Document:

Exhibit 4.1

Exhibit 4.1

     Unless this certificate is presented by an authorized representative of The Depository Trust
Company, a New York Corporation (“DTC”), to the Company or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any payment is made to Cede
& Co. or to such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

	 	 	 
	Certificate No.: 1

	 	CUSIP No.: 637432LR4
	ISIN No.: US637432LR45
	 	 
	PRINCIPAL AMOUNT: $500,000,000
	 	 
	MATURITY DATE: November 1, 2018
	 	 
	ISSUE DATE: October 30, 2008

	 	CERTIFICATE INTEREST RATE: 10.375%

10.375% COLLATERAL TRUST BOND DUE 2018

          National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative
association (hereinafter called the “Company”, which term includes any successor corporation under
the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to
Cede & Co., or registered assigns, the principal sum of $500,000,000 on the Maturity Date set forth
above; and to pay interest thereon from the Issue Date set forth above at the Certificate Interest
Rate set forth above, until the principal hereof is paid or made available for payment.

          Interest on the Bonds will be payable on May 1 and November 1 of each year commencing on May
1, 2009 to the persons in whose names such Bonds are registered at the close of business on the
fifteenth calendar day preceding the payment date, or if not a Business Day, the next succeeding
Business Day. Interest on the Bonds will accrue from and including the date of issue or from and
including the last date in respect of which interest has been paid, as the case may be, to, but
excluding, the relevant interest payment date, date of redemption or the date

 

 

of maturity, as the case may be. Interest on the Bonds will be computed on the basis of a
360-day year of twelve 30-day months.

          If any of the interest payment dates or the maturity date falls on a day that is not a
Business Day, the payment of interest or principal will be postponed to the next succeeding
Business Day, but the payment made on such dates will be treated as being made on the date payment
was first due and the holders of the Bonds will not be entitled to any further interest or other
payments with respect to such postponements.

          Reference is hereby made to the further provisions of this Bond set forth on the reverse
hereof which further provisions shall for all purposes have the same effect as if set forth at this
place.

          Unless the certificate of authentication hereon has been executed by or on behalf of U.S. Bank
National Association, as Trustee under the Indenture, or its successor thereunder, by manual
signature, this Bond shall not be entitled to any benefit under such Indenture, or be valid or
obligatory for any purpose.

 

 

          IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its
corporate seal.

	 	 	 	 	 
	 	NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

 	 
	 	By:  	 	 
	 	 	Steven L. Lilly 	 
	 	 	Senior Vice President, Financial Services &

Chief Financial Officer

Assistant Secretary-Treasurer 	 
	 

(Seal)

Attest:

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

    Assistant Secretary-Treasurer
	 	 

Trustee’s
Certificate of
Authentication

This is one of the Bonds
of the series designated therein,
described in the within-
mentioned Indenture

Dated:

	 	 	 	 	 
	By:

	 	U.S. BANK NATIONAL ASSOCIATION, 

Trustee	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

    Authorized Officer
	 	 

 

 

REVERSE OF BOND

          This Bond is one of an authorized issue of Bonds of the Company known as its “10.375%
Collateral Trust Bonds due 2018”, issued and to be issued in one or more series under, and all
equally and ratably secured (except as any sinking or other fund may afford additional special
security for the Bonds of any particular series) by, an Indenture dated as of October 25, 2007 (as
amended, supplemented and modified and in effect from time to time, the “Indenture”), executed by
the Company to U.S. Bank National Association, as Trustee (herein called the “Trustee”, which term
includes any successor Trustee under the Indenture), to which Indenture reference is hereby made
for a description of the nature and extent of the securities and other property assigned, pledged,
transferred and mortgaged thereunder the rights of the Holders of said Bonds and of the Trustee and
of the Company in respect of such security, and the terms upon which said Bonds are to be
authenticated and delivered.

          The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Company and the rights of the Holders of the
Bonds under the Indenture at any time by the Company with the consent of the Holders of not less
than a majority in aggregate principal amount of the Bonds at the time Outstanding as defined in
the Indenture. The Indenture also permits, without the consent of the holders of any Bonds, the
parties to any Mortgage Notes pledged under the Indenture, and any Mortgages or Loan Agreements
pursuant to which they were issued, to modify, alter, supplement or amend such Mortgage Notes,
Mortgages and Loan Agreements, so long as thereafter such Mortgage will comply with the
requirements of the Company’s standard lending practices, as such policies may be amended from time
to time. The Indenture also contains provisions permitting the Holders of specified percentages in
principal amount of the Bonds at the time Outstanding, on behalf of the Holders of all Bonds, to
waive compliance by

 

 

the Company with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be
binding upon such Holder and upon all future Holders of this Bond and of any Bond issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such action is
made upon this Bond.

          As provided in the Indenture, said Bonds are issuable in series which may vary as in said
Indenture provided or permitted. This Bond is one of a series entitled 10.375% Collateral Trust
Bonds due 2018.

          The Company may redeem the Bonds in whole or in part at any time, at a “make-whole” redemption
price equal to the greater of (1) the principal amount being redeemed or (2) the sum of the present
values of the remaining scheduled payments of the principal and interest (other than accrued
interest) on the Bonds being redeemed, discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis
points for the Bonds, plus in each case accrued interest to the redemption date.

          If the Company elects to redeem less than all of the Bonds, and such Bonds are at the time
represented by a global security, then the depositary will select by lot the particular interest to
be redeemed. If the Company elects to redeem less than all of the Bonds, and such Bonds are not
represented by a global security, the particular Bonds to be redeemed shall be selected by the
Trustee from the outstanding Bonds not previously called for redemption, in a manner the Trustee
deems appropriate and fair.

          Notice of any redemption will be mailed at least 30 days but not more than 60 days before the
date of redemption to each holder of the Bonds to be redeemed. Unless the Company defaults in
payment of the redemption price, on and after the date of redemption,

 

 

interest will cease to accrue on such Bonds or the portions called for redemption.

          If an Event of Default, as defined in the Indenture, shall occur, the principal of this Bond
may become or be declared due and payable immediately, in the manner and with the effect provided
in the Indenture.

          This Bond is transferable by the registered owner hereof in person or by attorney authorized
in writing at the office or agency of the Company in the Borough of Manhattan, City and State of
New York or any other place or places where such Bond may be paid, upon surrender of this Bond, and
upon any such transfer a new Bond for the same series, for the same aggregate principal amount,
will be issued to the transferee in exchange hereof.

          The Bonds of this series are issuable only as registered Bonds without coupons in minimum
denominations of $2,000 and integral multiples of $1,000 in excess thereof. As provided in, and
subject to the provisions of, the Indenture, Bonds of this series are exchangeable for other Bonds
of this series of any authorized denominations, of a like aggregate principal amount, as requested
by the Holder surrendering the same.

          No service charge will be made for any such transfer or exchange, but the Company or the
Trustee may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.

          Prior to due presentment for transfer at any office or agency of the Company designated for
such purpose, the Company, the Trustee and any agent of the Company or the Trustee may treat the
person in whose name this Bond is registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes whether or not this Bond be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

 

 

          No reference herein to the Indenture and no provision of this Bond or of the Indenture shall
alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on this Bond at the times, place and rate, and in the coin or currency,
herein prescribed.

          The following terms shall have the following meanings:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in the Borough of Manhattan, City and State of New York are
authorized by law to close.

          “Comparable Treasury Issue’’ means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term of the Bonds
being redeemed that would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such Bonds.

          “Comparable Treasury Price’’ means, for any redemption date, (1) the average of the bid and
ask prices for the Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) on the third business day preceding the redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal Reserve Bank of New
York and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities’’ or (2) if that
release (or any successor release) is not published or does not contain those prices on that
Business Day, (A) the average of the Reference Treasury Dealer Quotations for the redemption date,
after excluding the highest and lowest Reference Treasury Dealer Quotations for that redemption
date, or (B) if the Company obtains fewer than four Reference Treasury Dealer Quotations, the
average of all the Reference Treasury Dealer Quotations obtained.

 

 

          “Independent Investment Banker’’ means one of the Reference Treasury Dealers appointed by the
trustee after consultation with the Company.

          “Reference Treasury Dealer’’ means (1) each of Deutsche Bank Securities Inc., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and Greenwich Capital Markets, Inc.
and their respective successors; provided, however, that if any of them ceases to be a primary U.S.
Government securities dealer in the United States, the Company will appoint another primary U.S.
Government securities dealer as a substitute and (2) any other U.S. Government securities dealers
selected by the Company.

          “Reference Treasury Dealer Quotations’’ means, for each Reference Treasury Dealer and any
redemption date, the average, as determined by the trustee, of the bid and ask prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m. New York City time on the
third business day preceding the redemption date for the bonds being redeemed.

          “Treasury Rate’’ means, for any redemption date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury
Price for the redemption date.

          All terms used in this Bond which are defined in the Indenture shall have the meanings
assigned to them in the Indenture.

 

 

ASSIGNMENT

          For value received the undersigned sells, assigns and transfers unto (name, address including
zip code and taxpayer I.D. or Social Security number of assignee)

           

                                                                                                                                                                   
the within Certificate and does hereby
irrevocably constitute and appoint
                                                                           

 attorney to transfer the said Certificate on the books kept for
registration thereof with full power of substitution on the premises.

Dated:                                         

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Signature by or on behalf of Assignor 	 
	 	 	 

 

 

	 	 	 	 	 

     Unless this certificate is presented by an authorized representative of The Depository Trust
Company, a New York Corporation (“DTC”), to the Company or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and any payment is made to Cede
& Co. or to such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

	 	 	 
	Certificate No.: 2

	 	CUSIP No.: 637432LR4
	ISIN No.: US637432LR45
	 	 
	PRINCIPAL AMOUNT: $500,000,000
	 	 
	MATURITY DATE: November 1, 2018
	 	 
	ISSUE DATE: October 30, 2008

	 	CERTIFICATE INTEREST RATE: 10.375%

10.375% COLLATERAL TRUST BOND DUE 2018

          National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative
association (hereinafter called the “Company”, which term includes any successor corporation under
the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to
Cede & Co., or registered assigns, the principal sum of $500,000,000 on the Maturity Date set forth
above; and to pay interest thereon from the Issue Date set forth above at the Certificate Interest
Rate set forth above, until the principal hereof is paid or made available for payment.

          Interest on the Bonds will be payable on May 1 and November 1 of each year commencing on May
1, 2009 to the persons in whose names such Bonds are registered at the close of business on the
fifteenth calendar day preceding the payment date, or if not a Business Day, the next succeeding
Business Day. Interest on the Bonds will accrue from and including the date of issue or from and
including the last date in respect of which interest has been paid, as the case may be, to, but
excluding, the relevant interest payment date, date of redemption or the date

 

 

of maturity, as the case may be. Interest on the Bonds will be computed on the basis of a
360-day year of twelve 30-day months.

          If any of the interest payment dates or the maturity date falls on a day that is not a
Business Day, the payment of interest or principal will be postponed to the next succeeding
Business Day, but the payment made on such dates will be treated as being made on the date payment
was first due and the holders of the Bonds will not be entitled to any further interest or other
payments with respect to such postponements.

          Reference is hereby made to the further provisions of this Bond set forth on the reverse
hereof which further provisions shall for all purposes have the same effect as if set forth at this
place.

          Unless the certificate of authentication hereon has been executed by or on behalf of U.S. Bank
National Association, as Trustee under the Indenture, or its successor thereunder, by manual
signature, this Bond shall not be entitled to any benefit under such Indenture, or be valid or
obligatory for any purpose.

 

 

          IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its
corporate seal.

	 	 	 	 	 
	 	NATIONAL RURAL UTILITIES

COOPERATIVE FINANCE CORPORATION

 	 
	 	By:  	 	 
	 	 	Steven L. Lilly 	 
	 	 	Senior Vice President, Financial Services &

Chief Financial Officer

Assistant Secretary-Treasurer 	 
	 

(Seal)

Attest:

	 	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

    Assistant Secretary-Treasurer
	 	 

Trustee’s
Certificate of
Authentication

This is one of the Bonds
of the series designated therein,
described in the within-
mentioned Indenture

Dated:

	 	 	 	 	 
	By:

	 	U.S. BANK NATIONAL ASSOCIATION, 

Trustee	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

    Authorized Officer
	 	 

 

 

REVERSE OF BOND

          This Bond is one of an authorized issue of Bonds of the Company known as its “10.375%
Collateral Trust Bonds due 2018”, issued and to be issued in one or more series under, and all
equally and ratably secured (except as any sinking or other fund may afford additional special
security for the Bonds of any particular series) by, an Indenture dated as of October 25, 2007 (as
amended, supplemented and modified and in effect from time to time, the “Indenture”), executed by
the Company to U.S. Bank National Association, as Trustee (herein called the “Trustee”, which term
includes any successor Trustee under the Indenture), to which Indenture reference is hereby made
for a description of the nature and extent of the securities and other property assigned, pledged,
transferred and mortgaged thereunder the rights of the Holders of said Bonds and of the Trustee and
of the Company in respect of such security, and the terms upon which said Bonds are to be
authenticated and delivered.

          The Indenture permits, with certain exceptions as therein provided, the amendment thereof and
the modification of the rights and obligations of the Company and the rights of the Holders of the
Bonds under the Indenture at any time by the Company with the consent of the Holders of not less
than a majority in aggregate principal amount of the Bonds at the time Outstanding as defined in
the Indenture. The Indenture also permits, without the consent of the holders of any Bonds, the
parties to any Mortgage Notes pledged under the Indenture, and any Mortgages or Loan Agreements
pursuant to which they were issued, to modify, alter, supplement or amend such Mortgage Notes,
Mortgages and Loan Agreements, so long as thereafter such Mortgage will comply with the
requirements of the Company’s standard lending practices, as such policies may be amended from time
to time. The Indenture also contains provisions permitting the Holders of specified percentages in
principal amount of the Bonds at the time Outstanding, on behalf of the Holders of all Bonds, to
waive compliance by

 

 

the Company with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of this Bond shall be
binding upon such Holder and upon all future Holders of this Bond and of any Bond issued upon the
transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such action is
made upon this Bond.

          As provided in the Indenture, said Bonds are issuable in series which may vary as in said
Indenture provided or permitted. This Bond is one of a series entitled 10.375% Collateral Trust
Bonds due 2018.

          The Company may redeem the Bonds in whole or in part at any time, at a “make-whole” redemption
price equal to the greater of (1) the principal amount being redeemed or (2) the sum of the present
values of the remaining scheduled payments of the principal and interest (other than accrued
interest) on the Bonds being redeemed, discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 50 basis
points for the Bonds, plus in each case accrued interest to the redemption date.

          If the Company elects to redeem less than all of the Bonds, and such Bonds are at the time
represented by a global security, then the depositary will select by lot the particular interest to
be redeemed. If the Company elects to redeem less than all of the Bonds, and such Bonds are not
represented by a global security, the particular Bonds to be redeemed shall be selected by the
Trustee from the outstanding Bonds not previously called for redemption, in a manner the Trustee
deems appropriate and fair.

          Notice of any redemption will be mailed at least 30 days but not more than 60 days before the
date of redemption to each holder of the Bonds to be redeemed. Unless the Company defaults in
payment of the redemption price, on and after the date of redemption,

 

 

interest will cease to accrue on such Bonds or the portions called for redemption.

          If an Event of Default, as defined in the Indenture, shall occur, the principal of this Bond
may become or be declared due and payable immediately, in the manner and with the effect provided
in the Indenture.

          This Bond is transferable by the registered owner hereof in person or by attorney authorized
in writing at the office or agency of the Company in the Borough of Manhattan, City and State of
New York or any other place or places where such Bond may be paid, upon surrender of this Bond, and
upon any such transfer a new Bond for the same series, for the same aggregate principal amount,
will be issued to the transferee in exchange hereof.

          The Bonds of this series are issuable only as registered Bonds without coupons in minimum
denominations of $2,000 and integral multiples of $1,000 in excess thereof. As provided in, and
subject to the provisions of, the Indenture, Bonds of this series are exchangeable for other Bonds
of this series of any authorized denominations, of a like aggregate principal amount, as requested
by the Holder surrendering the same.

          No service charge will be made for any such transfer or exchange, but the Company or the
Trustee may require payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith.

          Prior to due presentment for transfer at any office or agency of the Company designated for
such purpose, the Company, the Trustee and any agent of the Company or the Trustee may treat the
person in whose name this Bond is registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes whether or not this Bond be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

 

 

          No reference herein to the Indenture and no provision of this Bond or of the Indenture shall
alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on this Bond at the times, place and rate, and in the coin or currency,
herein prescribed.

          The following terms shall have the following meanings:

          “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day
on which banking institutions in the Borough of Manhattan, City and State of New York are
authorized by law to close.

          “Comparable Treasury Issue’’ means the United States Treasury security selected by an
Independent Investment Banker as having a maturity comparable to the remaining term of the Bonds
being redeemed that would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of comparable maturity to
the remaining term of such Bonds.

          “Comparable Treasury Price’’ means, for any redemption date, (1) the average of the bid and
ask prices for the Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) on the third business day preceding the redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal Reserve Bank of New
York and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities’’ or (2) if that
release (or any successor release) is not published or does not contain those prices on that
Business Day, (A) the average of the Reference Treasury Dealer Quotations for the redemption date,
after excluding the highest and lowest Reference Treasury Dealer Quotations for that redemption
date, or (B) if the Company obtains fewer than four Reference Treasury Dealer Quotations, the
average of all the Reference Treasury Dealer Quotations obtained.

 

 

          “Independent Investment Banker’’ means one of the Reference Treasury Dealers appointed by the
trustee after consultation with the Company.

          “Reference Treasury Dealer’’ means (1) each of Deutsche Bank Securities Inc., J.P. Morgan
Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., and Greenwich Capital Markets, Inc.
and their respective successors; provided, however, that if any of them ceases to be a primary U.S.
Government securities dealer in the United States, the Company will appoint another primary U.S.
Government securities dealer as a substitute and (2) any other U.S. Government securities dealers
selected by the Company.

          “Reference Treasury Dealer Quotations’’ means, for each Reference Treasury Dealer and any
redemption date, the average, as determined by the trustee, of the bid and ask prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted
in writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m. New York City time on the
third business day preceding the redemption date for the bonds being redeemed.

          “Treasury Rate’’ means, for any redemption date, the rate per annum equal to the semi-annual
equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury
Price for the redemption date.

          All terms used in this Bond which are defined in the Indenture shall have the meanings
assigned to them in the Indenture.

 

 

ASSIGNMENT

          For value received the undersigned sells, assigns and transfers unto (name, address including
zip code and taxpayer I.D. or Social Security number of assignee)

           

                                                                                                                         the within Certificate and does hereby
irrevocably constitute and appoint                                                             

  attorney to transfer the said Certificate on the books kept for
registration thereof with full power of substitution on the premises.

Dated:                                         

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Signature by or on behalf of Assignorexv4w1

Exhibit 4.1

Amendment No. 1 to Rights Agreement

     THIS AMENDMENT No. 1 (this “Amendment”) is made and entered into as of October 27, 2008,
between Avalon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and American Stock
Transfer & Trust Company, a New York corporation (the “Rights Agent”).

RECITALS

     WHEREAS, the Company and the Rights Agent are parties to a Rights Agreement, dated April 26,
2007, by and between the Company and the Rights Agent (the “Rights Agreement”).

     WHEREAS, the Company intends to enter into an Agreement and Plan of Merger and Reorganization,
dated as of the date hereof (as it may be amended or supplemented from time to time, the “Merger
Agreement”) by and among the Company, Clinical Data, Inc., a Delaware corporation (“Clinical
Data”), and API Acquisition Sub II, LLC, a Delaware limited liability company and indirect
wholly-owned subsidiary of Clinical Data;

     WHEREAS, concurrently with the execution of the Merger Agreement, Clinical Data intends to
enter into one or more Voting Agreements with certain of the Company’s securityholders (the
“Restricted Securityholders”), dated as of the date hereof (as such agreements may be amended or
supplemented from time to time, the “Voting Agreements”) granting Clinical Data a proxy and certain
other rights (the “Voting Rights”) with respect to the voting of shares of the Company’s common
stock, par value $0.01 per share (the “Common Stock”) held of record or beneficially by the
Restricted Securityholders;

     WHEREAS, concurrently with the execution of the Merger Agreement, the Company and Clinical
Data intend to enter into a Securities Purchase Agreement pursuant to which the Company will sell
and issue to Clinical Data, and Clinical Data will purchase from the Company, shares of the
Company’s Common Stock and warrants (the “Warrants”) to purchase shares of the Company’s Common
Stock (the purchase of such shares of the Company’s Common Stock and the Warrants is sometimes
called the “Investment”);

     WHEREAS, the Board of Directors of the Company has approved (i) the Merger Agreement and the
transactions contemplated thereby, (ii) the execution and delivery by the Restricted
Securityholders of the Voting Agreements and the acquisition by Clinical Data of the Voting Rights
with respect to the Common Stock held of record or beneficially by the Restricted Securityholders
and (iii) the Investment and the transactions contemplated thereby;

     WHEREAS, pursuant to Section 27 of the Rights Agreement, the Company may and the Rights Agent
shall, if the Company so directs, supplement and amend the Rights Agreement prior to the
Distribution Date (as defined in the Rights Agreement) and subject to certain other limited
exceptions;

 

 

     WHEREAS, the Board of Directors of the Company has determined that an amendment to the Rights
Agreement as set forth herein to except the Merger Agreement, the shares of Common Stock and the
Warrants to be sold and issued by the Company and purchased by Clinical Data pursuant to the
Securities Purchase Agreement and the shares of Common Stock to be sold and issued by the Company
and purchased by Clinical Data pursuant to the exercise of the Warrants, and the transactions
contemplated thereby from the Rights Agreement is necessary and desirable in connection with the
foregoing and the Company and the Rights Agent desire to evidence such amendment in writing; and

     WHEREAS, all acts and things necessary to make this Amendment a valid agreement, enforceable
according to its terms, have been done and performed, and the execution and delivery of this
Amendment by the Company and the Rights Agent have been in all respects duly authorized by the
Company and the Rights Agent.

     NOW THEREFORE, in consideration of the foregoing and the mutual agreements set forth in the
Rights Agreement and herein, the parties hereto agree as follows:

AGREEMENT

ARTICLE 1

     Section 1.1 Amendment of Section 1(c). Section 1(c) of the Rights Agreement relating to the
definitions of “Beneficial Owner” and “beneficially own” is amended by adding the following at the
end thereof:

“Notwithstanding anything contained in this Agreement to the
contrary, neither Clinical Data, Inc., a Delaware corporation
(“Clinical Data”), nor API Acquisition Sub II, LLC., a
Delaware limited liability company and indirect wholly-owned
subsidiary of Clinical Data (“Merger Sub”), nor any of
their Affiliates or Associates, shall be deemed to be the
Beneficial Owner of, nor to beneficially own, any of the Common
Stock of the Company by virtue of any one or more of (i) the
approval, execution, delivery or performance of the Agreement
and Plan of Merger and Reorganization, dated as of October 27,
2008 by and among the Company, Clinical Data, and Merger Sub (as
it may be amended or supplemented from time to time, the
“Merger Agreement”), or the consummation of the Merger
(as defined in the Merger Agreement) and the other transactions
contemplated by the Merger Agreement or any action in
furtherance thereof, (ii) the approval, execution, delivery or
performance of the Voting Agreements or the exercise by Clinical
Data of any of the rights granted to Clinical Data thereunder,
including the Voting Rights, or (iii) the approval, execution,
delivery or performance of the Securities Purchase Agreement,
dated as of October 27, 2008, by and among the

 

 

Company and Clinical Data (as it may be amended or supplemented
from time to time, the “Securities Purchase Agreement”), the
purchase by Clinical Data pursuant to the Securities Purchase
Agreement of the Company’s Common Stock (the “Investment
Shares”) and warrants (the “Warrants”) to purchase
additional
shares of Common Stock (the “Warrant Shares”) and the purchase
by Clinical Data of the Warrant Shares. “Voting
Agreements” means one or more Voting Agreements with certain
of the Company’s securityholders, dated as of October 27, 2008,
(as such agreements may be amended or supplemented from time to
time) granting Clinical Data a proxy and certain other rights
(the “Voting Rights”) with respect to the voting of
 shares of Common Stock held of record or beneficially by such
securityholders.

     Section 1.2 Amendment of Section 7(a). Section 7(a) of the Rights Agreement is hereby amended
by deleting the word “or” that appears immediately prior to the symbol “(iii)”, deleting the
parenthetical contained at the end of Section 7(a) and by adding the following to the end of the
amended Section 7(a):

“, or (iv) the time immediately prior to the Effective Time (as
defined in the Merger Agreement), whereupon the Rights shall
expire (the earliest of (i), (ii), (iii) and (iv) being herein
referred to as the “Expiration Date”).”

     Section 1.3 Amendment of Section 13(b). Section 13(b) of the Rights Agreement is hereby
amended by inserting the following provision at the end of Section 13(b):

“Notwithstanding the foregoing and anything in this Agreement to
the contrary, neither Clinical Data, nor Merger Sub, nor any of
their Affiliates or Associates, shall be deemed to be a
Principal Party by virtue of any one or more of (i) the
approval, execution, delivery or performance of the Merger
Agreement, or the consummation of the Merger (as defined in the
Merger Agreement) and the other transactions contemplated by the
Merger Agreement or any action in furtherance thereof, (ii) the
approval, execution, delivery or performance of the Voting
Agreements or the exercise by Clinical Data of any of the rights
granted to Clinical Data thereunder, including the Voting Rights
or (iii) the approval, execution, delivery or performance of the
Securities Purchase Agreement or the Warrants, or purchase by
Clinical Data of shares of Common Stock and the Warrants
pursuant to the Securities Purchase Agreement or the purchase of
the Warrant Shares.”

 

 

     Section 1.4 Addition of New Section 35. The following is added as a new Section 35 to the
Rights Agreement:

“Section 35. Merger Agreement and Investment.

Notwithstanding anything in this Agreement to the contrary, none
of (x) the approval, execution, delivery or performance of the
Merger Agreement, or the consummation of the Merger and the
other transactions contemplated by the Merger Agreement or any
action in furtherance thereof, (y)

the approval, execution, delivery or performance of the Voting
Agreements or the exercise by Clinical Data of any of the rights
granted to Clinical Data thereunder, including the Voting
Rights, or (z) the approval, execution, delivery or performance
of the Securities Purchase Agreement, or the purchase by
Clinical Data of the shares of Common Stock and the Warrants
pursuant to the Securities Purchase Agreement, or the purchase
by Clinical Data of the Warrant Shares, or any one or more of
(x), (y) and (z) together, shall cause (i) Clinical Data or
Merger Sub or any of their Affiliates or Associates to be deemed
an Acquiring Person, (ii) a Stock Acquisition Date to occur,
(iii) a Distribution Date to occur or (iv) a Triggering Event,
it being the purpose of the Company in adopting the amendment to
this Agreement that none of (A) the approval, execution,
delivery or performance of the Merger Agreement, or the
consummation of the Merger (as defined in the Merger Agreement)
and the other transactions contemplated by the Merger Agreement,
or any action in furtherance thereof, (B) the approval,
execution, delivery or performance of the Voting Agreements or
the exercise by Clinical Data of any of the rights granted to
Clinical Data thereunder, including the Voting Rights, or (C)
the approval, execution, delivery or performance of the
Securities Purchase Agreement, or the purchase by Clinical Data
of the shares of Common Stock and the Warrants pursuant to the
Securities Purchase Agreement, or the purchase by Clinical Data
of the Warrant Shares, or any one or more of (A), (B) and (C)
together, shall in any respect give rise to any provision of
this Agreement becoming effective. This Agreement and the
Rights established hereby will terminate in all respects
immediately prior to the Effective Time (as defined in the
Merger Agreement).”

ARTICLE II

     Section 2.1 Effectiveness. This Amendment shall be deemed effective as of the date first
written above, as if executed on such date. Except as specifically amended by this

 

 

Amendment, all other terms and conditions of the Rights Agreement shall remain in full force
and effect.

     Section 2.2 Severability. If any term, provision, covenant or restriction of this Amendment
is held by a court of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Amendment
shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

     Section 2.3 Governing Law. This Amendment shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and construed in accordance
with the laws of such State.

     Section 2.4 Counterparts. This Amendment No. 1 may be executed in any number of counterparts.
It shall not be necessary that the signature of or on behalf of each party appears on each
counterpart, but it shall be sufficient that the signature of or on behalf of each party appears on
one or more of the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in any proof of this Amendment No. 1 to produce or account
for more than a number of counterparts containing the respective signatures of or on behalf of all
of the parties.

[Signatures appear on the following page.]

 

 

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and
attested, all as of the day and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	AVALON	 	PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ C. Eric Winzer
 

	 	 	 	By:

 /s/ Kenneth C. Carter
 

	 	 
	Name: C. Eric Winzer	 	 	 	Name: Kenneth C. Carter, Ph.D.	 	 
	Title: Secretary	 	 	 	Title: President and Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Attest:	 	 	 	AMERICAN STOCK TRANSFER & TRUST COMPANY	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Susan Silber
 

	 	 	 	By:  /s/ Herbert J. Lemmer
 

	 	 
	Name: Susan Silber	 	 	 	Name: Herbert J. Lemmer	 	 
	Title: Assistant Secretary	 	 	 	Title: Vice President	 	 

 

 

CERTIFICATE OF COMPLIANCE

     I, C. Eric Winzer, hereby certify that I am the duly appointed and acting Secretary of Avalon
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and in connection with the execution
of Amendment No. 1 to Rights Agreement between the Company and American Stock Transfer & Trust
Company (the “Rights Agent”) dated as of the date hereof (the “Amendment”), I hereby further
certify, on behalf of the Company, that the Amendment is in compliance with Section 27 of the
Rights Agreement between the Company and the Rights Agent dated as of April 26, 2007.

	 	 	 	 	 	 	 
	October 27, 2008

	 	AVALON
	 	PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ C. Eric Winzer
 

C. Eric Winzer
	 	 
	 

	 	 	 	Secretary

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