Document:

exv10w1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

     This Securities Purchase Agreement (this “Agreement”) is dated as of October 27, 2008,
among Avalon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Clinical
Data, Inc., a Delaware corporation (including its successors and assigns, the “Purchaser”).

     WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to
Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder, including
Regulation D and/or upon such other exemption from the registration requirements of the Securities
Act as may be available with respect to any or all of the investments to be made hereunder, the
Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the
Company, securities of the Company as more fully described in this Agreement.

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for
other good and valuable consideration the receipt and adequacy of which are hereby acknowledged,
the Company and the Purchaser agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms have the meanings indicated in this Section
1.1:

     “Action” shall have the meaning ascribed to such term in Section 3.1(j).

     “Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a Person as such terms
are used in and construed under Rule 144 under the Securities Act. With respect to a Purchaser, any
investment fund or managed account that is managed on a discretionary basis by the same investment
manager as the Purchaser will be deemed to be an Affiliate of the Purchaser.

     “Closing” means the closing of the purchase and sale of the Securities pursuant to
Section 2.1.

     “Closing Date” means the Trading Day when all of the Transaction Documents have been
executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the
Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s obligations to
deliver the Securities have been satisfied or waived.

     “Commission” means the Securities and Exchange Commission.

     “Common Stock” means the common stock of the Company, par value $0.01 per share, and
any other class of securities into which such securities may hereafter have been reclassified or
changed into.

 

 

     “Common Stock Equivalents” means any securities of the Company which would entitle the
holder thereof to acquire at any time Common Stock, including, without limitation, any debt,
preferred stock, rights, options, warrants or other instrument that is at any time convertible into
or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock.

     “Company Counsel” means Hogan & Hartson L.L.P.

     “Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

     “Effective Date” means the date that the initial Registration Statement filed by the
Company pursuant to the Registration Rights Agreement is first declared effective by the
Commission.

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

     “GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

     “Intellectual Property Rights” shall have the meaning ascribed to such term in Section
3.1(l).

     “Legend Removal Date” shall have the meaning ascribed to such term in Section 4.1(b).

     “Liens” means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

     “Material Adverse Effect” shall have the meaning assigned to such term in Section
3.1(b).

     “Per Share Purchase Price” means $0.07.

     “Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.

     “Proceeding” means an action, claim, suit, investigation or proceeding (including,
without limitation, an investigation or partial proceeding, such as a deposition), whether
commenced or threatened.

     “Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.

     “Registration Rights Agreement” means the Registration Rights Agreement, dated the
date hereof, among the Company and the Purchaser, in the form of Exhibit A attached hereto.

     “Registration Statement” means a registration statement meeting the requirements set
forth in the Registration Rights Agreement and covering the resale by the Purchaser of the Shares
and the Warrant Shares.

2

 

     “Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

     “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

     “SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

     “Securities” means the Shares, the Warrants and the Warrant Shares.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Shares” shall have the meaning ascribed to such term in Section 2.1.

     “Short Sales” shall include all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act.

     “Subscription Amount” means the aggregate amount to be paid by the Purchaser for
Shares and Warrants purchased hereunder by the Purchaser denominated in United States Dollars and
in immediately available funds.

     “Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a).

     “Trading Day” means a day on which the Common Stock is traded on a Trading Market.

     “Trading Market” means any securities exchange or quotation system on which the Common
Stock is listed or quoted for trade.

     “Transaction Documents” means this Agreement, the Warrants and the Registration Rights
Agreement and any other documents or agreements executed in connection with the transactions
contemplated hereunder.

     “Warrants” means collectively the Common Stock purchase warrants, in the form of
Exhibit C delivered to the Purchaser at the Closing in accordance with Section 2.2(a)
hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to five
(5) years.

     “Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants, which shall initially equal fifty percent (50%) of the number of shares of Common Stock
purchased hereunder, subject to adjustment as set forth in the Warrants.

ARTICLE II

PURCHASE AND SALE

     Section 2.1 Closing. On the Closing Date, upon the terms and subject to the conditions
set forth herein, concurrent with the execution and delivery of this Agreement by the parties
hereto, the Company agrees to sell, and the Purchaser agrees to purchase 3,390,547 shares of Common
Stock (the “Shares”) at the Per Share Purchase Price for an aggregate purchase price of

3

 

$237,338.29 (the “Aggregate Purchase Price”). In no event shall the number of Shares
purchased exceed 19.90% of the Company’s outstanding shares of Common Stock on the Closing Date
(calculated prior to the issuance of the Shares). Upon the terms and subject to the conditions set
forth herein, the Purchaser shall be issued Warrants to purchase 1,695,273 shares of Common Stock.
The Warrants shall have an exercise price equal to $0.86 per share (calculated prior to the
issuance of the Shares). The Purchaser shall deliver to the Company via wire transfer immediately
available funds equal to its Subscription Amount and the Company shall deliver to the Purchaser its
Shares and Warrants as determined pursuant to Section 2.2(a) and the other items set forth in
Section 2.2 deliverable at the Closing. Upon satisfaction of the conditions set forth in Sections
2.2 and 2.3, the Closing shall occur at the offices of the Company Counsel, or such other location
as the parties shall mutually agree.

     Section 2.2 Deliveries.

     (a) On the Closing Date, the Company shall deliver or cause to be delivered to the
Purchaser the following:

     (i) this Agreement duly executed by the Company;

     (ii) a legal opinion of Company Counsel, in the form of Exhibit B
attached hereto;

     (iii) a copy of the irrevocable instructions to the Company’s transfer agent
instructing the transfer agent to deliver, on an expedited basis, a certificate
evidencing the Shares, registered in the name of the Purchaser;

     (iv) a Warrant registered in the name of the Purchaser to purchase up to the
number of Warrant Shares; and

     (v) the Registration Rights Agreement duly executed by the Company.

     (b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to the
Company the following:

     (i) this Agreement duly executed by the Purchaser;

     (ii) the Purchaser’s Subscription Amount by wire transfer to the account as
specified in writing by the Company; and

     (iii) the Registration Rights Agreement duly executed by the Purchaser.

     Section 2.3 Closing Conditions.

     (a) The obligations of the Company hereunder in connection with the Closing are subject
to the following conditions being met or waived:

     (i) the accuracy in all material respects when made and on the Closing Date of
the representations and warranties of the Purchaser contained herein;

4

 

     (ii) all obligations, covenants and agreements of the Purchaser required to be
performed at or prior to the Closing Date shall have been performed; and

     (iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of
this Agreement.

     (b) The obligations of the Purchaser hereunder in connection with the Closing are
subject to the following conditions being met or waived:

     (i) the accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained herein;

     (ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed; and

     (iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     Section 3.1 Representations and Warranties of the Company. Except as disclosed in the
SEC Reports or set forth under the corresponding section of the disclosure schedules delivered to
the Purchaser concurrently herewith (the “Disclosure Schedules”) which Disclosure Schedules
shall be deemed a part hereof, the Company hereby makes the representations and warranties set
forth below to the Purchaser:

     (a) Subsidiaries. All of the direct and indirect subsidiaries of the Company
are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of any Liens,
and all the issued and outstanding shares of capital stock of each Subsidiary are validly
issued and are fully paid, nonassessable and free of preemptive and similar rights to
subscribe for or purchase securities.

     (b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity duly incorporated or otherwise organized and validly existing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the requisite
power and authority to own and use its properties and assets and to carry on its business as
currently conducted. Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or property owned
by it makes such qualification necessary, except where the failure to be so qualified or in
good standing, as the case may be, could not reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) a material adverse effect on the results of operations,

5

 

assets, business, prospects or condition (financial or otherwise) of the Company and
the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s
ability to perform in any material respect on a timely basis its obligations under any
Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or
seeking to revoke, limit or curtail such power and authority or qualification.

     (c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations hereunder and thereunder.
The execution and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated thereby have been duly authorized by all
necessary action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been (or upon delivery
will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally and (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other equitable
remedies.

     (d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and the consummation by the
Company of the other transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of the Company’s certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii) conflict with,
or constitute a default (or an event that with notice or lapse of time or both would become
a default) under, result in the creation of any Lien upon any of the properties or assets of
the Company, or give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing a Company debt or otherwise) or other
understanding to which the Company is a party or by which any property or asset of the
Company is bound or affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is subject
(including federal and state securities laws and regulations), or by which any property or
asset of the Company is bound or affected; except in the case of each of clauses (ii) and
(iii), such as could not reasonably be expected to result in a Material Adverse Effect.

     (e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any filing or
registration with, any court or other federal, state, local or other governmental authority
or other Person in connection with the execution, delivery and performance by the Company of
the Transaction Documents, other than (i) filings required pursuant to

6

 

Section 4.4 of this Agreement, (ii) the filing with the Commission of the Registration
Statement or any other registration provisions provided in the Registration Rights
Agreement, (iii) application(s) to each applicable Trading Market for the listing of the
Shares and Warrant Shares for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such other filings, consents and approvals
which may be required to be made under applicable state and federal securities laws, rules
or regulations (collectively, the “Required Approvals”).

     (f) Issuance of the Securities. The Securities are duly authorized and, when
issued and paid for in accordance with the terms of the applicable Transaction Documents,
will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by
the Company other than restrictions on transfer provided for in the Transaction Documents.
The Company has reserved from its duly authorized capital stock the number of shares of
Common Stock issuable pursuant to the Warrants.

     (g) Capitalization. The capitalization of the Company is as set forth in the
SEC Reports. Except as disclosed on Schedule 3.1(g), the Company has not issued any
capital stock since its most recently filed periodic report under the Exchange Act, other
than pursuant to the exercise of employee stock options under the Company’s stock option
plans and pursuant to the conversion or exercise of outstanding Common Stock Equivalents. No
Person has any right of first refusal, preemptive right, right of participation, or any
similar right to participate in the transactions contemplated by the Transaction Documents.
Except as disclosed on Schedule 3.1(g) and except as a result of the purchase and
sale of the Securities, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to, or securities,
rights or obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale
of the Securities will not obligate the Company to issue shares of Common Stock or other
securities to any Person (other than the Purchaser) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or reset price
under such securities. All of the outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or purchase
securities. No further approval or authorization of any stockholder, the Board of Directors
of the Company or others is required for the issuance and sale of the Securities. Except as
disclosed on Schedule 3.1(g), there are no stockholders agreements, voting
agreements or other similar agreements with respect to the Company’s capital stock to which
the Company is a party or, to the knowledge of the Company, between or among any of the
Company’s stockholders.

     (h) SEC Reports; Financial Statements. The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it under the
Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the

7

 

Company was required by law to file such material) (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being collectively
referred to herein as the “SEC Reports”) on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange Act and the
rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Reports comply in all material respects with
applicable accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with United States generally accepted accounting principles applied
on a consistent basis during the periods involved (“GAAP”), except as may be
otherwise specified in such financial statements or the notes thereto and except that
unaudited financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and cash flows
for the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

     (i) Material Changes. Since June 30, 2008, except as specifically disclosed in
the SEC Reports, (i) there has been no event, occurrence or development that has had or that
could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has
not incurred any liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent with past practice
and (B) liabilities not required to be reflected in the Company’s financial statements
pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the
Company has not altered its method of accounting, (iv) the Company has not declared or made
any dividend or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital stock, and
(v) the Company has not issued any equity securities to any officer, director or Affiliate,
except pursuant to existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of information.

     (j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i)
adversely affects or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor, to the knowledge of the Company, any director or officer
thereof, is or has been the subject of any Action involving a claim of violation of or
liability under

8

 

federal or state securities laws or a claim of breach of fiduciary duty. To the
knowledge of the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of the
Company, nor any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.

     (k) Title to Assets. The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them that is material to the business of
the Company and the Subsidiaries and good and marketable title in all personal property
owned by them that is material to the business of the Company and the Subsidiaries, in each
case free and clear of all Liens, except for Liens as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries and Liens for the payment of federal,
state or other taxes, the payment of which is neither delinquent nor subject to penalties.
Any real property and facilities held under lease by the Company and the Subsidiaries are
held by them under valid, subsisting and enforceable leases.

     (l) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and other similar rights necessary or material for
use in connection with their respective businesses as described in the SEC Reports
(collectively, the “Intellectual Property Rights”). Neither the Company nor any
Subsidiary has received a written notice that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person. To the
knowledge of the Company, all such Intellectual Property Rights are enforceable and there is
no existing infringement by another Person of any of the Intellectual Property Rights.

     (m) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which the Company and the Subsidiaries are
engaged. To the knowledge of the Company, such insurance contracts and policies are accurate
and complete. Neither the Company nor any Subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue its business
without a significant increase in cost.

     (n) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge of the
Company, none of the employees of the Company, is presently a party to any transaction with
the Company or any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or
from, or otherwise requiring payments to or from any officer, director or such employee or,
to the knowledge of the Company, any entity in which any officer, director,

9

 

or any such employee has a substantial interest or is an officer, director, trustee or
partner, in each case in excess of $120,000 other than (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of
the Company and (iii) for other employee benefits, including stock option agreements under
any stock option plan of the Company.

     (o) Sarbanes-Oxley. The Company is in material compliance with all provisions
of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date.

     (p) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions contemplated
by the Transaction Documents.

     (q) Private Placement. Assuming the accuracy of the Purchaser’s representations
and warranties set forth in Section 3.2, no registration under the Securities Act is
required for the offer and sale of the Securities by the Company to the Purchaser as
contemplated hereby. Other than for compliance with any advance listing notification
requirement of the Trading Market for listing of the Securities, the issuance and sale of
the Securities hereunder does not contravene the rules and regulations of the Trading
Market.

     (r) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares, will not be or be an Affiliate of, an
“investment company” within the meaning of the Investment Company Act of 1940, as amended.
The Company shall conduct its business in a manner so that it will not become subject to the
Investment Company Act.

     (s) Listing and Maintenance Requirements. The Company’s Common Stock is
registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no
action designed to, or which to its knowledge is likely to have the effect of, terminating
the registration of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration. The Company
has not, in the 12 months preceding the date hereof, received notice from any Trading Market
to the effect that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is, and has no reason to believe that it
will not in the foreseeable future continue to be, in compliance with all such listing and
maintenance requirements.

     (t) Disclosure. The Company acknowledges and agrees that the Purchaser does not
make or has not made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in Section 3.2 hereof.

     (u) No Integrated Offering. Assuming the accuracy of the Purchaser’s
representations and warranties set forth in Section 3.2, to the knowledge of the Company,

10

 

neither the Company, nor any of its affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from selling the Securities pursuant to
Regulation D and Rule 506 thereof under the Securities Act, or any applicable stockholder
approval provisions under the rules and regulations of any Trading Market.

     (v) Form S-3 Eligibility. The Company meets the “registrant eligibility”
requirements set forth in the general instructions to Form S-3 promulgated under the
Securities Act applicable to “resale” registration on Form S-3.

     (w) Tax Status. The Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or accrued all
taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has
been asserted or threatened against the Company or any Subsidiary.

     (x) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i) directly or
indirectly, used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company (or made by any person acting on its behalf of which
the Company is aware) which is in violation of law, or (iv) violated in any material respect
any provision of the Foreign Corrupt Practices Act of 1977, as amended.

     (y) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company
acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated
hereby. The Company further acknowledges that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to this
Agreement and the transactions contemplated hereby and any advice given by the Purchaser or
any of its respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby are merely incidental to the Purchaser’s purchase of the
Securities. The Company further represents to the Purchaser that the Company’s decision to
enter into this Agreement has been based solely on the independent evaluation of the
transactions contemplated hereby by the Company and its representatives.

     (z) Manipulation of Price. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or
to result in the stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased,
or, paid any compensation for soliciting purchases of, any of the Securities (other than for
any placement agent’s placement of the Securities), or (iii) paid or agreed to pay to any

11

 

person any compensation for soliciting another to purchase any other securities of the
Company.

     Section 3.2 Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

     (a) Organization; Authority. The Purchaser is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its organization with
full right, corporate or partnership power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance by the
Purchaser of the transactions contemplated by this Agreement have been duly authorized by
all necessary corporate or similar action on the part of the Purchaser and no further
consent or authorization of the Purchaser or its board of directors, stockholders, or
partners, as the case may be, is required. Each Transaction Document to which it is a party
has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation of the
Purchaser, enforceable against it in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors’ rights
generally, (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

     (b) Own Account. The Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any applicable state
securities law and is acquiring the Securities as principal for its own account and not with
a view to or for distributing or reselling such Securities or any part thereof in violation
of the Securities Act or any applicable state securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any applicable
state securities law and has no arrangement or understanding with any other persons
regarding the distribution of such Securities (this representation and warranty not limiting
the Purchaser’s right to sell the Securities pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws) in violation of
the Securities Act or any applicable state securities law. The Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. The Purchaser does not have any
agreement or understanding, directly or indirectly, with any Person to distribute any of the
Securities.

     (c) Purchaser Status. At the time the Purchaser was offered the Securities, it
was, and at the date hereof it is, and on each date on which it exercises any Warrants, it
will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3),
(a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. The Purchaser is not required to be
registered as a broker-dealer under Section 15 of the Exchange Act.

12

 

     (d) Experience of The Purchaser. The Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment.
The Purchaser is able to bear the economic risk of an investment in the Securities and, at
the present time, is able to afford a complete loss of such investment.

     (e) General Solicitation. The Purchaser acknowledges that the Securities were
not offered to the Purchaser by means of any form of general or public solicitation or
general advertising, or publicly disseminated advertisements or sales literature, including
(i) any advertisement, article, notice or other communication published in any newspaper,
magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or
meeting to which Purchaser was invited by any of the foregoing means of communication, or
any other general solicitation or general advertisement.

     (f) Short Sales and Confidentiality Prior To The Date Hereof. Other than the
transaction contemplated hereunder, the Purchaser has not directly or indirectly, nor has
any Person acting on behalf of or pursuant to any understanding with the Purchaser, executed
any disposition, including Short Sales (but not including the location and/or reservation of
borrowable shares of Common Stock), in the securities of the Company during the period
commencing from the time that the Purchaser first received a term sheet from the Company or
any other Person setting forth the material terms of the transactions contemplated hereunder
until the date hereof (“Discussion Time”). Other than to other Persons party to this
Agreement, the Purchaser has maintained the confidentiality of all disclosures made to it by
the Company or its agents and advisors in connection with this transaction (including the
existence and terms of this transaction).

     (g) Rule 144. The Purchaser understands that the Securities must be held
indefinitely unless such Shares are registered under the Securities Act or an exemption from
registration is available. The Purchaser acknowledges that such person is familiar with Rule
144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the
Securities Act (“Rule 144”), and that the Purchaser has been advised that Rule 144
permits resales only under certain circumstances. The Purchaser understands that to the
extent that Rule 144 is not available, the Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another exemption
from such registration requirement.

     (h) Certain Fees. The Purchaser has not employed any broker or finder or
incurred any liability for any brokerage or investment banking fees, commissions, finders’
structuring fees, financial advisory fees or other similar fees in connection with the
Transaction Documents.

ARTICLE IV

OTHER AGREEMENTS OF THE PARTIES

     Section 4.1 Transfer Restrictions.

13

 

     (a) The Securities may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, to the Company or to an affiliate of a
Purchaser, the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to the Company, the
form and substance of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration of such transferred Securities under
the Securities Act. In connection with any transfer of Securities other than pursuant to an
effective registration statement or Rule 144, as a condition of transfer, any such
transferee shall agree in writing to be bound by the terms of this Agreement and shall have
the rights of a Purchaser under this Agreement and the Registration Rights Agreement.

     (b) The Purchaser agrees to the imprinting, so long as is required by this Section
4.1(b), of a legend on any of the Securities in substantially the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE
501(a) UNDER THE SECURITIES ACT.

     (c) Certificates evidencing the Shares and Warrant Shares shall not contain the legend
set forth in Section 4.1(b), (i) if such Shares or Warrant Shares are eligible for sale
under Rule 144 without restriction as to volume, or (ii) if such legend is not required
under applicable requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). Subject to compliance with the
preceding sentence, the Company shall use reasonable efforts to cause its counsel to issue a
legal opinion to the Company’s transfer agent promptly after the Effective Date if required
by the Company’s transfer agent to effect the removal of the legend hereunder. The Company
agrees that at such time as such legend is no longer required under this Section 4.1(c), it
will, no later than five (5) Trading Days following the delivery by a Purchaser to the
Company or the Company’s transfer agent of a certificate representing Shares or Warrant
Shares, as the case may be, issued with a restrictive legend, accompanied by detailed
written instructions and appropriate and customary representations (such fifth Trading Day,
the “Legend Removal Date”), deliver or cause to

14

 

be delivered to the Company’s transfer agent irrevocable instructions instructing the
transfer agent to deliver, on an expedited basis, a certificate representing such shares
that is free from such restrictive legends.

     (d) The Purchaser will offer and sell any and all Securities pursuant to all applicable
federal and state securities laws, including pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and agrees that the removal of the restrictive
legend from certificates representing Securities as set forth in this Section 4.1 is
predicated upon the Company’s reliance on the Purchaser’s representation contained herein
and on the Purchaser’s broker’s representation provided to the Company pursuant to Section
4.1(c) hereof.

     Section 4.2 Furnishing of Information. As long as the Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as the Purchaser owns Securities, if the Company is not
required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchaser
and make publicly available in accordance with Rule 144(c) such information as is required for the
Purchaser to sell the Securities under Rule 144. The Company further covenants that it will take
such further action as any holder of Securities may reasonably request, all to the extent required
from time to time to enable such Person to sell such Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.

     Section 4.3 Integration. The Company shall not sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that would be aggregated with the offer or sale of the Securities in a manner that would
require the registration under the Securities Act of the sale of the Securities to the Purchaser or
that would be with the offer or sale of the Securities for purposes of the rules and regulations of
any Trading Market such that it would require stockholder approval prior to the closing of such
other transaction unless stockholder approval is obtained before the closing of such subsequent
transaction.

     Section 4.4 Securities Laws Disclosure; Publicity. The Company shall issue a press
release promptly after the Closing describing all material terms of the transaction contemplated by
this Agreement, and file a Current Report on Form 8-K within the time period required by the
Commission disclosing the transactions contemplated hereby as required by such form. The Company
and the Purchaser shall consult with each other in issuing any other press releases with respect to
the transactions contemplated hereby, and neither the Company nor the Purchaser shall issue any
such press release or otherwise make any such public statement without the prior consent of the
Company, with respect to any press release of the Purchaser, or without the prior consent of the
Purchaser, with respect to any press release of the Company, which consent of either party shall
not unreasonably be withheld, except if such disclosure is required by law, in which case the
disclosing party shall promptly provide the other party with prior notice of such public statement
or communication. Notwithstanding the foregoing, the Company shall not publicly disclose the name
of the Purchaser, or include the name of the Purchaser in any filing with the Commission, with any
regulatory agency or with the Trading Market, without the prior

15

 

written consent of the Purchaser, except (i) as required by federal securities law in
connection with Form D to be filed with the Commission or the registration statement contemplated
by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the Purchaser with prior notice
of such disclosure permitted under subclause (i) or (ii).

     Section 4.5 Use of Proceeds. Except as set forth on Schedule 4.5 attached
hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for
working capital and general corporate purposes.

     Section 4.6 Indemnification. Subject to the provisions of this Section 4.6, the
Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members,
partners, employees and agents (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all
judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any the Purchaser Party may suffer or incur as a result of or relating to
(a) any breach of any of the representations, warranties, covenants or agreements made by the
Company in this Agreement or in the other Transaction Documents, or (b) any action instituted
against the Purchaser, or its Affiliates, by any stockholder of the Company who is not an Affiliate
of the Purchaser, with respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of the Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings the Purchaser may
have with any such stockholder or any violations by the Purchaser of state or federal securities
laws or any conduct by the Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance); provided, however, that (except as otherwise set forth in the Registration Rights
Agreement) the total liability of the Company to all Purchaser Parties under clause (b) above shall
not exceed the Aggregate Purchase Price. If any action shall be brought against the Purchaser
Party in respect of which indemnity may be sought pursuant to this Agreement, the Purchaser Party
shall promptly notify the Company in writing, and the Company shall have the right to assume the
defense thereof with counsel of its own choosing. The Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in writing, (ii) the
Company has failed after a reasonable period of time to assume such defense and to employ counsel
or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material
conflict on any material issue between the position of the Company and the position of the
Purchaser Party. The Company will not be liable to the Purchaser Party under this Agreement (i) for
any settlement by a Purchaser Party effected without the Company’s prior written consent, which
consent shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to the Purchaser Party’s breach of
any of the representations, warranties, covenants or agreements made by the Purchaser in this
Agreement or in the other Transaction Documents.

     Section 4.7 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling

16

 

the Company to issue Shares pursuant to this Agreement and Warrant Shares pursuant to any
exercise of the Warrants.

     Section 4.8 Listing of Common Stock. The Company hereby agrees to use reasonable best
efforts to maintain the listing of the Common Stock on the Nasdaq Global Market, and as soon as
reasonably practicable following the Closing (but not later than the earlier of the Effective Date
and the first anniversary of the Closing Date), to list all of the Shares and Warrant Shares on the
Nasdaq Global Market. The Company further agrees, if the Company applies to have the Common Stock
traded on any other stock exchange or trading market, it will include in such application all of
the Shares and Warrant Shares, and will use its reasonable best efforts to cause all of the Shares
and Warrant Shares to be listed on such other stock exchange or trading market as promptly as
possible. The Company will use its reasonable best efforts to continue the listing and trading of
its Common Stock on the Nasdaq Global Market and to comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of any Trading Market.

     Section 4.9 Confidentiality After The Date Hereof. The Purchaser covenants that until
such time as the transactions contemplated by this Agreement are publicly disclosed by the Company
as described in the first sentence of Section 4.4, the Purchaser will maintain the confidentiality
of all disclosures made to it by the Company or its agents and advisors in connection with this
transaction (including the existence and terms of this transaction).

ARTICLE V

MISCELLANEOUS

     Section 5.1 Expenses. The Company shall pay all fees and expenses it incurs in
connection with satisfying its obligations under this Agreement. The Company shall also reimburse
the Purchaser for the Purchaser’s reasonable out-of-pocket expenses, including, without limitation,
fees of one (1) legal counsel, incurred by it in connection with the consummation of the
transactions contemplated by this Agreement and for which the Purchaser submits invoices to the
Company within thirty (30) days of the Closing Date up to a maximum of $15,000. To be eligible for
reimbursement, an invoice must be accompanied by an itemized list and reasonable documentation of
all such expenses.

     Section 5.2 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules.

     Section 5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (a) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number set forth on the signature pages attached
hereto prior to 5:30 p.m. (Eastern Standard Time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that is not a
Trading Day or

17

 

later than 5:30 p.m. (Eastern Standard Time) on any Trading Day, (c) the 2nd Trading Day
following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be given. The address for
such notices and communications shall be as set forth on the signature pages attached
hereto.

     Section 5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed by the Company and the Purchaser. No waiver of any
default with respect to any provision, condition or requirement of this Agreement shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any
other provision, condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such right.

     Section 5.5 Headings. The headings herein are for convenience only, do not constitute
a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
The language used in this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied against any party.

     Section 5.6 Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written consent of the
Purchaser. The Purchaser may assign any or all of its rights under this Agreement to any Person to
whom the Purchaser assigns or transfers any Securities, provided such transferee agrees in writing
to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the
“Purchaser”.

     Section 5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set
forth in Section 4.6.

     Section 5.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state
and federal courts sitting in the State of New York. Each party hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the State of New York for the
adjudication of any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or inconvenient venue for such proceeding. Each
party hereby irrevocably waives personal service of process and consents to process being served in
any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the

18

 

address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in
such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such action or
proceeding.

     Section 5.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Shares and Warrant Shares.

     Section 5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the other party, it
being understood that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.

     Section 5.11 Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt
to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this Agreement.

     Section 5.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be
issued in exchange and substitution for and upon cancellation thereof, or in lieu of and
substitution therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. The applicants for a new certificate or instrument under such
circumstances shall also pay any reasonable third-party costs associated with the issuance of such
replacement Securities.

     Section 5.13 Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, the Purchaser and the Company will be
entitled to specific performance under the Transaction Documents. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law would be adequate.

     Section 5.14 Reserved.

     Section 5.15 Liquidated Damages. The Company’s obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a continuing

19

 

obligation of the Company and shall not terminate until all unpaid partial liquidated damages
and other amounts have been paid notwithstanding the fact that the instrument or security pursuant
to which such partial liquidated damages or other amounts are due and payable shall have been
canceled.

     Section 5.16 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of the Transaction Documents or any
amendments hereto.

(Signature Pages Follow)

20

 

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

	 	 	 	 	 	 	 	 	 
	AVALON PHARMACEUTICALS, INC.	 	 	 	Address for Notice:	 	 
	 
	 	 	 	 	 	 	 	 
	By: 

Name:

	 	/s/ Kenneth C. Carter
 

Kenneth C. Carter
	 	 	 	20358 Seneca Meadows Parkway

Germantown Maryland 20876
	 	 
	Title:

	 	President and Chief Executive Officer
	 	 	 	Phone (301) 556-9900	 	 
	 

	 	 	 	 	 	Fax( 301) 556-9910	 	 

With a copy to (which shall not constitute notice):

Hogan & Hartson L.L.P.

111 South Calvert Street

Suite 1600

Baltimore, MD 21202

Attention: Michael J. Silver

Facsimile: (410) 539-6981

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

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

	 	 	 	 	 	 	 	 	 
	CLINICAL DATA, INC.	 	 	 	TIN and Address for Notice:	 	 
	 
	 	 	 	 	 	 	 	 
	By: 

Name:

	 	/s/ Caesar J. Belbel
 

Caesar J. Belbel
	 	 	 	One Gateway Center, Suite 702

Newton, MA 02458	 	 
	Title:

	 	Executive Vice President, Chief Legal
Officer and Secretary.
	 	 	 	Fax: (617) 527-9933

TIN:	 	 

 

 

Annex A

CLOSING STATEMENT

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

Disbursement Date: October 27, 2008

	 	 	 	 	 
	I.
	 	PURCHASE PRICE	 	 
	 
	 	 	 	 
	 
	 	Gross Proceeds to be Received	 	$237,338.29
	 
	 	 	 	 
	II.
	 	DISBURSEMENTS	 	 
	 
	 	 	 	 
	 
	 	Total Amount Disbursed:	 	$237,338.29exv10w2

Exhibit 10.2

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA
FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

To Purchase 1,695,273 Shares of Common Stock of

AVALON PHARMACEUTICALS, INC.

     THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
received, Clinical Data, Inc., a Delaware corporation, (the “Holder”) is entitled, upon
the terms and subject to the limitations on exercise and the conditions hereinafter set forth,
at any time six (6) months after the date hereof (the “Initial Exercise Date”) and on
or prior to the close of business on the fifth (5th) year anniversary of the Initial Exercise
Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from
Avalon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), up to 1,695,273
shares (the “Warrant Shares”) of Common Stock, par value $0.01 per share, of the
Company (the “Common Stock”). The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

     Section 1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated October 27, 2008, among the Company and the Holder.

     Section 2. Exercise.

     a) Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the Initial
Exercise Date and on or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office
or agency of the Company as it may designate by notice in writing to the registered Holder
at the address of such Holder appearing on the books of the Company); provided,
however, within five (5) Trading Days of the date said Notice of Exercise is
delivered to the Company, the Holder shall have surrendered this Warrant to the Company and
the Company shall have received payment of the aggregate Exercise Price of the shares
thereby purchased in the manner described in clause (i) or (ii) below:

          (i) Cash Exercise. Payment may be made in cash or by certified or official
bank check payable to the order of the Company.

          (ii) Cashless Exercise. In lieu of payment of the Exercise Price as provided in
clause (i), the Holder may elect a cashless net exercise. In the case of such cashless net
exercise, the Holder shall surrender this Warrant for cancellation and receive in exchange
therefore the full number of duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock as is computed using the following formula:

 

 

X=Y*(A-B)

A

     Where:

     X=      the number of shares of Common Stock to be issued to the Holder upon cashless
exercise of this Warrant

     Y=      the total number of shares Common Stock covered by this Warrant which the Holder has
surrendered at such time for cashless exercise (including both shares to be issued to the
Holder upon cashless exercise of this Warrant and shares to be cancelled as payment
therefore)

     A=      the Current Market Value as of the business day on which the Holder surrenders this
Warrant to the Company

     B =      the Exercise Price then in effect under this Warrant at the time at which the
Holder surrenders this Warrant to the Company

     For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Common Stock issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for the Common
Stock shall be deemed to have commenced, on the date this Warrant was originally issued.

     For the purposes of the foregoing, the term “Current Market Value” shall mean
the fair market value of the shares of Common Stock as determined as follows:

               (x) if the Common Stock is traded on a securities exchange or the NASDAQ Stock Market,
the value shall be deemed to be the average of the closing prices of the Common Stock on
such exchange or market over the five (5) trading day period ending three (3) days prior to
the date of determination.

               (y) if the Common Stock is actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid over the five (5) trading day period ending three (3)
days prior to the date of determination; or

          (z) if there is no active public market for the Common Stock, the value shall be the
fair market value thereof, as determined in good faith by the Board of Directors of the
Company.

     b) Exercise Price. The per share exercise price of the Common Stock under this
Warrant shall be $0.86 subject to adjustment hereunder (the “Exercise Price”).

     c) Mechanics of Exercise.

                    (i) Authorization of Warrant Shares. The Company covenants that all Warrant Shares
which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon
exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges imposed by the Company in
respect of the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

                    (ii) Delivery of Certificates Upon Exercise. Certificates for shares purchased
hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through its Deposit
Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system,
and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise
within five (5) Trading Days from the delivery to the Company of the Notice of Exercise Form,
surrender of this Warrant and payment of the aggregate Exercise Price as set forth above
(“Warrant Share Delivery Date”). This Warrant shall be deemed to have been exercised on the
date

 

 

the Exercise Price and completed Notice of Exercise are received by the Company. The Warrant
Shares shall be deemed to have been issued, and the Holder or any other person so designated to be
named therein shall be deemed to have become a holder of record of such shares for all purposes, as
of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all
taxes required to be paid by the Holder, if any, pursuant to Section 2(c)(vi) prior to the issuance
of such shares, have been paid.

                    (iii) Delivery of New Warrants Upon Exercise. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of the Holder to
purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all
other respects be identical with this Warrant.

                    (iv) Rescission Rights. If the Company fails to cause its transfer agent to transmit
to the Holder a certificate or certificates representing the Warrant Shares pursuant to this
Section 2(c) by the Warrant Share Delivery Date, then the Holder will have the right to rescind
such exercise until such time as the Company causes its transfer agent to transmit such certificate
or certificates.

                    (v) No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a
cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

                    (vi) Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the
Company, and such certificates shall be issued in the name of the Holder or in such name or names
as may be directed by the Holder; provided, however, that in the event certificates
for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed
by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient
to reimburse it for any transfer tax incidental thereto.

                    (vii) Closing of Books. The Company will not close its stockholder books or records
prior to the Termination Date in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

                    (viii) In addition to the rights specified in clause (iv) above, if by the Warrant Share
Delivery Date, the Company fails to deliver the required number of Warrant Shares in the manner
required pursuant to this Section 2(c), and if after the Warrant Share Delivery Date and prior to
the receipt of such Warrant Shares, the Holder purchases in a bona fide arm’s length transaction
for fair market value (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “Buy-In”), then the Company shall pay in cash to the Holder
the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any)
for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the Holder in connection with
the exercise at issue by (B) the Exercise Price. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In.

     d) Maximum Exercise. Notwithstanding anything herein to the contrary, in no
event shall the Holder be entitled to exercise any portion of this Warrant in excess of that
number of Warrant Shares, which, when added to the number of shares of Common Stock
beneficially owned by the Holder and its Affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the unexercised portion of the
Warrant or the unexercised or unconverted portion of any other security of the Holder
subject to a limitation on conversion analogous to the limitations contained herein), would
result in beneficial ownership by the Holder and its Affiliates of any amount of shares of
Common Stock greater than 19.9% of the then outstanding shares of Common Stock (the
“Maximum Common Stock Issuance”), unless the issuance of Warrant Shares hereunder in
excess of the Maximum Common Stock

 

 

Issuance shall first be approved by the Company’s stockholders; provided, that, for
this purpose only, the Holder agrees that it shall not be entitled to vote any shares of
Common Stock owned by the Holder, and that such restriction on voting shall be interpreted
to apply to the fullest extent necessary to comply with the rules of the NASDAQ Stock Market
(and any published or written interpretations thereof by the Nasdaq Stock Market or its
staff). As used herein, the term “Affiliate” means any person or entity that, directly or
indirectly through one or more intermediaries, controls or is controlled by or is under
common control with a person or entity, as such terms are used in and construed under Rule
144 under the Securities Act. For purposes of the second preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in
such sentence.

     Section 3. Certain Adjustments.

     a) Stock Dividends and Splits. If the Company, at any time while this Warrant
is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions
on shares of its Common Stock or any other equity or equity equivalent securities payable in
shares of Common Stock (which, for avoidance of doubt, shall not include any shares of
Common Stock issued by the Company pursuant to this Warrant), (B) subdivides outstanding
shares of Common Stock into a larger number of shares, (C) combines (including by way of
reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of shares of the Common Stock any shares of capital stock of
the Company, then in each case the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding immediately before such event and of which the denominator shall be the
number of shares of Common Stock outstanding immediately after such event and the number of
shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any
adjustment made pursuant to this Section 3(a) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in the case of
a subdivision, combination or re-classification.

     b) Fundamental Transaction. If, at any time while this Warrant is outstanding,
(A) the Company effects any merger or consolidation of the Company with or into another
Person, (B) the Company effects any sale of all or substantially all of its assets in one or
a series of related transactions, (C) any tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or property, or (D)
the Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or exchanged for
other securities, cash or property (in any such case, a “Fundamental Transaction”),
then, upon any subsequent exercise of this Warrant, the Holder shall have the right to
receive, for each Warrant Share that would have been issuable upon such exercise immediately
prior to the occurrence of such Fundamental Transaction, the same amount and kind of
securities, cash or property as it would have been entitled to receive upon the occurrence
of such Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of the number of Warrant Shares then issuable upon exercise in full
of this Warrant (the “Alternate Consideration”). For purposes of any such exercise,
the determination of the Exercise Price shall be appropriately adjusted to apply to such
Alternate Consideration based on the amount of Alternate Consideration issuable in respect
of one share of Common Stock in such Fundamental Transaction, and the Company shall
apportion the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant following such
Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any
successor to the Company or surviving entity in such Fundamental Transaction shall issue to
the Holder a new warrant consistent with the foregoing provisions and evidencing the
Holder’s right to exercise such warrant into Alternate Consideration. The terms of any
agreement pursuant to which a Fundamental Transaction is effected shall include terms
requiring any such successor or surviving entity to comply with the provisions of this
Section 3(b) and ensuring that this Warrant (or any

 

 

such replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction.

     c) Calculations. All calculations under this Section 3 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this
Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding treasury
shares, if any) issued and outstanding.

     d) Notice to Holders.

                    (i) Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to
this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise
Price after such adjustment and setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.

                    (ii) Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; (B) the Company shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize
the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company;
then, in each case, the Company shall cause to be mailed to the Holder at its last address as it
shall appear upon the Warrant Register of the Company, at least five (5) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of which it is expected
that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange; provided, that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. The Holder is entitled to exercise this Warrant during the
5-day period commencing on the date of such notice to the effective date of the event triggering
such notice.

     Section 4. Transfer of Warrant.

     a) Transferability. Subject to compliance with any applicable securities laws
and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of
Section 4.1 of the Purchase Agreement, after the Initial Exercise Date this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at
the principal office of the Company, together with a written assignment of this Warrant
substantially in the form attached hereto duly executed by the Holder or its agent or
attorney and funds sufficient to pay any transfer taxes payable upon the making of such
transfer. Upon such surrender and, if required, such payment, the Company shall execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and in the
denomination or denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a
new holder for the purchase of Warrant Shares without having a new Warrant issued.

     b) New Warrants. This Warrant may be divided or combined with other Warrants
upon presentation hereof at the aforesaid office of the Company, together with a written
notice specifying the names and denominations in which new Warrants are to be issued, signed
by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any
transfer which may be involved in such

 

 

division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.

     c) Warrant Register. The Company shall register this Warrant, upon records to
be maintained by the Company for that purpose (the “Warrant Register”), in the name
of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof
or any distribution to the Holder, and for all other purposes, absent actual notice to the
contrary.

     d) Transfer Restrictions. If, at the time of the surrender of this Warrant in
connection with any transfer of this Warrant, the transfer of this Warrant shall not be
registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws, the Company may require, as a condition
of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may
be, furnish to the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable transactions) to the
effect that such transfer may be made without registration under the Securities Act and
under applicable state securities or blue sky laws, (ii) that the holder or transferee
execute and deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an “accredited investor” as defined in Rule
501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) promulgated under the Securities Act or a
qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

     Section 5. Miscellaneous.

     a) Title to Warrant. Prior to the Termination Date and subject to compliance
with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder
are transferable, in whole or in part, at the office or agency of the Company by the Holder
in person or by duly authorized attorney, upon surrender of this Warrant together with the
Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment
letter in form and substance reasonably satisfactory to the Company.

     b) No Rights as Shareholder Until Exercise. This Warrant does not entitle the
Holder to any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate
Exercise Price, the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the later of the
date of such surrender or payment.

     c) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants
that upon receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Warrant Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it (which, in the case of the Warrant, shall not include the
posting of any bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate.

     d) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein shall be a
Saturday, Sunday or a legal holiday, then such action may be taken or such right may be
exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

     e) Authorized Shares. The Company covenants that during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Warrant Shares upon the exercise of any
purchase rights under this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company will take
all such reasonable action as may be necessary to assure that such Warrant Shares may be
issued as

 

 

provided herein without violation of any applicable law or regulation, or of any
requirements of the Trading Market upon which the Common Stock may be listed.

     f) Further Assurances. Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to protect the
rights of Holder as set forth in this Warrant against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior to such
increase in par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable Warrant Shares
upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its obligations
under this Warrant. Before taking any action which would result in an adjustment in the
number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as
may be necessary from any public regulatory body or bodies having jurisdiction thereof.

     g) Jurisdiction. All questions concerning the construction, validity,
enforcement and interpretation of this Warrant shall be determined in accordance with the
provisions of the Purchase Agreement.

     h) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon
the exercise of this Warrant, if not registered, will have restrictions upon resale imposed
by state and federal securities laws.

     i) Nonwaiver and Expenses. No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of such right
or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and
knowingly fails to comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any amounts due
pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

     j) Notices. Any notice, request or other document required or permitted to be
given or delivered to the Holder by the Company shall be delivered in accordance with the
notice provisions of the Purchase Agreement.

     k) Limitation of Liability. No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no
enumeration herein of the rights or privileges of Holder, shall give rise to any liability
of Holder for the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the Company.

     l) Remedies. Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific performance of
its rights under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the provisions of
this Warrant and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.

     m) Successors and Assigns. Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended

 

 

to be for the benefit of all Holders from time to time of this Warrant and shall be
enforceable by any such Holder or holder of Warrant Shares.

     n) Amendment. This Warrant may be modified or amended or the provisions hereof
waived with the written consent of the Company and the holders of sixty percent (60%) of the
Shares and Warrant Shares purchased pursuant to the Purchase Agreement.

     o) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of this Warrant.

     p) Headings. The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

 

     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer
thereunto duly authorized.

Dated: October 27, 2008

	 	 	 	 	 
	 	AVALON PHARMACEUTICALS, INC.

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

 

 

NOTICE OF EXERCISE

     TO: AVALON PHARMACEUTICALS, INC.

     (1) The undersigned hereby elects to purchase                      Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith
payment of the exercise price in full, together with all applicable transfer taxes, if any.

     (2) Payment shall take the form of in lawful money of the United States.

     (3) Please issue a certificate or certificates representing said Warrant Shares in the name of
the undersigned or in such other name as is specified below:

 

The Warrant Shares shall be delivered to the following:

 

 

 

     (4) Accredited Investor. The undersigned is an “accredited investor” as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

	 	 	 	 	 	 	 	 	 	 	 
	Name of Investing Entity:	 	 	 	 	 	 	 	 
	 	 	 	 
	 	 
	Signature of Authorized Signatory of Investing Entity:	 	 	 	 
	 

	 	 	 	 	 

	 	 
	Name of Authorized Signatory:	 	 	 	 	 	 
	 	 	 	 	 
	 	 
	Title of Authorized Signatory:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Date:
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 

 

 

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

                                                                                                                                            whose address is

 

 

Dated:                    , ___

	 	 	 	 	 	 	 
	Holder’s Signature:
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	Signature Guaranteed:
	 	 	 	 	 	 
	 	 	 	 	 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face
of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed
by a bank or trust company. Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the foregoing Warrant.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]