Document:

exv10w2

 

Exhibit 10.2

REGISTRATION RIGHTS AGREEMENT

     This Registration Rights Agreement (the “Agreement”) is made and entered into as of this 19th
day of January, 2007 by and among Avalon Pharmaceuticals, Inc., a Delaware corporation (the
“Company”), and the “Investors” executing this Agreement and named in that certain Purchase
Agreement by and among the Company and the Investors dated the date hereof (the “Purchase
Agreement”).

     The parties hereby agree as follows:

     1. Certain Definitions.

     As used in this Agreement, the following terms shall have the following meanings:

     “Affiliate” means, with respect to any person, any other person which directly or
indirectly controls, is controlled by, or is under common control with, such person.

     “Business Day” means a day, other than a Saturday or Sunday, on which banks in New
York City and San Francisco, California are open for the general transaction of business.

     “Common Stock” shall mean the Company’s common stock, par value $0.01 per share, and
any securities into which such shares may hereinafter be reclassified.

     “Investors” shall mean the Investors identified in the Purchase Agreement and any
Affiliate or permitted transferee of any Investor who is a subsequent holder of any Registrable
Securities.

     “Prospectus” shall mean the prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement, with respect to the terms of the offering of
any portion of the Registrable Securities covered by such Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.

     “Register,” “registered” and “registration” refer to a registration
made by preparing and filing a Registration Statement or similar document in compliance with the
1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration
Statement or document.

     “Registrable Securities” shall mean (i) the Shares, and (ii) any other securities
issued or issuable with respect to or in exchange for Registrable Securities; provided, that, a
security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration
Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale by the
Investors pursuant to Rule 144(k).

     “Registration Statement” shall mean any registration statement of the Company filed
under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the
provisions of this Agreement (including the Registration Statement referred to in Section 2),
amendments and supplements to such Registration Statement(s), including post-effective amendments,
all exhibits and all material filed and incorporated by reference in such Registration Statement.

     “Required Investors” mean the Investors holding a majority of the Registrable
Securities.

 

 

     “Rule 401”, “Rule 415”, “Rule 416”, “Rule 429” and “Rule
461” mean Rule 401, Rule 415, Rule 416, Rule 429 and Rule 461, respectively, each as
promulgated by the SEC pursuant to the 1933 Act, as such Rule may be amended from time to time, or
any similar rule or regulation hereafter adopted by the SEC having substantially the same effect as
such Rule.

     “SEC” means the U.S. Securities and Exchange Commission.“ 

     “Shares” means the shares of Common Stock issued pursuant to the Purchase Agreement.

     “1933 Act” means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

     “1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.

     2. Registration.

          (a) Registration Statement. Promptly following the closing of the purchase and sale of
the securities contemplated by the Purchase Agreement (the “Closing Date”) but no later than 10
business days following the date hereof (the “Filing Deadline”), the Company shall prepare and file
with the SEC a “shelf” registration statement covering all Registrable Securities for a secondary
or resale offering to be made on a continuous basis pursuant to Rule 415. Such registration
statement shall be on Form S-3 (the “Registration Statement”) and shall include the plan of
distribution attached hereto as Exhibit A. Such Registration Statement also shall cover,
to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule
416), such indeterminate number of additional shares of Common Stock resulting from stock splits,
stock dividends or similar transactions with respect to the Registrable Securities. Such S-3
Registration Statement shall not include any shares of Common Stock or other securities for the
account of any other holder without the prior written consent of the Required Investors, except for
shares of Common Stock held by the Company’s stockholders having “piggyback” registration rights
expressly set forth in registration rights agreements entered into by the Company prior to the date
hereof. A copy of the initial filing of the Registration Statement (and each pre-effective
amendment thereto) shall be provided to the Investors and their counsel prior to filing. If the
Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to
the Filing Deadline, the Company will make pro rata payments to each Investor, as liquidated
damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such
Investor for each 30-day period or pro rata for any portion thereof following the Filing Deadline
for which the Registration Statement is filed with respect to the Registrable Securities, up to but
not exceeding a maximum amount of 4.5%. Such payments shall constitute the Investors’ exclusive
monetary remedy for such events, but shall not affect the right of the Investors to seek injunctive
relief. Payments to be made pursuant to this Section 2(a)(i) shall be due and payable immediately
upon demand in immediately available cash funds. The parties agree that the liquidated damages
provided for in this Section 2(a)(i) represent a reasonable estimate on the part of the parties, as
of the date of this Agreement, of the amount of damages that may be incurred by the Investors if
the Registration Statement is not filed by the Filing Deadline.

2

 

          (b) Expenses. The Company will pay all expenses incurred by it associated with the
Registration Statement, including filing and printing fees, the
Company’s counsel and accounting fees and expenses, and costs associated with clearing the Registrable
Securities for sale under applicable state securities laws, but the Company shall not be liable for
fees and expenses incurred by the Investors (including any Investors’ counsel fees), or any
discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals with respect to the Registrable Securities being offered.

          (c) Effectiveness.

          (i) The Company shall use commercially reasonable efforts to have the Registration Statement
declared effective as soon as practicable. The Company shall notify the Investors by facsimile or
e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after the
Registration Statement is declared effective and shall simultaneously provide the Investors with
copies of any related Prospectus to be used in connection with the sale or other disposition of the
securities covered thereby. If (A) the Registration Statement is not declared effective by the SEC
on or prior to 120 days after it is filed with the SEC, or (B) after the Registration Statement has
been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement
for any reason (including without limitation by reason of a stop order, or the Company’s failure to
update the Registration Statement), but excluding the inability of any Investor to sell the
Registrable Securities covered thereby due to market conditions and except as excused pursuant to
Section 2(c)(ii) below, then the Company will make pro rata payments to each Investor, as
liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount
invested by such Investor for each 30- day period or pro rata for any portion thereof following the
date by which such Registration Statement should have been effective or such sales first cannot be
made (the “Blackout Period”), up to a maximum of 9%. Such payments shall constitute the Investors’
exclusive monetary remedy for such events, but shall not affect the right of the Investors to seek
injunctive relief. The amounts payable as liquidated damages pursuant to this paragraph shall be
paid monthly within three (3) Business Days of the last day of each month following the
commencement of the Blackout Period until the termination of the Blackout Period. Such payments
shall be made to each Investor in cash. The parties agree that the liquidated damages provided for
in this Section 2(c)(i) represent a reasonable estimate on the part of the parties, as of the date
of this Agreement, of the amount of damages that may be incurred by the Investors if the
Registration Statement is not declared effective as hereinabove provided.

          (ii) For not more than thirty (30) consecutive days or for a total of not more than sixty (60)
days in any twelve (12) month period, the Company may delay the disclosure of material non-public
information concerning the Company, by suspending the use of any Prospectus included in any
registration contemplated by this Section, if such disclosure at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an “Allowed Delay”); provided,
that the Company shall promptly (a) notify the Investors in writing of the existence of (but in no
event, without the prior written consent of an Investor, shall the Company disclose to such
Investor any of the facts or circumstances regarding)an Allowed Delay, (b) advise the Investors in
writing to cease all sales under the Registration Statement until the end of the Allowed Delay and
(c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.

3

 

     3. Company Obligations. The Company will use commercially reasonable efforts to
effect the registration of the Registrable Securities in accordance with the terms hereof, and
pursuant thereto the Company will, as expeditiously as possible (but subject to Section 2(c)(ii)):

          (a) use commercially reasonable efforts to cause such Registration Statement to become
effective and, to remain continuously effective for a period that will terminate upon the earlier
of (i) the date on which all Registrable Securities covered by such Registration Statement as
amended from time to time, have been sold, and (ii) the date on which all Registrable Securities
covered by such Registration Statement may be sold pursuant to Rule 144(k) (the “Effectiveness
Period”) and advise the Investors in writing when the Effectiveness Period has expired;

          (b) prepare and file with the SEC such amendments and post-effective amendments to the
Registration Statement and the Prospectus as may be necessary to keep the Registration Statement
effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the
1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

          (c) use commercially reasonable efforts to (i) prevent the issuance of any stop order or other
suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such
order at the earliest possible moment;

          (d) prior to any public offering of Registrable Securities, use commercially reasonable
efforts to register or qualify or cooperate with the Investors and their counsel in connection with
the registration or qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions requested by the Investors and do any and all
other commercially reasonable acts or things necessary or advisable to enable the distribution in
such jurisdictions of the Registrable Securities covered by the Registration Statement; provided,
however, that the Company shall not be required in connection therewith or as a condition thereto
to (i) qualify to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (ii) subject itself to general taxation in any jurisdiction
where it would not otherwise be so subject but for this Section 3(d), or (iii) file a general
consent to service of process in any such jurisdiction;

          (e) use commercially reasonable efforts to cause all Registrable Securities covered by a
Registration Statement to be listed on each securities exchange, interdealer quotation system or
other market on which similar securities issued by the Company are then listed;

          (f) promptly notify the Investors, at any time when a Prospectus relating to Registrable
Securities is required to be delivered under the 1933 Act (including during any period when the
Company is in compliance with Rule 172), upon discovery that, or upon the happening of any event as
a result of which, the Prospectus included in a Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of the circumstances
then existing, and at the request of any such holder, promptly prepare, file with the SEC pursuant
to Rule 172 and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus
shall not include an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in light of the
circumstances then existing; and

4

 

          (g) otherwise use commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC under the 1933 Act and the 1934 Act, including Rule 172, notify the
Investors promptly if the Company no longer satisfies the conditions of Rule 172 and take such
other actions as may be reasonably necessary to facilitate the registration of the Registrable
Securities hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an earning statement
covering a period of at least twelve (12) months, beginning after the effective date of each
Registration Statement, which earning statement shall satisfy the provisions of Section 11(a) of
the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this Section 3(g),
“Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes
the effective date of such Registration Statement, except that, if such fourth fiscal quarter is
the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end
of such fourth fiscal quarter).

          (h) With a view to making available to the Investors the benefits of Rule 144 (or its
successor rule) and any other rule or regulation of the SEC that may at any time permit the
Investors to sell shares of Common Stock to the public without registration, the Company covenants
and agrees to: (i) make and keep public information available, as those terms are understood and
defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable
Securities may be resold pursuant to Rule 144(k) or any other rule of similar effect or (B) such
date as all of the Registrable Securities shall have been resold; (ii) file with the SEC in a
timely manner all reports and other documents required of the Company under the 1934 Act; and (iii)
furnish to each Investor upon request, as long as such Investor owns any Registrable Securities,
(A) a written statement by the Company that it has complied with the reporting requirements of the
1934 Act, and (B) such other information as may be reasonably requested in order to avail such
Investor of any rule or regulation of the SEC that permits the selling of any such Registrable
Securities without registration.

          (i) With a view to satisfying its obligations under Section 2(a)(ii), the Company:

                    (i) represents and warrants that (A) since December 31, 2006
through the date of this
Agreement, it has filed with the SEC in a timely manner all reports and other documents required of
the Company under the 1934 Act (other than a report that is required solely pursuant to Item 1.01,
1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), or 5.02(e) of SEC Form 8-K) and (B) neither the Company nor
any of its consolidated or unconsolidated subsidiaries have, since the end of the last fiscal year
for which certified financial statements of the Company and its consolidated subsidiaries were
included in a report filed pursuant to Section 13(a) or 15(d) of the 1934 Act through the date of
this Agreement: (1) failed to pay any dividend or sinking fund installment on preferred stock; or
(2) defaulted (x) on any installment or installments on indebtedness for borrowed money, or (y) on
any rental on one or more long term leases, which defaults in the aggregate are material to the financial position of the Company
and its consolidated and unconsolidated subsidiaries, taken as a whole.

5

 

                    (ii) covenants and agrees that (A) from the date of this
Agreement through the effective date
of the Registration Statement, it will file with the SEC in a timely manner all reports and other
documents required of the Company under the 1934 Act (other than a report that is required solely
pursuant to Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a), or 5.02(e) of SEC Form 8-K) and (B)
neither the Company nor any of its consolidated or unconsolidated subsidiaries will, from the end
of the last fiscal year for which certified financial statements of the Company and its
consolidated subsidiaries are included in a report filed pursuant to Section 13(a) or 15(d) of the
1934 Act through the effective date of the Registration Statement: (1) fail to pay any dividend or
sinking fund installment on preferred stock; or (2) default (x) on any installment or installments
on indebtedness for borrowed money, or (y) on any rental on one or more long term leases, which
default in the aggregate will be material to the financial position of the Company and its
consolidated and unconsolidated subsidiaries, taken as a whole.

     4. Due Diligence Review; Information. Upon reasonable prior notice, the Company shall
make available, during normal business hours, for inspection and review by the Investors, advisors
to and representatives of the Investors (who may or may not be affiliated with the Investors and
who are reasonably acceptable to the Company), all financial and other records, all SEC Filings (as
defined in the Purchase Agreement) and other filings with the SEC, and all other corporate
documents and properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company’s officers, directors and employees, within a reasonable time period,
to supply all such information reasonably requested by the Investors or any such representative,
advisor or underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or submitted by any of
them), prior to and from time to time after the filing and effectiveness of the Registration
Statement for the sole purpose of enabling the Investors and such representatives, advisors and
underwriters and their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of such Registration Statement.

          The Company shall not disclose material nonpublic information to the Investors, or to advisors
to or representatives of the Investors, unless prior to disclosure of such information the Company
identifies such information as being material nonpublic information and provides the Investors,
such advisors and representatives with the opportunity to accept or refuse to accept such material
nonpublic information for review and any Investor wishing to obtain such information enters into an
appropriate confidentiality agreement with the Company with respect thereto.

   5. Obligations of the Investors.

          (a) Each Investor shall promptly furnish in writing to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the registration of
such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At least seven (7) Business
Days prior to the first anticipated filing date of the Registration Statement, the Company shall
notify each Investor of the information the Company requires from such Investor if such Investor
elects to have any of the Registrable Securities included in the Registration Statement. An
Investor shall provide such information to the Company at least three (3) Business Days prior to
the first anticipated filing date of such Registration Statement if such Investor elects to have
any of the Registrable Securities included in the Registration Statement.

6

 

          (b) Each Investor, by its acceptance of the Registrable Securities agrees to cooperate with
the Company as reasonably requested by the Company in connection with the preparation and filing of
a Registration Statement hereunder, unless such Investor has notified the Company in writing of its
election to exclude all of its Registrable Securities from such Registration Statement.

          (c) Each Investor agrees that, upon receipt of any notice from the Company of either (i) the
commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event
pursuant to Section 3(f) hereof, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such Registrable Securities,
until the Investor is advised by the Company that a supplemented or amended prospectus has been
filed with the SEC and until any related post-effective amendment is declared effective and, if so
directed by the Company, the Investor shall deliver to the Company or destroy (and deliver to the
Company a certificate of destruction) all copies in the Investor’s possession of the Prospectus
covering the Registrable Securities current at the time of receipt of such notice.

   6. Indemnification.

          (a) Indemnification by the Company. The Company will indemnify and hold harmless each
Investor and its officers, directors, members, employees, attorneys and agents, successors and
assigns, and each other person, if any, who controls such Investor within the meaning of the 1933
Act, against any losses, claims, damages or liabilities, joint or several, to which they may become
subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement thereof; (ii) any
blue sky application or other document executed by the Company specifically for that purpose or
based upon written information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Registrable Securities under the securities laws thereof (any
such application, document or information herein called a "Blue Sky Application"); (iii) the
omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (iv) any violation by the Company or its
agents of any rule or regulation promulgated under the 1933 Act applicable to the Company or its
agents and relating to action or inaction required of the Company in connection with such
registration; or (v) any failure to register or qualify the Registrable Securities included in any
such Registration in any state where the Company or its agents has affirmatively undertaken or
agreed in writing that the Company will undertake such registration or qualification on an
Investor’s behalf and will reimburse such Investor, and each such officer, director or member and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information furnished by such Investor or
any such controlling person in writing specifically for use in such Registration Statement or
Prospectus.

7

 

          (b) Indemnification by the Investors. Each Investor agrees, severally but not
jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees, stockholders and each person who controls the Company (within the
meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including
reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of
a material fact required to be stated in the Registration Statement or Prospectus or preliminary
prospectus or amendment or supplement thereto or necessary to make the statements therein not
misleading, to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such Investor to the Company specifically for
inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no
event shall the liability of an Investor be greater in amount than the dollar amount of the
proceeds (net of all expense paid by such Investor in connection with any claim relating to this
Section 6 and the amount of any damages such Investor has otherwise been required to pay by reason
of such untrue statement or omission) received by such Investor upon the sale of the Registrable
Securities included in the Registration Statement giving rise to such indemnification obligation.

          (c) Conduct of Indemnification Proceedings. Any person entitled to indemnification
hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which
it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such
claim with counsel reasonably satisfactory to the indemnified party; provided that any
person entitled to indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses,
or (b) the indemnifying party shall have failed to assume the defense of such claim and employ
counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such
person, based upon written advice of its counsel, a conflict of interest exists between such person
and the indemnifying party with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel at the expense of
the indemnifying party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such person); and provided, further, that the failure of
any indemnified party to give notice as provided herein shall not relieve the indemnifying party of
its obligations hereunder, except to the extent that such failure to give notice shall materially
adversely affect the indemnifying party in the defense of any such claim or litigation. It is
understood that the indemnifying party shall not, in connection with any proceeding in the same
jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any
time for all such indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnified party of a release from all liability in respect of such claim or
litigation.

8

 

          (d) Contribution. If for any reason the indemnification provided for in the preceding
paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless,
other than as expressly specified therein, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable considerations. No
person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act
shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation.
In no event shall the contribution obligation of a holder of Registrable Securities be greater in
amount than the dollar amount of the proceeds (net of all expenses paid by such holder in
connection with any claim relating to this Section 6 and the amount of any damages such holder has
otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission) received by it upon the sale of the Registrable Securities giving rise to such
contribution obligation.

     7. Miscellaneous.

          (a) Amendments and Waivers. This Agreement may be amended, modified or waived only by
a writing signed by the Company and the Required Investors; provided that if any such
amendment, modification or waiver would adversely affect in any material respect any Investor or
group of Investors who have comparable rights under this Agreement disproportionately to the other
Investors having such comparable rights, such amendment, modification, or waiver shall also require
the written consent of the Investor(s) so adversely affected.

          (b) Notices. All notices and other communications provided for or permitted hereunder
shall be made as set forth in Section 9.4 of the Purchase Agreement.

          (c) Assignments and Transfers by Investors. The provisions of this Agreement shall be
binding upon and inure to the benefit of the Investors and their respective successors and assigns.
An Investor may transfer or assign, in whole or from time to time in part, to one or more persons
its rights hereunder in connection with the transfer of Registrable Securities by such Investor to
such person, provided that (i) such Investor complies with all laws applicable thereto and provides
written notice of assignment to the Company promptly after such assignment is effected and (ii) the
transferee agrees in writing to be bound by this Agreement as if it were a party hereto.

          (d) Assignments and Transfers by the Company. This Agreement may not be assigned by
the Company (whether by operation of law or otherwise) without the prior written consent of the
Required Investors, provided, however, that the Company may assign its rights and delegate its
duties hereunder to any surviving or successor corporation in connection with a merger or
consolidation of the Company with another corporation, or a sale, transfer or other disposition of
all or substantially all of the Company’s assets to another
corporation, without the prior written consent of the Required Investors, after notice duly given by the
Company to each Investor.

9

 

          (e) Benefits of the Agreement. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective permitted successors and assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly provided in
this Agreement.

          (f) Counterparts; Faxes. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument. This Agreement may also be executed via facsimile, which shall be deemed an
original.

          (g) Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.

          (h) Severability. Any provision of this Agreement that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof but shall be
interpreted as if it were written so as to be enforceable to the maximum extent permitted by
applicable law, and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. To the extent
permitted by applicable law, the parties hereby waive any provision of law which renders any
provisions hereof prohibited or unenforceable in any respect.

          (i) Further Assurances. The parties shall execute and deliver all such further
instruments and documents and take all such other actions as may reasonably be required to carry
out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein
contained.

          (j) Entire Agreement. This Agreement is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties with respect to
such subject matter.

          (k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Agreement
shall be governed by, and construed in accordance with, the internal laws of the State of New York
without regard to the choice of law principles thereof. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of the courts of the State of New York located in New York
County and the United States District Court for the Southern District of New York for the purpose
of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby. Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.
Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such
suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably
waives any objection to the laying of venue of any such suit, action or proceeding brought in such
courts and irrevocably waives any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT
TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT
COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

10

 

          (l) Obligations of Investors. The Company acknowledges that the obligations of each
Investor under this Agreement are several and not joint with the obligations of any other Investor,
and no Investor shall be responsible in any way for the performance of the obligations of any other
Investor under this Agreement. The decision of each Investor to enter into to this Agreement has
been made by such Investor independently of any other Investor. The Company further acknowledges
that nothing contained in this Agreement, and no action taken by any Investor pursuant hereto,
shall be deemed to constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions contemplated hereby.
Each Investor shall be entitled to independently protect and enforce its rights, including without
limitation, the rights arising out of this Agreement, and it shall not be necessary for any other
Investor to be joined as an additional party in any proceeding for such purpose.

     Each Investor has been represented by its own separate legal counsel in their review and
negotiation of this Agreement and with respect to the transactions contemplated hereby. The Company
has elected to provide all Investors with the same terms and Agreement for the convenience of the
Company and not because it was required or requested to do so by the Investors. The Company
acknowledges that such procedure with respect to this Agreement in no way creates a presumption
that the Investors are in any way acting in concert or as a group with respect to this Agreement or
the transactions contemplated hereby or thereby.

[Signature pages follow]

11

 

     IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized
officers to execute this Agreement as of the date first above written.

	 	 	 	 	 
	The Company:	 	AVALON PHARMACEUTICALS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Kenneth C. Carter
	 

	 	 	 	 
	 	 	Name: Kenneth C. Carter
	 	 	Title: President and Chief Executive Officer

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 
	Investor:

	 	MERLIN NEXUS II, L.P.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Norman Schleifer
	 

	 	 	 	 
	 	 	Name: Norman Schleifer
	 	 	Title: Chief Financial Officer

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 
	Investor:	 	SEDNA PARTNERS LP
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Paul Yook
	 

	 	 	 	 
	 	 	Name: Paul Yook
	 	 	Title: Managing Member, Sedna Capital Management LLC

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 
	Investor:	 	SEDNA PARTNERS (QP) LP
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Paul Yook
	 

	 	 	 	 
	 	 	Name: Paul Yook
	 	 	Title: Managing Member, Sedna Capital Management LLC

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	SEDNA OFFSHORE, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Paul Yook
 

Paul Yook
	 	 
	 

	 	Title:
	 	Managing Member, Sedna Capital Management LLC	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	WOODMONT INVESTMENTS LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Jay G. Goldman
 

Jay G. Goldman
	 	 
	 

	 	Title:	 	 	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 	 	 
	Investor:	 	BIOTECHNOLOGY VALUE FUND, L.P.	 	 
	 	 	By: BVF Partners, L.P., its general partner	 	 
	 	 	 	 	By: BVF Inc., its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ Mark N. Lampert
 

Mark N. Lampert
	 	 
	 

	 	 	 	Title:
	 	President	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 	 	 
	Investor:	 	BIOTECHNOLOGY VALUE FUND II, L.P.	 	 
	 	 	By: BVF Partners, L.P., its general partner	 	 
	 	 	 	 	By: BVF Inc., its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ Mark N. Lampert
 

Mark N. Lampert
	 	 
	 

	 	 	 	Title:
	 	President	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 	 	 
	Investor:	 	INVESTMENT 10, L.L.C.	 	 
	 	 	By: BVF Partners, L.P., its attorney-in-fact	 	 
	 	 	 	 	By: BVF Inc., its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ Mark N. Lampert
 

Mark N. Lampert
	 	 
	 

	 	 	 	Title:
	 	President	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 	 	 
	Investor:	 	BVF INVESTMENTS, L.L.C.	 	 
	 	 	By: BVF Partners, L.P., its manager	 	 
	 	 	 	 	By: BVF Inc., its general partner	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:

Name:
	 	/s/ Mark N. Lampert
 

Mark N. Lampert
	 	 
	 

	 	 	 	Title:
	 	President	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	CAMBER CAPITAL FUND L.P.

General Partner: Camber Capital Partners LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Stephen R. Du Bois
 

Stephen R. Du Bois
	 	 
	 

	 	Title:
	 	Managing Member	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	PASSPORT GLOBAL MASTER FUND SPC LTD

FOR AND ON BEHALF OF PORTFOLIO A — GLOBAL STRATEGY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Elizabeth Mahon
 

Elizabeth Mahon
	 	 
	 

	 	Title:
	 	Controller of Passport Management, LLC	 	 
	 

	 	 	 	as investment manager	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	THE JAY GOLDMAN MASTER L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Jay G. Goldman
 

Jay G. Goldman
	 	 
	 

	 	Title:	 	 	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	XMARK OPPORTUNITY FUND, L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Mitchell Kaye
 

Mitchell Kaye
	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 

	 	 	 	Xmark Opportunity GP LLC,	 	 
	 

	 	 	 	General Partner to Xmark Opportunity Fund LP	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	XMARK OPPORTUNITY FUND, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Mitchell Kaye
 

Mitchell Kaye
	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 

	 	 	 	Xmark Opportunity Manager LLC,	 	 
	 

	 	 	 	Investment Manager to Xmark Opportunity Fund Ltd.	 	 

Signature
Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	XMARK JV INVESTMENT PARTNERS, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Mitchell Kaye
 

Mitchell Kaye
	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 

	 	 	 	Xmark Opportunity Partners LLC,	 	 
	 

	 	 	 	Investment Manager to Xmark JV Investment Partners, LLC	 	 

Signature Page to Registration Rights Agreement

 

 

	 	 	 	 	 	 	 
	Investor:	 	FEDERATED KAUFMANN FUND, A PORTFOLIO OF FEDERATED EQUITY FUNDS	 	 
	 
	 	 	 	 	 	 
	 

	 	By:

Name:
	 	/s/ Hans Putsch
 

Hans Putsch
	 	 
	 

	 	Title:
	 	VP, Portfolio Manager	 	 
	 
	 	 	 	 	 	 
	Investor:	 	FEDERATED KAUFMANN II, A PORTFOLIO OF FEDERATED INSURANCE SERIES	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Aash M. Shah
 

	 	 
	 

	 	Name:
	 	Aash M. Shah	 	 
	 

	 	Title:
	 	VP, Portfolio Manager	 	 

Signature Page to Registration Rights Agreement

 

 

Exhibit A

Plan of Distribution

     The selling stockholders, which as used herein includes donees, pledgees, transferees or other
successors-in-interest selling shares of common stock or interests in shares of common stock
received after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of their shares of common stock or interests in shares of common stock on any
stock exchange, market or trading facility on which the shares are traded or in private
transactions. These dispositions may be at fixed prices, at prevailing market prices at the time
of sale, at prices related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices.

     The selling stockholders may use any one or more of the following methods when disposing of
shares or interests therein:

     – ordinary brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

     – block trades in which the broker-dealer will attempt to sell the shares as agent, but may
position and resell a portion of the block as principal to facilitate the transaction;

     – purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

     – an exchange distribution in accordance with the rules of the applicable exchange;

     – privately negotiated transactions;

     – short sales effected after the date the registration statement of which this Prospectus is a
part is declared effective by the SEC;

     – through the writing or settlement of options or other hedging transactions, whether through
an options exchange or otherwise;

     – broker-dealers may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share; and

     – a combination of any such methods of sale.

     The selling stockholders may, from time to time, pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this prospectus, or under an amendment or supplement to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of
selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of this prospectus.

 

 

     In connection with the sale of our common stock or interests therein, the selling stockholders
may enter into hedging transactions with broker-dealers or other financial institutions, which may
in turn engage in short sales of the common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common stock to broker-dealers
that in turn may sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the creation of one or
more derivative securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect
such transaction).

     The aggregate proceeds to the selling stockholders from the sale of the common stock offered
by them will be the purchase price of the common stock less discounts or commissions, if any. Each
of the selling stockholders reserves the right to accept and, together with their agents from time
to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly
or through agents. We will not receive any of the proceeds from this offering.

     The selling stockholders also may resell all or a portion of the shares in open market
transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet
the criteria and conform to the requirements of that rule.

     The selling stockholders and any underwriters, broker-dealers or agents that participate in
the sale of the common stock or interests therein may be “underwriters” within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn
on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities
Act will be subject to the prospectus delivery requirements of the Securities Act.

     To the extent required, the shares of our common stock to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the names of any agents,
dealer or underwriter, any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

     In order to comply with the securities laws of some states, if applicable, the common stock
may be sold in these jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the common stock may not be sold unless it has been registered or
qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.

 

 

     We have advised the selling stockholders that the anti-manipulation rules of Regulation M
under the Exchange Act may apply to sales of shares in the market and to the activities of the
selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as
it may be supplemented or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling
stockholders may indemnify any broker-dealer that participates in transactions involving the sale
of the shares against certain liabilities, including liabilities arising under the Securities Act.

     We have agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to the registration of the
shares offered by this prospectus.

     We have agreed with the selling stockholders to keep the registration statement of which this
prospectus constitutes a part effective until the earlier of (1) such time as all of the shares
covered by this prospectus have been disposed of pursuant to and in accordance with the
registration statement or (2) the date on which the shares may be sold pursuant to Rule 144(k) of
the Securities Act.exv10w3

 

Exhibit 10.3

EXCLUSIVE LICENSE AND RESEARCH

COLLABORATION AGREEMENT

by and between

MERCK & CO., INC.

and

AVALON PHARMACEUTICALS, INC.

 

 

RESEARCH COLLABORATION AND LICENSE AGREEMENT

     This Agreement (this “Agreement”) is effective as of March 5, 2007 (the “Effective Date”), and
is entered into by and between MERCK & CO., INC., a corporation organized and existing under the
laws of New Jersey (“Merck”), and AVALON PHARMACEUTICALS, INC., a corporation organized and
existing under the laws of Delaware (“Avalon”).

RECITALS:

     WHEREAS, Avalon has developed and will develop Avalon Know-How (as hereinafter defined) and
may obtain Avalon Patent Rights (as hereinafter defined);

     WHEREAS, Merck and Avalon desire to enter into a research collaboration to identify and
develop Nominated Compounds (as hereinafter defined) and, if applicable, for Merck to develop and
commercialize Licensed Compounds (as hereinafter defined) upon the terms and conditions set forth
herein;

     WHEREAS, Merck desires to obtain a license under the Avalon Patent Rights and Avalon Know-How,
upon the terms and conditions set forth herein and Avalon desires to grant such a license;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein
contained, the receipt and sufficiency which are hereby acknowledged, the Parties hereby agree as
follows:

ARTICLE 1 DEFINITIONS.

Unless specifically set forth to the contrary herein, the following terms, whether used in the
singular or plural, shall have the respective meanings set forth below.

	1.1	 	“Act” shall mean, as applicable, the United States Federal Food, Drug and Cosmetic
Act, 21 U.S.C. §§ 301 et seq., and/or the Public Health Service Act, 42 U.S.C. §§ 262 et seq.,
as such may be amended from time to time.
	 
	1.2	 	“Affiliate” shall mean (i) any corporation or business entity of which * percent (*%)
or more of the securities or other ownership interests representing the equity, the voting
stock or general partnership interest are owned, controlled or held, directly or indirectly,
by Merck or Avalon; or (ii) any corporation or business entity which, directly or indirectly,
owns, controls or holds * percent (*%) * or more of the securities or other ownership
interests representing the equity, the voting stock or, if applicable, the general partnership
interest, of Merck or Avalon; or (iii) any corporation or business entity of which * percent
(*%) or more of the securities or other ownership interests representing the equity, the
voting stock or general partnership interest are owned, controlled or held, directly or
indirectly, by a corporation or business entity described in (i) or (ii).
	 
	1.3	 	“Agreement” shall have the meaning given such term in the preamble to this document.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

 

 

	1.4	 	“Avalon” shall have the meaning given such term in the preamble to this Agreement.
	 
	1.5	 	“Avalon Information and Inventions” shall mean all protocols, formulas, data,
Inventions, know-how and trade secrets, patentable or otherwise with respect to (i) Hit
Compounds, Lead Compounds, Nominated Compounds and/or Licensed Compounds, including without
limitation, *, (ii) *, and (iii) *, in each case, resulting from the Research Program
developed or invented solely by employees of Avalon or other persons not employed by Merck
acting on behalf of Avalon; provided that and for the purposes of clarity, *.
	 
	1.6	 	“Avalon Know-How” shall mean all information and materials, including but not limited
to, discoveries, improvements, processes, methods, protocols, formulas, data, gene signatures,
inventions (including without limitation Avalon Information and Inventions and Avalon’s rights
in Joint Information and Inventions), know-how and trade secrets, patentable or otherwise,
which (i) as of the Effective Date or prior to the expiration and/or termination of the
Research Program and the Wind Down Term, are in the Control of Avalon or its Affiliates, (ii)
are not generally known and (iii) are necessary or useful to Merck in connection with the
Research Program and the research, development, manufacture, marketing, use or sale of
Licensed Compound or Product in the Territory; excluding, however, any Merck Know-How;
provided that *.
	 
	1.7	 	“Avalon Optioned Compounds” shall have the meaning given such term in Section 2.6.3.
	 
	1.8	 	“Avalon Patent Rights” shall mean any and all patents and patent applications in the
Territory (which for the purposes of this Agreement shall be deemed to include certificates of
invention and applications for certificates of invention) which during the term of this
Agreement are Controlled by Avalon or its Affiliates, which: (i) claim Lead Compounds,
Nominated Compounds, Licensed Compounds and/or Products; or (ii) claim Avalon Information and
Inventions; or (iii) are divisions, continuations, continuations-in-part, reissues, renewals,
extensions, supplementary protection certificates, and the like of any such patents and patent
applications and foreign equivalents thereof.
	 
	1.9	 	“Avalon Reversion License” shall have the meaning given such term in Section 2.6.3.
	 
	1.10	 	“* Proof of Concept” shall mean, with respect to a Lead Compound, *.
	 
	1.11	 	“Calendar Quarter” shall mean the respective periods of three (3) consecutive
calendar months ending on March 31, June 30, September 30 and December 31.
	 
	1.12	 	“Calendar Year” shall mean each successive period of twelve (12) months commencing
on January 1 and ending on December 31.
	 
	1.13	 	“Cancer Indication” shall mean a separate and distinct disease or medical condition
in humans for which a Product that is in Clinical Trials is intended to treat and/or prevent
and/or for which a Product has received Marketing Authorization for such treatment and/or
prevention for the following disease and medical conditions: (a) the following * (each, a
“Major Tumor Indication”); or (b) * (each, an “Other Cancer Indication”).

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

2

 

	1.14	 	“Change of Control” shall mean with respect to a Party: (1) the sale of all or
substantially all of such Party’s assets or business relating to this Agreement; (2) a merger,
reorganization or consolidation involving such Party in which the voting securities of such
Party outstanding immediately prior thereto cease to represent at least * percent (*%) of the
combined voting power of the surviving entity immediately after such merger, reorganization or
consolidation; or (3) a person or entity, or group of persons or entities, acting in concert
acquire more than * percent (*%) of the voting equity securities or management control of such
Party.
	 
	1.15	 	“Clinical Trial” shall mean a Phase I Clinical Trial, Phase II Clinical Trial, Phase
III Clinical Trial, and/or post-Marketing Authorization clinical trial.
	 
	1.16	 	“Combination Product” shall mean a Product which includes one or more active
ingredients other than Licensed Compound in combination with Licensed Compound. All
references to Product in this Agreement shall be deemed to include Combination Product.
	 
	1.17	 	“Competing Pharma Change of Control” shall mean a Change of Control in which a
company or group of companies acting in concert (a) for whom collective worldwide sales of
ethical pharmaceutical products in the Calendar Year that preceded the Change of Control were
* dollars ($*) or more, or (b) have (by itself, through an Affiliate or by contract with a
Third Party) a research, development or commercialization program relating to *, is the
acquirer (by asset purchase, merger, consolidation, reorganization or otherwise) as part of
such Change of Control.
	 
	1.18	 	“Control”, “Controls” or “Controlled by” shall mean with respect to any item of or
right under Avalon Patent Rights, Avalon Know-How, Merck Know-How, Merck Patents, or any other
intellectual property rights, the possession of (whether by ownership or license, other than
pursuant to this Agreement) or the ability of a Party to grant access to, or a license or
sublicense of, such items or right as provided for herein without violating the terms of any
agreement or other arrangement with any Third Party existing at the time such Party would be
required hereunder to grant the other Party such access or license or sublicense.
	 
	1.19	 	“Designation Date” shall have the meaning given such term in Section 2.6.2.
	 
	1.20	 	“Designation Expiration Date” shall have the meaning given such term in Section
2.6.2.
	 
	1.21	 	“Filing” of an NDA shall mean the acceptance by a Regulatory Authority of an NDA for
filing.
	 
	1.22	 	“First Commercial Sale” shall mean, with respect to any Product, the first sale for
end use or consumption of such Product in a country on a nationwide basis, excluding, however,
any sale or other distribution for use in a Clinical Trial.
	 
	1.23	 	“Full Time Equivalent” or “FTE” shall mean the equivalent of a full-time scientist’s
work time over a twelve-month period (including normal vacations,
sick days and holidays). The portion of an FTE year devoted by a scientist to the Research Program shall be
determined by dividing the number of full days during any twelve-month period devoted by such
employee to the Research Program by the total number of working days during such twelve-month
period. The foregoing FTE year methodology shall be applied on a pro rata basis to calculate the
number of FTEs committed in a particular Calendar Quarter during the Research Program Term.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

3

 

	1.24	 	“FTE Records” shall have the meaning given such term in Section 2.5.1.
	 
	1.25	 	“GLP” or “Good Laboratory Practice” shall mean the applicable then-current standards
for laboratory activities for pharmaceuticals or biologicals, as set forth in the Act and any
regulations or guidance documents promulgated thereunder, as amended from time to time,
together with any similar standards of good laboratory practice as are required by any
Regulatory Authority in the Territory.
	 
	1.26	 	“Hit Compounds” shall mean all compounds *.
	 
	1.27	 	“Hits Delivery Date” shall mean the date that Merck completes the transfer of the
Hit Compounds to Avalon in accordance with Part A, Paragraph 4 of Schedule 2.1. 
	 
	1.28	 	“IND” shall mean an Investigational New Drug application, Clinical Study
Application, Clinical Trial Exemption, or similar application or submission for approval to
conduct human clinical investigations filed with or submitted to a Regulatory Authority in
conformance with the requirements of such Regulatory Authority.
	 
	1.29	 	“Information” shall mean any and all information and data, including without
limitation all Avalon Information and Inventions, Merck Information and Inventions, Joint
Information and Inventions, Merck Know-How, Avalon Know-How, and all other scientific,
pre-clinical, clinical, regulatory, manufacturing, marketing, financial and commercial
information or data, whether communicated in writing, orally or by any other method, which is
provided by one Party to the other Party in connection with this Agreement.
	 
	1.30	 	“Initiates”, “Initiated” or “Initiation” shall mean, with respect to a Clinical
Trial, the administration of the first dose to a patient in such Clinical Trial.
	 
	1.31	 	“Invention” shall mean any process, method, composition of matter, article of
manufacture, discovery or finding that is conceived and/or reduced to practice as a result of
the Research Program.
	 
	1.32	 	“Joint Committee” shall mean the joint committee established to coordinate the
Research Program as more fully described in Section 2.3.
	 
	1.33	 	“Joint Information and Inventions” shall mean all protocols, formulas, data,
Inventions, know-how and trade secrets, patentable or otherwise, resulting from the Research
Program developed or invented jointly by employees of Merck and Avalon or others acting on
behalf of Merck and Avalon.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

4

 

	1.34	 	“Joint Patent Rights” shall mean any and all patents and patent applications in the
Territory (which for the purposes of this Agreement shall be deemed to include certificates of
invention and applications for certificates of invention) which during the term of this
Agreement claim Joint Information and Inventions, or are divisions, continuations,
continuations-in-part, reissues, renewals, extensions, supplementary protection certificates,
and the like of any such patents and patent applications and foreign equivalents thereof.
	 
	1.35	 	“Knowledge” shall mean as used in Section 6.2, the actual knowledge of a senior
executive or officer of Avalon, after due inquiry of scientific employees of Avalon.
	 
	1.36	 	“Lead Compound” shall mean any compound identified by Avalon *.
	 
	1.37	 	“Licensed Compound” shall mean any Nominated Compound(s) that Merck has designated
as a Licensed Compound pursuant to Section 2.6.2, together with any Structurally Related
Compounds thereof and metabolites, prodrugs, salts, solvates, optical isomers, and polymorphs
of the foregoing.
	 
	1.38	 	“Materials” shall have the meaning given such term in Section2.9.
	 
	1.39	 	“Major Tumor Indication” shall have the meaning given such term in Section 1.13(a).
	 
	1.40	 	“Marketing Authorization” shall mean all approvals necessary from the relevant
Regulatory Authority to market and sell a Product in any country (including without limitation
all applicable pricing and governmental reimbursement approvals required to sell Product in a
country).
	 
	1.41	 	“Merck” shall have the meaning given such term in the preamble to this Agreement.
	 
	1.42	 	“Merck Extended Research Term” shall have the meaning given such term in Section
2.8.
	 
	1.43	 	“Merck Information and Inventions” shall mean all protocols, formulas, data,
Inventions, know-how and trade secrets, patentable or otherwise with respect to Hit Compounds,
Lead Compounds, Nominated Compounds and/or Licensed Compounds, resulting from the Research
Program developed or invented solely by employees of Merck or other persons not employed by
Avalon acting on behalf of Merck.
	 
	1.44	 	“Merck Know-How” shall mean *.
	 
	1.45	 	“Merck Patent Rights” shall mean any and all patents and patent applications in the
Territory (which for the purposes of this Agreement shall be deemed to include certificates of
invention and applications for certificates of invention) which during the term of this
Agreement are Controlled by Merck which (i) claim Merck Information and Inventions; or (ii)
claim Licensed Compound and/or Product; or (iii) only in the event that Avalon obtains an
Avalon Reversion License in accordance with Section 2.6.3, claim Avalon Optioned Compounds
and/or product to the extent it includes Avalon Optioned Compounds; or (iv) are divisions,
continuations, continuations-in-part, reissues, renewals, extensions, supplementary protection certificates, and the like of any such patents and
patent applications and foreign equivalents thereof.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

5

 

	1.46	 	“NDA” shall mean a New Drug Application, Biologics License Application, Worldwide
Marketing Application, Marketing Application Authorization, filing pursuant to Section 510(k)
of the Act, or similar application or submission for Marketing Authorization of a Product
filed with a Regulatory Authority to obtain marketing approval for a biological,
pharmaceutical or diagnostic product in that country or in that group of countries.
	 
	1.47	 	“Net Sales” shall mean *.
	 
	1.48	 	“Nominated Compounds” shall mean any compound *.
	 
	1.49	 	“Other Cancer Indication” shall have the meaning given such term in Section 1.13(b).
	 
	1.50	 	“Party” shall mean Merck or Avalon, and “Parties” shall mean Merck and Avalon.
	 
	1.51	 	“Phase I Clinical Trial” shall mean a human clinical trial in any country that would
satisfy the requirements of 21 CFR 312.21(a).
	 
	1.52	 	“Phase II Clinical Trial” shall mean a human clinical trial in any country that
would satisfy the requirements of 21 CFR 312.21(b).
	 
	1.53	 	“Phase III Clinical Trial” shall mean a human clinical trial in any country that
would satisfy the requirements of 21 CFR 312.21(c).
	 
	1.54	 	“* Proof of Concept” shall mean, with respect to a Lead Compound *.
	 
	1.55	 	“Product(s)” shall mean any pharmaceutical or biological preparation (which may
be in any formulation, presentation or dosage strengths) in final form (or in bulk form
in accordance with Section 5.3.3) containing Licensed Compound (i) for sale by prescription,
over-the-counter or any other method for any and all uses; or (ii) for administration to human
patients in a Clinical Trial, for any and all uses, including without limitation any
Combination Product.
	 
	1.56	 	“Regulatory Authority” shall mean any applicable government regulatory authority
involved in granting approvals for the manufacturing, marketing, reimbursement and/or pricing
of a Product in the Territory, including, in the United States, the United States Food and
Drug Administration and any successor governmental authority having substantially the same
function.
	 
	1.57	 	“Related Party” shall mean Merck, its Affiliates, and their respective sublicensees
under the licenses granted to Merck under this Agreement (which term does not include
distributors), as applicable.
	 
	1.58	 	“Research Program” shall mean the research activities undertaken by the Parties
hereto as set forth in Article 2 and as further described in Schedule 2.1.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

6

 

	1.59	 	“Research Program Term” shall have the meaning given such term in Section 2.8.
	 
	1.60	 	“Structurally Related Compounds” shall mean, with respect to a Lead Compound,
Nominated Compound or Licensed Compound, as the case may be, a compound that is *.
	 
	1.61	 	“Subsequent MT Indication” means a Major Tumor Indication being pursued with respect
to a Product for which a milestone payment was made for an Other Cancer Indication under
Section 5.2.2.
	 
	1.62	 	“Target” shall mean *.
	 
	1.63	 	“Target HTS Assay” shall mean the promoter/reporter assays for the Target as
developed and validated by Avalon in accordance with Part A, Paragraph 1 of Schedule 2.1.

	 
	1.64	 	“Territory” shall mean all of the countries in the world, and their territories and
possessions.
	 
	1.65	 	“Third Party” shall mean an entity other than Merck and its Affiliates, and Avalon
and its Affiliates.
	 
	1.66	 	“Valid Patent Claim” shall mean a claim of an issued and unexpired patent included
within the *, which has not been revoked or held unenforceable or invalid by a decision of a
court or other governmental agency of competent jurisdiction, and which is not appealable or
has not been appealed within the time allowed for appeal, and which has not been disclaimed,
denied or admitted to be invalid or unenforceable through reissue, re-examination or
disclaimer or otherwise.
	 
	1.67	 	“Wind Down Term” shall have the meaning given such term in Section 2.8.

ARTICLE 2 RESEARCH PROGRAM

	2.1	 	General. Avalon and Merck shall engage in the Research Program upon the terms and
conditions set forth in this Agreement. The activities to be undertaken in the course of the
Research Program are set forth in Schedule 2.1 which may be amended from time to time
upon mutual written agreement by authorized representatives of the Parties.

	2.2	 	Conduct of Research. Avalon and Merck each shall proceed with the work set out in
the Research Program by using their respective good faith efforts to allocate sufficient time,
effort, equipment and facilities to the Research Program and to use personnel with sufficient
skills and experience as are required to accomplish the Research Program in accordance with
the terms of this Agreement and Schedule 2.1.
	 
	 	 	Avalon and Merck each shall conduct the Research Program in compliance with all applicable
laws, rules and regulations, including, without limitation, Good Laboratory Practice. In
addition, if animals are used in research hereunder, Avalon and Merck will comply with the
Animal Welfare Act or any other applicable local, state, national and international laws
and regulations relating to the care and use of laboratory animals.
The Parties encourage each other to use the highest standards, such as those set forth in the
Guide for the Care and Use of Laboratory Animals (NRC, 1996), for the humane handling, care
and treatment of such research animals. Any animals which are used in the course of the
Research Program, or products derived from those animals, such as eggs or milk, will not be
used for food purposes, nor will these animals be used for commercial breeding purposes.
Avalon and Merck shall notify each other in writing of any deviations from applicable
regulatory or legal requirements. Avalon and Merck each certify to the other that it has
not, and will not, employed or otherwise used in any capacity the services of any person
debarred under United States law, including but not limited to Section 21 USC 335a, in
performing any portion of the Research Program.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

7

 

	 	 	Merck shall be entitled to utilize the service of Third Parties to perform its Research
Program activities. Avalon shall be entitled to utilize the service of Third Parties to
perform its Research Program activities; provided that Avalon shall not disclose
the structure of any Hit Compound, Lead Compound, and/or Nominated Compound to any such
Third Party without the prior express written consent of Merck. Notwithstanding anything
to the contrary in the foregoing, both Parties shall remain at all times fully liable for
its respective responsibilities under the Research Program.
	 
	 	 	Avalon shall ensure: (i) by written agreement that all Avalon personnel, employees, and
agents involved in the Research Program shall comply with the confidentiality provisions of
this Agreement and shall be obligated to assign any rights they may have in any Inventions
made during such work to Avalon; and (ii) that each of its personnel, employees, and agents
that work on the Research Program is qualified by appropriate experience and qualifications
to perform the Research Program work assigned to them in a capable and professional manner.
	 
	 	 	Merck shall ensure: (i) by written agreement that all Merck personnel, employees, and
agents involved in the Research Program shall comply with the confidentiality provisions of
this Agreement and shall be obligated to assign any rights they may have in any Inventions
made during such work to Merck; and (ii) that each of its personnel, employees, and agents
that work on the Research Program is qualified by appropriate experience and qualifications
to perform the Research Program work assigned to them in a capable and professional manner.
	 
	2.3	 	Research Program Oversight. Promptly after the Effective Date the Parties will
establish a joint committee (the “Joint Committee”) to coordinate the Research Program as
follows:

	 	2.3.1	 	Composition. The Joint Committee shall have equal representation from
Avalon and Merck of no less than three (3) representatives from each Party. Each
Party may change its representatives to the Joint Committee from time to time in its
sole discretion, effective upon notice to the other Party of such change. These
representatives shall have appropriate technical credentials, experience and
knowledge, and ongoing familiarity with the Research Program. Additional
representatives or consultants may from time to time, by mutual consent of the
Parties, be invited to attend Joint Committee meetings, subject to such
representative’s or consultant’s written agreement to
comply with the requirements of Section 4.1. The Joint Committee shall be chaired by a
representative of Merck.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

8

 

	 	2.3.2	 	Scope of Joint Committee Activities. The Joint Committee will act as a
non-decision making forum for periodic review, assessment and discussions concerning
the progress of the Research Program, and is intended to provide the Parties with an
opportunity to draw on each other’s experience and knowledge relevant to the
Research Program and provide consultation between the Parties. In addition, the
Joint Committee shall also act as a forum to discuss and in good faith attempt to
resolve any disagreement between the Parties as to whether * Proof of Concept and/or
* Proof of Concept has been achieved for a Lead Compound in accordance with Section
2.6.1.
	 
	 	2.3.3	 	Meetings. The Joint Committee shall meet during the term of the Research
Program in accordance with a schedule established by mutual written agreement of the
Parties, but no less frequently than twice per Calendar Year (provided that
upon the achievement of a * Proof of Concept or a * Proof of Concept in accordance
with Section 2.6.1, such frequency shall be no less frequently than once per
Calendar Quarter), with the location for such meetings alternating between Avalon
and Merck facilities (or such other location may be determined by the Joint
Committee). Alternatively, the Joint Committee may meet by means of teleconference,
videoconference or other similar communications equipment. Each Party shall bear
its own expenses related to the attendance of such meetings by its representatives.
	 
	 	2.3.4	 	Project Co-Leaders. Merck and Avalon each shall appoint two persons (each
a “Project Co-Leader”), one a chemist and one a biologist, from the Joint Committee
to consult and coordinate its part of the Research Program. The Project Co-Leaders
shall be the primary contact between the Parties with respect to the Research
Program. Each Party shall notify the other within thirty (30) days of the Effective
Date of the appointment of its Project Co-Leaders and shall notify the other Party
as soon as practicable upon changing this appointment.

	2.4	 	Exchange of Information.

	 	2.4.1	 	Upon execution of this Agreement, and on an ongoing basis during the term
of the Research Program, Avalon shall disclose to Merck in English and in writing or
in an electronic format all Avalon Know-How not previously disclosed to Merck.
Merck shall promptly disclose Merck Know-How to Avalon during the Research Program
Term.
	 
	 	2.4.2	 	Avalon will not be required to provide any information or data to the
Joint Committee or to Merck other than Avalon Know-How.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

9

 

	2.5	 	Records and Reports.

	 	2.5.1	 	Records. Merck and Avalon shall maintain records, in sufficient
detail and in good scientific manner appropriate for patent and regulatory purposes,
which shall fully and properly reflect all work done and results achieved by it in
the performance of the Research Program. Avalon shall also retain records,
consistent with is own internal FTE record keeping standards, reasonably required to
evidence the substance of the work being performed by Avalon’s FTEs working on the
Research Program and the time spent on such activities by its FTEs, including
without limitation records as to whether such FTEs are employees of Avalon, its
Affiliates, or Third Parties as permitted by Section 2.2 (collectively, “FTE
Records”).
	 
	 	2.5.2	 	Copies and Inspection of Records. Merck shall have the right,
during normal business hours and upon reasonable notice, to inspect Avalon’s records
that contain FTE Records, Avalon Information and Inventions and/or Avalon Know-how;
provided that Avalon may require that such inspection be performed by Merck
only using a Third Party reasonably acceptable to Avalon subject to written
obligations of confidentiality with respect to such records no less stringent than
the terms of this Agreement and such Third Party shall only report FTE Records,
Avalon Information and Inventions and/or Avalon Know-How to Merck. Avalon may also
take reasonable steps to protect information contained in their records that are not
FTE Records, Avalon Information and Inventions and/or Avalon Know-How from
disclosure to Merck or such Third Party. Merck shall maintain such records and the
information disclosed therein in confidence in accordance with Section 4.1. Merck
shall have the right to arrange for its employees and/or consultants involved in the
activities contemplated hereunder to visit the offices and laboratories of Avalon
and any of its Third Party contractors as permitted under Section 2.2 during normal
business hours and upon reasonable notice, and to discuss the Research Program work
and its results in detail with the technical personnel and consultants of Avalon.
Upon request, Avalon shall provide copies of the records described in Section 2.5.1
above that are Avalon Information and Inventions, Avalon Know-How or FTE Records to
Merck or if Avalon requires the Third Party inspector referred to above.
	 
	 	2.5.3	 	Quarterly Reports. Within * days following the end of each
Calendar Quarter during the Research Program Term and any Wind Down Term, Avalon
shall provide to Merck a written progress report in English which shall generally
describe the work performed to date and in such Calendar Quarter on the Research
Program, evaluate the work performed in relation to the goals of the Research
Program and provide such other general information required by the Research Program
or reasonably requested by Merck relating to the progress of the goals or
performance of the Research Program. Such quarterly Avalon report shall also
include, without limitation, a summary of the worked performed on the Research
Program during such Calendar Quarter and a certification for Avalon whether the
number of FTE’s working on the Research Program has met the required minimum amount of Avalon FTE, if any, for such
Calendar Quarter under Section 8.2.1(b). *

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

10

 

	2.6	 	Proof of Concept Achievement and Merck’s Rights in Nominated Compound.

	 	2.6.1	 	Achievement of * Proof of Concept and/or * Proof of Concept.

	 	(a)	 	If Avalon believes that a Lead Compound has achieved either * Proof
of Concept and/or * Proof of Concept, Avalon shall promptly notify Merck in
writing of such conclusion and shall deliver to Merck the data in its
possession that Avalon believes is required to support such conclusion. Merck
may also request an appropriate amount, not to exceed * gram, of Material for
such Lead Compound, which Avalon shall provide, for Merck to conduct its own
testing of such Lead Compound to assist Merck in confirming that * Proof of
Concept and/or * Proof of Concept has been achieved. After Merck’s receipt of
such notice, information and Material and Merck’s prompt completion of its own
confirmatory testing, but in no event more than ninety (90) days after Avalon
has provided Merck with data, information and materials in accordance with
this Section 2.6.1, Merck shall convene its appropriate development committee
(the “Merck Pre-Clinical Development Committee”) which shall in good faith
access the information provided by Avalon and Merck’s results of its own
confirmatory testing, and determine whether it agrees that such Lead Compound
has achieved the applicable * Proof of Concept or * Proof of Concept, as the
case may be. If, after such review, the Merck Pre-Clinical Development
Committee agrees with Avalon’s conclusion the respective proof of concept
milestone event shall be deemed to have been achieved and Merck shall pay any
milestone payments that may be due therefore pursuant to Section 5.2.1. If
the Merck Development Committee concludes that the * Proof of Concept or *
Proof of Concept, as the case may be, has not been achieved, Merck shall
promptly so notify Avalon and provide Avalon with a written explanation of its
rationale for such determination together with any relevant results generated
by Merck from its own confirmatory testing.
	 
	 	(b)	 	*.

	 	2.6.2	 	Merck Rights in Nominated Compounds. Within thirty (30) days of
a Lead Compound becoming a Nominated Compound, Avalon shall provide Merck with all
Avalon Information and Inventions with respect to such Nominated Compound (as
further specified in phase (5) of the Research Program in Part A, Paragraph 5 of
Schedule 2.1 and which shall include without limitation all results and
structural information with respect to such Nominated Compound in Avalon’s
possession), and a mutually agreed amount of such Nominated Compound necessary to
permit Merck to perform confirmatory testing and support its preclinical candidate
criteria. Merck shall have * days after Merck’s receipt from Avalon of all such
information and quantities of Nominated Compounds, to designate in its sole
discretion such Nominated Compound as a Licensed Compound which designation shall be made by written notice to Avalon.
The date that Merck makes such a designation shall be referred to herein as the
“Designation Date”. If Merck designates a Nominated Compound as a Licensed
Compound, Merck shall pay the amount specified in Section 5.1 therefor and such
Nominated Compounds and the compounds relating to such Nominated Compounds as
specified in the definition of Licensed Compounds in Section 1.37 shall become
Licensed Compounds and will be subject to the exclusive license to Merck granted
under Section 3.1.1(c). If Merck fails to designate a Nominated Compound as a
Licensed Compound within such * day period, Merck’s right to designate such
Nominated Compound as a Licensed Compound shall terminate and Avalon’s reversion
rights set forth in Section 2.6.3 shall apply. The expiration of such * day
period without a designation by Merck, or if earlier, the express written
notification from Merck that it does not wish to designate such Nominated
Compounds as Licensed Compounds is referred to herein as the “Designation
Expiration Date”.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

11

 

	 	2.6.3	 	Avalon Reversion Rights in Nominated Compounds. Only in the
event that (i) Merck does not designate any Nominated Compound as a Licensed
Compound in accordance with Section 2.6.2; and the Research Program Term has
terminated, or (ii) as specified pursuant to Section 8.2.2, Section 8.2.3 or Section
8.3.2(b) in connection with a termination of this Agreement, then Avalon shall have
the right to obtain an Avalon Reversion License (as defined below). Avalon shall
exercise the Avalon Reversion License by providing written notice to Merck (x) no
earlier than, and within * days after, the later of (I) the expiration of the
Research Program Term; and (II) the Designation Expiration Date, or (y) if Avalon
has such license right pursuant to Section 8.2.2, Section 8.2.3 or Section 8.3.2(b)
in connection with a termination of this Agreement, within the time frame specified
therein. The “Avalon Reversion License” shall mean * such Nominated Compound and
Structurally Related Compounds thereof, * (the “Avalon Optioned Compounds”;
provided that if Avalon has such license right pursuant to Section 8.2.2,
Section 8.2.3 or Section 8.3.2(b) in connection with a termination of this
Agreement, “Avalon Optioned Compounds” shall have the meaning given such term
therein) solely for the research, development, manufacture, use and
commercialization of the Avalon Optioned Compounds for their modulation of the
Target, which license shall also be subject to the terms and conditions set forth
below:

	 	(a)	 	Avalon will pay a royalty to Merck on worldwide net sales of all
preparations and formulations containing an Avalon Optioned Compound at a
royalty rate of: (i) * percent (*%) of the first * dollars ($*) in net sales
in a Calendar Year; (ii) * percent (*%) of all net sales greater than *
dollars ($*) and less than * dollars ($*) in a Calendar Year; and (iii) *
percent (*%) of all net sales greater than * dollars ($*) in a Calendar Year.
The foregoing royalties shall be subject to abatement by royalties payable by
Avalon for patent licenses from Third Parties necessary to sell such Avalon
Optioned Compound (other than for Merck Third Party Obligations (as defined
below)) at the rate of * percent (*%) of such obligations not to exceed * percent (*%) of the
royalty otherwise payable by Avalon to Merck hereunder.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

12

 

	 	 	 	For the purposes of calculating the foregoing royalties, net sales shall
be calculated using the definition of Net Sales set forth in this
Agreement as if applicable to the gross invoice price of product
containing an Avalon Optioned Compound sold by Avalon, its Affiliates or
sub-licensees to Third Parties. These financial terms are binding on the
Parties and Avalon shall not have to make any further payments to Merck
for the Avalon Reversion License; provided that if applicable,
Avalon shall be responsible for any and all payment obligations that Merck
may have to any Third Party with respect to such Avalon Optioned Compounds
(“Merck Third Party Obligations”).

	 	(b)	 	In the event that the making, having made, use, offer for sale, sale
or import by Avalon, its Affiliates or sub-licensees, of Avalon Optioned
Compounds(s) or products containing Avalon Optioned Compound, would infringe
during the term of this Agreement a product or use claim of issued letters
patent which Merck Controls and which patents are not covered by the grant in
the first paragraph of this Section 2.6.3, Merck grants to Avalon, to the
extent Merck is legally able to do so, a non-exclusive, sublicenseable license
in the Territory under such issued letters patent for Avalon, its Affiliates
and sub-licensees to develop, make, have made, use, sell, offer for sale or
import Avalon Optioned Compounds and products containing Avalon Optioned
Compound in the Territory for which royalties are otherwise payable to Merck
under the terms of this Section 2.6.3; provided that the foregoing
licenses shall not include any claim of an issued letters of patent that
claims a formulation that was invented after the date the Avalon Reversion
License is exercised by Avalon to the extent that such claim(s) are directed
to the formulation of compounds other than just Avalon Optioned Compounds.
Avalon shall also be responsible for any and all payment obligations that
Merck may have to any Third Party to the extent such payment obligations
relate to the grant of a sublicense of such Third Party’s patents under this
Section 2.6.3(b).
	 
	 	(c)	 	Merck shall have a right of first negotiation for any Avalon Optioned
Compound *. Avalon shall promptly notify Merck of any such achievement and
Merck’s right of first negotiation for such Nominated Compound shall continue
for * days following such notification. If the Parties do not reach
agreement, Avalon shall have the right to grant rights to such Avalon Optioned
Compound to a Third Party. For the avoidance of doubt, Avalon shall have the
right to grant rights to a Third Party with respect to Avalon Optioned
Compounds prior to such achievement of such clinical proof of concept and the
granting of such rights shall terminate Merck’s right of first negotiation.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

13

 

	 	 	 	If Avalon exercises the Avalon Reversion License, the Parties shall, in
good faith negotiate a definitive agreement (a “Definitive Avalon
Reversion License Agreement”) to encompass the Avalon Reversion License
which may include other usual and customary provisions and obligations
therefore; provided that the Avalon Reversion License shall be
deemed to be automatically granted to Avalon under the foregoing terms and
conditions of this Section 2.6.3 upon Avalon providing the notice in
accordance therewith and such license shall remain in effect under such
terms and conditions until such time as the Parties mutually agree to,
execute and deliver a Definitive Avalon Reversion License Agreement.

	2.7	 	Research Information and Inventions. The entire right, title and interest in:

	 	2.7.1	 	Avalon Information and Inventions and the intellectual property rights
therein shall be owned solely by Avalon;
	 
	 	2.7.2	 	Merck Information and Inventions and the intellectual property rights
therein shall be owned solely by Merck; and
	 
	 	2.7.3	 	Joint Information and Inventions and the intellectual property rights
therein shall be owned *.

	 	 	Notwithstanding anything to the contrary in subsections 2.7.1 through 2.7.3 and without
limiting any other provision of this Agreement, all Hit Compounds, Lead Compounds,
Nominated Compounds and Licensed Compounds shall be subject to the Parties’ further
covenants in Section 2.12.
	 
	 	 	Avalon shall promptly disclose to Merck in writing its identification of any Lead Compounds
and of the development, making, conception or reduction to practice of Avalon Information
and Inventions and Joint Information and Inventions.
	 
	2.8	 	Research Program Term. Except as otherwise provided herein, the term of the Research
Program (the “Research Program Term”) shall commence on the Effective Date and continue until
* (such continuation a “Merck Extended Research Term”). In addition, as part of any Merck
Extended Research Term Merck, in its written notice therefor, may also *. In the Event that
the Research Program Term is terminated in accordance with clause (a) above without a
Nominated Compound being identified and Avalon reasonably believes that it is close to
successfully identifying a Nominated Compound, Avalon may by written notice provided to Merck
by such termination date continue the Research Program for an additional six (6) month period
(the “Wind Down Term”) in order to provide Avalon with an additional opportunity to identify a
Nominated Compound. This Research Program Term may also be extended by the Parties by mutual
written agreement of the authorized representative of the Parties, and the Parties shall, in
such case, amend Schedule 2.1 as applicable. In the event that Avalon identifies a
Nominated Compound during the Wind Down Term, Sections 2.6.1 and 2.6.2 shall apply to such
Nominated Compound.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

14

 

	2.9	 	Materials. In order to facilitate the Research Program, each Party shall provide the
other Party with sufficient quantities of material as set forth in Schedule 2.1, such
material and other materials as each such Party may provide from time to time under this
Agreement (the “Materials”). Each Party shall use the Materials supplied by the other Party
solely for the purposes of carrying out its respective activities under the Research Program
in accordance with the terms of this Agreement and, consistent with the licenses granted to
either party under this Agreement. Neither Party shall transfer, deliver or disclose any such
Materials of the other Party, or any derivatives, analogs, modifications or components
thereof, to any Third Party without the prior written approval of the providing Party, except
that, if Merck is granted a license pursuant to Section 3.1.1(c) Merck may transfer Materials
provided by Avalon without Avalon’s prior written consent to Merck’s Related Parties, agents
and subcontractors for the purpose of carrying out the development and commercialization of
Licensed Compound or Product and if Avalon is granted a license pursuant to Section 2.6.3
Avalon may transfer Materials provided by Merck without Merck’s consent for the purpose of
carrying out the development and commercialization of Avalon Optioned Compounds. The
Materials are not to be used in humans, except as contemplated by this Agreement and permitted
by applicable law. Any unused Materials supplied by either Party to the other Party
(excluding Materials supplied (x) by Avalon being used by Merck to develop and commercialize
Licensed Compounds in accordance with the rights granted to Merck therein under Section 3.1 or
(y) by Merck being used by Avalon to develop and commercialize Avalon Optioned Compounds in
accordance with the rights granted to Avalon therein under Section 2.6.3) shall be, at the
supplying Party’s option, either returned to the other Party, or destroyed in accordance with
its instructions.

	2.10	 	*.

	 	2.10.1	 	*.
	 
	 	2.10.2	 	*.

	2.11	 	Research Program Limited Liability. Merck understands and agrees that Avalon makes
no representation that the Research Program will identify and/or obtain any Lead Compound
and/or Nominated Compound and Avalon shall have no liability to Merck for failing to identify
and/or obtain any Lead Compound and/or Nominated Compound.

	2.12	 	Further Covenants.

	 	2.12.1	 	*.
	 
	 	2.12.2	 	*.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

15

 

ARTICLE 3 LICENSE; EXCHANGE OF INFORMATION; DEVELOPMENT AND COMMERCIALIZATION.

	3.1	 	License Grant.

	 	3.1.1	 	License Grants by Avalon. Subject to the terms and conditions of
this Agreement, Avalon hereby grants to Merck:

	 	(a)	 	a royalty-free, * license in the Territory under the Avalon Know-How
and Avalon Patent Rights for the limited purpose of allowing Merck to conduct
the obligations and responsibilities allocated to Merck under the Research
Program, including without limitation, to evaluate Merck’s interest in
designating a Nominated Compound as a Licensed Compound pursuant to Section
2.6.2 of this Agreement. Merck may sublicense such rights to its Affiliates
and Third Parties to conduct such obligations and responsibilities on its
behalf.
	 
	 	(b)	 	a perpetual, royalty-free * license in the Territory under Avalon
Patent Rights and Avalon Know-How solely for Merck and its Affiliates internal
research purposes for screening compounds against the Target for the sole
purpose of identifying compounds that do not modulate and/or bind to the
Target. Merck may sublicense such rights to its Affiliates and Third Parties,
but solely in the case of such Third Parties on a fee for service basis to
conduct internal research for and on behalf of Merck and its Affiliates. The
license granted under this Section 3.1.1(b) shall take effect upon Merck’s
payment to Avalon of the milestone payments for * events pursuant to Section
5.2.1.
	 
	 	(c)	 	a royalty bearing (pursuant to Section 5.3) * (even as to Avalon)
license in the Territory, with the right to sublicense under Avalon Patent
Rights, Avalon Know-How and Avalon’s interest in Joint Information and
Inventions and Joint Patent Rights, to develop, use, make, have made, offer to
sell, sell or import Licensed Compounds and Products for any and all purposes.
The license granted under this Section 3.1.1(c)) shall take effect upon
Merck’s payment to Avalon of *.
	 
	 	(d)	 	Merck shall ensure that any sublicensee to which it sublicenses the
rights granted to Merck by Avalon under this Section 3.1.1 and Section 3.2, is
required to comply with at least the same obligations as Merck under this
Agreement, and *.

	 	3.1.2	 	License Grant by Merck. Subject to the terms and conditions of
this Agreement, Merck hereby grants to Avalon a non-exclusive, non-royalty bearing,
non-sublicenseable license in the Territory under Merck Information and Inventions
and Merck Know-How, solely for the limited purpose of allowing Avalon to conduct the
obligations and responsibilities allocated to Avalon under the Research Program.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

16

 

	3.2	 	Non-Exclusive License Grant. In the event that the making, having made, use, offer
for sale, sale or import by Merck, or Merck’s Related Parties, of Licensed Compound(s) or
Product(s) would infringe during the term of this Agreement *, Avalon hereby grants to Merck,
to the extent Avalon is legally able to do so, a non-exclusive, sublicenseable license in the
Territory under such issued letters patent for Merck and its Related Parties to develop, make,
have made, use, sell, offer for sale or import Licensed Compound(s) and Product(s) in the
Territory for which royalties are otherwise payable to Avalon under this Agreement;
provided that the foregoing licenses shall not include any claim of an issued letters
patent that claims *. Merck shall be responsible for any and all payment obligations that
Avalon may have to any Third Party to the extent such payment obligations relate to the grant
of a sublicense of such Third Party’s patents under this Section 3.2.

	3.3	 	No Implied Licenses. Except as specifically set forth in this Agreement, neither
Party shall acquire any license or other intellectual property interest, by implication or
otherwise, in any Information disclosed to it under this Agreement or under any patents or
patent applications Controlled by the other Party or its Affiliates.

	3.4	 	Development and Commercialization. Upon Merck’s designation of a Nominated Compound
as a Licensed Compound in accordance with Section 2.6.2 and the granting of a license under
Section 3.1.1(c), Merck shall use * efforts, consistent with the usual practice followed by
Merck in pursuing the development, commercialization and marketing of its other pharmaceutical
products of a similar commercial value, at its own expense, to develop commercialize and
market a Product on a * basis in such countries in the Territory where in Merck’s opinion it
is commercially viable to do so. After * and until *, within * days after the end of each
Calendar Year, Merck shall provide Avalon with a written report that *. At any time after
Merck has designated a Nominated Compound as a Licensed Compound in accordance with Section
2.6.2 and the granting of a license to Merck under Section 3.1.1(c), Merck shall promptly
notify Avalon in the event that Merck and its Related Parties are no longer developing or
commercializing at least * Licensed Compound or Product in the Territory because in Merck’s
opinion it is not commercially viable and Merck also does not pursue sublicensing of the
Licensed Compound or Product in the Territory (such notice is a “No Commercial Viability
Notice”) and Avalon shall have a right to terminate this Agreement in accordance with Section
8.2.3.

	3.5	 	Excused Performance. The obligations of Merck with respect to any Licensed Compound
or Product under Section 3.4 are expressly conditioned upon the continuing absence of any
adverse condition or event relating to the safety or efficacy of the Licensed Compound or
Product, and the obligation of Merck to develop or market any such Licensed Compound and
Product shall be delayed or suspended so long as in Merck’s opinion any such condition or
event exists.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

17

 

ARTICLE 4 CONFIDENTIALITY AND PUBLICATION.

	4.1	 	Nondisclosure Obligation. All Information disclosed by one Party to the other Party
hereunder shall be maintained in confidence by the receiving Party
and shall not be disclosed to any Third Party or used for any purpose except as set forth herein without the
prior written consent of the disclosing Party, except to the extent that such Information:

	 	4.1.1	 	is known by the receiving Party at the time of its receipt, and not
through a prior disclosure by the disclosing Party, as documented by the receiving
Party’s business records;
	 
	 	4.1.2	 	is in the public domain by use and/or publication before its receipt from
the disclosing Party, or thereafter enters the public domain through no fault of the
receiving Party;
	 
	 	4.1.3	 	is subsequently disclosed to the receiving Party by a Third Party who may
lawfully do so and is not under an obligation of confidentiality to the disclosing
Party;
	 
	 	4.1.4	 	is developed by the receiving Party independently of Information received
from the disclosing Party, as documented by the receiving Party’s business records;
	 
	 	4.1.5	 	is disclosed to governmental or other regulatory agencies in order to
obtain patents or to gain or maintain approval to conduct clinical trials or to
market Product, but such disclosure may be only to the extent reasonably necessary
to obtain patents or authorizations;
	 
	 	4.1.6	 	is deemed necessary by Merck to be disclosed to Related Parties, agents,
consultants, and/or other Third Parties for the research and development,
manufacturing and/or marketing of the Licensed Compound or Product (or for such
entities to determine their interest in performing such activities) in accordance
with this Agreement on the condition that such Third Parties agree to be bound by
confidentiality and non-use obligations that substantially are no less stringent
than those confidentiality and non-use provisions contained in this Agreement;
provided, however, that the term of confidentiality for such Third
Parties shall be no less than ten (10) years from date of receipt; or
	 
	 	4.1.7	 	is deemed necessary by Avalon to be disclosed (a) to its, agents,
consultants, and/or other Third Parties for accomplishing the goals of the Research
Program or, (b) in the event that Avalon is granted an Avalon Reversion License in
accordance with Section 2.6.3, to Avalon’s existing and potential sublicensees, for
the research and development, manufacturing and/or marketing of the Avalon Optioned
Compounds or product to the extent it contains Avalon Optioned Compounds (or for
such entities to determine their interest in performing such activities) in
accordance with this Agreement, in each case, on the condition that such Third
Parties agree to be bound by confidentiality and non-use obligations that
substantially are no less stringent than those confidentiality and non-use
provisions contained in this Agreement; provided, however, that the
term of confidentiality for such Third Parties shall be no less than ten (10) years
from date of receipt; or

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

18

 

	 	4.1.8	 	is deemed necessary by counsel to the receiving Party to be disclosed to
such Party’s attorneys, independent accountants or financial advisors for the sole
purpose of enabling such attorneys, independent accountants or financial advisors to
provide advice to the receiving Party, on the condition that such attorneys,
independent accountants and financial advisors agree to be bound by the
confidentiality and non-use obligations contained in this Agreement;
provided, however, that the term of confidentiality for such
attorneys, independent accountants and financial advisors shall be no less than ten
(10) years.

	 	 	Any combination of features or disclosures shall not be deemed to fall within the foregoing
exclusions merely because individual features are published or available to the general
public or in the rightful possession of the receiving Party unless the combination itself
and principle of operation are published or available to the general public or in the
rightful possession of the receiving Party.
	 
	 	 	If a Party is required by judicial or administrative process to disclose Information that
is subject to the non-disclosure provisions of this Section 4.1 or Section 4.2, such Party
shall promptly inform the other Party of the disclosure that is being sought in order to
provide the other Party an opportunity to challenge or limit the disclosure obligations.
Information that is disclosed by judicial or administrative process shall remain otherwise
subject to the confidentiality and non-use provisions of this Section 4.1 and Section 4.2,
and the Party disclosing Information pursuant to law or court order shall take all steps
reasonably necessary, including without limitation obtaining an order of confidentiality,
to ensure the continued confidential treatment of such Information.
	 
	4.2	 	Avalon Know-How. Avalon agrees to keep all Avalon Know-How with respect to the
Target and Hit Compounds, Lead Compounds, Nominated Compounds and Licensed Compounds
confidential subject to the exceptions in Section 4.1.2, 4.1.5, 4.1.7 and/or 4.1.8.
	 
	4.3	 	Publication. Merck and Avalon each acknowledge the other Party’s interest in
publishing the results of its research in order to obtain recognition within the scientific
community and to advance the state of scientific knowledge. Each Party also recognizes the
mutual interest in obtaining valid patent protection and in protecting business interests and
trade secret information. Consequently, except for disclosures permitted pursuant to Section
4.1, either Party, its employees or consultants wishing to make a publication shall deliver to
the other Party a copy of the proposed written publication or an outline of an oral disclosure
at least * days prior to submission for publication or presentation. The reviewing Party
shall have the right (a) to propose modifications to the publication or presentation for
patent reasons, trade secret reasons or business reasons or (b) to request a reasonable delay
in publication or presentation in order to protect patentable information. If the reviewing
Party requests a delay, the publishing Party shall delay submission or presentation for a
period of * days to enable patent applications protecting each Party’s rights in such
information to be filed in accordance with Article 7. Upon expiration of such * days, the
publishing Party shall be free to proceed with the publication or presentation. If Avalon
requests modifications to a Merck publication or presentation, Merck shall edit such
publication to prevent disclosure of Information of Avalon subject to the confidentiality obligations and uses permitted under this Article 4 prior to
submission of the publication or presentation. If Merck requests modifications to an
Avalon publication or presentation, Avalon shall edit such publication to prevent
disclosure of Information of Merck subject to the Confidentiality obligations of this
Article 4 prior to submission of the publication or presentation.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

19

 

	4.4	 	Publicity/Use of Names. No disclosure of the existence, or the terms, of this
Agreement may be made by either Party, and no Party shall use the name, trademark, trade name
or logo of the other Party, its Affiliates or their respective employees in any publicity,
promotion, news release or disclosure relating to this Agreement or its subject matter,
without the prior express written permission of the other Party, except as may be required by
law. The Parties acknowledge and agree that, upon and/or following the Effective Date, one or
both of the Parties may desire to issue a press release announcing the execution of this
Agreement. The Parties agree to consult with each other reasonably and in good faith with
respect to the text and timing of such press releases prior to the issuance thereof;
provided, however, that neither Party shall issue any such press releases
without the other Party’s consent, which may not be unreasonably withheld. Either Party may
issue such press releases or otherwise make such public statements or disclosures (such as in
annual reports to stockholders or filings with the Securities and Exchange Commission) as it
determines in good faith based on advice of counsel, are reasonably necessary to comply with
applicable public disclosure laws and regulations; provided, however, to the
extent practicable a Party shall not issue any such press releases or make such statements or
disclosures without the other Party’s prior review and comment. In addition, following any
initial press release(s) announcing this Agreement or other public disclosure approved by both
Parties, either Party shall be free to disclose, without the other Party’s prior written
consent, the existence of this Agreement, the identity of the other Party and those terms of
the Agreement which have already been publicly disclosed in accordance herewith. Either Party
may also disclose the terms and conditions of this Agreement under terms of confidentiality
and non-use obligations that are substantially no less stringent than the confidentiality and
non-use provisions in this Agreement to its current or potential advisors and to its existing
and potential lenders and investors for the purpose of such Party’s financing activities and
in connection with a potential Change of Control of such Party.

ARTICLE 5 PAYMENTS; ROYALTIES AND REPORTS

	5.1	 	Merck Licensed Compound Designation Payment. Subject to the terms and conditions of
this Agreement, Merck shall pay to Avalon the amount of * dollars ($*) within * days of its
written notice the first time that Merck designates a Nominated Compound as a Licensed
Compound pursuant to Sections 2.6.2. In the event that Merck makes a payment under this
Section 5.1 and any of the milestone payments under Section 5.2.1 for the first Nominated
Compound have not been paid, any such unpaid milestone under Section 5.2.1 shall be payable at
such time.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

20

 

	5.2	 	Milestone Payments. Subject to the terms and conditions of this Agreement, Merck
shall pay to Avalon the milestone payments set forth in this Section 5.2.

	 	5.2.1	 	*.
	 
	 	5.2.2	 	*.
	 
	 	5.2.3	 	*.
	 
	 	5.2.4	 	*.
	 
	 	5.2.5	 	*.
	 
	 	5.2.6	 	*.
	 
	 	5.2.7	 	Merck shall notify Avalon in writing within * days following the
achievement of each milestone event set forth in this Section 5.2, and shall make
the appropriate milestone payment within thirty (30) days after the achievement of
such milestone event. The milestone payments set forth in this Section 5.2 shall be
payable only upon the initial achievement of the particular milestone event for each
Product and no amounts shall be due hereunder for subsequent or repeated achievement
of such milestone event for such Product. If during the term of this Agreement any
of the foregoing milestone triggering events is skipped for a particular Product and
Cancer Indication, the milestone that would otherwise have been due for such skipped
milestone shall be due and payable on the occurrence of the next to occur milestone
event triggering event for such Product and Cancer Indication.
	 
	 	5.2.8	 	Notwithstanding anything else to the contrary in this Section 5.2, if
Merck ceases development of a Licensed Compound or Product because of any adverse
condition or event relating to the safety or efficacy of such Licensed Compound or
Product, then Merck may apply the total milestone payments made with respect to such
abandoned Product against milestone payment obligations for the next Product.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

21

 

	5.3	 	Royalties.

	 	5.3.1	 	Royalties Payable by Merck. Subject to the terms and conditions
of this Agreement, Merck shall pay Avalon royalties, calculated on a
Product-by-Product basis as set forth in this Section 5.3.

	 	(a)	 	Patent Royalties. Subject to the provisions of Section
5.3.1(d), Merck shall pay Avalon royalties in an amount equal to the following
percentage of Net Sales of Products by Merck and its Related Parties;
provided that the sale of such Product would, but for the license
granted to Merck under Section 3.1.1, infringe a Valid Patent Claim in the
country of sale:

	 	(i)	 	* percent (*%) of such Net Sales in the Territory in each
Calendar Year up to and including * dollars ($*);
	 
	 	(ii)	 	* percent (*%) of such Net Sales in the Territory in each
Calendar Year for the portion of Net Sales exceeding * dollars ($*)
up to and including * dollars ($*); and
	 
	 	(iii)	 	* percent (*%) of such Net Sales in the Territory in each
Calendar Year for the portion of Net Sales exceeding * dollars ($*).

	 	(b)	 	Know-How Royalty. Notwithstanding the provisions of Section
5.3.1(a), in countries where the sale of Product by Merck or its Related
Parties would not infringe a Valid Patent Claim, Merck shall pay royalty rates
at * percent (*%) of the applicable royalty rate determined according to
Section 5.3.1(a).
	 
	 	(c)	 	Royalty tiers pursuant to Section 5.3.1(a) and Section 5.3.1(b) shall
be calculated based on Net Sales of each Product in the Territory. For the
purposes of calculating the royalty rates applicable to Net Sales, the Net
Sales of a Product subject to royalties under either Section 5.3.1(a) or
Section 5.3.1(b) shall be pro rated based upon the aggregate amount of Net
Sales for such Product subject to royalties under both Section 5.3.1(a) and
Section 5.3.1(b). By way of example, assuming Net Sales for a Product in a
given Calendar Year equal $*, with $* (or *%) of such Net Sales being subject
to Section 5.3.1(a) and $* (or *%) of such Net Sales being subject to Section
5.3.1(b), then: first tier royalties would be $* x *% payable at a *% royalty
rate and $* x *% payable at a *% royalty rate; and second tier royalties would
be $* x *% payable at a *% royalty rate and $* x *% payable at a *% royalty
rate.
	 
	 	(d)	 	Royalties on each Product at the rates set forth above shall be
payable on a country-by-country and Product-by-Product basis until the later
of: (i) the last-to-expire Valid Patent Claim claiming such Licensed Compound
or Product as a composition of matter; or (ii) * years after First Commercial Sale of such Product in such country, after which time
there is no further royalty obligations with respect to such Product in such
country.

* The asterisk denotes that confidential portions of this exhibit have been omitted in reliance on Rule
24b-2 of the Securities Exchange Act of 1934.
The confidential portions have been submitted separately to the Securities and Exchange Commission.

22

 

	 	(e)	 	All royalties are subject to the following conditions:

	 	(i)	 	that only one royalty shall be due with respect to the same
unit of Product;
	 
	 	(ii)	 	that (and for the purposes of clarity) no royalties shall
be due upon the sale or other transfer among Merck or its Related
Parties, but in such cases the royalty shall be due and calculated
upon Merck’s or its Related Party’s Net Sales to the first
independent Third Party;
	 
	 	(iii)	 	no royalties shall accrue on the sale or other disposition
of Product by Merck or its Related Parties for use in a Clinical
Trial;
	 
	 	(iv)	 	no royalties shall accrue on the disposition of Product in
reasonable quantities by Merck or its Related Parties as samples
(promotion or otherwise) or as donations (for example, to non-profit
institutions or government agencies for a non-commercial purpose);
and
	 
	 	(v)	 	For the purposes of clarity, the Parties acknowledge and
agree, that Merck may develop or commercialize Product in various
formulations, presentations or dosage strengths and that all
formulations, presentations or dosage strengths of Product
incorporating the same Licensed Compound shall be considered the same
“Product” for determining any milestone or royalty payments due for
such Product.

	 	5.3.2	 	Change in Sales Practices. The Parties acknowledge that during
the term of this Agreement, Merck’s sales practices for the marketing and
distribution of
Product may change to the extent to which the calculation of the payment for
royalties on Net Sales may become impractical or even impossible. In such event
the Parties agree to meet and discuss in good faith new ways of compensating
Avalon to the extent currently contemplated under Section 5.3.1, but neither
Party shall be obligated to agree to any change in compensation.
	 
	 	5.3.3	 	Royalties for Bulk Licensed Compound. In those cases where Merck
sells bulk Licensed Compound rather than Product in packaged form to an independent
Third Party, the royalty obligations of this Section 5.3 shall be applicable to the
bulk Licensed Compound.
	 
	 	5.3.4	 	Compulsory Licenses. If a compulsory license is granted to a
Third Party with respect to Product in any country in the Territory with a royalty
rate lower than the royalty rate provided by subsection 5.3.1, then the royalty rate
to be paid by Merck on Net Sales in that country under subsection 5.3.1 shall be
reduced to the rate paid by the compulsory licensee

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

23

 

	 	5.3.5	 	Third Party Licenses. In the event that one or more patent
licenses from other Third Parties are required by Merck or its Related Parties in
order to make, have made, use, offer to sell, sell or import Licensed Compound or
Product(s) in a country (hereinafter “Third Party Patent Licenses”), * percent (*%)
of the royalties actually paid under such Third Party Patent Licenses by Merck for
sale of such Licensed Compound or Product in a country for a Calendar Quarter shall
be creditable against the royalty payments due Avalon by Merck with respect to the
sale of such Licensed Compound or Products in such country only for such Calendar
Quarter; provided, however, that in no event shall the royalties
owed by Merck to Avalon for such Calendar Quarter in such country be reduced by more
than * percent (*%).

	5.4	 	Reports; Payment of Royalty. During the term of this Agreement following the First
Commercial Sale of a Product, Merck shall furnish to Avalon a quarterly written report for the
Calendar Quarter showing the Net Sales of all Products subject to royalty payments sold by
Merck and its Related Parties in the Territory during the reporting period and the royalties
payable under this Agreement in sufficient detail to permit confirmation of the accuracy of
the royalty payment made, including, without limitation and on a country-by-country and
Product-by-Product basis, the number of Products sold, the gross sales and Net Sales of
Products, the royalties (in U.S. dollars) payable, and the method used to calculate the
royalty. Reports shall be due on the * day following the close of each Calendar Quarter.
Royalties shown to have accrued by each royalty report shall be due and payable on the date
such royalty report is due. Merck shall keep complete and accurate records in sufficient
detail to enable the royalties payable hereunder to be determined.

	5.5	 	Audits.

	 	5.5.1	 	Upon the written request of Avalon and not more than once in each
Calendar Year, Merck and its Affiliates shall permit an independent certified public
accounting firm of nationally recognized standing selected by Avalon and reasonably
acceptable to Merck, at Avalon’s expense, to have access during normal business
hours to such of the records of Merck and its Affiliates as may
be reasonably necessary to verify the accuracy of the royalty reports hereunder
for any year ending not more than * months prior to the date of such request.
The accounting firm shall disclose to Avalon only whether the royalty reports are
correct or incorrect and the amount of any discrepancy. No other information
shall be provided to Avalon.
	 
	 	5.5.2	 	If such accounting firm correctly identifies a discrepancy made during
such period, the appropriate Party shall pay the other Party the amount of the
discrepancy within * days of the date Avalon delivers to Merck such accounting
firm’s written report so correctly concluding, or as otherwise agreed upon by the
Parties. The fees charged by such accounting firm shall be paid by Avalon;
provided, however if such audit uncovers an underpayment of
royalties by Merck that exceeds * percent (*%) and * dollars ($*) of the total
royalties owed by Merck to Avalon for the period audited, then the fees and costs
charged by such accounting firm for such audit shall be paid by Merck.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

24

 

	 	5.5.3	 	Merck shall include in each sublicense granted by it pursuant to this
Agreement a provision requiring the sublicensee to make reports to Merck, to keep
and maintain records of sales made pursuant to such sublicense and to grant access
to such records by Avalon’s independent accountant to the same extent required of
Merck under this Agreement.
	 
	 	5.5.4	 	Except in the case of fraud, upon the expiration of * months following
the end of any year, the calculation of royalties payable with respect to such year
shall be binding and conclusive upon Avalon and Merck, and Merck and its Related
Parties shall be released from any liability or accountability with respect to
royalties for such year.
	 
	 	5.5.5	 	Avalon shall treat all financial information subject to review under this
Section 5.5 or under any sublicense agreement in accordance with the confidentiality
and non-use provisions of this Agreement, and shall cause its accounting firm to
enter into an acceptable confidentiality agreement with Merck and/or its Related
Parties obligating it to retain all such information in confidence pursuant to such
confidentiality agreement.

	5.6	 	Payment Exchange Rate. All payments to be made by Merck to Avalon under this
Agreement shall be made in United States dollars and may be paid by check made to the order of
Avalon or bank wire transfer in immediately available funds to such bank account in the United
States as may be designated in writing by Avalon from time to time. In the case of sales
outside the United States, the rate of exchange to be used in computing the amount of currency
equivalent in United States dollars due Avalon shall be made at the rate of exchange utilized
by Merck in its worldwide accounting system, prevailing on the third to the last business day
of the month prior to the month in which such sales are recorded by Merck.

	5.7	 	Income Tax Withholding. If applicable laws, rules or regulations require withholding
of income or other taxes imposed upon any payments made by Merck to Avalon under this Article
5, Merck shall make such withholding payments as may be required and shall subtract such
withholding payments from such payments. Merck shall submit appropriate proof of payment of
the withholding taxes to Avalon within a reasonable
period of time. Merck shall
render Avalon reasonable
assistance in order to allow
Avalon to obtain the benefit of
any present or future treaty
against double taxation which
may apply to such payments. If
Merck had a duty to withhold
taxes in connection with any
payment it made to Avalon under
this Agreement but Merck failed
to withhold, and such taxes were
assessed against and paid by
Merck, then Avalon shall
reimburse and hold harmless
Merck from and against such
taxes (including interest). If
Merck makes a claim under this
Section, it will comply with the
obligations imposed by this
Section as if Merck had withheld
taxes from a payment to Avalon.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

25

 

	5.8	 	*.

ARTICLE 6 REPRESENTATIONS AND WARRANTIES

	6.1	 	Representations and Warranties of Each Party. Each Party represents and warrants to
the other Party that as of the Effective Date:

	 	6.1.1	 	it has the full right, power and authority to enter into this Agreement
and to perform its obligations hereunder;
	 
	 	6.1.2	 	this Agreement has been duly executed by it and is legally binding upon
it, enforceable in accordance with its terms, and does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party or
by which it may be bound, nor violate any material law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it; and
	 
	 	6.1.3	 	it has the full right, power and authority to grant the licenses granted
under Article 3.

	6.2	 	Avalon Representation and Warranties. Avalon represents and warrants to Merck that
as of the Effective Date:

	 	6.2.1	 	it has not previously assigned, transferred, conveyed or otherwise
encumbered its right, title and interest in present and future Avalon Patent Rights
or Avalon Know-How with respect to the Target or specifically to any compound that
to its Knowledge binds to, and/or modulates, the Target;
	 
	 	6.2.2	 	Avalon has no Knowledge that the Avalon Know-How, including without
limitation the methodology used to develop, identify, and synthesize compounds as
potential Lead Compounds, Nominated Compounds, Licensed Compounds and/or Products
infringes the intellectual property rights owned or possessed by any Third Party;
and
	 
	 	6.2.3	 	Avalon has no Knowledge of any judgments or settlements against or owed
by Avalon or pending or threatened claims or litigation against Avalon relating to
the Avalon Know-How and the Avalon Patent Rights.

	6.3	 	Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT,
NEITHER AVALON NOR MERCK MAKES ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE QUALITY
OF ANY KNOW-HOW OR PATENT RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND EACH PARTY
HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ANY
WARRANTY OR REPRESENTATION REGARDING CLINICAL EFFECTIVENESS OF THE PRODUCT MANUFACTURED OR
THAT ANY PATENT IS VALID OR THAT ANY PATENT APPLICATION WILL BE
GRANTED OR THAT PRODUCT OR
MANUFACTURE, SALE OR USE THEREOF DOES NOT INFRINGE PATENTS OWNED BY A THIRD PARTY.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

26

 

ARTICLE 7 PATENT PROVISIONS.

	7.1	 	Filing, Prosecution and Maintenance of Patents. Avalon shall have the right to file,
prosecute and maintain in the Territory, upon appropriate consultation with Merck, the Avalon
Patent Rights licensed to Merck under this Agreement; provided, however, that
with respect to any Joint Information and Inventions, *. With respect to Avalon Information
and Inventions and/or Avalon Know-How, Avalon may elect not to file patent applications in any
country in the Territory or may elect to file patent applications in some but not all
countries in the Territory, and if so, Avalon shall notify Merck and at the cost and expense
of Merck, Merck shall have the right to file such patent application in any or all countries
in the Territory in which Avalon elected not to file such patent applications. In such event,
Avalon shall execute such documents and perform such acts at Merck’s expense as may be
reasonably necessary in a timely manner to allow Merck to file and prosecute such
applications. Any such patent applications shall be Avalon Patent Rights owned by Avalon. In
each case, the filing Party shall give the non-filing Party an opportunity to review the text
of the application before filing, shall consult with the non-filing Party with respect
thereto, and shall supply the non-filing Party with a copy of the application as filed,
together with notice of its filing date and serial number. Avalon shall keep Merck advised of
the status of the actual and prospective patent filings and upon Merck’s request, shall
provide advance copies of any papers related to the filing, prosecution and maintenance of
such patent filings. Avalon shall promptly give notice to Merck of the grant, lapse,
revocation, surrender, invalidation or abandonment of any Avalon Patent Rights licensed to
Merck for which Avalon is responsible for the filing, prosecution and maintenance. With
respect to all filings hereunder, the filing Party shall be responsible for payment of all
costs and expenses related to such filings.

	7.2	 	Option of Merck to Prosecute and Maintain Patents. Avalon shall give notice to Merck
of any desire to cease prosecution and/or maintenance of Avalon Patent Rights exclusively
licensed to Merck with respect to Licensed Compound or Product under this Agreement on a
country by country basis in the Territory and, in such case, shall permit Merck, in its sole
discretion, to continue prosecution or maintenance of such Avalon Patent Rights at its own
expense. If Merck elects to continue prosecution or maintenance, Avalon shall execute such
documents and perform such acts at Avalon’s expense as may be reasonably necessary to effect
an assignment of such Avalon Patent Rights to Merck in a timely manner to allow Merck to
continue such prosecution or maintenance. Any patents or patent applications so assigned
shall be Merck Patent Rights and shall not be considered Avalon Patent Rights.

	7.3	 	Patent Expenses After License. Upon the grant of a license under Section 3.1.1(c)
and only for so long as such license continues, with respect to any Avalon Patent Rights
subject to such license as to which Avalon is responsible for filing, and/or prosecution
and/or maintenance, *.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

27

 

	7.4	 	Interference, Opposition, Reexamination and Reissue.

	 	7.4.1	 	Avalon shall, within * days of learning of such event, inform Merck of
any request for, or filing or declaration of, any interference, opposition, reissue
or reexamination relating to Avalon Patent Rights exclusively licensed to Merck with
respect to Licensed Compound or Product under this Agreement. Merck and Avalon
shall thereafter consult and cooperate fully to determine a course of action with
respect to any such proceeding. Merck shall have the right to review and comment on
(which Avalon shall consider in good faith) any submission to be made in connection
with such proceeding.
	 
	 	7.4.2	 	Avalon shall not initiate any reexamination, interference or reissue
proceeding relating to Avalon Patent Rights exclusively licensed to Merck with
respect to Licensed Compound or Product under this Agreement without the prior
written consent of Merck, which consent shall not be unreasonably withheld.
	 
	 	7.4.3	 	In connection with any interference, opposition, reissue, or
reexamination proceeding relating to Avalon Patent Rights exclusively licensed to
Merck with respect to Licensed Compound or Product under this Agreement, Merck and
Avalon will cooperate fully and will provide each other with any information or
assistance that either may reasonably request. Avalon shall keep Merck informed of
developments in any such action or proceeding, including, to the extent permissible
by law, consultation and approval of any settlement, the status of any settlement
negotiations and the terms of any offer related thereto.
	 
	 	7.4.4	 	Subject to Section 7.3, Avalon shall bear the expense of any
interference, opposition, reexamination, or reissue proceeding relating to Avalon
Patent Rights.
	 
	 	7.4.5	 	Regardless of which Party has the right to initiate and prosecute such
action, both Parties shall, as soon as practicable after receiving notice of such
action, convene and consult with each other regarding the appropriate course of
conduct for such action. The non-initiating Party shall have the right to be kept
fully informed and participate in decisions regarding the appropriate course of
conduct for such action, and the right to join and participate in such action.

	7.5	 	Enforcement and Defense.

	 	7.5.1	 	A Party shall give the other Party notice of either (i) any infringement
of Avalon Patent Rights exclusively licensed to Merck with respect to Licensed
Compound or Product under this Agreement, or (ii) any misappropriation or misuse of
Avalon Know-How that is exclusively licensed to Merck, with respect to the making,
using, selling, offer for sale or importation of Licensed Compound and/or Product
(“Product Infringement”) that may come to a Party’s attention. Merck and Avalon
shall thereafter consult and cooperate fully to determine a course of action,
including but not limited to the commencement of legal action by either or both
Merck and Avalon, to terminate any Product Infringement. However, Merck, upon
notice to Avalon, shall have the first right to initiate and prosecute such legal
action at its own expense and in the name of Avalon and Merck, or to control the
defense of any
declaratory judgment action relating to Avalon Patent Rights or Avalon Know-How
that are exclusively licensed to Merck with respect to Licensed Compound or
Product under this Agreement. Merck shall promptly inform Avalon if it elects not
to exercise such first right and Avalon shall thereafter have the right to either
initiate and prosecute such action or to control the defense of such declaratory
judgment action in the name of Avalon and, if necessary, Merck. Each Party shall
have the right to be represented by counsel of its own choice.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

28

 

	 	7.5.2	 	In the event that Merck elects not to initiate and prosecute an action as
provided in Section 7.5.1, and Avalon elects to do so, the costs of any agreed-upon
course of action to terminate Product Infringement without limitation the costs of
any legal action commenced or the defense of any declaratory judgment, shall be
borne by Avalon and shared equally by Avalon and Merck.
	 
	 	7.5.3	 	For any action to terminate any Product Infringement in the event that
Merck is unable to initiate or prosecute such action solely in its own name, Avalon
will join such action voluntarily and will execute and cause its Affiliates to
execute all documents necessary for Merck to initiate litigation to prosecute and
maintain such action. In connection with any action, Merck and Avalon will
cooperate fully and will provide each other with any information or assistance that
either may reasonably request. Each Party shall keep the other informed of
developments in any such action or proceeding, including, to the extent permissible
by law, consultation on and approval of any settlement, the status of any settlement
negotiations and the terms of any offer related thereto.
	 
	 	7.5.4	 	Any recovery obtained by either or both Merck and Avalon in connection
with or as a result of any action contemplated by this Section, whether by
settlement or otherwise, shall be shared in order as follows:

	 	(a)	 	*;
	 
	 	(b)	 	*; and
	 
	 	(c)	 	*.

	 	7.5.5	 	Avalon shall inform Merck of any certification regarding any Avalon
Patent Rights that are exclusively licensed to Merck with respect to Licensed
Compound or Product under this Agreement it has received pursuant to either 21
U.S.C. §§355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its successor provisions or any
similar provisions in a country in the Territory other than the United States, and
shall provide Merck with a copy of such certification within five (5) days of
receipt. Avalon’s and Merck’s rights with respect to the initiation and prosecution
of any legal action as a result of such certification or any recovery obtained as a
result of such legal action shall be as defined in subsections 7.5.1 through 7.5.4;
provided, however, that Merck shall exercise its first
right to initiate and prosecute any action and shall inform Avalon of such decision within
ten (10) days of receipt of the certification, after which time Avalon shall have
the right to initiate and prosecute such action. Regardless of which Party has the
right to initiate and prosecute such action, both Parties shall, as
soon as practicable after receiving notice of such certification, convene and
consult with each other regarding the appropriate course of conduct for such
action. The non-initiating Party shall have the right to be kept fully informed
and participate in decisions regarding the appropriate course of conduct for such
action, and the right to join and participate in such action.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

29

 

	7.6	 	Patent Term Restoration. The Parties hereto shall cooperate with each other,
including without limitation to provide necessary information and assistance as the other
Party may reasonably request, in obtaining patent term restoration or supplemental protection
certificates or their equivalents in any country in the Territory where applicable to Avalon
Patent Rights exclusively licensed to Merck with respect to Licensed Compound or Product under
this Agreement. In the event that elections with respect to obtaining such patent term
restoration are to be made, Merck shall have the right to make the election and Avalon agrees
to abide by such election.

ARTICLE 8 TERM AND TERMINATION

	8.1	 	Term and Expiration. This Agreement shall be effective as of the Effective Date and
unless terminated earlier pursuant to Sections 8.2 or 8.3 below, this Agreement shall continue
in effect until expiration of all royalty obligations hereunder. Upon expiration of this
Agreement, Merck’s licenses pursuant to Section 3.1 and 3.2 shall become fully paid-up,
perpetual licenses.

8.2 Voluntary Termination by Merck.

	 	8.2.1	 	Voluntary Termination by Merck Without Cause. Merck shall have
the right to terminate this Agreement in its sole discretion by giving * days
advance written notice to Avalon:

	 	(a)	 	*;
	 
	 	(b)	 	*;
	 
	 	(c)	 	*;
	 
	 	(d)	 	*;
	 
	 	(e)	 	*; or
	 
	 	(f)	 	*.

	 	8.2.2	 	Effect of Merck Voluntary Termination: In the event that Merck
terminates this Agreement under Section 8.2.1: (i) each Party shall pay all amounts
then due and owing as of the termination date; and (ii) no later than * days after
the effective date of such termination, each Party shall return or cause to be
returned to the other Party all Information, Hit Compounds, Lead Compounds,
Nominated Compounds, Licensed Compounds and Materials delivered or provided by the
other Party; provided, however, (i) each Party may retain one copy
of Information received from the other Party in its confidential files for record
purposes, and (ii) *.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

30

 

	 	 	 	The foregoing shall be subject to the following additional provisions, as
applicable:

	 	(a)	 	*;
	 
	 	(b)	 	*;
	 
	 	(c)	 	*; and
	 
	 	(d)	 	except for the surviving provisions set forth in this Section 8.2.2
and Section 8.4, the rights and obligations of the Parties hereunder shall
terminate as of the date of such termination.

	 	8.2.3	 	Avalon Voluntary Termination and Effects. In the event that Merck
provides Avalon with a No Commercial Viability Notice under Section 3.4 and Merck
does not within * days thereafter, terminate this Agreement pursuant to
Section 8.2.1(d), Avalon shall have the right to terminate this Agreement in its
sole discretion by giving * days advance written notice to Merck, in which case, *.
	 
	 	8.2.4	 	Mutual Voluntary Termination and Effects. Avalon and Merck may
mutually agree in writing to terminate this Agreement during the Research Program
Term for any reason, including if the Parties mutually agree that they
scientifically are not likely to identify a Lead Compound that satisfies a * Proof
of Concept and * Proof of Concept for the Target and, in the event of such a
mutually agreed termination, (i) each Party shall pay all amounts then due and owing
as of the termination date; and (ii) no later than * days after the
effective date of such termination, each Party shall return or cause to be returned
to the other Party all Information, Hit Compounds, Lead Compounds, Nominated
Compounds, Licensed Compounds and Materials delivered or provided by the other Party
and all copies thereof; provided, however, (a) each Party may retain
one copy of Information received from the other Party in its confidential files for
record purposes, and (b) *; and (iii) except for the surviving provisions set forth
in this Section 8.2.4 and Section 8.4, the rights and obligations of the Parties
hereunder shall terminate as of the date of such termination.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

31

 

8.3 Termination for Cause.

	 	8.3.1	 	Cause for Termination. This Agreement may be terminated at any
time during the term of this Agreement:

	 	(a)	 	upon written notice by either Party if the other Party is in material
breach of its material obligations hereunder by causes and reasons within its
control and has not cured such breach within * days after notice requesting
cure of the breach; provided, however, in the event of a good
faith dispute with respect to the existence of a material breach, the * day
cure period shall be tolled until such time as the dispute is resolved
pursuant to Section 10.6 hereof; or
	 
	 	(b)	 	by either Party upon the filing or institution of bankruptcy,
reorganization, liquidation or receivership proceedings, or upon an assignment
of a substantial portion of the assets for the benefit of creditors by the
other Party; provided, however, that in the case of any
involuntary bankruptcy proceeding such right to terminate shall only become
effective if the Party consents to the involuntary bankruptcy or such
proceeding is not dismissed within * days after the filing thereof.

	 	8.3.2	 	Effect of Termination for Cause on License. 

	 	(a)	 	If Merck terminates this Agreement under Section 8.3.1(a): *.
	 
	 	(b)	 	If Avalon terminates this Agreement under subsection 8.3.1(a): *.
	 
	 	(c)	 	If this Agreement is terminated by Merck pursuant to subsection
8.4.1(b) due to the rejection of this Agreement by or on behalf of Avalon
under Section 365 of the United States Bankruptcy Code (the “Code”), all
licenses and rights to licenses granted under or pursuant to this Agreement by
Avalon to Merck are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the Code, licenses of rights to “intellectual property” as
defined under Section 101(35A) of the Code. The Parties agree that Merck, as
a licensee of such rights under this Agreement, shall retain and may fully
exercise all of its rights and elections under the Code, and that upon
commencement of a bankruptcy proceeding by or against Avalon under the Code,
Merck shall be entitled to a complete duplicate of or complete access to (as
Merck deems appropriate), any such intellectual property and all embodiments
of such intellectual property. Such intellectual property and all embodiments
thereof shall be promptly delivered to Merck (i) upon any such commencement of
a bankruptcy proceeding upon written request therefore by Merck, unless Avalon
elects to continue to perform all of its obligations under this Agreement or
(ii) if not delivered under (i) above, upon the rejection of this Agreement by
or on behalf of Avalon upon written request therefore by Merck. The foregoing
provisions of this Section 8.3.2(c) are without prejudice to any rights Merck
may have arising under the Code or other applicable law.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

32

 

	8.4	 	Effect of Expiration or Termination; Survival. Upon termination or expiration of
this Agreement all rights, licenses and obligations under this Agreement shall terminate
except the rights, licenses and obligations of the Parties that expressly survive such
termination in accordance with the terms of this Article 8. Expiration or termination of this
Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or
termination. Any expiration or termination of this Agreement shall be without prejudice to
the rights of either Party against the other accrued or accruing under this Agreement prior to
expiration or termination, including without limitation the obligation to pay royalties for
Product(s) or Licensed Compound sold prior to such expiration or termination and to pay all
other amounts due and owing under this Agreement as of the effective date of such termination
or expiration. The provisions of Article 4 shall survive the expiration or termination of
this Agreement and shall continue in effect for * years. In addition to any other provision
of this Agreement that expressly
survive termination or expiration of this Agreement in accordance with this Article 8, the
following provisions of this Agreement shall survive any expiration or termination of this
Agreement:

	 	*	 	.

ARTICLE 9 INDEMNIFICATION

	9.1	 	Indemnification by Avalon. Avalon shall indemnify, defend and hold Merck, its
Affiliates and their respective agents, employees, officers and directors (each a “Merck
Indemnitee”) harmless from and against any and all claims, suits, actions, demands,
liabilities, expenses and/or loss, including reasonable legal expense and attorneys’ fees
(collectively, “Losses”), to which any Merck Indemnitee may become subject as a result of any
claim, demand, action or other proceeding by any person or entity other than a Party or its
Affiliates to the extent such Losses arise directly or indirectly out of (a) Avalon’s, its
sublicensees’ or subcontractors’ performance of Avalon’s obligations under this Agreement; (b)
the practice by Avalon, its Affiliates or sub-licensees of any license granted to it
hereunder; (c) the manufacture, use, handling, storage, sale or other disposition of Avalon
Optioned Compounds or products containing Avalon Optioned Compounds by or on behalf of Avalon,
its Affiliates or sub-licensees, (d) the use by a Third Party of any Avalon Optioned Compound
or product containing such Avalon Optioned Compound sold or otherwise provided by Avalon, its
Affiliates or sub-licensees; or (e) a material breach by Avalon, its sublicensees’ or
subcontractors’ of any covenant, representation or warranty or other agreement made by Avalon
in this Agreement; except, in each case, to the extent such Losses result from the material
breach by Merck, its Related Party or subcontractors of any covenant, representation, warranty
or other agreement made by Merck in this Agreement or the negligence or willful misconduct of
any Merck Indemnitee.

	9.2	 	Indemnification By Merck. Merck shall indemnify, defend and hold Avalon, its
Affiliates and their respective agents, employees, officers and directors (each an “Avalon
Indemnitee”) harmless from and against any and all Losses to which any Avalon Indemnitee may
become subject as a result of any claim, demand, action or other proceeding by any person or
entity other than a Party or its Affiliates to the extent such Losses arise directly or
indirectly out of (a) Merck’s, its Related Parties or subcontractors’ performance of Merck’s
obligations under this Agreement; (b) the practice by Merck and its Related Parties of any
license granted to it hereunder; (c) the manufacture, use, handling, storage, sale or other
disposition of Licensed Compounds or Products by or on behalf of Merck and its Related
Parties, (d) the use by a Third Party of any Licensed Compound or Product sold or otherwise
provided by Merck or its Related Parties; or (e) a material breach by Merck or its Related
Parties of any of covenant, representation, warranty or other Agreement made by Merck in this
Agreement; except, in each case, to the extent such Losses result from the material breach by
Avalon, its Affiliates, sublicensees or subcontractors of any covenant, representation,
warranty or other agreement made by Avalon in this Agreement or the negligence or willful
misconduct of any Avalon Indemnitee.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

33

 

	9.3	 	Notice of Indemnification Obligation and Defense. Any Party entitled to
indemnification under Section 9.1 or 9.2 shall give notice to the indemnifying Party of any
Losses that may be subject to indemnification, promptly after learning of such Losses, but the
omission to so notify the indemnifying Party promptly will not relieve the
indemnifying Party from any liability under Section 9.1 or 9.2 except to the extent that
the indemnifying Party shall have been prejudiced as a result of the failure or delay in
providing such notice. The indemnifying Party shall assume the defense of such Losses with
counsel reasonably satisfactory to the indemnified Party. If such defense is assumed by
the indemnifying Party, the indemnifying Party will not be subject to any liability for any
settlement of such Losses made by the indemnified Party without its consent (but such
consent will not be unreasonably withheld or delayed), and will not be obligated to pay the
fees and expenses of any separate counsel retained by the indemnified Party with respect to
such Losses. The indemnified Party shall provide the indemnifying Party with all
information in its possession and all assistance reasonably necessary to enable the
indemnifying Party to carry on the defense of any such Losses. The indemnifying Party may
settle any claim relating to Losses or otherwise consent to an adverse judgment (a) with
prior written notice to the indemnified Party but without the consent of the indemnified
Party where the only liability to the indemnified Party is the payment of money and the
indemnifying Party makes such payment, or (b) where there is liability to the indemnified
Party in addition to money damages, only with the prior written consent of the indemnified
Party, such consent not to be unreasonably withheld or delayed.

	9.4	 	No Consequential Damages. NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES TO THE OTHER PARTY ARISING OUT OF THIS AGREEMENT
OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION, LOST PROFITS (WHICH FOR
THE PURPOSES OF CLARITY DO NOT INCLUDE PAYMENTS TO BE MADE TO A PARTY UNDER THIS AGREEMENT)
ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH
DAMAGES; PROVIDED, HOWEVER, THAT THIS SECTION 9.4 SHALL NOT BE CONSTRUED TO
LIMIT EITHER PARTY’S INDEMNIFICATION OBLIGATIONS UNDER SECTIONS 9.1 OR 9.2 OR A PARTY’S RIGHT
TO OBTAIN SUCH DAMAGES FOR A BREACH OF ARTICLE 4.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

34

 

Article 10 MISCELLANEOUS

	10.1	 	Force Majeure. Neither Party shall be held liable to the other Party nor be deemed
to have defaulted under or breached this Agreement for failure or delay in performing any
obligation under this Agreement ) to the extent such failure or delay is caused by or results
from causes beyond the reasonable control of the affected Party, potentially including, but
not limited to, embargoes, war, acts of war (whether war be declared or not), acts of
terrorism, insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, fire, floods, or other acts of God, or acts, omissions or delays in acting by
any governmental authority or the other Party. The affected Party shall notify the other
Party of such force majeure circumstances as soon as reasonably practical, and shall promptly
undertake all reasonable efforts necessary to cure such force majeure circumstances.

10.2 Assignment; Change of Control.

	 	10.2.1	 	Except as provided in this Section 10.2, this Agreement may not be
assigned or otherwise transferred, nor may any right or obligation hereunder be
assigned or transferred, by either Party without the consent of the other Party.
	 
	 	10.2.2	 	Merck may, without consent of Avalon, assign this Agreement and its
rights and obligations hereunder in whole or in part to an Affiliate of Merck or in
connection with a Change of Control.
	 
	 	10.2.3	 	Avalon may assign this Agreement in its entirety to the successor party
in connection with a Change of Control; provided that if such Change of
Control is a Competing Pharma Change of Control, then Avalon shall provide written
notice to Merck at least * days prior to the completion of such Change of Control
and Merck shall have the right, at Merck’s election at any time within * days after
the date that Merck received notice from Avalon that such Change of Control has
occurred, by written notice to Avalon to implement some or all of the following
revisions to this Agreement:

	 	(a)	 	*;
	 
	 	(b)	 	*;
	 
	 	(c)	 	*.

	 	10.2.4	 	Any attempted assignment not in accordance with this Section 10.2 shall
be void.
	 
	 	10.2.5	 	Any permitted assignee shall assume all assigned obligations of its
assignor under this Agreement.

	10.3	 	Severability. If any one or more of the provisions contained in this Agreement is
held invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way be affected
or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the
substantive rights of the Parties. The Parties shall in such an instance use their best
efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and
enforceable provision(s) which, insofar as practical, implement the purposes of this
Agreement.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

35

 

	10.4	 	Notices. All notices which are required or permitted hereunder shall be in writing
and sufficient if delivered personally, sent by facsimile (and promptly confirmed by personal
delivery, registered or certified mail or overnight courier), sent by nationally-recognized
overnight courier or sent by registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:

	 	 	 	 	 
	 

	 	if to Avalon, to
	 	Avalon Pharmaceuticals, Inc.
	 

	 	 	 	20358 Seneca Meadows Parkway
	 

	 	 	 	Germantown, MD 20876
	 

	 	 	 	Attention: Office of Chief Executive Officer
	 

	 	 	 	Facsimile No.: (301) 556-9910
	 
	 	 	 	 
	 

	 	and:
	 	Avalon Pharmaceuticals, Inc.
	 

	 	 	 	20358 Seneca Meadows Parkway
	 

	 	 	 	Germantown, MD 20876
	 

	 	 	 	Attention: Office of General Counsel
	 

	 	 	 	Facsimile No.: (301) 556-9910
	 
	 	 	 	 
	 

	 	if to Merck, to:
	 	Merck & Co., Inc.
	 

	 	 	 	*
	 
	 	 	 	 
	 

	 	and
	 	Merck & Co., Inc.
	 

	 	 	 	*

	 	 	Or to such other address(es) as the Party to whom notice is to be given may have furnished
to the other Party in writing in accordance herewith. Any such notice shall be deemed to
have been given: (a) when delivered if personally delivered or sent by facsimile on a
business day (or if delivered or sent on a non-business day, then on the next business
day); (b) on the business day after dispatch if sent by nationally-recognized overnight
courier; or (c) on the fifth (5th) business day following the date of mailing, if sent by
mail.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

36

 

	10.5	 	Applicable Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York and the patent laws of the United States (except for
patents in countries outside the United States which shall be construed in accordance with the
laws of the applicable country) without reference to any rules of conflict of laws or renvoi.

	10.6	 	Dispute Resolution.

	 	10.6.1	 	The Parties shall negotiate in good faith and use reasonable efforts to
settle any dispute, controversy or claim arising from or related to this Agreement
or the breach thereof. If the Parties do not fully settle, and a Party wishes to
pursue the matter, each such dispute, controversy or claim that is not an “Excluded
Claim” shall be finally resolved by binding arbitration in accordance with the
Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes
of the American Arbitration Association (“AAA”), and judgment on the arbitration
award may be entered in any court having jurisdiction thereof. The arbitrators
shall reach a decision based on the rights and obligations of the Parties as set
forth in this Agreement and in reaching such a decision, the Arbitrators shall not
have the power to vary the terms and conditions of this Agreement and/or the
obligations of the Parties under this
Agreement. The decision of the arbitrators shall be final and binding on the
Parties.
	 
	 	10.6.2	 	The arbitration shall be conducted by a panel of three persons
experienced in the pharmaceutical business: within * days after initiation of
arbitration, each Party shall select one person to act as arbitrator and the two
Party-selected arbitrators shall select a third arbitrator within * days of their
appointment. If the arbitrators selected by the Parties are unable or fail to agree
upon the third arbitrator, the third arbitrator shall be appointed by the AAA. The
place of arbitration shall be New York, New York, and all proceedings and
communications shall be in English.
	 
	 	10.6.3	 	Either Party may apply to the arbitrators for interim injunctive relief
until the arbitration award is rendered or the controversy is otherwise resolved.
Either Party also may, without waiving any remedy under this Agreement, seek from
any court having jurisdiction any preliminary injunctive or provisional relief
necessary to protect the rights or property of that Party pending the arbitration
award. The arbitrators shall have no authority to award punitive or any other type
of damages not measured by a Party’s compensatory damages. Each Party shall bear
its own costs and expenses and attorneys’ fees and an equal share of the
arbitrators’ fees and any administrative fees of arbitration.
	 
	 	10.6.4	 	Except to the extent necessary to confirm an award or as may be required
by law, rule, regulation neither a Party nor an arbitrator may disclose the
existence, content, or results of an arbitration without the prior written consent
of both Parties. In no event shall an arbitration be initiated after the date when
commencement of a legal or equitable proceeding based on the dispute, controversy or
claim would be barred by the applicable New York statute of limitations.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

37

 

	 	10.6.5	 	The Parties agree that, in the event of a dispute over the nature or
quality of performance under this Agreement, neither Party may terminate this
Agreement until final resolution of the dispute through arbitration. The Parties
further agree that any payments made pursuant to this Agreement pending resolution
of the dispute shall be refunded if an arbitrator determines that such payments are
not due.
	 
	 	10.6.6	 	As used in this Section, the term “Excluded Claim” shall mean a dispute,
controversy or claim that concerns (a) the validity or infringement of a patent,
trademark or copyright; or (b) any antitrust, anti-monopoly or competition law or
regulation, whether or not statutory.

	10.7	 	Entire Agreement; Amendments. This Agreement, together with the Schedules and
Exhibits hereto, contains the entire understanding of the Parties with respect to the subject
matter hereof and supersedes and cancels all previous express or implied agreements and
understandings, negotiations, writings and commitments, either oral or written, in respect to
the subject matter hereof. The Schedules and Exhibits to this Agreement are incorporated
herein by reference and shall be deemed a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed by authorized
representatives of both Parties hereto.
Notwithstanding anything to the contrary in the foregoing, that certain Confidential
Disclosure Agreement between the Parties dated October 7, 2005, shall remain in full force
and effect with respect to the subject matter thereof and information disclosed thereunder;
provided that any information disclosed thereunder may be utilized by the Parties
for the purposes of this Agreement as if it were disclosed hereunder.

	10.8	 	Headings. The captions to the several Articles, Sections and subsections hereof are
not a part of this Agreement, but are merely for convenience to assist in locating and reading
the several Articles and Sections hereof.

	10.9	 	Independent Contractors. It is expressly agreed that Avalon and Merck shall be
independent contractors and that the relationship between the two Parties shall not constitute
a partnership, joint venture or agency. Neither Avalon nor Merck shall have the authority to
make any statements, representations or commitments of any kind, or to take any action, which
shall be binding on the other Party, without the prior written consent of the other Party.

	10.10	 	Waiver. The waiver by either Party hereto of any right hereunder, or of any
failure of the other Party to perform, or of any breach by the other Party, shall not be
deemed a waiver of any other right hereunder or of any other breach by or failure of such
other Party whether of a similar nature or otherwise.

	10.11	 	Cumulative Remedies. Except to the extent otherwise specifically set forth in this
Agreement, no remedy referred to in this Agreement is intended to be
exclusive, but each shall
be cumulative and in addition to any other remedy referred to in this Agreement or otherwise
available under law.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

38

 

	10.12	 	Waiver of Rule of Construction. Each Party has had the opportunity to consult with
counsel in connection with the review, drafting and negotiation of this Agreement.
Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed
against the drafting Party shall not apply.

	10.13	 	Certain Conventions. Any reference in this Agreement to an Article, Section,
subsection, paragraph, clause, Schedule or Exhibit shall be deemed to be a reference to an
Article, Section, subsection, paragraph, clause, Schedule or Exhibit, of or to, as the case
may be, this Agreement, unless otherwise indicated. Unless the context of this Agreement
otherwise requires, (a) words of any gender include each other gender, (b) words such as
“herein”, “hereof”, and “hereunder” refer to this Agreement as a whole and not merely to the
particular provision in which such words appear, and (c) words using the singular shall
include the plural, and vice versa.

	10.14	 	Business Day Requirements. In the event that any notice or other action or
omission is required to be taken by a Party under this Agreement on a day that is not a
business day then such notice or other action or omission shall be deemed to required to be
taken on the next occurring business day.

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

	10.16	 	Affiliates. Each Party shall cause its respective Affiliates to comply with the
terms, conditions, and obligations of this Agreement that are applicable to its Affiliates.

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

39

 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

	 	 	 
	MERCK & CO., INC.	 	AVALON PHARMACEUTICALS, INC.
	 
	 	 
	BY:/s/ Mervyn Turner

	 	BY:/s/ Kenneth C. Carter, Ph.D.
	 

	 	 
	 
	 	 
	NAME: Mervyn Turner

	 	NAME: Kenneth C. Carter, Ph.D.
	 
	 	 
	TITLE: SVP, WWLER

	 	TITLE: President and CEO

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

40

 

SCHEDULE 2.1 RESEARCH PROGRAM

Work Plan

     This Research Program Work Plan (this “Work Plan”) is a part of the Research
Collaboration and License Agreement, dated as of March 5, 2007 (the “Agreement”), by and between
Avalon Pharmaceuticals, Inc. and Merck & Co. Inc. to which it is attached. Capitalized terms used
herein without definition herein shall have the meaning given such terms in the Agreement. All
work to be performed under this Work Plan is subject to the terms and conditions of the Agreement.

*

* The asterisk denotes that confidential portions of this exhibit have been
omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. The
confidential portions have been submitted separately to the Securities and
Exchange Commission.

41

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00123-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00123-of-00352.parquet"}]]