Document:

exv10w3

 

Exhibit 10.3

EXECUTION COPY

COLLABORATION AGREEMENT

     THIS COLLABORATION AGREEMENT (“Agreement”) is made and entered into effective as of October
15, 2003 (the “Effective Date”), by and between AVALON PHARMACEUTICALS, INC., having principal
offices at 20358 Seneca Meadows Parkway, MD 20876 (“Avalon”) and MEDAREX, INC., having principal
offices at 707 State Road, Princeton, New Jersey 08540-1437, on behalf of itself and its wholly
owned subsidiary, GENPHARM INTERNATIONAL, INC., with principal offices at 521 Cottonwood Drive,
Milpitas, California 95035 (collectively, “Medarex’’). Avalon and Medarex each may be referred to
herein individually as a “Party,” or collectively as the “Parties.”

     WHEREAS, Medarex and Avalon desire to enter into a definitive agreement to collaborate to
produce fully human antibodies to antigen targets in order to develop and commercialize
genomics-derived, Antibody-Based Products on the terms set forth below;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and
covenants contained herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as
follows;

ARTICLE 1 -

SCOPE OF COLLABORATION; COLLABORATION ACTIVITIES

     Section 1.1 Scope of Collaboration. The Parties have entered into this collaboration (such
collective enterprise, the “Collaboration”) to jointly research, develop and commercialize
Collaboration Products with respect to Collaboration Targets throughout the Territory as set forth
in this Agreement. Any capitalized terra used in this Agreement not otherwise defined herein shall
have the meaning set forth on Appendix A.

     Section 1.2 Research Activities.

          1.2.1 General. Under the direction and supervision of the Steering Committee, the Parties
shall use Commercially Reasonable Efforts to conduct their respective research activities in
accordance with this Agreement, each Project Plan and each Project Budget.

          1.2.2 Identification of Collaboration Targets. The list of Antigens attached hereto as
Appendix C sets forth the initial list of Collaboration Targets (the “Initial Collaboration
Targets”). Such list may be amended pursuant to Section 1.7 or 5.1.2, by the express written
agreement of Medarex and Avalon or as follows:

               (a) Within the sole discretion of and as selected by Avalon, during the Target Entry Period
(as defined in Section 1.2.2(e)), Avalon may identify to Medarex Antigens for consideration by
Medarex, with it being expressly understood that Avalon is not under any
obligation to do so. In conjunction with identification of any such Antigen, Avalon shall
promptly provide to Medarex the following information and materials (“Antigun Evaluation
Materials”):

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

 

 

                    (i) a written description of the applicable Antigen, including DNA and amino acid
sequences thereof, when available;

                    (ii) the human tissue and/or cell type expression profile for such Antigen;

                    (iii) all other scientific data in the possession of Avalon or its Affiliates relating to such
Antigen;

                    (iv) all information regarding (A) the proprietary status of such Antigen, (B) the
intellectual property rights Controlled by Avalon and its Affiliates with respect to such Antigen,
(C) any Patent, know-how, intellectual property or other rights assigned, transferred, granted or
conveyed by Avalon or its Affiliates to any Third Parties that is inconsistent with rights to be
granted under this Agreement with respect to an Antibody Product against said Antigen, (D) any
agreements by or among Avalon or its Affiliates and any Third Parties that is inconsistent with
rights to be granted under this Agreement with respect to an Antibody Product against said Antigen,
(E) any potential restrictions (contractual, patent or otherwise) that would limit or otherwise
affect the Parties’ right to fully Exploit any Collaboration Products with respect thereto, and (F)
the extent known, any potential Third-Party Payments that would be owed in connection with the
Exploitation of Antibody Products with respect to such Antigen under this Agreement or a Unilateral
Development and Commercialization Agreement;

                    (v) existing and available models for preclinical validation of Antibody Products against such
Antigen;

                    (vi) a list of expected indications for Antibody Products against such Antigen,

                    (vii) the commercial and scientific rationale for why Avalon believes such Antigen is a
promising target for the development of Antibody-Based Products; and

                    (viii) all other relevant information in Avalon’s or its Affiliates’ possession with respect
to such Antigen,

               (b) Beginning on the day that either (i) Medarex notifies Avalon in writing that Medarex is in
receipt of the complete Antigen Evaluation Materials with respect to an Antigen or (ii) Avalon
notifies Medarex in writing that, to the best of its knowledge, Avalon
has delivered all of the Antigen Evaluation Materials that is in its possession with respect
to an Antigen, and * days thereafter, (the “Evaluation Period”), Medarex shall have the
exclusive right to determine whether such Antigen shall become a Collaboration Target under this
Agreement and shall notify Avalon of its determination with respect to such Antigen. In the event
Medarex receives Antigen Evaluation Materials for a given Antigen pursuant to Section 1.2.2(a), but
does not believe such materials are sufficiently complete to enable Medarex * whether to accept
or decline such Antigen pursuant to the preceding sentence, the Parties shall * additional
analyses to be performed by Avalon in order to complete the Antigen
Evaluation

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

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Materials, but
Avalon shall not be obligated to perform such additional analyses. At any time prior to the
commencement of the Evaluation Period with respect to an Antigen, Avalon shall have the right to
withdraw such Antigen from consideration and such Antigen shall be a Reversion Target subject to
the obligations of Section 1.7.

                    (i) In -the event Medarex accepts such Antigen into the Collaboration as a Collaboration
Target, Appendix C shall be deemed to be amended accordingly and the Parties shall * to
develop a preliminary Project Plan and Project Budget for the discovery and development of Antibody
Products with respect to such Antigen in the form attached hereto as Appendix E; * .

                    (ii) In the event Medarex does not accept such Antigen within the applicable Evaluation
Period, such Antigen shall not be deemed to be a Collaboration Target and Medarex shall have no
further rights with respect thereto under this Agreement and Avalon shall have no further
obligations with respect thereto under this Agreement.

                    (iii) *

               (c) Upon designation of an Antigen as a Collaboration Target pursuant to Section 1.2.2(b), the
Parties shall * a written description of such Antigen, including the name of the Collaboration
Target and its complete DNA sequence end GenBank accession number, which descriptions shall be
included on Appendix C.

               (d) As the Parties gain greater understanding of each Collaboration Target and the potential
utility of Antibody Products thereto, they shall update the description of such Collaboration
Target on Appendix C to more accurately reflect what Antigens, or portions thereof, are
included in the Collaboration.

               (e) The “Target Entry Period” shall commence on the Effective Date and shall continue until
* unless (i) earlier terminated by (A) the unanimous agreement of the Parties, or (B) either
Party pursuant to Article 8; or (ii) extended by unanimous agreement of the Parties. The
termination or expiration of the Target Entry Period shall not constitute a termination of this
Agreement.

          1.2.3 Identification of Applicable Assays and Success Criteria. As part of the Project Plan
for a given Collaboration Target, the Steering Committee will:

               (a) identify the Immunogen(s) (each, an “Immunogen”) to be used to enable Medarex to perform
its activities pursuant to Section 1.2.5;

               (b) * ;

               (c) develop an experimental plan to identify a set of assays (each, an “Assay”) for screening
Assay Candidates against such Collaboration Target;

               (d) determine which Party will be responsible for delivering the Assays to the Collaboration;
and

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

3

 

               (e) develop guidelines that will allow the establishment of criteria (the “Assay Success
Criteria”) for determining, subject to Section 1.2.6, whether an Assay Candidate should become a
Collaboration Antibody,

The Steering Committee may elect to use a Third Party to provide one or more Immunogen(s) to the
Collaboration. In addition, the Steering Committee may elect to have a Third Party develop and/or
perform one or more of the Assays.

          1.2.4 Allocation of Costs. * , all costs associated with identifying Collaboration
Targets, preparing and furnishing to Medarex complete Antigen Evaluation Materials with respect
thereto, and creating and delivering the Immunogen(s) to Medarex (the “Avalon Research Activities”)
shall be borne * , but Avalon shall have no obligation to provide any Antigen Evaluation
Materials. With respect to the Collaboration Targets that exist as of the Effective Date, all
costs associated with immunizing the HuMAb Mice and raising a panel of different Antibodies to the
applicable Collaboration Target pursuant to the last sentence of Section 1.2.5 (the “Medarex
Research Activities”) shall be borne * . * . All other costs and expenses incurred by the
Parties in performing their activities under this Section 1.2 shall be governed by Section 4.1.2.

          1.2.5 Raising of Antibodies by Medarex. * shall provide to Medarex sufficient Immunogen
for each Collaboration Target to enable Medarex to perform its activities pursuant to this Section
1.2.5. Upon the delivery of such Immunogen, Medarex shall * to immunize the HuMAb Mice to raise
a panel of different Antibodies to the applicable Collaboration Target.

          1.2.6 Selection of Assay Candidates; Assay Screening; Selection of Collaboration Antibodies.

               (a) Medarex shall select a subset of the Antibodies raised pursuant to Section 1.2.5 to become
“Assay Candidates”. As set forth under the applicable Project Plan, the Parties shall run each
Assay Candidate through the applicable Assays. Upon completion of the Assay screening for a given
Assay Candidate, each Party will be provided with the results of such screening (including the raw
data underlying such results). The Steering Committee will then determine whether the Assay
Candidate has met the applicable Assay Success Criteria.
Subject to Section 1.2.6(b), each Assay Candidate that meets the applicable Assay Success
Criteria shall be deemed to be a “Collaboration Antibody”; provided, however, the
Steering Committee may, in its sole discretion (i) decide that an Assay Candidate that meets the
Assay Success Criteria shall nonetheless not be deemed to be a Collaboration Antibody, or (ii)
decide that an Assay Candidate that does not meet the Assay Success Criteria shall nonetheless be
deemed to be a Collaboration Antibody.

               (b) The Parties shall determine the amino acid sequence of at least one heavy chain variable
region corresponding to a contiguous portion spanning CDR 1 through CDR3 and defining a complete
antibody-heavy chain Antigen binding domain (a “Binding Sequence”) for each Assay Candidate that is
selected pursuant to Section 1.2.6(a) to be a Collaboration Antibody and shall provide such
sequence information to Medarex.

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

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Notwithstanding Section 1.2.6(a), Medarex shall have the right to
veto any such Assay Candidate on written notice to Avalon within * days of its receipt of the
correct sequence data for any such Assay Candidate, if Medarex (i) is researching or developing, or
has researched or developed, ether, alone or in collaboration with a Third Party, any such Assay
Candidate, or (ii) has previously granted a Third Party rights with respect to any Antibody that
has the same Binding Sequence as such Assay Candidate, whereupon such Assay Candidate shall not
become a Collaboration Antibody and all amounts of such Assay Candidate (and any cell lines
expressing such Assay Candidate and other Mice Materials with respect to such Assay Candidate)
produced pursuant to this Agreement will be destroyed.

          1.2.7 Effect of Designation of Collaboration, Antibodies.. Any Antibody that is designated a
Collaboration Antibody in accordance with Section 1.2.6 shall be exclusive to the Collaboration.
Except as otherwise provided in this Agreement, once an Antibody is designated a Collaboration
Antibody, all costs associated with the research, development, manufacturing and
commercialization of such Collaboration Antibody shall * , as more fully described in Section
4.1. Any Antibodies with respect to a Collaboration Target (and any cell lines
expressing such Antibodies and other Mice Materials with respect to such Antibodies) produced under
this Agreement that are not designated as Collaboration Antibodies or back-up Collaboration
Antibodies by the Steering Committee shall be destroyed by Medarex, unless the Parties agree
otherwise,

          1.2.8 Lead Collaboration Antibodies. Out of the pool of Collaboration Antibodies against a
given Collaboration Target, the Steering Committee will select the Collaboration
Antibody that it believes to be most promising for development and commercialization and it will
then move such Collaboration Antibody into Production Process Development. Each Collaboration
Antibody that is put into Production Process Development shall be deemed to be a “Lead
Collaboration Antibody”. It is understood that the Steering Committee may, over time, select more
than one Lead Collaboration Antibody against a given Collaboration Target, or substitute one Lead
Collaboration Antibody for another. Upon designation of each Lead Collaboration Antibody, * of
the cost of Production Process Development for such Lead Collaboration Antibody. With respect to
each Lead Collaboration Antibody, the Steering Committee shall solicit bids from suppliers to
perform the Production Process Development. Each Party shall have the right to submit a bid
on such terms as it desires. The Steering Committee shall use * to enter into a development
agreement with the supplier that is best able to meet the Parties’ requirements, taking into
consideration such factors as price, quality, capacity, quantity, reliability and reputation. In
the event the Steering Committee selects a Party to perform Production Process Development pursuant
to this Section 1.2.8, the price and other terms and conditions of such Production Process
Development shall be based on arm’s length negotiations with the Steering Committee.

          1.2.9 Identification of Restrictions on Exploitation of Collaboration Products. Upon the
designation of the first Collaboration Antibody with respect to a Collaboration Target, unless
otherwise agreed by the Steering Committee, the Collaboration shall solicit a formal patent
review and opinion regarding such Collaboration Target, and Antibody Products with respect
thereto, from an outside law firm selected by the Steering Committee. The costs of such formal
opinion shall be * .

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

5

 

     Section 1.3 Project Plan and Project Budget. Upon designation of a given Antigen as a
Collaboration Target pursuant to Section 1.2.2, the Parties shall jointly develop and implement a
project plan (each a “Project Plan”) and a project budget (each a “Project Budget”) for the
research, development, manufacture and commercialization of Collaboration Products against such
Collaboration Target. It is understood that each such respective Project Plan and Project Budget
initially will cover the early-stage research and development of Collaboration Products with
respect to such respective Collaboration Target, but that the components of each Project Plan and
Project Budget will evolve as the applicable Collaboration Products move through the research,
development, manufacture and commercialization life cycle. The Parties, through the Steering
Committee, shall endeavor to review and update each Project Plan and Project Budget at least
annually.

     Section 1.4 Performance Standards. Each Party shall perform, or cause to be performed, its
respective activities hereunder in good scientific manner, and in compliance in all material
respects with all Applicable Law and * to (a) research, develop, file for Regulatory Approval
and commercialize one or more Collaboration Products with respect to each Lead Collaboration
Antibody, and (b) achieve the objectives of each Project Plan in accordance with each Project
Budget, in each case, efficiently and expeditiously by allocating sufficient time, effort,
equipment and skilled personnel to complete- such activities successfully and promptly.

     Section 1.5 Product Trademarks. The Parties shall develop Product Trademarks for each
Collaboration Product that will be commercialized. Such Product Trademarks shall not be
confusingly similar to, misleading or deceptive with respect to, or dilute any of the Trademarks
owned or Controlled by either of the Parties, or any part of such Trademarks. No Party or any of
its Affiliates or sublicensees shall commercialize a Collaboration Product under any Trademark
other than the -Product Trade
marks. No Party or any of its Affiliates or sublicensees shall use in its business any
Trademark that is confusingly similar to, misleading or deceptive with respect to, or dilutes any
of the Product Trademarks or any other Trademarks used to identify or distinguish a Collaboration
Product, or any part of the foregoing. The Steering Committee shall oversee the filing,
prosecution and maintenance of all Product Trademark registrations. * in the costs and
expenses of such filing, prosecution and maintenance. Subject to Applicable Law, the label of any
Collaboration Products shall include, at Avalon’s sole discretion, the name of Avalon and, at
Medarex’s sole discretion, the name of Medarex.

     Section 1.6 Supply of Collaboration Products. With respect to clinical and commercial
supplies of Collaboration Products, the Steering Committee shall solicit bids from suppliers to
supply the Parties’ requirements thereof. Each Party shall have the right to submit a bid on such
terms as it desires. The Steering Committee shall use Commercially Reasonable Efforts to enter
into a supply agreement with the supplier that is best able to meet the Parties’ requirements,
taking into consideration such factors as price, quality, capacity, quantity, reliability and
reputation. In the event the Steering Committee selects a Party to produce clinical and/or
commercial supplies pursuant to this Section 1.6, the price and other terms and conditions of such
supply shall be based on arm’s length negotiations with the Steering Committee.

     Section 1.7 Reversion of Collaboration Targets. If, notwithstanding the Commercially
Reasonable Efforts of the Parties, no Collaboration Antibodies have been

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

6

 

designated with respect to
a Collaboration Target pursuant to Section 1.2.6 within * , or such other period as the Parties
may agree, after the immunization of the HuMAb Mice with respect to such Collaboration Target
pursuant to Section 1.2.5, * , then (a) such Antigen shall cease to be a Collaboration Target
(such Antigen, a “Reversion Target”), and Appendix C shall be amended accordingly, (b) any
Antibodies with respect thereto shall not become Collaboration Antibodies, (c) any Antibody
Products with respect thereto shall not become Collaboration Products, and (d) any licenses granted
pursuant to Article 3, with respect to such Antigen, Antibody or Antibody Product shall terminate,
and, subject to Section 7.1.5, Medarex shall have no further rights under this Agreement with
respect to such Antigen. Promptly upon such designation, the Parties shall destroy all Antibody
Products, Antibodies, Mice Materials, Immunogens and other Biological Materials created under this
Agreement with respect to such a Reversion Target.

ARTICLE 2 -

OPERATION OF THE COLLABORATION

     Section 2.1 Steering Committee.

          2.1.1 Formation of Steering Committee. The Parties shall establish a joint committee (the
“Steering Committee”), which -shall oversee the research, development and commercialization
activities hereunder. Each of Avalon and Medarex shall appoint an equal number of representatives
with the requisite experience and
seniority to enable them to make decisions on behalf of the Parties with respect to the
Collaboration. From time to time, Avalon and Medarex each may substitute any of its
representatives to the Steering Committee.

          2.1.2 Responsibilities. The Steering Committee shall, in addition to its other
responsibilities described in this Agreement: (a) prioritize the research, development,
manufacturing and commercialization activities with respect to Collaboration Targets, Collaboration
Antibodies and Collaboration Products; (b) subject to Section 1.3, allocate responsibility for such
activities between Avalon and Medarex taking into consideration their relevant expertise and
available resources; (c) develop and implement a strategy for researching, developing,
manufacturing, obtaining and maintaining Regulatory Approvals for, and commercializing, the
Collaboration Products; (d) determine whether to enter into any agreements pursuant to Section 7.4
or otherwise that would give rise to Third-Party Payments; (e)establish such subcommittees as
deemed appropriate by the Steering Committee; and (f) take such other actions as are set forth in
this Article 2 or as the Parties may unanimously agree. The Steering Committee may evaluate
additional technologies that may be necessary or beneficial to the Collaboration and may recommend
the acquisition or in-licensing of these technologies to the Parties.

          2.1.3 Procedural Rules for the Steering Committee.

               (a) Generally. Except as explicitly set forth in this Section 2.1.3, the Steering Committee
shall establish its own procedural rules for its operation.

               (b) Voting. The Steering Committee shall take action by unanimous consent of Avalon and
Medarex, with each such Party having a single vote, irrespective of the number of representatives
actually in attendance at a meeting, or by a written resolution signed

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

7

 

by the designated
representatives of each of Avalon and Medarex. A quorum shall be established only if at least one
member appointed by Avalon and at least one member appointed by Medarex is in attendance.

     Section 2.2 Progress Reports. Within * after * , or as otherwise required by the
Steering Committee, each Part shall provide to the other Party a written progress report, which
shall (a) describe any research, development or commercialization activities with respect to
Collaboration Targets or Collaboration Products and any other work relating to the Collaboration
Targets and Collaboration Products that it has performed, or caused to be performed, since the last
such report, (b) evaluate the work performed in relation to the goals of this Agreement and the
applicable Project Plan, and (c) provide such other information as may be required by this
Agreement and the applicable Project Plan or reasonably requested by the other Party relating to
such activities. In addition to the progress reports provided hereunder, it is contemplated that
the Parties will maintain informal communications through the Steering Committee and their
day-to-day activities under this Agreement.

     Section 2.3 Disputes; Dispute Resolution.

          2.3.1 Referral to Steering Committee. Any dispute that may arise relating to the terms of
this Agreement or the activities of the Parties hereunder shall be brought to the attention of the
Steering Committee, which shall attempt in good faith to achieve a resolution. Either Party may
convene a special meeting of the Steering Committee for the purpose of resolving disputes.

          2.3.2 Referral to Chief Executive Officers of the Parties. If the Steering Committee is
unable to resolve such a dispute within * of the first presentation of such dispute to the
Steering Committee, and with respect to all other disputes, including the failure to obtain a
unanimous vote in the Steering Committee, such dispute shall be referred to the Chief Executive
Officers of each of the Parties (or their respective designees) who shall use their good faith
efforts to mutually agree upon the proper course of action to resolve the dispute.

          2.3.3 Referral to Chief Executive Officer of Medarex. Any disputes arising with respect to
Mice-Related Technology shall be resolved conclusively by the Chief Executive Officer of Medarex
(or his or her designee), who shall * to the comments of the Chief Executive Officer of Avalon
(or his or her designee) in resolving such matter.

          2.3.4 Unresolved Disputes. If any dispute bother than those provided for in Section 2.3.3) is
not resolved by the Chief Executive Officers of the Parties (or their designees) within * after
such dispute is referred to them, or such longer period as the Chief Executive Officers (or their
respective designees) may collectively agree, then either Party shall have the right (a) if such
dispute relates to * to refer such dispute to an Expert for expedited arbitration as set forth
in Section 2.3.5, or (b) with respect to any other dispute, including with respect to a Party’s
interpretation of, or any allegation of breach of, this Agreement, to litigate such dispute in
accordance with Section 11.5 or to pursue such other dispute resolution mechanism as the Parties
may agree, except that disputes under Section 7.3.1(a) shall be resolved in accordance with Section
7.3.1(a).

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

8

 

          2.3.5 Expedited Arbitration.

               (a) With respect to disputes under Section 2.3.4 above that are not resolved by the Chief
Executive Officers of the Parties (or their designees) pursuant to Section 2.3.2, upon written
request by either party to the other Party, the Parties shall promptly negotiate in good faith to
appoint a mutually acceptable disinterested, conflict-free individual got affiliated with either
Party, with scientific, technical and regulatory experience with respect to the development of
Antibody-Based Products necessary to resolve such dispute (an “Expert”). If the Parties are not
able to agree within * after the receipt by a Party of the written request in the immediately
preceding sentence, the CPR Institute for Dispute Resolution, or such other similar entity as the
Parties may agree, shall be responsible for selecting an Expert within * of being
approached by a Party. The fees and costs of the Expert and the CPR Institute for Dispute
Resolutions (or such other entity) shall * .

               (b) Within * after the designation of the Expert, the Parties shall each simultaneously
submit to the Expert and one another a written statement of their respective positions on such
disagreement. Each Party shall have * from receipt of the other Party’s submission to submit a
written response thereto, which shall include any scientific and technical information in support
thereof. The Expert shall have the right to meet with the Parties, either alone or together, as
necessary to make a determination.

               (c) No later than * after the designation of the Expert, the Expert shall make a
determination by selecting the resolution proposed by one of the Parties that as a whole is the
most fair and reasonable to the Parties in light of the totality of the circumstances and shall
provide the Parties with a written statement setting forth the basis of the determination in
connection therewith. The decision of the Expert shall be final and conclusive, absent manifest
error.

ARTICLE 3 -

GRANT OF RIGHT

     Section 3.1 License Grants for Collaboration Activities.

          3.1.1 Medarex Grant. Subject to Section 3.3 and the other terms and conditions of this
Agreement, Medarex hereby grants to Avalon and its Affiliates a co-exclusive (with Medarex and its
Affiliates), fully-paid, royalty-free license, with the right to sublicense solely as provided in
Sections 3.3.5 and 3.4, under the Medarex Technology and the Collaboration Technology, in each case
to perform Avalon’s activities under Section 1.2, and (b) jointly Exploit the Collaboration
Products in accordance with this Agreement.

          3.1.2 Avalon Grant. Subject to the terms and conditions of this Agreement, Avalon hereby
grants to Medarex and its Affiliates a co-exclusive (with Avalon and its Affiliates), fully-paid,
royalty-free license, with the right to sublicense solely as provided in Section 3.4, under the
Avalon Technology and the Collaboration Technology, in each case to (a) perform Medarex’s
activities under Section 1.2, and (b) jointly Exploit the Collaboration Products in accordance with
this Agreement.

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

9

 

     Section 3.2 Product Trademarks, for Collaboration Products.

          3.2.1 Medarex Grant. Subject to the terms and conditions of this Agreement, Medarex hereby
grants to Avalon and its Affiliates a co-exclusive (with Medarex and its Affiliates), fully-paid,
royalty-free
license, with the right to sublicense solely as provided in Section 3.4, to use the Product
Trademarks to Exploit the Collaboration Products in accordance with this Agreement.

          3.2.2 Avalon Grant. Subject to the terms and conditions of this Agreement, Avalon hereby
grants to Medarex and its Affiliates a co-exclusive (with Avalon and its Affiliates), fully-paid,
royalty-free license, with the right to sublicense solely as provided in Section 3.4, to use the
Product Trademarks to Exploit the Collaboration Products in accordance with this Agreement.

     Section 3.3 Exclusivity, Reserved Rights and Pre-Existing Grants.

          3.3.1 Antigen Exclusivity. Subject to Sections 3.3.2, 3.3.3 and 3.3.4, the Parties
acknowledge and agree that no Party shall engage, directly or indirectly, on behalf of itself or
any other party, in the research, development, commercialization or other Exploitation of
Antibody-Based Products with respect to any Collaboration Target other than the Collaboration
Products and Unilateral Products as provided in this Agreement and any related agreements between
the Parties.

          3.3.2 Research and Commercialization Agreements. Medarex shall have the right to (a) grant
licenses and other rights to other parties, under the Medarex Technology for such parties to
Exploit Antibody Products (but not Collaboration Products) with respect to Antigens, including
Collaboration Targets, (b) transfer Medarex Know-How to such parties in connection therewith,
including by providing instruction with respect to the use and immunization of HuMAb Mice, and
assistance with respect to the Mice-Related Technology, (c) develop production processes for, and
manufacture, such Antibody Products, and (d) receive license fees, milestone payments, royalties
and other remuneration in connection therewith, but, in connection with clause (a), (b), (c) or (d)
above, * (each agreement with respect to the foregoing, a “Research and Commercialization
Agreement”). For the avoidance of doubt, Medarex shall not disclose or transfer any Avalon
Technology or, subject to Section 7.1.5, Collaboration Technology to any Third Party in connection
with a Research and Commercialization Agreement.

          3.3.3 Retained Rights. Notwithstanding anything in this Agreement to the contrary, Medarex
does hereby retain the right to (a) enter into collaborations or other agreements with, and to
grant licenses and other rights under the Medarex Technology to, Third Parties to Exploit Antibody
Products with respect to Antigens other than Collaboration Targets, and/or (b) independently
Exploit Antibody Products with respect to Antigens other than Collaboration Targets.

          3.3.4 Existing Grants. The Parties further acknowledge and agree that (a) pursuant to the
Cross-License Agreement, Medarex has granted a non-exclusive license under certain Medarex Patents
to exploit Antibody Products, including Collaboration Products, with

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

10

 

respect to Antigens,
including the Collaboration Targets, in the Territory; and (b) pursuant to certain existing
agreements with Third Parties, Medarex has granted exclusive rights under the Medarex Technology to
Exploit Antibody Products with respect to Antigens other than Collaboration Targets, which Antibody
Products could be the same as Collaboration Products.

          3.3.5 Cross-License Agreement. * .

               (a) * .

               (b) * .

               (c) * .

     Section 3.4 Sublicenses. Subject to Section 3.3.5, each Party shall have the right to grant
sublicenses under the licenses granted in Sections 3.1 and 3.2 to (a) Affiliates without the
approval of the applicable licensor, provided that any such sublicensor shall remain jointly and
severally liable for the performance or non-performance of any such Affiliate sublicensee, and (b)
Third Parties pursuant to Section 5.2 or as necessary to perform the commercialization activities
assigned to such Party under a Project Plan, with the prior approval of the applicable licensor,
not to be unreasonably withheld or delayed, which approval shall be deemed to be granted with
respect to a sublicense if the licensor fails, within twenty (20) business days of its receipt of a
written notice from the sublicensing Party setting forth in reasonable detail the nature of such
sublicense and the identity of the sublicensee, to notify such sublicensing Party that it withholds
its consent to such sublicense and the reasons therefor. Notwithstanding the previous sentence,
the grant of any such sublicense shall not relieve the sublicensing Party of its obligations under
this Agreement.

     Section 3.5 License Limitations. Each Party hereby covenants to the other Party that neither
such first Party nor any of its Affiliates, licensees or sublicensees shall use or practice the
Technology of such other Party (other than the Collaboration Technology, which shall be governed by
Section 7.1.5), directly or indirectly, on behalf of itself or any other party, for any purpose
other than as permitted under Section 3.1 and in particular, but without limiting the generality of
the foregoing, for any research, development, commercialization or other Exploitation of an
Antibody Product or any other product or method, other than, a Collaboration Product or a
Unilateral Product as provided hereunder or in the applicable Unilateral Development and
Commercialization Agreement.

     Section 3.6 No Other Rights. For the avoidance of doubt, Medarex and its Affiliates shall
have no right, express or implied, with respect to the Avalon Technology and Avalon and its
Affiliates shall have no right,
express or implied, with respect to the Medarex Technology, in each case except as expressly
provided in Section 3.1.

     Section 3.7 Additional Mice. * .

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

11

 

ARTICLE 4 -

FINANCIAL PROVISIONS

     Section 4.1 Profit and Expense Allocation with Respect To Collaboration Products.

          4.1.1 Operating Profits and Operating Losses. Except as otherwise provided in this Agreement,
the Parties shall * in the Operating profits and Operating Losses, as applicable, with respect
to the collaboration Products, as set forth in this Section. Within * after the end of * in
which Operating Profits or Operating Losses are recognized with respect to a Collaboration Product,
each party shall provide the other Party with a statement detailing its Operating Profits or
Operating Losses for such Collaboration Product for such calendar quarter on a country-by-country
basis, which statement shall set forth in reasonable detail any Net Sales by such Party or its
Affiliates, any Commercialization Expenses and any Other Operating (Income)/Expense, including a
detailed breakdown of the components of the foregoing, with respect to such Collaboration Product,
* (“Authorized Commercialization Expenses”). Within * after the end of each calendar quarter,
the Parties shall -make payments to one another so that * the Operating Profits or Operating
Losses, as applicable, for such calendar quarter for each Collaboration Product.

          4.1.2 Research and Development Expenses. Except as otherwise provided in this Agreement, *
in the cost and expense of all Authorized R&D Expenses (as defined below) incurred by or on behalf
of the Parties in connection with their activities other than the Avalon Research Activities and
the Medarex Research Activities, Within * after the end of * , each Party shall furnish the
Steering Committee with a statement (a) detailing the costs and expenses actually incurred in
connection with the research and development activities (including phase IV studies and any other
post-Regulatory Approval research and development activities) performed by or on behalf of such
Party during such calendar quarter, * (the “Authorized R&D Expenses”) and (b) comparing such
expenses to date with the projections set forth in the Project Budget. Within * days after the
end of each calendar quarter, Medarex and Avalon shall make payments to one another so that *
for such calendar quarter . For the avoidance of doubt, neither Party shall be reimbursed for any
of its internal costs of Production Process Development for clinical or commercial (but not
preclinical) supplies of Collaboration Products unless such costs are expressly agreed to by’ the
Parties in a project Budget or incurred under a separate agreement, entered into pursuant to
Section 1.2.8 or 1.6.

     Section 4.2
Payment Method.
 All amounts due by one Party hereunder shall be paid in U.S. dollars by wire transfer in
immediately available funds to an account designated by the receiving Party. Any payments or
portions thereof due hereunder which are not paid on the date such payments are due under this
Agreement shall bear interest at a rate equal to * , calculated on the number of days such
payment is delinquent, * .

     Section 4.3 Currency; Foreign Payments. If any currency conversion shall be required in
connection with any payment hereunder, such conversion shall be made by using the arithmetic mean
of the exchange rates for the purchase of U S. dollars as published in The Wall Street Journal,
Eastern Edition, on the last business day of each month in the calendar quarter to

 

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

12

 

which such
payments relate. If at any time legal restrictions prevent the prompt remittance of any Operating
Profits with respect to Net Sales in any jurisdiction, the applicable Party may notify the other
and make such payments by depositing the amount thereof in local currency in a bank account or
other depository in such country in the name of the receiving Party or its designee, and such Party
shall have no further obligations under this Agreement with respect thereto.

     Section 4.4 Taxes. A Party may deduct from any amounts it is required to pay pursuant to this
Agreement an amount equal to that withheld for or due on account of any taxes (other than taxes
imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction
other than the United States (“Withholding Taxes”). At the receiving Party’s request, the paying
Party shall provide the receiving Party a certificate evidencing payment of any Withholding Taxes
hereunder and shall reasonably assist the receiving Party, at the receiving Party’s expense, to
obtain the benefit of any applicable tax treaty.

     Section 4.5 Records Retention; Audit.

          4.5.1 Record Retention. Each Party shall maintain (and shall ensure that its Affiliates and
sublicensees shall maintain) complete and accurate books, records and accounts that fairly reflect
their respective (a) Authorized R&D Expenses, Authorized Commercialization Expenses, Other
Operating (Income)/Expenses, any costs and expenses reimbursable under Article 7, and any other
costs and expenses reimbursable or otherwise shared by the Parties hereunder (collectively, the
“Collaboration Expenses”), and (b) Net Sales of Collaboration Products and operating Profits and
Operating Losses with respect to Collaboration Products, in each case in sufficient detail to
confirm the accuracy of any payments required hereunder and in accordance with GAAP, which books,
records and accounts shall be retained by such Party until * .

          4.5.2 Audit. Each Party shall have the right to have an independent certified public
accounting arm of nationally recognized standing, reasonably acceptable to the audited Party, to
have access during normal business hours, and upon reasonable prior written notice, to such of the
records of
the other Party (and its Affiliates and sublicensees) as may be reasonably necessary to verify
the accuracy of such Collaboration Expenses, Net Sales, or Operating Profits or operating Losses,
as applicable, for any * ending not more than * prior to the date of such request;
provided, however, that neither Party shall have the right to conduct more than *
such audit in any * . The accounting firm shall disclose to each Party whether such
Collaboration Expenses, Net Sales, or Operating Profits or Operating Losses, as applicable, are
correct or incorrect and the specific details concerning any discrepancies, No other information
shall be provided to the requesting party. * . The results of such accounting firm shall be
final, absent manifest error.

          4.5.3 Payment of Additional Amounts. If, based on, the results of such audit, additional
payments are owed by a Party under this Agreement, such Party shall make such additional payments,
* , within * after the date on which such accounting firm’s written report is delivered to
such Party,

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

13

 

          4.5.4 Confidentiality. The auditing Party shall treat all information subject to review under
this section 4.5 in accordance with the confidentiality ‘Provisions of Article 6 and shall cause
its accounting firm to enter into a reasonably acceptable confidentiality agreement with the
audited Party obligating such firm to maintain all such financial information in confidence
pursuant to such confidentiality agreement.

ARTICLE 5 -

UNILATERAL AND THIRD PARTY DEVELOPMENT AND

COMMERCIALIZATION

     Section 5.1 Unilateral Development and Commercialization.

          5.1.1 Opting-Out by a Party. Each Party (i.e., Medarex, on the one hand, and Avalon, on the
other hand) (the “Opting-Out Party”) shall have the right, on * written notice to the other (an
“Opt-Out Notice”), to elect not to proceed with the research, development and commercialization
(“Opt-Out”) of all Collaboration Products with respect to a given Collaboration Target at any time,
provided that such Party shall be responsible for all budgeted costs and expenses associated with
the research and development activities with respect to such Collaboration Product(s) that such
Party has committed to in the applicable Project Budget as necessary to complete that phase of
research and development (e.g., toxicology studies in support of an IND or phase I, phase II or
phase III studies) that was under way when such Party Opted-Out. By way of clarification, if a
Party Opts-Out of a Collaboration Product with respect to a collaboration Target, such Party will
be deemed to have Opted-Out with respect to all Antibody Products with respect to the same
Collaboration Target.

          5.1.2 Rights and Obligations of Parties with Respect To Unilateral Products.

               (a) Unilateral Development and Commercialization. Upon receipt by a Party of an Opt-Out
Notice, the receiving Party shall have the right, on written notice to the Opting-Out Party within
* following receipt of the Opt-Out notice (an “Election Notice”), to proceed unilaterally
with the research, development and commercialization of all Collaboration Antibodies and
Collaboration Products to the applicable Collaboration Target (each such antibody and product, a
“Unilateral Product”) pursuant to the separate agreement with the Opting-Out Party attached hereto
as Appendix D-1 or Appendix D-2, as applicable (each, a “Unilateral Development and
Commercialization Agreement”). Upon receipt by Avalon of an Election Notice from Medarex with
respect to a Collaboration Target, the Unilateral Development and Commercialization Agreement set
forth in Appendix D-1 shall be automatically amended to include such Collaboration Target
and any Antibody Products with respect thereto. Upon receipt by Medarex of an Election Notice from
Avalon with respect to a Collaboration Target, the Unilateral Development and Commercialization
Agreement set forth in Appendix D-2 shall be automatically amended to include such
Collaboration Target and any Antibody Products with respect thereto. Upon such amendment of a
Unilateral Development and Commercialization Agreement pursuant to this Section 5.1.2, the
applicable Antigen shall cease to be a Collaboration Target and Appendix C shall be amended
accordingly, all Antibodies and all Antibody Products with respect to such former Collaboration
Target shall cease to be

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

14

 

Collaboration Antibodies or Collaboration Products, as applicable, and any
licenses granted pursuant to Article 3, with respect to such Antigen and any Antibodies and
Antibody Products with respect thereto, shall terminate. The Parties shall work together to ensure
a smooth and orderly transition of the Unilateral Products to the non-Opting-Out Party, including
the assignment of any contracts with respect to the Exploitation of such Unilateral Products to the
non-Opting-Out Party, and the assumption by the non-Opting-Out Party of any obligations thereunder.
Except for the obligations provided for in Section 5.1.1, the Opting-Out Party shall have (x) no
further financial obligation to support or otherwise fund any additional efforts in respect of such
Unilateral Products, and (y) no obligation, responsibility, or authority regarding such additional
efforts in respect of such Unilateral Products. In the event that neither Party elects to proceed
with the research, development or commercialization of any Collaboration Product with respect to a
Collaboration Target, the rights and obligations of the Parties with respect to such Collaboration
Target shall be governed by Sections 5.2 and 5.3.

               (b) Opt-Out of Unilateral Products. If, at any time, the non-Opting Out Party elects to
Opt-Out of all Unilateral Products with respect to a Unilateral Target (as defined in the
applicable Unilateral Development and Commercialization Agreement) pursuant to such Unilateral
Development and Commercialization Agreement and the other Party does not elect to proceed
unilaterally with the research, development and commercialization of such Unilateral Products, such
Unilateral Target shall become a Collaboration Target and all such Unilateral Products shall become
Dormant Products pursuant to Section 5.3 and the non-Opting Out Party shall, without any additional
consideration, assign * of its right, title and interest in and to any product Trademark and
all Regulatory Documentation with respect to such Unilateral Products, including any Regulatory
Approvals and applications therefor (but excluding any Regulatory Documentation comprising
Production Process Technology, including any drug master file), to the other Party. In the event
the Parties elect to proceed jointly with the research, development and commercialization of such
Dormant Product as a Collaboration Product pursuant to Section 5.3 or to sublicense such Dormant
Product to a Third Party pursuant to
Section 5 (whereupon such Dormant Product shall become a Collaboration Product), all milestone
payments that were paid by the non-Opting-Out Party to the Opting-Out Party with respect to such
Dormant Product under the applicable Unilateral Development and Commercialization Agreement shall
be refunded by the Opting-Out Party and the Opting-Out Party shall reimburse the non-Opting-Out
Party for * of its Unilateral Expenses (as defined in the applicable Unilateral Development and
Commercialization Agreement) in connection with the Exploitation of such Dormant Product under the
applicable Unilateral Development and Commercialization Agreement.

     Section 5.2
Third-Party Development and Commercialization of Collaboration Products. If both
Parties do not elect to proceed with the development and commercialization of a Collaboration
Product in one or more countries in the Territory, the Parties shall have the right, at any time,
to license rights to such Collaboration Product to Third Parties in one or more such countries on
such terms and conditions as the Parties may mutually agree; provided that (a) any such sublicense
with respect to the Medarex Technology shall be governed by the procedures set forth in Sections
3.3.5 and 3.4 and any such sublicense with respect to any other Technology of a Party shall be
governed by the procedures set forth in Section 3.4; and (b) if there is any dispute between the
Parties as to whether or not to grant such a license, no such license shall be granted

 

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

15

 

and such
dispute shall not be subject to litigation or any other Third Party dispute resolution mechanism.

     Section 5.3 Dormant Products. If both Parties do not elect to proceed with the development
and commercialization of a particular Collaboration Product with respect to a Collaboration Target,
and the Parties have not licensed rights to such Collaboration Product to a Third Party pursuant to
Section 5.2 that would be inconsistent therewith, (each such Collaboration Product with respect to
a Collaboration Target may also be referred to as a “Dormant Product”) either Party shall have the
right at any time, subject to Section 3.3, to bring such Dormant Product to the Steering Committee
to discuss whether to initiate or reinitiate the research, development or commercialization of such
Dormant Product. The initiating Party shall specify the reasons for proposing to initiate or
reinitiate such research, development or commercialization. If, within thirty (30) days after the
receipt of such notice, the other Party fails to notify the interested Party in writing that it
wishes to participate in the research, development or commercialization of such Dormant Product,
then the interested Party shall have the fight to pursue research, development or commercialization
of such Dormant Product as a Unilateral Product pursuant to Section 5.1, provided that no
Collaboration Product or Unilateral Product with respect to the same Collaboration Target or
Unilateral Target as such Dormant Product is being Exploited under this Agreement or by the other
Party under a Unilateral Development and Commercialization Agreement.

ARTICLE 6 -

CONFIDENTIALITY

     Section 6.1 Definition
“Confidential Information” of a Party shall mean all information and know-how and any
tangible embodiments thereof provided by or on behalf of such Party to the other Party either in
connection with the discussions and negotiations pertaining to, or in the course of performing,
this Agreement or the Unilateral Development and Commercialization Agreements, including the terms
of this Agreement and the Unilateral Development and Commercialization Agreements; data; knowledge;
practices; processes; ideas; research plans; engineering designs and drawings; research data;
manufacturing processes and techniques; scientific, manufacturing, marketing and business plans;
and financial and personnel matters relating to the disclosing Party or to its present or future
products, sales, suppliers, customers, employees, investors or business. For purposes of this
Agreement, notwithstanding the Party that disclosed such information or know-how, all Avalon
Know-How and all information or know-how with respect thereto, shall be Confidential Information of
Avalon and all Medarex know-how, including all Mice-Related Know-How, and all information and
know-how with respect thereto, shall be Confidential Information of Medarex. For the avoidance of
doubt, Avalon shall be the receiving Party with respect to the Mice-Related Technology irrespective
of the Party that developed or disclosed such Technology. For purposes of this Agreement, subject
to section 7.1.5, Collaboration Technology, with respect to confidentiality and non-use obligations
of Medarex, shall be Confidential Information of Avalon, and Medarex shall be the receiving Party,
and, with respect to confidentiality and non-use obligations of Avalon, shall be Confidential
Information of Medarex, and Avalon shall be the receiving Party.

 

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

16

 

     Section 6.2 Exclusions. Notwithstanding the foregoing, information or know-how of a Party
shall not be deemed Confidential Information with respect to a receiving Party for purposes of this
Agreement, if such information or know-how:

               (a) was already known to the receiving Party or its Affiliates, other than under an obligation
of confidentiality or non-use, at the time of disclosure to such receiving Party;

               (b) was generally available or known to parties reasonably skilled in the field to which such
information or know-how pertains, or was otherwise part of the public domain, at the time of its
disclosure to such receiving Party;

               (c) became generally available or known to parties reasonably skilled in the field to which
such information or know-how pertains, or otherwise became part of the public domain, after its
disclosure to such receiving Party through no fault of a Party other than the party that Controls
such information and know-how;

               (d) was disclosed to such receiving Party or its Affiliates, other than under an obligation of
confidentiality or non-use, by a Third Party who had no obligation to the Party that Controls such
information and know-how not to disclose such information or know-how to others; or

               (e) was independently discovered or developed by such receiving Party or its Affiliates, as
evidenced by their written records, without the use of Confidential
Information belonging to the Party that Controls such information and know-how, except with
respect to the Mice-Related Know-How, which shall be and remain Confidential Information of
Medarex.

Specific aspects or details of Confidential Information shall not be deemed to be within the public
domain or in the possession of a Party merely because the Confidential Information is embraced by
more general information in the public domain or in the possession of such Party. Further, any
combination of Confidential Information shall not be considered in the public domain or in the
possession of a Party merely because individual elements of such Confidential Information are in
the public domain or in the possession of such Party unless the combination and its principles are
in the public domain or in the possession of such Party.

     Section 6.3 Disclosure and Use Restriction. Except as expressly provided herein, the Parties
agree that, for the Term and for * thereafter, each Party and its Affiliates and sublicensees
shall keep completely confidential and shall not publish or otherwise disclose and shill not use
for any purpose except for the purposes contemplated by this Agreement any Confidential Information
of the other Party, its Affiliates or sublicensees.

     Section 6.4 Authorized Disclosure. Each Party may disclose Confidential Information of the
other Party to the extent that such disclosure is:

          6.4.1 Required by Governmental Order. Made in response to a valid order of a court of
competent jurisdiction or other supra-national, federal, national, regional, state,

 

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

17

 

provincial or
local governmental or regulatory body of competent
jurisdiction;provided, however, that such Party
shall first have given notice to such other Party and given such other Party a reasonable
opportunity to quash such order and to obtain a protective order requiring that the Confidential
Information and documents that are the subject of such order be held in confidence by such court or
agency or, if disclosed, be used only for the purposes for which the
order was issued; and provided
further that if a disclosure order is not quashed or a protective order is not obtained, the
Confidential Information disclosed in response to such court or governmental order shall be limited
to that information which is legally required to be disclosed in response to such court or
governmental order;

          6.4.2 Required by Law. Otherwise required by law; provided, however, that the
disclosing Party shall (a) provide the other Party with reasonable advance notice of and an
opportunity to comment on any such required disclosure, (b) if requested by such other Party, seek
confidential treatment with respect to any such disclosure to the extent available, and (c) use
good faith efforts to incorporate the comments of such other Party in any such disclosure or
request for confidential treatment;

          6.4.3
Required by Regulatory Authority.
 Made by such Party to the Regulatory Authorities as required in connection with any filing,
application or request for Regulatory Approval; provided, however, that reasonable
measures shall be taken to assure confidential treatment of such information.

          6.4.4 Required by Agreement. Made by such Party, in connection with the performance of this
Agreement to Affiliates, permitted sublicensees, research parties, employees, consultants,
representatives or agents, each of whom prior to disclosure must be bound by obligations of
confidentiality and non-use at least equivalent in scope to those set forth in this Article 6; or

          6.4.5 Required by Certain Third Parties. Made by such Party to existing or potential
acquirers or meager candidates; existing or potential pharmaceutical collaborators (to the extent
contemplated hereunder); investment bankers; existing or potential investors, venture capital films
or other financial institutions or investors for purposes of obtaining financing; or Affiliates,
each of whom prior to disclosure must be bound by obligations of confidentiality and non-use at
least equivalent in scope to those set forth in this Article 6. Notwithstanding this Section
6.4.5, Avalon shall not disclose any item of Medarex’s Confidential Information to any existing or
potential acquirer, merger partner or collaborator that is substantially involved in the
Exploitation of Antibodies or Antibody Products without first providing Medarex with reasonable
advance written notice of each such disclosure.

     Section 6.5 Use of Name. Each Party may use the name, insignia, symbol, trademark, trade name
or logotype of the other Party only (a) in connection with announcements and other permitted
disclosures relating to this Agreement and the activities contemplated hereby, (b) as required by
Applicable Law, and (c) otherwise as agreed in writing by such other Party.

     Section 6.6 Press Releases. Press releases or other similar public communication by either
Party relating to this Agreement, shall be approved in advance by the other Party, which

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

18

 

approval
shall tot be unreasonably withheld or delayed, except for those communications required by
Applicable Law (which shall be provided to the other Party as soon as practicable after the release
or communication thereof), disclosures of information for which consent has previously been
obtained, and information of a similar nature to that which has been previously disclosed publicly
with respect to this Agreement, each of which shall not require advance approval.

     Section 6.7 Publications. The parties acknowledge that scientific lead-time is a key element
of the value of the research and development activities under the Collaboration and further agree
that scientific publications must be strictly monitored to prevent any adverse effect from
premature publication of results of the research or development activities hereunder. At least *
prior to submission of any material related to the research or development activities hereunder
for publication or
presentation, the submitting Party shall provide to the other Party a draft of such material
for its review and comment. The receiving party shall provide any comments to the submitting party
within * of receipt of such materials. No publication or presentation with respect to the
research or development activities hereunder shall be made unless and until the other Party’s
comments on the proposed publication or presentation have been addressed and changes have been
agreed upon and any information determined by the other Party to be Confidential Information has
been removed. If requested in writing by the other party, the submitting Party shall withhold
material from submission for publication or presentation for an additional * to allow for the
filing of a patent application or the taking of such measures to establish and preserve proprietary
rights in the information in the material being submitted for publication or presentation.

ARTICLE 7 -

INTELLECTUAL PROPERTY

     Section 7.1 Intellectual Property Ownership.

          7.1.1 Ownership of Medarex Technology. Subject to the license grants to Avalon under Article
3, as between the Parties, Medarex shall own and retain all right, title and interest in and to any
and all: (a) Information and Inventions that are conceived, discovered, developed or otherwise
made, by or on behalf of Medarex (or its Affiliates or its licensees or sublicensees (other than
Avalon and its Affiliates)), whether or not patented or patentable, and any and all Patent and
other intellectual property rights with respect thereto, except to the extent that any such
Information and Inventions, or any Patent or other intellectual property rights with respect
thereto, are Collaboration Technology; (b) other Information and inventions, and Patent and other
intellectual property rights that are Controlled (other than pursuant to the license grants set
forth in Article 3) by Medarex, its Affiliates or its licensees or sublicensees (other than Avalon
and its Affiliates); and (c) other Medarex Technology.

          7.1.2 Ownership of Avalon Technology. Subject to Section 7.1.3 and, the license grants to
Medarex under Article 3, as between the Parties, Avalon shall own and retain all right, title and
interest in and to any and all: (a) Information and Inventions that are conceived, discovered,
developed or otherwise made, by or on behalf of Avalon (or its Affiliates or its licensees or
sublicensees (other than Medarex and its Affiliates)), whether or not patented or

 

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

19

 

patentable, and
any and all Patent and other intellectual property tights with respect thereto, except to the
extent that any such Information and Inventions, or any Patent or other intellectual property
rights with respect thereto, are Collaboration Technology or Mice Materials or Mice-Related
Technology, (b) other Information and Inventions, and Patent and other intellectual property rights
that are Controlled (other than pursuant to the license grants set forth in Article 3) by Avalon,
its Affiliates or its licensees or sublicensees (other than Medarex and its Affiliates); and (c)
other Avalon Technology.

          7.1.3
Ownership of Mice-Related Technology.
Subject to the license grants to Avalon under Article 3, as between the Parties, Medarex
shall own and retain all right, title and interest in and to all Mice Materials and Mice-Related
Technology, including any and all Information and Inventions with respect to the Mice Materials or
the Mice-Related Technology (including any Improvements thereto) that, as a result of the use of
HuMab Mice provided by Medarex to Avalon under this Agreement, are conceived, discovered, developed
or otherwise made, by or on behalf of Avalon, its Affiliates or its licensees or sublicensees
(other than Medarex and its Affiliates), whether or not patented or patentable, and any and all
Patent and other intellectual property rights with respect thereto. Avalon acknowledges and agrees
that (a) the licenses granted to it pursuant to Article 3 permit Avalon to use Mice Materials and
Mice-Related Technology solely for the Exploitation of Collaboration Products as provided in this
Agreement, (b) Avalon has no right to use the HuMAb Mice or to discover, develop or otherwise make
Improvements with respect to Mice Materials and Mice-Related Technology under such grants, and (c)
neither it, nor any of its Affiliates, licensees or sublicensees, will engage, directly or
indirectly, in activities deigned to, or otherwise undertake or attempt, either on behalf of itself
or another, to discover, develop or make any Information and Inventions that relate to the Mice
Materials or the Mice-Related Technology by use of HuMab Mice provided by Medarex to Avalon under
this Agreement. Accordingly, Avalon shall promptly disclose to Medarex in writing, the conception
or reduction to practice, or the discovery, development or making of any such Information and
Inventions that relate to the Mice Material or Mice-Related Technology that results from use of
HuMab Mice provided by Medarex to Avalon under this Agreement and shall, and does hereby, assign,
and shall cause its Affiliates, licensees and sublicensees to so assign, to Medarex, without
additional compensation, all of their respective rights, titles and interests in and to any such
Information and Inventions.

          7.1.4 Ownership of Production Process Technology. Each Party shall own and retain all right,
title and interest in and to such Party’s Production Process Technology, including any and all
Information and Inventions with respect to such Production Process Technology (including any
Improvements thereto) that are conceived, discovered, developed or otherwise made, by or on behalf
of such Party, its Affiliates or, to the extent permitted, its sublicensees, whether or not
patented or patentable, and any and all Patent and other intellectual property rights with respect
thereto. Except as the Parties may otherwise expressly agree, including by separate written
agreement pursuant to Section 1.2.8 or Section 1.6, neither Party shall have any rights, express or
implied, under this Agreement with respect to any Production Process Technology of the other Party
and nothing in this Agreement intended to or shall be interpreted as granting a Party any license
to such Production Process Technology, whether subordinate or dominant to any other Technology.

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

20

 

          7.1.5 Ownership of Collaboration Technology. Subject to Sections 7.1.3 and 7.1.4 and the
license grants under Article 3, the Parties shall each own an equal, undivided interest in any
Collaboration Technology; provided, however, that, except as otherwise expressly
provided in this Agreement or the Unilateral Development and Commercialization Agreements, neither
a Party nor any of its Affiliates, licensees or sublicensees shall, directly or indirectly, Exploit
any Collaboration Technology, or any intellectual property rights with respect thereto, without the
written consent of the other
Party, not to be unreasonably withheld or delayed, except that each Party shall have the right
to Exploit such Collaboration Technology for research and discovery purposes (as opposed to the
development, commercialization or other Exploitation of products or technology resulting
therefrom), and to license others to do so, without the consent of the other Party;
provided, however, that, except as expressly provided in the Unilateral Development
and Commercialization Agreements attached hereto, neither Party shall have the right to use or
otherwise Exploit outside the Collaboration any Collaboration Antibodies, Collaboration Products or
other Mice Materials produced under this Agreement. Each Party shall promptly disclose to the
other Party in writing, and shall cause its Affiliates, licensees and sublicensees to so disclose,
the development, making, conception or reduction to practice of any Collaboration Technology, and
shall, and does hereby, assign, and shall cause its Affiliates, licensees and, unless otherwise
agreed by the Parties, sublicensees to so assign, to the other Party, without additional
compensation, such right, title and interest in and to any collaboration Technology as well as any
intellectual property rights with respect thereto, as is necessary to fully effect the joint
ownership provided for in the foregoing sentence.

          7.1.6 Ownership of Product Trademarks. Subject to the license grants in Article 3, the
Parties shall each own an equal, undivided interest in each Product Trademark with respect to a
Collaboration Product. In the event that a Party Opts-Out with respect to a Collaboration Product,
it shall, without any additional consideration, assign all of its right, title and interest in and
to any Product Trademark with respect to such collaboration Product or Unilateral Product to the
non-Opting-Out Party; provided, however, that each Party shall retain all of its
right, title and interest in and to any Product Trademarks with respect to Dormant Products.

          7.1.7 Ownership of Regulatory Documentation.

               (a) Subject to the license grants in Article 3, each Regulatory Approval with respect to a
Collaboration Product shall be owned by one of the Parties, with such ownership being determined by
the Steering Committee based on the activities of the Parties with respect to such Collaboration
Product. The Steering Committee shall make such determination on a county-by-country basis, based
on which Party will be better able to obtain and maintain such Regulatory Approval and satisfy its
regulatory obligations with respect to such ownership in such country, including, for example, to
promptly respond to queries of, and file reports with, the applicable Regulatory Authority with
respect to such Regulatory Approval in such country. Factors to be considered in making such
determination shall include whether a Party is performing activities that would give rise to
reporting obligations under such Regulatory Approval (e.g., clinical studies under an IND or
marketing under a BLA), whether a Party performed activities that support such Regulatory Approval
(e.g., pre-clinical studies with respect to an IND or clinical studies with respect to a BLA),
whether a Party has particular

 

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

21

 

experience with Antibody Products or the indication in question, whether a Party has experience with the Regulatory Authorities in a country, particularly with
respect to the activities involved, and whether a party has appropriate regulatory personnel in a
country. Notwithstanding the Party that owns a Regulatory Approval, the Parties shall cooperate in
satisfying their obligations under such Regulatory Approval, including by promptly exchanging
information, such as adverse event data, so as to enable the owner to make reports to, and respond
to requests of, the Regulatory Authorities and perform its other obligations under such Regulatory
Approval.

               (b) Subject to the license grants in Article 3, each Party shall, to the extent permitted by
law, have an equal, undivided interest in all other Regulatory Documentation. Subject to the
foregoing sentence, each Party shall promptly (i) disclose to the other Party in writing, and shall cause its Affiliates, licensees and sublicensees to so
disclose, such other Regulatory Documentation, and (ii) assign, or cause its Affiliates, licensees
or sublicensees to assign, to the other party, without additional compensation, such right, title
and interest in and in such other Regulatory Documentation as is necessary to fully effect the
joint ownership provided for in the foregoing sentence. Each non-Opting-Out Party shall have the
right to own all right, title and interest in and to all Regulatory Approvals with respect to its
Unilateral Products. In the event that a Party Opts-Out with respect to a Collaboration Product,
it shall assign all of its right, title and interest in and to all Regulatory Documentation with
respect to such Collaboration Product, including any Regulatory Approvals and applications
therefor, to the non-Opting Out Party (or its designee); provided, however, that
each Party shall retain any of its right, title and interest in and to any Regulatory Documentation
with respect to a Dormant Product.

               (c) Notwithstanding the ownership of any regulatory Approval or any other Regulatory
Documentation, neither a Party nor any of its Affiliates, licensees or sublicensees shall, directly
or indirectly, transfer or use any regulatory Documentation without the written consent of the
other Party, not to be unreasonably withheld OT delayed; provided, however, that each Party shall
have the right to use and reference any of the Regulatory Documentation in connection with the
Exploitation of Collaboration Products as provided in this Agreement or Unilateral Products as
provided in any Unilateral Development and Commercialization Agreement. Notwithstanding the
foregoing, any regulatory Documentation containing Production Process Know-How of a Party shall be
and remain the sole and exclusive property of such Party and such Party shall have the right to
submit any such Production Process Know-How directly to the Regulatory Authorities using a drug
master file, or any foreign equivalent that is designed to protect such Party’s Confidential
Information, which filing shall be and remain the sole and exclusive property of such Party.

          7.1.8 United States, Law. The determination of whether Information and Inventions are
conceived, discovered, developed or otherwise made by a Party for the purpose of allocating
proprietary rights (including Patent, copyright or other intellectual property rights) therein,
shall, for purposes of this Agreement, be made in accordance with applicable United States law.

     Section 7.2 Prosecution of Patents and Trademarks.

 

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

22

 

          7.2.1 Medarex Rights. As between the Parties, Medarex shall, subject to Section 7.2.5, have
the sole right, at its cost and expense, to obtain, prosecute and maintain throughout the world the
Medarex Patents, including the Mice-Related Patents and its Production Process Patents.

          7.2.2 Avalon Rights. As between the Parties, Avalon shall, subject to Section 7.2.5, have the
sole right, at its cost and expense, to obtain, prosecute and maintain throughout the world the
Avalon Patents, including its Production Process Patents.

          7.2.3 Collaboration Technology and Product Trademarks.

               (a) Filings of Patents. The Steering Committee shall formulate a strategy for the filing,
prosecution and maintenance of Collaboration Patents. Subject to Section 7.2.6, the Parties shall,
and shall cause their respective Affiliates, licensees and sublicensees, as applicable, to,
cooperate with one another with respect to the filing, prosecution and maintenance of all
Collaboration Patents, including by selecting outside counsel, reasonably acceptable to the
parties, to handle such filing, prosecution and maintenance. The Steering Committee shall
establish a process under which each Party shall have a reasonable opportunity to review and
comment upon drafts of each new application for a Collaboration Patent and all substantive
correspondence to or from any patent authority with respect thereto, prior to the filing of such
application or correspondence. The Parties shall share equally in the expenses associated with the
filing, prosecution (including any interferences, reissue proceedings and reexaminations) and
maintenance of all Collaboration Patents.

               (b) Filings of Product Trademarks. The Steering Committee, with respect to a Collaboration
Product, shall supervise and direct the filing, prosecution and maintenance of the registrations of
the Product Trademarks for such Collaboration Product. The Steering Committee shall provide each
party with (i) drafts of any new application to register a Product Trademark prior to filing that
application, allowing adequate time for review and comment by the
Parties if possible; provided,
however, the Steering Committee shall not be obligated to delay the filing of any application; and
(ii) copies of all correspondence from any and all Trademark offices concerning Product Trademark
registrations and an opportunity to comment on any proposed responses, voluntary amendments and
submissions of any kind to be made to any and all such Trademark offices. Subject to Section
7.2.6, the Parties shall share equally in the expenses associated with the filing, prosecution and
maintenance of such Product Trademark registrations.

          7.2.4 Cooperation. Each party shall., and shall cause its Affiliates, licensees and
sublicensees, as applicable, to, cooperate fully in the preparation, filing, prosecution, and
maintenance of the Product Trademarks and, if requested by the other Party, such other Party’s
Patents, provided that such other party shall reimburse the cooperating Party for its reasonable
out-of-pocket expenses incurred in connection with such requested cooperation. Such cooperation
includes (a) promptly executing all papers and instruments and requiring employees to execute such
papers and instruments as reasonable and appropriate so as to enable such other Party or the
Steering Committee, as applicable, to file, prosecute, and maintain its Patents in any

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

23

 

country; and (b) promptly informing such other Party of matters that may affect the preparation, filing,
prosecution, or maintenance of any such Patents.

          7.2.5 Patent Filings. Avalon covenants not to, and to cause its Affiliates, licensees and
sublicensees, as applicable, not to, file any patent application disclosing or claiming any
Information and Inventions comprising any Medarex Technology or the Exploitation thereof, without
Medarex’s prior written consent, which consent shall not be unreasonably withheld or delayed. Medarex
covenants not to, and to cause its Affiliates, licensees and sublicensees, as applicable, not to,
file any patent application disclosing or claiming any Information and Inventions comprising any
Avalon Technology or the Exploitation thereof, without Avalon’s prior written consent, which
consent shall not be unreasonably withheld or delayed.

          7.2.6 Election Not to Prosecute. If a Party elects not (a) to pursue the filing, prosecution
or maintenance of a Collaboration Patent in a particular country, (b) to pursue the registration,
prosecution or maintenance of a Product Trademark in a particular country, or (c) to take any other
action with respect to Collaboration Technology or a Product Trademark in a particular country that
is necessary or reasonably useful to establish or preserve rights thereto, then in each such case
such Party shall so notify the other Party promptly in writing and in good time to enable such
other Party to meet any deadlines by which an action must be taken to establish or preserve any
such rights in such Collaboration Technology or Product Trademark, as applicable, in such country.
Upon receipt of each such notice by such other Party or if, at any time, such Party fails to
initiate any such action within * after a request by such other Party that it do so (or
thereafter diligently pursue such action), such other Party shall have the right, but not the
obligation, to pursue the filing or registration, or support the continued prosecution or
maintenance, of such Patent or Product Trademark, as applicable, at its expense in such country.
If such other Party elects to pursue such filing or registration, as the case may be, or continue
such support, then such other Party shall notify such Party of such election and such Party shall,
and shall cause its Affiliates, licensees and sublicensees, as applicable, to, (x) reasonably
cooperate with such other Party in this regard, and (y) subject to Article 3, promptly release or
assign to such other Party, without compensation, all right, title and interest in and to such
Collaboration Patent or Product, Trademark, as applicable, in such country.

     Section 7.3 Enforcement ,of Patents and Trademarks.

          7.3.1 Rights and Procedures. If Medarex or Avalon determines that any Technology or Product
Trademark is being infringed by a Third Party’s activities and that such infringement could affect
the exercise by the Parties of their respective rights and obligations under this Agreement, it
shall promptly notify the other Party in writing and provide such other Party with any evidence of
such infringement that is reasonably available. Promptly after the receipt of such written notice,
the Parties shall meet and discuss in good faith the removal of such infringement. The pursuing
Party shall consider in good faith any comments from the other Party and shall keep the other Party
reasonably informed of any steps taken to remove such infringement.

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

24

 

               (a) Collaboration Technology and Product Trademarks. With respect to Collaboration Technology
and Product Trademarks, the Steering Committee shall have the first right to remove such
infringement * , including the filing of an infringement suit or taking other similar action * . In the event the Steering Committee fails to * to remove any infringement of any such
Collaboration Technology or Product Trademark within * following notice of such infringement, or earlier notifies the Parties in writing of its intent not to
take such steps, and (i) such failure to act is due to the refusal of one Party’s representatives
on the Steering Committee to authorize action over the objection of the other Party’s
representatives, then the Party whose representatives wish to proceed shall have the right to do so
at its expense, or (ii) such failure to act is due to any reason other than as set forth in clause
(i) above, then either Party shall have the right to proceed at
its expense; provided,
however, that if the Steering Committee has commenced negotiations with an alleged infringer for
discontinuance of such infringement within such * period, the Steering Committee shall have an
additional * to conclude its negotiations before a Party unilaterally may bring suit for such
infringement.

               (b) Other Technology. With respect to Technology of a Party that is not Collaboration
Technology, the owner of such Technology shall have the sole right, but not the obligation, to
remove such infringement; provided, however, that if the other Party agrees in
writing to the removal of such infringement, the other Party shall reimburse the owner of such
Technology * incurred by such owner with respect to the removal of any such infringement.

          7.3.2 Cooperation. The Party not enforcing the applicable Technology or Product Trademark
shall provide seasonable assistance to the other Party, including providing access to relevant
documents and other evidence, making its employees available at reasonable business hours, and
joining the action to the extent necessary to allow the enforcing Party to maintain the action.

          7.3.3 Recovery. Any amounts recovered by a Party in an enforcement pursuant to Section 7.3.1,
whether by settlement or judgment, shall be used to reimburse the Parties for their reasonable
costs and expenses in making such recovery (which amount shall be allocated pro rata if
insufficient to cover the totality of such expenses), with any remainder being retained by the
Party that has exercised its right to bring the enforcement action unless such enforcement action
was jointly funded by the Parties pursuant to Section 7.3.1, in which case such remainder shall be
shared by the Parties, to the extent that such enforcement was jointly funded.

      Section 7.4 Potential Third-Party Rights.

          7.4.1 Third-Party Licenses. If either Party becomes aware of any Patents issued to a Third
Party, which may be necessary or useful to practice in exploiting a Collaboration Product, such
Party shall discuss such matter with the other Party. The Parties, through the Steering Committee,
shall determine in good faith whether to seek a license under such Patents for such Exploitation.
Further, if (a) in the Collective Opinion of Counsel, a Party, or any of its Affiliates, licensees
or permitted sublicensees, cannot Exploit a Collaboration Product in a country in the Territory
without infringing one or more Patents that have issued to a Third Party in such country, or (b) as
a result of any claim made against a Party, or any of its Affiliates, licensees or permitted
sublicensees, alleging that the Exploitation of a Collaboration

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

25

 

Product infringes or misappropriates any Patent or any other intellectual property right of a Third Party in a country
in the Territory, a judgment is entered by a court of competent jurisdiction from which no appeal is taken within the time
permitted for appeal, such that a Party cannot Exploit such Collaboration Product in such country
without infringing the Patent or other proprietary rights of such Third Party, then, in either
case, the Parties shall * to obtain a license in the names of the Parties from such Third Party
as necessary for the Exploitation of any Collaboration Products hereunder in such country;
provided, however, that Medarex shall have the sole right to seek any such license
with respect to Mice-Related Technology and shall * to obtain such a license in its own name
from such Third Party in such country, under which Medarex shall, to the extent permissible under
such license, grant a sublicense to Avalon as necessary for Avalon, and any of its Affiliates and
permitted sublicensees, to Exploit the Collaboration Products as provided hereunder in such
country. * of any royalty or other obligations under such licenses, except with respect to the
Medarex Technology or the Avalon Technology, * . For purposes of this Section 7.4.1, “Collective
Opinion of Counsel” shall mean the final joint opinion of patent counsel selected by Avalon and
patent counsel selected by Medarex, after review of all data and information reasonably available
at the time such opinion is rendered. If patent counsel for the Parties cannot agree on a final
joint opinion within * after submission of the matter to such counsel, the patent counsel of the
Parties shall agree on a third patent counsel who shall offer an independent opinion on the subject
matter, which independent opinion shall be deemed the Collective Opinion of Counsel.

          7.4.2 Third-Party Litigation. In the event that a Third Party institutes a Patent, Trademark,
or other infringement suit (including any suit claiming confusion, deception or dilution of a
Trademark by a Product Trademark) against either Party or its respective Affiliates, licensees or
permitted sublicensees during the Term, alleging that the Exploitation of the Collaboration
Products in the Territory or any other activities hereunder, infringes one or more Patent,
Trademark or other intellectual property rights held by such Third party (an “Infringement
Suit’”‘), the Parties shall cooperate with one another in defending such suit. The Parties,
through the Steering Committee, shall jointly direct and control the defense of any Infringement
Suit with respect to Collaboration Products or any other activity of the Parties under this
Agreement. * .

          7.4.3 Retained Rights. Nothing in this Section 7.4 shall prevent either Party, at its own
expense, from obtaining any license or other rights from Third Parties it deems appropriate in
order to permit the full and unhindered exercise of its rights under this Agreement.

     Section 7.5 Invalidity or Unenforceability Defenses or Actions.

          7.5.1
Defense or Counterclaims. In the event that a Third Party asserts, as a defense or as a
counterclaim in any infringement action under *, * then the Parties shall * . The Party or
Parties that are the plaintiffs in the underlying suit or action against such Third Party shall *.

          7.5.2 Declaratory Judgment Action . Similarly, if a Third Party asserts, in a declaratory judgment action or similar action or
claim filed by such Third Party based upon * , then the Parties shall * . The Party that is
the defendant in such claim, suit or action shall * .

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

26

 

          7.5.3 Mice-Related Technology. * .

          7.5.4 Costs and Expenses. * . With respect to the Medarex Technology (including the
Mice-Related Technology) or the Avalon Technology, * .

     Section 7.6 Exchange of Know-How.

          7.6.1 Information Disclosure. Each Party shall, and shall cause its Affiliates, licensees and
sublicensees, as applicable, to, without additional compensation and at such Party’s sole expense,
disclose and make available to the other Party, in whatever form each such other Party may
reasonably request, all Regulatory Documentation, all of its other Know-How, all Information and
Inventions included in the Collaboration Technology and any other Information and Inventions
relating, directly or indirectly, to the Exploitation of any Collaboration Products immediately
after an Antigen becomes a Collaboration Target and thereafter immediately upon the earlier of the
conception or reduction to practice, discovery, development or making of each such Regulatory
Documentation, Know-How, or other such Information and Inventions

          7.6.2 Cooperation. With respect to the research, development, commercialization or other
Exploitation of the Collaboration Products, each Party, shall cooperate with any and all reasonable
requests for assistance from the other Party, including by making its employees, consultants and
other scientific staff available upon reasonable notice during normal business hours at their
respective places of business to consult with such other Party, as applicable, on issues arising
during such research, development, commercialization or Exploitation.

          7.6.3 Biological Materials. For purposes of facilitating the conduct of the research and
development activities under this Agreement, Medarex and Avalon shall each provide to the other
tissues, cells, cell lines, organisms, blood samples, genetic material, and other biological
substances and materials, including the Mice Materials, the Collaboration Targets and other
Antigens (collectively, “Biological Materials”) specified from time to time in this Agreement or
the applicable Project Plan. Each Party agrees to provide all such Biological Materials to the
other in accordance with this Agreement and the applicable Project Plan, and under the supervision
of the Steering Committee. The Parties agree that: (a) all Biological Materials provided by one
Party to the other Party and any Biological Material (including Collaboration Products and other
Mice Materials) produced against or with, or derived from, such Biological Materials shall be used
solely for the research and development activities as provided in the Project Plan, and in material
compliance with all Applicable Law; (b) all such Biological Materials shall be provided without any
warranties, express or implied; (c) the Party providing such Biological Materials shall obtain (or
cause its Third Party collaborators to obtain or certify that they have obtained) all appropriate
and required consents from the source of such Biological Materials; (d) Biological Materials
provided by one Party to the other Party (other than Collaboration Products) shall not be made
available by such other Party to any Third Party except as expressly provided (i) in the Project
Plan or (ii) in the applicable Unilateral Development and Commercialization Agreement, unless the
prior written consent of the Party providing such Biological Materials is first obtained; and (e)
subject to the license grants in

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

27

 

Article 3, all right, title and interest in and to the Mice Materials and the Mice-Related Technology shall be, and remain, vested in Medarex.

          7.6.4 Regulatory Records. With respect to the subject matter of this Agreement, each Party
shall maintain, or cause to be maintained, records of its respective research, development,
manufacturing and commercialization activities, including all Regulatory Documentation, in
sufficient detail and in good scientific manner appropriate for patent and regulatory purposes,
which shall be complete and accurate and shall fully and properly reflect all work done and results
achieved in the performance of such activities, and which shall be retained during the Term and for
a period of five (5) years thereafter, or for such longer period as may be required by Applicable
Law. Each Party shall have the right, during normal business hours and upon reasonable notice, to
inspect and copy any such records, except (a) with respect to Medarex’s records, to the extent that
such records contain proprietary information with respect to the Mice Materials and Mice-Related
Technology, or (b) with respect to a Party’s records, to the extent that such records contain
proprietary information with respect to its Production Process Technology.

          7.6.5 Production Process Technology. Notwithstanding anything to the contrary in this Section
7.6 or elsewhere in this Agreement, neither Party shall be obligated to disclose or provide any of
its Production Process Technology, including Biological Materials with respect thereto, to the
other Party or any Third Party except as may be required or permitted under a separate written
agreement entered into by the Parties pursuant to Section 1.2.8 or Section 1.6.

ARTICLE 8 -

TERM AND TERMINATION

     Section 8.1 Term. The term of this Agreement (the “Term”) shall commence upon the Effective
Date and shall continue in effect until the later of (a) the first anniversary of the completion of
all of the activities in Section 1.2, or (b) such time as there is no longer any (i) Dormant
Product with respect to which the Parties have rights pursuant to Section 5.3, or (ii)
Collaboration Product being Exploited hereunder, whether pursuant to Section 1.7 or otherwise, or
any Unilateral Product being Exploited under a Unilateral Development and Commercialization
Agreement, unless this Agreement is terminated at an earlier date in accordance with the terms and
conditions set forth in this Article 8.

     Section 8.2 Termination for Material Breach. Any material failure by a Party to comply with
any of its material obligations contained herein shall entitle the Party not in default to give to
the Party in default written notice specifying the nature of the default, requiring the defaulting
Party to make good or otherwise cure such default, and stating its intention if such default is not
cured to terminate or, at the option of the Party not in default, to convert a Collaboration
Product to which the material breach applies to a Unilateral Product pursuant to Section 5.1. If
such default is not cured within * after the receipt of such notice (or, if such default cannot
be cured within such * , if the Party in default does not commence actions to cure such default
within such period and thereafter diligently continue such actions or if such default is not
otherwise cured within * after the receipt of such notice), except in
the case of a 

 

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

28

 

payment default, as to which the defaulting Party shall have only a * cure period, the Party not in
default shall be entitled, on written notice to the other Party, without prejudice to any of its
other rights conferred on it by this Agreement, and in addition to any other remedies available to
it by law or in equity, to (a) terminate this Agreement in its entirety, or (b) convert such
Collaboration Product to a Unilateral Product pursuant to Section 5.1, whereupon the defaulting
Party shall be deemed the Opting-Out Party with respect to such Unilateral Product for all purposes
hereunder and the notice provided under this provision shall be deemed equivalent to an Election
Notice as provided in Section 5.1.

     Section 8.3 Termination Upon Insolvency. Either Party may terminate this Agreement if, at any
time, the other Party shall file in any court or agency pursuant to any statute or regulation of
any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or
for an arrangement or for the appointment of a receiver or trustee of that Party or of its assets,
or if such other Party proposes a written agreement of composition or extension of its debts, or if
such other Party shall be served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within * after the filing thereof, or if
such other Party shall propose or be a party to any dissolution or liquidation, or if such other
Party shall make an assignment for the benefit of its creditors.

     Section 8.4 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this
Agreement by Medarex or Avalon are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the United States Bankruptcy Code, licenses of rights to “intellectual property” as
defined under Section 101 of the United States Bankruptcy Code. The Parties agree that the
Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all
of their rights and elections under the United States Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against a Party under the
United States Bankruptcy Code, the Party hereto that is not a party to such proceeding shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, which, if not already in the non-subject
Party’s possession, shall be promptly delivered to it (a) upon any such commencement of a
bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party
subject to such proceeding continues to perform all of its obligations under this Agreement or (b)
if not delivered under clause (a) above, following the rejection of this Agreement by or on behalf
of the Party subject to such proceeding upon written request therefor by the non-subject Party.

     Section 8.5 Consequences of Expiration or Termination.

          8.5.1 Licenses. Upon expiration of the Term in accordance with Section 8.1 and payment of all
amounts owed pursuant to Section 4.1, the licenses granted by Medarex to Avalon, and by Avalon to
Medarex, hereunder shall become fully-paid up.

          8.5.2 Return of Information and Materials. Upon expiration of this Agreement pursuant to
Section 8.1, or upon termination of this Agreement in its entirety by either Party pursuant to this
Article 8, each Party, at the request of the other Party, shall return Biological Materials of such
other Party and all data, files, records and other materials in its

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

29

 

possession or control relating to such other Party’s Technology, or containing or comprising such other Party’s Information and
Inventions or other Confidential Information (other than Collaboration Technology) and, in each
case, to which the returning Party does not retain rights hereunder (except one copy of which
(other than Biological Materials) may be retained solely for archival purposes).

     Section 8.6 Accrued Rights; Surviving Obligations.

          8.6.1 Accrued Rights. Termination or expiration of this Agreement for any reason shall be
without prejudice to any rights that shall have accrued to the benefit of a Party prior to such
termination or expiration. Such termination or expiration shall not relieve a Party from
obligations that are expressly indicated to survive the termination or expiration of this
Agreement.

          8.6.2 Survival. Articles 4 (with respect to obligations arising prior to expiration or
termination), 6 and 9, and Sections 1.2.4 (with respect to obligations arising prior to the
expiration or termination of this Agreement), 1.7, 3.3.3, 3.3.5, 3.4 (with respect only to the last
sentence thereof), 3.5, 4.5, 7.1, 7.2, 7.6.3 (with respect only to the last sentence thereof),
7.6.4, 7.6.5, 8.5, 10.5, 11.5 and 11.6 and Appendices A and B of this Agreement and this Section
8.6 shall survive expiration or termination of this Agreement for any reason.

ARTICLE 9 -

INDEMNIFICATION AND INSURANCE

     Section 9.1 Indemnification of Medarex. Avalon shall indemnify Medarex, its Affiliates and
their respective directors, officers, employees and agents, and defend and save each of them
harmless, from and against any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys’ fees and expenses) (collectively, “Losses”) in connection with any and all
Third-Party suits, investigations, claims or demands (collectively, “Third-Party Claims”) arising
from or occurring as a result of (a) the negligence (except to the extent that such Loss is covered
by one or more liability insurance policies of the indemnified person or entity) or willful
misconduct on the part of Avalon or its Affiliates, licensees or sublicensees under this Agreement
(other than Medarex and its Affiliates and any Third Parties to whom the Parties license rights
with respect to a Collaboration Product pursuant to Section 5.2) in performing any activity
contemplated by this Agreement, except for those Losses for which Medarex has an obligation to
indemnify Avalon and its Affiliates pursuant to Section 9.2, as to which Losses each Party shall
indemnify the other to the extent of their respective liability for the Losses.

     Section 9.2 Indemnification of Avalon. Medarex shall indemnify Avalon, its Affiliates and
their respective directors, officers, employees and agents, and defend and save each of them
harmless, from and against any and all Losses in connection with any and all Third-Party Claims
arising from or occurring as a result of the negligence (except to the extent that such Loss is
covered by one or more liability insurance policies of the indemnified person or entity) or willful
misconduct on the part of Medarex or its Affiliates, licensees or sublicensees under this Agreement
(other than Avalon and its Affiliates and any Third Parties to whom the

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

30

 

Parties license rights with respect to a Collaboration Product pursuant to Section 5.2) in performing any activity contemplated
by this Agreement, except for those Losses for which Avalon has an obligation to indemnify Medarex
and its Affiliates pursuant to Section 9.1, as to which Losses each party shall indemnify the other
to the extent of their respective liability for the Losses.

     Section 9.3 Product Liability. Except as provided under Section 9.1 or Section 9.2, all
Losses arising from or occurring as a result of any Third-Party Claim for product liability or
personal injury that are not covered by one or mare insurance policies that were purchased jointly
by the Parties shall * .

     Section 9.4 Indemnification Procedure.

          9.4.1 Notice of Claim. The indemnified Party shall give the indemnifying Party prompt written
notice (an “Indemnification Claim Notice”) of any Losses or discovery of fact upon which such
indemnified Party intends to base a request for indemnification under Section 9.1 or Section 9.2,
but in no event shall the indemnifying Party be liable for any Losses that result from any delay in
providing such notice. Each Indemnification Claim notice must contain a description of the
claim and the nature and amount of such Loss (to the extent that the nature and amount of such Loss
are known at such time). The indemnified Party shall furnish promptly to the indemnifying Party
copies of all papers and official documents received in respect of any Losses. All indemnification
claims in respect of a Party, its Affiliates or their respective directors, officers, employees and
agents (collectively, the “Indemnitees” and each an “Indemnitee”) shall be made solely by such
Party to this Agreement (the “Indemnified Party”).

          9.4.2 Control of Defense. At its option, the indemnifying Party may assume the defense of any
Third-Party Claim by giving written notice to the Indemnified Party within * after the
indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of
a Third-Party Claim by the indemnifying Party shall not be construed as an acknowledgment that the
indemnifying Party is liable to indemnify any Indemnitee in respect of the Third-Party Claim, nor
shall it constitute a waiver by the indemnifying Party of any defenses it may assert against any
Indemnitee’s claim for indemnification. Upon assuming the defense of a Third-Party Claim, the
indemnifying Party may appoint as lead counsel in the defense of the Third-Party Claim any legal
counsel selected by the indemnifying Party. In the event the indemnifying Party assumes the
defense of a Third-Party Claim, the Indemnified Party shall immediately deliver to the indemnifying
Party all original notices and documents (including court papers) received by any Indemnitee in
connection with the Third-Party Claim. Should the indemnifying Party assume the defense of a
Third-Party Claim, the indemnifying Party shall not be liable to the Indemnified Party or any other
Indemnitee for any legal expenses subsequently incurred by such Indemnified Party or other
Indemnitee in connection with the analysis, defense or settlement of the Third-Party Claim. In the
event that it is ultimately determined that the indemnifying Party is not obligated to indemnify,
defend or hold harmless an Indemnitee from and against the Third-Party Claim, the Indemnified Party
shall reimburse the indemnifying Party for any and all costs and expenses (including attorneys’
fees and costs of suit) and any Losses incurred by the indemnifying Party in its defense of the
Third-Party Claim with respect to such Indemnitee.

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

31

 

          9.4.3 Right to Participate in Defense. Without limiting Section 9.4.2, any Indemnitee shall
be entitled to participate in, but not control, the defense of such Third-Party Claim and to engage
counsel of its choice for such purpose; provided, however, that such engagement
shall be at the Indemnitee’s own expense unless (a) the engagement thereof has been specifically
authorized by the indemnifying Party in writing, or (b) the indemnifying Party has failed to assume
the defense and engage counsel in accordance with Section 9.4.2 (in which case the Indemnified
Party shall control the defense).

          9.4.4 Settlement. With respect to any Losses relating solely to the payment of money damages
in connection with a Third-Party Claim and as to which the indemnifying Party shall have
acknowledged in writing the obligation to indemnify the Indemnitee hereunder, the indemnifying
Party shall have the sole right to consent to the entry of any judgment, enter into any settlement
or otherwise dispose of such Loss, on such terms as the indemnifying Party, in its sole
discretion, shall deem appropriate. With respect to all other Losses in connection with
Third-Party Claims, where the indemnifying Party has assumed the defense of the Third-Party Claim
in accordance with Section 9.4.2, the indemnifying Party shall have authority to consent to the
entry of any judgment, enter into any settlement or otherwise dispose of such Loss provided it
obtains the prior written consent of the Indemnified Party (which consent shall not be unreasonably
withheld or delayed). The indemnifying Party shall not be liable for any settlement or other
disposition of a Loss by an Indemnitee that is reached without the written consent of the
indemnifying Party. Regardless of whether the indemnifying Party chooses to defend or prosecute
any Third-Party Claim, no Indemnitee shall admit any liability with respect to, or settle,
compromise or discharge, any Third-Party Claim without the prior written consent of the
indemnifying Party.

          9.4.5 Cooperation. Regardless of whether the indemnifying Party chooses to defend or
prosecute any Third-Party Claim, the Indemnified Party shall, and shall cause each other Indemnitee
to, cooperate in the defense or prosecution thereof and shall furnish such records, information and
testimony, provide such witnesses and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be reasonably requested in connection therewith. Such cooperation shall
include access during normal business hours afforded to the indemnifying Party to, and reasonable
retention by the Indemnified Party of, records and information that are reasonably relevant to such
Third-Party Claim, and making Indemnitees and other employees and agents available on a mutually
convenient basis to provide additional information and explanation of any material provided
hereunder, and the indemnifying Party shall reimburse the Indemnified Party for all its reasonable
out-of-pocket expenses in connection therewith.

          9.4.6 Expenses. Except as provided above, the reasonable and verifiable costs and expenses,
including fees and disbursements of counsel, incurred by the Indemnified Party in connection with
any claim shall be reimbursed * basis by the indemnifying Party, without prejudice to the
indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject
to refund in the event the Indemnifying Party is ultimately held not to be obligated to indemnify
the Indemnified Party.

 

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

32

 

     Section 9.5 Insurance. Each Party shall have and maintain such types and amounts of liability
insurance as is normal and customary in the industry generally for parties similarly situated, and
shall upon request provide the other Party with a copy of its policies of insurance in that regard,
along with any amendments and revisions thereto.

ARTICLE 10 -

REPRESENTATIONS, WARRANTIES AND COVENANTS

     Section 10.1 Representations, Warranties and Covenants . Each Party hereby represents, warrants and covenants to the other Party as of the Effective
Date as follows:

          10.1.1 Corporate Authority. Such Party (a) has the power and authority and the legal right to
enter into this Agreement and the Unilateral Development and Commercialization Agreements and to
perform its obligations hereunder and thereunder, and (b) has taken all necessary action on its
part required to authorize the execution and delivery of this Agreement and the Unilateral
Development and Commercialization Agreements and the performance of its obligations hereunder and
thereunder. This Agreement and the Unilateral Development and Commercialization Agreements have
been duly executed and delivered on behalf of such Party and constitute legal, valid and binding
obligations of such Party and are enforceable against it in accordance with their respective terms
subject to the effects of bankruptcy, insolvency or other laws of general application affecting the
enforcement of creditor rights and judicial principles affecting the availability of specific
performance and general principles of equity, whether enforceability is considered a proceeding at
law or equity.

          10.1.2 Litigation. Such Party is not aware of any pending or threatened litigation (and has
not received any communication) that alleges (i) that such Party’s activities related to this
Agreement or the Unilateral Development and Commercialization Agreements have violated, or (ii)
that by conducting the activities as contemplated herein or therein such Party would violate, any
of the intellectual property rights of any other party.

          10.1.3 Consents, Approvals, etc. All necessary consents, approvals and authorizations of all
Regulatory Authorities and other parties required to be obtained by such Party in connection with
the execution and delivery of this Agreement and the Unilateral Development and Commercialization
Agreements and the performance of its obligations hereunder and thereunder have been obtained.

          10.1.4 Conflicts. The execution and delivery of this Agreement and the Unilateral Development
and Commercialization Agreements and the performance of such Party’s obligations hereunder and
thereunder (a) do not conflict with or violate any requirement of Applicable Law or any provision
of the articles of incorporation, bylaws or any similar instrument of such Party, as applicable, in
any material way, and (b) do not conflict with, violate, or breach or constitute a default or
require any consent under, any contractual obligation or court or administrative order by which
such Party is bound.

          10.1.5 Debarment. No such Party nor any of its Affiliates has been debarred or is subject to
debarment and neither such Party nor any of its Affiliates will use in any capacity, in connection
with the services to be performed under this Agreement or the Unilateral

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

33

 

Development and Commercialization Agreements, any party who has been debarred pursuant to Section 306 of the
Federal Food, Drug, and Cosmetic Act, as amended, or who is the subject of a conviction described
in such section. Each Party will inform the other Party in writing immediately if it or any party
who is performing services hereunder is debarred or is the subject of a conviction described in
Section 306, or if any action, suit, claim, investigation or legal or administrative proceeding is
pending or, to such Party’s knowledge, is threatened, relating to the debarment or conviction of
such Party or any party performing services hereunder or thereunder.

     Section 10.2 Additional Representations and Warranties of Medarex. Medarex represents and
warrants to Avalon that Medarex is a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey, and has full corporate power and authority and
the legal right to own and operate its property and assets and to carry on its business as it is
now being conducted and as it is contemplated to be conducted by this Agreement and the Unilateral
Development and Commercialization Agreements.

     Section 10.3 Additional Representations, Warranties and Covenant of Avalon.

          10.3.1 Avalon represents and warrants to Medarex that Avalon is a corporation duly organized,
validly existing and in good standing under the laws of Delaware, and has full corporate power and
authority and the legal right to own and operate its property and assets and to carry on its
business as it is now being conducted and as it is contemplated to be conducted by this Agreement
and the Unilateral Development and Commercialization Agreements. Avalon, as a sublicensee under
the MRC Agreement, shall comply with all the terms and conditions of the MRC Agreement that are
applicable to a sublicensee under such agreement.

          10.3.2 Avalon represents and warrants to Medarex that, except as set forth on Schedule 10.3.2,
as of the Effective Date, neither Avalon nor its Affiliates has, directly or indirectly, expressly
or by implication, by action or omission or otherwise (x) assigned, transferred, granted, conveyed
or otherwise encumbered any right, title or interest in or to any Patent, know-how or other
intellectual property rights owned by, licensed to or otherwise control-led by Avalon or its
Affiliates with respect to the initial Collaboration Targets listed on Appendix C that is
inconsistent with the rights granted to Medarex under this Agreement with respect to Collaboration
Products, or (y) agreed to or is otherwise bound by any covenant not to sue for any infringement,
misuse or otherwise with respect to the foregoing intellectual property rights that is inconsistent
with the rights granted to Medarex under this Agreement with respect to Collaboration Products.
Further, Avalon represents, warrants and covenants to Medarex that, except as disclosed to Medarex
in writing pursuant to Section 1.2.2(a)(iv) with respect to an Antigen, as of the date such Antigen
is designated a Collaboration Target, neither Avalon nor its Affiliates has, directly or
indirectly, expressly or by implication, by action or omission or otherwise (a) assigned,
transferred, granted, conveyed or otherwise encumbered any right, title or interest in or to any Patent, know-how or other intellectual property rights owned by,
licensed to or otherwise controlled by Avalon or its Affiliates with respect to such Collaboration
Target that is inconsistent with the rights granted to Medarex under this Agreement with respect to
Collaboration Products, or (b) agreed to or is otherwise bound by any covenant not to sue for any
infringement, misuse or otherwise with respect to the foregoing intellectual property rights that
is

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

34

 

inconsistent with the rights granted to Medarex under this Agreement with respect to
Collaboration Products.

     Section 10.4 * .

     Section 10.5 DISCLAIMER OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTIONS
10.1, 10.2 AND 10.3, AVALON AND MEDAREX MAKE NO REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR
IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, UNDER THIS AGREEMENT OR
THE UNILATERAL DEVELOPMENT AND COMMERCIALIZATION AGREEMENTS, AND AVALON AND MEDAREX EACH
SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR
ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES UNDER THIS AGREEMENT OR THE UNILATERAL DEVELOPMENT AND COMMERCIALIZATION
AGREEMENTS.

ARTICLE 11 -

MISCELLANEOUS

     Section 11.1 Force Majeure. Neither Party shall be held liable or responsible to the other
Party or be deemed to have defaulted under or breached this Agreement for failure or delay in
fulfilling or performing any term of this Agreement when such failure or delay is caused by or
results from events beyond the reasonable control of the non-performing Party, including fires,
floods, earthquakes, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be
declared or not) or terrorism, insurrections, riots, civil commotion, strikes, lockouts or other
labor disturbances, acts of God or acts, omissions or delays in acting by any governmental
authority. The non-performing Party shall notify the other Party of such force majeure within *
after such occurrence by giving written notice to the other Party stating the nature of the event,
its anticipated duration, and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration than is necessary and
the non-performing Party shall use Commercially Reasonable Efforts to remedy its inability to
perform; provided, however, that in the event the suspension of performance continues for *
after the date of the occurrence, the Parties shall meet to discuss in good faith how to proceed in
order to accomplish the goals of the collaboration outlined in this Agreement.

     Section 11.2 Subcontractors. Each Party shall have the right, subject to the prior written
consent of the Steering Committee, such consent not to be unreasonably withheld or delayed, to
subcontract any of its research, development, manufacture and/or commercialization activities to a
Third Party, provided that it furnishes the other Party with advanced written notice thereof, which
notice shall specify the work to be subcontracted, and obtains a written undertaking from the
subcontractor that it shall be subject to the applicable terms and conditions of this Agreement,
including the provisions of Article 6. If a Party wishes to subcontract any of its research,
development, manufacturing or commercialization activities to a Third Party and the

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

35

 

Steering Committee consents, the other Party may submit a bid to the subcontracting Party to perform such
work. The subcontracting Party shall use Commercially Reasonable Efforts to enter into an
agreement with the bidder that is best able to meet the Collaboration’s requirements, taking into
consideration such factors as price, quality, capacity, quantity, reliability and reputation,
provided that such bidder is reasonably acceptable to the Steering Committee. Unless the Project
Plan provides, or the Steering Committee agrees otherwise, * the costs and expenses associated
with the use of a subcontractor to conduct research, development, manufacture and commercialization
activities, but, unless the Parties agree otherwise, the subcontracting Party shall remain solely
liable for the performance of its research, development, manufacture or commercialization
activities by its subcontractor; provided, however, that Avalon and Medarex each
shall remain solely responsible for all costs and expenses associated with its use of
subcontractor(s) with respect to the Avalon Research Activities and the Medarex Research
Activities, respectively.

     Section 11.3 Assignment. Without the prior written consent of the other Party hereto, neither
Party shall sell, transfer, assign, pledge or otherwise dispose of, whether voluntarily,
involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties
hereunder; provided, however, that either Party hereto may assign or transfer this
Agreement or any of its rights or obligations hereunder without the consent of the other Party (a)
to any Affiliate of such Party; or (b) to any Third Party with which it merges or consolidates, or
to which it transfers all or substantially all of its assets to which this Agreement relates if in
any such event (i) the assigning Party (provided that it is not the surviving entity) remains
jointly and severally liable with the relevant Avalon Affiliate, Medarex Affiliate or Third Party
assignee under this Agreement, and (ii) the relevant Avalon Affiliate assignee, Medarex Affiliate
assignee, Third Party assignee or surviving entity assumes in writing all of the assigning Party’s
obligations under this Agreement. For purposes of clarification with respect to subsection (b)
herein, a Third Party that merges or consolidates with a Party, or to which a Party transfers all
or substantially all of its assets to which this Agreement relates, shall not be deemed to grant
the other Party to this Agreement any license to such Third party’s technology in existence as of
the effective date of such merger, consolidation or transfer, unless such grant is made pursuant to
a separate agreement, provided such Third Party shall maintain all licenses granted
hereunder by such first Party with respect to its Technology and any Information and Inventions
with respect thereto. Any purported assignment or transfer in violation of this Section shall be
void ab initio and of no force or effect.

     Section 11.4 Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future law, and if the rights or obligations of either Party
under this Agreement will not be materially and adversely affected thereby, (a) such provision
shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions
of this Agreement shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal,
invalid or unenforceable provision, there shall be added automatically as a part of this Agreement
a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and reasonably acceptable to the Parties. To the

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

36

 

fullest extent permitted by applicable law, each Party hereby waives any provision of law that
would render any provision prohibited or unenforceable in any respect.

     Section 11.5 Governing Law, Jurisdiction, Venue and Service.

          11.5.1 Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of this Agreement to the substantive law of
another jurisdiction.

          11.5.2 Jurisdiction. Subject to Section 2.3, the parties hereby irrevocably and
unconditionally consent to the exclusive jurisdiction of the courts of the State of Delaware and
the United States District Court for the District of Delaware for any action, suit or proceeding
(other than appeals therefrom) arising out of or relating to this Agreement, and agree not to
commence any action, suit or proceeding (other than appeals therefrom) related thereto except in
such courts.

          11.5.3 Venue. The Parties further hereby irrevocably and unconditionally waive any objection
to the laying of venue of any action, suit or proceeding (other than appeals therefrom) arising out
of or relating to this Agreement in the courts of the State of Delaware or the United States
District Court for the District of Delaware, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.

          11.5.4 Service. Each Party hereto further agrees that service of any process, summons, notice
or document by U.S. registered mail to its address set forth below shall be effective service of
process for any action, suit or proceeding bought against it under this Agreement in any such
court.

          11.5.5 Patents and Trademarks. Notwithstanding the foregoing, any disputes regarding the
validity, scope or enforceability of Patents or Trademarks shall be submitted to a court of
competent jurisdiction in the territory in which such rights apply.

     Section 11.6 Notices. All notices or other communications that are required or permitted
hereunder shall be in writing and delivered personally, sent by facsimile (and promptly confirmed
by personal delivery, registered or certified mail or overnight courier as provided herein), sent
by nationally-recognized overnight courier or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:

If to Avalon, to:

Avalon Pharmaceuticals, Inc.

20358 Seneca Meadows Parkway

Germantown, Maryland 20876

Attention: CEO

Facsimile: 301-556-9910

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

37

 

If to Medarex, to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: President

Facsimile: (609) 430-2850

with a copy to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: General Counsel

Facsimile: (609) 430-4215

or to such other address as the Party to whom notice is to be given may have furnished to the other
Party in writing in accordance herewith. Any such communication shall be deemed to have been
received (a) when delivered, if personally delivered or sent by facsimile on a business day, (b) on
the business day after dispatch, if sent by nationally recognized overnight courier, and (c) on the
third business day following the date of mailing, if sent by mail. It is understood and agreed
that this section 11.6 is not intended to govern the day-to-day business communications necessary
between the Parties in performing their duties, in due course, under the terms of this Agreement.

     Section 11.7 Entire Agreement; Modifications. This Agreement, together with the Appendices
attached hereto, sets forth and constitutes the entire agreement and understanding between the
Parties with respect to the subject matter hereof and all prior agreements, understanding, promises
and representations, whether written or oral, with respect thereto are superseded hereby. Each
Party confirms that it is not relying on any representations or warranties of the other Party
except as specifically set forth herein. No amendment, modification, release or discharge shall be
binding upon the Parties unless in writing and duly executed by authorized representatives of both
Parties.

     Section 11.8 Relationship of the Parties. It is expressly agreed that the Parties shall be
independent contractors of one another and that the relationship between the Parties shall not
constitute a partnership, joint venture or agency. Neither Party shall have the authority to make
any statements, representations or commitments of any kind, or to take any action, which shall be
binding on the other, without the prior written consent of the other to do so. All persons
employed by a Party shall be employees of such Party and not of the other Party and all costs and
obligations incurred by reason of any such employment shall be for the account and expense of such
Party.

     Section 11.9 Equitable Relief. Each Party acknowledges and agrees that the restrictions set
forth in Articles 6 and 7 of this Agreement are reasonable and necessary to protect the legitimate
interests of the other Party and that such other Party would not have entered into this Agreement
in the absence of such restrictions, and that any violation or threatened violation

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

38

 

of any provision of Article 6 or 7 will result in irreparable injury to such other Party. Each party also
acknowledges and agrees that in the event of a violation or threatened violation of any provision
of Article 6 or 7, the other Party shall be entitled to preliminary and permanent injunctive
relief, without the necessity of proving irreparable injury or actual damages and without the
necessity of having to post a bond, as well as to an equitable accounting of all earnings, profits
and other benefits arising from any such violation. The rights provided in the immediately
preceding sentence shall be cumulative and in addition to any other rights or remedies that may be
available to such other Party. Nothing in this Section 11.9 is intended, or should be construed,
to limit such other Party’s right to preliminary and permanent injunctive relief or any other
remedy for a breach of any other provision of this Agreement.

     Section 11.10 Waiver. Any term or condition of this Agreement may be waived at any time by
the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set
forth in a written instrument duly executed by or on behalf of the Party waiving such term or
condition. The waiver by either Party hereto of any right hereunder or of the failure to perform
or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of
any other breach or failure by said other Party whether of a similar nature or otherwise.

     Section 11.11 Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same instrument.

     Section 11.12 No Benefit to Third Parties. The representations, warranties, covenants and
agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their
successors and permitted assigns, and they shall not be construed as conferring any rights on any
other parties, other than MRC as provided in the last sentence of Section 10.3.1.

     Section 11.13 Further Assurance. Each Party shall duly execute and deliver, or cause to be
duly executed and delivered, such further instruments and do and cause to be done such further acts
and things, including the filing of such assignments, agreements, documents and instruments, as may
be necessary or as the other Party may reasonably request in connection with this Agreement or to
carry out more effectively the provisions and purposes, or to better assure and confirm unto such
other Party its rights and remedies under this Agreement.

     Section 11.14 English Language. This Agreement has been written and executed in the English
language. Any translation into any other language shall not be an official version thereof, and in
the event of any conflict in interpretation between the English version and such translation, the
English version shall control.

     Section 11.15 References. Unless otherwise specified, (a) references in this Agreement to any
Article, Section, Appendix, Schedule or Exhibit shall mean references to such Article, Section,
Appendix, Schedule or Exhibit of this Agreement, (b) references in any section to any clause are
references to such clause of such section, and (c) references to any agreement, instrument or other
document in this Agreement refer to such agreement, instrument or other document as originally
executed or, if subsequently varied, replaced or supplemented from time

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

39

 

to time, as so varied, replaced or supplemented and in effect at the relevant time of reference thereto.

     Section 11.16 Construction. Except where the context otherwise requires, wherever used, the
singular shall include the plural, the plural the singular, the use of any gender shall be
applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions
of this Agreement are for convenience of reference only and in no way define, describe, extend or
limit the scope or intent of this Agreement or the intent of any provision contained in this
Agreement. The term “including” as used herein shall mean including, without limiting the
generality of any description preceding such term. The language of this Agreement shall be deemed
to be the language mutually chosen by the Parties and no rule of strict construction shall be
applied against either Party hereto.

[The remainder of this page has been intentionally left blank.]

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

40

 

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.

	 	 	 	 	 	 	 
	Medarex, Inc.	 	Avalon Pharmaceuticals, Inc.
	 
	 	 	 	 	 	 
	By: 
	 	/s/ James B. Cornett, Ph.D.	 	By: 	 	/s/ Kenneth C. Carter, Ph.D.
	

	 	 
	 	 	 	 
	Name:
	 	James B. Cornett, Ph.D.	 	Name:	 	Kenneth C. Carter, Ph.D.
	

	 	 
	 	 	 	 
	Title:
	 	VP, Business Development	 	Title:	 	President and CEO
	

	 	 
	 	 	 	 

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

41

 

SCHEDULE 10.3.2

Encumbrances on Collaboration Targets

     This Schedule to the COLLABORATION AGREEMENT (“Agreement”) effective as of October 15, 2003,
by and between AVALON PHARMACEUTICALS, INC. (“Avalon”) and MEDAREX, INC., on behalf of itself and
its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., (collectively, “Medarex”) sets forth any
and all encumbrances on any right, title or interest in or to any Patent, know-how or other
intellectual property rights owned by, licensed to or otherwise controlled by Avalon or its
Affiliates with respect to the Collaboration Targets listed on Appendix C. All capitalized
terms used herein without definition shall have the meanings ascribed thereto in the Agreement,
unless otherwise expressly provided herein.

     The contents of this schedule 10.3.2 are hereby incorporated into the Agreement and are
governed by the terms and conditions of the Agreement, including the confidentiality provisions set
forth therein.

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

1

 

APPENDIX A

Definitions

     This Appendix to the COLLABORATION AGREEMENT (“Agreement”) effective as of October 15, 2003,
by and between AVALON PHARMACEUTICALS, INC. (“Avalon”) and MEDAREX, INC., on behalf of itself and
its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., (collectively, “Medarex”) provides
agreed upon definitions applicable to the Parties for purposes of the Agreement. All capitalized
terms used herein without definition shall have the meanings ascribed thereto in the Agreement,
unless otherwise expressly provided herein.

     The contents of this Appendix A are hereby incorporated into the Agreement and are
governed by the terms and conditions of the Agreement, including the confidentiality provisions set
forth therein.

     “Additional Mice” shall mean (a) the mice developed by Kirin using certain transchromosomal
technology, which mice are licensed to Medarex pursuant to the Kirin Agreement and (b) the mice
developed through the crossbreeding of the HuMAb Mice with the mice described in clause (a) of this
definition, which are licensed to Medarex pursuant to the Kirin Agreement.

     “Affiliate” of a party shall mean any other party that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control with such first party.
For purposes of this definition only, “control” and, with correlative meanings, the terms
“controlled by” and “under common control with” shall mean (a) the possession, directly or
indirectly, of the power to direct the management or policies of a party, whether through the
ownership of voting securities or by contract relating to voting rights or corporate governance, or
(b) the ownership, directly or indirectly, of more than fifty percent (50%) of the voting
securities or other ownership interest of a party.

     “Antibody” shall mean any fully human antibody, or fragment thereof, with a unique amino acid
sequence that has a therapeutically meaningful binding affinity for an Antigen. By way of
clarification, Antibodies with different amino acid sequences shall be deemed to be different
Antibodies, irrespective of whether they bind to the same Antigen. For the avoidance of doubt, any
Improvement to an Antibody, such as, by way of example, through affinity maturation or other
similar techniques, shall continue to be an “Antibody” for purposes of this Agreement.

     “Antibody-Based Product” shall mean any composition or formulation containing or comprising
one or more (a) (i) antibodies, whether or not human, (ii) with respect to each such antibody, one
or more fragments of such antibody containing a portion of such antibody that confers binding
specificity for an Antigen, or (iii) any protein or other composition of matter that mimics such
antibody or fragment, (b) cells expressing or secreting one or more such antibodies, fragments or
mimetics or containing nucleotide sequences (whether coding or non-coding) with

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

A-1

 

respect to the expression of such antibodies, fragments or mimetics, or (c) nucleotide
sequences (whether coding or non-coding) with respect to the expression of one or more such
antibodies, fragments or mimetics.

     “Antibody Materials” shall mean, with respect to a particular Antibody, (a) the nucleic acids
(including DNA, RNA, and complementary and reverse complementary nucleic acids thereto, whether
intact or a fragment) that code specifically for such Antibody (or active fragments thereof) and do
not code for multiple Antibodies, or (b) a host cell (other than a host cell obtained directly from
the HuMAb Mice or parts of such mice) into which the nucleic acids described in (a) are introduced
or are otherwise present, which cell is capable of expressing such Antibody.

     “Antibody Product” shall mean any composition or formulation containing or comprising one or
more (a) Antibodies, (b) cells expressing or secreting one or more Antibodies or containing
nucleotide sequences (whether coding or non-coding) with respect to the expression of Antibodies,
or (c) nucleotide sequences (whether coding or non-coding) with respect to the expression of one or
more Antibodies (or a fragment of an entire Antibody containing that portion of such Antibody
conferring binding specificity for an Antigen), for the diagnosis, prophylaxis or treatment of
human diseases or conditions.

     “Antigen” shall mean any protein (including any glyco- or lipo-protein), carbohydrate,
compound or other composition, and any fragment, peptide or epitope thereof, that stimulates the
production of antibodies.

     “Applicable Law” shall mean the applicable laws, rules, and regulations, including any rules,
regulations, guidelines, or other requirements of the Regulatory Authorities, that may be in effect
from time to time in the Territory.

     “Avalon Know-How” shall mean all Information and Inventions in the Control of Avalon or its
Affiliates as of the Effective Date or at any time during the Terrn that are necessary or
reasonably useful for the Exploitation of the Collaboration Products and the Unilateral Products,
including the characterization of Collaboration Targets, or for the exercise of the Avalon Patents,
in each case that are not generally known, but excluding (w) any Collaboration Know-How, (x) any
excluded Know-How, (y) any Information and Inventions to the extent covered or claimed by the
Avalon Patents and (z) any production Process Know-How. Avalon Know-How shall include all: (a)
biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical,
clinical and safety data and information related to the Collaboration Targets, the Collaboration
Products or the Unilateral Products, and (b) data and information with respect to, and resulting
from, assays and biological methodologies necessary or reasonably useful for the Exploitation of
the Collaboration Targets, the Collaboration Products or the Unilateral Products.

     “Avalon Patents” shall mean all of the Patents that Avalon and its Affiliates Control as of
the Effective Date and at any time during the Term, that claim or cover any invention necessary or
reasonably useful for the Exploitation of the Collaboration Products or the

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

A-2

 

Unilateral Products, including any Patents that claim or cover any Collaboration Target or any
method for the discovery, identification or characterization of Collaboration Targets, but
excluding (x) any Collaboration Patents, (y) any Excluded Patents, and (z) any Production Process
Patents.

     “Avalon Technology” shall mean the Avalon Know-How and Avalon Patents.

     “Biosite Agreement” shall mean that certain Collaboration Agreement, dated as of June 1, 2000,
between Medarex and Biosite Diagnostics Incorporated, a Delaware corporation.

     “BLA” or “Biologics License Application” shall mean a Biologics License Application, as
defined in the U.S. Federal Food, Drug, and Cosmetics Act, as amended, and the regulations
promulgated thereunder, and any corresponding supranational, foreign or domestic marketing
authorization application, registration or certification, necessary or reasonably useful to market
a Collaboration Product in the Territory, but not including pricing and reimbursement approvals.

     “Collaboration Product” shall mean any Antibody Product that contains, expresses or secretes a
Collaboration Antibody or any Improvement thereto or contains nucleotide sequences with respect to
the expression of a Collaboration Antibody or any Improvement thereto.

     “Collaboration Target” shall mean any Antigen listed on Appendix C, as such appendix
may be amended pursuant to this Agreement.

     “Collaboration Technology” shall mean any and all (a) Information and Inventions, conceived,
discovered, developed or otherwise made, by or on behalf of a Party or its Affiliates or, to the
extent permitted, its sublicensees (whether alone or jointly), in connection with the work
conducted under or in connection with this Agreement (but not the Unilateral Development and
Commercialization Agreements), whether or not patented or patentable, but excluding any Mice
Materials, Mice-Related Technology or Production Process Technology (the “Collaboration Know-How”);
and (b) Patents and other intellectual property rights with respect thereto (collectively,
“Collaboration Patents”). The determination of whether Information and Inventions are conceived,
discovered, developed or otherwise made by a Party for purposes of allocating proprietary rights
(including Patent, copyright or other intellectual property rights) therein, shall be made in
accordance with Section 7.1.8.

     “Commercially Reasonable Efforts” * .

     “Control” shall mean, with respect to any Information and Invention, Patent or other
intellectual property right, possession of the right, whether directly or indirectly, and whether
by ownership, license or otherwise, to assign, or grant a license, sublicense or other right to or
under, such Information and Invention, Patent or right as provided for herein without violating the
terms of any agreement or other arrangement with any Third Party.

     “Corixa Agreement” shall mean that certain Asset Purchase Agreement, by and between Medarex
and Corixa Corporation, dated as of May 24, 2002.

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

A-3

 

     “Cross-License Agreement” shall mean that certain Cross-License Agreement entered into by and
among Abgenix, Inc., Cell Genesys, Inc., Japan Tobacco Inc., Xenotech L.P., and GenPharm
International, Inc., effective as of March 26, 1997, as amended from time to time.

     “Excluded Know-How” shall mean (a) with respect to Medarex, any and all Information and
Inventions that Medarex or any of its Affiliates Control pursuant to the Biosite Agreement, the
Kirin Agreement, the Corixa Agreement or any other agreement with a Third Party that is entered
into after the Effective Date, including the ultra potent toxin and linker technology that Medarex
or any of its Affiliates Control pursuant to the Corixa Agreement (including any Improvements with
respect thereto), and (b) with respect to Avalon, any and all Information and Inventions that
Avalon or any of its Affiliates Control pursuant to an agreement entered into after the Effective
Date, but in each case, ((a) and (b)) excluding any Information and Inventions that are claimed or
covered by the Excluded Patents.

     “Excluded Patent” shall mean (a) with respect to Medarex, any Patent that Medarex or any of
its Affiliates Control pursuant to the Biosite Agreement, the Kirin Agreement, the Corixa Agreement
or any other agreement with a Third Party that is entered into after the Effective Date, including
any Patents claiming or covering the ultra potent toxin and linker technology that Medarex or any
of its Affiliates Control pursuant to the Corixa Agreement (including any Improvements with respect
thereto), and (b) with respect to Avalon, any Patent that Avalon or any of its Affiliates Control
pursuant an agreement entered into after the Effective Date.

     “Exploit” or “Exploitation” shall mean to make, have made, import, use, sell, offer for sale,
or otherwise dispose of, including all discovery, research, development, registration,
modification, enhancement, improvement, manufacture, storage, formulation, exportation,
transportation, distribution, promotion and marketing activities related thereto.

     “FDA” shall mean the United States Food and Drug Administration and any Successor agency
thereto.

     “GAAP” shall mean United States generally accepted accounting principles consistently applied.

     “HuMAb Mice” shall mean any immunizable transgenic mice containing unrearranged human
immunoglobulin transgenes inserted into mouse chromosomes, but not containing any human chromosomes
or fragments thereof, that are Controlled by Medarex or its Affiliates as of the Effective Date or
at any time during the Term, but excluding any immunizable mice capable of producing human
antibodies that are in-licensed or otherwise acquired by Medarex or its Affiliates after the
Effective Date.

     “Improvement” shall mean any modification to an antibody, compound, product or technology or
any discovery, device, process or formulation related to such antibody, compound, product or
technology, whether or not patented or patentable, including any enhancement in the efficiency,
operation, manufacture, ingredients, preparation, presentation, formulation, means of delivery,
packaging or dosage of an antibody, compound, product or technology, any discovery or development
of any new or expanded indications or applications for an antibody, compound,

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

A-4

 

product or technology, or any discovery or development that improves the stability, safety or
efficacy of an antibody, compound, product or technology.

     “IND” shall mean an investigational new drug application filed with the FDA for authorization
to commence human clinical trials, and its equivalent in other countries or regulatory
jurisdictions.

     “Information and Inventions” shall mean all technical, scientific and other know-how and
information, trade secrets, knowledge, technology, means, methods, processes, practices, formulas,
instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs,
drawings, assembly procedures, computer programs, apparatuses, specifications, data, results and
other material including high-throughput screening, gene expression, genomics, proteomics and other
drug discovery and development technology, pre-clinical and clinical trial results, manufacturing
procedures, test procedures and purification and isolation techniques, (whether or not
confidential, proprietary, patented or patentable) in written, electronic or any other form now
known or hereafter developed, and all Improvements, whether to the foregoing or otherwise, and
other discoveries, developments, inventions and other intellectual property (whether or not
confidential, proprietary, patented or patentable).

     “Kirin Agreement” shall mean that certain Collaboration and License Agreement between Kirin
Brewery Co, Ltd. (“Kirin”) and Medarex, effective as of September 4, 2002, as amended from time to
time.

     “Know-How” shall mean the Medarex Know-How (including the Mice-Related Know-How), the Avalon
Know-How and/or the Collaboration Know-How, as applicable.

     “Lead Collaboration Antibody” shall have the meaning set forth in Section 1.2.8. For the
avoidance of doubt, a Collaboration Antibody that has been designated a Lead Collaboration Antibody
shall continue to be a Collaboration Antibody for purposes of this Agreement.

     “Medarex Know-How” shall mean all Information and Inventions in the Control of Medarex or its
Affiliates as of the Effective Date or at any time during the Term that are necessary or reasonably
useful for the Exploitation of the Collaboration Products and the Unilateral Products or for the
exercise of the Medarex Patents, in each case that are not generally known, but excluding (w) any
Excluded Know-How, (x) any Collaboration Know-How, (y) any Production Process Know-Flow, and (z)
any Information and Inventions to the extent covered or claimed by the Medarex Patents. Medarex
Know-How shall include all: (a) biological chemical, pharmacological, toxicological,
pharmaceutical, physical and analytical, clinical and safety data and information related to the
Collaboration Targets the Collaboration Products or the Unilateral Products, and (b) data and
information with respect to, and resulting from, assays and biological methodologies necessary or
reasonably useful for the Exploitation of the Colaboration Targets, the Collaboration Products or
the Unilateral Products. By way of clarification, Avalon shall not have any rights with respect to
Excluded Know-How under this Agreement unless the Parties enter into a separate written agreement
with respect thereto.

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

A-5

 

     “Medarex Patents” shall mean all of the Patents that Medarex or its Affiliates Control as of
the Effective Date and at any time during the Term, that cover or claim any invention necessary or
reasonably useful for the Exploitation of the Collaboration Products or the Unilateral Products,
but excluding any Excluded Patents, any Collaboration Patents, and any Production Process Patents.
By way of clarification, Avalon shall not have any rights with respect to any Excluded Patents
under this Agreement unless the Parties enter into a separate written agreement with respect
thereto.

     “Medarex Technology” shall mean the Medarex Know-How and Medarex Patents, including all
Mice-Related Technology.

     “Mice Materials” shall mean the HuMAb Mice and any parts or derivatives of the HuMAb Mice,
including hybridomas (solely to the extent derived from other Mice Materials), cells, genetic
material (including nucleotide sequences (e.g., DNA, RNA, and complementary and reverse
complementary nucleotide sequences thereto, whether coding or non-coding) with respect to the
expression of an Antibody or fragment thereof, and any replicates or modifications thereof or
Improvements thereto (e.g., additions, deletions or substitutions of nucleotides therein)),
Antibodies, Antibody Products or other biological materials derived directly or indirectly from the
HuMAb Mice but, in each of the foregoing cases, excluding any Collaboration Antibodies and any
Antibody Materials with respect thereto.

     “Mice-Related Know-How” shall mean (a) any Information and Inventions with respect to any Mice
Materials, and (b) any Information and Inventions with respect to the HuMAb Mice and the
Exploitation thereof, but in each case excluding any Information and Inventions to the extent
covered or claimed by the Mice-Related Patents.

     “Mice-Related Patents” shall mean any Patents that claim or cover (a) Mice Materials, and (b)
the HuMAb Mice and the Exploitation thereof.

     “Mice-Related Technology” shall mean the Mice-Related Know-How and the Mice-Related Patents.

     “MRC Agreement” shall mean that certain License Agreement entered into by the Medical Research
Council Institute of Animal Physiology and Genetics Research of Babraham Hall and Marianne
Bruggëmann and GenPharm International, Inc., effective October 1, 1993, as amended on August 12,
1994.

     “Patents” shall mean (a) all patents and patent applications, (b) any substitutions,
divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations,
re-examinations, extensions, supplementary protection certificates and the like, and any
provisional applications, of any such patents or patent applications, and (c) any foreign or
international equivalent of any of the foregoing.

     “Pre-Existing Agreement” shall mean, with respect to an Antigen, any written agreement with a
Third Party that would preclude such Antigen from becoming a Collaboration

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

A-6

 

Target hereunder that was entered into by Avalon or any of its Affiliates, as applicable,
before the Effective date.

     “Product Trademarks” shall mean the Trademarks developed for the Collaboration Products by the
Steering Committee, all packaging designs and other trade dress used in connection with the
Collaboration Products and such other Trademarks relating thereto and any registrations thereof or
any pending applications relating thereto.

     “Production Process Development” shall mean the development of processes and technology for
the production, purification, evaluation, characterization, stability assessment, vialing and
distribution, and release of a Collaboration Antibody or Collaboration Product.

     “Production Process Know-How” shall mean any Information and Inventions of a Party with
respect to the Production Process Development or the manufacture of Antibody Products, but
excluding any Information and Inventions to the extent covered or claimed by the Production Process
Patents.

     “Production Process Patents” shall mean any Patents of a Party that claim or cover the
Production Process Development or the manufacture of Antibody Products.

     “Production Process Technology” shall mean any Production Process Know-How and Production
Process Patents.

     “Regulatory Approval” shall mean any and all approvals (including pricing and reimbursement
approvals), licenses, registrations or authorizations of any Regulatory Authority, necessary for
the Exploitation of a Collaboration Product in a country, including any (a) approval for a
Collaboration Product (including any INDs, BLAS and supplements and amendments thereto); (b) pre-
and post-approval marketing authorizations (including any prerequisite manufacturing approval or
authorization related thereto); (c) labeling approval; and (d) technical, medical and scientific
licenses.

     “Regulatory Authority” shall mean any applicable government entities regulating or otherwise
exercising authority with respect to the Exploitation of the Collaboration Targets or the
Collaboration Products in the Territory.

     “Regulatory Documentation” shall mean all applications, registrations, licenses,
authorizations and approvals (including all Regulatory Approvals), all correspondence submitted to
or received from Regulatory Authorities (including minutes and official contact reports relating to
any communications with any Regulatory Authority), all supporting documents and all clinical
studies and tests, relating to any Collaboration Antibody, Collaboration Target or any
Collaboration Products, and all data contained in any of the foregoing, including all regulatory
drug lists, advertising and promotion documents, adverse event files and complaint files.

     “Technology” shall mean the Medarex Technology, the Avalon Technology and/or the Collaboration
Technology, as applicable.

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

A-7

 

     “Territory” shall mean the entire world.

     “Third Party” shall mean any party other than Medarex, Avalon or their respective Affiliates.

     “Trademark” shall include any word, name, symbol, color, designation or device or any
combination thereof, including any trademark, trade dress, service mark, service name, brand mark,
trade name, brand name, logo or business symbol.

     Terms Defined Elsewhere in this Agreement. The following terms are defined in the applicable
Sections of this Agreement:

	 	 	 
	Defined Term	 	Section
	Avalon Research Activities

	 	Section 1.2.4
	Antigen Evaluation Material

	 	Section 1.2.2(a)
	Assay

	 	Section 1.2.3(c)
	Assay Candidate

	 	Section 1.2.6(a)
	Assay Success Criteria

	 	Section 1.2.3(e)
	Authorized Commercialization Expenses

	 	Section 4.1.1
	Authorized R&D Expenses

	 	Section 4.1.2
	Binding Sequence

	 	Section 1.2.6(b)
	Biological Materials

	 	Section 7.6.3
	Collaboration

	 	Section 1.1
	Collaboration Antibody

	 	Section 1.2.6(a)
	Collaboration Expenses

	 	Section 4.5.1
	Collective Opinion of Counsel

	 	Section 7.4.1
	Commercialization Expenses

	 	Appendix B
	Confidential Information

	 	Section 6.1
	Dormant Product

	 	Section 5.3
	Effective Date

	 	Preamble
	Election Notice

	 	Section 5.1.2(a)
	Evaluation Period

	 	Section 1.2.2(b)
	Expert

	 	Section 2.3.5(a)
	Immunogen

	 	Section 1.2.3(a)
	Indemnification Claim Notice

	 	Section 9.4.1
	Indemnified Party

	 	Section 9.4.1
	Indemnitee

	 	Section 9.4.1
	Infringement Suit

	 	Section 7.4.2
	Lead Collaboration Antibody

	 	Section 1.2.8
	Losses

	 	Section 9.1
	Medarex Research Activities

	 	Section 1.2.4
	Net Sales

	 	Appendix B
	Operating Profits, Operating Losses

	 	Appendix B
	Opt-Out

	 	Section 5.1.1
	Opt-Out Notice

	 	Section 5.1.1

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

A-8

 

	 	 	 
	Defined Term	 	Section
	Opting-Out Party

	 	Section 5.1.1
	Other Operating (Income)/Expense

	 	Appendix B
	Party

	 	Preamble
	Project Budget

	 	Section 1.3
	Project Plan

	 	Section 1.3
	Research and Commercialization
Agreement

	 	Section 3.3.2
	Reversion Target

	 	Section 1.7
	Steering Committee

	 	Section 2.1.1
	Target Entry Period

	 	Section 1.2.2(e)
	Term

	 	Section 8.1
	Third-Party Claims

	 	Section 9.1
	Third-Party Payments

	 	Appendix B
	Unilateral Developments and
Commercialization Agreement

	 	Section 5.1.2(a)
	Unilateral Product

	 	Section 5.1.2(a)
	Withholding Taxes

	 	Section 4.4

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

A-9

 

APPENDIX B

Financial Definitions

     This Appendix to the COLLABORATION AGREEMENT (“Agreement”) effective as of October 15, 2003,
by and between AVALON PHARMACEUTICALS, INC. (“Avalon”) and MEDAREX, INC., on behalf of itself and
its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., (collectively, “Medarex”) provides
agreed upon definitions of financial terms applicable to the Parties for the purposes of the
Agreement. All capitalized terms used herein without definition shall have the meanings ascribed
thereto in the Agreement, unless otherwise expressly provided herein.

     The contents of this Appendix B are hereby incorporated into the Agreement and are
governed by the terms and conditions of the Agreement, including the confidentiality provisions set
forth therein.

     It is the intention of the Parties that the interpretation of these definitions will be in
accordance with GAAP.

     1. “Net Sales” *

     2. “Operating Profits” and, with correlative meaning, “Operating Losses”, shall mean, with
respect to a Collaboration Product, Net Sales of such Collaboration product by a Party or its
Affiliates * , all for a given period.

     3. “Commercialization Expenses” shall mean all Cost of Sales, Distribution Costs, Marketing
Costs, Sales Costs, General and Administrative Costs (in each case, to the extent not deducted from
Net Sales under Section 1 hereof) of the Parties and their Affiliates with respect to the
Collaboration Products as approved by the Steering Committee in the applicable Project Budget.

     3.1 “Cost of Sales” shall mean *

     3.1.1 “Third-Party Payments” shall mean intellectual property and technology acquisition and
license payments (including royalties, license fees, milestone payments and other payment
obligations) made to Third Parties with respect to a Collaboration Product during the Term pursuant
to activities under this Agreement, only to the extent that such payment obligations (a) were
disclosed by Avalon pursuant to Section 1.2.2(a)(iv) or (b) are approved by the Steering Committee
pursuant to Section 2.1.2(d). Any payments made pursuant to the MRC Agreement with respect to a
Collaboration Product shall be Third-Party Payments.

     3.2 “Distribution Costs” shall mean * .

     3.3 “Marketing Costs” shall mean, * .

     3.4 “Sales Costs” shall mean, * .

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

B-1

 

     3.5 “General and Administrative Costs” shall mean, * .

     4. “Other Operating (Income)/Expense” shall mean * .

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

B-2

 

APPENDIX C

Collaboration Targets

     This Appendix to the COLLABORATION AGREEMENT (“Agreement”) effective as of October 15, 2003,
by and between AVALON PHARMACEUTICALS, INC. (“Avalon”) and MEDAREX, INC., on behalf of itself and
its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., (collectively, “Medarex”) sets forth the
Collaboration Targets.

     The contents of this Appendix C are hereby incorporated into the Agreement and are
governed by the terns and conditions of the Agreement, including the confidentiality provisions set
forth therein.

*

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

C-1

 

APPENDIX D-1

UNILATERAL DEVELOPMENT

AND COMMERCIALIZATION AGREEMENT

     THIS UNILATERAL DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (“Agreement”) is made and entered
into effective as of October 15, 2003 (the “Effective Date”), by and between AVALON
PHARMACEUTICALS, INC., having principal offices at 19 Firstfield Road Gaithersburg, MD 20878
(“Avalon”) and MEDAREX, INC., having principal offices at 707 State Road, Princeton, New Jersey
08540-1437, on behalf of itself and its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., with
principal offices at 521 Cottonwood Drive, Milpitas, California 95035 (collectively, “Medarex”).
Medarex and Avalon each may be referred to herein individually as a “Party,” or collectively as the
“Parties.”

     WHEREAS, Medarex and Avalon have entered into that certain Collaboration Agreement, dated as
of the date hereof (the “Collaboration Agreement”);

     WHEREAS, the Parties have agreed that in the event Medarex elects not to proceed with the
development and commercialization of certain Collaboration Targets and Avalon notifies Medarex of
its election to proceed unilaterally with such development and commercialization in accordance with
Section 5.1.2 of the Collaboration Agreement, that Avalon shall have the right to do so in
accordance with the terms set forth below; and

     WHEREAS, the Parties have agreed that in the event Medarex fails to comply with any of its
material obligations contained in the Collaboration Agreement with respect to a Collaboration
Product, Avalon shall have the right to convert such Collaboration Product into a Unilateral
Product in accordance with Section 8.2 of the Collaboration Agreement and proceed unilaterally with
the development and commercialization of such Unilateral Product in accordance with the terms set
forth below;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and
covenants contained herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as
follows:

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

D-1

 

ARTICLE 1 — UNILATERAL DEVELOPMENT AND COMMERCIALIZATION

     Section 1.1 Definitions. Any capitalized term used in this Agreement not otherwise defined
herein shall have the meaning set forth in the Collaboration Agreement.

     Section 1.2 Unilateral Targets and Unilateral Products. In the event that Avalon provides
Medarex with (a) an Election Notice with respect to a Collaboration Target pursuant to Section
5.1.2 of the Collaboration Agreement, or (b) written notice of Medarex’s failure to cure a default
in any of its material obligations with respect to a Collaboration Product with respect to a
Collaboration Target pursuant to Section 8.2 of the Collaboration Agreement, Appendix A
hereto shall be amended to include such Collaboration Target, which shall be referred to herein as
“Unilateral Targets” and any Collaboration Antibodies and Collaboration Products with respect
thereto, which shall be deemed to be Unilateral Products (as defined herein). Avalon shall have
the exclusive right to Exploit any and all Antibodies and Antibody Products with respect to the
Unilateral Targets (collectively, “Unilateral Products”).

     Section 1.3 Rights and Obligations of the Parties with respect to Unilateral Products.
Except as otherwise expressly provided herein, * costs and expenses in connection with the
development and commercialization of the Unilateral Products; provided, however,
that * budgeted costs and expenses associated with the research and development activities with
respect to the Unilateral Products that Medarex has committed to in the applicable Project Budget
as necessary with respect to such Unilateral Product to complete that phase (e.g., toxicology
studies in support of an IND or Phase I, Phase II or Phase III) of research and development that
was under way when * of such Unilateral Products but only to the extent that such costs and
expenses are part of an approved Project Budget at the time that * provides an Election Notice.
By way of clarification, * , for all milestone and royalty payments, license fees and other
payments owed to Third Parties, whether by Avalon, Medarex or their respective Affiliates, in
connection with the development and commercialization of Unilateral Products, including any
payments owed by * . The Parties shall work together to ensure a smooth and orderly transition
of the Unilateral Products to Avalon, including the assignment to Avalon of any third-party service
contracts with respect to the Exploitation of such Unilateral Products. Except for the obligations
provided for in this Section 1.3, * (a) * to support or otherwise fund any additional
efforts in respect of such Unilateral Products, and (b) no obligation, responsibility, or authority
regarding such additional efforts in respect of such Unilateral Products.

     Section 1.4 Performance of Avalon. Avalon shall use * to develop and commercialize one
or more Unilateral Products with respect to each Unilateral Target. Such activities shall be
performed in good scientific manner, and in compliance in all material respects with all Applicable
Law, including current good

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

D-2

 

laboratory practices and good clinical practices (including compliance
with such practices and guidelines necessary to
allow the results of such activities to support INDs, BLAs and other Regulatory Approvals), as
applicable.

     Section 1.5 Avalon Reports. Avalon shall provide * written progress report to Medarex
describing the development and commercialization activities with respect to each of its Unilateral
Products in sufficient detail to enable Medarex to determine whether Avalon is using * with
respect thereto.

     Section 1.6 Communications and Filings with Regulatory Authorities. Avalon shall be
responsible for all communications and filings with the Regulatory Authorities with respect to each
of its Unilateral Products.

     Section 1.7 Opt-Out by Avalon. If, at any time, Avalon decides to cease development or
commercialization of all Unilateral Products with respect to a Unilateral Target, either alone or
in collaboration with or through a Third Party, it shall give * written notice thereof to
Medarex, which notice shall describe in reasonable detail the reasons for such decision. Avalon
shall, for a period of * after notice to Medarex with respect thereto, furnish Medarex with
such information and materials as Medarex may reasonably request so as to determine whether it
wishes to proceed with the unilateral development and commercialization of such Unilateral
Products, including a statement detailing * actually incurred by or on behalf of Avalon in
connection with the Exploitation of such Unilateral Products (the “Unilateral Expenses”). Upon its
receipt of all of such information and materials, Medarex shall, for a period of *, have
the right to elect to proceed unilaterally with the development and commercialization of such
Unilateral Products by making a payment to Avalon equal to * of all Unilateral Expenses and *
of all milestones paid by Avalon to Medarex with respect to such Unilateral Products. Upon such
election, Appendix A shall be amended to delete such Unilateral Target and any Unilateral
Products with respect thereto, and the Unilateral Development and Commercialization Agreement set
forth in Appendix D-1 to the Collaboration Agreement shall be automatically amended to
include such Unilateral Target and such Unilateral Products, provided that the royalty rate with
respect to such Unilateral Products shall be * . By way of clarification, Avalon shall have the
right to pursue one or more Unilateral Products with respect to a Unilateral Target and any
decision to cease Exploiting one in favor of another shall not be subject to this Section 1.7 for
so long as Avalon is using * to develop and commercialize at least one Unilateral Product with
respect to such Unilateral Target.

ARTICLE 2 -

LICENSE GRANTS

     Section 2.1 Medarex Grant. Subject to Section 2.2 and the other terms and conditions of
this Agreement, Medarex hereby grants to Avalon and its

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

D-3

 

Affiliates, with respect to each Unilateral
Product, an exclusive (even as to Medarex and its Affiliates), worldwide, royalty-bearing right and
license, with the right to sublicense solely as provided in Section 2.3, under the Medarex
Technology, the Collaboration Technology and the Joint Technology to Exploit such Unilateral
Products in the Territory in accordance with this Agreement.

     Section 2.2 Exclusivity, Reserved Rights and Pre-Existing Grants.

          2.2.1 Antigen Exclusivity. Subject to Sections 2.2.2 and 2.2.3, the Parties acknowledge
and agree that during * , no Party shall engage, directly or indirectly, on behalf of itself or
any other party, in the research, development, commercialization or other Exploitation of
antibody-based products with respect to any Unilateral Target listed on Appendix A other
than the Unilateral Products as provided in this Agreement.

          2.2.2 Research and Commercialization Agreements. Subject to the obligations of Avalon
under the Collaboration Agreement, Avalon shall have the right to (a) grant licenses and other
rights to other parties under the Avalon Technology for such parties to Exploit Antibody Products
(but not Unilateral Products containing or comprising Collaboration Antibodies) with respect to
Antigens, including Unilateral Targets, (b) transfer Avalon Know-How to such parties in connection
therewith, including by providing instruction with respect to the use and immunization of HuMAb
Mice and the Additional Mice and assistance with respect to the Mice-Related Technology, (c)
develop production processes for, and manufacture, such Antibody Products, and (d) receive license
fees, milestone payments, royalties and other remuneration in connection therewith, but, in
connection with clause (a), (b), (c) or (d) above, not to otherwise actively participate in the
clinical development or commercialization of such Antibody Products by such parties (each agreement
with respect to the foregoing, a “Research and Commercialization Agreement”).

          2.2.3
Existing Grants. The Parties further acknowledge and agree that (a) *; and (b) pursuant to certain existing
agreements with Third Parties, Medarex has granted exclusive rights under the Medarex
Technology to Exploit Antibody Products with respect to Antigens other than Unilateral Targets,
which Antibody Products could be the same as one or more Unilateral Products.

          2.2.4
Cross License Agreement. *

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

D-4

 

*

     Section 2.3 Sublicenses. Avalon shall have the right to grant sublicenses under the license
granted in Section 2.1 to: (a) Affiliates without the approval of Medarex, provided that Avalon
shall remain jointly and severally liable for the performance or non-performance of any such
Affiliate sublicensee, and (b) Third Parties without the approval of Medarex; provided,
however, that any Third Party sublicense with respect to the Medarex Technology shall be
with the prior approval of Medarex, * , which approval shall be deemed to be granted with respect
to a sublicense if Medarex fails, within * of its receipt of a written notice from Avalon
setting forth in reasonable detail the nature of such sublicense and the identity of the Third
Party sublicensee, to notify Avalon that it withholds its consent to such sublicense and the
reasons therefor; and provided further that any such Third Party sublicensee to the
Medarex Technology enters into a written agreement with Avalon that acknowledges that the rights
are subject to this Agreement and to indemnify
Medarex and its Affiliates to the extent provided in Article 7 and agrees to be bound by the
provisions of Articles 4 and 5 and Sections 1.3 and 1.4, with Medarex being made a third party
beneficiary with respect to such provisions with the right to enforce such provisions.
Notwithstanding the previous sentence, the grant of any sublicense hereunder shall not relieve
Avalon of its obligations under this Agreement and Avalon shall be liable to Medarex for any act
(or failure to act) by a sublicensee which would be a breach of this Agreement if such act (or
failure to act) was by Avalon.

     Section 2.4 License Limitations. Avalon hereby covenants to Medarex that neither Avalon
nor any of its Affiliates, licensees or sublicensees shall use or practice the Medarex Technology
or the Collaboration Technology, directly or indirectly, on behalf of itself or any other party,
for any purpose other than as

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

D-5

 

permitted under Section 2.1 of this Agreement and as permitted by the
Collaboration Agreement and, in particular, but without limiting the generality of the foregoing,
for any research, development, commercialization or other Exploitation of an Antibody Product or
any other product or method, other than a Unilateral Product or a Collaboration Product as provided
hereunder or in the Collaboration Agreement.

     Section 2.5 No Other Rights. For the avoidance of doubt, Avalon and its Affiliates shall
have no right, express or implied, with respect to the Medarex Technology or the Collaboration
Technology, in each case except as expressly provided in Section 2.1 of this Agreement and Section
3.1 of the Collaboration Agreement.

ARTICLE 3 -

FINANCIAL PROVISIONS

     Section 3.1 Milestone Payments. Within * of the achievement of the following milestones,
on a Unilateral Target-by-Unilateral Target basis, for Unilateral Products with respect to each
Unilateral Target, Avalon shall pay to Medarex the specified milestone payments:

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	1st Unilateral	 	 	2nd Unilateral	 	 	Each Additional	 
	 	 	 	 	Product with respect	 	 	Product with respect	 	 	Unilateral Product with	 
	 	 	 	 	to a Unilateral	 	 	to a Unilateral	 	 	respect to a Unilateral	 
	 	Milestones	 	 	Target	 	 	Target	 	 	Target	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 	*
	 	 	*  	 	 	*  	 	 	*  	 
	 

          3.1.1 Back-up Products. In the event that Avalon discontinues a Unilateral Product with
respect to a Unilateral Target prior to the First Commercial Sale (as defined in Section 3.3) of
such Unilateral Product, any

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

D-6

 

milestones paid to Medarex with respect to such Unilateral Product
pursuant to this Section 3.1 shall be credited until exhausted against any milestones due with
respect to subsequent Unilateral Products with respect to such Unilateral Target.

     Section 3.2 Royalties.

          3.2.1 Obligation. With respect to each Unilateral Product, Avalon shall pay Medarex
royalties based upon * (on a * basis) for such Unilateral Product. The royalty rates shall
be determined on a Unilateral Product-by-Unilateral Product basis based on * .

          3.2.2 Rates. The royalty rates for each Unilateral Product (a) for which Medarex Opted-Out
pursuant to Section 5.1.1 of the Collaboration Agreement, or (b) which was converted from a
Collaboration Product pursuant to Section 8.2 of the Collaboration Agreement upon Medarex’s default
in any of its material obligations shall be as follows:

	 	 	 	 	 	 
	 
	 	Opt-Out or Termination Phase	 	 	Royalty	 
	 	*
	 	 	*	 
	 	*
	 	 	*	 
	 	*
	 	 	*	 
	 	*
	 	 	*	 
	 

If an Opt-Out (as opposed to a termination event) occurs within * after the end of a Phase,
the royalty rate shall be calculated based on * .

          3.2.3 Definitions. For purposes of this Agreement, the following definitions shall apply:

               (a) “Major Market” shall mean each of Japan, the United States, the United Kingdom, France,
Germany and the European Union as a whole.

               (b) “Phase I” shall mean a human clinical trial, the principal purpose of which is a
preliminary determination of safety in healthy individuals or patients as required in 21 C.F.R.
§312, or a similar clinical study prescribed by the Regulatory Authorities in a Major Market other
than the United States.

               (c) “Phase I Completion” shall mean, with respect to a Collaboration Target, the completion of
a complete data package from (i) a Phase I study, which data package is sufficient to support the
commencement of Phase II studies in support of the filing of an approvable BLA in a Major Market,
or (ii) in

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

D-7

 

the event that Phase I and Phase II are combined, the first study in support of the
filing of an approvable BLA in a Major Market that enrolled at least twenty (20) subjects, in
either case for the first Collaboration Product with respect to such Collaboration Target.

               (d) “Phase II” shall mean a human clinical trial, for which a primary endpoint is a
preliminary determination of efficacy or dose ranges in patients with the disease target being
studied as required in 21 C.F.R. §312, or a similar clinical study prescribed by the Regulatory
Authorities in a Major Market other than the United States. Any well-controlled study intended to
provide the substantial evidence of efficacy necessary to support the filing of an approvable BLA
(such as a combined Phase II/Phase III study, or any Phase III study in lieu of a Phase II study)
(a “Pivotal Study”) shall automatically be deemed to have reached Phase II status. A Phase II
study shall be deemed to have commenced when the first subject in such study has been enrolled.

               (e) “Phase II Completion” shall mean, with respect to a Collaboration Target, the completion
of a complete data package from (a) Phase II studies, which data package is sufficient to support
the commencement of Phase III studies in support of the filing of an approvable BLA in a Major
Market, or (b) in the event that Phase II and III studies are combined, the first such study in
support of the filing of an approvable BLA in a Major Market that enrolled at least forty (40)
patients with the disease target being studied, in either case for the first Collaboration Product
with respect to such Collaboration Target.

               (f) “Phase III” shall mean a human clinical trial, the principal purpose of which is to
establish safety and efficacy in patients with the disease target being studied as required in 21
C.F.R. §312, or similar clinical study prescribed by the Regulatory Authorities in a Major Market
other than the United States. A Phase III study shall also include any other human clinical trial
intended as a Pivotal Study, whether or not such study is a traditional Phase III study. A Phase
III study shall be deemed to have commenced when the first patient has been enrolled in a Pivotal
Study.

               (g) “Phase III Completion” shall mean, with respect to a Collaboration Target, the completion
of a data package for a Phase III study with respect to the first Collaboration Product with
respect to such Collaboration Target, which data package is sufficient to support the filing of an
approvable BLA for such Collaboration Product in a Major Market.

     Section 3.3 Royalty Term. Avalon’s royalty obligations under Section 3.2.2 shall terminate,
on a country-by-country basis, with respect to each Unilateral Product with respect to a Unilateral
Target, on the later to occur of (a) * anniversary of the first sale for use or consumption by
the general public of such Unilateral Product in a country after Regulatory Approval has been
obtained

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

D-8

 

for such Unilateral Product in such country (the “First Commercial Sale”), and (b) the
expiration date in such country of the last to expire of any issued Joint Patent or Medarex Patent
or Collaboration Patent that includes at least one Valid Claim covering the sale of such Unilateral
Product in such country. For purposes of this Agreement, a “Valid Claim” shall mean, with respect
to a particular country, a claim of an issued and unexpired Patent in such country that (x) has not
been revoked or held unenforceable or invalid by a decision of a court or governmental agency of
competent jurisdiction from which no appeal can be taken or has been taken within the time allowed
for appeal; and (y) has not been abandoned, disclaimed, denied or admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise in such country. Upon termination of the
royalty obligations of Avalon with respect to a Unilateral Product under this Section 3.3 in a
country, the license grants to Avalon in Section 2.1 with respect to such Unilateral Product in
such country shall become fully-paid up and nonexclusive with respect to such country.

     Section 3.4 Royalty Payments. Running royalties shall be payable on a quarterly basis,
within * after the end of each calendar quarter, based upon * . Royalties shall be
calculated in accordance with GAAP and with the terms of this Article 3. Only * royalty payment
will be due on * even though the manufacture, sale or use of such * may be covered by more
than one intellectual property right in a country.

     Section 3.5 Royalty Statements. Avalon shall deliver to Medarex within * after the
end of each calendar quarter in which Unilateral Products, for which Avalon owes a royalty
hereunder, are sold, a detailed statement showing (a) Net Sales of each such Unilateral Product,
(b) the number of units of each such Unilateral Product sold on a country-by-country basis during
the applicable calendar quarter, and (c) the amount and calculation of royalties due on such Net
Sales; and (d) any other information reasonably requested by Medarex to determine royalties owed to
Medarex.

     Section 3.6 Payment Method. All amounts due from Avalon hereunder shall be paid in U.S.
dollars by wire transfer in immediately available funds to an account designated by Medarex. Any
payments or portions thereof due hereunder which are not paid on the date such payments are due
under this Agreement shall bear interest at a rate equal to *.

     Section 3.7 Currency; Foreign Payments. If any currency conversion shall be required in
connection with any payment hereunder, such conversion shall be made
by *

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

D-9

 

to which such
royalty payments relate. If at any time legal restrictions prevent the prompt remittance of any
royalties with respect to Net Sales in any jurisdiction, Avalon may notify Medarex and make such
payments by depositing the amount thereof in local currency in a bank account or other depository
in such country in the name of Medarex, and Avalon shall have no further obligations under this
Agreement with respect thereto.

     Section 3.8 Taxes. Avalon may deduct from any royalty amounts it is required to pay pursuant
to this Agreement any Withholding Taxes. At Medarex’s request, Avalon shall provide Medarex a
certificate evidencing payment of any Withholding Taxes hereunder and shall * assist Medarex,
at Medarex’s expense, to obtain the benefit of any applicable tax treaty.

     Section 3.9 Records Retention; Audit.

          3.9.1 Record Retention. Avalon shall maintain (and shall ensure that its Affiliates and
sublicensees shall maintain) complete and accurate books, records and accounts that fairly reflect
their respective Net Sales and Unilateral Expenses with respect to Unilateral Products in
sufficient detail to confirm the accuracy of any payments required hereunder and in accordance with
GAAP, which books, records and accounts shall be retained by Avalon until the later of (a) *
after the end of the period to which such books, records and accounts pertain, and (b) the
expiration of the applicable tax statute of limitations (or any extensions thereof), or for such
longer period as may be required by Applicable Law.

          3.9.2 Audit. Medarex shall have the right to have an independent certified public accounting
firm of nationally recognized standing, reasonably acceptable to Avalon, to have access during
normal business hours, and upon reasonable prior written notice, to such of the records of Avalon
(and its Affiliates and sublicensees) as may be reasonably necessary to verify the accuracy of such
Net Sales or, in the event Avalon Opts-Out of all Unilateral Products with respect to a Unilateral
Target pursuant to Section 1.7, such Unilateral Expenses for * ending not more than * months
prior to the date of such request; provided, however, that Medarex shall not have
the right to conduct more than * in any * . The accounting firm shall disclose to
each Party whether such Net Sales or Unilateral Expenses, as applicable, are correct or incorrect
and the specific details concerning any discrepancies. No other information shall be provided to
Medarex. * shall bear the cost of such audit unless the audit reveals a variance of more than
* from the reported results, in which case * shall bear the cost of the audit. The results
of such accounting firm shall be final, absent manifest error.

          3.9.3 Payment of Additional Royalties. If, based on the results of such audit, additional
payments are owed by Avalon under this Agreement, Avalon

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

D-10

 

shall make such additional payments, *
, within * after the date on which such accounting firm’s written report is delivered to
Avalon.

     Section 13.10 Confidentiality. Medarex shall treat all information subject to review under
Section 3.9 in accordance with the confidentiality provisions of Article 4 and shall cause its
accounting firm to enter into a * acceptable confidentiality agreement with Avalon obligating
such firm to maintain all such financial information in confidence pursuant to such confidentiality
agreement.

ARTICLE 4 -

CONFIDENTIALITY

     Section 4.1 Confidential Information. The confidentiality and use restrictions set forth
in Sections 6.1 through 6.4 of the Collaboration Agreement shall apply to all Confidential
Information during the Term and for a period of * thereafter.

     Section 4.2 Use of Name. Each Party may use the name, insignia, symbol, trademark, trade
name or logotype of the other Party only (a) in connection with announcements and other permitted
disclosures relating to this Agreement and the activities contemplated hereby, (b) as required by
Applicable Law, and (c) otherwise as agreed in writing by such other Party.

     Section 4.3 Press Releases. Press releases or other similar public communication by either
Party relating to this Agreement, shall be approved in advance by the other Party, * , except
for those communications required by Applicable Law (which shall be provided to the other Party as
soon as practicable after the release or communication thereof), disclosures of information for
which consent has previously been obtained, and information of a similar nature to that which has
been previously disclosed publicly with respect to this Agreement, each of which shall not require
advance approval.

     Section 4.4 Publications. At least * prior to submission for publication,
presentation or other public disclosure by Avalon or any of its Affiliates of any material
pertaining to or resulting from the Medarex Technology, Avalon shall provide to Medarex a draft of
such material for its review and comment. No publication or presentation with respect to the
Medarex Technology shall be made unless and until Medarex’s comments on the proposed publication or
presentation have been addressed and changes have been agreed upon and any information determined
by Medarex to be Confidential Information has been removed. If requested in writing by Medarex,
Avalon shall withhold material from submission for publication or presentation for an
additional * days to allow for the filing of a patent application or the taking of such
measures to establish and preserve proprietary rights in the information in the material being
submitted for publication or presentation.

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

D-11

 

ARTICLE 5 -

INTELLECTUAL PROPERTY

     Section 5.1 Intellectual Property Ownership.

          5.1.1 Ownership of Avalon Technology. As between the Parties, Avalon shall own and retain
all right, title and interest in and to any and all: (a) Information and Inventions that are
conceived, discovered, developed or otherwise made, by or on behalf of Avalon (or its Affiliates or
its licensees or sublicensees (other than Medarex and its Affiliates)), whether or not patented or
patentable, and any and all Patent and other intellectual property rights with respect thereto,
except to the extent that any such Information and Inventions, or any Patent or other intellectual
property rights with respect thereto, are Collaboration Technology or Joint Technology; (b) other
Information and Inventions, and Patent and other intellectual property rights that are Controlled
(other than pursuant to the license grants set forth in Article 3) by Avalon, its Affiliates or its
licensees or sublicensees (other than Medarex and its Affiliates); and (c) other Avalon Technology.

          5.1.2 Ownership of Medarex Technology. Subject to Section 5.1.3 and the license grants to
Avalon under Article 2, as between the Parties, Medarex shall own and retain all right, title and
interest in and to any and all: (a) Information and Inventions that are conceived, discovered,
developed or otherwise made, by or on behalf of Medarex (or its Affiliates or its licensees or
sublicensees (other than Avalon and its Affiliates)), whether or not patented or patentable, and
any and all Patent and other intellectual property rights with respect thereto, except to the
extent that any such Information and Inventions, or any Patent or other intellectual property
rights with respect thereto, are Collaboration Technology or Joint Technology; (b) other
Information and Inventions, and Patent and other intellectual property rights that are Controlled
(other than pursuant to the license grants set forth in Article 3) by Medarex, its Affiliates or
its licensees or sublicensees (other than Avalon and its Affiliates); and (c) other Medarex
Technology.

          5.1.3 Ownership of Mice-Related Technology. As between the Parties, Medarex shall own and
retain all right, title and interest in and to all Mice Materials and Mice-Related Technology,
including any and all Information and Inventions with respect to the Mice Materials or the Mice-
Related Technology (including any Improvements thereto) that, as a result of the use of HuMAb
Mice provided by Medarex under this Agreement, are conceived, discovered, developed or otherwise
made, by or on behalf of Avalon, its Affiliates or its licensees or sublicensees (other than
Medarex and its Affiliates), whether or not patented or patentable, and any and all Patent and
other intellectual property rights with respect thereto. Avalon acknowledges and agrees that (a)
there are no licenses granted to Avalon under this Agreement with respect to the Mice Materials and

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

D-12

 

Mice-Related Technology and that under this Agreement, Avalon has no right to use the HuMAb Mice or
to discover, develop or otherwise make Improvements with respect to Mice Materials and Mice-Related
Technology, and (b) neither it, nor any of its Affiliates, licensees or sublicensees, will engage,
directly or indirectly, in activities designed to, or otherwise undertake or attempt, either on
behalf of itself or another, to discover, develop or make any Information and Inventions that
relate to the Mice Materials or the Mice-Related Technology as a result of the use of HuMab Mice
provided by Medarex to Avalon under this Agreement. Accordingly, Avalon shall * disclose to
Medarex in writing, the conception or reduction to practice, or the discovery, development or
making of any such Information and Inventions that relate to the Mice Materials or Mice-Related
Technology that results from use of HuMab Mice provided by Medarex to Avalon under this Agreement
and shall, and does hereby, assign, and shall cause its Affiliates, licensees and sublicensees to
so assign, to Medarex, without additional compensation, all of their respective rights, titles and
interests in and to any such Information and Inventions.

          5.1.4 Ownership of Joint Technology. Subject to Section 5.1.3 and the license grants under
Article 2, the Parties shall each own an equal, undivided interest in any and all (a) Information
and Inventions, conceived, discovered, developed or otherwise made, jointly by or on behalf of
Avalon (or its Affiliates or, to the extent permitted, its sublicensees), on the one hand, and
Medarex (or its Affiliates or, to the extent permitted, its sublicensees), on the other hand, in
connection with the work conducted under or in connection with this Agreement, whether or not
patented or patentable, but excluding any Mice Materials or Mice-Related Technology; and (b)
Patents (the “Joint Patents”) and other intellectual property rights with respect thereto
(collectively, the “Joint Technology”); provided, however, that, except as
otherwise expressly provided herein, neither a Party nor any of its Affiliates, licensees or
sublicensees shall, directly or indirectly, Exploit any Joint Technology or other such intellectual
property rights without the consent of the other Party, * ; provided, however,
that neither Party shall have the right to use or otherwise Exploit any Unilateral Products (or any
Antibodies or other Biological Materials derived from the HuMAb Mice or the Additional Mice) except
as set forth under this Agreement. Each Party shall * disclose to the other Party in writing,
and shall cause its Affiliates, licensees and sublicensees to so disclose, the development, making,
conception or reduction to practice of any Joint Technology.

          5.1.5 Ownership of Product Trademarks. Avalon shall own all right, title and interest in
and to each Product Trademark with respect to a Unilateral Product. Medarex hereby assigns all of
its right, title and interest in and to any Product Trademark to Avalon to the extent that such
Product Trademark relates solely to the Unilateral Products.

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

D-13

 

          5.1.6 Ownership of Regulatory Documentation. Avalon shall own all right, title and
interest in and to all Regulatory Documentation that relates solely to the Unilateral Products,
provided that Medarex shall reasonably cooperate, at Avalon’s sole cost and expense, in
filing and maintaining such Regulatory Documentation. Medarex hereby assigns to Avalon such of its
right, title and interest in and to such Regulatory Documentation as is necessary to vest ownership
of such Regulatory Documentation in Avalon as provided in the immediately preceding sentence.
Notwithstanding the ownership of any such Regulatory Documentation, neither Avalon nor any of its
Affiliates, licensees or sublicensees shall, directly or indirectly, use any such Regulatory
Documentation without the consent of Medarex, * ; provided, however, that each
Party shall have the right to use and reference any of such Regulatory Documentation in connection
with the Exploitation of Unilateral Products as provided in this Agreement and Collaboration
Products as provided in the Collaboration Agreement. Notwithstanding the foregoing, any Regulatory
Documentation containing Production Process Know-How of a Party shall be and remain the sole and
exclusive property of such Party and such Party shall have the right to submit any such Production
Process Know-How directly to the Regulatory Authorities using a drug master file, or any foreign
equivalent that is designed to protect such Party’s Confidential Information, which filing shall be
and remain the sole and exclusive property of such Party.

          5.1.7 United States Law. The determination of whether Information and Inventions are
conceived, discovered, developed or otherwise made by a Party for the purpose of allocating
proprietary rights (including Patent, copyright or other intellectual property rights) therein,
shall, for purposes of this Agreement, be made in accordance with applicable United States law.

          5.1.8 Notices. To the extent, if any, that Avalon has the right to (a) assign, transfer,
convey or otherwise encumber any right, title or interest in or to any Medarex Technology, Joint
Technology or Collaboration Technology, (b) grant any license or other right, title or interest in
or to any Medarex Technology, Joint Technology or Collaboration Technology, or (c) agree to or
otherwise become bound by any covenant not to sue for any infringement, misuse or other action or
inaction with respect to any Medarex Technology, Joint Technology or Collaboration Technology, in each case
Avalon shall not do so, directly or indirectly, expressly or by implication, by action or omission
or otherwise without providing Medarex with at least * advance written notice
thereof.

     Section 5.2 Prosecution of Patents and Trademarks.

          5.2.1 Avalon and Medarex Patents. As between the Parties, each Party shall have the sole
right, * , to obtain, prosecute and maintain throughout the world its Patents; provided,
however, that Avalon shall reimburse Medarex for * of the reasonable out-of-pocket
costs incurred by Medarex for filing,

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

D-14

 

prosecuting and maintaining the Medarex Patents to the extent
that they claim or cover (x) as a composition of matter, a Unilateral Product or any active
ingredient in such Unilateral Product or (y) the use of any such Unilateral Product or ingredient.
Each Party shall, and shall cause its Affiliates, licensees and sublicensees, as applicable, to,
cooperate fully with the other Party in the preparation, filing, prosecution, and maintenance of,
if requested by Avalon, the Product Trademarks and, if requested by the other Party, such other
Party’s Patents, provided that (except as otherwise provided in the first sentence of this Section
5.2.1) such other Party shall reimburse the cooperating Party for its reasonable out-of-pocket
expenses incurred in connection with such requested cooperation. Such cooperation includes (a)
promptly executing all papers and instruments and requiring employees to execute such papers and
instruments as reasonable and appropriate so as to enable such other Party to file, prosecute, and
maintain its Patents in any country; and (b) promptly informing such other Party of matters that
may affect the preparation, filing, prosecution, or maintenance of any such Patents.

          5.2.2 Joint Patents. The Parties shall cooperate, and shall cause their respective
Affiliates, licensees and sublicensees, as applicable, to cooperate, with one another with respect
to the filing, prosecution and maintenance of all Joint Patents, including by selecting outside
counsel, reasonably acceptable to the Parties, to handle such filing, prosecution and maintenance.
* the expenses associated with the filing, prosecution (including any interferences, reissue
proceedings and reexaminations) and maintenance of all Joint Patents. If a Party elects not to
pursue the filing, prosecution or maintenance of a Joint Patent in a particular country, or to take
any other action with respect to Joint Technology in a particular country that is * to
establish or preserve rights thereto, then in each such case such Party shall so notify the other
Party promptly in writing and * to enable such other Party to meet any deadlines by which an
action must be taken to establish or preserve any such rights in such Joint Technology in such
country. Upon receipt of each such notice by such other Party or if, at any time, such Party fails
to initiate any such
action within * after a request by such other Party that it do so (or thereafter
diligently pursue such action), such other Party shall have the right, but not the obligation, to
pursue the filing or registration, or support the continued prosecution or maintenance, of such
Patent at its expense in such country. If such other Party elects to pursue such filing or
registration, as the case may be, or continue such support, then such other Party shall notify such
Party of such election and such Party shall, and shall cause its Affiliates, licensees and
sublicensees, as applicable, to, (x) * cooperate with such other Party in this regard, and (y)
subject to Article 2, promptly release or assign to such other Party, without compensation, all
right, title and interest in and to such Patent in such country.

          5.2.3 Patent Filings. Avalon covenants not to, and to cause its Affiliates, licensees and
sublicensees, as applicable, not to, file any patent application disclosing or claiming any
Information and Inventions comprising any

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

D-15

 

Medarex Technology or the Exploitation thereof, without
Medarex’s prior written consent, * .

     Section 5.3 Enforcement of Patents and Trademarks.

          5.3.1 Rights and Procedures. If either Party determines that any Medarex Technology
exclusively licensed to Avalon under this Agreement (which for purposes of this Agreement shall be
deemed to include Joint Technology) is being infringed by a Third Party’s activities with respect
to a Unilateral Product and that such infringement could affect the exercise by the Parties of
their respective rights and obligations under this Agreement, it shall * notify such other
Party in writing and provide such other Party with any evidence of such infringement that is *
available. Promptly after the receipt of such written notice, the Parties shall meet and discuss
* the removal of such infringement. The pursuing Party shall consider * any comments from
the other Party and shall keep the other Party reasonably informed of any steps taken to remove
such infringement.

               (a) Joint Technology. With respect to Joint Technology, that is not licensed exclusively to
Avalon under this Agreement, the Parties shall have the first right but not the obligation to
jointly remove such infringement using * , including the filing of an infringement suit or
taking other similar action. * of the reasonable and verifiable costs and expenses incurred in
connection with such action. In the event the Parties fail to jointly take * to remove any
infringement of any Joint Technology within * following notice of such infringement, or a
Party earlier notifies the other in writing of its intent not to take such steps, the Party
pursuing the filing, prosecution or maintenance of a Patent comprising such Joint Technology (the
“Prosecuting Party”) shall have the right to do so * , or, in the event such Party declines, the
other Party shall have the right to do so * ; provided, however, that if the
Parties have jointly commenced negotiations with an alleged infringer for discontinuance of such infringement within such *
period, the Parties shall have an additional * to conclude their negotiations before
a Party unilaterally may bring suit for such infringement.

               (b) Medarex Technology. With respect to Medarex Technology exclusively licensed to Avalon
under this Agreement, Medarex shall have the first right, but not the obligation, to remove such
infringement with respect to an antibody-based product against a Collaboration Target * . In
the event Medarex fails to take * to remove any such infringement of such Medarex Technology
within * following notice of such infringement, or earlier notifies Avalon in writing of
its intent not to take such steps, Avalon shall have the right to do so * ; provided,
however, that if Medarex has commenced negotiations with an alleged infringer for
discontinuance of such infringement within such * period, Medarex shall have an additional *
to conclude its negotiations before Avalon

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

D-16

 

may bring suit for such infringement; and
provided further that * of the reasonable out-of-pocket costs incurred by
Medarex with respect to the removal of any such infringement to the extent that such infringement
adversely affects the Exploitation of any Unilateral Product.

               (c) Avalon Technology. With respect to Avalon Technology, Avalon shall have the sole right,
but not the obligation, to remove such infringement * .

          5.3.2 Cooperation. The Party not enforcing the applicable Technology shall provide
reasonable assistance to the other Party, including providing access to relevant documents and
other evidence, making its employees available at reasonable business hours, and joining the action
to the extent necessary to allow the enforcing Party to maintain the action.

          5.3.3 Recovery. Any amounts recovered by a Party pursuant to Section 5.3.1, whether by
settlement or judgment, shall be used to * for their reasonable costs and expenses in making
such recovery ( * ), with * being retained by the Party that has exercised its right to bring
the enforcement action; provided, however, that to the extent that any award is
attributable to loss of sales of a Unilateral Product, the Parties shall negotiate * an
appropriate allocation of such award to reflect the economic interests of the Parties under this
Agreement with respect to such Unilateral Product.

     Section 5.4 Potential Third-Party Rights.

          5.4.1 Third-Party Licenses. If (a) in the opinion of outside patent counsel to Avalon,
Avalon, or any of its Affiliates, licensees or permitted sublicensees, cannot Exploit a Unilateral
Product in a country in the Territory without infringing one or more Patents that have issued to a
Third Party in such country, or (b) as a result of any claim made against a Party, or any of its
Affiliates, licensees or permitted sublicensees, alleging that the Exploitation of a Unilateral
Product infringes or misappropriates any Patent or any other intellectual property right of a Third
Party in a country in the Territory, a judgment is entered by a court of competent jurisdiction
from which no appeal is taken within the time permitted for appeal, such that Avalon cannot Exploit
such Unilateral Product in such country without infringing the Patent or other proprietary rights
of such Third Party, then, in either case, Avalon shall have the first right, but not the
obligation to negotiate and to obtain a license from such Third Party as necessary for the
Exploitation of any Unilateral Products hereunder in such country; provided,
however, that Medarex shall have the sole right to seek any such license with respect to
Mice-Related Technology and shall use * to obtain such a license in its own name from such
Third Party in such country, under which Medarex shall, to the extent permissible under such
license, grant a sublicense to Avalon as necessary for Avalon, and any of its Affiliates and
permitted sublicensees, to Exploit the

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

D-17

 

Unilateral Products as provided hereunder in such country.
* of all royalty and other obligations with respect to the Exploitation of Unilateral Products.

          5.4.2 Third-Party Litigation. In the event that a Third Party institutes a Patent,
Trademark or other infringement suit (including any suit alleging the invalidity or
unenforceability of the Patents of a Party or its Affiliates, or claiming confusion, deception or
dilution of a Trademark by a Product Trademark) against either Party or its respective Affiliates,
licensees or permitted sublicensees during the Term, alleging that the Exploitation of the
Unilateral Products in the Territory or any other activities hereunder, infringes one or more
Patent, Trademark or other intellectual property rights held by such Third Party (an “Infringement
Suit”), the Parties shall cooperate with one another in defending such suit. Avalon shall direct
and control, * , any Infringement Suit with respect to the Unilateral Products (excluding any
Infringement Suit with respect to the Mice-Related Technology as to which Medarex shall retain the
exclusive right to direct and control); provided, however, that Avalon shall not
cease to defend, settle or otherwise dispose of a suit with respect to any intellectual property of
Medarex without Medarex’s prior written consent, * . With respect to the Collaboration Patents,
licensed to Avalon under this Agreement, Product Trademarks and with respect to the Exploitation of
Unilateral Products, * those costs and expenses. With respect to Joint Patents, * of any
costs and expenses of such defense; provided, with respect to the Exploitation of Unilateral
Products, * those costs and expenses. In addition, * shall pay any and all amounts awarded
in any suit against Avalon and/or Medarex with respect to exploitation of Unilateral Product and
any and all amounts paid in any settlement of such suit or threatened suit.

          5.4.3 Retained Rights. Nothing in this Section 5.4 shall prevent Avalon, * , from
obtaining any license or other rights from Third Parties it deems appropriate in order to permit
the full and unhindered exercise of its rights under this Agreement.

     Section 5.5 Exchange of Know-How.

          5.5.1 Information Disclosure. Medarex shall, and shall cause its Affiliates to, without
additional compensation and at its sole expense, disclose and make available to Avalon, in whatever
form Avalon may * request, all Regulatory Documentation, and all Medarex Technology,
Collaboration Technology and Joint Technology in the possession of Medarex that is licensed to
Avalon under this Agreement with respect to each Unilateral Target and Unilateral Product
immediately after such Unilateral Target is first designated as such and thereafter immediately
upon the earlier of the conception or reduction to practice, discovery, development or making of
each such Regulatory Documentation, and all Medarex Technology, Collaboration Technology and Joint
Technology in the possession of Medarex that is licensed to Avalon under this Agreement.

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

D-18

 

          5.5.2 Cooperation. Medarex shall cooperate with any and all * requests for assistance
from Avalon, * , including by making its employees, consultants and other scientific staff
available upon reasonable notice during normal business hours at Medarex’s place of business to
consult with Avalon on issues arising with respect to the Medarex Technology in connection with the
research, development, commercialization or other Exploitation of Unilateral Products.

          5.5.3 Biological Materials. For purposes of facilitating the conduct of the development
activities with respect to the Unilateral Products, Medarex shall provide to Avalon the Biological
Materials that are technology licensed to Avalon under this Agreement and that is necessary to
perform such activities. The Parties agree that: (a) all such Biological Materials provided by
Medarex to Avalon and any Biological Material produced against or with, or derived from, such
Biological Materials shall be used solely for the development and commercialization of Unilateral
Products, and in material
compliance with all Applicable Law; (b) all such Biological Materials under this Agreement
shall be provided without any warranties, express or implied; (c) Medarex shall obtain (or cause
its Third Party collaborators to obtain or certify that they have obtained) all appropriate and
required consents from the source of such Biological Materials; (d) Biological Materials provided
by Medarex to Avalon shall not be made available by Avalon to any Third Party except as necessary
for Avalon to perform its obligations hereunder, unless the prior written consent of Medarex is
first obtained; and (e) subject to the license grants in Article 2, all right, title and interest
in and to the Mice Materials and the Mice-Related Technology shall be, and remain, vested in
Medarex.

          5.5.4 Regulatory Records. Avalon shall maintain, or cause to be maintained, records of its
respective research, development, manufacturing and commercialization activities for the Unilateral
Products, including all Regulatory Documentation, in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes, which shall be complete and accurate and
shall fully and properly reflect all work done and results achieved in the performance of such
activities, and which shall be retained during the Term and for a period of * thereafter, or
for such longer period as may be required by Applicable Law. Medarex shall have the right, during
normal business hours and upon reasonable notice, to inspect and copy any such records, except to
the extent that such records contain proprietary information with respect to the Mice Materials,
Mice-Related Technology or Avalon’s Production Process Technology. Medarex shall have an
irrevocable, perpetual right to use and reference such Regulatory Documentation for all purposes.

          5.5.5 Production Process Technology. Notwithstanding anything to the contrary in this
Section 5.5 or elsewhere in this Agreement, Medarex shall not be obligated to disclose or provide
any of its Production Process

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

D-19

 

Technology, including Biological Materials with respect thereto, to
Avalon or any Third Party except as may be required or permitted under a separate written agreement
entered into by the Parties pursuant to Section 1.2.8 or Section 1.6 of the Collaboration
Agreement.

ARTICLE 6

TERM AND TERMINATION

     Section 6.1 Term. The term of this Agreement shall commence upon the Effective Date and
shall continue in effect until such time as there is no longer any Unilateral Product being
Exploited hereunder, unless terminated at an earlier date in accordance with the terms and
conditions set forth in this Article 6.

     Section 6.2 Termination of Agreement for Material Breach. Any material failure by a Party
to comply with any of its material obligations contained herein shall, in addition to any remedy
available under Section 6.3 hereof, entitle the Party not in default to give to the Party in
default written notice specifying the nature of the default, requiring the defaulting Party to make
good or otherwise cure such default, and stating its intention to terminate if such default is not
cured. If such default is not cured within * after the receipt of such notice (or, if such
default cannot be cured within such * period, if the Party in default does not commence actions
to cure such default within such period and thereafter diligently continue such actions and cure
such default within * after the receipt of such notice), except in the case of a payment
default, as to which the defaulting Party shall have only a * cure period, the Party not in
default shall be entitled, on written notice to the other Party, without prejudice to any of its
other rights conferred on it by this Agreement, and in addition to any other remedies available to
it by law or in equity, to terminate this Agreement in its entirety.

     Section 6.3 Termination of Rights with Respect to Unilateral Products Upon Material Breach.
Any material failure by Avalon to comply with any of its material obligations contained herein
with respect to a specific Unilateral Product shall entitle Medarex to give to Avalon notice
specifying the nature of the default, requiring Avalon to make good or otherwise cure such default,
and stating its intention to convert such Unilateral Product to a Unilateral Product of Medarex
under the Unilateral Development and Commercialization Agreement attached to the Collaboration
Agreement as Appendix D-1 if such default is not cured. If such default is not cured
within * after the receipt of such notice (or, if such default cannot be cured within such *
period, if Avalon does not commence actions to cure such default within such period and thereafter
diligently continue such actions or if such default is not otherwise cured within * after the
receipt of such notice), except in the case of a payment default, as to which Avalon shall have
only a * cure period. Medarex shall be entitled, on written notice to Avalon, to convert the
such Unilateral Product to a Unilateral Product of Medarex, whereupon each shall be subject to
their respective rights and obligations under the Unilateral

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

D-20

 

Development and Commercialization
Agreement attached to the Collaboration Agreement as Appendix D-1, including the
indemnification obligations and the royalty obligations set forth therein (provided that the
royalty rate owed by Medarex pursuant to such Unilateral Development and Commercialization
Agreement shall equal the royalty rate that Avalon would have owed Medarex had it not defaulted).

     Section 6.4 Termination Upon Insolvency. Either Party may terminate this Agreement if, at
any time, the other Party shall file in any court or agency pursuant to any statute or regulation
of any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization
or for an arrangement or for the appointment of a receiver or trustee of that Party or of its
assets, or if such other Party proposes a written agreement of composition or extension of its
debts, or if such other Party shall be served with an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within * after the filing
thereof, or if such other Party shall propose or be a party to any dissolution or liquidation, or
if such other Party shall make an assignment for the benefit of its creditors.

     Section 6.5 Rights in Bankruptcy. All rights and licenses granted under or pursuant to
this Agreement by Medarex or Avalon are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the United States Bankruptcy Code, licenses of rights to “intellectual property”
as defined under Section 101 of the United States Bankruptcy Code. The Parties agree that the
Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all
of their rights and elections under the United States Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against a Party under the
United States Bankruptcy Code, the Party hereto that is not a party to such proceeding shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, which, if not already in the
non-subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of
a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party
subject to such proceeding continues to perform all of its obligations under this Agreement or (b)
if not delivered under clause (a) above, following the rejection of this Agreement by or on behalf
of the Party subject to such proceeding upon written request therefor by the non-subject Party.

     Section 6.6 Consequences of Expiration or Termination.

          6.6.1 Licenses. Upon expiration of the Agreement in accordance with Section 6.1 and the
payment of all amounts due under Section 3.1, the licenses granted by Medarex to Avalon hereunder
shall be deemed fully-paid up and nonexclusive.

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

D-21

 

          6.6.2 Return of Information. Upon expiration of this Agreement pursuant to Section 6.1 or
upon termination of this Agreement in its entirety by either Party pursuant to this
Article 6, Avalon, at the request of Medarex, shall return all data, files, records and other
materials in its possession or control relating to Medarex’s Technology, or containing or
comprising Medarex’s Information and Inventions or other Confidential Information and to which
Avalon does not retain rights hereunder (except one copy of which may be retained for archival
purposes) and Avalon agrees not to use any Medarex Technology and/or Collaboration Technology
except as permitted under another Agreement between Avalon and Medarex.

     Section 6.7 Accrued Rights; Surviving Obligations.

          6.7.1 Accrued Rights. Termination or expiration of this Agreement for any reason shall be
without prejudice to any rights that shall have accrued to the benefit of a Party prior to such
termination or expiration. Such termination or expiration shall not relieve a Party from
obligations that are expressly indicated to survive the termination or expiration of this
Agreement.

          6.7.2 Survival. Articles 3 (with respect to obligations arising prior to expiration or
termination), 4 and 7 (provided Section 7.3 shall survive for * after the expiration or earlier
termination of this Agreement), and Sections 1.1, 2.3 (with respect only to the last sentence
thereof), 2.4, 3.9, 3.10, 5.1, 5.2.2, 5.2.3, 5.5.3 (with respect only to the last sentence
thereof), 5.5.4, 5.5.5, 6.5, 6.6, 8.2, 9.4, 9.5 and 9.6 of this Agreement and this Section 6.7
shall survive * .

ARTICLE 7

INDEMNIFICATION AND INSURANCE

     Section 7.1 Indemnification of Medarex. Avalon shall indemnify Medarex, its Affiliates and
their respective directors, officers, employees and agents, and defend and save each of them
harmless, from and against any and all Losses in connection with any and all Third-Party Claims
arising from or occurring as a result of (a) the development, manufacture or commercialization of a
Unilateral Target or Unilateral Product by or on behalf of Avalon or its Affiliates or
sublicensees, or by any person or entity that performs any of the foregoing for on behalf of Avalon
or its Affiliates or sublicensees or with Unilateral Target or Unilateral Product obtained directly
or indirectly from Avalon or its Affiliates or sublicensees or, (b) the gross negligence or willful
misconduct on the part of Avalon or its Affiliates, licensees or sublicensees in performing any
activity contemplated by this Agreement.

     Section 7.2 Indemnification Procedure.

          7.2.1 Notice of Claim. The indemnified Party shall give the indemnifying Party prompt
written notice (an “Indemnification Claim Notice”) of

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

D-22

 

any Losses or discovery of fact upon which
such indemnified Party intends to base a request for indemnification under Section 7.1 or Section
7.2, but in no event shall the indemnifying Party be liable for any Losses that result from any
delay in providing such notice. Each Indemnification Claim Notice must contain a description of
the claim and the nature and amount of such Loss (to the extent that the nature and amount of such
Loss are known at such time). The indemnified Party shall furnish * to the indemnifying Party
copies of all papers and official documents received in respect of any Losses. All indemnification
claims in respect of a Party, its Affiliates or their respective directors, officers, employees and
agents (collectively, the “Indemnitees” and each an “Indemnitee”) shall be made solely by such
Party to this Agreement (the “Indemnified Party”).

          7.2.2 Control of Defense. At its option, the indemnifying Party may assume the defense of
any Third-Party Claim by giving written notice to the Indemnified Party within * after the
indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense of
a Third-Party Claim by the indemnifying Party shall not be construed as an acknowledgment that the
indemnifying Party is liable to indemnify any Indemnitee in respect of the Third-Party Claim, nor
shall it constitute a waiver by the indemnifying Party of any defenses it may assert against any
Indemnitee’s claim for indemnification. Upon assuming the defense of a Third-Party Claim, the
indemnifying Party may appoint as lead counsel in the defense of the Third-Party Claim any legal
counsel selected by the indemnifying Party. In the event the indemnifying Party assumes the
defense of a Third-Party Claim, the Indemnified Party shall immediately deliver to the indemnifying
Party all original notices and documents (including court papers) received by any Indemnitee in
connection with the Third-Party Claim. Should the indemnifying Party assume the defense of a
Third-Party Claim, the indemnifying Party shall not be liable to the Indemnified Party or any other
Indemnitee for any legal expenses subsequently incurred by such Indemnified Party or other
Indemnitee in connection with the analysis, defense or settlement of the Third-Party Claim. In the
event that it is ultimately determined that the indemnifying Party is not obligated to indemnify,
defend or hold harmless an Indemnitee from and against the Third-Party Claim, the Indemnified Party
shall reimburse the indemnifying Party for any and all costs and expenses (including attorneys’
fees and costs of suit) and any Losses incurred by the indemnifying Party in its defense of the
Third-Party Claim with respect to such Indemnitee.

          7.2.3 Right to Participate in Defense. Without limiting Section 7.3.2, any Indemnitee
shall be entitled to participate in, but not control, the defense of such Third-Party Claim and to
engage counsel of its choice for such purpose; provided, however, that such
engagement shall be at the Indemnitee’s own expense unless (a) the engagement thereof has been
specifically authorized by the indemnifying Party in writing, or (b) the indemnifying Party has
failed to assume the defense and engage counsel in accordance with Section 7.3.2 (in which case the
Indemnified Party shall control the defense).

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

D-23

 

          7.2.4 Settlement. With respect to any Losses relating solely to the payment of money
damages in connection with a Third-Party Claim and that will not result in the Indemnitee’s
becoming subject to injunctive or other relief or otherwise adversely affect the business of the
Indemnitee in any manner, and as to which the indemnifying Party shall have acknowledged in writing
the obligation to indemnify the Indemnitee hereunder, the indemnifying Party shall have the sole
right to consent to the entry of any judgment, enter into any settlement or otherwise dispose of
such Loss, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate.
With respect to all other Losses in connection with Third-Party Claims, where the indemnifying
Party has assumed the defense of the Third-Party Claim in accordance with Section 7.3.2, the
indemnifying Party shall have authority to consent to the entry of any judgment, enter into any
settlement or otherwise dispose of such Loss provided it obtains the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld or delayed). The indemnifying
Party shall not be liable for any settlement or other disposition of a Loss by an Indemnitee that
is reached without the written consent of the indemnifying Party. Regardless of whether the
indemnifying Party chooses to defend or prosecute any Third-Party Claim, no Indemnitee shall admit
any liability with respect to, or settle, compromise or discharge, any Third-Party Claim without
the prior written consent of the indemnifying Party.

          7.2.5 Cooperation. Regardless of whether the indemnifying Party chooses to defend or
prosecute any Third-Party Claim, the Indemnified Party shall, and shall cause each other Indemnitee
to, reasonably cooperate in the defense or prosecution thereof and shall furnish such records,
information and testimony, provide such witnesses and attend such conferences, discovery
proceedings, hearings, trials and appeals as may be reasonably requested in connection therewith.
Such cooperation shall include access during normal business hours afforded to indemnifying Party
to, and reasonable retention by the Indemnified Party of, records and information that are
reasonably relevant to such Third-Party Claim, and making Indemnitees and other
employees and agents available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder, and the indemnifying Party shall
reimburse the Indemnified Party for all its reasonable out-of-pocket expenses in connection
therewith.

          7.2.6 Expenses. Except as provided above, the costs and expenses, including fees and
disbursements of counsel, incurred by the Indemnified Party in connection with any claim shall be
reimbursed on a calendar quarter basis by the indemnifying Party, without prejudice to the
indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject
to refund in the event the indemnifying Party is ultimately held not to be obligated to indemnify
the Indemnified Party.

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

D-24

 

     Section 7.3 Insurance. Avalon shall have and maintain such types and amounts of liability
insurance * , and shall upon request provide the other Party with a copy of its policies of
insurance in that regard, along with any amendments and revisions thereto.

ARTICLE 8 -

REPRESENTATIONS, WARRANTIES AND COVENANTS

     Section 8.1 Representations, Warranties and Covenants. Each Party is entering into this
Agreement in reliance upon the representations, warranties and covenants of the other Party set
forth in Sections 10.1, 10.2 and 10.3 of the Collaboration Agreement.

     Section 8.2 DISCLAIMER OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN
SECTIONS 10.1, 10.2 AND 10.3 OF THE COLLABORATION AGREEMENT, AVALON AND MEDAREX MAKE NO
REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW,
BY STATUTE OR OTHERWISE, AND AVALON AND MEDAREX EACH SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES,
WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY
OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE
NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE 9 -

MISCELLANEOUS

     Section 9.1 Force Majeure. Neither Party shall be held liable or responsible to the other
Party or be deemed to have defaulted under or breached this Agreement for failure or delay in
fulfilling or performing any term of this Agreement when such failure or delay is caused by or
results from events beyond the reasonable control of the nonperforming Party, including fires,
floods, earthquakes, embargoes, shortages, epidemics, quarantines, war, acts of war (whether war be
declared or not) or terrorism, insurrections, riots, civil commotion, strikes, lockouts or other
labor disturbances, acts of God or acts, omissions or delays in acting by any governmental
authority. The non-performing Party shall notify the other Party of such force majeure within * after such occurrence by giving written notice to the other Party stating the nature of the
event, its anticipated duration, and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration than is necessary and
the non-performing Party shall use * to remedy its inability to perform; provided,
however, that in the event the suspension of performance continues for * after the
date of the occurrence, the Parties shall meet to

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

D-25

 

discuss * how to proceed in order to
accomplish the goals of the Collaboration outlined in this Agreement.

     Section 9.2 Assignment. Without the prior written consent of the other Party hereto,
neither Party shall sell, transfer, assign, pledge or otherwise dispose of, whether voluntarily,
involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties
hereunder; provided, however, that either Party hereto may assign or transfer this
Agreement or any of its rights or obligations hereunder without the consent of the other Party (a)
to any Affiliate of such Party; or (b) to any Third Party with which it merges or consolidates, or
to which it transfers all or substantially all of its assets to which this Agreement relates if in
any such event (i) the assigning Party (provided that it is the surviving entity) remains jointly
and severally liable with the relevant Avalon Affiliate, Medarex Affiliate or Third Party assignee
under this Agreement, and (ii) the relevant Avalon Affiliate assignee, Medarex Affiliate assignee,
Third Party assignee or surviving entity assumes in writing all of the assigning Party’s
obligations under this Agreement. For purposes of clarification with respect to subsection (b)
herein, a Third Party that merges or consolidates with a Party, or to which a Party transfers all
or substantially all of its assets to which this Agreement relates, shall not be deemed to grant
the other Party to this Agreement any license to such Third Party’s technology in existence as of
the effective date of such merger, consolidation or transfer, unless such grant is made pursuant to
a separate agreement, provided such Third Party shall maintain all licenses granted
hereunder by such first Party with respect to its Technology and
any Information and Inventions with respect thereto. Any purported assignment or transfer in
violation of this Section shall be void ab initio and of no force or effect.

     Section 9.3 Severability. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or obligations of
either Party under this Agreement will not be materially and adversely affected thereby, (a) such
provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement shall remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and reasonably acceptable to the Parties herein. To the
fullest extent permitted by applicable law, each Party hereby waives any provision of law that
would render any provision prohibited or unenforceable in any respect.

     Section 9.4 Disputes. Any dispute that may arise relating to this Agreement shall be
referred to the Chief Executive Officers of each of the Parties (or

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

D-26

 

their respective designees) who
shall use * to mutually agree upon the proper course of action to resolve the dispute. If any
dispute is not resolved by the Chief Executive Officers of the Parties (or their designees) * after such dispute is referred to them, or such longer period as the Chief Executive Officers
(or their designees) may collectively agree, then either Party shall have the right to litigate
such dispute in accordance with Section 9.5 or to pursue such other dispute resolution mechanism as
the Parties may agree.

     Section 9.5 Governing Law, Jurisdiction, Venue and Service.

          9.5.1 Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of this Agreement to the substantive law of
another jurisdiction.

          9.5.2 Jurisdiction. The Parties hereby irrevocably and unconditionally consent to the
exclusive jurisdiction of the courts of the State of Delaware and the United States District Court
for the District of Delaware for any action, suit or proceeding (other than
appeals therefrom) arising out of or relating to this Agreement, and agree not to commence any
action, suit or proceeding (other than appeals therefrom) related thereto except in such courts.

          9.5.3 Venue. The Parties further hereby irrevocably and unconditionally waive any
objection to the laying of venue of any action, suit or proceeding (other than appeals therefrom)
arising out of or relating to this Agreement in the courts of the State of Delaware or the United
States District Court for the District of Delaware, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any such action, suit
or proceeding brought in any such court has been brought in an inconvenient forum.

          9.5.4 Service. Each Party hereto further agrees that service of any process, summons,
notice or document by U.S. registered mail to its address set forth below shall be effective
service of process for any action, suit or proceeding brought against it under this Agreement in
any such court.

          9.5.5 Patents and Trademarks. Notwithstanding the foregoing, any disputes regarding the
validity, scope or enforceability of Patents or Trademarks shall be submitted to a court of
competent jurisdiction in the territory in which such rights apply.

     Section 9.6 Notices. All notices or other communications that are required or permitted
hereunder shall be in writing and delivered personally, sent by facsimile (and promptly confirmed
by personal delivery, registered or certified mail or overnight courier as provided herein), sent
by nationally-recognized

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

D-27

 

overnight courier or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:

     If to Avalon, to:

Avalon Pharmaceuticals, Inc.

20358 Seneca Meadows Road

Germantown, Maryland 20876

Attention: CEO

Facsimile: 301-556-9910

     If to Medarex, to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: President

Facsimile: (609) 430-2850

with a copy to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: General Counsel

Facsimile: (609) 430-4215

or to such other address as the Party to whom notice is to be given may have furnished to the other
Party in writing in accordance herewith. Any such communication shall be deemed to have been
received (a) when delivered, if personally delivered or sent by facsimile on a business day, (b) on
the business day after dispatch, if sent by nationally-recognized overnight courier, and (c) on the
third business day following the date of mailing, if sent by mail. It is understood and agreed
that this Section 9.6 is not intended to govern the day-to-day business communications necessary
between the Parties in performing their duties, in due course, under the terms of this Agreement.

     Section 9.7 Entire Agreement; Modifications. This Agreement, together with the Appendix
attached hereto and the Collaboration Agreement, sets forth and constitutes the entire agreement
and understanding between the Parties with respect to the subject matter hereof and thereof and all
prior agreements, understanding, promises and representations, whether written or oral, with
respect thereto are superseded hereby and thereby. Each Party confirms that it is not relying on
any representations or warranties of the other Party except as

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

D-28

 

specifically set forth herein or
therein. No amendment, modification, release or discharge shall be binding upon the Parties unless
in writing and duly executed by authorized representatives of both Parties.

     Section 9.8 Relationship of the Parties. It is expressly agreed that the Parties shall be
independent contractors of one another and that the relationship between the Parties shall not
constitute a partnership, joint venture or agency. Neither Party shall have the authority to make
any statements, representations or commitments of any kind, or to take any action, which shall be
binding on the other, without the prior written consent of the
other to do so. All persons employed by a Party shall be employees of such Party and not of
the other Party and all costs and obligations incurred by reason of any such employment shall be
for the account and expense of such Party.

     Section 9.9 Equitable Relief. Each Party acknowledges and agrees that the restrictions set
forth in Articles 4 and 5 of this Agreement are reasonable and necessary to protect the legitimate
interests of the other Party and that such other Party would not have entered into this Agreement
in the absence of such restrictions, and that any violation or threatened violation of any
provision of Article 4 or 5 will result in irreparable injury to such other Party. Each Party also
acknowledges and agrees that in the event of a violation or threatened violation of any provision
of Article 4 or 5, the other Party shall be entitled to preliminary and permanent injunctive
relief, without the necessity of proving irreparable injury or actual damages and without the
necessity of having to post a bond, as well as to an equitable accounting of all earnings, profits
and other benefits arising from any such violation. The rights provided in the immediately
preceding sentence shall be cumulative and in addition to any other rights or remedies that may be
available to such other Party. Nothing in this Section 9.9 is intended, or should be construed, to
limit such other Party’s right to preliminary and permanent injunctive relief or any other remedy
for breach of any other provision of this Agreement.

     Section 9.10 Waiver. Any term or condition of this Agreement may be waived at any time by
the Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set
forth in a written instrument duly executed by or on behalf of the Party waiving such term or
condition. The waiver by either Party hereto of any right hereunder or of the failure to perform
or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of
any other breach or failure by said other Party whether of a similar nature or otherwise.

     Section 9.11 Counterparts. This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument.

     Section 9.12 No Benefit to Third Parties. The representations, warranties, covenants and
agreements set forth in this Agreement are for the sole benefit of the

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

D-29

 

Parties hereto and their
successors and permitted assigns, and they shall not be construed as conferring any rights on any
other parties.

     Section 9.13 Further Assurance. Each Party shall duly execute and deliver, or cause to be
duly executed and delivered, such further instruments and do and cause to be done such further acts
and things, including the filing of such assignments, agreements, documents and instruments, as may
be necessary or as the other Party may reasonably request in connection with this Agreement or to
carry out more effectively the provisions and purposes, or to better assure and confirm unto such
other Party its rights and remedies under this Agreement.

     Section 9.14 English Language. This Agreement has been written and executed in the English
language. Any translation into any other language shall not be an official version thereof, and in
the event of any conflict in interpretation between the English version and such translation, the
English version shall control.

     Section 9.15 References. Unless otherwise specified, (a) references in this Agreement to
any Article, Section, Appendix, Schedule or Exhibit shall mean references to such Article, Section,
Appendix, Schedule or Exhibit of this Agreement, (b) references in any section to any clause are
references to such clause of such section, and (c) references to any agreement, instrument or other
document in this Agreement refer to such agreement, instrument or other document as originally
executed or, if subsequently varied, replaced or supplemented from time to time, as so varied,
replaced or supplemented and in effect at the relevant time of reference thereto.

     Section 9.16 Construction. Except where the context otherwise requires, wherever used, the
singular shall include the plural, the plural the singular, the use of any gender shall be
applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions
of this Agreement are for convenience of reference only and in no way define, describe, extend or
limit the scope or intent of this Agreement or the intent of any provision contained in this
Agreement. The term “including” as used herein shall mean including, without limiting the
generality of any description preceding such term. The language of this Agreement shall be deemed
to be the language mutually chosen by the Parties and no rule of strict construction shall be
applied against either Party hereto.

[The remainder of this page has been intentionally left blank.]

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

D-30

 

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.

	 	 	 	 	 	 	 	 	 
	Medarex, Inc.	 	 	 	Avalon Pharmaceuticals, Inc.
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/  James B. Cornett, Ph.D.	 	 	 	By:	 	/s/  Kenneth C. Carter, Ph.D.
	

	 	 
	 	 	 	 	 	 
	Name: James B. Cornett, Ph.D.	 	 	 	Name: Kenneth C. Carter, Ph.D.
	Title: VP, Business Development	 	 	 	Title: President and CEO

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

D-31

 

APPENDIX A

Unilateral Products and Unilateral Targets

     This Appendix to the UNILATERAL DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (“Agreement”)
effective as of October 15, 2003, by and between MEDAREX PHARMACEUTICALS, INC. (“Medarex”) and
AVALON, INC., on behalf of itself and its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC.,
(collectively, “Avalon”) sets forth the Unilateral Products with respect to the applicable
Unilateral Targets.

     The contents of this Appendix A are hereby incorporated into the Agreement and are
governed by the terms and conditions of the Agreement, including the confidentiality provisions set
forth therein.

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

D-32

 

APPENDIX D-2

UNILATERAL DEVELOPMENT

AND COMMERCIALIZATION AGREEMENT

     THIS UNILATERAL DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (“Agreement”) is made and entered
into effective as of October 15, 2003 (the “Effective Date”), by and between AVALON
PHARMACEUTICALS, INC., having principal offices at 19 Firstfield Road Gaithersburg, MD 20878
(“Avalon”) and MEDAREX, INC., having principal offices at 707 State Road, Princeton, New Jersey
08540-1437, on behalf of itself and its wholly owned subsidiary, GENPHARM INTERNATIONAL, INC., with
principal offices at 521 Cottonwood Drive, Milpitas, California 95035 (collectively, “Medarex”).
Avalon and Medarex each may be referred to herein individually as a “Party,” or collectively as the
“Parties.”

     WHEREAS, Avalon and Medarex have entered into that certain Collaboration Agreement, dated as
of the date hereof (the “Collaboration Agreement”);

     WHEREAS, the Parties have agreed that in the event Avalon elects not to proceed with the
development and commercialization of certain Collaboration Targets and Medarex notifies Avalon of
its election to proceed unilaterally with such development and commercialization in accordance with
Section 5.1.2 of the Collaboration Agreement, that Medarex shall have the right to do so in
accordance with the terms set forth below; and

     WHEREAS, the Parties have agreed that in the event Avalon fails to comply with any of its
material obligations contained in the Collaboration Agreement with respect to a Collaboration
Product, Medarex shall have the right to convert such Collaboration Product into a Unilateral
Product in accordance with Section 8.2 of the Collaboration Agreement and proceed unilaterally with
the development and commercialization of such Unilateral Product in accordance with the terms set
forth below;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and
covenants contained herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties intending to be legally bound, do hereby agree as
follows:

ARTICLE 1 -

UNILATERAL DEVELOPMENT AND COMMERCIALIZATION

     Section 1.1 Definitions. Any capitalized term used in this Agreement not otherwise defined
herein shall have the meaning set forth in the Collaboration Agreement.

     Section 1.2 Unilateral Targets and Unilateral Products. In the event that Medarex provides
Avalon with (a) an Election Notice with respect to a Collaboration Target pursuant to Section 5.1.2
of the Collaboration Agreement, or (b) written notice of Avalon’s failure to cure a default in any
of its material obligations with respect to a Collaboration Product with respect to a Collaboration
Target pursuant to Section 8.2 of the Collaboration Agreement, Appendix A hereto shall be
amended to include such Collaboration Target, which shall be referred to herein as “Unilateral
Targets” and any Collaboration Antibodies and Collaboration Products with respect

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

D-2

 

thereto, which shall be deemed to be Unilateral Products (as defined herein). Medarex shall
have the exclusive right to Exploit any and all Antibodies and Antibody Products with respect to
the Unilateral Targets (collectively, “Unilateral Products”).

     Section 1.3 Rights and Obligations of the Parties with respect to Unilateral Products. Except
as otherwise expressly provided herein, * for all costs and expenses in connection with the
development and commercialization of the Unilateral Products; provided, however,
that * budgeted costs and expenses associated with the research and development activities with
respect to the Unilateral Products that * has committed to in the applicable Project Budget as
necessary with respect to such Unilateral Product to complete that phase (e.g., toxicology studies
in support of an IND or Phase I, Phase II or Phase III) of research and development that was under
way when * of such Unilateral Products but only to the extent that such costs and expenses are
part of an approved Project Budget at the time that Medarex provides an Election Notice. By way of
clarification, * , for all milestone and royalty payments, license fees and other payments owed
to Third Parties, whether by Medarex, Avalon or their respective Affiliates, in connection with the
development and commercialization of Unilateral Products, including any payments owed by * .
The Parties shall work together to ensure a smooth and orderly transition of the Unilateral
Products to Medarex, including the assignment to Medarex of any third-party service contracts with
respect to the Exploitation of such Unilateral Products. Except for the obligations provided for
in this Section 1.3, * (a) * to support or otherwise fund any additional efforts in respect
of such Unilateral Products, and (b) no obligation, responsibility, or authority regarding such
additional efforts in respect of such Unilateral Products.

     Section 1.4 Performance of Medarex. Medarex shall use * to develop and commercialize one
or more Unilateral Products with respect to each Unilateral Target. Such activities shall be
performed in good scientific manner, and in compliance in all material respects with all Applicable
Law, including current good laboratory practices and good clinical practices (including compliance
with such practices and guidelines necessary to allow the results of such activities to support
INDs, BLAs and other Regulatory Approvals), as applicable.

     Section 1.5 Medarex Reports. Medarex shall provide * written progress report to Avalon
describing the development and commercialization activities with respect to each of its Unilateral
Products in sufficient detail to enable Avalon to determine whether Medarex is using * with
respect thereto.

     Section 1.6 Communications and Filings with Regulatory Authorities. Medarex shall be
responsible for all communications and filings with the Regulatory Authorities with respect to each
of its Unilateral Products.

     Section 1.7 Opt-Out by Medarex. If, at any time, Medarex decides to cease development or
commercialization of all Unilateral Products with respect to a Unilateral Target, either alone or
in collaboration with or through a Third Party, it shall give * written notice thereof to
Avalon, which notice shall describe in reasonable detail the reasons for such decision. Medarex
shall, for a period of * after notice to Avalon with respect thereto, furnish Avalon with
such information and materials as Avalon may reasonably request so as to determine whether it
wishes to proceed with the unilateral development and commercialization

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

D-3

 

of such Unilateral Products, including a statement detailing * actually incurred by or on
behalf of Medarex in connection with the Exploitation of such Unilateral Products (the “Unilateral
Expenses”). Upon its receipt of all of such information and materials, Avalon shall, for a period
of * days, have the right to elect to proceed unilaterally with the development and
commercialization of such Unilateral Products by making a payment to Medarex equal to * of all
Unilateral Expenses and * of all milestones paid by Medarex to Avalon with respect to such
Unilateral Products. Upon such election, Appendix A shall be amended to delete such
Unilateral Target and any Unilateral Products with respect thereto, and the Unilateral Development
and Commercialization Agreement set forth in Appendix D-1 to the Collaboration Agreement
shall be automatically amended to include such Unilateral Target and such Unilateral Products,
provided that the royalty rate with respect to such Unilateral Products shall be * . By way of
clarification, Medarex shall have the right to pursue one or more Unilateral Products with respect
to a Unilateral Target and any decision to cease Exploiting one in favor of another shall not be
subject to this Section 1.7 for so long as Medarex is using * to develop and commercialize at
least one Unilateral Product with respect to such Unilateral Target.

ARTICLE 2 -

LICENSE GRANTS

     Section 2.1 Avalon Grant. Subject to Section 2.2 and the other terms and conditions of this
Agreement, Avalon hereby grants to Medarex and its Affiliates, with respect to each Unilateral
Product, an exclusive (even as to Avalon and its Affiliates), worldwide, royalty-bearing right and
license, with the right to sublicense solely as provided in Section 2.3, under the Avalon
Technology, the Collaboration Technology and the Joint Technology to Exploit such Unilateral
Products in the Territory in accordance with this Agreement.

     Section 2.2 Exclusivity, Reserved Rights and Pre-Existing Grants.

          2.2.1 Antigen Exclusivity. Subject to Sections 2.2.2 and 2.2.3, the Parties acknowledge and
agree that during * , no Party shall engage, directly or indirectly, on behalf of itself or any
other party, in the research, development, commercialization or other Exploitation of
antibody-based products with respect to any Unilateral Target listed on Appendix A other
than the Unilateral Products as provided in this Agreement.

          2.2.2 Research and Commercialization Agreements. Subject to the obligations of Medarex under
the Collaboration Agreement, Medarex shall have the right to (a) grant licenses and other rights to
other parties under the Medarex Technology for such parties to Exploit Antibody Products (but not
Unilateral Products containing or comprising Collaboration Antibodies) with respect to Antigens,
including Unilateral Targets, (b) transfer Medarex Know-How to such parties in connection
therewith, including by providing instruction with respect to the use and immunization of HuMAb
Mice and the Additional Mice and assistance with respect to the Mice-Related Technology, (c)
develop production processes for, and manufacture, such Antibody Products, and (d) receive license
fees, milestone payments, royalties and other remuneration in connection therewith, but, in
connection with clause (a), (b), (c) or (d) above, not to otherwise actively participate in the
clinical development or commercialization of such Antibody Products by such parties (each agreement
with respect to the foregoing, a “Research and Commercialization Agreement”).

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

D-4

 

     Section 2.3 Sublicenses. Medarex shall have the right to grant sublicenses under the license
granted in Section 2.1 to: (a) Affiliates without the approval of Avalon, provided that Medarex
shall remain jointly and severally liable for the performance or non-performance of any such
Affiliate sublicensee, and (b) Third Parties without the approval of Avalon; provided,
however, that any Third Party sublicense with respect to the Avalon Technology shall be
with the prior approval of Avalon, * , which approval shall be deemed to be granted with respect
to a sublicense if Avalon fails, within * of its receipt of a written notice from Medarex
setting forth in reasonable detail the nature of such sublicense and the identity of the Third
Party sublicensee, to notify Medarex that it withholds its consent to such sublicense and the
reasons therefor; and provided further that any such Third Party sublicensee to the
Avalon Technology enters into a written agreement with Medarex that acknowledges that the rights
are subject to this Agreement and to indemnify Avalon and its Affiliates to the extent provided in
Article 7 and agrees to be bound by the provisions of Articles 4 and 5 and Sections 1.3 and 1.4,
with Avalon being made a third party beneficiary with respect to such provisions with the right to
enforce such provisions. Notwithstanding the previous sentence, the grant of any sublicense
hereunder shall not relieve Medarex of its obligations under this Agreement and Medarex shall be
liable to Avalon for any act (or failure to act) by a sublicensee which would be a breach of this
Agreement if such act (or failure to act) was by Medarex.

     Section 2.4 License Limitations. Medarex hereby covenants to Avalon that neither Medarex nor
any of its Affiliates, licensees or sublicensees shall use or practice the Avalon Technology or the
Collaboration Technology, directly or indirectly, on behalf of itself or any other party, for any
purpose other than as permitted under Section 2.1 of this Agreement and as permitted by the
Collaboration Agreement and in particular, but without limiting the generality of the foregoing,
for any research, development, commercialization or other Exploitation of an Antibody Product or
any other product or method, other than a Unilateral Product or a Collaboration Product as provided
hereunder or in the Collaboration Agreement.

     Section 2.5 No Other Rights. For the avoidance of doubt, Medarex and its Affiliates shall
have no right, express or implied, with respect to the Avalon Technology or the Collaboration
Technology, in each case except as expressly provided in Section 2.1 of this Agreement and Section
3.1 of the Collaboration Agreement.

ARTICLE 3 -

FINANCIAL PROVISIONS

     Section 3.1 Milestone Payments. Within thirty (30) days of the achievement of the following
milestones, on a Unilateral Target-by-Unilateral Target basis, for Unilateral Products with respect
to each Unilateral Target, Medarex shall pay to Avalon the specified milestone payments:

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

D-5

 

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	1st Unilateral	 	 	2nd Unilateral	 	 	Each Additional	 
	 	 	 	 	Product with	 	 	Product with	 	 	Unilateral Product	 
	 	 	 	 	respect to a	 	 	respect to a	 	 	with respect to a	 
	 	Milestones	 	 	Unilateral Target	 	 	Unilateral Target	 	 	Unilateral Target	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 	*

	 	 	*
	 	 	*
	 	 	*	 
	 

          3.1.1 Back-up Products. In the event that Medarex discontinues a Unilateral Product with
respect to a Unilateral Target prior to the First Commercial Sale (as defined in Section 3.3) of
such Unilateral Product, any milestones paid to Avalon with respect to such Unilateral Product
pursuant to this Section 3.1 shall be credited untie exhausted against any milestones due with
respect to subsequent Unilateral Products with respect to such Unilateral Target.

     Section 3.2 Royalties.

          3.2.1 Obligation. With respect to each Unilateral Product, Medarex shall pay Avalon royalties
based upon * (on a calendar year basis) for such Unilateral Product. The royalty rates shall
be determined on a Unilateral Product-by-Unilateral Product basis based on * .

          3.2.2 Rates. The royalty rates for each Unilateral Product (a) for which Avalon Opted-Out
pursuant to Section 5.1.1 of the Collaboration Agreement, or (b) which was converted from a
Collaboration Product pursuant to Section 8.2 of the Collaboration Agreement upon Avalon’s default
in any of its material obligations shall be as follows:

	 	 	 	 	 	 
	 
	 	Opt-Out or Termination Phase	 	 	Royalty	 
	 	*

	 	 	*	 
	 	*

	 	 	*	 
	 	*

	 	 	*	 
	 	*

	 	 	*	 
	 

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

D-6

 

If an Opt-Out (as opposed to a termination event) occurs within * after the end of a Phase,
the royalty rate shall be calculated based on * .

          3.2.3 Definitions. For purposes of this Agreement, the following definitions shall apply:

               (a) “Major Market” shall mean each of Japan, the United States, the United Kingdom, France,
Germany and the European Union as a whole.

               (b) “Phase I” shall mean a human clinical trial, the principal purpose of which is a
preliminary determination of safety in healthy individuals or patients as required in 21 C.F.R.
§312, or a similar clinical study prescribed by the Regulatory Authorities in a Major Market other
than the United States.

               (c) “Phase I Completion” shall mean, with respect to a Collaboration Target, the completion
of a complete data package from (i) a Phase I study which data package is sufficient to support the
commencement of Phase II studies in support of the filing of an approvable BLA in a Major Market,
or (ii) in the event that Phase I and Phase II are combined, the first study in support of the
filing of an approvable BLA in a Major Market that enrolled at least twenty (20) subjects, in
either case for the first Collaboration Product with respect to such Collaboration Target.

               (d) “Phase II” shall mean a human clinical trial, for which a primary endpoint is a
preliminary determination of efficacy or dose ranges in patients with the disease target being
studied as required in 21 C.F.R. §312, or a similar clinical study prescribed by the Regulatory
Authorities in a Major Market other than the United States. Any well-controlled study intended to
provide the substantial evidence of efficacy necessary to support the filing of an approvable BLA
(such as a combined Phase II/Phase III study, or any Phase III study in lieu of a Phase II study)
(a “Pivotal Study”) shall automatically be deemed to have reached Phase II status. A Phase II
study shall be deemed to have commenced when the first subject in such study has been enrolled.

               (e) “Phase II Completion” shall mean, with respect to a Collaboration Target, the completion
of a complete data package from (a) Phase II studies, which data package is sufficient to support
the commencement of Phase III studies in support of the filing of an approvable BLA in a Major
Market, or (b) in the event that Phase II and III studies are combined, the first such study in
support of the filing of an approvable BLA in a Major Market that enrolled at least forty (40)
patients with the disease target being studied, in either case for the first Collaboration Product
with respect to such Collaboration Target.

               (f) “Phase III” shall mean a human clinical trial, the principal purpose of which is to
establish safety and efficacy in patients with the disease target being studied as required in 21
C.F.R. §312, or similar clinical study prescribed by the Regulatory Authorities in a Major Market
other than the United States. A Phase III study shall also include any other human clinical trial
intended as a Pivotal Study, whether or not such study is a traditional Phase III study. A Phase
III study shall be deemed to have commenced when the first patient has been enrolled in a Pivotal
Study.

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

D-7

 

               (g) “Phase III Completion” shall mean, with respect to a Collaboration Target, the completion
of a data package for a Phase III study with respect to the first Collaboration Product with
respect to such Collaboration Target, which data package is sufficient to support the filing of an
approvable BLA for such Collaboration Product in a Major Market.

     Section 3.3 Royalty Term. Medarex’s royalty obligations under Section 3.2.2 shall terminate,
on a country-by-country basis, with respect to each Unilateral Product with respect to a Unilateral
Target, on the later to occur of (a) the * anniversary of the first sale for use or consumption
by the general public of such Unilateral Product in a country after Regulatory Approval has been
obtained for such Unilateral Product in such country (the “First Commercial Sale”), and (b) the
expiration date in such country of the last to expire of any issued Joint Patent or Avalon Patent
or Collaboration Patent that includes at least one Valid Claim covering the sale of such Unilateral
Product in such country. For purposes of this Agreement, a “Valid Claim” shall mean, with respect
to a particular country, a claim of an issued and unexpired Patent in such country that (x) has not
been revoked or held unenforceable or invalid by a decision of a court or governmental agency of
competent jurisdiction from which no appeal can be taken or has been taken within the time allowed
for appeal; and (y) has not been abandoned, disclaimed, denied or admitted to be invalid or
unenforceable through reissue or disclaimer or otherwise in such country. Upon termination of the
royalty obligations of Medarex with respect to a Unilateral Product under this Section 3.3 in a
country, the license grants to Medarex in Section 2.1 with respect to such Unilateral Product in
such country shall become fully-paid up and nonexclusive with respect to such country.

     Section 3.4 Royalty Payments. Running royalties shall be payable on quarterly basis, within
* days after the end of each calendar quarter, based upon * . Royalties shall be calculated
in accordance with GAAP and with the terms of this Article 3. Only * royalty payment will be
due on * even though the manufacture, sale or use of such * may be covered by more than one
intellectual property right in a country.

     Section 3.5 Royalty Statements. Medarex shall deliver to Avalon within * after the end of
each calendar quarter in which Unilateral Products, for which Medarex owes a royalty hereunder, are
sold, a detailed statement showing, (a) Net Sales of each such Unilateral Product, (b) the number
of units of each such Unilateral Product sold on a country-by-country basis during the applicable
calendar quarter, and (c) the amount and calculation of royalties due on such Net Sales; and (d)
any other information reasonably requested by Avalon to determine royalties owed to Avalon.

     Section 3.6 Payment Method. All amounts due from Medarex hereunder shall be paid in U.S.
dollars by wire transfer in immediately available funds to an account designated by Avalon. Any
payments or portions thereof due hereunder which are not paid on the date such payments are due
under this Agreement shall bear interest at a rate equal to *.

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

D-8

 

     Section 3.7 Currency; Foreign Payments. If any currency conversion shall be required in
connection with any payment hereunder, such conversion shall be made by * to which such
royalty payments relate. If at any time legal restrictions prevent the prompt remittance of any
royalties with respect to Net Sales in any jurisdiction, Medarex may notify Avalon and make such
payments by depositing the amount thereof in local currency in a bank account or other depository
in such country in the name of Avalon, and Medarex shall have no further obligations under this
Agreement with respect thereto.

     Section 3.8 Taxes. Medarex may deduct from any royalty amounts it is required to pay pursuant
to this Agreement any Withholding Taxes. At Avalon’s request, Medarex shall provide Avalon a
certificate evidencing payment of any Withholding Taxes hereunder and shall * assist Avalon, at
Avalon’s expense, to obtain the benefit of any applicable tax treaty.

     Section 3.9 Records Retention; Audit.

          3.9.1 Record Retention. Medarex shall maintain (and shall ensure that its Affiliates and
sublicensees shall maintain) complete and accurate books, records and accounts that fairly reflect
their respective Net Sales and Unilateral Expenses with respect to Unilateral Products in
sufficient detail to confirm the accuracy of any payments required hereunder and in accordance with
GAAP, which books, records and accounts shall be retained by Medarex until the later of (a) *
after the end of the period to which such books, records and accounts pertain, and (b) the
expiration of the applicable tax statute of limitations (or any extensions thereof), or for such
longer period as may be required by Applicable Law.

          3.9.2 Audit. Avalon shall have the right to have an independent certified public accounting
firm of nationally recognized standing, reasonably acceptable to Medarex, to have access during
normal business hours, and upon reasonable prior written notice, to such of the records of Medarex
(and its Affiliates and sublicensees) as may be reasonably necessary to verify the accuracy of such
Net Sales or, in the event Medarex Opts-Out of all Unilateral Products with respect to a Unilateral
Target pursuant to Section 1.7, such Unilateral Expenses * ending not more than * months
prior to the date of such request; provided, however, that Avalon shall not have
the right to conduct more than * in any * period. The accounting firm shall
disclose to each Party whether such Net Sales or Unilateral Expenses, as applicable, are correct or
incorrect and the specific details concerning any discrepancies. No other information shall be
provided to Avalon. * shall bear the cost of such audit unless the audit reveals a variance of
more than * from the reported results, in which case * shall bear the cost of the audit. The
results of such accounting firm shall be final, absent manifest error.

          3.9.3 Payment of Additional Royalties. If, based on the results of such audit, additional
payments are owed by Medarex under this Agreement, Medarex shall make such additional payments, *
, within * after the date on which such accounting firm’s written report is delivered to
Medarex.

     Section 3.10 Confidentiality. Avalon shall treat all information subject to review under
Section 3.10 in accordance with the confidentiality provisions of Article 4 and shall cause

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

D-9

 

its accounting firm to enter into a * acceptable confidentiality agreement with Medarex
obligating such firm to maintain all such financial information in confidence pursuant to such
confidentiality agreement.

ARTICLE 4 -

CONFIDENTIALITY

     Section 4.1 Confidential Information. The confidentiality and use restrictions set forth in
Sections 6.1 through 6.4 of the Collaboration Agreement shall apply to all Confidential Information
during the Term and for a period of * thereafter.

     Section 4.2 Use of Name. Each Party may use the name, insignia, symbol, trademark, trade name
or logotype of the other Party only (a) in connection with announcements and other permitted
disclosures relating to this Agreement and the activities contemplated hereby, (b) as required by
Applicable Law, and (c) otherwise as agreed in writing by such other Party.

     Section 4.3 Press Releases. Press releases or other similar public communication by either
Party relating to this Agreement, shall be approved in advance by the other Party, * , except for
those communications required by Applicable Law (which shall be provided to the other Party as soon
as practicable after the release or communication thereof), disclosures of information for which
consent has previously been obtained, and information of a similar nature to that which has been
previously disclosed publicly with respect to this Agreement, each of which shall not require
advance approval.

     Section 4.4 Publications. At least * prior to submission for publication,
presentation or other public disclosure by Medarex or any of its Affiliates of any material
pertaining to or resulting from the Avalon Technology, Medarex shall provide to Avalon a draft of
such material for its review and comment. No publication or presentation with respect to the
Avalon Technology shall be made unless and until Avalon’s comments on the proposed publication or
presentation have been addressed and changes have been agreed upon and any information determined
by Avalon to be Confidential Information has been removed. If requested in writing by Avalon,
Medarex shall withhold material from submission for publication or presentation for an additional
* days to allow for the filing of a patent application or the taking of such measures to
establish and preserve proprietary rights in the information in the material being submitted for
publication or presentation.

ARTICLE 5 -

INTELLECTUAL PROPERTY

     Section 5.1 Intellectual Property Ownership.

          5.1.1 Ownership of Medarex Technology. As between the Parties, Medarex shall own and retain
all right, title and interest in and to any and all: (a) Information and Inventions that are
conceived, discovered, developed or otherwise made, by or on behalf of Medarex (or its Affiliates
or its licensees or sublicensees (other than Avalon and its Affiliates)), whether or not patented
or patentable, and any and all Patent and other intellectual property rights with respect thereto,
except to the extent that any such Information and Inventions, or any

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

D-10

 

Patent or other intellectual property rights with respect thereto, are Collaboration
Technology or Joint Technology; (b) other Information and Inventions, and Patent and other
intellectual property rights that are Controlled (other than pursuant to the license grants set
forth in Article 3) by Medarex, its Affiliates or its licensees or sublicensees (other than Avalon
and its Affiliates); and (c) other Medarex Technology.

          5.1.2 Ownership of Avalon Technology. Subject to Section 5.1.3 and the license grants to
Medarex under Article 2, as between the Parties, Avalon shall own and retain all right, title and
interest in and to any and all: (a) Information and Inventions that are conceived, discovered,
developed or otherwise made, by or on behalf of Avalon (or its Affiliates or its licensees or
sublicensees (other than Medarex and its Affiliates)), whether or not patented or patentable, and
any and all Patent and other intellectual property rights with respect thereto, except to the
extent that any such Information and Inventions, or any Patent or other intellectual property
rights with respect thereto, are Collaboration Technology or Joint Technology; (b) other
Information and Inventions, and Patent and other intellectual property rights that are Controlled
(other than pursuant to the license grants set forth in Article 3) by Avalon, its Affiliates or its
licensees or sublicensees (other than Medarex and its Affiliates); and (c) other Avalon Technology.

          5.1.3 Ownership of Mice-Related Technology. As between the Parties, Medarex shall own and
retain all right, title and interest in and to all Mice Materials and Mice-Related Technology,
including any and all Information and Inventions with respect to the Mice Materials or the
Mice-Related Technology (including any Improvements thereto) that, as a result of the use of HuMAb
Mice provided by Medarex under this Agreement, are conceived, discovered, developed or otherwise
made, by or on behalf of Avalon, its Affiliates or its licensees or sublicensees (other than
Medarex and its Affiliates), whether or not patented or patentable, and any and all Patent and
other intellectual property rights with respect thereto. Avalon acknowledges and agrees that (a)
there are no licenses granted to Avalon under this Agreement with respect to the Mice Materials and
Mice-Related Technology and that under this Agreement, Avalon has no right to use the HuMAb Mice or
to discover, develop or otherwise make Improvements with respect to Mice Materials and Mice-Related
Technology, and (b) neither it, nor any of its Affiliates, licensees or sublicensees, will engage,
directly or indirectly, in activities designed to, or otherwise undertake or attempt, either on
behalf of itself or another, to discover, develop or make any Information and Inventions that
relate to the Mice Materials or the Mice-Related Technology as a result of the use of Ha-Mab Mice
provided by Medarex to Avalon under this Agreement. Accordingly, Avalon shall * disclose to
Medarex in writing, the conception or reduction to practice, or the discovery, development or
making of any such Information and Inventions that relate to the Mice Materials or Mice-Related
Technology that results from use of HuMab Mice provided by Medarex to Avalon under this Agreement
and shall, and does hereby, assign, and shall cause its Affiliates, licensees and sublicensees to
so assign, to Medarex, without additional compensation, all of their respective rights, titles and
interests in and to any such Information and Inventions.

          5.1.4 Ownership of Joint Technology. Subject to Section 5.1.3 and the license grants under
Article 2, the Parties shall each own an equal, undivided interest in any and all (a) Information
and Inventions, conceived, discovered, developed or otherwise made, jointly by or on behalf of
Medarex (or its Affiliates or, to the extent permitted, its sublicensees), on the one

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

D-11

 

hand, and Avalon (or its Affiliates or, to the extent permitted, its sublicensees), on the
other hand, in connection with the work conducted under or in connection with this Agreement,
whether or not patented or patentable, but excluding any Mice Materials or Mice-Related Technology;
and (b) Patents (the “Joint Patents”) and other intellectual property rights with respect thereto
(collectively, the “Joint Technology”); provided, however, that, except as
otherwise expressly provided herein, neither a Party nor any of its Affiliates, licensees or
sublicensees shall, directly or indirectly, Exploit any Joint Technology or other such intellectual
property rights without the consent of the other Party, * ; provided, however,
that neither Party shall have the right to use or otherwise Exploit any Unilateral Products (or any
Antibodies or other Biological Materials derived from the HuMAb Mice or the Additional Mice) except
as set forth under thus Agreement. Each Party shall * disclose to the other Party in writing,
and shall cause its Affiliates, licensees and sublicensees to so disclose, the development, making,
conception or reduction to practice of any Joint Technology.

          5.1.5 Ownership of Product Trademarks. Medarex shall own all right, title and interest in and
to each Product Trademark with respect to a Unilateral Product. Avalon hereby assigns all of its
right, title and interest in and to any Product Trademark to Medarex to the extent that such
Product Trademark relates solely to the Unilateral Products.

          5.1.6 Ownership of Regulatory Documentation. Medarex shall own all right, title and interest
in and to all Regulatory Documentation that relates solely to the Unilateral Products,
provided that Avalon shall reasonably cooperate, at Medarex’s sole cost and expense, in
filing and maintaining such Regulatory Documentation. Avalon hereby assigns to Medarex such of its
right, title and interest in and to such Regulatory Documentation as is necessary to vest ownership
of such Regulatory Documentation in Medarex as provided in the immediately preceding sentence.
Notwithstanding the ownership of any such Regulatory Documentation, neither Medarex nor any of its
Affiliates, licensees or sublicensees shall, directly or indirectly, use any such Regulatory
Documentation without the consent of Avalon, * ; provided, however, that each
Party shall have the right to use and reference any of such Regulatory Documentation in connection
with the Exploitation of Unilateral Products as provided in this Agreement and Collaboration
Products as provided in the Collaboration Agreement. Notwithstanding the foregoing, any Regulatory
Documentation containing Production Process Know-How of a Party shall be and remain the sole and
exclusive property of such Party and such Party shall have the right to submit any such Production
Process Know-How directly to the Regulatory Authorities using a drug master file, or any foreign
equivalent that is designed to protect such Party’s Confidential Information, which filing shall be
and remain the sole and exclusive property of such Party.

          5.1.7 United States Law. The determination of whether Information and Inventions are
conceived, discovered, developed or otherwise made by a Party for the purpose of allocating
proprietary rights (including Patent, copyright or other intellectual property rights) therein,
shall, for purposes of this Agreement, be made in accordance with applicable United States law.

          5.1.8 Notices. To the extent, if any, that Medarex has the right to (a) assign, transfer,
convey or otherwise encumber any right, title or interest in or to any Avalon Technology, Joint
Technology or Collaboration Technology, (b) grant any license or other right,

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

D-12

 

title or interest in or to any Avalon Technology, Joint Technology or Collaboration
Technology, or (c) agree to or otherwise become bound by any covenant not to sue for any
infringement, misuse or other action or inaction with respect to any Avalon Technology, Joint
Technology or Collaboration Technology, in each case Medarex shall not do so, directly or
indirectly, expressly or by implication, by action or omission or otherwise without providing
Avalon with at least * advance written notice thereof.

     Section 5.2 Prosecution of Patents and Trademarks.

          5.2.1 Medarex and Avalon Patents. As between the Parties, each Party shall have the sole
right, * , to obtain, prosecute and maintain throughout the world its Patents; provided,
however, that Medarex shall reimburse Avalon for * of the reasonable out-of-pocket
costs incurred by Avalon for filing, prosecuting and maintaining the Avalon Patents to the extent
that they claim or cover (x) as a composition of matter, a Unilateral Product or any active
ingredient in such Unilateral Product or (y) the use of any such Unilateral Product or ingredient.
Each Party shall, and shall cause its Affiliates, licensees and sublicensees, as applicable, to,
cooperate fully with the other Party in the preparation, filing, prosecution, and maintenance of,
if requested by Medarex, the Product Trademarks and, if requested by the other Party, such other
Party’s Patents, provided that (except as otherwise provided in the first sentence of this Section
5.2.1) such other Party shall reimburse the cooperating Party for its reasonable out-of-pocket
expenses incurred in connection with such requested cooperation. Such cooperation includes (a)
promptly executing all papers and instruments and requiring employees to execute such papers and
instruments as reasonable and appropriate so as to enable such other Party to file, prosecute, and
maintain its Patents in any country; and (b) promptly informing such other Party of matters that
may affect the preparation, filing, prosecution, or maintenance of any such Patents.

          5.2.2 Joint Patents. The Parties shall cooperate, and shall cause their respective
Affiliates, licensees and sublicensees, as applicable, to cooperate, with one another with respect
to the filing, prosecution and maintenance of all Joint Patents, including by selecting outside
counsel, reasonably acceptable to the Parties, to handle such filing, prosecution and maintenance.
* the expenses associated with the filing, prosecution (including any interferences, reissue
proceedings and reexaminations) and maintenance of all Joint Patents. If a Party elects not to
pursue the filing, prosecution or maintenance of a Joint Patent in a particular country, or to take
any other action with respect to Joint Technology in a particular country that is * to
establish or preserve rights thereto, then in each such case such Party shall so notify the other
Party promptly in writing and * to enable such other Party to meet any deadlines by which an
action must be taken to establish or preserve any such rights in such Joint Technology in such
country. Upon receipt of each such notice by such other Party or if, at any time, such Party fails
to initiate any such action within * after a request by such other Party that it do so (or
thereafter diligently pursue such action), such other Party shall have the right, but not the
obligation, to pursue the filing or registration, or support the continued prosecution or
maintenance, of such Patent at its expense in such country. If such other Party elects to pursue
such filing or registration, as the case may be, or continue such support, then such other Party
shall notify such Party of such election and such Party shall, and shall cause its Affiliates,
licensees and sublicensees, as applicable, to, (x) * cooperate with such other Party in this
regard, and (y) subject to Article 2, promptly release or assign to such other Party, without
compensation, all right, title and interest in and to such Patent in such country.

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

D-13

 

          5.2.3 Patent Filings. Medarex covenants not to, and to cause its Affiliates, licensees and
sublicensees, as applicable, not to, file any patent application disclosing or claiming any
Information and Inventions comprising any Avalon Technology or the Exploitation thereof, without
Avalon’s prior written consent, * .

     Section 5.3 Enforcement of Patents and Trademarks.

          5.3.1 Rights and Procedures. If either Party determines that any Avalon Technology
exclusively licensed to Medarex under this Agreement (which for purposes of this Agreement shall be
deemed to include Joint Technology) is being infringed by a Third Party’s activities with respect
to a Unilateral Product and that such infringement could affect the exercise by the Parties of
their respective rights and obligations under this Agreement, it shall * notify such other Party
in writing and provide such other Party with any evidence of such infringement that is *
available. Promptly after the receipt of such written notice, the Parties shall meet and discuss
* the removal of such infringement. The pursuing Party shall consider * any comments from
the other Party and shall keep the other Party reasonably informed of any steps taken to remove
such infringement.

               (a) Joint Technology. With respect to Joint Technology, that is not licensed exclusively to
Medarex under this Agreement, the Parties shall have the first right but not the obligation to
jointly remove such infringement using * , including the filing of an infringement suit or
taking other similar action. * of the reasonable and verifiable costs and expenses incurred in
connection with such action. In the event the Parties fail to jointly take * to remove any
infringement of any Joint Technology within * following notice of such infringement, or a
Party earlier notifies the other in writing of its intent not to take such steps, the Party
pursuing the filing, prosecution or maintenance of a Patent comprising such Joint Technology (the
“Prosecuting Party”) shall have the right to do so * , or, in the event such Party declines, the
other Party shall have the right to do so * ; provided, however, that if the
Parties have jointly commenced negotiations with an alleged infringer for discontinuance of such
infringement within such * period, the Parties shall have an additional * to conclude
their negotiations before a Party unilaterally may bring suit for such infringement.

               (b) Avalon Technology. With respect to Avalon Technology exclusively licensed to Medarex
under this Agreement, Avalon shall have the first right, but not the obligation, to remove such
infringement with respect to an antibody-based product against a Collaboration Target * . In
the event Avalon fails to take * to remove any such infringement of such Avalon Technology
within * following notice of such infringement, or earlier notifies Medarex in writing of
its intent not to take such steps, Medarex shall have the right to do so * ; provided,
however, that if Avalon has commenced negotiations with an alleged infringer for
discontinuance of such infringement within such * period, Avalon shall have an additional *
to conclude its negotiations before Medarex may bring suit for such infringement; and
provided further that * of the reasonable out-of-pocket costs incurred by Avalon
with respect to the removal of any such infringement to the extent that such infringement adversely
affects the Exploitation of any Unilateral Product.

               (c) Medarex Technology. With respect to Medarex Technology, Medarex shall have the sole
right, but not the obligation, to remove such infringement * .

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

D-14

 

          5.3.2 Cooperation. The Party not enforcing the applicable Technology shall provide reasonable
assistance to the other Party, including providing access to relevant documents and other evidence,
making its employees available at reasonable business hours, and joining the action to the extent
necessary to allow the enforcing Party to maintain the action.

          5.3.3 Recovery. Any amounts recovered by a Party pursuant to Section 5.3.1, whether by
settlement or judgment, shall be used to * for their reasonable costs and expenses in making
such recovery ( * ), with * being retained by the Party that has exercised its right to bring
the enforcement action; provided, however, that to the extent that any award is
attributable to loss of sales of a Unilateral Product, the Parties shall negotiate * an
appropriate allocation of such award to reflect the economic interests of the Parties under this
Agreement with respect to such Unilateral Product.

     Section 5.4 Potential Third-Party Rights.

          5.4.1 Third-Party Licenses. If (a) in the opinion of outside patent counsel to Medarex,
Medarex, or any of its Affiliates, licensees or permitted sublicensees, cannot Exploit a Unilateral
Product in a country in the Territory without infringing one or more Patents that have issued to a
Third Party in such country, or (b) as a result of any claim made against a Party, or any of its
Affiliates, licensees or permitted sublicensees, alleging that the Exploitation of a Unilateral
Product infringes or misappropriates any Patent or any other intellectual property right of a Third
Party in a country in the Territory, a judgment is entered by a court of competent jurisdiction
from which no appeal is taken within the time permitted for appeal, such that Medarex cannot
Exploit such Unilateral Product in such country without infringing the Patent or other proprietary
rights of such Third Party, then, in either case, Medarex shall have the first right, but not the
obligation to negotiate and to obtain a license from such Third Party as necessary for the
Exploitation of any Unilateral Products hereunder in such country. * of all royalty and other
obligations with respect to the Exploitation of Unilateral Products.

          5.4.2 Third-Party Litigation. In the event that a Third Party institutes a Patent, Trademark
or other infringement suit (including any suit alleging the invalidity or unenforceability of the
Patents of a Party or its Affiliates, or claiming confusion, deception or dilution of a Trademark
by a Product Trademark) against either Party or its respective Affiliates, licensees or permitted
sublicensees during the Term, alleging that the Exploitation of the Unilateral Products in the
Territory or any other activities hereunder, infringes one or more Patent, Trademark or other
intellectual property rights held by such Third Party (an “Infringement Suit”), the Parties shall
cooperate with one another in defending such suit. Medarex shall direct and control, * , any
Infringement Suit with respect to the Unilateral Products; provided, however, that
Medarex shall not cease to defend, settle or otherwise dispose of a suit with respect to any
intellectual property of Avalon without Avalon’s prior written consent, * . With respect to the
Collaboration Patents, licensed to Medarex under this Agreement, Product Trademarks and with
respect to the Exploitation of Unilateral Products, * of those costs and expenses. With respect
to Joint Patents, * of any costs and expenses of such defense; provided, with respect to
the Exploitation of Unilateral Products, * of those costs and expenses. In addition, *
shall pay any and all amounts awarded in any suit against Medarex and/or Avalon with respect to
exploitation of Unilateral Product and any and all amounts paid in any settlement of such suit or
threatened suit.

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

D-15

 

          5.4.3 Retained Rights. Nothing in this Section 5.4 shall prevent Medarex, * , from
obtaining any license or other rights from Third Parties it deems appropriate in order to permit
the full and unhindered exercise of its rights under this Agreement.

     Section 5.5 Exchange of Know-How.

          5.5.1 Information Disclosure. Avalon shall, and shall cause its Affiliates to, without
additional compensation and at its sole expense, disclose and make available to Medarex, in
whatever form Medarex may * request, all Regulatory Documentation, and all Avalon Technology,
Collaboration Technology and Joint Technology in the possession of Avalon that is licensed to
Medarex under this Agreement with respect to each Unilateral Target and Unilateral Product
immediately after such Unilateral Target is first designated as such and thereafter immediately
upon the earlier of the conception or reduction to practice, discovery, development or making of
each such Regulatory Documentation, and all Avalon Technology, Collaboration Technology and Joint
Technology in the possession of Avalon that is licensed to Medarex under this Agreement.

          5.5.2 Cooperation. Avalon shall cooperate with any and all reasonable requests for assistance
from Medarex, * , including by making its employees, consultants and other scientific staff
available upon reasonable notice during normal business hours at Avalon’s place of business to
consult with Medarex on issues arising with respect to the Avalon Technology in connection with the
research, development, commercialization or other Exploitation of Unilateral Products.

          5.5.3 Biological Materials. For purposes of facilitating the conduct of the development
activities with respect to the Unilateral Products, Avalon shall provide to Medarex the Biological
Materials that are technology licensed to Medarex under this Agreement and that is necessary to
perform such activities. The Parties agree that: (a) all such Biological Materials provided by
Avalon to Medarex and any Biological Material produced against or with, or derived from, such
Biological Materials shall be used solely for the development and commercialization of Unilateral
Products, and in material compliance with all Applicable Law; (b) all such Biological Materials
under this Agreement shall be provided without any warranties, express or implied; (c) Avalon shall
obtain (or cause its Third Party collaborators to obtain or certify that they have obtained) all
appropriate and required consents from the source of such Biological Materials; and (d) Biological
Materials provided by Avalon to Medarex shall not be made available by Medarex to any Third Party
except as necessary for Medarex to perform its obligations hereunder, unless the prior written
consent of Avalon is first obtained.

          5.5.4 Regulatory Records. Medarex shall maintain, or cause to be maintained, records of its
respective research, development, manufacturing and commercialization activities for the Unilateral
Products, including all Regulatory Documentation, in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes, which shall be complete and accurate and
shall fully and properly reflect all work done and results achieved in the performance of such
activities, and which shall be retained during the Term and for a period of * thereafter,
or for such longer period as may be required by Applicable Law. Avalon shall have the right,
during normal business hours and upon reasonable notice, to inspect and copy any such records,
except to the extent that such records contain proprietary information

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

D-16

 

with respect to the Mice Materials, Mice-Related Technology or Medarex’s Production Process
Technology. Avalon shall have an irrevocable, perpetual right to use and reference such Regulatory
Documentation for all purposes.

          5.5.5 Production Process Technology. Notwithstanding anything to the contrary in this Section
5.5 or elsewhere in this Agreement, Avalon shall not be obligated to disclose or provide any of its
Production Process Technology, including Biological Materials with respect thereto, to Medarex or
any Third Party except as may be required or permitted under a separate written agreement entered
into by the Parties pursuant to Section 1.2.8 or Section 1.6 of the Collaboration Agreement.

ARTICLE 6 -

TERM AND TERMINATION

     Section 6.1 Term. The term of this Agreement shall commence upon the Effective Date and shall
continue in effect until such time as there is no longer any Unilateral Product being Exploited
hereunder, unless terminated at an earlier date in accordance with the terms and conditions set
forth in this Article 6.

     Section 6.2 Termination of Agreement for Material Breach. Any material failure by a Party to
comply with any of its material obligations contained herein shall, in addition to any remedy
available under Section 6.3 hereof, entitle the Party not in default to give to the Party in
default written notice specifying the nature of the default, requiring the defaulting Party to make
good or otherwise cure such default, and stating its intention to terminate if such default is not
cured. If such default is not cured within * after the receipt of such notice (or, if such
default cannot be cured within such * period, if the Party in default does not commence actions
to cure such default within such period and thereafter diligently continue such actions and cure
such default within * after the receipt of such notice), except in the case of a payment
default, as to which the defaulting Party shall have only a * cure period, the Party not in
default shall be entitled, on written notice to the other Party, without prejudice to any of its
other rights conferred on it by this Agreement, and in addition to any other remedies available to
it by law or in equity, to terminate this Agreement in its entirety.

     Section 6.3 Termination of Rights with Respect to Unilateral Products Upon Material Breach.
Any material failure by Medarex to comply with any of its material obligations contained herein
with respect to a specific Unilateral Product shall entitle Avalon to give to Medarex notice
specifying the nature of the default, requiring Medarex to make good or otherwise cure such
default, and stating its intention to convert such Unilateral Product to a Unilateral Product of
Avalon under the Unilateral Development and Commercialization Agreement attached to the
Collaboration Agreement as Appendix D-1 if such default is not cured. If such default is
not cured within * after the receipt of such notice (or, if such default cannot be cured within
such * period, if Medarex does not commence actions to cure such default within such period and
thereafter diligently continue such actions or if such default is not otherwise cured within *
after the receipt of such notice), except in the case of a payment default, as to which
Medarex shall have only a * cure period. Avalon shall be entitled, on written notice to
Medarex, to convert such Unilateral Product to a Unilateral Product of Avalon, whereupon each shall
be subject to their respective rights and obligations under the Unilateral

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

D-17

 

Development and Commercialization Agreement attached to the Collaboration Agreement as
Appendix D-1, including the indemnification obligations and the royalty obligations set
forth therein (provided that the royalty rate owed by Avalon pursuant to such Unilateral
Development and Commercialization Agreement shall equal the royalty rate that Medarex would have
owed Avalon had it not defaulted).

     Section 6.4 Termination Upon Insolvency. Either Party may terminate this Agreement if, at any
time, the other Party shall file in any court or agency pursuant to any statute or regulation of
any state, country or jurisdiction, a petition in bankruptcy or insolvency or for reorganization or
for an arrangement or for the appointment of a receiver or trustee of that Party or of its assets,
or if such other Party proposes a written agreement of composition or extension of its debts, or if
such other Party shall be served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within * after the filing thereof, or
if such other Party shall propose or be a party to any dissolution or liquidation, or if such other
Party shall make an assignment for the benefit of its creditors.

     Section 6.5 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this
Agreement by Avalon or Medarex are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the United States Bankruptcy Code, licenses of rights to “intellectual property” as
defined under Section 101 of the United States Bankruptcy Code. The Parties agree that the
Parties, as licensees of such rights under this Agreement, shall retain and may fully exercise all
of their rights and elections under the United States Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against a Party under the
United States Bankruptcy Code, the Party hereto that is not a party to such proceeding shall be
entitled to a complete duplicate of (or complete access to, as appropriate) any such intellectual
property and all embodiments of such intellectual property, which, if not already in the
non-subject Party’s possession, shall be promptly delivered to it (a) upon any such commencement of
a bankruptcy proceeding upon the non-subject Party’s written request therefor, unless the Party
subject to such proceeding continues to perform all of its obligations under this Agreement or (b)
if not delivered under clause (a) above, following the rejection of this Agreement by or on behalf
of the Party subject to such proceeding upon written request therefor by the non-subject Party.

     Section 6.6 Consequences of Expiration or Termination.

          6.6.1 Licenses. Upon expiration of the Agreement in accordance with Section 6.1 and the
payment of all amounts due under Section 3.1, the licenses granted by Avalon to Medarex hereunder
shall be deemed fully-paid up and nonexclusive.

          6.6.2 Return of Information. Upon expiration of this Agreement pursuant to Section 6.1 or
upon termination of this Agreement in its entirety by either Party pursuant to this Article 6,
Medarex, at the request of Avalon, shall return all data, files, records and other materials in its
possession or control relating to Avalon’s Technology, or containing or comprising Avalon’s
Information and Inventions or other Confidential Information and to which Medarex does not retain
rights hereunder (except one copy of which may be retained for archival purposes) and Medarex
agrees not to use any Avalon Technology and/or Collaboration Technology except as permitted under
another Agreement between Medarex and Avalon.

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

D-18

 

     Section 6.7 Accrued Rights; Surviving Obligations.

          6.7.1 Accrued Rights. Termination or expiration of this Agreement for any reason shall be
without prejudice to any rights that shall have accrued to the benefit of a Party prior to such
termination or expiration. Such termination or expiration shall not relieve a Party from
obligations that are expressly indicated to survive the termination or expiration of this
Agreement.

          6.7.2 Survival. Articles 3 (with respect to obligations arising prior to expiration or
termination), 4 and 7 (provided Section 7.3 shall survive for * years after the expiration or
earlier termination of this Agreement), and Sections 1.1, 2.3 (with respect only to the last
sentence thereof), 2.4, 3.9, 3.10, 5.1, 5.2.2, 5.2.3, 5.5.3 (with respect only to the last sentence
thereof), 5.5.4, 5.5.5, 6.5, 6.6, 8.2, 9.4, 9.5 and 9.6 of this Agreement and this Section 6.7
shall survive * .

ARTICLE 7 -

INDEMNIFICATION AND INSURANCE

     Section 7.1 Indemnification of Avalon. Medarex shall indemnify Avalon, its Affiliates and
their respective directors, officers, employees and agents, and defend and save each of them
harmless, from and against any and all Losses in connection with any and all Third-Party Claims
arising from or occurring as a result of (a) the development, manufacture or commercialization of a
Unilateral Target or Unilateral Product by or on behalf of Medarex or its Affiliates or
sublicensees, or by any person or entity that performs any of the foregoing for on behalf of
Medarex or its Affiliates or sublicensees or with Unilateral Target or Unilateral Product obtained
directly or indirectly from Medarex or its Affiliates or sublicensees or, (b) the gross negligence
or willful misconduct on the part of Medarex or its Affiliates, licensees or sublicensees in
performing any activity contemplated by this Agreement.

     Section 7.2 Indemnification Procedure.

          7.2.1 Notice of Claim. The indemnified Party shall give the indemnifying Party prompt written
notice (an “Indemnification Claim Notice”) of any Losses or discovery of fact upon which such
indemnified Party intends to base a request for indemnification under Section 7.1 or Section 7.2,
but in no event shall the indemnifying Party be liable for any Losses that result from any delay in
providing such notice. Each Indemnification Claim Notice must contain a description of the claim
and the nature and amount of such Loss (to the extent that the nature and amount of such Loss are
known at such time). The indemnified Party shall furnish * to the indemnifying Party copies of
all papers and official documents received in respect of any Losses. All indemnification claims in
respect of a Party, its Affiliates or their respective directors, officers, employees and agents
(collectively, the “Indemnitees” and each an “Indemnitee”) shall be made solely by such Party to
this Agreement (the “Indemnified Party”).

          7.2.2 Control of Defense. At its option, the indemnifying Party may assume the defense of any
Third-Party Claim by giving written notice to the Indemnified Party within thirty (30) days after
the indemnifying Party’s receipt of an Indemnification Claim Notice. The assumption of the defense
of a Third-Party Claim by the indemnifying Party shall not be

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

D-19

 

construed as an acknowledgment that the indemnifying Party is liable to indemnify any
Indemnitee in respect of the Third-Party Claim, nor shall it constitute a waiver by the
indemnifying Party of any defenses it may assert against any Indemnitee’s claim for
indemnification. Upon assuming the defense of a Third-Party Claim, the indemnifying Party may
appoint as lead counsel in the defense of the Third-Party Claim any legal counsel selected by the
indemnifying Party. In the event the indemnifying Party assumes the defense of a Third-Party
Claim, the Indemnified Party shall immediately deliver to the indemnifying Party all original
notices and documents (including court papers) received by any Indemnitee in connection with the
Third-Party Claim. Should the indemnifying Party assume the defense of a Third-Party Claim, the
indemnifying Party shall not be liable to the Indemnified Party or any other Indemnitee for any
legal expenses subsequently incurred by such Indemnified Party or other Indemnitee in connection
with the analysis, defense or settlement of the Third-Party Claim. In the event that it is
ultimately determined that the indemnifying Party is not obligated to indemnify, defend or hold
harmless an Indemnitee from and against the Third-Party Claim, the Indemnified Party shall
reimburse the indemnifying Party for any and all costs and expenses (including attorneys’ fees and
costs of suit) and any Losses incurred by the indemnifying Party in its defense of the Third-Party
Claim with respect to such Indemnitee.

          7.2.3 Right to Participate in Defense. Without limiting Section 7.3.2, any Indemnitee shall
be entitled to participate in, but not control, the defense of such Third-Party Claim and to engage
counsel of its choice for such purpose; provided, however, that such engagement
shall be at the Indemnitee’s own expense unless (a) the engagement thereof has been specifically
authorized by the indemnifying Party in writing, or (b) the indemnifying Party has failed to assume
the defense and engage counsel in accordance with Section 7.3.2 (in which case the Indemnified
Party shall control the defense).

          7.2.4 Settlement. With respect to any Losses relating solely to the payment of money damages
in connection with a Third-Party Claim and that will not result in the Indemnitee’s becoming
subject to injunctive or other relief or otherwise adversely affect the business of the Indemnitee
in any manner, and as to which the indemnifying Party shall have acknowledged in writing the
obligation to indemnify the Indemnitee hereunder, the indemnifying Party shall have the sole right
to consent to the entry of any judgment, enter into any settlement or otherwise dispose of such
Loss, on such terms as the indemnifying Party, in its sole discretion, shall deem appropriate.
With respect to all other Losses in connection with Third-Party Claims, where the indemnifying
Party has assumed the defense of the Third-Party Claim in accordance with Section 7.3.2, the
indemnifying Party shall have authority to consent to the entry of any judgment, enter into any
settlement or otherwise dispose of such Loss provided it obtains the prior written consent of the
Indemnified Party (which consent shall not be unreasonably withheld or delayed). The indemnifying
Party shall not be liable for any settlement or other disposition of a Loss by an Indemnitee that
is reached without the written consent of the indemnifying Party. Regardless of whether the
indemnifying; Party chooses to defend or prosecute any Third-Party Claim, no Indemnitee shall admit
any liability with respect to, or settle, compromise or discharge, any Third-Party Claim without
the prior written consent of the indemnifying Party.

          7.2.5 Cooperation. Regardless of whether the indemnifying Party chooses to defend or
prosecute any Third-Party Claim, the Indemnified Party shall, and shall cause each other Indemnitee
to, reasonably cooperate in the defense or prosecution thereof and shall furnish

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

D-20

 

such records, information and testimony, provide such witnesses and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be reasonably requested in connection
therewith. Such cooperation shall include access during normal business hours afforded to
indemnifying Party to, and reasonable retention by the Indemnified Party of, records and
information that are reasonably relevant to such Third-Party Claim, and making Indemnitees and
other employees and agents available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder, and the indemnifying Party shall
reimburse the Indemnified Party for all its reasonable out-of-pocket expenses in connection
therewith.

          7.2.6 Expenses. Except as provided above, the costs and expenses, including fees and
disbursements of counsel, incurred by the Indemnified Party in connection with any claim shall be
reimbursed on a calendar quarter basis by the indemnifying Party, without prejudice to the
indemnifying Party’s right to contest the Indemnified Party’s right to indemnification and subject
to refund in the event the indemnifying Party is ultimately held not to be obligated to indemnify
the Indemnified Party.

     Section 7.3 Insurance. Medarex shall have and maintain such types and amounts of liability
insurance * , and shall upon request provide the other Party with a copy of its policies of
insurance in that regard, along with any amendments and revisions thereto.

ARTICLE 8 -

REPRESENTATIONS, WARRANTIES AND COVENANTS

     Section 8.1 Representations, Warranties and Covenants. Each Party is entering into this
Agreement in reliance upon the representations, warranties and covenants of the other Party set
forth in Sections 10.1, 10.2 and 10.3 of the Collaboration Agreement.

     Section 8.2 DISCLAIMER OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTIONS
10.1, 10.2 AND 10.3 OF THE COLLABORATION AGREEMENT, MEDAREX AND AVALON MAKE NO REPRESENTATIONS AND
GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR
OTHERWISE, AND MEDAREX AND AVALON EACH SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES, WHETHER WRITTEN
OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR USE OR PURPOSE OR ANY WARRANTY AS TO THE VALIDITY OF ANY PATENTS OR THE NON-INFRINGEMENT
OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

ARTICLE 9 -

MISCELLANEOUS

     Section 9.1 Force Majeure. Neither Party shall be held liable or responsible to the other
Party or be deemed to have defaulted under or breached this Agreement for failure or delay in
fulfilling or performing any term of this Agreement when such failure or delay is caused by or
results from events beyond the reasonable control of the non-performing Party, including fires,

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

D-21

 

floods, earthquakes, embargoes, shortages, epidemics, quarantines, war, acts of war (whether
war be declared or not) or terrorism, insurrections, riots, civil commotion, strikes, lockouts or
other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental
authority. The non-performing Party shall notify the other Party of such force majeure within *
after such occurrence by giving written notice to the other Party stating the nature of the
event, its anticipated duration, and any action being taken to avoid or minimize its effect. The
suspension of performance shall be of no greater scope and no longer duration than is necessary and
the non-performing Party shall use * to remedy its inability to perform; provided,
however, that in the event the suspension of performance continues for * after the
date of the occurrence, the Parties shall meet to discuss * how to proceed in order to
accomplish the goals of the Collaboration outlined in this Agreement.

     Section 9.2 Assignment. Without the prior written consent of the other Party hereto, neither
Party shall sell, transfer, assign, pledge or otherwise dispose of, whether voluntarily,
involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties
hereunder; provided, however, that either Party hereto may assign or transfer this
Agreement or any of its rights or obligations hereunder without the consent of the other Party (a)
to any Affiliate of such Party; or (b) to any Third Party with which it merges or consolidates, or
to which it transfers all or substantially all of its assets to which this Agreement relates if in
any such event (1) the assigning Party (provided that it is the surviving entity) remains jointly
and severally liable with the relevant Medarex Affiliate, Avalon Affiliate or Third Party assignee
under this Agreement, and (ii) the relevant Medarex Affiliate assignee, Avalon Affiliate assignee,
Third Party assignee or surviving entity assumes in writing all of the assigning Party’s
obligations under this Agreement. For purposes of clarification with respect to subsection (b)
herein, a Third Party that merges or consolidates with a Party, or to which a Party transfers all
or substantially all of its assets to which this Agreement relates, shall not be deemed to grant
the other Party to this Agreement any license to such Third Party’s technology in existence as of
the effective date of such merger, consolidation or transfer, unless such grant is made pursuant to
a separate agreement, provided such Third Party shall maintain all licenses granted
hereunder by such first Party with respect to its Technology and any Information and Inventions
with respect thereto. Any purported assignment or transfer in violation of this Section shall be
void ab initio and of no force or effect.

     Section 9.3 Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future law, and if the rights or obligations of either Party
under this Agreement will not be materially and adversely affected thereby, (a) such provision
shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions
of this Agreement shall remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such illegal,
invalid or unenforceable provision, there shall be added automatically as a part of this Agreement
a legal, valid and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and reasonably acceptable to the Parties herein. To the
fullest extent permitted by applicable law, each Party hereby waives any provision of law that
would render any provision prohibited or unenforceable in any respect.

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

D-22

 

     Section 9.4 Disputes. Any dispute that may arise relating to this Agreement shall be referred
to the Chief Executive Officers of each of the Parties (or their respective designees) who shall
use * to mutually agree upon the proper course of action to resolve the
dispute. If any dispute is not resolved by the Chief Executive Officers of the Parties (or their
designees) within * after such dispute is referred to them, or such longer
period as the Chief Executive Officers (or their designees) may collectively agree, then either
Party shall have the right to litigate such dispute in accordance with Section 9.5 or to pursue
such other dispute resolution mechanism as the Parties may agree.

     Section 9.5 Governing Law, Jurisdiction, Venue and Service.

          9.5.1 Governing Law. This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of this Agreement to the substantive law of
another jurisdiction.

          9.5.2 Jurisdiction. The Parties hereby irrevocably and unconditionally consent to the
exclusive jurisdiction of the courts of the State of Delaware and the United States District Court
for the District of Delaware for any action, suit or proceeding (other than appeals therefrom)
arising out of or relating to this Agreement, and agree not -to commence any action, suit or
proceeding (other than appeals therefrom) related thereto except in such courts.

          9.5.3 Venue. The Parties further hereby irrevocably and unconditionally waive any objection
to the laying of venue of any action, suit or proceeding (other than appeals therefrom) arising out
of or relating to this Agreement in the courts of the State of Delaware or the United States
District Court for the District of Delaware, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.

          9.5.4 Service. Each Party hereto further agrees that service of any process, summons, notice
or document by U.S. registered mail to its address set forth below shall be effective service of
process for any action, suit or proceeding brought against it under this Agreement in any such
court.

          9.5.5 Patents and Trademarks. Notwithstanding the foregoing, any disputes regarding the
validity, scope or enforceability of Patents or Trademarks shall be submitted to a court of
competent jurisdiction in the territory in which such rights apply.

     Section 9.6 Notices. All notices or other communications that are required or permitted
hereunder shall be in writing and delivered personally, sent by facsimile (and promptly confirmed
by personal delivery, registered or certified mail or overnight courier as provided herein), sent
by nationally-recognized overnight courier or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows:

     If to Avalon, to:

Avalon Pharmaceuticals, Inc.

20358 Seneca Meadows Road

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

D-23

 

Germantown, Maryland 20876

Attention: CEO

Facsimile: 301-556-9910

     If to Medarex, to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: President

Facsimile: (609) 430-2850

with a copy to:

Medarex, Inc.

707 State Road

Princeton, New Jersey 08540-1437

Attention: General Counsel

Facsimile: (609) 430-4215

or to such other address as the Party to whom notice is to be given may have furnished to the other
Party in writing in accordance herewith. Any such communication shall be deemed to have been
received (a) when delivered, if personally delivered or sent by facsimile on a business day, (b) on
the business day after dispatch, if sent by nationally-recognized overnight courier, and (c) on the
third business day following the date of mailing, if sent by mail. It is understood and agreed
that this Section 9.6 is not intended to govern the day-to-day business communications necessary
between the Parties in performing their duties, in due course, under the terms of this Agreement.

     Section 9.7 Entire Agreement; Modifications. This Agreement, together with the Appendix
attached hereto and the Collaboration Agreement, sets forth and constitutes the entire agreement
and understanding between the Parties with respect to the subject matter hereof and thereof and all
prior agreements, understanding, promises and representations, whether written or oral, with
respect thereto are superseded hereby and thereby. Each Party confirms that it is not relying on
any representations or warranties of the other Party except as specifically set forth herein or
therein. No amendment, modification, release or discharge shall be binding upon the Parties unless
in writing duly executed by authorized representatives of both Parties.

     Section 9.8 Relationship of the Parties. It is expressly agreed that the Parties shall be
independent contractors of one another and that the relationship between the Parties shall not
constitute a partnership, joint venture or agency. Neither Party shall have the authority to make
any statements, representations or commitments of any kind, or to take any action, which shall be
binding on the other, without the prior written consent of the other to do so. All persons
employed by a Party shall be employees of such Party and not of the other Party and all costs and
obligations incurred by reason of any such employment shall be for the account and expense of such
Party.

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

D-24

 

     Section 9.9 Equitable Relief. Each Party acknowledges and agrees that the restrictions set
forth in Articles 4 and 5 of this Agreement are reasonable and necessary to protect the legitimate
interests of the other Party and that such other Party would not have entered into this Agreement
in the absence of such restrictions, and that any violation or threatened violation of any
provision of Article 4 or 5 will result in irreparable injury to such other Party. Each Party also
acknowledges and agrees that in the event of a violation or threatened violation of any provision
of Article 4 or 5, the other Party hall be entitled to preliminary and permanent injunctive relief,
without the necessity of proving irreparable injury or actual damages and without the necessity of
having to post a bond, as well as to an equitable accounting of all earnings, profits and other
benefits arising from any such violation. The rights provided in the immediately preceding
sentence shall be cumulative and in addition to any other rights or remedies that may be available
to such other Party. Nothing in this Section 9.9 is intended, or should be construed, to limit
such other Party’s right to preliminary and permanent injunctive relief or any other remedy for
breach of any other provision of this Agreement.

     Section 9.10 Waiver. Any term or condition of this Agreement may be waived at any time by the
Party that is entitled to the benefit thereof, but no such waiver shall be effective unless set
forth in a written instrument duly executed by or on behalf of the Party waiving such term or
condition. The waiver by either Party hereto of any right hereunder or of the failure to perform
or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of
any other breach or failure by said other Party whether of a similar nature or otherwise.

     Section 9.11 Counterparts. This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument.

     Section 9.12 No Benefit to Third Parties. The representations, warranties, covenants and
agreements set forth in this Agreement are for the sole benefit of the Parties hereto and their
successors and permitted assigns, and they shall not be construed as conferring any rights on any
other parties.

     Section 9.13 Further Assurance. Each Party shall duly execute and deliver, or cause to be
duly executed and delivered, such further instruments and do and cause to be done such further acts
and things, including the filing of such assignments, agreements, documents and instruments, as may
be necessary or as the other Party may reasonably request in connection with this Agreement or to
carry out more effectively the provisions and purposes, or to better assure and confirm unto such
other Party its rights and remedies under this Agreement.

     Section 9.14 English Language. This Agreement has been written and executed in the English
language. Any translation into any other language shall not be an official, version thereof, and
in the event of any conflict in interpretation between the English version and such translation,
the English version shall control.

     Section 9.15 References. Unless otherwise specified, (a) references in this Agreement to any
Article, Section, Appendix, Schedule or Exhibit shall mean references to such Article, Section,
Appendix, Schedule or Exhibit of this Agreement, (b) references in any section to any

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

D-25

 

clause are references to such clause of such section, and (c) references to any agreement,
instrument or other document in this Agreement refer to such agreement, instrument or other
document as originally executed or, if subsequently varied, replaced or supplemented from time to
time, as so varied, replaced or supplemented and in effect at the relevant time of reference
thereto.

     Section 9.16 Construction. Except where the context otherwise requires, wherever used, the
singular shall include the plural, the plural the singular, the use of any gender shall be
applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions
of this Agreement are for convenience of reference only and in no way define, describe, extend or
limit the scope or intent of this Agreement or the intent of any provision contained in this
Agreement. The term “including” as used herein shall mean including, without limiting the
generality of any description preceding such term. The language of this Agreement shall be deemed
to be the language mutually chosen by the Parties and no rule of strict construction shall be
applied against either Party hereto.

     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.

	 	 	 	 	 	 	 
	Medarex, Inc	 	Avalon Pharmaceuticals, Inc.
	 
	 	 	 	 	 	 
	By:

	 	/s/  James B. Cornett, Ph.D.
	 	By:
	 	/s/  Kenneth C. Carter, Ph.D.
	

	 	 
	 	 	 	 
	Name:
	 	James B. Cornett, Ph.D.	 	Name:	 	Kenneth C. Carter, Ph.D.
	

	 	 
	 	 	 	 
	Title:
	 	VP, Business Development	 	Title:	 	President and CEO
	

	 	 
	 	 	 	 

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

D-26exv10w4

 

Exhibit 10.4

Amended and Restated Employment Agreement

April 21, 2005

Kenneth C. Carter, Ph.D.

Dear Ken:

This Amended and Restated Employment Agreement (this “Agreement”), on its Effective Date (as
defined below), amends, restates and supercedes your prior Letter of Employment dated December 2,
1999, as amended December 3, 2002, between Avalon Pharmaceuticals, Inc., formerly Therapeutic
Genomics, Inc. (the “Company”), and you (the “Prior Letter Agreement”). This Agreement shall be
effective and shall supercede the Prior Letter Agreement concurrently with the effective date of
the first registration statement filed by the Company to register shares of its common stock for
sale to the public through one or more underwriters (the “Effective Date”). Notwithstanding the
foregoing, this Agreement shall not become effective, shall be deemed null and void and shall not
supercede the Prior Letter Agreement if (i) the Effective Date does not occur prior to January 1,
2006 or (ii) your employment is terminated by the Company or by you for any reason prior to the
Effective Date. If this Agreement does not become effective, the Prior Letter Agreement shall
remain in full force and effect in accordance with its terms. The terms of your employment are as
follows:

	1.  	Position. In your position of President and Chief Executive Officer,
you will report solely to the Company’s Board of Directors, based out
of the Company’s offices to be located in Maryland.
	 
	   	As a full-time employee of the Company, you will be expected to devote
your full business time and energies to the business and affairs of
the Company. Your performance will be reviewed formally after six
months of employment and annually thereafter at the end of each
calendar year.
	 
	2.  	Starting Date/Nature of Relationship. It is expected that your
employment will start on December 27, 1999* (the “Start Date”). No
provision of this letter shall be construed to create an expressed or
implied employment contract for a specific period of time. Either you
or the Company may terminate the employment relationship at any time
and for any reason upon not less than 60 days prior written notice if
terminated by the Company and 60 days prior written notice if
terminated by you.
	 
	3.  	Compensation. I have calculated your initial salary based on the Price
Waterhouse Coopers survey of CEOs for 1998 (+10%) for the median
income and companies with less than 10 people, we would expect to
change this after review

* This date will be
adjusted to the date of the Series A financing.

 

 

	   	by the Compensation Committee at your six month review. (Attached is the review sheet).

	 	a)  	Initial starting salary will be $165,000 per year, paid bi-weekly.
	 
	 	b)  	You will receive incentive stock options to purchase, at fair
market value to be determined by the Company’s Board of Directors
(expected to be $0.20 per share), 125,000 Shares of Common Stock of
Avalon Pharmaceuticals, Inc. (representing 5% of the Company’s
expected Series A shares), vesting in quarterly increments over a
period of four years as described in the Stock Option Agreement, which
you and the Company will enter into following the Start Date.
	 
	 	c)  	You will be eligible to receive annual bonus payments dependent on
the performance of the Company and your individual performance,
subject to the discretion of the Board of Directors. Your annual bonus
in the year 2000 may reach $35,000, depending on the performance of
the Company and your individual performance.
	 
	 	d)  	The Company will make you an initial loan of $50,000 to be secured
by your I.S.O. pool until repaid.
	 
	 	e)  	Upon termination for any reason, the Company shall pay you within
two weeks of such termination, your current base salary earned through
the termination date, plus accrued vacation, if any, and other
benefits or payments, if any, to which you are entitled as provided in
accordance with the terms and conditions of such benefit plan. In the
event you are terminated by the Company without “Cause” (as herein
defined), or if you terminate your employment with the Company for
“Good Reason” (as hereinafter defined), the Company shall immediately
vest all shares granted to you under the Company’s Stock Option Plan
that have not vested as of the date of your termination, continue to
pay you your bi-weekly rate in effect at the time of termination for a
period of eighteen months (“Severance”); provide you with outplacement
services; provide and pay the Company’s portion of your health
insurance and life insurance for a period of eighteen months following
such termination; and, at the discretion of the Compensation Committee
as may be approved by the Board, pay you a bonus payable in bi-weekly
installments commencing in the month following the end of the calendar
year of the year of your termination, based upon the bonus it might
have paid to you, if any, at the conclusion of the calendar year of
the year of your termination, prorated to the date of your
termination, and adjusted to reflect whether goals set by the Board of
Directors were satisfied. You shall not be required to mitigate
damages by seeking employment elsewhere. If you are terminated with
Cause, the

 

 

	 	   	Company shall pay you only your current base salary earned through the termination date, plus accrued vacation, if any, to which
you are entitled as provided in accordance with the terms and
conditions of such benefit plan. The Company shall not be obligated to
continue any such payments to you under this Section 3(e) in the event
you materially breach the terms under the Confidentiality Agreement
attached hereto. Notwithstanding any termination of your employment,
you shall continue to be bound by the provisions of the
Confidentiality Agreement.
	 
	 	f)  	For the purposes of this Section 3, “Cause” shall include (i) your
conviction of a felony, either in connection with the performance of
your obligations to the Company or otherwise, which adversely affects
your ability to perform such obligations or materially adversely
affects the business activities, reputation, goodwill or image of the
Company, (ii) your willful disloyalty, deliberate dishonesty, breach
of fiduciary duty, (iii) your breach of the terms of this Agreement,
or your failure or refusal to carry out any material tasks assigned to
you by the Company in accordance with the terms hereof, which breach
or failure continues for a period of more than thirty (30) days after
your receipt of written notice thereof from the Company, (iv) the
commission by you of any act of fraud, embezzlement or deliberate
disregard of a rule or policy of the Company known to you or contained
in a policy and procedure manual provided to you which results in
material loss, damage or injury to the Company, or (v) the material
breach by you of any of the provisions of the Confidentiality and
Non-competition Agreement substantially in the form of Attachment A to
this letter.
	 
	 	g)  	Termination of your employment by you shall constitute termination
for “Good Reason” if such termination occurs (a) within eighteen
months of a “Change in Control” (as hereinafter defined) (b) within
three months of a material diminution in your responsibilities as
Chief Executive Officer (provided that such diminution is not in
connection with the termination of your employment for Cause), (c)
within three months of no longer reporting to the Board of Directors
of the Company or (d) within three months of your principal work
location changing to be more than 50 miles from your current
residence. The Company shall notify you, within 10 days of receipt of
your notice of intent to terminate your employment for Good Reason, if
the Company disagrees with your intent to terminate under this
paragraph 3(g).
	 
	 	   	A “Change in Control” shall be deemed to have occurred if either: (i)
any “person” (including, without limitation, any individual, sole
proprietorship, partnership, trust, corporation, association, joint
venture, or other entity, whether or not incorporated), or “group” of
persons (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
becomes, after the date hereof, the

 

 

	 	   	“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing fifty percent (50%) or more of
the combined voting power of the Company’s then outstanding
securities; (ii) during any two (2) year period, individuals who
constitute the Board of Directors at the beginning of such period,
together with any new directors elected or appointed during the period
whose election or appointment resulted from a vacancy on the Board of
Directors caused by the retirement, death, or disability of a director
and whose election or appointment was approved by a vote of at least a
majority of the directors then still in office who were directors at
the beginning of the period, cease for any reason to constitute a
majority of the Board of Directors; (iii) the Company sells, assigns,
conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person; (iv) the Company
consolidates with, or merges with or into another entity, or any
entity consolidates with, or merges with or into, the Company (a
“Merger”), in which the owners of outstanding voting stock of the
Company immediately prior to such Merger do not represent at least a
majority of the voting power in the surviving entity after the Merger;
or (v) the stockholders of the Company approve a plan of liquidation
or dissolution.

	4.  	Benefits. You will be entitled as an employee of the Company to
receive such benefits as are generally provided its employees and
executive and for which you are eligible in accordance with Company
policy as in effect from time to time. The Company retains the right
to change, add or cease any particular benefit relating to its
employees and executives generally. At this time, the Company is
offering a benefit program, consisting of medical, dental, life and
short/long term disability insurance, as well as a 401(k) retirement
plan and flexible spending plan. You will be eligible for eight paid
holidays, four floating holidays and three weeks paid vacation per
year. You will accrue additional vacation days at a rate of one day
per year of service. You will further be provided with a parking space
at our current offices in NYC (and any office to which the Company may
relocate), at no cost to you.
	 
	5.  	Board of Directors. You will be nominated to serve as a member of the
Company’s Board of Directors at the first scheduled meeting.
	 
	6.  	Confidentiality. The Company considers the protection of its
confidential information and proprietary materials to be very
important. Therefore, as a condition of your employment, you and the
Company will become parties to a Confidentiality and Non-competition
Agreement substantially in the form of Attachment A to this letter
(the “Confidentiality Agreement”).
	 
	7.  	General.

 

 

	 	a)  	This letter, together with the Confidentiality Agreement and the
Stock Option Agreement, will constitute our entire agreement as to
your employment by the Company and will supersede any prior agreements
or understandings, whether in writing or oral.
	 
	 	b)  	This letter shall be subject to and contingent upon the
satisfactory results of a medical physical, by a physician to be
designated by the Company.
	 
	 	c)  	This letter shall be governed by the law of the State of Maryland.

	 	 	 	 	 	 	 	 	 
	Sincerely,	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	ON BEHALF OF THE BOARD OF DIRECTORS OF	 	 
	 
	 	 	 	 	 	 	 	 
	AVALON PHAMRACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	By:
	 	/s/ William Scott	 	 	 	 
	 	 	 	 	 	 	 
	 	 	Name:	 	William Scott	 	 
	 	 	Title:	 	Director and Compensation Committee
Chairman	 	 
	 
	 	 	 	 	 	 	 	 
	ACCEPTED AND AGREED:	
	/s/
Kenneth C. Carter
	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Date:	 	April
21, 2005

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