Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
     This Securities Purchase Agreement (this “Agreement”) is dated as of
October 27, 2008, among Avalon Pharmaceuticals, Inc., a Delaware corporation
(the “Company”), and Clinical Data, Inc., a Delaware corporation (including its
successors and assigns, the “Purchaser”).
     WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act and the rules and regulations
promulgated thereunder, including Regulation D and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder, the Company
desires to issue and sell to the Purchaser, and the Purchaser desires to
purchase from the Company, securities of the Company as more fully described in
this Agreement.
     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchaser agree
as follows:
ARTICLE I
DEFINITIONS
     Section 1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
     “Action” shall have the meaning ascribed to such term in Section 3.1(j).
     “Affiliate” means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as the Purchaser will be deemed to be an Affiliate of the Purchaser.
     “Closing” means the closing of the purchase and sale of the Securities
pursuant to Section 2.1.
     “Closing Date” means the Trading Day when all of the Transaction Documents
have been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchaser’s obligations to pay the Subscription
Amount and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.
     “Commission” means the Securities and Exchange Commission.
     “Common Stock” means the common stock of the Company, par value $0.01 per
share, and any other class of securities into which such securities may
hereafter have been reclassified or changed into.

 

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     “Common Stock Equivalents” means any securities of the Company which would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exercisable or
exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.
     “Company Counsel” means Hogan & Hartson L.L.P.
     “Disclosure Schedules” means the Disclosure Schedules of the Company
delivered concurrently herewith.
     “Effective Date” means the date that the initial Registration Statement
filed by the Company pursuant to the Registration Rights Agreement is first
declared effective by the Commission.
     “Exchange Act” means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).
     “Intellectual Property Rights” shall have the meaning ascribed to such term
in Section 3.1(l).
     “Legend Removal Date” shall have the meaning ascribed to such term in
Section 4.1(b).
     “Liens” means a lien, charge, security interest, encumbrance, right of
first refusal, preemptive right or other restriction.
     “Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).
     “Per Share Purchase Price” means $0.07.
     “Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.
     “Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
     “Purchaser Party” shall have the meaning ascribed to such term in
Section 4.7.
     “Registration Rights Agreement” means the Registration Rights Agreement,
dated the date hereof, among the Company and the Purchaser, in the form of
Exhibit A attached hereto.
     “Registration Statement” means a registration statement meeting the
requirements set forth in the Registration Rights Agreement and covering the
resale by the Purchaser of the Shares and the Warrant Shares.

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     “Required Approvals” shall have the meaning ascribed to such term in
Section 3.1(e).
     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
     “SEC Reports” shall have the meaning ascribed to such term in
Section 3.1(h).
     “Securities” means the Shares, the Warrants and the Warrant Shares.
     “Securities Act” means the Securities Act of 1933, as amended.
     “Shares” shall have the meaning ascribed to such term in Section 2.1.
     “Short Sales” shall include all “short sales” as defined in Rule 200 of
Regulation SHO under the Exchange Act.
     “Subscription Amount” means the aggregate amount to be paid by the
Purchaser for Shares and Warrants purchased hereunder by the Purchaser
denominated in United States Dollars and in immediately available funds.
     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a).
     “Trading Day” means a day on which the Common Stock is traded on a Trading
Market.
     “Trading Market” means any securities exchange or quotation system on which
the Common Stock is listed or quoted for trade.
     “Transaction Documents” means this Agreement, the Warrants and the
Registration Rights Agreement and any other documents or agreements executed in
connection with the transactions contemplated hereunder.
     “Warrants” means collectively the Common Stock purchase warrants, in the
form of Exhibit C delivered to the Purchaser at the Closing in accordance with
Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have
a term of exercise equal to five (5) years.
     “Warrant Shares” means the shares of Common Stock issuable upon exercise of
the Warrants, which shall initially equal fifty percent (50%) of the number of
shares of Common Stock purchased hereunder, subject to adjustment as set forth
in the Warrants.
ARTICLE II
PURCHASE AND SALE
     Section 2.1 Closing. On the Closing Date, upon the terms and subject to the
conditions set forth herein, concurrent with the execution and delivery of this
Agreement by the parties hereto, the Company agrees to sell, and the Purchaser
agrees to purchase 3,390,547 shares of Common Stock (the “Shares”) at the Per
Share Purchase Price for an aggregate purchase price of

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$237,338.29 (the “Aggregate Purchase Price”). In no event shall the number of
Shares purchased exceed 19.90% of the Company’s outstanding shares of Common
Stock on the Closing Date (calculated prior to the issuance of the Shares). Upon
the terms and subject to the conditions set forth herein, the Purchaser shall be
issued Warrants to purchase 1,695,273 shares of Common Stock. The Warrants shall
have an exercise price equal to $0.86 per share (calculated prior to the
issuance of the Shares). The Purchaser shall deliver to the Company via wire
transfer immediately available funds equal to its Subscription Amount and the
Company shall deliver to the Purchaser its Shares and Warrants as determined
pursuant to Section 2.2(a) and the other items set forth in Section 2.2
deliverable at the Closing. Upon satisfaction of the conditions set forth in
Sections 2.2 and 2.3, the Closing shall occur at the offices of the Company
Counsel, or such other location as the parties shall mutually agree.
     Section 2.2 Deliveries.
     (a) On the Closing Date, the Company shall deliver or cause to be delivered
to the Purchaser the following:
     (i) this Agreement duly executed by the Company;
     (ii) a legal opinion of Company Counsel, in the form of Exhibit B attached
hereto;
     (iii) a copy of the irrevocable instructions to the Company’s transfer
agent instructing the transfer agent to deliver, on an expedited basis, a
certificate evidencing the Shares, registered in the name of the Purchaser;
     (iv) a Warrant registered in the name of the Purchaser to purchase up to
the number of Warrant Shares; and
     (v) the Registration Rights Agreement duly executed by the Company.
     (b) On the Closing Date, the Purchaser shall deliver or cause to be
delivered to the Company the following:
     (i) this Agreement duly executed by the Purchaser;
     (ii) the Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company; and
     (iii) the Registration Rights Agreement duly executed by the Purchaser.
     Section 2.3 Closing Conditions.
     (a) The obligations of the Company hereunder in connection with the Closing
are subject to the following conditions being met or waived:
     (i) the accuracy in all material respects when made and on the Closing Date
of the representations and warranties of the Purchaser contained herein;

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     (ii) all obligations, covenants and agreements of the Purchaser required to
be performed at or prior to the Closing Date shall have been performed; and
     (iii) the delivery by the Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
     (b) The obligations of the Purchaser hereunder in connection with the
Closing are subject to the following conditions being met or waived:
     (i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;
     (ii) all obligations, covenants and agreements of the Company required to
be performed at or prior to the Closing Date shall have been performed; and
     (iii) the delivery by the Company of the items set forth in Section 2.2(a)
of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
     Section 3.1 Representations and Warranties of the Company. Except as
disclosed in the SEC Reports or set forth under the corresponding section of the
disclosure schedules delivered to the Purchaser concurrently herewith (the
“Disclosure Schedules”) which Disclosure Schedules shall be deemed a part
hereof, the Company hereby makes the representations and warranties set forth
below to the Purchaser:
     (a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, nonassessable and free of preemptive and similar rights to subscribe for
or purchase securities.
     (b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized and validly
existing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not reasonably be expected to result in (i) a material
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations,

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assets, business, prospects or condition (financial or otherwise) of the Company
and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on
the Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
     (c) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
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.
     (d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares and
the consummation by the Company of the other transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of
the Company’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, result in the creation of any Lien upon any of the properties or
assets of the Company, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
debt or otherwise) or other understanding to which the Company is a party or by
which any property or asset of the Company is bound or affected, or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company is
subject (including federal and state securities laws and regulations), or by
which any property or asset of the Company is bound or affected; except in the
case of each of clauses (ii) and (iii), such as could not reasonably be expected
to result in a Material Adverse Effect.
     (e) Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to

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Section 4.4 of this Agreement, (ii) the filing with the Commission of the
Registration Statement or any other registration provisions provided in the
Registration Rights Agreement, (iii) application(s) to each applicable Trading
Market for the listing of the Shares and Warrant Shares for trading thereon in
the time and manner required thereby, and (iv) the filing of Form D with the
Commission and such other filings, consents and approvals which may be required
to be made under applicable state and federal securities laws, rules or
regulations (collectively, the “Required Approvals”).
     (f) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the terms of the applicable
Transaction Documents, will be validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock the number of shares of Common Stock
issuable pursuant to the Warrants.
     (g) Capitalization. The capitalization of the Company is as set forth in
the SEC Reports. Except as disclosed on Schedule 3.1(g), the Company has not
issued any capital stock since its most recently filed periodic report under the
Exchange Act, other than pursuant to the exercise of employee stock options
under the Company’s stock option plans and pursuant to the conversion or
exercise of outstanding Common Stock Equivalents. No Person has any right of
first refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents.
Except as disclosed on Schedule 3.1(g) and except as a result of the purchase
and sale of the Securities, there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The
issuance and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchaser) and will not result in a right of any holder of Company securities to
adjust the exercise, conversion, exchange or reset price under such securities.
All of the outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. No further approval or authorization of any stockholder,
the Board of Directors of the Company or others is required for the issuance and
sale of the Securities. Except as disclosed on Schedule 3.1(g), there are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
under the Securities Act and the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the

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Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto and documents incorporated by reference therein,
being collectively referred to herein as the “SEC Reports”) on a timely basis or
has received a valid extension of such time of filing and has filed any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
     (i) Material Changes. Since June 30, 2008, except as specifically disclosed
in the SEC Reports, (i) there has been no event, occurrence or development that
has had or that could reasonably be expected to result in a Material Adverse
Effect, (ii) the Company has not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s financial statements pursuant to
GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not
declared or made any dividend or distribution of cash or other property to its
stockholders or purchased, redeemed or made any agreements to purchase or redeem
any shares of its capital stock, and (v) the Company has not issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans. The Company does not have pending before the
Commission any request for confidential treatment of information.
     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company, any Subsidiary or any of their
respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor, to the knowledge of the Company, any director
or officer thereof, is or has been the subject of any Action involving a claim
of violation of or liability under

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federal or state securities laws or a claim of breach of fiduciary duty. To the
knowledge of the Company, there is not pending or contemplated, any
investigation by the Commission involving the Company or any current or former
director or officer of the Company, nor any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
     (k) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases.
     (l) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports (collectively, the “Intellectual
Property Rights”). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.
     (m) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. To the knowledge of the Company, such insurance
contracts and policies are accurate and complete. Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.
     (n) Transactions With Affiliates and Employees. Except as set forth in the
SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company, is presently a
party to any transaction with the Company or any Subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director,

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or any such employee has a substantial interest or is an officer, director,
trustee or partner, in each case in excess of $120,000 other than (i) for
payment of salary or consulting fees for services rendered, (ii) reimbursement
for expenses incurred on behalf of the Company and (iii) for other employee
benefits, including stock option agreements under any stock option plan of the
Company.
     (o) Sarbanes-Oxley. The Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Closing Date.
     (p) Certain Fees. No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents.
     (q) Private Placement. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, no registration under
the Securities Act is required for the offer and sale of the Securities by the
Company to the Purchaser as contemplated hereby. Other than for compliance with
any advance listing notification requirement of the Trading Market for listing
of the Securities, the issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market.
     (r) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended. The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act.
     (s) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company has not, in the
12 months preceding the date hereof, received notice from any Trading Market to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to
believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements.
     (t) Disclosure. The Company acknowledges and agrees that the Purchaser does
not make or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.
     (u) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, to the knowledge of the
Company,

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neither the Company, nor any of its affiliates, nor any Person acting on its or
their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with prior
offerings by the Company for purposes of the Securities Act which would prevent
the Company from selling the Securities pursuant to Regulation D and Rule 506
thereof under the Securities Act, or any applicable stockholder approval
provisions under the rules and regulations of any Trading Market.
     (v) Form S-3 Eligibility. The Company meets the “registrant eligibility”
requirements set forth in the general instructions to Form S-3 promulgated under
the Securities Act applicable to “resale” registration on Form S-3.
     (w) Tax Status. The Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
accrued all taxes shown as due thereon, and the Company has no knowledge of a
tax deficiency which has been asserted or threatened against the Company or any
Subsidiary.
     (x) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.
     (y) Acknowledgment Regarding Purchaser’s Purchase of Securities. The
Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby. The Company further acknowledges that
the Purchaser is not acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Purchaser or any of its
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby are merely incidental to the Purchaser’s
purchase of the Securities. The Company further represents to the Purchaser that
the Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
     (z) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities (other than for any placement
agent’s placement of the Securities), or (iii) paid or agreed to pay to any

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person any compensation for soliciting another to purchase any other securities
of the Company.
     Section 3.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants as of the date hereof and as of the Closing Date
to the Company as follows:
     (a) Organization; Authority. The Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with full right, corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution, delivery and performance by the Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or similar action on the part of the Purchaser and no further consent
or authorization of the Purchaser or its board of directors, stockholders, or
partners, as the case may be, is required. Each Transaction Document to which it
is a party has been duly executed by the Purchaser, and when delivered by the
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of the Purchaser, enforceable against it in
accordance with its terms, except (i) as limited by general equitable principles
and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as
indemnification and contribution provisions may be limited by applicable law.
     (b) Own Account. The Purchaser understands that the Securities are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Securities as principal
for its own account and not with a view to or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty
not limiting the Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state securities law. The Purchaser is acquiring the Securities hereunder in the
ordinary course of its business. The Purchaser does not have any agreement or
understanding, directly or indirectly, with any Person to distribute any of the
Securities.
     (c) Purchaser Status. At the time the Purchaser was offered the Securities,
it was, and at the date hereof it is, and on each date on which it exercises any
Warrants, it will be either: (i) an “accredited investor” as defined in
Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or
(ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the
Securities Act. The Purchaser is not required to be registered as a
broker-dealer under Section 15 of the Exchange Act.

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     (d) Experience of The Purchaser. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. The Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
     (e) General Solicitation. The Purchaser acknowledges that the Securities
were not offered to the Purchaser by means of any form of general or public
solicitation or general advertising, or publicly disseminated advertisements or
sales literature, including (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar media, or
broadcast over television or radio, or (ii) any seminar or meeting to which
Purchaser was invited by any of the foregoing means of communication, or any
other general solicitation or general advertisement.
     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than
the transaction contemplated hereunder, the Purchaser has not directly or
indirectly, nor has any Person acting on behalf of or pursuant to any
understanding with the Purchaser, executed any disposition, including Short
Sales (but not including the location and/or reservation of borrowable shares of
Common Stock), in the securities of the Company during the period commencing
from the time that the Purchaser first received a term sheet from the Company or
any other Person setting forth the material terms of the transactions
contemplated hereunder until the date hereof (“Discussion Time”). Other than to
other Persons party to this Agreement, the Purchaser has maintained the
confidentiality of all disclosures made to it by the Company or its agents and
advisors in connection with this transaction (including the existence and terms
of this transaction).
     (g) Rule 144. The Purchaser understands that the Securities must be held
indefinitely unless such Shares are registered under the Securities Act or an
exemption from registration is available. The Purchaser acknowledges that such
person is familiar with Rule 144 of the rules and regulations of the Commission,
as amended, promulgated pursuant to the Securities Act (“Rule 144”), and that
the Purchaser has been advised that Rule 144 permits resales only under certain
circumstances. The Purchaser understands that to the extent that Rule 144 is not
available, the Purchaser will be unable to sell any Securities without either
registration under the Securities Act or the existence of another exemption from
such registration requirement.
     (h) Certain Fees. The Purchaser has not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees,
commissions, finders’ structuring fees, financial advisory fees or other similar
fees in connection with the Transaction Documents.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
     Section 4.1 Transfer Restrictions.

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     (a) The Securities may only be disposed of in compliance with state and
federal securities laws. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, to the Company
or to an affiliate of a Purchaser, the Company may require the transferor
thereof to provide to the Company an opinion of counsel selected by the
transferor and reasonably acceptable to the Company, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such transferred Securities
under the Securities Act. In connection with any transfer of Securities other
than pursuant to an effective registration statement or Rule 144, as a condition
of transfer, any such transferee shall agree in writing to be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this Agreement
and the Registration Rights Agreement.
     (b) The Purchaser agrees to the imprinting, so long as is required by this
Section 4.1(b), of a legend on any of the Securities in substantially the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT.
     (c) Certificates evidencing the Shares and Warrant Shares shall not contain
the legend set forth in Section 4.1(b), (i) if such Shares or Warrant Shares are
eligible for sale under Rule 144 without restriction as to volume, or (ii) if
such legend is not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the staff of
the Commission). Subject to compliance with the preceding sentence, the Company
shall use reasonable efforts to cause its counsel to issue a legal opinion to
the Company’s transfer agent promptly after the Effective Date if required by
the Company’s transfer agent to effect the removal of the legend hereunder. The
Company agrees that at such time as such legend is no longer required under this
Section 4.1(c), it will, no later than five (5) Trading Days following the
delivery by a Purchaser to the Company or the Company’s transfer agent of a
certificate representing Shares or Warrant Shares, as the case may be, issued
with a restrictive legend, accompanied by detailed written instructions and
appropriate and customary representations (such fifth Trading Day, the “Legend
Removal Date”), deliver or cause to

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be delivered to the Company’s transfer agent irrevocable instructions
instructing the transfer agent to deliver, on an expedited basis, a certificate
representing such shares that is free from such restrictive legends.
     (d) The Purchaser will offer and sell any and all Securities pursuant to
all applicable federal and state securities laws, including pursuant to either
the registration requirements of the Securities Act, including any applicable
prospectus delivery requirements, or an exemption therefrom, and agrees that the
removal of the restrictive legend from certificates representing Securities as
set forth in this Section 4.1 is predicated upon the Company’s reliance on the
Purchaser’s representation contained herein and on the Purchaser’s broker’s
representation provided to the Company pursuant to Section 4.1(c) hereof.
     Section 4.2 Furnishing of Information. As long as the Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and
furnish to the Purchaser and make publicly available in accordance with Rule
144(c) such information as is required for the Purchaser to sell the Securities
under Rule 144. The Company further covenants that it will take such further
action as any holder of Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell such Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144.
     Section 4.3 Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be aggregated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser or that
would be with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require stockholder
approval prior to the closing of such other transaction unless stockholder
approval is obtained before the closing of such subsequent transaction.
     Section 4.4 Securities Laws Disclosure; Publicity. The Company shall issue
a press release promptly after the Closing describing all material terms of the
transaction contemplated by this Agreement, and file a Current Report on Form
8-K within the time period required by the Commission disclosing the
transactions contemplated hereby as required by such form. The Company and the
Purchaser shall consult with each other in issuing any other press releases with
respect to the transactions contemplated hereby, and neither the Company nor the
Purchaser shall issue any such press release or otherwise make any such public
statement without the prior consent of the Company, with respect to any press
release of the Purchaser, or without the prior consent of the Purchaser, with
respect to any press release of the Company, which consent of either party shall
not unreasonably be withheld, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of the Purchaser, or
include the name of the Purchaser in any filing with the Commission, with any
regulatory agency or with the Trading Market, without the prior

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written consent of the Purchaser, except (i) as required by federal securities
law in connection with Form D to be filed with the Commission or the
registration statement contemplated by the Registration Rights Agreement and
(ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Purchaser with prior
notice of such disclosure permitted under subclause (i) or (ii).
     Section 4.5 Use of Proceeds. Except as set forth on Schedule 4.5 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital and general corporate purposes.
     Section 4.6 Indemnification. Subject to the provisions of this Section 4.6,
the Company will indemnify and hold the Purchaser and its directors, officers,
shareholders, members, partners, employees and agents (each, a “Purchaser
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any the Purchaser Party may suffer or incur as a result of or
relating to (a) any breach of any of the representations, warranties, covenants
or agreements made by the Company in this Agreement or in the other Transaction
Documents, or (b) any action instituted against the Purchaser, or its
Affiliates, by any stockholder of the Company who is not an Affiliate of the
Purchaser, with respect to any of the transactions contemplated by the
Transaction Documents (unless such action is based upon a breach of the
Purchaser’s representations, warranties or covenants under the Transaction
Documents or any agreements or understandings the Purchaser may have with any
such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance); provided, however, that (except
as otherwise set forth in the Registration Rights Agreement) the total liability
of the Company to all Purchaser Parties under clause (b) above shall not exceed
the Aggregate Purchase Price. If any action shall be brought against the
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, the Purchaser Party shall promptly notify the Company in writing, and
the Company shall have the right to assume the defense thereof with counsel of
its own choosing. The Purchaser Party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the Purchaser Party
except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel or
(iii) in such action there is, in the reasonable opinion of such separate
counsel, a material conflict on any material issue between the position of the
Company and the position of the Purchaser Party. The Company will not be liable
to the Purchaser Party under this Agreement (i) for any settlement by a
Purchaser Party effected without the Company’s prior written consent, which
consent shall not be unreasonably withheld or delayed; or (ii) to the extent,
but only to the extent that a loss, claim, damage or liability is attributable
to the Purchaser Party’s breach of any of the representations, warranties,
covenants or agreements made by the Purchaser in this Agreement or in the other
Transaction Documents.
     Section 4.7 Reservation of Common Stock. As of the date hereof, the Company
has reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling

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the Company to issue Shares pursuant to this Agreement and Warrant Shares
pursuant to any exercise of the Warrants.
     Section 4.8 Listing of Common Stock. The Company hereby agrees to use
reasonable best efforts to maintain the listing of the Common Stock on the
Nasdaq Global Market, and as soon as reasonably practicable following the
Closing (but not later than the earlier of the Effective Date and the first
anniversary of the Closing Date), to list all of the Shares and Warrant Shares
on the Nasdaq Global Market. The Company further agrees, if the Company applies
to have the Common Stock traded on any other stock exchange or trading market,
it will include in such application all of the Shares and Warrant Shares, and
will use its reasonable best efforts to cause all of the Shares and Warrant
Shares to be listed on such other stock exchange or trading market as promptly
as possible. The Company will use its reasonable best efforts to continue the
listing and trading of its Common Stock on the Nasdaq Global Market and to
comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of any Trading Market.
     Section 4.9 Confidentiality After The Date Hereof. The Purchaser covenants
that until such time as the transactions contemplated by this Agreement are
publicly disclosed by the Company as described in the first sentence of
Section 4.4, the Purchaser will maintain the confidentiality of all disclosures
made to it by the Company or its agents and advisors in connection with this
transaction (including the existence and terms of this transaction).
ARTICLE V
MISCELLANEOUS
     Section 5.1 Expenses. The Company shall pay all fees and expenses it incurs
in connection with satisfying its obligations under this Agreement. The Company
shall also reimburse the Purchaser for the Purchaser’s reasonable out-of-pocket
expenses, including, without limitation, fees of one (1) legal counsel, incurred
by it in connection with the consummation of the transactions contemplated by
this Agreement and for which the Purchaser submits invoices to the Company
within thirty (30) days of the Closing Date up to a maximum of $15,000. To be
eligible for reimbursement, an invoice must be accompanied by an itemized list
and reasonable documentation of all such expenses.
     Section 5.2 Entire Agreement. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
     Section 5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 5:30
p.m. (Eastern Standard Time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number set forth on the signature pages attached
hereto on a day that is not a Trading Day or

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later than 5:30 p.m. (Eastern Standard Time) on any Trading Day, (c) the 2nd
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.
     Section 5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed by the Company and the
Purchaser. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right.
     Section 5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
     Section 5.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. The Purchaser may
assign any or all of its rights under this Agreement to any Person to whom the
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the “Purchaser”.
     Section 5.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.6.
     Section 5.8 Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the State of New York. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
State of New York for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the

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address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. The parties hereby waive all
rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
prevailing party in such action or proceeding shall be reimbursed by the other
party for its attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
     Section 5.9 Survival. The representations and warranties contained herein
shall survive the Closing and the delivery of the Shares and Warrant Shares.
     Section 5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
     Section 5.11 Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
     Section 5.12 Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
     Section 5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchaser
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
     Section 5.14 Reserved.
     Section 5.15 Liquidated Damages. The Company’s obligations to pay any
partial liquidated damages or other amounts owing under the Transaction
Documents is a continuing

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obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.
     Section 5.16 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.
(Signature Pages Follow)

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     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

                  AVALON PHARMACEUTICALS, INC.       Address for Notice:    
 
               
By:
Name:
  /s/ Kenneth C. Carter
 
Kenneth C. Carter       20358 Seneca Meadows Parkway
Germantown Maryland 20876
   
Title:
  President and Chief Executive Officer       Phone (301) 556-9900    
 
          Fax( 301) 556-9910    

With a copy to (which shall not constitute notice):
Hogan & Hartson L.L.P.
111 South Calvert Street
Suite 1600
Baltimore, MD 21202
Attention: Michael J. Silver
Facsimile: (410) 539-6981
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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     IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

                  CLINICAL DATA, INC.       TIN and Address for Notice:    
 
               
By:
Name:
  /s/ Caesar J. Belbel
 
Caesar J. Belbel       One Gateway Center, Suite 702
Newton, MA 02458    
Title:
  Executive Vice President, Chief Legal Officer and Secretary.       Fax:
(617) 527-9933
TIN:    

 

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Annex A
CLOSING STATEMENT
Pursuant to the attached Securities Purchase Agreement, dated as of the date
hereto, the purchaser shall purchase $237,338.29 of Common Stock at the Per
Share Purchase Price and Warrants at $0.86 per share from Avalon
Pharmaceuticals, Inc., a Delaware corporation (the “Company”). All funds will be
wired into an account maintained by the Company. All funds will be disbursed in
accordance with this Closing Statement.
Disbursement Date: October 27, 2008

         
I.
  PURCHASE PRICE    
 
       
 
  Gross Proceeds to be Received   $237,338.29
 
       
II.
  DISBURSEMENTS    
 
       
 
  Total Amount Disbursed:   $237,338.29