Exhibit 10.7
INTELLECTUAL PROPERTY SECURITY AGREEMENT
     This Intellectual Property Security Agreement dated as of October 27, 2008
(“Security Agreement”), is made by Avalon Pharmaceuticals, Inc., a Delaware
corporation (“Grantor”), in favor of Clinical Data, Inc. (“Secured Party”).
Recitals
     A. Secured Party has made or has agreed to make certain advances of money
and to extend certain financial accommodations to Grantor pursuant to that
certain Note Purchase Agreement dated of even date herewith between Grantor and
Secured Party (as the same may be amended, the “Note Purchase Agreement”) and as
evidenced by that certain Term Note dated of even date herewith executed by
Grantor in favor of Secured Party and such other promissory notes which may be
executed by Grantor in favor of Secured Party after the date hereof (as each may
be amended, individually, the “Note” and, collectively, the “Notes”), such
advances, future advances, and financial accommodations being referred to herein
as the “Loans”.
     B. Secured Party is willing to make the Loans to Grantor, but only upon the
condition, among others, that Grantor shall have executed and delivered to
Secured Party this Security Agreement.
Agreement
     Now, Therefore, in order to induce Secured Party to make the Loans and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Grantor hereby
represents, warrants, covenants and agrees as follows:
     1. Defined Terms. Terms used but not otherwise defined herein shall have
the meanings given to them in the Note Purchase Agreement. When used in this
Security Agreement the following terms shall have the following meanings (such
meanings being equally applicable to both the singular and plural forms of the
terms defined):
     “AvalonRx® Technology” shall have the meaning given such term in the
License Agreement.
     “Bankruptcy Code” means Title XI of the United States Code.
     “Collateral” shall have the meaning assigned to such term in Section 2 of
this Security Agreement.
     “Contracts” means all contracts (including any customer, vendor, supplier,
service or maintenance contract), leases, licenses, undertakings, purchase
orders, permits, franchise agreements or other agreements, whether in written or
electronic form, in or under which Grantor now holds or hereafter acquires any
right, title or interest, including, without limitation, with respect to an
account receivable, any agreement relating to the terms of payment or the terms
of performance thereof.

 

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     “Copyright License” means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right in or to any Copyright or Copyright registration (whether Grantor is
the licensee or the licensor thereunder) including, without limitation, licenses
pursuant to which Grantor has obtained the exclusive right to use a copyright
owned by a third party.
     “Copyrights” means all of the following now owned or hereafter acquired or
created (as a work for hire for the benefit of Grantor) by Grantor or in which
Grantor now holds or hereafter acquires or receives any right or interest, in
whole or in part: (a) all copyrights, whether registered or unregistered, held
pursuant to the laws of the United States, any State thereof or any other
country; (b) registrations, applications, recordings and proceedings in the
United States Copyright Office or in any similar office or agency of the United
States, any State thereof or any other country; (c) any continuations, renewals
or extensions thereof; (d) any registrations to be issued in any pending
applications, and shall include any right or interest in and to work protectable
by any of the foregoing which are presently or in the future owned, created or
authorized (as a work for hire for the benefit of Grantor) or acquired by
Grantor, in whole or in part; (e) prior versions of works covered by copyright
and all works based upon, derived from or incorporating such works; (f) income,
royalties, damages, claims and payments now and hereafter due and/or payable
with respect to copyrights, including, without limitation, damages, claims and
recoveries for past, present or future infringement; (g) rights to sue for past,
present and future infringements of any copyright; and (h) any other rights
corresponding to any of the foregoing rights throughout the world.
     “Event of Default” means any “Event of Default” as defined in the Note
Purchase Agreement.
     “General Intangible” means and includes any “general intangible,” as such
term is defined in Article 9 of the UCC, now owned or hereafter acquired or
received by Grantor or in which Grantor now holds or hereafter acquires or
receives any right or interest, and shall include, in any event, any Contract
(including any License), Copyright, Trademark, Patent or other Intellectual
Property, Payment Intangible, books and records, ledger card, file,
correspondence, computer program, tape, disk and related data processing
software that at any time evidences or contains information relating to any of
the Collateral, permit, goodwill (including the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark
License), insurance policy or any claim in or under any policy of insurance
(including unearned premiums), chose in action, judgment taken or any rights or
claims included in the Collateral, any right to sue for past, present and future
infringement of any Copyright, Trademark, Patent, any right to any tax refund of
any kind from any governmental authority, any right to receive the proceeds of
any indemnity, warranty (including any manufacturer’s warranty) or guaranty
(including any performance guaranty) in favor of Grantor, any claim of Grantor
arising out of any breach or default under any Contract (including any License)
or claim for damages arising out of such breach or default and any right of
Grantor to terminate, amend, supplement, modify or exercise rights, options or
remedies under any Contract (including any License).
     “Intellectual Property” means any intellectual property, in any medium, of
any kind or nature whatsoever, now or hereafter owned or acquired or received by
Grantor or in which

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Grantor now holds or hereafter acquires or receives any right or interest, and
shall include, in any event, any Copyright, Trademark, Patent, trade secret,
customer list, marketing plan, internet domain name (including any right related
to the registration thereof), proprietary or confidential information, mask
work, source, object or other programming code, invention (whether or not
patented or patentable), technical information, procedure, design, knowledge,
know-how, software, data base, data, skill, expertise, recipe, experience,
process, model, drawing, material or record.
     “License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests, whether in-bound or out-bound, whether in
written or electronic form, now or hereafter owned or acquired or received by
Grantor or in which Grantor now holds or hereafter acquires or receives any
right or interest, and shall include any renewals or extensions of any of the
foregoing thereof.
     “License Agreement” shall mean that certain AvalonRx® License Agreement
between the Buyer and Seller, dated on or about the date hereof, as amended.
     “Lien” means any mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
     “Patent License” means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right with respect to any invention on which a Patent is in existence
(whether Grantor is the licensee or the licensor thereunder).
     “Patents” means all of the following in which Grantor now holds or
hereafter acquires any interest: (a) all letters patent of the United States or
any other country, all registrations and recordings thereof and all applications
for letters patent of the United States or any other country, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country; (b) all reissues, divisions,
continuations, renewals, continuations-in-part or extensions thereof; (c) all
petty patents, divisionals and patents of addition; (d) all patents to issue in
any such applications; (e) income, royalties, damages, claims and payments now
and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future
infringement; and (f) rights to sue for past, present and future infringements
of any patent.
     “Payment Intangibles” means and includes any “payment intangible” as such
term is defined in Article 9 of the UCC, now or hereafter owned or acquired or
received by Grantor or in which Grantor now holds or hereafter acquires or
receives any right or interest.
     “Proceeds” means and includes any “proceeds,” as such term is defined in
Article 9 of the UCC, now or hereafter owned or acquired or received by Grantor
or in which Grantor now holds or hereafter acquires or receives any right or
interest
     “Secured Obligations” means the Obligations (as such term is defined in the
Note Purchase Agreement).

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     “Security Agreement” means this Security Agreement and all Schedules
hereto, as the same may from time to time be amended, modified, supplemented or
restated.
     “Trademark License” means any agreement, whether in written or electronic
form, in which Grantor now holds or hereafter acquires any interest, granting
any right in and to any Trademark or Trademark registration (whether Grantor is
the licensee or the licensor thereunder).
     “Trademarks” means any of the following in which Grantor now holds or
hereafter acquires any interest: (a) any trademarks, tradenames, corporate
names, company names, business names, trade styles, service marks, logos, other
source or business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof and any applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country (collectively, the “Marks”);
(b) any reissues, extensions or renewals thereof; (c) the goodwill of the
business symbolized by or associated with the Marks; (d) income, royalties,
damages, claims and payments now and hereafter due and/or payable with respect
to the Marks, including, without limitation, damages, claims and recoveries for
past, present or future infringement; and (e) rights to sue for past, present
and future infringements of the Marks.
     “UCC” means the Uniform Commercial Code as the same may from time to time
be in effect in the State of New York (and each reference in this Security
Agreement to an Article thereof (denoted as a Division of the UCC as adopted and
in effect in the State of New York) shall refer to that Article (or Division, as
applicable) as from time to time in effect; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of Secured Party’s security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term “UCC” shall mean the Uniform Commercial
Code (including the Articles thereof) as in effect at such time in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
     2. Grant of Security Interest. As collateral security for the full, prompt,
complete and final payment and performance when due (whether at stated maturity,
by acceleration or otherwise) of all the Secured Obligations and in order to
induce Secured Party to cause the Loans to be made, Grantor hereby assigns,
conveys, mortgages, pledges, hypothecates and transfers to Secured Party, and
hereby grants to Secured Party, a security interest in all of Grantor’s right,
title and interest in, to and under the following, whether now owned or
hereafter acquired (all of which being collectively referred to herein as the
“Collateral”):
          (a) the AvalonRx® Technology;
          (b) All Intellectual Property of Grantor, including without
limitation, in respect of the AvalonRx® Technology, and General Intangibles
related to all Intellectual Property of Grantor;

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          (c) All Contracts of Grantor in respect of the AvalonRx® Technology;
          (d) To the extent not otherwise included, all books and records of
Grantor with respect to each of the foregoing, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for and rents,
profits and products of each of the foregoing.
          Notwithstanding anything to the contrary set for in this Security
Agreement, “Collateral” shall not include any asset, now owned or hereafter
acquired or arising, to the extent that the creation or attachment of a security
interest in such asset would require the consent of any third party under a
Contract to which the Grantor is a party in order for the Grantor to avoid a
breach of or default under the Contract if the requirement of consent under the
Contract for the creation or attachment of the security interest is enforceable
under applicable law and such consent has not be obtained, provided, however,
that the “Collateral” shall include and the security interests hereunder shall
immediately attach to any Contract upon receipt of any required consent or
amendment to such Contract modifies such Contract to eliminate the requirement
for any required consent.
     3. Rights Of Secured Party.
          (a) Notwithstanding anything contained in this Security Agreement to
the contrary, Grantor expressly agrees that it shall remain liable under each of
its Contracts and Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and that it shall
perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract and License. Secured
Party shall not have any obligation or liability under any such Contract or
License by reason of or arising out of this Security Agreement or the granting
to Secured Party of a lien therein or the receipt by Secured Party of any
payment relating to any such Contract or License pursuant hereto, nor shall
Secured Party be required or obligated in any manner to perform or fulfill any
of the obligations of Grantor under or pursuant to any such Contract or License,
or to make any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it or the sufficiency of any performance
by any party under any such Contract or License, or to present or file any
claim, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
          (b) Secured Party may at any time, upon the occurrence and during the
continuance of any Event of Default, without notifying Grantor of its intention
to do so, notify parties to the Contracts of Grantor which constitute Collateral
that the right, title and interest of Grantor in and under such Contracts have
been assigned to Secured Party and that payments shall be made directly to
Secured Party. Upon the occurrence and during the continuance of any Event of
Default, upon the request of Secured Party, Grantor shall so notify such parties
to such Contracts. Upon the occurrence and during the continuance of any Event
of Default, Secured Party may, in its name or in the name of others, communicate
with such parties to such Contracts to verify with such parties, to Secured
Party’s satisfaction, the existence, amount and terms of any such Contracts.

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     4. Representations And Warranties. Grantor hereby represents and warrants
to Secured Party that:
          (a) Except for the security interest granted to Secured Party under
this Security Agreement, Grantor is the sole legal and equitable owner of each
item of the Collateral in which it purports to grant a security interest
hereunder, having good and marketable title thereto, free and clear of any and
all Liens.
          (b) No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral exists, except such as may have been filed by Grantor in favor
of Secured Party pursuant to this Security Agreement.
          (c) This Security Agreement creates a legal and valid security
interest on and in all of the Collateral in which Grantor now has rights and
will create a legal and valid security interest in the Collateral in which
Grantor later acquires rights.
          (d) Grantor’s taxpayer identification number is set forth in the
signature page hereof. If Grantor is a corporation, limited liability company,
limited partnership, corporate trust or other registered organization, the State
(or if not a state, the other jurisdiction) under whose law such registered
organization was organized is set forth on the signature page hereof. Grantor’s
chief executive office, principal place of business, and the place where Grantor
maintains its records concerning the Collateral are presently located at the
address set forth on the signature page hereof.
          (e) All Copyrights, Copyright Licenses, Patents, Patent Licenses,
Trademarks and Trademark Licenses comprising the Collateral now owned, held or
in which Grantor otherwise has any interest are listed on Schedule A attached
hereto. Grantor shall amend Schedule A from time to time in accordance with
Section 5.8 below to reflect any additions to or deletions from this list.
Except as set forth on Schedule A, none of the Patents, Trademarks or Copyrights
have been licensed to any third party.
     5. Covenants. Grantor covenants and agrees with Secured Party that from and
after the date of this Security Agreement and until the Secured Obligations have
been performed and paid in full and any commitment of Secured Party to make
Loans to Grantor has expired or terminated:
          5.1 Disposition of Collateral. Grantor shall not sell, lease, transfer
or otherwise dispose of any of the Collateral, or attempt or contract to do so.
          5.2 Change of Jurisdiction of Organization, Relocation of Business or
Collateral. Grantor shall not change its jurisdiction of organization, relocate
its chief executive office, principal place of business or its records, or allow
the relocation of any Collateral from such address(es) provided to Secured Party
pursuant to Section 4(d) above without fifteen (15) days prior written notice to
Secured Party.
          5.3 Limitation on Liens on Collateral. Grantor shall not, directly or
indirectly, create, permit or suffer to exist, and shall defend the Collateral
against and take such

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other action as is necessary to remove, any Lien on the Collateral, except the
Lien granted to Secured Party under this Security Agreement. Grantor shall
further defend the right, title and interest of Secured Party in and to any of
Grantor’s rights under the Collateral against the claims and demands of all
persons whomsoever.
          5.4 [Reserved].
          5.5 Taxes, Assessments, Etc. Grantor shall pay promptly when due all
property and other taxes, assessments and government charges or levies imposed
upon Grantor, except to the extent the validity thereof is being contested in
good faith and adequate reserves are being maintained in connection therewith.
          5.6 Maintenance of Records. Grantor shall keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral.
          5.7 Registration of Intellectual Property Rights. Subject to Grantor’s
reasonable business judgment, (i) Grantor shall promptly register or cause to be
registered (to the extent not already registered) the most recent version of any
Copyright, Copyright License, Patent, Patent License, Trademark or Trademark
License constituting the Collateral, with the United States Copyright Office or
Patent and Trademark Office, as applicable, including, without limitation, in
all such cases the filing of applications for renewal, affidavits of use,
affidavits of noncontestability and opposition and interference and cancellation
proceedings and (ii) Grantor shall register or cause to be registered with the
United States Copyright Office or Patent and Trademark Office, as applicable,
those additional rights and interests developed or acquired by Grantor in
respect of the AvalonRx® Technology after the date of this Security Agreement,
including, without limitation, any additions to the rights and interests of
Grantor listed on Schedule A hereto.
          5.8 Notification Regarding Changes in Intellectual Property. Grantor
shall:
          (a) promptly advise Secured Party in writing of any subsequent
ownership right or interest of the Grantor in or to any Copyright, Patent,
Trademark or License constituting Collateral not specified on Schedule A hereto,
and shall amend or permit Secured Party to amend such Schedule, as necessary, to
reflect any addition or deletion to such ownership rights;
          (b) promptly give Secured Party written notice of any applications or
registrations of intellectual property rights filed with the United States
Patent and Trademark Office, including the date of such filing and the
registration or application numbers, if any; and
          (c) (i) give Secured Party not less than 30 days prior written notice
of the filing of any applications or registrations in respect of the Collateral
with the United States Copyright Office, including the title of such
intellectual property rights to be registered, as such title will appear on such
applications or registrations, and the date such applications or registrations
will be filed, and (ii) prior to the filing of any such applications or
registrations, shall execute such documents as Secured Party may reasonably
request for Secured Party to maintain its perfection and priority in such
intellectual property rights to be registered by Grantor, and upon the request
of Secured Party, shall file such documents simultaneously with the filing of
any such

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applications or registrations. Upon filing any such applications or
registrations with the United States Copyright Office, Grantor shall promptly
provide Secured Party with (x) a copy of such applications or registrations,
without the exhibits, if any, thereto, (y) evidence of the filing of any
documents requested by Secured Party to be filed for Secured Party to maintain
the perfection and priority of its security interest in such intellectual
property rights, and (z) the date of such filing.
          (d) Secured Party may audit the Collateral, at reasonable times and
upon reasonable notice, to confirm compliance with Section 5.7 and this
Section 5.8. Secured Party shall have the right, but not the obligation, to
take, at Grantor’s sole expense, any actions that Grantor is required under this
Section 5.8 to take but which Grantor fails to take, after five (5) days’ notice
to Grantor (provided that no such notice shall be required if an Event of
Default has occurred and is continuing). Grantor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under Section 5.7 or this Section 5.8.
          5.9 Defense of Intellectual Property. Grantor shall (a) protect,
defend and maintain the validity and enforceability of its Copyrights, Patents
and Trademarks, (b) use its commercially reasonable efforts to detect
infringements of its Copyrights, Patents and Trademarks and promptly advise
Secured Party in writing of material infringements detected and (c) not allow
any of its Copyrights, Patents or Trademarks to be abandoned, forfeited or
dedicated to the public without the prior written consent of Secured Party.
          5.10 Further Assurances. At any time and from time to time, upon the
written request of Secured Party, and at the sole expense of Grantor, Grantor
shall promptly and duly execute and deliver any and all such further instruments
and documents and take such further action as Secured Party may reasonably deem
necessary or desirable to obtain the full benefits of this Security Agreement,
including, without limitation, (a) using commercially reasonable efforts to
secure all consents and approvals necessary or appropriate for the grant of a
security interest to Secured Party in any item of Collateral held by Grantor or
in which Grantor has any right or interest, (b) executing, delivering and
causing to be filed any financing or continuation statements (including “in
lieu” continuation statements) under the UCC with respect to the security
interests granted hereby, (c) filing or cooperating with Secured Party in filing
any forms or other documents required to be recorded with the United States
Patent and Trademark Office, United States Copyright Office, or any actions,
filings, recordings or registrations in any foreign jurisdiction or under any
international treaty, required to secure or protect Secured Party’s interest in
the Collateral, (d) transferring the Collateral to Secured Party’s possession
(if a security interest in such Collateral can be perfected only by possession),
and (e) at Secured Party’s reasonable request, executing and delivering or
causing to be delivered written notice to insurers of Secured Party’s security
interest in, or claim in or under, any policy of insurance (including unearned
premiums). Any such financing statements, continuation statements or amendments
may be signed by Secured Party on behalf of Grantor and may be filed at any time
in any jurisdiction. Grantor hereby authorizes Secured Party to file any
financing or continuation statement (including “in lieu” continuation
statements) without the signature of Grantor.

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     6. Secured Party’s Appointment as Attorney-in-Fact; Performance by Secured
Party.
          (a) Subject to Section 6(b) below, Grantor hereby irrevocably
constitutes and appoints Secured Party, and any officer or agent of Secured
Party, with full power of substitution, as its true and lawful attorney-in-fact
with full, irrevocable power and authority in the place and stead of Grantor and
in the name of Grantor or in its own name, from time to time at Secured Party’s
discretion, for the purpose of carrying out the terms of this Security
Agreement, to take any and all appropriate action and to execute and deliver any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Security Agreement and, without limiting the
generality of the foregoing, hereby gives Secured Party the power and right, on
behalf of Grantor, without notice to or assent by Grantor to do the following:
               (i) to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral and,
in the name of Grantor, in its own name or otherwise to take possession of,
endorse and collect any checks, drafts, notes, acceptances or other instruments
for the payment of monies due under any Collateral and to file any claim or take
or commence any other action or proceeding in any court of law or equity or
otherwise deemed appropriate by Secured Party for the purpose of collecting any
and all such monies due under any Collateral whenever payable;
               (ii) to pay or discharge any Liens, including, without
limitation, any tax lien, levied or placed on or threatened against the
Collateral, to effect any repairs or any insurance called for by the terms of
this Security Agreement and to pay all or any part of the premiums therefor and
the costs thereof, which actions shall be for the benefit of Secured Party and
not Grantor;
               (iii) to (1) direct any person liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due or to
become due thereunder directly to Secured Party or as Secured Party shall
direct, (2) receive payment of any and all monies, claims and other amounts due
or to become due at any time arising out of or in respect of any Collateral,
(3) sign and endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with any Collateral, (4) commence and
prosecute any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral, (5) defend any suit,
action or proceeding brought against Grantor with respect to any Collateral,
(6) settle, compromise or adjust any suit, action or proceeding described above,
and in connection therewith, give such discharges or releases as Secured Party
may deem appropriate, (7) license, or, to the extent permitted by an applicable
License, sublicense, whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any Copyright, Patent or Trademark throughout
the world for such term or terms, on such conditions and in such manner as
Secured Party shall in its discretion determine and (8) sell, transfer, pledge,
make any agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though Secured Party were the absolute owner thereof
for all purposes; and

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               (iv) to do, at Secured Party’s option and Grantor’s expense, at
any time, or from time to time, all acts and things which Secured Party may
reasonably deem necessary to protect, preserve or realize upon the Collateral
and Secured Party’s security interest therein in order to effect the intent of
this Security Agreement, all as fully and effectively as Grantor might do.
          (b) Secured Party agrees that, except upon the occurrence and during
the continuation of an Event of Default, it shall not exercise the power of
attorney or any rights granted to Secured Party pursuant to this Section 6.
Grantor hereby ratifies, to the extent permitted by law, all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this Section 6 is a power coupled with an interest and shall
be irrevocable until the Secured Obligations are completely and indefeasibly
paid and performed in full and Secured Party no longer has any commitment to
make any Loans to Grantor.
          (c) If Grantor fails to perform or comply with any of its agreements
contained herein and Secured Party, as provided for by the terms of this
Security Agreement, shall perform or comply, or otherwise cause performance or
compliance, with such agreement, the reasonable expenses, including reasonable
attorneys’ fees and costs, of Secured Party incurred in connection with such
performance or compliance, together with interest thereon at a rate of interest
equal to the highest per annum rate of interest charged on the Loans, shall be
payable by Grantor to Secured Party within five (5) business days of demand and
shall constitute Secured Obligations secured hereby.
     7. Rights And Remedies Upon Default. After any Event of Default shall have
occurred and while such Event of Default is continuing:
          (a) Secured Party may exercise in addition to all other rights and
remedies granted to it under this Security Agreement, the Notes or any other
agreement between Grantor and Secured Lender, and under any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Grantor expressly agrees that in any such event
Secured Party, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantor or any other person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the UCC and other applicable law), may (i) reclaim,
take possession, recover, store, maintain, finish, repair, prepare for sale or
lease, shop, advertise for sale or lease and sell or lease (in the manner
provided herein) the Collateral, and in connection with the liquidation of the
Collateral and collection of the accounts receivable pledged as Collateral, use
any Trademark, Copyright, or process used or owned by Grantor and (ii) forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange or broker’s board or at any of Secured
Party’s offices or elsewhere at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. To the
extent Grantor has the right to do so, Grantor authorizes Secured Party, on the
terms set forth in this Section 7 to enter the

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premises where the Collateral is located, to take possession of the Collateral,
or any part of it, and to pay, purchase, contact, or compromise any encumbrance,
charge, or lien which, in the opinion of Secured Party, appears to be prior or
superior to its security interest. Secured Party shall have the right upon any
such public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Grantor hereby releases. Grantor further agrees, at Secured Party’s request, to
assemble the Collateral and make it available to the Secured Party at places
which Secured Party shall reasonably select, whether at Grantor’s premises or
elsewhere. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale as provided in this
Section 7, and only after so paying over such net proceeds and after the payment
by Secured Party of any other amount required by any provision of law, need
Secured Party account for the surplus, if any, to Grantor. To the maximum extent
permitted by applicable law, Grantor waives all claims, damages, and demands
against Secured Party arising out of the repossession, retention or sale of the
Collateral. Grantor agrees that Secured Party need not give more than ten
(10) days’ notice of the time and place of any public sale or of the time after
which a private sale may take place and that such notice is reasonable
notification of such matters. Grantor shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Secured Party is entitled from Grantor, Grantor also
being liable for the attorney costs of any attorneys employed by Secured Party
to collect such deficiency.
          (b) Grantor agrees that in any sale of any of such Collateral, whether
at a foreclosure sale or otherwise, Secured Party is hereby authorized to comply
with any limitation or restriction in connection with such sale as it may be
advised by counsel is necessary in order to avoid any violation of applicable
law (including compliance with such procedures as may restrict the number of
prospective bidders and purchasers, require that such prospective bidders and
purchasers have certain qualifications and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are purchasing for
their own account for investment and not with a view to the distribution or
resale of such Collateral), or in order to obtain any required approval of the
sale or of the purchaser by any governmental authority, and Grantor further
agrees that such compliance shall not result in such sale being considered or
deemed not to have been made in a commercially reasonable manner, nor shall
Secured Party be liable nor accountable to Grantor for any discount allowed by
the reason of the fact that such Collateral is sold in compliance with any such
limitation or restriction.
          (c) Grantor also agrees to pay all fees, costs and expenses of Secured
Party, including, without limitation, attorneys’ fees, incurred in connection
with the enforcement of any of its rights and remedies hereunder.
          (d) Grantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Security Agreement or any Collateral.
          (e) The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Secured Party in the
following order of priorities:

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          First, to Secured Party in an amount sufficient to pay in full the
costs of Secured Party in connection with such sale, disposition or other
realization, including all fees, costs, expenses, liabilities and advances
incurred or made by Secured Party in connection therewith, including, without
limitation, attorneys’ fees;
          Second, to Secured Party in an amount equal to the then unpaid Secured
Obligations; and
          Finally, upon payment in full of the Secured Obligations, to Grantor
or its representatives, in accordance with the UCC or as a court of competent
jurisdiction may direct.
     8. Indemnity. Grantor agrees to defend, indemnify and hold harmless Secured
Party and its officers, employees, and agents against (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Security Agreement and
(b) all losses or expenses in any way suffered, incurred, or paid by Secured
Party as a result of or in any way arising out of, following or consequential to
transactions between Secured Party and Grantor, whether under this Security
Agreement or otherwise (including without limitation, reasonable attorneys fees
and expenses), except for losses arising from or out of Secured Party’s (or any
Secured Party’s officer’s, employee’s or agent’s) gross negligence or willful
misconduct.
     9. Limitation on Secured Party’s Duty in Respect of Collateral. Secured
Party shall be deemed to have acted reasonably in the custody, preservation and
disposition of any of the Collateral if it takes such action as Grantor requests
in writing except during an Event of Default, but failure of Secured Party to
comply with any such request shall not in itself be deemed a failure to act
reasonably, and no failure of Secured Party to do any act not so requested shall
be deemed a failure to act reasonably.
     10. Reinstatement. This Security Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Grantor for liquidation or reorganization, should Grantor become insolvent or
make an assignment for the benefit of creditors or should a receiver or trustee
be appointed for all or any significant part of Grantor’s property and assets,
and shall continue to be effective or be reinstated, as the case may be, if at
any time payment and performance of the Secured Obligations, or any part
thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Secured Obligations,
whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all
as though such payment or performance had not been made. In the event that any
payment, or any part thereof, is rescinded, reduced, restored or returned, the
Secured Obligations shall be reinstated and deemed reduced only by such amount
paid and not so rescinded, reduced, restored or returned.
     11. Miscellaneous.
          11.1 Waivers; Modifications. None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Grantor and Secured Party.

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          11.2 Termination of this Security Agreement. Subject to Section 10
hereof, this Security Agreement shall terminate upon the payment and performance
in full of the Secured Obligations (other than contingent indemnification or
reimbursement Obligations other than those related to claims, causes of action,
or liabilities that have been asserted or threatened).
          11.3 Successor and Assigns. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the successors and
assigns of Grantor, and shall, together with the rights and remedies of Secured
Party hereunder, inure to the benefit of Secured Party, any future holder of any
of the Secured Obligations and their respective successors and assigns. No sales
of participations, other sales, assignments, transfers or other dispositions of
any agreement governing or instrument evidencing the Secured Obligations or any
portion thereof or interest therein shall in any manner affect the lien granted
to Secured Party hereunder.
          11.4 Governing Law. In all respects, including all matters of
construction, validity and performance, this Security Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws, except to
the extent that the UCC provides for the application of the law of a different
jurisdiction.
          11.5 Waiver of Jury Trial. GRANTOR AND SECURED PARTY EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS SECURITY AGREEMENT, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER
INTO THIS SECURITY AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.
[Signature pages follow.]

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     In Witness Whereof, each of the parties hereto has caused this Intellectual
Property Security Agreement to be executed and delivered by its duly authorized
officer on the date first set forth above.

         
Address Of Grantor  
Avalon Pharmaceuticals, Inc., as Grantor
    20358 Seneca Meadows Parkway
Germantown, MD 20876  By:   /s/ Kenneth C. Carter         Printed Name: Kenneth
C. Carter        Title:  President and Chief Executive Officer     

          Taxpayer Identification Number of Grantor
    Jurisdiction of Organization of Grantor  52-2209310
    Delaware   Accepted And Acknowledged By:
      Clinical Data, Inc., as Secured Party
      By:   /s/ Caesar J. Belbel         Printed Name: Caesar J. Belbel       
Title:  Executive Vice President, Chief Legal Officer and Secretary       

14.