AND WARRANTIES AND COVENANTS BY PURCHASER The Purchaser represents and warrants and covenants to the Company that: 3.1 Purchaser is an "accredited investor" as defined in Rule 501(a) under the Securities Act of 1933, as amended. 3.2 Purchaser will acquire the Shares for its own account, for the purpose of investment and not with a view to distribution or resale thereof. 3.3 Purchaser has all necessary corporate power and has taken all corporate action required to enter into and perform the Financing Documents. The Financing Documents have been duly executed and delivered, and constitute valid, legal, binding and enforceable obligations of Purchaser, enforceable in accordance with their terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 3.4 Purchaser has taken no action which would give rise to any claim against the Company by any other person for any brokerage commissions, finders' fees or the like relating to this Agreement or the transactions contemplated hereby. 3.5 Purchaser has had the opportunity to ask questions of and receive answers from representatives of the Company concerning the terms of the offering of the Shares and to obtain additional information concerning the Company and its business. 3.6 The acquisition by the Purchaser of the Shares shall constitute a confirmation of these representations and warranties made by the Purchaser as of the Closing. Purchaser understands that the 4 REDACTED COPY Shares are "restricted securities" under the Securities Act and have not been registered under the Securities Act in reliance upon an exemption for non-public offerings. The Purchaser further represents that it understands and agrees that, until registered under the Securities Act or transferred pursuant to the provisions of Rule 144 as promulgated by the Commission, all certificates evidencing any of the Shares, whether upon initial issuance or upon any transfer thereof, shall be subject to the transfer restrictions and bear the legends set forth in Section 2.1 of the Rights Agreement. 3.7 To the Purchaser's knowledge as of the date hereof, no provision of any applicable law, rule or regulation and no judgment, order, decree or injunction applicable to the Purchaser or its properties or assets shall prohibit the consummation of the Closing nor shall the Closing result in any violation of any such law, rule, regulation, judgment, order, decree or injunction. ARTICLE IV CONDITIONS TO CLOSING 4.1 Conditions of the Purchaser's Obligation. The obligation of the Purchaser to purchase and pay for the Shares at the Closing is subject to the satisfaction of the following conditions: (a) Documentation at Closing. The Purchaser shall have received prior to or at the Closing all of the following documents or instruments, or evidence of completion thereof, each in form and substance satisfactory to the Purchaser: (i) A copy of the Certificate of Incorporation of the Company, certified by the Secretary of State of the State of Delaware, a copy of the resolutions of the Board of Directors of the Company evidencing the approval of this Agreement, the issuance of the Shares and the other matters contemplated hereby, and a copy of the Bylaws of the Company, all of which shall have been certified by the Secretary of the Company to be true, complete and correct in every particular, and certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, with respect to this Agreement and the Shares. (ii) A customary opinion of counsel to the Company covering the matters set forth in Exhibit A hereto. (iii) A certificate of the Secretary of the Company which shall certify the names of the officers of the Company authorized to sign this Agreement, the certificate for the Shares and the other documents, instruments or certificates to be delivered pursuant to this Agreement by the Company or any of its officers, together with the true signatures of such officers. (iv) A certificate of the President of the Company stating (A) that the representations and warranties made by the Company in this Agreement are true and correct in all material respects at the date hereof and as of the Closing with the same force and effect as though all such representations and warranties had been made as of the Closing, and (B) that all covenants and conditions required to be performed prior to or at the Closing have been performed as of the Closing. (v) A Certificate of Good Standing for the Company from the Secretary of State of the State of Delaware, dated as of a recent date. (b) Performance. The Company shall have performed and complied with in all material respects all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 5 REDACTED COPY (c) Consents, Waivers, Etc. The Company shall have obtained all consents or waivers, if any, necessary to execute and deliver this Agreement, issue the Shares and to carry out the transactions contemplated hereby and thereby and the waiting period applicable to this Agreement and the Collaboration Agreement under the HSR Act (or any other applicable Competition Laws) shall have expired or terminated early. All corporate and other action and governmental filings necessary to effect the terms of this Agreement, the issuance of the Shares and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken, except for any post-sale filing that may be required under federal or state securities laws. (d) Rights Agreement Amendment. The Rights Agreement Amendment shall have been executed by the Company and by the holders of the requisite majority of Registrable Securities (as such term is defined in the Rights Agreement); provided, however, the parties acknowledge that subsequent to the date hereof the Rights Agreement may be further amended in accordance with its terms; provided, further, however, Purchaser shall be required to consent to such amendment or be provided substantially equivalent rights in such amendment or another written agreement with the Company. (e) Collaboration Agreement. The Collaboration Agreement shall have been duly authorized, executed, and delivered by the Company and constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The Purchaser shall not have the right to terminate the Collaboration Agreement for cause pursuant to Section 9.5 thereof (provided, however, if Purchaser's right to so terminate the Collaboration Agreement for cause is solely dependent on the lapsing on any applicable "cure" period pursuant to Section 9.5 thereof, solely for purposes of this Section 4.1(e), Purchaser shall be deemed to have the right to terminate the Collaboration Agreement for cause notwithstanding the failure of any such cure period to have lapsed); and the Company shall not have given notice to the Purchaser of its intent to terminate the Collaboration Agreement. (f) Representations and Warranties. The representations and warranties made by the Company in this Agreement shall have been true and correct in all material respects at the date hereof and as of the Closing with the same force and effect as though all such representations and warranties had been made as of the Closing. (g) No Injunctions. No provision of any applicable law, rule or regulation and no judgment, order, decree or injunction shall prohibit the consummation of the Closing. (h) Listing. The shares of Common Stock sold in the IPO shall be listed on the New York Stock Exchange ("NYSE") or traded on the Nasdaq National Market. (i) Closing of IPO. The Closing hereunder shall be concurrent with the closing of the IPO. 4.2 Conditions of the Company's Obligation. The obligation of the Company to sell the Shares at the Closing is subject to the satisfaction of the following conditions: (a) Performance. The Purchaser shall have performed and complied with in all material respects all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 6 REDACTED COPY (b) Consents, Waivers, Etc. Any waiting period applicable to this Agreement and the Collaboration Agreement under the HSR Act (or any other applicable Competition Laws) shall have expired or terminated early. (c) Rights Agreement Amendment. The Rights Agreement Amendment shall have been executed by the Purchaser. (d) Collaboration Agreement. The Collaboration Agreement shall have been duly authorized, executed and delivered by the Purchaser and constitute a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Company shall not have the right to terminate the Collaboration Agreement for cause pursuant to Section 9.5 thereof (provided, however, if the Company's right to so terminate the Collaboration Agreement for cause is solely dependent on the lapsing on any applicable "cure" period pursuant to Section 9.5 thereof, solely for purposes of this Section 4.2(d), the Company shall be deemed to have the right to terminate the Collaboration Agreement for cause notwithstanding the failure of any such cure period to have lapsed; and the Purchaser shall not have given notice to the Company of its intent to terminate the Collaboration Agreement. (e) Representations and Warranties. The representations and warranties made by the Purchaser in this Agreement shall have been true and correct in all material respects at the date hereof and as of the Closing with the same force and effect as though all such representations and warranties had been made as of the Closing. (f) No Injunctions; Applicable Law. No provision of any applicable law, rule or regulation and no judgment, order, decree or injunction shall prohibit the consummation of the Closing nor shall the Closing result in any violation of any such law, rule, regulation, judgment, order, decree or injunction. (g) Listing. The shares of Common Stock sold in the IPO shall be listed on the NYSE or traded on the Nasdaq National Market. (h) Closing of IPO. The Closing hereunder shall be concurrent with the closing of the IPO. (i) Securities Regulations. The sale of the Shares to Purchaser shall not be prohibited under state and federal securities laws and regulations. ARTICLE V STANDSTILL AGREEMENT 5.1. Definitions. For the purposes of this Agreement, the following words and phrases shall have the following meanings: (i) "Actual Voting Power" means, as of the date of determination, the total number of votes attaching to the outstanding securities entitled to vote for the election of directors of the Company. (ii) "Affiliate" shall have the meaning given it in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 7 REDACTED COPY (iii) "Beneficial Ownership" "Beneficial Owner" and "Beneficially Own" shall have the meanings described to those terms in Rule 13d-1 under the Exchange Act. (iv) "Change of Control" means (1) the acquisition by a Third Party of more than 50% of the Company's then outstanding Voting Securities or (2) the consummation of a merger, acquisition, consolidation or reorganization or series of such related transactions involving the Company, unless immediately after such transaction or transactions, the Beneficial Owners of the Company immediately prior to the first such transaction shall Beneficially Own at least 50% of the outstanding Voting Securities of the Company (or, if the Company would not be the surviving company in such merger, consolidation or reorganization, the Voting Securities of the surviving corporation issued in such transaction or transactions in respect of Voting Securities of the Company shall represent at least 50% of the Voting Securities of such surviving company). (v) "Investor Group" means Purchaser and any member of a 13D Group to which the Purchaser belongs. (vi) "Person" means an individual, corporation, partnership, association, trust, unincorporated organization or other entity (vii) "13D Group" means any group of persons formed for the purpose of acquiring, holding, voting or disposing of Voting Securities which would be required under the Exchange Act and the rules and regulations promulgated thereunder, to file a statement on Schedule 13D with the Securities and Exchange Commission as a "person" within the meaning of Section 13(d)(3) of the Exchange Act if such group beneficially owned sufficient securities to require such a filing under the Exchange Act. (viii) "Standstill Period" shall mean the period beginning on the Closing of the IPO and ending on the date that is one year following the Closing of the IPO. (ix) "Threshold Percentage" means the percentage of Actual Voting Power owned by the Purchaser immediately following the closing of the IPO and the sale of Shares hereunder, which in no case shall exceed nineteen and nine-tenths percent (19.9%) of Actual Voting Power. (x) "Third Party" means any Person or two or more Persons acting in concert, other than the Purchaser and its Affiliates or the Company and its Affiliates. (xii) "Voting Security" means, as of the date of determination, the Common Stock of the Company, any other security generally entitled to vote for the election of directors and any outstanding convertible securities, options, warrants or other rights which are convertible into or exchangeable or exercisable for securities entitled to vote for the election of directors. 5.2. Standstill Obligations. (a) Limitation. At any time during the Standstill Period, except with the prior written consent of the Company's Board of Directors, no member of the Investor Group shall, directly or indirectly: (i) acquire any Voting Securities (except by way of stock splits, stock dividends or other distributions) if the effect of such acquisition or exercise would be to increase the percentage interest of the Investor Group in the Actual Voting Power to more than the Threshold Percentage; or 8 REDACTED COPY (ii) publicly propose (on behalf of itself or to or with a Third Party) any merger, business combination, restructuring, recapitalization or similar transaction involving the Company or its subsidiaries or the purchase, sale or other disposition outside the ordinary course of business of any material portion of the assets of the Company or any of its subsidiaries. (b) Repurchases. Notwithstanding Section 5.2(a), no member of the Investor Group shall be obligated to dispose of any Voting Securities if the aggregate percentage ownership of the Investor Group is increased as a result of a repurchase of Voting Securities by the Company. (c) Participation. Except with the prior written consent of the Company's Board of Directors, during the Standstill Period the Investor Group will not: (i) solicit proxies (or powers of attorney or similar rights to vote) in respect of any Voting Securities; (ii) become a "participant" or "participant in a solicitation", as those terms are defined in Regulation 14A of the General Rules and Regulations promulgated pursuant to the Exchange Act, in opposition to a solicitation by the Company; provided, however, that the Investor Group shall not be deemed to be a "participant" or to have become engaged in a solicitation hereunder solely by reason of the Company's solicitation of proxies in connection with any meeting of the stockholders of the Company; (iii) seek to advise or intentionally influence any person or entity with respect to the voting of Voting Securities in connection with any such solicitation, in opposition to the recommendation of a majority of the Board of Directors with respect to any matter relating to a Change of Control; (iv) initiate, propose or otherwise solicit stockholders for the approval of any stockholder proposal (as described in Rule 14a-8 under the Exchange Act or otherwise) with respect to the Company that is opposed by the Board of Directors; (v) form or join any 13D Group for the purpose of voting, purchasing or disposing of Voting Securities or the acquisition of all or substantially all of assets of the Company; (vi) deposit any Voting Securities in a voting trust or subject them to a voting agreement or other arrangement of similar effect, except in order to comply with Competition Laws or other legal requirements; (vii) otherwise act, alone or in concert with others, in a manner designed or having the deliberate effect of circumventing the restrictions otherwise imposed hereunder, publicly announce any intention, plan or arrangement inconsistent with the foregoing or finance or agree to finance any other person in connection with any of the activities prohibited by this Agreement; or (viii) publicly request, propose or otherwise seek any amendment or waiver of the provisions of this Article 5. 9 REDACTED COPY 5.3 Exceptions. The limitations provided in Section 5.2 shall immediately terminate upon the occurrence of any of the following events: (a) the commencement by any Person (other than a member of the Investor Group or an Affiliate thereof) of a bona fide tender or exchange offer seeking to acquire Beneficial Ownership of fifty percent (50%) or more of the outstanding shares of Voting Securities of the Company; (b) the execution of an agreement by the Company and any Person which, if consummated, would result in either (i) a Change of Control of the Company or (ii) the sale of all or substantially all of the Company's assets; or (c) the adoption by the Company of a plan of liquidation or dissolution with respect to the Company. 5.4 Exclusion. No action or actions taken by the Purchaser pursuant to the terms of the Collaboration Agreement or in connection with exercising or enforcing its rights thereunder shall be deemed to violate the restrictions in Section 5.2. ARTICLE VI MISCELLANEOUS 6.1 No Waiver. No failure or delay on the part of any party to this Agreement in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. None of the terms, covenants and conditions of this Agreement can be waived except by the written consent of the party waiving compliance. 6.2 Publicity. The parties may, subject to compliance with the Securities Act, issue a joint press release announcing this Agreement and the transactions contemplated hereby following execution of this Agreement. Any proposed announcement, press release or other public disclosure concerning this Agreement and/or any of the transactions or relationships contemplated hereby shall be mutually approved by both parties (which approval shall not be unreasonably withheld); provided, however, that the restrictions contained in this Section 6.2 do not apply to disclosures required by law, the rules of the NYSE, the NASD or under U.S. generally accepted accounting principles. The Purchaser agrees and acknowledges that this Agreement and the transactions contemplated hereby shall be disclosed in, and filed as an exhibit to, the Registration Statement. 6.3 Amendments, Waivers and Consents. Any provision in this Agreement to the contrary notwithstanding, and except as hereinafter provided, changes in or additions to this Agreement may be made, and compliance with any covenant or provision set forth herein may be omitted or waived, if the party requesting such change, addition, omission or waiver shall obtain consent thereto in writing from the other party. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. Any such amendment or waiver or consent effected in accordance with this Section 6.3 shall be binding upon the parties and their respective successors and assigns. 6.4 Addresses for Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by courier, overnight delivery service or confirmed facsimile, or seventy-two (72) hours after being deposited in the regular 10 REDACTED COPY mail as certified or registered mail (airmail if sent internationally) with postage prepaid, if such notice is addressed to the party to be notified at such party's address or facsimile number as set forth below, or as subsequently modified by written notice. If to the Company: Trubion Pharmaceuticals, Inc. 2401 Fourth Avenue, Suite 1050 Seattle, WA 98121 Attn: Chief Executive Officer and General Counsel Facsimile Number: (206) 838-0503 If to the Purchaser: Wyeth Pharmaceuticals 500 Arcola Road Collegeville, Pennsylvania 19426 Attn: Senior Vice President, Corporate Business Development Fax: (484) 865-6476 with a copy to: Wyeth 5 Giralda Farms Madison, NJ 07940 Attn: Executive Vice President and General Counsel Facsimile: (973) 660-7156 6.5 Binding Effect; Assignment. This Agreement may not be assigned by either party without the prior written consent of the other; provided, however, that the Purchaser may assign its rights and delegate its duties hereunder to an Affiliate without the prior written consent of the Company; provided, however, Purchaser shall remain subject to Section 5 hereof regardless of any such assignment; and provided further that if the Company undergoes a Change of Control in which (a) the Company is not the surviving entity and (b) this Agreement does not terminate pursuant to Section 1.5(b) in connection with such Change of Control, the surviving entity and the Purchaser shall enter into a replacement agreement with substantially the same terms as this Agreement. Subject to the foregoing, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.6 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties and supersede any prior understandings or agreements concerning the subject matter hereof. 6.7 Specific Performance. The parties acknowledge and agree that irreparable damage would occur in the event any of the provisions of Article V of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of Article V of this 11 REDACTED COPY Agreement and to enforce specifically the terms and provisions of such Article in any court of the United States or any state thereof having jurisdiction, in addition to any other remedy to which they may be entitled in law or in equity. 6.8 Severability. The provisions of this Agreement are severable and, in the event that any court of competent jurisdiction shall determine that any one or more of the provisions or part of a provision contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement; but this Agreement, shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of a provision, had never been contained herein, and such provisions or part reformed so that it would be valid, legal and enforceable to the maximum extent possible. 6.9 Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without reference to Delaware conflicts of law provisions. 6.10 Headings. Article, Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 6.11 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the party actually executing the counterpart, and all of which together shall constitute one instrument. [Signature page follows.] 12 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. TRUBION PHARMACEUTICALS, INC. By:__________________________________ Name:________________________________ Title:_______________________________ WYETH By:__________________________________ Name:________________________________ Title:_______________________________ EXECUTION COPY EXHIBIT A MATTERS TO BE COVERED BY COMPANY COUNSEL 1. The Company is a corporation validly existing under Delaware law and in good standing with the Secretary of the State of Delaware and has the corporate power to execute and deliver the Agreement and to perform its obligations thereunder. 2. The Company has duly authorized, executed and delivered the Agreement, and the Agreement constitutes the Company's valid and binding agreement enforceable against the Company in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally or by general equitable principles. 3. No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the execution, delivery and performance of the Agreement by the Company or in connection with the taking by the Company of any action contemplated thereby, other than as indicated in the Agreement or such as have been obtained and made and such as may be required under federal and state securities laws. 4. The execution, delivery and performance of the Agreement by the Company, and the consummation by the Company of the transactions contemplated therein do not and will not (a) violate the Certificate of Incorporation or By-Laws of the Company, (b) materially violate any judgment, ruling, decree or order known to such counsel, (c) materially violate any statute or regulation applicable to the business or properties of the Company, or (d) result in a material breach or violation of any of the terms or provisions of, or constitute a default or result in the acceleration of any obligation under any material contract to which the Company is a party or bound. 5. The Shares delivered on the date hereof have been duly authorized and validly issued and are fully paid and non-assessable shares of the Company. EXECUTION COPY EXHIBIT 5.2B TRUBION PHARMACEUTICALS, INC. AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This Amendment No. 1 to the Amended and Restated Investor Rights Agreement (the "RIGHTS AGREEMENT") dated as of July 13, 2004 is entered into as of ________, 2005, by and among Trubion Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY"), Wyeth, a Delaware corporation ("WYETH"), and the investors set forth on EXHIBIT A hereto (collectively the "INVESTORS" and each individually an "INVESTOR"). RECITALS A. The Company and the Investors are parties to the Rights Agreement. B. The Company and Wyeth have entered into a Common Stock Purchase Agreement dated as of December __, 2005 (the "PURCHASE AGREEMENT") pursuant to which the Company will sell to Purchaser and Purchaser will purchase from the Company shares of the Company's Common Stock concurrent with and conditioned upon the closing of the Company's initial public offering (the "CLOSING"). A condition to the Purchaser's obligations under the Purchase Agreement is that the Rights Agreement be amended in order to provide Purchaser with certain rights to register shares of the Company's Common Stock. C. Pursuant to Section 6.5 of the Rights Agreement, the written consent of the Company and the Investors holding a majority of the Registrable Securities (the "REQUISITE HOLDERS") is required to amend the Rights Agreement. D. The Company and the Requisite Holders desire to induce Purchaser to enter into the Purchase Agreement by agreeing to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows: 1. Definitions. Capitalized terms used herein without definition shall have the meaning ascribed to them in the Rights Agreement. 2. Addition of Purchaser as a Party to the Rights Agreement. Effective upon the Closing pursuant to the Purchase Agreement, the parties hereby agree to add Purchaser as a party to the Rights Agreement and Purchaser shall be deemed a "Holder" of Registrable Securities for purposes of Sections 1, 2 and 6 of the Rights Agreement and subject to all of the rights and obligations of such Sections. For purposes of clarification, Purchaser shall not be entitled to the rights or subject to the obligations set forth in Sections 3, 4 and 5 of the Rights Agreement and Purchaser shall not be deemed an "INVESTOR" for purposes of the Rights Agreement. REDACTED COPY 3. Amendment to Section 1.1. The definition of "Registrable Securities" set forth in Section 1.1 is hereby amended and restated to read in its entirety as follows: "REGISTRABLE SECURITIES" means (a) Common Stock of the Company issued or issuable upon conversion of the Shares, (b) Common Stock of the Company issued to Frazier Healthcare Fund ("FRAZIER"), ARCH Venture Fund ("ARCH") and Scott Minick ("MINICK") pursuant to those certain Common Stock Purchase Agreements dated November 19, 2002 by and between the Company and each of Frazier, Arch and Minick, (c) Common Stock of the Company issued to Wyeth pursuant to the Purchase Agreement, and (d) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the securities described in (a), (b) and (c) above; provided, however, the shares referred to in clause (c) above shall not qualify as Registrable Securities for the purposes of Sections 2.2 hereof until the 15 month anniversary of the Closing. For the avoidance of doubt, in the event that the Company effects a registration under the Securities Act pursuant to Section 2.2 hereof prior to the 15 month anniversary of the Closing, in connection with such registration the Shares referred to in clause (c) above shall qualify as Registrable Securities for the purposes of Section 2.3. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under SECTION 2 of this Agreement are not assigned. 4. Amendment to Section 2.1(a)(ii). Section 2.1(a)(ii) is amended effective immediately following the expiration of the "Market Stand-Off" period set forth in Section 2.12 hereof, by deleting the last sentence thereof and substituting therefor the following: "Subject to the other terms of this Agreement (including without limitation the restrictions on assignment of registration rights set forth in Section 2.10 and Sections 2.1(b) and (d)), it is agreed that the restrictions contained in this Section 2.1(a)(ii) shall not apply to dispositions of Shares or Registrable Securities made pursuant to Rule 144 promulgated under the Securities Act." 5. Amendment to Section 6.5. Section 6.5 is hereby amended by adding, after the final sentence thereof, the following: Notwithstanding the foregoing, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated in any way that diminishes or eliminates the rights particular to Wyeth hereunder and in a manner different than the other holders of Registrable Securities, such action shall require the prior written consent of Wyeth. 6. Waiver of Right of Participation. Each Investor on behalf of itself and all other Investors and holders of Registrable Securities hereby waives any right of participation set forth in Section IV of the Rights Agreement with respect to the sale and issuance of the shares of Company Common Stock to Wyeth pursuant to the Purchase Agreement. 7. No Other Amendments. Except as expressly amended or waived as set forth above, the Rights Agreement shall remain in full force and effect in accordance with its terms. 8. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one document. -2- REDACTED COPY [Signature pages follow.] -3- EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "COMPANY" TRUBION PHARMACEUTICALS, INC. a Delaware corporation By: _________________________________ Peter Thompson, M.D., FACP President and Chief Executive Officer SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "WYETH" WYETH By: _________________________________ Name: _______________________________ Its: ________________________________ SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" PROSPECT VENTURE PARTNERS II, L.P. By: Prospect Management Co. II, LLC Its General Partner By: _________________________________ Name: David Schnell Title: Managing Member PROSPECT ASSOCIATES II, L.P. By: Prospect Management Co. II, LLC Its General Partner By: _________________________________ Name: David Schnell Title: Managing Member SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" VENROCK PARTNERS, L.P. by its General Partner, Venrock Partners Management, LLC VENROCK ASSOCIATES IV, L.P. by its General Partner, Venrock Management IV, LLC VENROCK ENTREPRENEURS FUND IV, L.P. by its General Partner, VEF Management IV, LLC By:______________________________________________ Name: Anders D. Hove Title: Member Address: 30 Rockefeller Plaza Room 5508 New York, NY 10112 SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" ARCH VENTURE FUND V, L.P. By: ARCH Venture Partners V, L.P. Its general partner By: ARCH Venture Partners V, L.L.C. Its general partner By: _____________________________________________ Title: Managing Director ARCH V ENTREPRENEURS FUND, L.P. By: ARCH Venture Partners V, L.P. Its general partner By: ARCH Venture Partners V, L.L.C. Its general partner By: _____________________________________________ Title: Managing Director HEALTHCARE FOCUS FUND, L.P. By: ARCH Venture Partners V, L.P. Its general partner By: ARCH Venture Partners V, L.L.C. Its general partner By: _____________________________________________ Title: Managing Director 8 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" OXFORD BIOSCIENCE PARTNERS IV L.P. By: OBP Management IV L.P. By: _____________________________________________ Mark P. Carthy - General Partner mRNA FUND II L.P. By: OBP Management IV L.P. By: _____________________________________________ Mark P. Carthy - General Partner SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" FRAZIER HEALTHCARE IV, L.P. By FHM IV, LP, its general partner By FHM IV, LLC, its general partner By: _____________________________________________ Name: ___________________________________________ Its: ____________________________________________ FRAZIER AFFILIATES IV, L.P. By FHM IV, LP, its general partner By FHM IV, LLC, its general partner By: _____________________________________________ Name: ___________________________________________ Its: ____________________________________________ FRAZIER HEALTHCARE III, L.P. By FHM III, LLC By: _____________________________________________ Name: ___________________________________________ Its: ____________________________________________ FRAZIER AFFILIATES III, L.P. By FHM III, LLC By: _____________________________________________ Name: ___________________________________________ Its: ____________________________________________ SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" ATP CAPITAL, L.P. By: ATP General Partner LLC Its General Partner By: _____________________________________________ Jonathan Malkin, Manager SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT REDACTED COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" CASCADE INVESTMENTS, L.L.C. By: _____________________________________________ Name: ___________________________________________ Its: ______________________________ 2 EXECUTION COPY IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof. "INVESTOR" ___________________________ By: _____________________________________________ Name: ___________________________________________ Its: ___________________________ SIGNATURE PAGE TO AMENDMENT NO. 1 TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT EXECUTION COPY EXHIBIT 5.3 ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENTS A. ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENTS FOR CD20 PRODUCTS Within *** after Trubion's or Wyeth's achievement of the following events with respect to any *** (each payable one time only even if achieved with respect to more than one ***), Wyeth shall make the following payments to Trubion: *** B. ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENTS FOR *** Within *** after Wyeth's achievement of the following events with respect to any *** (each payable one time only even if completed or achieved with respect to more than one ***), Wyeth shall make the following payments to Trubion: *** C. ADDITIONAL RESEARCH AND DEVELOPMENT EXPENSE PAYMENTS FOR OTHER PRODUCTS Within *** after Wyeth's achievement of the following events with respect to each Other Product (up to a maximum of *** Other Products), Wyeth shall make the following payments to Trubion; provided, however, that: (i) in the event that any of the following events is achieved with respect to two or more Other Products that are directed against the same Wyeth Target, such payment shall be payable only with respect to the first such Other Product for which the event occurred; and (ii) in the event that an Other Product is directed against two or more Wyeth Targets, such Licensed Product shall be a Multispecific SMIP Product, the consequences of which are as described in Section D below: *** D. NO ADDITIONAL PAYMENTS; OTHER APPLICABLE TERMS AND CONDITIONS (i) Other than the payments listed in Sections A - C of this Exhibit 5.3, no Additional Research and Development Expense Payments shall be due or payable by Wyeth to Trubion for any Licensed Product, regardless of the number of Licensed Products Developed against any Trubion Target or Wyeth Target. (ii) Each of the Additional Research and Development Expense Payments set forth above shall be payable one time only with respect to each Licensed Target (regardless 2 REDACTED COPY of the number of times the specified event is achieved with respect to any Licensed Product(s)). (iii) In the event that the Development of a Licensed Product directed against a particular Licensed Target hereunder (an "Initial Licensed Product") is discontinued prior to the Commercialization of such Initial Licensed Product, and Development has been initiated with respect to another Licensed Product directed against such Licensed Target (a "Replacement Licensed Product"), payments with respect to such Replacement Licensed Product shall be due under this Exhibit 5.3 only upon the achievement of those events that have not been achieved by the Initial Licensed Product. (iv) Without limiting the foregoing, if a specified event listed in Sections A - C of this Exhibit 5.3 occurs with respect to a Licensed Product directed against two or more Licensed Targets (a "Multispecific SMIP Product"), then (a) no more than one Additional Research and Development Expense Payment shall become payable with respect to the achievement of such event for such Multispecific SMIP Product, (b) only the highest Additional Research and Development Expense Payment based on the achievement of such event that has not already become payable shall be payable, and (c) if all Additional Research and Development Expense Payments based on the achievement of such event have already become payable, then no payment shall be due with respect to such event for such Multispecific SMIP Product. By way of example only, if a BLA filing and acceptance for review in the U.S. occurs with respect to a Multispecific SMIP Product directed against the *** and a Wyeth Target ("Wyeth Target Q"), then: (x) if the *** Additional Research and Development Expense Payment under Section B for such event has not already become payable, only such $15.0 million amount shall become payable; (y) if such *** Additional Research and Development Expense Payment had already become payable, then the *** Additional Research and Development Expense Payment under Section C for such event shall become payable, if it has not previously become payable; and, (z) if both such *** and such *** Additional Research and Development Expense Payment had previously become payable, then no payment shall be due upon BLA filing and acceptance for review in the U.S. with respect to such Multispecific SMIP Product. To continue the same example, if the same Multispecific SMIP Product meets the condition set forth in (x) above, and thereafter a BLA filing and acceptance for review in the U.S. occurs with respect to a separate Licensed Product directed only against such Wyeth Target Q, then upon such subsequent occurrence by such separate Licensed Product, the *** Additional Research and Development Expense Payment shall be payable with respect to such Wyeth Target Q (if such *** payment had not previously become payable in connection with Wyeth Target Q). (v) Subject to the limitations set forth above in Sections A, B and C and in this Section D, if an Additional Research and Development Expense Payment based on a clinical study of, or Regulatory Approval filing for, a Licensed Product for a particular indication (a "Later Development Event") becomes payable before the achievement of an earlier phase clinical study event with respect to such Licensed 3 REDACTED COPY Product for the same indication for which Additional Research and Development Expense Payments would have been payable (an "Earlier Development Event"), then the Additional Research and Development Expense Payment for the Earlier Development Event also shall become payable upon occurrence of the Later Development Event. *** 4 EXECUTION COPY EXHIBIT 8.2(d) THIRD PARTY RIGHTS [INTENTIONALLY LEFT BLANK] EXECUTION COPY EXHIBIT 8.2(e) GOVERNMENT FUNDING AGREEMENTS NIH GRANT # 5 R01 CA90143 PROJECT TITLE: GENE THERAPY WITH MAB DERIVATIVES EXPRESSED ON TUMORS CONFIDENTIAL APPENDIX WYETH TARGETS
GENBANK NUCLEOTIDE GENBANK PROTEIN ACCESSION TARGET # TARGET NAME GENE SYMBOL ACCESSION NUMBER NUMBER - ------------ ----------- ----------- ------------------ ------------------------- ~~*** *** *** *** ***~~
EX-10.13 4 v18917a5exv10w13.txt EXHIBIT 10.13 EXHIBIT 10.13 DEVELOPMENT AND MANUFACTURING SERVICE AGREEMENT BETWEEN LONZA BIOLOGICS PLC AND TRUBION PHARMACEUTICALS, INC. CONFIDENTIAL TREATMENT TABLE OF CONTENTS
PAGE ---- 1. Definitions......................................................................... 3 2. Customer Obligations, Warranties and Indemnities.................................... 10 3. Provision of the Services........................................................... 12 4. Quality; Project Management......................................................... 15 5. Delivery, Transportation of Product and Customer Tests.............................. 17 6. Price and Terms of Payment.......................................................... 19 7. LB Warranties and Covenants and Indemnity........................................... 19 8. Confidentiality and Non-Use......................................................... 21 9. Termination; Ownership; License Rights.............................................. 23 10. Force Majeure....................................................................... 28 11. Governing Law, Jurisdiction and Enforceability; Dispute Resolution.................. 28 12. Notices............................................................................. 29 13. Miscellaneous....................................................................... 30 14. Limitation of Liability; Exclusion of Certain Damages............................... 31
CONFIDENTIAL TREATMENT 2 THIS AGREEMENT is made effective as of the 8th day of January 2004 (the "Effective Date") BETWEEN 1. LONZA BIOLOGICS PLC, the registered office of which is at 228 Bath Road, Slough, Berkshire SL1 4DX, England (herein after referred to as "LB"), and 2. TRUBION PHARMACEUTICALS, INC., (formerly known as GENECRAFT, INC.) of 24014th Avenue, Suite 1050, Seattle, WA 98121, USA (herein after referred to as the "Customer"). WHEREAS A. The Customer has created or controls certain Cell Lines as defined herein; and B. LB has expertise in the evaluation and production of proteins for therapeutic use using such Cell Lines; and C. The Customer wishes to contract LB for Services as defined herein relating to the Cell Line as described in the Agreement; and D. LB is prepared to perform such Services for the Customer under the terms and conditions set out herein. NOW IT IS AGREED AS FOLLOWS: 1. DEFINITIONS. The following terms shall have the following meanings: "Affiliate" means any company, partnership or other entity which directly or indirectly Controls, is Controlled by or is under common Control with the relevant party to this Agreement. "Control" means the ownership of more than fifty per cent (50%) of the issued share capital or the legal power to direct or cause the direction of the general management and policies of the party in question. "Agreement" means this agreement, including and incorporating Schedule 1 (Definitions and Specifications), Schedule 2 (Services), Schedule 3 (Price and Terms of Payment), Schedule 4 (Quality Agreement), and Schedule 5 (Commercial Terms for Technology Transfer), all as the same may be amended or varied from CONFIDENTIAL TREATMENT 3 time to time by written agreement of the parties. "August 2003 Services means that certain development and manufacturing Agreement" agreement dated 12 August 2003 between the parties for the development and manufacture of the Product, as amended or varied from time to time by written agreement of the parties. "Batch" means the total quantity of Manufactured Product obtained from one fermentation and associated purification run using the Process. "Cell Line" means the cell line provided by Customer to LB, the particulars of which are set out in Schedule 1. "cGMP" means the regulatory requirements for current Good Manufacturing Practices and General Biologics Products Standards as promulgated by the United States Food and Drug Administration ("FDA") (or any successor agency thereto) under the United States Federal Food Drug and Cosmetic Act and the Public Health Service Act, at 21 CFR (Parts 210, 211, 600 and 610), and the Guide to Good Manufacturing Practices for Medicinal Products as promulgated under European Directive 91/356/EEC, all as the same may be amended from time to time. "cGMP Product" means Product which is required under Schedule 2 to be manufactured in accordance with cGMP. "Certificate of means, for each Batch, a document in a format Analysis" agreed to by the parties and prepared by LB listing (a) the date of manufacturing, unique Batch number, tests performed, Specifications, test dates, and test results, (b) the quantity of Manufactured Product in such Batch, and certifying that such Batch was manufactured in accordance with the Specifications and cGMP, and (c) the tests performed by LB or permitted Testing Laboratories, Specifications, and test results; all with respect to such particular Batch CONFIDENTIAL TREATMENT 4 and as required by the Specifications, the accuracy of which has been certified by LB. "Critical Raw has the meaning given to it in Clause 4.6 below. Materials" "Customer" means Trubion Pharmaceuticals, Inc., and its successors in title and lawful assigns. "Customer Information" means (a) all Customer Know-How and other tangible and intangible data, information, and know-how, whether in written, printed, graphic, electronic, or oral form, supplied by or on behalf of Customer to LB hereunder or under the August 2003 Services Agreement; (b) all Documentation and all tangible and intangible data, information, know-how, and Intellectual Property included in the Documentation; (c) all Deliverables and all tangible and intangible data, information, know-how, and Intellectual Property included in the Deliverables; and (d) all tangible and intangible data, information, know-how, and Intellectual Property included in the Customer Process; "Customer Information" does not include LB Know-How, the LB Patent Rights, the LB Process, the New General Application Intellectual Property, and LB's other Intellectual Property, "Customer Information" is a part of "Customer Technology." "Customer Know-How" means all know-how, technical and other information relating directly or indirectly to the Cell Line, the Customer Process (including for the avoidance of doubt improvements or modifications thereto from time to time, other than and excluding the LB Process and any New General Application Intellectual Property), Customer's business, technology, finances or operations, trade secrets, the Customer Materials, and/or the Product, known by Customer from time to time; "Customer Know-How" does not include LB Know-How, the LB Patent Rights the LB Process, the New General Application Intellectual Property, LB's other Intellectual Property, and information in the CONFIDENTIAL TREATMENT 5 public domain; "Customer Know-How" is a part of "Customer Information." "Customer Materials" means the materials (if any) supplied by Customer to LB pursuant to this Agreement. "Customer Patent means all patents and patent applications, Rights" together with any extensions, reissues, reexaminations, substitutions, renewals, divisions, continuations, and continuations-in-part thereof, of any kind throughout the world that are necessary or useful in performance of the Services, which from time to time Customer is the owner of or entitled to use, other than and excluding the LB Patent Rights. "Customer Process" means that portion of the Process not composed of or included within the LB Process, including without limitation all processes, procedures, protocols, know-how, technology, information and Intellectual Property developed by LB and/or Customer specifically with respect to manufacture of the Product under or as a result of this Agreement or the August 2003 Services Agreement; "Customer Process" does not include LB Know-How, the LB Patent Rights, the LB Process, the New General Application Intellectual Property, or LB's other Intellectual Property. "Customer Technology" means all data, information, know-how, materials, and Intellectual Property which from time to time Customer is the owner of or entitled to use, including without limitation the Customer Know-How, the Customer Patent Rights, the Cell Line, the Customer Materials, the Customer Information, the Customer Process, the New Customer Intellectual Property, and the Product; "Customer Technology" does not include LB Know-How, the LB Patent Rights, the LB Process, the New General Application Intellectual Property, LB's other Intellectual Property, and information in the public domain. CONFIDENTIAL TREATMENT 6 "Deliver", "Delivered" has the meaning given to it in Clause 5.1 below, or "Delivery" "Deliverables" means the data, information, material, reports, Documentation, Product, samples and other items that LB is obligated to provide to the Customer under the terms of the Services, as set forth in Schedule 2. "Documentation" means all data, information and materials, whether in written, printed, graphic, or electronic form, resulting from the work conducted and/or results achieved in connection with the Services, including without limitation documents reasonably necessary for Customer to complete any regulatory filings for the Product; "Documentation" does not include LB Know-How, the LB Patent Rights, the LB Process, the New General Application Intellectual Property, and LB's other Intellectual Property; "Documentation" is a part of "Customer Information." "Intellectual Property" means proprietary methods, discoveries, inventions, patents, trade secrets, copyrights, trademarks, service marks, trade dress, compositions, products, procedures, know-how, data, reports, programs, processes, protocols, written or electronic writings, illustrations, images, and any other form of proprietary rights, and, as the context requires, includes, among other things, the Customer Know-How, the Customer Patent Rights, the Customer Process, the New Customer Intellectual Property, the LB Know-How, the LB Patent Rights, the LB Process and the New General Application Intellectual Property. "LB Know-How" means all know-how, technical and other information relating directly or indirectly to the LB Patent Rights, the LB Process (including for the avoidance of doubt improvements; or modifications thereto from time to time, other than and excluding the Customer Process and any New Customer Intellectual Property) LB's CONFIDENTIAL TREATMENT 7 business, technology, finances or operations, and trade secrets known to LB from time to time; "LB Know-How" does not include the Customer Patent Rights, the Customer Know-How, the New Customer Intellectual Property, the Customer Process, Customer's other Intellectual Property, and information in the public domain. "LB Patent Rights" means all patents and patent applications, together with any extensions, reissues, reexaminations, substitutions, renewals, divisions, continuations, and continuations-in-part thereof, of any kind throughout the world relating to the LB Process which from time to time LB is the owner of or is entitled to use; "LB Patent Rights" does not include the Customer Patent Rights and the New Customer Intellectual Property and Customer's other Intellectual Property. "LB Process" means the manufacturing process for proteins that, as of the Effective Date, is included within the LB Patent Rights and LB Know-How, along with any New General Application Intellectual Property, as defined herein in Clause 9.8.2. "Legal Requirements" means any and all laws, rules, regulations, ordinances, guidelines, and standards of any international, national, state, or local governmental authority, applicable to LB, the Services, the Product, or any facility at which any of the Services are performed, including without limitation (a) cGMP, and (b) all laws and regulations requiring permits, licenses, filings and certifications with respect to LB, the Services, the Product, or any facility at which any of the Services are performed. "Manufactured Product" means any and all tangible forms of the Product which are manufactured under this Agreement using the Process, including without limitation all in-process intermediates, samples and derivatives thereof. CONFIDENTIAL TREATMENT 8 "New Customer Intellectual Property" has the meaning given to it in Clause 9.8.3. "New General Application Intellectual Property" has the meaning given to it in Clause 9.8.2. "Price" means the price specified in Schedule 3 for the Services. "Process" means the process for the production of the Product from the Cell Line pursuant to this Agreement, which is composed of the LB Process and the Customer Process, and including any improvements, changes or modifications to such process from time to time. "Product" means the proprietary Small Modular ImmunoPharmaceutical (SMIP) known as TRU-015, including any derivatives and improvements thereof; and, when the context requires, the term "Product" also means and refers any and all tangible forms of the Product which are manufactured under this Agreement using the Process, including without limitation all in-process intermediates, samples, derivatives, and improvements thereof. "Quality Agreement" means and refers to the quality agreement between the parties, a copy of which is attached hereto as Schedule 4, as amended or varied from time to time by written agreement of the parties; "Run" or "run" means a single fermentation start of the manufacturing Process at LB's facility. "Services" means all or any part of the services to be performed by LB under this Agreement (including, without limitation, cell culture evaluation, purification evaluation, master, working and extended cell bank creation, sample and bulk production, testing of finished Product after fill-finish processing of bulk Product at a third party facility), as more particularly set out in Schedule 2. CONFIDENTIAL TREATMENT 9 "Specialized Raw Materials" has the meaning given to it in Clause 3.10 below. "Specifications" means the quality, functional and analytical specifications for Product, the particulars of which are set out in Schedule 1. "Terms of Payment" means the terms of payment specified in Schedule 3. "Testing Laboratories" means any third party who has been instructed by LB and authorized by Customer to carry out tests on the Cell Line or the Product. References to the singular number include the plural and vice versa, references to Clauses and Schedules are references to clauses and schedules to this Agreement. 2. CUSTOMER OBLIGATIONS, WARRANTIES AND INDEMNITIES 2.1 Customer shall pay the Price set out in Schedule 3 for provision of the Services together with any additional costs and expenses mutually agreed upon in writing by the parties that fall due under this Agreement in accordance with the Terms of Payment. 2.2 As agreed by the parties, the Customer shall supply to LB certain Customer Know-How, together with full details of any hazards known to Customer relating to the Cell Line and/or the Customer Materials, and their storage and use. On review of this Customer Know-How by LB, the Cell Line and/or the Customer Materials shall be provided to LB at LB's request, all as set forth with more particularity in and in accordance with Schedule 2 (Services) hereto. All right, title, and interest in and to the Cell Line, the Customer Materials, the Customer Know-How and any other Customer Technology supplied to LB in connection with this Agreement or the August 2003 Services Agreement shall, as between the parties, remain vested in the Customer. Risk of loss to the Cell Line, Customer Materials and any tangible Customer Information supplied to LB under this Agreement shall transfer to LB upon delivery to LB premises. 2.3 Subject to the terms and conditions of this Agreement, the Customer hereby grants LB the non-exclusive, non-transferable (other than to LB's Affiliates), right to use the Cell Line, the Customer Materials, the Customer Know-How, and the New Customer Intellectual Property during the term of this Agreement solely for the purpose of providing Services under this Agreement. The Customer warrants and covenants to LB that: 2.4.1 Customer has the right to enter into this Agreement; 2.4.2 ***; CONFIDENTIAL TREATMENT 10 2.4.3 ***; 2.4.4 ***; 2.4.5 Customer will promptly notify LB in writing if it receives or is notified of a lawsuit that has been filed against Customer which includes a claim from a third party that the Cell Line, other Customer Materials, Customer Know-How, Customer Patent Rights, Customer Process, or New Customer Intellectual Property infringes any intellectual property rights of such third party or that the use by LB thereof for the provision of the Services infringes any intellectual property rights of such third party; and 2.4.6 ***. 2.5 Subject to Clauses 2.8 and 14 below, and subject to and except to the extent of any indemnification from LB pursuant to Clause 7 below, the Customer undertakes to indemnify and to maintain LB promptly indemnified against all losses, damages, liabilities, settlements, penalties, fines, costs and expenses of any nature (including court costs and reasonable legal fees on a full indemnity basis), that LB may incur to the extent such liabilities arise directly out of or result from any claim, lawsuit or other action by a third party arising out of or resulting from any breach of any of the warranties given by the Customer under Clause 2.4 above.. 2.6 Subject to Clauses 2.8 and 14 below, and subject to and except to the extent of any indemnification from LB pursuant to Clause 7 below, the Customer shall further indemnify and maintain LB promptly indemnified against all losses, damages, liabilities, settlements, penalties, fines, costs and expenses of any nature (including court costs and reasonable legal fees on a full indemnity basis), that LB may incur arising out of or resulting from: 2.6.1 any product liability in respect of Product, unless such liability is caused by the negligent act or omission or willful misconduct of LB, including without limitation in the production and/or supply of Product; and 2.6.2 any negligent act or omission or willful misconduct of the Customer in relation to the use, further processing, storage or sale of the Product. 2.7 A party that intends to claim indemnification under this Agreement (the "Indemnitee") shall promptly notify the indemnifying party (the "Indemnitor") in writing of any third party claim, suit or proceeding included within the scope of the indemnification) described in Clauses 2 or 7 hereunder (each a "Claim") with respect to which the Indemnitee intends to claim such indemnification, and shall tender the defense of such Claim to the Indemnitor, and the Indemnitor shall have sole control of the defense and/or settlement of such Claim. An Indemnitee hereunder shall have the right to retain its own counsel, subject to the following conditions: (a) the Indemnitee's counsel's role shall be limited to monitoring the Claim and performing a watching brief of the Claim and the Indemnitee's counsel shall have no right to actively participate in the defense and/or settlement of such Claim; and (b) the Indemnitor shall have the right to veto the Indemnitee's selection of counsel, acting reasonably and having provided substantive justification CONFIDENTIAL TREATMENT 11 for such veto. So long as the foregoing conditions are met, the Indemnitor shall bear the reasonable costs and expenses of one attorney acting as the Indemnitee's counsel in accordance with this Clause 2.7, subject to the following additional conditions: (x) the attorney's hourly rate must be reasonable and cannot exceed the prevailing rate, based on the venue of the claim, suit or proceeding; and (y) the Indemnitor shall have the right to review and approve the Indemnitee's counsel's invoices. The indemnification obligations under this Agreement shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the consent of the Indemnitor, such consent not to be unreasonably withheld. At the Indemnitor's request and expense, each Indemnitee shall, and shall cause its employees to, provide full information and reasonable assistance to Indemnitor and its legal representatives with respect to the related Claim(s). 2.8 Notwithstanding anything herein seemingly to the contrary, Customer shall have no indemnity obligations under this Clause 2 for any losses, damages, liabilities, settlements, penalties, fines, costs and expenses to the extent such losses, damages, liabilities, settlements, penalties, fines, costs and expenses arise out of or result from: 2.8.1 ***; or 2.8.2 ***, or 2.8.3 ***; or 2.8.4 ***. 2.9 The provisions of this Clause 2, and the obligations of the Customer and LB, respectively, under this Clause 2, shall survive the expiration or termination for whatever reason of the Agreement. 2.10 CLAUSE 2.4 IS IN LIEU OF ALL OTHER CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF THE CELL LINE, CUSTOMER MATERIALS, CUSTOMER INFORMATION, CUSTOMER KNOW-HOW, CUSTOMER PATENT RIGHTS, CUSTOMER PROCESS, NEW CUSTOMER INTELLECTUAL PROPERTY, AND CUSTOMER TECHNOLOGY, WHETHER EXPRESSED OR IMPLIED BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING WITHOUT LIMITATION ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF THE CELL LINE, CUSTOMER MATERIALS, CUSTOMER INFORMATION, CUSTOMER KNOW-HOW, CUSTOMER PATENT RIGHTS, CUSTOMER PROCESS, NEW CUSTOMER INTELLECTUAL PROPERTY, AND CUSTOMER TECHNOLOGY, THEIR FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS WHETHER OR NOT KNOWN TO CUSTOMER) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY EXCLUDED. 3. PROVISION OF THE SERVICES CONFIDENTIAL TREATMENT 12 3.1 LB shall diligently carry out the Services as provided in Schedule 2, and shall use all reasonable efforts consistent with levels of effort that LB uses with its most important customers, to achieve the objectives and estimated timescales set out in that Schedule and deliver the Product, samples of the Product, and other Deliverables to Customer as provided in Schedule 2; provided, however, that the timescales and Product quantities set forth in Schedule 2 are estimates only. LB shall communicate with Customer regularly regarding LB's performance of the Services and shall inform Customer promptly if LB determines that LB will not or may not be able to meet the objectives or timescales, or deliver the Product quantities, Product samples, or other Deliverables set forth in Schedule 2. 3.2 LB shall perform Runs and manufacture the Product in accordance with this Agreement, and, except as expressly set forth to the contrary in Schedule 2 or as otherwise agreed to by the parties from time to time, in compliance with the Legal Requirements, including without limitation the requirements of cGMP, LB warrants and covenants that, except as expressly set forth to the contrary in Schedule 2 and in Clause 3.3 below, the Product resulting from the Runs shall conform to the Specifications. The Product resulting from the Runs shall be provided to Customer at no additional cost to Customer over and above the Price, and Customer may make whatever further use of such Product as Customer shall determine in its sole discretion, provided, however, that, in accordance with Schedule 2, the Product manufactured in Stage 5 shall not be used in humans. 3.3 The parties agree that the *** Batches of Product manufactured under Stage 8 of Schedule 2 attached hereto shall comply fully with cGMP and with the parameters and target Specifications agreed to jointly by LB and the Customer, with an emphasis on the safety of the Product for use in human clinical testing and with pass/fail testing for analytical methods relating to safety. In addition, notwithstanding anything in Schedule 3 seemingly to the contrary, with respect to the Batches of Product manufactured under Stage 8, Customer shall ***. 3.3.1 *** If a failure to perform the Services or produce the Product for Delivery arises due to a breach of this Agreement by LB, or LB's negligent act or omission or willful misconduct, Customer shall be entitled to all of its rights and remedies. 3.4 LB shall comply with cGMP and the International Committee for Harmonisation ("ICH") regulatory requirements, from time to time and to the extent that the foregoing are applicable to the Services. In the event of a conflict between the ICH regulatory requirements and the cGMP regulatory requirements, the cGMP regulatory requirements shall prevail, except as may otherwise be agreed by the parties in writing. 3.5 LB hereby undertakes not to use the Cell Line, the Customer Materials, the Customer Information, the Customer Technology, the Customer Know-How or the Customer Patent Rights, or any part of any of the foregoing, for any purpose other than to perform the Services and supply Product under this Agreement. The obligations of LB under this Clause 3.6 shall survive the expiration or termination for whatever reason of the Agreement. CONFIDENTIAL TREATMENT 13 3.6 LB shall: 3.6.1 at all times use best efforts to keep the Cell Line, the Customer Materials and the Product secure and safe from loss and damage; 3.6.2 not part with possession of the Cell Line or the Customer Materials or the Product, except as permitted under Clause 3.8 below for the purpose of tests at the Testing Laboratories. 3.7 LB shall procure that all Testing Laboratories are subject to obligations of confidence and non-use substantially in the form of and at least as strict as those obligations of confidence and non-use imposed on LB under this Agreement. Each Testing Laboratory shall be subject to the prior written approval of Customer, which approval shall not be unreasonably withheld. Notwithstanding anything herein seemingly to the contrary, Customer shall have the right, at Customer's option and with no penalty, to enter into an agreement directly with one or more of the Testing Laboratories, and transfer the associated testing services from LB under this Agreement to the Testing Laboratory. LB shall ensure that Customer has the right to perform, directly or through Customer's representatives, inspections and audits of all Testing Laboratories, and Customer may condition Customer's approval of any Testing Laboratory to Customer's performance of and satisfaction with the results of such an inspection and audit. Customer shall perform and shall cause its representatives to perform any such inspections and audits in compliance with Clause 4 of this Agreement. Notwithstanding Customer's approval of any Testing Laboratory, LB shall not disclose the contents of this Agreement (including without limitation the Schedules hereto) or any of Customer's Confidential Information to such approved Testing Laboratory except to the extent necessary for such Testing Laboratory to conduct the related tests, and LB shall not transfer possession of any of the Cell Line, Customer Materials or Product to such approved Testing Laboratory except to the extent necessary for such Testing Laboratory to conduct the related tests. Neither LB nor Customer shall be liable in connection with this Agreement for any of the acts or omissions of the Testing Laboratories. LB waives, releases and agrees not to assert against Customer any claims for any losses, damages, liabilities, settlements, penalties, fines, costs and expenses of any nature that LB may incur which directly or indirectly arise out of or result from any negligent acts or omissions or willful misconduct of the Testing Laboratories; ***. LB shall, at Customer's expense, cooperate fully with Customer in the investigation and prosecution of any claim, lawsuit or other proceeding by Customer against a Testing Laboratory in connection with this Agreement for losses, damages, liabilities, settlements, penalties, fines, costs and expenses of any nature that Customer may incur which directly or indirectly arise out of or result from any negligent acts or omissions or willful misconduct of the Testing Laboratories, Nothing in this Clause shall release or shall be deemed to release either party from any liability which arise out of or result from that party's own negligent acts or omissions or willful misconduct. This Clause 3.8 shall survive the expiration or termination for whatever reason of the Agreement. 3.8 LB shall procure, maintain and store such amounts of raw materials and components as required for the Runs, and shall perform testing and evaluation of such materials and components as set forth in the Quality Agreement attached hereto as Schedule 4 or agreed upon in CONFIDENTIAL TREATMENT 14 writing by the parties, and the cost and expense for such materials and components and the testing and evaluation of such materials and components shall be deemed included in the Prices shown on Schedule 3 hereto. LB shall be responsible for and Customer may assist with oversight and coordination of the supply logistics for the raw materials and components required for the Runs. LB shall not procure Specialized Raw Materials (defined below) until authorized to do so by Customer. 3.9 The term "Specialized Raw Materials" as used in this Agreement means the specialized raw materials and components which are used under this Agreement to manufacture the Product. The parties shall in good faith agree in writing which raw materials and components shall be deemed to be "Specialized Raw Materials" for the purposes of this Clause 3.10. In the event the cost and expense of any Specialized Raw Materials materially exceed LB's original pricing assumptions for such Specialized Raw Materials under this Agreement, then Customer shall pay to LB the difference between the assumed cost and expense for such Specialized Raw Materials and the actual cost and expense (not including any LB mark-up or administrative fees) for such Specialized Raw Materials. 4. QUALITY; PROJECT MANAGEMENT 4.1 Responsibility for quality assurance and quality control shall be allocated between the parties in accordance with the Quality Agreement, a copy of which is attached hereto as Schedule 4, and standard operating procedures as may be agreed upon in writing by the parties from time to time. 4.2 Customer and its designated representatives shall have the right to witness, inspect and audit the performance of LB's obligations, at the times and for durations set forth in the Quality Agreement and as otherwise agreed by the parties. Customer shall have access to the facilities, data and records of LB which are related to this Agreement for the purpose of conducting such inspections and audits, and LB shall use reasonable endeavours to ensure that all Testing Laboratories provide similar access to the Testing Laboratories' facilities, data and records which are related to this Agreement for such purposes. In accordance with the Quality Agreement, Customer shall have the right to review LB's non-proprietary standard operating procedures relating to the services of LB under the Quality Agreement or this Agreement. 4.3 In accordance with the Quality Agreement, Customer will have the sole right to correspond with and submit regulatory applications and other filings to the FDA, EMEA and other regulatory authorities to obtain approvals to import, export, conduct clinical trials with, or take any other action with respect to the Product, alone or with other products (collectively, "Approvals"), when and as Customer may deem useful or necessary. Accordingly, except as otherwise required by Legal Requirements, LB will not correspond directly with the FDA, EMEA or any other regulatory agency with respect to the Product without, in each instance, first obtaining Customer's prior written consent. Notwithstanding the foregoing, LB will assist Customer, as requested by Customer and at Customer's expense, in preparing, submitting, and maintaining applications for such Approvals. 4.4 As set forth with particularity in the Quality Agreement, LB will permit the FDA, EMEA and other regulatory authorities to conduct inspections of LB's facilities as the FDA, CONFIDENTIAL TREATMENT 15 EMEA or other regulatory authorities may request, and will cooperate with the FDA, EMEA or other regulatory authorities with respect to the inspections and any related matters, in each case related to the Product. 4.5 Notwithstanding anything in this Agreement seemingly to the contrary, LB shall not undertake any modifications to the Process or testing processes that could delay or otherwise impact the Approvals or other regulatory submissions, including without limitation, regulatory product reviews, Investigational New Drug applications (INDs), or any other compliance status without in each case the prior written agreement of Customer. 4.6 In accordance with the Quality Agreement, Customer shall have the right (a) to review the specifications, grades and vendors of all raw materials and components used under this Agreement to manufacture the Product, and (b) to approve the specifications, grades and vendors of all Critical Raw Materials (defined below), including excipients, and of all raw materials and components of animal or human origin, all to the extent used under this Agreement to manufacture the Product. Customer shall provide a written list to LB of those certain raw materials and components which shall constitute and be deemed to be "Critical Raw Materials" for purposes of this Agreement, and shall update the list from time to time as appropriate. Each version of the written list of the Critical Raw Materials shall be jointly agreed to by Customer and LB. Raw materials of and components of animal or human origin shall be avoided when possible. 4.7 By not later than March 31, 2004, the Parties will establish a Joint Project Team (the "JPT"). The JPT shall be composed of representatives appointed by each of LB and the Customer. Such representatives may include, but not be limited to, the Project Manager, Technical Lead, Manufacturing Lead, Quality Control Lead, Quality Assurance/Regulatory Lead, Raw Materials Lead, Supply Chain Lead and Engineering Lead, or other individuals with expertise and responsibilities in the same areas of manufacturing, process sciences, quality control or regulatory affairs. The JPT will meet by teleconference at least once each week, or more frequently, as agreed by the JPT. The JPT will operate by unanimous decision, except as expressly set forth herein. If the JPT is unable to resolve a dispute regarding any issue presented to it, such dispute shall be resolved in accordance with Clause 11.4. The JPT is responsible for the daily monitoring and guidance of the Services to successfully achieve the deliverables of the project as outlined herein. 4.8 By not later than March 31, 2004, each Party shall appoint a Project Manager to act as the primary contact for such Party in connection with matters related to the performance of the Services. Each such Project Manager, unless otherwise mutually agreed, shall serve as a member of the JPT. 4.9 As set forth in the Quality Agreement, Customer shall have the right to designate one of its employees or consultants as Customer's person on plant, to be present in LB's facility during normal business hours during the term of this Agreement to observe the Runs and observe LB's performance of its obligations under this Agreement at times and for durations to be agreed. While at LB's facility, Customer's representative shall comply with all of LB's applicable policies and procedures, and, at LB's option, shall be escorted by LB personnel. CONFIDENTIAL TREATMENT 16 5. DELIVERY, TRANSPORTATION OF PRODUCT AND CUSTOMER TESTS 5.1 *** Unless otherwise agreed, LB shall package and label Manufactured Product for Delivery in accordance with the Specifications and its standard operating procedures and all applicable Legal Requirements. It shall be the responsibility of the Customer to inform LB in writing in advance of any special packaging and labeling requirements for Manufactured Product. All additional costs and expenses of whatever nature incurred by LB in complying with such special requirements shall be charged to the Customer in addition to the Price, Transportation of Manufactured Product, whether or not under any arrangements made by LB on behalf of Customer, shall be made at the sole risk and expense of the Customer, provided that LB has complied with any instructions provided by Customer with respect to transportation and insurance as set forth in Clauses 5.2 and 5.3 below. 5.2 If requested in writing by the Customer, LB will (acting as agent of the Customer for such purpose) arrange the transportation of Manufactured Product from LB's premises to the third-party fill-finish contractor or other destination indicated by the Customer, together with insurance coverage for Manufactured Product in transit at its invoiced value. All additional reasonable costs and expenses of whatever nature incurred by LB in arranging such transportation and insurance shall be charged to the Customer in addition to the Price provided that LB has obtained Customer's prior written consent to incurring such additional costs and expenses. 5.3 If requested in writing by the Customer, LB will (acting as agent for Customer) arrange for insurance of Product whilst held by LB after Delivery (awaiting transportation). The costs and expenses of such insurance shall be at Customer's expense and on reasonable terms equivalent to those under which LB insures other comparable products prior to Delivery. All such additional reasonable costs and expenses of whatever nature incurred by LB in arranging such insurance shall be charged to the Customer in addition to the Price, provided that LB has obtained Customer's prior written consent to incurring such additional costs and expenses. Notwithstanding the foregoing, in the event LB has been requested to arrange the transportation of Manufactured Product in accordance with Clause 5.2 above, the costs and expenses of such insurance of Manufactured Product whilst held by LB after Delivery (awaiting transportation) shall be at LB's expense for up to fourteen (14) days and thereafter shall be at Customer's expense, provided, however, that in the event the delay in transportation is caused by LB, then the costs and expenses of such insurance shall be at LB's expense until the Manufactured Product has been loaded onto the appropriate collecting vehicle, except as may be otherwise agreed by the parties in writing. 5.4 LB shall deliver to Customer the Certificate of Analysis not later than the date of Delivery. Notwithstanding the foregoing, at Customer's request, LB will Deliver Manufactured Product in quarantine prior to delivery of the Certificate of Analysis. Such request shall be accompanied by Customer's written acknowledgement that the Manufactured Product has been Delivered without the transmittal to Customer of a Certificate of Analysis, that accordingly the Manufactured Product cannot be administered to humans until transmittal of the Certificate of Analysis, and that Customer nevertheless accepts full risk of loss to and title and ownership of the Manufactured Product. The Delivery of Product in quarantine shall be subject to such testing CONFIDENTIAL TREATMENT 17 requirements as LB may reasonably require, and the *** period referred to in Clause 5.7 shall run from Customer's receipt of samples of such Manufactured Product together with the related consolidated Batch record. 5.5 Where LB has made arrangements for the transportation of Manufactured Product, the Customer shall diligently examine the Manufactured Product as soon as practicable after receipt. Notice of all claims (time being of the essence) arising out of: 5.5.1 visible damage to or total or partial loss of Manufactured Product in transit shall be given in writing to LB within *** of receipt by Customer at Customer's facility or of receipt by Customer's third party supplier at such third party's facility; or 5.5.2 non-Delivery shall be given in writing to LB within *** after the later of (a) the date of LB's despatch notice, and (b) Customer's actual knowledge of non-Delivery. 5.6 The Customer shall make damaged Manufactured Product and associated packaging materials available for inspection and shall comply with the requirements of any insurance policy covering the Manufactured Product of which LB has given Customer notice. LB shall offer the Customer all reasonable assistance (at the cost and expense of the Customer) in pursuing any claims arising out of the transportation of Manufactured Product. 5.7 LB shall deliver to Customer samples of all Batches manufactured under this Agreement, as and when Batches are manufactured, together with the related consolidated Batch record requested by Customer to enable Customer to inspect and perform testing on such samples. Promptly following receipt of Manufactured Product or any sample thereof, the Customer may inspect the Manufactured Product or sample and carry out any of the tests outlined or referred to in the Specifications set out in Schedule 1 and such additional tests as may be prudent in Customer's reasonable discretion. Subject to Clause 3.2, if such tests show that the Manufactured Product fails to meet the Specifications, the Customer shall give LB written notice thereof within *** after Customer's receipt at Customer's facility of samples of such Batch together with the related consolidated Batch record and shall return such Manufactured Product (except for reference samples retained by Customer) at LB's expense to LB's premises for further testing. In the absence of such written notice, Manufactured Product shall be deemed to have been accepted by the Customer as meeting the Specifications. Subject to Clause 3.2, if Customer has reasonably demonstrated to LB that Manufactured Product returned to LB fails to meet the Specifications, and LB has failed to prove that such failure is due (in whole or in part) to acts or omissions of the Customer or any third party after Delivery, LB shall at Customer's discretion refund that part of the Price that relates to the production of such Manufactured Product or replace such Manufactured Product at LB's own cost and expense. In the event Customer requires LB to replace such Manufactured Product, LB shall use all reasonable endeavours to do so as soon as possible with the minimum delay. 5.8 Subject to Clause 3.2, if there is any dispute concerning whether Manufactured Product returned to LB fails to meet the Specifications or whether such failure is due (in whole or in part) to acts or omissions of the Customer or any third party after Delivery, such CONFIDENTIAL TREATMENT 18 dispute shall be resolved in accordance with the dispute resolution procedures described in Clause 11.4 below. 5.9 Subject to Clause 7, LB's liability hereunder in respect of Manufactured Product that fails to meet the Specifications shall be limited to refund or replacement, in accordance with and as set forth with more particularity in Clause 5,7 above; provided, however, that the foregoing limitation of liability shall not apply in the event such failure is caused by the negligent act or omission or willful misconduct of LB. 6. PRICE AND TERMS OF PAYMENT 6.1 Unless otherwise indicated in writing by LB, all prices and charges payable to Lonza are exclusive of Value Added Tax or of any other applicable taxes, levies, imposts, duties and fees of whatever nature imposed by or under the authority of any government or public authority, which shall be paid by the Customer (other than taxes on LB's income). LB shall add all such taxes as separate line items on invoices. All invoices are strictly net and payment must be made within thirty (30) days of Customer's receipt of invoice. Notwithstanding the foregoing, no amounts shall be invoiced until such amounts are then due and payable in accordance with the Schedules to this Agreement, including without limitation and as appropriate the completion of the related Services and Customer's receipt and acceptance of the related Deliverables. The invoices shall be in ***, and all payments made by Customer shall be made in ***. 6.2 In default of payment on due date: 6.2.1 interest shall accrue on any amount overdue at the per annum interest rate *** above *** from time to time as published in the "Money Rates" section of The Wall Street Journal, on the 1st business day of each month, beginning with the month in which the payment became delinquent, with interest to accrue on a day to day basis both before and after judgement, adjust monthly on the 1st day of each month, beginning with the second month of delinquency, and be calculated on the number of days such payment is delinquent; and 6.2.2 For so long as such payment delinquency remains uncured, LB shall, at its sole discretion, and without prejudice to any other of its accrued rights, be entitled to suspend the provision of the Services or, if Customer has not remedied such payment delinquency within *** of the receipt by Customer of notice of nonpayment and demand for remedy, to treat the Agreement as repudiated. 7. LB WARRANTIES AND COVENANTS AND INDEMNITY 7.1 LB warrants and covenants that: 7.1.1 the Services shall be performed in accordance with this Agreement, including without limitation Clauses 3.1 and 3.2 above; CONFIDENTIAL TREATMENT 19 7.1.2 LB has the right and necessary corporate authorisations to enter into this Agreement; 7.1.3 LB has the necessary rights to licence or permit Customer to use the LB Process, LB Know-How, LB Patent Rights, and New General Application Intellectual Property in accordance with the terms of this Agreement, including without limitation in accordance with and pursuant to Clause 9 below; 7.1.4 any of the LB Process, LB Know-How, LB Patent Rights, and New General Application Intellectual Property referred to in Clause 7.1.3 above that are not owned by LB are licensed to LB under a licence which grants LB the necessary rights to licence or permit Customer to use the LB Process, LB Know-How, LB Patent Rights, and New General Application Intellectual Property in accordance with the terms of this Agreement, including without limitation in accordance with and pursuant to Clause 9 below; 7.1.5 LB will not cause or permit any liens or encumbrances of any kind arising through LB to attach to Product, and unencumbered title to Manufactured Product will be conveyed to Customer upon Delivery; 7.1.6 the LB Know How, LB Patent Rights, LB Process and the New General Application Intellectual Property are owned by LB or LB is otherwise entitled to use them for the purposes of providing Services under this Agreement and LB shall not do or cause anything to be done which would adversely affect their ownership or entitlement to use the same for those purposes; 7.1.7 to the best of LB's knowledge and belief, the use of the LB Process, LB Know-How, LB Patent Rights, and New General Application Intellectual Property in accordance with the terms of this Agreement (including without limitation the use by Customer in accordance with and pursuant to the provisions of Clause 9 below) do not and will not infringe any intellectual property rights or industrial property rights of any third party (including without limitation any LB Affiliate) and do not involve the wrongful use of any trade secret or confidential information, nor is there any claim to the contrary outstanding; 7.1.8 LB will notify Customer in writing immediately if it receives or is notified of a claim that the use by LB of the LB Process, LB Know-How, LB Patent Rights and/or New General Application Intellectual Property for Services or the use by Customer in accordance with the terms of this Agreement infringes any third party's intellectual property rights or industrial property rights or involves the wrongful use of any trade secret or confidential information; and 7.1.9 at the date of this Agreement LB is not a party to any agreement that prohibits or prevents it from performing the Services or otherwise fulfilling its obligations under this Agreement and covenants that it will not enter into any such agreement. 7.2 CLAUSES 3, 4 AND 7.1 ARE IN LIEU OF ALL CONDITIONS, WARRANTIES AND STATEMENTS IN RESPECT OF THE SERVICES AND/OR THE CONFIDENTIAL TREATMENT 20 PRODUCT WHETHER EXPRESSED OR IMPLIED BY STATUTE, CUSTOM OF THE TRADE OR OTHERWISE (INCLUDING BUT WITHOUT LIMITATION ANY SUCH CONDITION, WARRANTY OR STATEMENT RELATING TO THE DESCRIPTION OR QUALITY OF THE PRODUCT, ITS FITNESS OR SUITABILITY FOR A PARTICULAR PURPOSE OR USE UNDER ANY CONDITIONS WHETHER OR NOT KNOWN TO LB) AND ANY SUCH CONDITION, WARRANTY OR STATEMENT IS HEREBY EXCLUDED. 7.3 Subject to and except to the extent of any indemnification from Customer pursuant to Clauses 2.5 and 2.6 above, LB undertakes to indemnify and to maintain Customer promptly indemnified against all losses, damages, liabilities, settlements, penalties, fines, costs and expenses of any nature (including court costs and reasonable legal fees on a full indemnity basis), that Customer may incur to the extent such liabilities arise directly out of or result from any claim, lawsuit or other action by a third party arising out of or resulting from (a) any breach of any of the warranties given by LB in Clause 7.1 above; or (b) any negligent act or omission or willful misconduct of LB. 7.4 Notwithstanding anything herein seemingly to the contrary, LB shall have no indemnity obligations under this Clause 7 for any losses, damages, liabilities, settlements, penalties, fines, costs or expenses to the extent such losses, damages, liabilities, settlements, penalties, fines, costs and expenses arise out of or result from: *** 7.5 Nothing contained in this Agreement shall purport to exclude or restrict any liability for death or personal injury resulting directly from negligence by LB in carrying out the Services or any liability for breach of the implied undertakings of LB as to title. 7.6 This Clause 7 and the obligations of LB under this Clause 7 shall survive the expiration or termination for whatever reason of the Agreement. 8. CONFIDENTIALITY AND NON-USE 8.1 The Customer acknowledges that LB Know-How, LB Process, LB Patent Rights and General Application Intellectual Property and any of LB's other Intellectual Properly disclosed to, supplied to or held by Customer pursuant to this Agreement, and LB acknowledges that Customer Know-How, Customer Patent Rights, Customer Technology, Customer Information, Customer Process, New Customer Intellectual Property, Customer Materials and the Cell Line and any of Customer's other Intellectual Property disclosed to, supplied to or held by LB pursuant to this Agreement (all of the foregoing collectively referred to as "Confidential Information") is, subject to Clause 8.5, supplied and shall be held in circumstances imparting an obligation of confidence and each agrees to keep the other party's Confidential Information secret and confidential and to respect the other's proprietary rights therein and not at any time for any reason whatsoever to disclose or permit such Confidential Information to be disclosed to any third party save as expressly provided herein or to be used for any purpose not expressly authorized under this Agreement For the avoidance of doubt, the parties agree that all portions of documents and records describing and to the extent relating to the Product and the Customer Process shall be kept confidential by Lonza in accordance with the terms of this Clause 8. CONFIDENTIAL TREATMENT 21 8.2 The Customer and LB shall each procure that all their respective employees, consultants, contractors and persons for whom it is responsible having access to the other party's Confidential Information shall be subject to the same obligations of confidence as the principals pursuant to Clauses 8.1 and 8.3 and, in addition, with respect to LB, to the same obligations of non-use pursuant to Clauses 2.3, 3.6 and 8.1, and shall be bound, by written confidentiality agreements in support of all such obligations. 8.3 LB and the Customer each undertake, except as set forth herein, not to disclose or permit to be disclosed to any third party, or otherwise make use of or permit to be made use of (a) any Confidential Information of the other, or of any Affiliate of the other, or of any suppliers, agents, distributors, licensees or other customers of the other which comes into the receiving party's possession under this Agreement or (b) the commercial terms of this Agreement, except to the extent that any of the foregoing is required to be disclosed pursuant to subpoena, court order, judicial process or otherwise by law, provided the receiving party provides prompt notice to the disclosing party of such requirement in order to give the disclosing party an opportunity to timely seek a protective order or other appropriate judicial relief. In the event the disclosing party is unable to obtain a protective order or other appropriate judicial relief, the receiving party shall disclose only that portion of the disclosing party's Confidential Information which is legally required to be disclosed, and ensure that all such Confidential Information of the disclosing party shall be redacted to the fullest extent permitted by law prior to such disclosure and that the disclosing party shall be given an opportunity to review the Confidential Information prior to its disclosure. Notwithstanding the foregoing, (i) LB may disclose Customer's Confidential Information to LB's Affiliate, Lonza Biologics, Inc., for purposes consistent with this Agreement; provided, however, that LB shall ensure that its Affiliate is subject to obligations of confidentiality and non-use with respect to the Confidential Information at least as strict as those set forth herein, and provided further that LB shall remain liable for the acts or omissions of its Affiliate with respect to such Confidential Information, and (ii) either party may disclose the other party's Confidential Information to any contractors or consultants approved in writing by the other party, such approval not to be unreasonably withheld or delayed, for purposes consistent with this Agreement; provided, however, that in each case the party disclosing the other party's Confidential Information shall ensure that the third party receiving the information is subject to contractual obligations of confidentiality and non-use with respect to the Confidential Information at least as strict as those set forth herein; and provided further that the party disclosing the other party's Confidential Information shall remain liable for the acts or omissions of such third party with respect to such Confidential Information. 8.4 The obligations of confidence referred to in this Clause 8 shall not extend to any information which: 8.4.1 is or becomes generally available to the public otherwise than by reason of a breach by the recipient party of the provisions of this Clause 8; 8.4.2 is known to the recipient party and is at its free disposal, without an obligation of confidence, prior to its receipt from the disclosing party; CONFIDENTIAL TREATMENT 22 8.4.3 is subsequently disclosed to the recipient party without being made subject to an obligation of confidence; or 8.4.4 is developed by any servant or agent of the recipient party without access to or use or knowledge of the Confidential Information of the disclosing party. 8.5 The parties acknowledge that: 8.5.1 without prejudice to any other rights and remedies that the parties may have, the parties agree that the Confidential Information is valuable and that damages may not be an adequate remedy for any breach of the provisions of Clauses 2.3, 3.6, 8.1, 8.2, 8.3 and 8.4. The parties agree that the relevant party will be entitled without proof of special damage to the remedies of an injunction and other equitable relief for any actual or threatened breach by the other party; 8.5.2 Customer acknowledges that, save as expressly provided in this Agreement (including without limitation Clauses 9.8.4 and 9.8.7 below), the Customer shall not at any time have any right, title, license or interest in or to LB Know-How, the LB Patent Rights, the LB Process, the New General Application Intellectual Property or any of LB's other Intellectual Property, and 8.5.3 LB acknowledges that, save as expressly provided in this Agreement, LB shall not at any time have any right, title, license or interest in or to the Customer Information, the Customer Materials, the Cell Line, Customer Know-How, Customer Patent Rights, the Customer Technology, the New Customer Intellectual Property, the Customer Process or any of Customer's other Intellectual Property. 8.6 This Clause 8 and the obligations of LB and the Customer under this Clause 8 shall survive the expiration or termination for whatever reason of the Agreement. 9. TERMINATION; OWNERSHIP; LICENSE RIGHTS 9.1 This Agreement shall begin on the Effective Date and, unless earlier terminated as set forth in this Clause 9, shall terminate and expire when the last obligation to be performed under this Agreement has been performed. If it becomes apparent to either LB or the Customer at any stage in the provision of the Services that it will not be possible to complete the Services for scientific or technical reasons, and such party gives written notice thereof to the other party, a sixty (60) day period shall be allowed for good faith discussion and attempts to resolve such problems. If such problems are not resolved within such period, LB and the Customer shall each have the right to terminate the Agreement forthwith by notice in writing. In the event of such termination, the Customer shall pay to LB a termination sum calculated by reference to all the Services performed by LB prior to such termination (including a pro rata proportion of the Price for any stage of the Services which is in process at the date of termination) and all expenses reasonably incurred by LB in giving effect to such termination, including the costs of terminating any commitments entered into under the Agreement, such termination sum not to exceed the Price. CONFIDENTIAL TREATMENT 23 9.2 Customer may in its sole discretion terminate the Services at any time for any reason or for no reason whatsoever by giving not less than *** notice in writing to LB. In the event of termination pursuant to this Clause 9.2 and subject to Clauses 9.4 and 9.5, the Customer shall pay LB a termination sum calculated in accordance with the principles of Clause 9.1 above plus; 9.2.1 in the event notice to terminate Services pursuant to this Clause 9.2 is issued to LB six (6) months or less before LB's then estimated start date for any stage of those Services which include cGMP fermentation activities, Customer shall pay LB a sum equal to the full Price of that stage or those stages in question, which payment shall fall due to LB on or before the date of termination of such Services; or 9.2.2 in the event notice to terminate Services pursuant to this Clause 9.2 is issued to LB more than six (6) but not more than twelve (12) months before LB's then estimated start date for any stage of those Services which include cGMP fermentation activities, Customer shall pay LB a sum equal to eight-five percent (85%) of the full Price of that stage or those stages in question, which payment shall fall due to LB on or before the date of termination of such Services; or 9.2.3 in the event notice to terminate Services pursuant to this Clause 9.2 is issued to LB more than *** before LB's then estimated start date for any stage of Services which include cGMP fermentation activities, no payment shall be due for the stage or stages in question. 9.3 The obligation to make payment under Clause 9.2 shall be reduced (retrospectively, and hence LB shall make an appropriate refund to Customer) to the extent that LB mitigates its loss in this regard (and LB shall promptly notify the Customer of any such mitigation). LB shall make all reasonable efforts so to mitigate such losses. This provision shall not entitle the Customer to be refunded an amount greater than that paid by Customer to LB pursuant to this Clause 9 ***. 9.4 For the avoidance of doubt, activities relating to cGMP fermentation shall be deemed to commence with the date of removal of the vial of cells for the performance of the fermentation from frozen storage. 9.5 In addition to the termination rights set forth above, the parties may each terminate the Agreement forthwith by notice in writing to the other party upon the occurrence of any of the following events: 9.5.1 if one party commits a material breach of the Agreement (which shall include without limitation a breach of the warranties set out in Clauses 2 and 7 respectively), and such breach is not capable of remedy, then the non-breaching party may terminate the Agreement forthwith by notice in writing to the breaching party, and, if such breach is capable of remedy but is not remedied within *** of the receipt by the breaching party of notice identifying the breach and requiring its remedy, then the non-breaching party may terminate the Agreement forthwith by notice in writing to the breaching party; or CONFIDENTIAL TREATMENT 24 9.5.2 if one party ceases for any reason to carry on business or compounds with or convenes a meeting of its creditors or has a receiver or manager appointed in respect of all or any part of its assets or is the subject of an application for an administration order or of any proposal for a voluntary arrangement or enters into liquidation (whether compulsorily or voluntarily) or undergoes any analogous act or proceedings under foreign law, then the other party may terminate the Agreement forthwith by notice in writing to the breaching party. 9.6 Upon the termination or expiration of the Agreement for whatever reason: 9.6.1 LB shall cease all use of and shall promptly return to the Customer all Customer Information and shall, as directed by Customer, dispose of or return to the Customer the Customer Materials, the Cell Line, the Product, the Deliverables, the Documentation, any in-process Product or materials, and any materials deriving from any of the foregoing. Notwithstanding the foregoing, the parties agree that, in the event LB has terminated the Agreement pursuant to Clause 9.5.1 above because of a material payment default by Trubion, men LB shall have no obligation to deliver Manufactured Product (or Product to the extent the term "Product" refers to the tangible forms of the Product manufactured under this Agreement using the Process) to Trubion as required under this Clause 9.6.1 unless and until the payment default has been cured; 9.6.2 LB shall not thereafter use or exploit the Customer Know-How, Customer Patent Rights, the Customer Technology, the New Customer Intellectual Property (including without limitation the Customer Process), the Customer Information, the Cell Line, the Product, or the Customer Materials, or any of Customer's other Intellectual Property; 9.6.3 the Customer shall promptly return to LB all LB Know-How it has received from LB; 9.6.4 the Customer shall not thereafter use or exploit the LB Patent Rights the LB Process or the LB Know-How or any of LB's other Intellectual Property in any way whatsoever, except as permitted under and in accordance with Clauses 9.8.4, 9.8.7, and 9.9 below and subject to the provisions set forth in Clause 9.10 below; 9.6.5 LB shall refund within thirty (30) days of the effective date of such termination all amounts paid to LB in excess of the amounts owed to LB under this Agreement, including without limitation the amounts owed to LB if any, pursuant to this Clause 9; and 9.6.6 LB and the Customer shall do all such acts and things and shall sign and execute all such deeds and documents as the other may reasonably require to evidence compliance with this Clause 9.6. 9.7 Expiration or termination of the Agreement for whatever reason shall not affect the accrued rights of either LB or the Customer arising under or out of this Agreement and all provisions which are expressed to survive the Agreement shall remain in full force and effect. For the avoidance of doubt, the provisions of Clauses 2, 3, 7, 8, 9, 11 and 14 will survive the expiration or termination of this Agreement for any reason, and, except as otherwise expressly provided in this CONFIDENTIAL TREATMENT 25 Clause 9.7, all other rights and obligations of the parties under this Agreement will terminate upon termination or expiration of this Agreement. 9.8 Ownership; License Rights. 9.8.1 Except as expressly provided in Clause 2.3 above and Clause 9.8.7 below, neither party will, as a result of this Agreement, acquire any right, title, or interest in any Intellectual Property that the other party owned or controlled as of the Effective Date of this Agreement, or that the other party obtains ownership or control of separate and apart from the performance of this Agreement. 9.8.2 Except as expressly provided in Clause 9.8.4 below, LB shall own all right, title and interest in "New General Application Intellectual Property." which as used in this Agreement means Intellectual Property that LB and/or its Affiliates, contractors or agents develops, conceives, invents, reduces to practice or makes in the course of performance of this Agreement and that meets each of the following three criteria: ***. 9.8.3 Except for and not including the New General Application Intellectual Property, Customer shall own all right, title, and interest in any and all Intellectual Property that LB and/or its Affiliates, the Testing Laboratories or other contractors or agents of LB conceives, invents, reduces to practice, develops or makes, solely or jointly with Customer or others, in the course of performance of this Agreement or as a result of receipt of Customer Technology (collectively, the "New Customer Intellectual Property"), including without limitation the Customer Process and all improvements to the Customer Technology. For the avoidance of doubt, the parties confirm that LB shall have no obligation to cause any of the Testing Laboratories or other contractors or agents of LB to assign their respective rights, titles and interests in any New Customer Intellectual Property to Trubion, other than the obligations set forth in Clause 9.8.5 below. LB hereby assigns to Customer and shall continue to assign to Customer all of its right, title and interest in any New Customer Intellectual Property. LB shall promptly disclose to Customer in writing all New Customer Intellectual Property. LB shall execute, and shall require LB's personnel involved in the performance of the Services to execute, any documents required to confirm Customer's ownership of the New Customer Intellectual Property, and any documents required to apply for, maintain and enforce any patents or other rights in the New Customer Intellectual Property. Upon Customer's request and at Customer's reasonable expense, and at no cost to LB, LB shall assist Customer as may he necessary to apply for, maintain and enforce any patents or other rights in the New Customer Intellectual Property. For the avoidance of doubt, the parties agree that the term "New Customer Intellectual Property" shall not under any circumstances be interpreted or defined to include any "New General Application Intellectual Property." 9.8.4 Subject to Clause 9.10 below, LB hereby grants Customer a non-exclusive, worldwide, fully paid-up, irrevocable and transferable license, with the right to grant and authorize sublicenses, under and to all New General Application Intellectual Property, to the extent such New General Application Intellectual Property is useful or beneficial to develop, conduct CONFIDENTIAL TREATMENT 26 clinical trials for, formulate, manufacture, test, seek regulatory approval for, market, commercialize, make, have made, use, sell, import, and distribute Product. 9.8.5 LB shall use its reasonable efforts to procure that all Testing Laboratories and other contractors arid agents of LB involved in the performance of the Services, and their respective personnel, shall be subject to the same agreements and obligations as LB pursuant to Clauses 9.8.3 and 9.8.4, and shall be bound by written agreements in support of all such agreements and obligations, including without limitation an assignment to Customer all of the Testing Laboratories, contractors and agents' right, title and interest in any New Customer Intellectual Property. 9.8.6 Upon the earlier of the completion of the Services or the termination or expiration of this Agreement, LB shall deliver to Customer all materials related to the New Customer Intellectual Property, regardless of the method of storage or retrieval, in such form as such materials are then currently in the possession of LB. Alternatively, at Customer's written request, LB shall dispose of such related materials or retain them for a period of time agreed upon by the parties; provided, however, that Customer shall pay the reasonable costs associated with LB disposing of or retaining such materials. 9.8.7 Subject to Clause 9.10 below, LB hereby grants Customer a non-exclusive, worldwide, fully paid-up, irrevocable and transferable license, with the right to grant and authorize sublicenses, under and to the LB Patent Rights and LB Know-How to use the LB Patent Rights, the LB Know-How and the LB Process, alone or in combination with the Customer Process or such other technology or Intellectual Property that Customer chooses, in its sole discretion, to develop, conduct clinical trials for, formulate, manufacture, test, seek regulatory approval for, market, commercialize, make, have made, use, sell, import, and distribute Product. For the avoidance of doubt, no licence is granted to Customer under this Clause 9.8.7 or otherwise under this Agreement in respect of LB's glutamine synthetase (GS) gene expression system, which shall be the subject of a separate licence agreement between the parties. 9.9 The parties intend that the Process shall be fully portable by Trubion. The parties intend that the Process shall be fully portable by Trubion. At the request of Customer at any time and from time to time during the term of this Agreement and within *** following the expiration or termination of this Agreement, LB shall transfer to Customer (or its designee) the Process for the Product and all manufacturing technology and know-how related thereto (the "Technology Transfer"). ***. 9.10 Notwithstanding anything in Clause 9.8.4 or 9.8.7 seemingly to the contrary, the parties agree as follows: 9.10.1 Upon the expiration or termination of this Agreement, Customer shall have no right to exercise the license rights granted by LB to Customer under Clauses 9.8.4 and 9.8.7 unless and until the Technology Transfer fee has been paid in accordance with Clause 9.9 above. CONFIDENTIAL TREATMENT 27 9.10.2 During the term of this Agreement, Customer shall have no right to exercise the license rights granted by LB to Customer under Clauses 9.8.4 and 9.8.7 to manufacture the Product at a Trubion facility or at a third-party facility that is not owned or operated by Lonza or its Affiliates, unless and until the Technology Transfer fee described in Clause 9.9 above has been paid. Furthermore, for the avoidance of doubt, the parties agree that the Technology Transfer shall be performed in accordance with and subject to the provisions of Clause 9.9, and the parties acknowledge that Clause 9.9, and the obligations of the parties thereunder, shall survive the expiration or termination of this Agreement. 9.11 The terms of this Clause 9 shall survive the expiration or termination for whatever reason of this Agreement. 10. FORCE MAJEURE 10.1 If either party is prevented or delayed in the performance of any of its obligations under the Agreement by Force Majeure and shall give written notice thereof to the other party specifying the matters constituting Force Majeure together with such evidence as the party giving notice reasonably can give and specifying the period for which it is estimated that such prevention or delay will continue, the party giving notice shall be excused from the performance or the punctual performance of such obligations as the case may be from the date of such notice for so long as such cause of prevention or delay shall continue. Notwithstanding the foregoing, in the event that LB is prevented from performance by Force Majeure by longer than ***, Customer shall be entitled to terminate this Agreement upon written notice, but such termination shall not be considered as termination under Clause 9.5.1 hereof. 10.2 The expression "Force Majeure" shall be deemed to include any cause affecting the performance by a party of the Agreement to the extent that it arises from or attributable to acts, events, acts of God, omissions or accidents beyond the reasonable control of the party giving notice of the Force Majeure event. 11. GOVERNING LAW, JURISDICTION AND ENFORCEABILITY; DISPUTE RESOLUTION 11.1 The construction, validity and performance of the Agreement shall be governed by the laws of ***. This Agreement shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods, the application of which is disclaimed. 11.2 No failure or delay on the part of either LB or the Customer to exercise or enforce any rights conferred on it by the Agreement shall be construed or operate as a waiver thereof nor shall any single or partial exercise of any right, power or privilege or further exercise thereof operate so as to bar the exercise or enforcement thereof at any time or times thereafter. CONFIDENTIAL TREATMENT 28 11.3 The illegality or invalidity of any provision (or any part thereof) of this Agreement shall not affect the legality, validity or enforceability of the remainder of its provisions or the other parts of such provision as the ease may be. 11.4 If any dispute arises relating to the performance of either party under this Agreement that the parties are unable to resolve in the ordinary course of business (a "Dispute"), the parties will use good-faith efforts to resolve the matter in accordance with this Clause 11.4 prior to instituting any legal proceeding in connection therewith; provided, however, that nothing herein will require either party to forego or delay the institution of any proceeding to seek equitable or injunctive relief to stop or prevent any breach of this Agreement if it reasonably believes that it would be irreparably harmed by any delay in seeking such relief. If a dispute occurs, either party may, by written notice to the other party, have such dispute referred to their respective officers designated below (or their respective designees) for attempted resolution by good faith negotiations within *** after such notice is received. The original designated officers are: For LB: Rene Imwinkelried, Director and Head of Slough Site For Customer: Dr. Peter A. Thompson, MD, President and CEO. In the event the designated officers (or their respective designees) are not able to resolve such dispute within such ***, or such other period of time as the parties may mutually agree in writing, the parties shall have the right to pursue any and all remedies at law and in equity. Notwithstanding the foregoing, Disputes regarding nonconforming bulk Product under Section 5.9 above will be referred first to the officers designated above and then, in the event that such officers are unable to resolve the Dispute, to an independent expert (acting as an expert and not as an arbitrator) to be appointed by agreement between LB and the Customer or, in the absence of agreement, by the President for the time being of the Association of the British Pharmaceutical Industry. The costs of such independent expert shall be borne equally between LB and the Customer. The decision of such independent expert shall be in writing and, save for manifest error on the face of the decision, shall be binding on both LB and the Customer. 12. NOTICES 12.1 Any notice or other communication to be given under this Agreement shall be delivered personally or sent by facsimile transmission and acknowledged by the intended recipient, or if facsimile transmission is not available, by first class pre-paid post addressed as follows: If to Lonza Biologics to: Lonza Biologics plc 228 Bath Road Slough Berkshire SL1 4DX England Facsimile: +44 1753 777001 For the attention of: *** CONFIDENTIAL TREATMENT 29 If to the Customer to: Trubion Pharmaceuticals, Inc. 24014th Ave., Suite 1050 Seattle, WA 98121 USA Facsimile: +1-206-838-0503 For the attention of: Kendall M. Mohler, Ph.D. Senior Vice President, R & D or to such other destination as either party hereto may hereafter notify to the other in accordance with the provisions of this Clause 12. 12.2 All such notices or other communications shall be deemed to have been served as follows: 12.2.1 if delivered personally, at the time of such delivery; 12.2.2 if sent by facsimile, upon receipt of the transmission confirmation slip showing completion of the transmission; 12.2.3 if sent by first class pre-paid post, upon receipt by the addressee. 13. MISCELLANEOUS 13.1 Neither party shall be entitled to assign, transfer, charge or in any way make over the benefit and/or the burden of this Agreement without the prior written consent of the other which consent shall not be unreasonably withheld or delayed, save that either party shall be entitled without the prior written consent of the other to assign, transfer, charge, sub-contract, deal with or in any other manner make over the benefit and/or burden of this Agreement to an Affiliate or to any company with which the assigning party may merge or to any company to which it may transfer its assets and undertakings. 13.2 The text of any press release or other communication to be published by or in the media concerning the subject matter of the Agreement shall require the prior written approval of LB and the Customer, LB shall not make use of Customer's name in any advertisement or promotional material or customer list without in each case the prior written consent of Customer. Consent to be given under this Clause 13.2 shall not be unreasonably withheld or delayed. Notwithstanding anything in this Agreement seemingly to the contrary, LB hereby consents to Customer's disclosure of LB's name to Customer's current and potential employees, directors, shareholders, investors, partners, and subcontractors. 13.3 The Agreement embodies the entire understanding of LB and the Customer and there are no promises, terms, conditions or obligations, oral or written, expressed on implied, other than those contained in the Agreement, The terms of the Agreement shall supersede all CONFIDENTIAL TREATMENT 30 previous agreements (if any) which may exist or have existed between LB and the Customer relating to the Services. 13.4 The parties to this Agreement do not intend that any term hereof should be enforceable by virtue of the Contracts (Rights of Third Parties) Act 1999 by any person who is not a party to this Agreement. 13.5 No variation of or addition to this Agreement or any part thereof shall be effective unless in writing and signed on behalf of both parties, Notwithstanding the above the parties hereby confirm that amendments to the Specifications shall be effective if reduced to writing and signed by the quality and/or regulatory representative of both parties, which quality and/or regulatory representative shall be nominated from time to time by each party. In the event of any conflict between the main body of this Agreement and any Schedule, the terms of the main body of this Agreement shall control. 13.6 Each of the parties to this Agreement is an independent contractor and nothing herein contained shall be deemed to constitute the relationship of partners, joint venturers, nor of principal and agent between the parties. Neither party shall hold itself out to third parties as purporting to act on behalf of, or serving as the agent of, the other party. 13.7 This Agreement and any amendment hereto may be executed in any number of counterparts, each of which shall be deemed an original and all of which shall constitute the same instrument This Agreement may be executed by facsimile or original, and a facsimile signature shall be deemed to be and shall be as effective as an original signature. 14. LIMITATION OF LIABILITY; EXCLUSION OF CERTAIN DAMAGES 14.1 LB's aggregate liability for direct damages arising out of or in connection with this Agreement or the transactions contemplated hereby shall not exceed the total maximum aggregate sum payable under this Agreement for the Services, in accordance with Schedule 3 (Price and Terms of Payment) attached hereto, except that the foregoing limitation shall not apply in the case of (a) breach of Clause 8 (Confidentiality and Non-Use) by LB, (b) personal injury or death, or (c) grossly negligent or intentionally wrongful acts or omissions of LB. The foregoing limitation shall also not apply to claims arising under, or LB's breach of, Clause 7.1 within Clause 7 (LB Warranties and Covenants and Indemnity); provided, however, that LB's aggregate liability for direct damages arising out of or in connection with claims arising under, or LB's breach of, Clause 7.1 within Clause 7 (LB Warranties and Covenants and Indemnity), shall not exceed the greater of (a) the total maximum aggregate sum payable under this Agreement for the Services, in accordance with Schedule 3 (Price and Terms of Payment) attached hereto, and (b) ***. 14.2 NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING LOST PROFITS, LOST DATA, LOST REVENUES, AND LOSS OF BUSINESS OPPORTUNITY, WHETHER OR NOT THE OTHER PARTY WAS AWARE OR SHOULD HAVE BEEN AWARE OF THE POSSIBILITY OF THESE DAMAGES, EXCEPT THAT THE CONFIDENTIAL TREATMENT 31 FOREGOING LIMITATION SHALL NOT APPLY IN THE CASE OF (a) BREACH OF CLAUSE 8 (CONFIDENTIALITY AND NON-USE) BY EITHER PARTY, (b) PERSONAL INJURY OR DEATH, OR (c) GROSSLY NEGLIGENT OR INTENTIONALLY WRONGFUL ACTS OR OMISSIONS. The terms of this Clause 14 shall survive the expiration or termination for whatever reason of this Agreement. [The remainder of this page intentionally left blank] CONFIDENTIAL TREATMENT 32 AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first above written. Signed for and on behalf of Rene Imwinkelried --------------------------------- LONZA BIOLOGICS PLC Senior Vice President Head R & D Pharmaceuticals --------------------------------- TITLE Signed for and on behalf of /s/ Peter A. Thompson --------------------------------- TRUBION PHARMACEUTICALS, INC. President & CEO --------------------------------- TITLE CONFIDENTIAL TREATMENT 33 SCHEDULE 1 DEFINITIONS AND SPECIFICATIONS DEFINITIONS For the purpose of this document: "Cell Line" shall mean the *** cell line created by the Customer expressing Product. "Product" shall mean the Small Modular ImmunoPharmaceutical (SMIP) produced by the Cell Line known as TRU-015. SPECIFICATIONS 1.1 EXAMPLE OF TYPICAL INITIAL SPECIFICATION FOR BULK PURIFIED PRODUCT (These examples are only examples of typical specifications, and shall not be considered to be the specifications related to the Product)
TEST METHOD SPECIFICATION --------------- ------ ------------- CHARACTERISTICS 1.1.1 *** *** *** 1.1.2 *** *** *** 1.1.3 *** *** *** 1.1.4 *** *** *** 1.1.5 *** *** *** 1.1.6 *** *** *** 1.1.7 *** *** *** 1.1.8 *** *** *** 1.1.9 *** *** *** 1.1.10 *** *** *** 1.1.11 *** *** ***. 1.1.12 *** -*** ***-
1.2 EXAMPLE OF TYPICAL SPECIFICATION FOR BULK FERMENTER HARVEST (These examples are only examples of typical specifications, and shall not be considered to be the specifications related to the Product) CONFIDENTIAL TREATMENT 1
TEST METHOD SPECIFICATIONS ---- ------ -------------- 1.2.1 *** *** *** 1.2.2 *** *** *** 1.2.3 *** *** ***
CONFIDENTIAL TREATMENT 2 1.3 FINAL BULK PRODUCT DISPOSITION
1.3.1 Final Formulation Buffer: *** 1.3.2 Bottling of Bulk Product: 1.3.2.1 Containers *** 1.3.2.2 Denominations *** *** 1.3.3 Product Storage Conditions: *** 1.3.4 Shipment Temperature: ***
1.4 SPECIFICATION FOR CELL BANKS STARTING MATERIAL DEFINITION An *** of a cryopreserved *** will be created from the Cell Line provided by the Customer and stored in individual ampoules in liquid nitrogen refrigerators. GENERAL *** SPECIFICATION In order for the *** to be accepted into LB's cGMP facility, the following testing is required and the appropriate specifications achieved.
TEST METHOD SPECIFICATIONS ---- ------ -------------- 1.4.1 *** *** *** *** *** *** *** *** 1.4.2 *** *** *** 1.4.3 *** *** *** 1.4.4 *** *** *** 1.4.5 *** *** ***
ONFIDENTIAL TREATMENTS 3 SCHEDULE 2 SERVICES 2. SERVICES 2.1 SUPPLY OF CUSTOMER MATERIALS AND CUSTOMER KNOW-HOW Prior to commencement of the Services at LB or, if appropriate, prior to the commencement of the relevant Stage of the Services, the Customer shall supply LB with the following: *** CONFIDENTIAL TREATMENT 1 2.2 ACTIVITIES TO BE UNDERTAKEN BY LB *** CONFIDENTIAL TREATMENT 2 SCHEDULE 3 PRICE AND TERMS OF PAYMENT 1.0 PRICE In consideration for LB carrying out the Services as detailed in Schedule 2, the Customer shall pay LB as follows: *** CONFIDENTIAL TREATMENT 3 SCHEDULE 3 PRICE AND TERMS OF PAYMENT 2.0 PAYMENT Payment by the Customer of the Price for each Stage shall be made against LB's Invoices that will be issued as follows: 2.1 FOR STAGE 1 *** upon commencement of Stage 1. *** upon issue of the deliverables for Stage 1 to the Customer. 2.2 FOR STAGE 2 *** upon commencement of Stage 2. *** upon issue of the deliverables for Stage 2 to the Customer. 2.3 FOR STAGE 3 *** upon commencement of Stage 3. *** upon issue of the deliverables for Stage 3 to the Customer. 2.4 FOR STAGE 4 *** upon commencement of Stage 4. *** upon issue of the deliverables for Stage 4 to the Customer. 2.5 FOR STAGE 5 *** upon commencement of Stage 5. *** upon issue of the deliverables for Stage 5 to the Customer. 2.6 FOR STAGE 6 *** upon commencement of Stage 6. *** upon issue of the deliverables for Stage 6 to the Customer. 2.7 FOR STAGE 7 *** upon commencement of Stage 7. *** upon issue of the deliverables for Stage 7 to the Customer. 2.8 FOR STAGE 8 *** upon ampoule thaw of each batch manufactured under Stage 8. *** upon issue of the certificate of analysis for each batch manufactured under Stage 8. 2.9 FOR STAGE 9 *** upon commencement of Stage 9. *** upon issue of the deliverables for Stage 9 to the Customer. 2.10 FOR STAGE 10 100% upon issue of each timepoint interim report and upon issue of the final report. 2.11 FOR STAGE 11 *** upon commencement of Stage 11. *** upon issue of the deliverables for Stage 11 to the Customer. 2.12 FOR STAGE 12

CONFIDENTIAL TREATMENT 4 ` *** upon commencement of Stage 12. *** upon issue of the deliverables for Stage 12 to the Customer. 2.13 FOR STAGE 13 *** upon commencement of Stage 13. *** upon issue of the deliverables for Stage 13 to the Customer. 2.14 FOR STAGE 14 100% upon issue of each timepoint interim report and upon issue of the final report.

CONFIDENTIAL TREATMENT 5 SCHEDULE 4 QUALITY AGREEMENT [The remainder of this page intentionally left blank] CONFIDENTIAL TREATMENT 6 QUALITY AGREEMENT This quality agreement ("Quality Agreement") is dated effective as of 8th January 2004, and it defines the roles and responsibilities for the quality operations between LONZA BIOLOGICS PLC, the registered office of which is at 228 Bath Road, Slough, Berkshire SL1 4DX, England (herein after referred to as "LB"), and TRUBION PHARMACEUTICALS, INC., (formerly known as GENECRAFT, INC.) of 2401 4th Avenue, Suite 1050, Seattle, WA 98121, USA (herein after referred to as the "Customer") with respect to manufacture of Customer's proprietary Small Modular ImmunoPharmaceutical (SMIP) known as TRU-015 ("TRU-015") under that certain development and manufacturing services agreement between the parties of even date herewith (the "Services Agreement") in preparation for regulatory filings and for human clinical use. When used in this Quality Agreement, the term "Product" refers to TRU-015 and/or to the form of TRU-015 manufactured under the Services Agreement, as the context requires. This Quality Agreement takes the form of a detailed list of activities associated with the manufacture, testing and release of Product. Responsibility for each activity is assigned to either the Customer or LB, or is assigned to both the Customer and LB, and additional details are provided in the Services Agreement and in the SOP's referred to in this Quality Agreement. This is the Quality Agreement that is referred to in the Services Agreement. Capitalized terms used but not defined in this Quality Agreement shall have the meaning given in the Services Agreement. This Quality Agreement may be amended by written agreement of the parties. In the event of a conflict between the Quality Agreement and the Services Agreement, the Services Agreement shall control. This Quality Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed an original and all of which, taken together, shall constitute one and the same instrument. A facsimile signature shall be deemed to be and shall be as effective as an original signature. The responsibilities and rights of the parties under this Quality Agreement are set forth below: a. OVERALL RESPONSIBILITIES This Quality Agreement outlines the responsibilities of the Customer and LB with respect to the quality assurance of Product manufactured and supplied by LB for the Customer under the terms of the Agreement. This Quality Agreement takes the form of a detailed list of activities associated with the manufacture, testing and release of Product. Responsibility for each activity is assigned to either the Customer or LB, or is assigned to both the Customer and LB. This detailed list describes generic quality activities that would be performed by both parties for Product used in clinical trail supply. The specific services to be provided by LB will be set out in CONFIDENTIAL TREATMENT 1 the Agreement (and any Amendments to the Agreement) on Price and other terms acceptable to both parties. LB is responsible for ensuring that the quality requirements for Product are as specified in the approved Product specification and that Product is manufactured, tested and stored in accordance with current Good Manufacturing Practices (cGMP) and all applicable US and EU regulations and ICH guidelines. The Customer is responsible for shipping and the final review, approval, and release of product for use in the clinic. The Customer is responsible for Product development, technical oversight, product specifications and regulatory agency filings. b. SPECIFIC RESPONSIBILITIES
ITEM RESPONSIBILITIES AND RIGHTS - ------------------------------------------ ---------------------------------------------------------------------------------- LB CUSTOMER(1) ---------------------------------------- ------------------------------------- 1.0 Organisation and Personnel - Ensure adequate number of personnel - Right to audit with appropriate training, skills, knowledge and experience to manufacture and test Product in and Equipment utilities, equipment, computerised systems and software are properly designed, validated and maintained in accordance with cGMP 2.0 Facilities, Utilities and Equipment - Ensure facilities, environment, - Right to audit utilities, equipment, computerised systems and software are properly designed, validated and maintained in accordance with cGMP - Ensure Product is manufactured and - Right to audit tested only at sites as agreed with Customer - Provide Customer with Drug Master - Include Drug Master File reference File reference that will allow US FDA into regulatory submissions, as the ability to cross-reference other appropriate products that are manufactured at LB's manufacturing and testing locations
- ---------- (1) Throughout the Quality Agreement, Customer's column includes the phrase "right to audit" - the use of this phrase in certain instances but not in others does not and shall not imply that Customer's audit rights pursuant to Clause 15 below are limited to those boxes where "right to audit" appears. CONFIDENTIAL TREATMENT 2
ITEM RESPONSIBILITIES AND RIGHTS - ------------------------------------------ ------------------------------------------------------------------------------------- LB CUSTOMER(1) ---------------------------------------- ---------------------------------------- - Provide Customer with documentation that no penicillin is manufactured or tested at site 3.0 Raw Materials for Process and - Source, test and release raw - Right to audit; right to review all Packaging of Product/Vendor materials and primary packaging of raw material specifications, grades Qualification Process appropriate quality for processing of and vendors used in manufacture of Product Product - Customer to provide LB with list of critical raw materials used in Customer process; update with changes as necessary - Propose and jointly agree - Right to approve vendor, grade and specifications, vendors and grade of specifications of critical raw critical raw materials used in materials used in Customer process, Customer process in accordance with including excipients, and raw LB policy, with preference for materials of animal or human origin non-animal and non-human derived raw materials - Acknowledge and support Customer's goal not to use any raw materials of animal or human origin in the development of Customer process - Retain representative samples - Right to audit 4.0 Cell Banks - Prepare, characterise and store cell - bank(s) if requested by Customer - Jointly agree on testing - Jointly agree on testing specifications and test methods to specifications and test methods to enable release of cell banks for use enable Product manufactured from cell in LB's multi-product manufacturing banks to be used in the clinic facility - Perform stability testing of cell - Right to audit bank(s) if requested by Customer and share data with Customer IF CELL BANK SUPPLIED BY CUSTOMER - Review and approve characterisation - Supply cell bank characterisation data. Store working stock or cell data for review and approval. bank Transfer cell bank (or portion thereof) to LB
CONFIDENTIAL TREATMENT 3
ITEM RESPONSIBILITIES AND RIGHTS - ------------------------------------------ ------------------------------------------------------------------------------------- LB CUSTOMER(1) ---------------------------------------- ---------------------------------------- - Provide shipping validation data if - Right to audit requested by Customer IN ALL CASES - Provide inventory levels periodically upon request by Customer 5.0 Production Specification - With the Customer determine and - With LB determine and approve the approve the following Product following Product specification(s) as specification(s) as required: required: - Drug substance (including testing - Drug substance (including testing performed on fermenter contents for performed on fermenter contents for adventitious agents) adventitious agents) - Drug product - Drug product - Bulk placebo - Bulk placebo - Filled placebo - Filled placebo 6.0 Production and Process Control - Make available for review by Customer - Right to review documents relating to facility, equipment, Process and test methods, and GMP systems - Jointly review and approve Process - Jointly review and approve Process descriptions descriptions - Define and perform an in-process - Agree in-process testing strategy control and testing program - Using LB templates prepare master - Right to review and comment on master batch records for each processing batch records step and provide to Customer for review and comment. Retain final master batch record on site at LB - Designate unique batch numbers for - Right to audit raw materials, process materials and Product - Manufacture of Product in accordance - Right to audit with Product Specifications, cGMP standards, batch records, in-process - Relevant sections of Customer's controls and in-process regulatory submissions to be made specifications available to LB as appropriate - Ensure QA representatives on-site or - Right to audit available at all times during manufacture and testing of Product
CONFIDENTIAL TREATMENT 4
ITEM RESPONSIBILITIES AND RIGHTS - ------------------------------------------ ------------------------------------------------------------------------------------- LB CUSTOMER(1) ---------------------------------------- ---------------------------------------- - Permit Customer's person on plant to - Right to designate 1 of its employees be present in LB's facility during or consultants as Customer's person normal business hours to observe the on plant, to be present in LB's Runs and observe LB's performance, at facility during normal business times times and for durations to be agreed. and for durations to be agreed. While While at LB's facility, Customer's at LB's hours to observe the Runs and representative shall comply with all observe LB's facility, Customer's of LB's applicable policies and representative shall comply with procedures, and, at LB's option, performance, at all LB's applicable shall be escorted by LB personnel policies and procedures, and, at LB's option, shall be escorted by LB personnel - Perform Product changeover testing of - Review and comment on LB's policy for Product-contacting equipment in Product changeover testing of accordance with LB policy Product-contacting equipment 7.0 Product Storage, Labeling and - Store, label and package the Product - Right to audit Packaging Prior to Shipment (including samples) as defined in the Product Specification - Provide information on shipping requirements 8.0 Shipment Requirements - Ship Product on behalf of Customer to - Jointly agree with LB on process for locations designated by Customer in shipping requirements accordance with jointly agreed process for shipping requirements - Right to audit - Provide shipping validation data for - Acknowledge receipt of Product Product if requested by Customer - Right to audit 9.0 Laboratory Controls (QC) - Perform Product release testing - Right to audit against Product Specifications - Jointly agree on SOP's describing - Jointly agreed on SOP's describing Product-specific analytical testing Product-specific analytical testing methods methods - Provide LB with Product-specific information as it relates to sample storage, handling and testing requirements - Retesting, where required, will be - Review and comment on LB retest performed in accordance with LB's procedure. Review OOS reports; retest procedure. Out of comment on corrective and specification (OOS) Product preventative actions
CONFIDENTIAL TREATMENT 5
ITEM RESPONSIBILITIES AND RIGHTS - ------------------------------------------ ------------------------------------------------------------------------------------- LB CUSTOMER(1) ---------------------------------------- ---------------------------------------- release testing results will be notified to the Customer as soon as possible within 3 business days of the OOS being confirmed - Send samples to Customer for - Perform Product potency testing and additional testing (including potency provide data to LB; such data will be testing) in accordance jointly provided for with LB's information approved SOP only and not for inclusion into LB's information only and not for inclusion into LB's Certificate of Analysis. Customer to create Certificate of Analysis for potency testing results. [Note from Trubion: This text to clarify that Trubion is performing the potency testing and providing the results to LB `FOR INFORMATION'] - Retain representative samples of bulk - Right to audit Product from each batch in accordance with LB SOP - If requested by Customer, provide - Right to receive copies of raw data copies of raw data and testing and testing records records - Take additional representative - Request additional samples to be samples if requested and ship to shipped as required Customer - Prepare and characterise Product - Jointly approve Product reference reference standard in accordance with standard Protocol jointly agreed Protocol, if requested by Customer - Right to audit - Jointly approve Product reference - Jointly approved Product reference standard report standard report 10.0 Use of Contract Testing - Qualify Contract Testing Laboratories - Right to jointly audit Laboratories for Product release testing in accordance with LB policy - Notify Customer of Contract Testing - Consent or reject to the proposed use Laboratories intended to be used for of Contract Testing Laboratories Product release testing - Facilitate audit by Customer if - Right to audit requested from time to time
CONFIDENTIAL TREATMENT 6
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------ ITEM LB CUSTOMER(1) - -------------------------------- -------------------------------------- ------------------------------- - If not prohibited by - Right to request, receive Contract Testing and use copies of LB's Laboratory, provide audits of Contract Testing Customer with copies of Laboratories when possible, LB's audits of Contract unless prohibited by Testing Laboratories when Contract Testing possible, if requested Laboratories 11.0 Product Release and Lot - Review batch record for - Right to review completed Review compliance with cGMP, and reviewed Product batch manufacturing controls, and records with the Product Specifications - Provide Customer with a - Right to review copy of the Process documentation including, main operational steps from the completed batch record. This will include Product analysis, a summary of batch related deviations and environmental monitoring summaries, as well as process data, as requested - If requested by Customer, - Right to request and send full copies of actual receive full copies of deviations actual deviations - Prepare manufacturer's - Prepare Certificate of Certificate of Analysis, Analysis and Certificate of including related Compliance for release of Certificate of Compliance product for use in human clinical trials - Release or reject Product - Release of reject Product for use in human clinical trials 12.0 Deviations and Failed - Initiate investigations, - Right to audit Run Investigations and evaluate and define follow Reports up actions and final approval of deviations and failure investigations - Notify Customer of all - Review significant significant deviations deviations; comment on immediately and within at corrective and preventative least 3 business days of actions the event being assigned as significant, and send Customer the related documentation. (A significant deviation is defined in standard operating procedure 3150) - Notify Customer of failed - Review failure runs immediately and within investigation report and at least 3 business days of comment on corrective and failure being identified preventative actions
CONFIDENTIAL TREATMENT 7
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------ ITEM LB CUSTOMER(1) - -------------------------------- -------------------------------------- ------------------------------- - Immediately and within at least 3 business days of event being identified, notify Customer of any events which may impact batches previously shipped or released 13.0 Change Control - Jointly agree on SOP for - Jointly agree SOP for Procedures change control procedures change control procedures between the 2 companies between the 2 companies that describes the intended that describes the intended use of each company's use of each company's independent change control independent change control system systems CUSTOMER PROPOSED CHANGES - Process Product-specific - Propose Customer change through change Product-specific changes control and notify Customer and provide rationale in of change approval. If writing change rejected, discuss reasons for rejection with Customer - Approve proposed Product-specific changes prior to implementation LB PROPOSED CHANGES - Proposed Product-specific - Process Product-specific changes and provide change through change rationale for change to control and notify LB of process descriptions; test change approval. If change methods; sampling plans; rejected, discuss reasons specifications for key raw for rejection with LB materials (animal and / or human derived raw - Approve proposed materials, chromatography Product-specific changed resins and final prior to implementation formulation excipients); Product specification(s) and stability programme, in-process controls and other key processing steps - Inform Customer of changes - Right to audit to key personnel as identified in Appendix 1 - Inform Customer of changes - Right to audit to major items of equipment, premises and utilities used for manufacture of Product ALL CHANGES - With Customer define - With LB define strategy for strategy for notifying change to Regulatory
CONFIDENTIAL TREATMENT 8
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------ ITEM LB CUSTOMER(1) - -------------------------------- -------------------------------------- ------------------------------- notifying change to Regulatory Agency as appropriate Agency as appropriate (see Section (see Section 20.0, below, 20.0, below, Regulatory Regulatory Submissions) Submissions) - Inform Customer of Product - Ensure Product is not batches manufactured with distributed until the change until regulatory Regulatory approval approval obtained, if obtained, if required required - Cooperate with Customer in - Cooperate with LB in connection with change connection with change controls; respect controls; respect LB's Customer's change controls, change controls, and, as and, as appropriate, use it appropriate, use it to to initiate LB's change initiate Customer's change controls controls 14.0 Reprocessing / Rework - Processing to be performed - Review and comment on LB's in accordance with LB SOP. reprocessing / rework SOP; With Customer agree on with LB agree on reprocessing / rework reprocessing / rework procedures, where possible procedures, where possible prior to execution prior to execution - Provided documented reason - Right to audit and justification for reprocessing / rework event - With the Customer agree on - With LB agree the the appropriate testing appropriate testing required prior to Product required prior to Product release release 15.0 Audit - Permit Customer - Provide reasonable notice representatives access as of intention to audit reasonably required to conduct a cGMP compliance - Right to 2 standard cGMP audit, including access to compliance audits per year, warehousing, manufacturing plus right to additional areas, laboratories, and "for cause" audits manufacturing records and documents, including SOPs - Right to audit each batch (unless they contain record specific LB proprietary information eg media - Hold an exit meeting to formulations), and discuss observations personnel, for audit purposes. Customer - Provide an audit report representatives to be within 30 days of accompanied at all times by completion of audit LB personnel - Two standard cGMP compliance audits permitted per year, with an audit not to exceed 3 working days and 2 groups of auditors. Additionally the Customer may
CONFIDENTIAL TREATMENT 9
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------ ITEM LB CUSTOMER(1) - -------------------------------- -------------------------------------- ------------------------------- request "for cause" audits to address production of Product quality issues - One 2 day audit for each batch record if requested by Customer - Allow the Customer to observe operations related to Product manufacturing and testing providing other Customer's confidentiality is respected - Provide a written response to all audit findings that require corrective action within 30 days of receipt of the audit report. Response to include expected timelines 16.0 Product Complaints and - Respond to requests for - Receive and investigate Recall data to assist Customer in Product complaints and their investigation. Agree instigate Product recall as a time scale for response appropriate 17.0 Batch Records - Retain records associated - Right to audit with manufacture and testing records of Product including records associated with the inspection and release of raw materials and primary packaging components of the Product for 5 years from the date of manufacture of Product. Date of manufacture is defined as the date Product is dispensed in to the bulk product container) - Notify Customer of intent - Customer to approve to destroy records with destruction or request option to send records to receipt of records Customer 18.0 Process Validation / - With Customer define - With LB define process Stability Studies process validation plans validation plans for for Product including Product including analytical validation and analytical validation and stability studies stability studies WHERE PROCESS VALIDATION IS PERFORMED BY LB - Provide Customer with - Approve Product specific Product specific validation validation protocol(s) protocol(s) for including stability protocols
CONFIDENTIAL TREATMENT 10
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------------- ITEM LB CUSTOMER(1) - ---------------------- ---------------------------------------- ------------------------------------ approval prior to execution - Provide Customer with draft - Review and comment on Product Product specific validation report(s) specific validation report(s) for review and comment including stability reports - Issue Customer with copy of - final Product specific validation report(s) WHERE PROCESS VALIDATION IS PERFORMED BY CUSTOMER - Incorporate specifications in - Provide LB with process cGMP documentation and regulatory validation reports submissions 19.0 Regulatory Agency GMP INSPECTIONS Inspection - Inform Customer of Regulatory - For Regulatory Agency inspections Agency inspections or regulatory or regulatory action affecting action affecting manufacture, testing Product, provide assistance or storage of Product when requested by LB - Notify Customer of inspection - Comment on proposed inspection observations (including Deficiency responses to observations Letters) affecting the Product, relevant to Product process or systems relating to the Product 20.0 Regulatory WHERE A DATA PACK IS PROVIDED BY LB TO Submissions SUPPORT CUSTOMER'S CLINICAL TRIAL APPLICATION INITIAL APPLICATION, AMENDMENTS AND RESPONSES TO QUESTIONS - Provide Customer with data pack - Prepare and provide LB with covering activities performed by LB copy of relevant sections of clinical trial application for - Review and comment on relevant review and comment prior to sections of clinical trial submission to Regulatory Agency application - Provide LB with copy of relevant sections as submitted to Regulatory Agencies TELECONFERENCES AND MEETINGS WITH THE REGULATORY AGENCIES - Attend teleconferences and - Arrange for LB personnel to have meetings between the Customer and option to attend teleconferences Regulatory Agencies arranged and meetings between Customer
CONFIDENTIAL TREATMENT 11
RESPONSIBILITIES AND RIGHTS ------------------------------------------------------------------------------- ITEM LB CUSTOMER(1) - ---------------------- ---------------------------------------- ------------------------------------ to specifically discuss topics and Regulatory Agencies to relating to LB's responsibilities specifically discuss topics relating to LB's responsibilities
CONFIDENTIAL TREATMENT 12 QUALITY APPROVAL LONZA BIOLOGICS PLC Name: /s/ Rene Imwinkleried Signature: /s/ Rene Imwinkleried -------------------------- -------------------------- Title: Senior Vice President Date: (illegible) Apr 2004 TRUBION PHARMACEUTICALS INC. Name: Peter A. Thompson, MD Signature: /s/ Peter Thompson -------------------------- Title: President & CEO Date: 4/23/2004 CONFIDENTIAL TREATMENT 13 APPENDIX 1 TO THE QUALITY AGREEMENT CUSTOMER LONZA SENIOR VICE PRESIDENT, HEAD OF LONZA CONTRACT MANUFACTURING: RESEARCH AND DEVELOPMENT: Kendall M Mohler PhD Mr Rene Imwinkleried Senior Vice President Head of Lonza Contract Manufacturing Research and Development Lonza Biologics Trubion Pharmaceuticals Inc 228 Bath Road 2401 Fourth Avenue, Suite 1050 Slough SL1 4DX Seattle, WA 98121 UK USA Tel:+1 206 838 0514 Tel:+44 1753 777082 Fax: +1 206 838 0503 Fax: +44 1753 716644 Email: kmoh1er@trubion.com Email: Rene.lmwinkleried@Lonza,com HEAD OF QUALITY: HEAD OF QUALITY: Sally R Gould Mrs Eleanor Taaffe Senior Director, Regulatory Affairs Head of Quality and Regulatory Affairs Trubion Pharmaceuticals Inc Lonza Biologics 2401 Fourth Avenue, Suite 1050 228 Bath Road Seattle, WA 98121 Slough SL1 4DX USA UK Tel:+1206 838 0510 Tel:+44 1753 777067 Fax:+1 206 838 0503 Fax;+44 1753 777001 Email: sqould@trubion.com Email: Eleanor.Taaffe@Lonza.com HEAD OF MANUFACTURING: DIRECTOR OF MANUFACTURING, UK: Dale H Scott Dr Michael E Brown Vice President, Development Head of Manufacturing Trubion Pharmaceuticals Inc Lonza Biologics 2401 Fourth Avenue, Suite 1050 228 Bath Road Seattle, WA 98121 Slough SL1 4DX USA UK Tel: +1 206 838 0513 Tel: +44 1753 777000 Fax: +1 206 838 0503 Fax: +44 1753 777001 Email: dscott@trubion.com Email: Mike.Brown@Lonza.com QUALITY CONTROL MANAGER: QUALITY CONTROL MANAGER: Raj Dua PhD Dr Steve Flatman Director, Product Development Head of QC and Analytical Trubion Pharmaceuticals Inc Lonza Biologics 2401 Fourth Avenue, Suite 1050 228 Bath Road Seattle, WA 98121 Slough SL1 4DX USA UK Tel: +1 206 838 0512 Tel: +44 1753 777000 Fax: +1 206 838 0503 Fax: +44 1753 777001 Email: rdua@trubion.com Email: Steve.Flatman@Lonza.com CONFIDENTIAL TREATMENT 14 SCHEDULE 5 SPECIAL TERMS OUTLINE OF TERMS FOR THE TECHNOLOGY TRANSFER OF THE PROCESS FOR MANUFACTURE OF PRODUCT TO CUSTOMER OR TO A THIRD PARTY This Schedule 5 is the Schedule that is referred to in Clause 9.9 of the Development and Manufacturing Services Agreement ("Development and Manufacturing Services Agreement") between LONZA BIOLOGICS PLC as "LB" and TRUBION PHARMACEUTICALS, INC. as "Customer" related to the Technology Transfer of the Process to Customer or a third party. This Schedule 5 sets forth some additional commercial terms for any Technology Transfer. All capitalized terms used but not defined in this Schedule 5 shall have the meanings given in the Development and Manufacturing Services Agreement. *** CONFIDENTIAL TREATMENT 1 EX-23.1 5 v18917a5exv23w1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 31, 2006 (except for the last three paragraphs of Note 10, as to which the date is , 2006), in Amendment No. 5 to the Registration Statement (Form S-1 No. 333-134709) and related Prospectus of Trubion Pharmaceuticals, Inc. for the registration of shares of its common stock. Ernst & Young LLP Seattle, Washington ______________________________________________________________________________ The foregoing consent is in the form that will be signed upon the approval by the board of directors of the changes in capitalization and the effective date of the reverse stock split described in the last three paragraphs of Note 10 to the financial statements. /s/ Ernst & Young LLP Seattle, Washington October 2, 2006 GRAPHIC 9 v18917a5v1891704.gif GRAPHIC begin 644 v18917a5v1891704.gif M1TE&.#EA)P%'`-4@`,#`P/_`PX"`@$!`0/^`AOY`2>#@X/#P\#`P,-#0T"`@ M(*"@H'!P<+"PL&!@8/X0&_^PM/X@*OY@9_^@I)"0D/Y06%!04/_P\?_0TOYP M=_XP.A`0$/^0E?_@X?X`#````/___P`````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````````````````````"'Y!`$``"``+``````G`4<```;_ M0)!P2"P:C\BDQZ5R27,;KO?\+@\ M;*Z3'Y"Y'E3=MP\`@8*#A($&6X6"AW"!!TP&``EL8QI44Q`9$61Y;Q,%&7`= M!!IU$1D=;X``BTJJCDP`'[*SM+6R`ENVM1L6`&VRODL"'P.3'@5*$F,1<`3' 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M7C;7RLJQKGG-;&9_*$0(D@Q%;GO>*T(0+D&4@$W&^`]7)Y&6W2PP0"BL4`8U M5$8&TM.RN,662#7+6[LJ0W,*JU`+NS8MK:HL+%9Q(H')9C,)%U&B,@? COVER 13 filename13.txt (WSGR LOGO) Wilson Sonsini Goodrich & Rosati - -------------------------------------------------------------------------------- PROFESSIONAL CORPORATION October 5, 2006 VIA EDGAR TRANSMISSION U.S. Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington DC 20549 RE: TRUBION PHARMACEUTICALS, INC. REGISTRATION STATEMENT ON FORM S-1 (FILE NO. 333-134709) Ladies and Gentlemen: On behalf of Trubion Pharmaceuticals, Inc. (the "Company"), we are providing to you supplementally, via EDGAR transmission and overnight delivery, information to assist the Staff of the Securities and Exchange Commission (the "SEC") in its review of the Company's stock-based compensation charges in the Company's Registration Statement on Form S-1. In connection with our submission of the letter dated October 5, 2006, (the "Stock-Based Compensation Letter"), we are respectfully requesting confidential treatment for the Stock-Based Compensation Letter pursuant to Rule 83 promulgated by the SEC, 17 C.F.R. Section 200.83. The Stock-Based Compensation Letter is accompanied by such request for confidential treatment because of the commercially sensitive nature of the information discussed in the letter. Please contact Mark J. Handfelt or me at (206) 883-2500 if you have any questions. Thank you for your assistance in these matters. Very truly yours, WILSON SONSINI GOODRICH & ROSATI, Professional Corporation /s/ Patrick J. Schultheis Patrick J. Schultheis, Esq. cc: Peter A. Thompson, M.D. Trubion Pharmaceuticals, Inc. Mark J. Handfelt, Esq. Wilson Sonsini Goodrich & Rosati, Professional Corporation Bruce K. Dallas Davis Polk & Wardwell CORRESP 14 filename14.txt October 5, 2006 VIA EDGAR AND OVERNIGHT DELIVERY Securities and Exchange Commission Division of Corporate Finance 100 F Street, N.E. Washington, D.C. 20549 Attention: Mr. Jeffrey Riedler Mr. Greg Belliston Ms. Amy Bruckner Ms. Mary Mast RE: TRUBION PHARMACEUTICALS, INC. REGISTRATION STATEMENT ON FORM S-1, AMENDMENT 3 FILED SEPTEMBER 22, 2006 FILE NO. 333-134709 Ladies and Gentlemen: On behalf of Trubion Pharmaceuticals, Inc. (the "Company"), we respectfully submit this letter in response to comments from the Staff of the Securities and Exchange Commission received by letter dated October 2, 2006, relating to the amendment to the Company's Registration Statement on Form S-1 (File No. 333-134709) filed with the Commission on September 22, 2006. The Company is concurrently filing via EDGAR Amendment No. 5 to the Registration Statement. For the convenience of the Staff, we are enclosing herewith marked copies, complete with exhibits, of Amendment No. 5. In this letter, we have recited the comments from the Staff in italicized, bold type and have followed each comment with the Company's response thereto. FORM S-1 USE OF PROCEEDS, PAGE 24 1. PLEASE REVISE TO QUANTIFY THE AMOUNTS CURRENTLY OUTSTANDING UNDER THE CREDIT FACILITY WITH COMERICA BANK. In response to the Staff's comment, the Company has revised the disclosure in the Registration Statement on page 24. Securities and Exchange Commission October 5, 2006 Page 2 2. SINCE YOU HAVE NOT YET PROVIDED DOLLAR AMOUNTS FOR THE USES OF THE PROCEEDS, IT IS UNCLEAR HOW MUCH WILL BE ALLOCATED TO "GENERAL CORPORATE PURPOSES, INCLUDING WORKING CAPITAL." PLEASE NOTE THAT YOU SHOULD IDENTIFY SPECIFIC USES FOR THE PROCEEDS, SO THE AMOUNT ALLOCATED TO THIS CATEGORY SHOULD BE MINIMAL. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement on page 24. LIQUIDITY AND CAPITAL RESOURCES, PAGE 42 3. PLEASE DISCUSS THE MATERIAL TERMS OF THE LOAN AND SECURITY AGREEMENT WITH COMERICA BANK, WHICH IS FILED AS EXHIBIT 10.38. ALSO DISCLOSE THE CURRENT OUTSTANDING BALANCE. In response to the Staff's comment, the Company has revised the disclosure in the Registration Statement on page 43. OUR STRATEGIC COLLABORATION WITH WYETH, PAGE 54 4. PLEASE REVISE YOUR DISCLOSURE TO EXPLAIN THAT THE TARGETS, AS IDENTIFIED BY THE ACCESSION NUMBER OR NUCLEOTIDE AND AMINO ACID SEQUENCE ARE POTENTIALLY ASSOCIATED WITH VARIOUS DISEASES. In response to the Staff's comment, the Company has revised the disclosure in the Registration Statement on page 55. 5. PLEASE REVISE THE STATEMENT THAT WYETH WILL HAVE CERTAIN DEVELOPMENT AND COMMERCIALIZATION FIGHTS IF WYETH ACTS TO DESIGNATE A TARGET CANDIDATE AS A WYETH TARGET TO DESCRIBE THE DEVELOPMENT AND COMMERCIALIZATION RIGHTS, INCLUDING WHETHER WYETH'S RIGHTS WILL BE EXCLUSIVE. In response to the Staff's comment, the Company has revised the disclosure in the Registration Statement on page 55. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION, PAGE F-12 6. PLEASE REFER TO YOUR RESPONSE TO COMMENT 2 AND REVISE YOUR MILESTONE REVENUE RECOGNITION POLICY DISCLOSURE TO REFLECT THE CORRESPONDING CHANGES MADE ON PAGE 36 OF YOUR MD&A. Securities and Exchange Commission October 5, 2006 Page 3 In response to the Staff's comment, the Company has revised the disclosure in the Registration Statement on page F-12. 10. STOCKHOLDERS' EQUITY (DEFICIT), PAGES F-27 7. WE ACKNOWLEDGE YOUR RESPONSE TO COMMENT 6 OF OUR LETTER DATED AUGUST 31, 2006 AND WILL CONTINUE TO REISSUE OUR COMMENT UNTIL YOU HAVE DISCLOSED AN ESTIMATED OFFERING PRICE IN THE FILING. THEREFORE, PLEASE DISCLOSE IN YOUR FINANCIAL STATEMENTS, AT A MINIMUM, THE FOLLOWING INFORMATION FOR ALL EQUITY INSTRUMENTS GRANTED DURING THE 12 MONTHS PRIOR TO THE DATE OF THE MOST RECENT BALANCE SHEET INCLUDED IN YOUR FILING: THE NUMBER OF OPTIONS OR SHARES GRANTED AT EACH APPLICABLE DATE, AS WELL AS THE RELATED EXERCISE PRICE; THE UNDERLYING FAIR VALUE OF THE COMMON STOCK; AND THE RESULTING INTRINSIC VALUE, IF ANY. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement on page F-27. 8. ADDITIONALLY, PLEASE PROVIDE ALL OF THE ABOVE INFORMATION TO US, SUPPLEMENTALLY, FOR EQUITY INSTRUMENTS THAT YOU ISSUE SUBSEQUENT TO THE DATE OF THE LATEST BALANCE SHEET THAT YOU INCLUDE IN YOUR FILING THROUGH THE DATE OF YOUR LATEST RESPONSE. In response to the Staff's comment, the Company supplementally provides the Staff the following table that summarizes all option grants, excluding non-employee grants, made by the Company since June 30, 2006:
Number of Fair Value Options Exercise Estimate Per Intrinsic Value Per Date of Issuance Granted Price Common Share Option Share - ---------------- --------- -------- ------------ ------------------- ~~July 2006 14,505 $ 9.35 $TBD $TBD September 2006 6,614 $11.86 $TBD $TBD~~
9. WE ACKNOWLEDGE YOUR RESPONSE TO COMMENT 8 OF OUR LETTER DATED AUGUST 31, 2006 AND WILL CONTINUE TO REISSUE OUR COMMENT UNTIL YOU HAVE DISCLOSED YOUR ESTIMATED IPO PRICE WITHIN THE FILING. PLEASE REVISE/UPDATE THE VESTED/UNVESTED INTRINSIC VALUE OPTION INFORMATION INCLUDED ON PAGE 39 OF YOUR MD&A BASED ON YOUR ESTIMATED IPO PRICE THROUGH THE DATE OF THE MOST RECENT BALANCE SHEET PRESENTED. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement on page 39. Securities and Exchange Commission October 5, 2006 Page 4 10. WE ACKNOWLEDGE YOUR RESPONSE TO COMMENT 9 OF OUR LETTER DATED AUGUST 31, 2006. PLEASE FURNISH YOUR LETTER DATED SEPTEMBER 15, 2006 REGARDING STOCK COMPENSATION VIA EDGAR. PLEASE ALSO REVISE YOUR FILING, BOTH HEREIN AND IN THE APPLICABLE SECTIONS OF YOUR MD&A, TO DISCLOSE AND/OR PROVIDE US WITH THE INFORMATION THAT FOLLOWS. o PLEASE TELL US AND DISCLOSE WHICH METHODOLOGY MANAGEMENT USED TO RETROSPECTIVELY VALUE THE EQUITY INSTRUMENTS ISSUED DURING THE 12 MONTHS PRIOR TO THE MOST RECENT BALANCE SHEET DATE, JUNE 30, 2006. PLEASE ALSO DISCLOSE IN THE MD&A THE REASONS WHY MANAGEMENT CHOSE NOT TO OBTAIN A CONTEMPORANEOUS VALUATION FROM AN UNRELATED VALUATION SPECIALIST. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement and has responded in a separate letter dated as of the date hereof. o PLEASE DISCLOSE THE SIGNIFICANT FACTORS UNDERLYING THE DIFFERENCE BETWEEN THE FAIR VALUE OF YOUR EMPLOYEE SHARE OPTIONS AS OF EACH GRANT DATE AND YOUR ESTIMATED IPO PRICE. THAT IS, DISCLOSE HOW THE ACHIEVEMENT OF EACH INTERNAL MILESTONE DISCUSSED ON PAGE 5 OF THE SEPTEMBER 15, 2006 LETTER IMPACTED YOUR FAIR VALUE ASSESSMENT AT EACH DIFFERENT POINT IN TIME; FOR EXAMPLE, DETAIL THE REASON FOR THE SIGNIFICANT INCREASE IN THE REASSESSED SHARE VALUE FROM $0.46 IN FEBRUARY 2005 TO $1.47 IN JULY 2005. PLEASE ALSO TELL US WHY THE $0.46 SHARE VALUE IN FEBRUARY 2005 DIFFERS SIGNIFICANTLY FROM THE $0.70 SHARE VALUE THAT CORRELATES TO YOUR JULY 2004 PRIVATE PLACEMENT TRANSACTION. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement and has responded in a separate letter dated as of the date hereof. o TELL US AND DISCLOSE HOW YOUR ENTRY INTO THE DECEMBER 2005 AGREEMENT WITH WYETH IMPACTED YOUR SHARE VALUE IN RELATION TO THE $3.10 THAT YOU SPECIFY WAS DETERMINED IN PRELIMINARY DISCUSSIONS WITH YOUR UNDERWRITERS, AS IT APPEARS YOU HAVE SIMPLY RELIED ON THE INITIAL UNDERWRITER ESTIMATE FOR ALL PERIODS SUBSEQUENT TO AND INCLUDING MARCH 2006. IN ADDITION, PLEASE TELL US WHY A RATABLE, "STRAIGHT-LINE," LOOK-BACK APPROACH, AS DISCUSSED IN YOUR LETTER DATED SEPTEMBER 15, 2006, IS APPROPRIATE GIVEN THAT YOU ACHIEVED SIGNIFICANT INTERNALLY SPECIFIED MILESTONES DURING THE PERIOD, SUCH AS YOUR ENTRY INTO THE DECEMBER 2005 AGREEMENT WITH WYETH. In response to the Staff's comment, the Company has provided the disclosure in the Registration Statement and has responded in a separate letter dated as of the date hereof. * * * Securities and Exchange Commission October 5, 2006 Page 5 Please direct your questions or comments regarding this letter or Amendment No. 5 to the Registration Statement to the undersigned or Mark J. Handfelt of this office at (206) 883-2500. Thank you for your assistance. Sincerely, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ Patrick J. Schultheis Patrick J. Schultheis cc: Peter A. Thompson, M.D., FACP TRUBION PHARMACEUTICALS, INC. Mark J. Handfelt, Esq. WILSON SONSINI GOODRICH & ROSATI, PROFESSIONAL CORPORATION Bruce K. Dallas, Esq. DAVIS POLK & WARDWELL ~~~~-----END PRIVACY-ENHANCED MESSAGE-----~~~~


		outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or

	•	at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock which is not owned by the interested stockholder.