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Exhibit 10.5 AVALON PHARMACEUTICALS, INC.
$3,000,000 NOTE PURCHASE AGREEMENT
October 27, 2008 Funds Provided by CLINICAL
DATA, INC. THE NOTE IDENTIFIED HEREIN HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS
SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.
NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this " Agreement
") is entered as of this 27th day of October, 2008 by and between
Avalon Pharmaceuticals, Inc. , a Delaware corporation (the "
Seller "), and Clinical Data, Inc. (the "
Buyer "). Recitals On the terms and subject to
the conditions set forth herein, the Buyer is willing to buy the
Note (as defined in Section 2.1 hereof), and the Seller is
willing to sell the Note to the Buyer. Agreement
Now, Therefore , in
consideration of the foregoing recitals and the mutual covenants
contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Buyer
and Seller hereby agree as set forth below.
1. DEFINITIONS
1.1
Definitions . In addition to the terms defined elsewhere
herein, when used herein, capitalized terms shall have the
following meaning: " Act of
Bankruptcy " when used in reference to any Person, shall
mean the occurrence of any of the following with respect to such
Person: (a) such Person shall have made an assignment of all
or substantially all of its assets for the benefit of his or its
creditors; (b) such Person shall have admitted in writing his
or its inability to pay his or its debts generally as they become
due; (c) such Person shall have filed a voluntary petition in
bankruptcy; (d) such Person shall have been adjudicated a
bankrupt or insolvent; (e) such Person shall have filed any
petition or answer seeking for himself or itself any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future Applicable Law pertinent to such circumstances;
(f) such Person shall have filed or shall file any answer
admitting or not contesting the material allegations of a
bankruptcy, insolvency or similar petition filed against such
Person; (g) such Person shall have sought or consented to, or
acquiesced in, the appointment of any trustee, receiver, or
liquidator of such Person of all or substantially all of the
properties of such Person; (h) forty-five (45) days shall
have elapsed after the commencement of an action against such
Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
present or future Applicable Law without such action having been
dismissed or without all orders or proceedings thereunder affecting
the operations or the business of such Person having been stayed,
or if a stay of any such order or proceedings shall thereafter be
set aside and the action setting it aside shall not be timely
appealed; or (i) forty-five (45) days shall have expired
after the appointment, without the consent or acquiescence of such
Person of any trustee, receiver or liquidator of such Person or of
all or substantially all of the assets and properties of such
Person without such appointment having been vacated.
1.
" Act of Dissolution
" when used in reference to any Person (other than an individual)
shall mean the occurrence of any action initiating, or any event
that results in, the dissolution, liquidation, winding-up or
termination of such Person. "
Affiliate " when used in reference to any Person,
shall mean any Person that, directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common
control with the Person in question. For purposes of this
definition, "control" (including, with correlative meaning, the
terms "controlled by" and "under common control with"), as used
with respect to a Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of
management policies of such Person, whether through ownership of
voting securities, by contract or otherwise. With respect to
Seller, the term Affiliate shall not include the Buyer or
Buyer’s Affiliates. "
Applicable Law(s) " when used in the singular, shall
mean any applicable federal, state, local or foreign law,
ordinance, order, regulation, rule or requirement of any
governmental or quasi-governmental agency, instrumentality, board,
commission, bureau or other authority having jurisdiction, and,
when used in the plural, shall mean all such applicable federal,
state, local and foreign laws, ordinances, orders, regulations,
rules and requirements. "
Applicable UCC " shall mean the Uniform Commercial
Code, as enacted in the State of New York, as amended through the
date hereof. " Buyer "
shall have the meaning given to it in the preamble of this
Agreement. " Closing
Date " means the date of this Agreement.
" Collateral " has the
meaning ascribed to it in the Intellectual Property Security
Agreement. " Company
Constituent Documents " shall mean the certificate of
incorporation, bylaws and all other constituent documents of Seller
and all amendments and supplements to any of the foregoing.
" Disclosure Schedule "
shall have the meaning given to it in Article 3 .
" Event of Default "
shall mean any of the events specified in Article 7 .
" Filed Company SEC
Documents " has the meaning ascribed to it in the Merger
Agreement. " Financials
" shall mean audited financial statements summarizing the financial
condition and results of operation of Seller for the Fiscal Year
2007 provided to the Buyer by Seller.
" Fiscal Year " shall
mean in any calendar year, the annual period ending on the
December 31 of such calendar year.
2.
" GAAP " shall mean
United States generally accepted accounting principles,
consistently applied, for the period or periods in question.
" Governmental
Authority(ies) " when used in the singular, shall mean any
federal, state, local or foreign governmental or quasi-governmental
instrumentality, agency, board, commission or department or any
regulatory agency, bureau, commission or authority and, when used
in the plural, shall mean all such entities.
" Indebtedness " of a
Person at a particular date shall mean all, without duplication,
other than current liabilities incurred in the ordinary course of
business: (a) all indebtedness of such Person for borrowed
money, (b) the deferred purchase price of assets or services
which in accordance with GAAP would be shown on the liability side
of the balance sheet of such Person, liabilities for accumulated
post-retirement benefit obligations and liabilities for deferred
compensation, (c) the face amount of all letters of credit
issued for the account of such Person and, without duplication, all
drafts drawn and unpaid thereunder, (d) all Indebtedness of a
second Person secured by any lien or security interest on any
property owned by such first Person, whether or not such
Indebtedness has been assumed by such first Person, (e) all
capitalized lease obligations of such person, (f) all
obligations of such Person under interest rate agreements (i.e.,
swaps, caps, collars, futures, options), and (g) all
guaranties or other contingent obligations of such Person and
(i) the Obligations. "
Indemnified Parties " shall mean the Buyer and its
officers, directors, partners, employees, agents and controlling
persons. " Intellectual
Property " shall mean, collectively, all of Seller’s
now owned and hereafter acquired intellectual property, including,
without limitation the following: (a) all patents (including
all rights corresponding thereto throughout the world, and all
improvements thereon); (b) all trademarks (including service
marks, trade names and trade secrets, and all goodwill associated
therewith); (c) all copyrights (including all renewals,
extensions and continuations thereof); (d) all applications
for patents, trademarks or copyrights and all applications
otherwise relating in any way to the subject matter of such
patents, copyrights and trademarks; (e) all patents,
copyrights, trademarks or applications therefor arising after the
date of this Agreement; (f) all reissues, continuations,
continuations-in-part and divisions of the property described in
the preceding clauses (a), (b), (c), (d) and (e), including,
without limitation, any claims by Seller against third parties for
infringement thereof; and (g) all rights to sue for past,
present and future infringements or violations of any such patents,
trademarks and copyrights. "
Intellectual Property Security Agreement " shall mean
an Intellectual Property Security Agreement in the form attached
hereto as Exhibit 2.2.1 .
" Interim Financials "
shall mean the preliminary, unaudited financial statements
summarizing the financial results of operation of Seller for each
of the two quarterly periods ended March 31, 2008 and
June 30, 2008, respectively. "
Investment " shall mean the purchase of the Note by
the Buyer from Seller on the Closing Date.
3.
" Investment
Documents " shall mean, collectively, this Agreement, the
Note, the Intellectual Property Security Agreement and all other
instruments and documents executed and delivered in connection with
the Investment. " Knowledge of
the Seller " or " Seller’s knowledge "
or words of similar effect, when used in reference to the Seller
means the following: an individual will be deemed to have "
Knowledge " of a particular fact or other matter if
(a) such individual is actually aware of such fact or other
matter; or (b) a prudent individual should have discovered or
otherwise become aware of such fact or matter in the course of
performing his or her duties as a director, member, manager,
employee or officer of a Person. A Person (other than an
individual) will be deemed to have " Knowledge " of a
particular fact or other matter if the Seller’s Chief
Executive Officer, Chief Financial Officer or other "executive
officers" (as such term is defined under Rule 3b-7 of the
Exchange Act. has, or at any time had, Knowledge of such fact or
other matter. " License
Agreement " shall mean that certain AvalonRx® License
Agreement between the Buyer and Seller, dated on or about the date
hereof, as amended. "
Lien " shall mean, with respect to any asset,
(a) any mortgage, deed of trust, lien, pledge, encumbrance,
charge or security interest in or on such asset, (b) the
interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as
any of the foregoing) relating to such asset and (c) in the
case of securities, any purchase option, call or similar right of a
third party with respect to such securities.
" Material Adverse
Change " shall have the meaning given to the term "Company
Material Adverse Effect" in the Merger Agreement and shall also
include (i) any material impairment in the perfection or
priority of Buyer’s Lien in the Collateral or in the value of
such Collateral or (ii) a material impairment of the prospect of
repayment of any portion of the Obligations.
" Merger Agreement "
shall mean that certain Agreement and Plan of Merger and
Reorganization among the Buyer, the Seller and API Acquisition Sub
II, LLC, dated on or about the date hereof, as amended.
" 1940 Act " shall mean
the Investment Company Act of 1940, as amended.
" Note " shall have the
meaning given to it in Section 2.1 .
" Obligations " shall
mean, collectively, all of Seller’s indebtedness, liabilities
and obligations arising under this Agreement, the Note, the License
Agreement, each of the other Investment Documents and any other
agreements entered into by Seller and Buyer, and any renewals,
modifications and extensions thereof, including, but not limited
to, the principal, interest, late charges and other sums due and
owing under this Agreement, the Note, the License Agreement, the
other Investment Documents and any other agreements entered into by
Seller and Buyer, including without limitation, such other or
additional financing that the Buyer may extend to Seller at any
time in the Buyer’s sole discretion.
4.
" Person " shall
mean any individual, corporation, partnership, joint venture,
limited liability company, unincorporated association, trust or
other legal entity. "
Reimbursing Party " shall mean Seller and its
successors and assigns. "
Securities Act " shall mean the Securities Act of
1933, as amended. "
Seller " shall have the meaning given to it in the
preamble of this Agreement. "
Subsidiary " shall mean any Person of which Seller or
any specified Person now or hereafter shall at any time own
directly or indirectly through a Subsidiary at least a majority of
the outstanding capital stock (or other shares or units of
beneficial interest) entitled to vote generally.
" Taxes " means any
present or future income, excise, stamp or franchise taxes and
other taxes, assessments, imposts, duties, deductions, fees,
withholdings or similar charges, and all liabilities with respect
thereto of any nature whatsoever imposed by any taxing authority,
including, without limitation, penalties and interest associated
therewith. " Transfer "
shall mean the sale, assignment, lease, transfer, mortgaging,
encumbering or other disposition, whether voluntary or involuntary,
and whether or not consideration is received therefor.
" UCC Financing
Statement " shall mean the UCC-1 Financing Statements in
form and substance acceptable to the Buyer to be filed in each
jurisdiction in which Buyer deems, as attached hereto as Exhibit
2.2.3 . Terms used herein
which are defined in the Applicable UCC and not otherwise defined
herein shall have the respective meanings ascribed to such terms in
the Applicable UCC. To the extent the definition of any category or
type of collateral is modified by any amendment, modification or
revision to the Applicable UCC, such modified definition will apply
automatically as of the date of such amendment, modification or
revision. 2. TERMS OF NOTE
PURCHASE; APPLICATION OF PAYMENTS
2.1
Investment . At Closing, Seller shall issue to the Buyer a term
note in the principal amount of Three Million Dollars ($3,000,000)
in the form attached hereto as Exhibit 2.1 (the "
Note "). Amounts due under the Note shall be repaid
according to the terms of the Note and this Agreement. Payments
received by the Buyer in respect of the Obligations shall be
allocated in the manner set forth in Section 2.5 .
2.2
Collateral . Repayment of the Note and other Obligations shall
be secured by liens on, and security interests in, all of the
Collateral. To evidence and create the above-described liens and
security interests, Seller shall execute and deliver, or cause to
be executed and delivered, to the Buyer at Closing the following
documents and such additional documents as the Buyer or its counsel
may reasonably deem to be necessary or appropriate:
5.
2.2.1 Intellectual Property Security Agreement . The
Intellectual Property Security Agreement.
2.2.2 UCC . The UCC Financing Statement.
2.3
Attorney-in-Fact . Seller hereby appoints the Buyer as its
attorney-in-fact, in the name of Seller and on its behalf, for the
sole purpose of signing financing statements, continuation
statements or other recordable documents reasonably necessary to
provide notice of the security interest granted herein in the
applicable public records. This power is coupled with an interest
and is irrevocable so long as any Obligations remain outstanding.
This appointment may be discharged by any officer or attorney of
such attorney-in-fact.
2.4
Conditions Precedent to the Buyer’s Obligations . The
obligation of the Buyer to make the Investment is subject to the
satisfaction of the following conditions precedent at or prior to
the Closing Date (unless waived in writing by the Buyer prior to
Closing):
2.4.1 Closing Bring Down . Each of the representations and
warranties contained in this Agreement must be true and accurate in
all material respects as of the Closing Date, and Seller must have
performed all of its obligations hereunder, including execution and
delivery of all of the documents, instruments, opinions and
certificates required by this Agreement in such forms as are
satisfactory to the Buyer and its counsel.
2.4.2 Deliveries . The Buyer shall have received each of the
following items:
2.4.2.1 This Agreement, duly executed by Seller;
2.4.2.2 The Note, duly executed by Seller;
2.4.2.3 The Intellectual Property Security Agreement, duly
executed by Seller;
2.4.2.4 The License Agreement, duly executed by all the
respective parties thereto;
2.4.2.5 The Merger Agreement and related documents and
agreements, all duly executed by the respective parties thereto;
2.4.2.6 An opinion of counsel for Seller in form and
substance reasonably satisfactory to counsel for Buyer;
2.4.2.7 Good standing certificates for Seller in its
jurisdiction of incorporation and in each jurisdiction in which it
qualifies to do business as a foreign corporation; and
2.4.2.8 A certificate signed by the Secretary of Seller
certifying the organizational documents of Seller, the resolutions
adopted by Seller’s board of directors
6.
authorizing the transactions contemplated hereby and the
incumbency of certain officers authorized to sign the Investment
Documents; and
2.4.2.9 Such other documents and certificates that Buyer may
reasonably require for purposes of effecting the transactions
contemplated by the Investment Documents.
2.5
Application of Payments . When no Event of Default has occurred
and is continuing, payments received by the Buyer in respect of the
Obligations shall be applied first to costs and fees then due and
owing, then to scheduled payments of interest then due and owing,
then to the outstanding principal balance of the Obligations, and
last to any remaining Obligations. Any payments received by the
Buyer in respect of the Obligations following the occurrence and
during the continuance of an Event of Default shall be applied to
the Obligations in the manner and in such order as the Buyer shall
elect in its sole discretion.
3. REPRESENTATIONS AND WARRANTIES
Seller represents, warrants and
covenants to the Buyer that, except as disclosed in a schedule (the
" Disclosure Schedule ") of the Disclosure Schedule
or in the Filed Company SEC Documents, the following matters in
this Article 3 are true, accurate and complete. The
Disclosure Schedule is arranged in sections corresponding to the
numbered sections contained in this Article 3 , and a
disclosure in any such section of the Disclosure Schedule shall
qualify the corresponding section in this Article 3 ,
provided, however, that any matter disclosed in one section shall
also be deemed to constitute an exception to other sections of
Article 3 so long as a cross-reference to such other
sections is included.
3.1
Organization; Good-Standing; Locations . Seller is a
corporation duly formed, validly existing and in good standing in
the jurisdiction of its incorporation. All of the Company
Constituent Documents are in full force and effect as of the date
hereof.
3.2
Qualification . Seller is duly qualified to conduct business as
it is currently being conducted and is in good standing in all
jurisdictions in which the nature of its business or location of
its owned and leased property and assets requires such
qualification , except such jurisdictions, if any, where the
failure to be so qualified would not result in a Material Adverse
Change.
3.3
Power and Authority . Seller has full power and authority to
enter into this Agreement and each of the other Investment
Documents, to incur the Obligations as contemplated hereby and to
carry out the provisions of this Agreement and each of the other
Investment Documents. Seller has taken all action necessary for the
execution and delivery of this Agreement and each of the other
Investment Documents and for the performance by Seller of each of
its obligations hereunder and thereunder.
3.4
Enforceability . Upon execution and delivery by each of the
parties thereto, this Agreement and each of the other Investment
Documents shall be the legal, valid and binding obligations of
Seller and shall be enforceable against Seller in accordance with
their respective terms.
7.
3.5 Orders; Decrees; Judgments . There are no outstanding
orders, judgments, writs, injunctions or decrees of any court,
Governmental Authority or arbitration or mediation panel or
tribunal against or affecting Seller or any of the Collateral.
3.6
Non-Contravention . Seller is not in breach of, default under,
or in violation of: (a) any Applicable Law, decree or order that
may materially and adversely affect any of them; or (b) any deed,
lease, loan agreement, commitment, bond, note, deed of trust,
restrictive covenant, license, indenture, contract or other
agreement, instrument or obligation to which Seller is a party or
by which Seller is bound or to which any of Seller’s assets
(including, but not limited to, the Collateral) are subject.
Neither the execution and delivery of this Agreement and the
Investment Documents nor the performance by Seller of its
obligations hereunder and thereunder will cause any such breach,
default or violation or will require the consent or approval of any
court or Governmental Authority.
3.7
Title . Seller has good, complete, indefeasible and marketable
title to, and ownership of, all of the Collateral free and clear of
all liens, defects, claims, security interests and encumbrances.
3.8
Taxes .
3.8.1 Generally . Seller has paid all Taxes due and owing by
Seller or relating to the business or assets for Seller or, in the
case of current Taxes not yet due or payable, Seller has reserved
for such Taxes in Seller’s financial statements.
3.8.2 No Open Returns . Except as set forth on Schedule
3.8.2 , no federal, state, local, foreign or other Tax
returns of Seller, for tax years that remain open under any
applicable statute of limitations have been examined by the
Internal Revenue Service or other Tax authorities and no
deficiencies have been asserted or assessments made as a result of
examinations (including all penalties and interest); there are no
waivers, agreements or other arrangements providing for any
extension of time with respect to the assessment or collection of
any unpaid Tax, interest or penalties relating to Seller; no issues
have been raised by (or are currently pending before) the Internal
Revenue Service or any other taxing authority in connection with
any of the Tax returns which could reasonably be expected to have a
material adverse effect on the financial condition of the Seller,
if decided adversely to Seller, nor are there any such issues with
respect to Seller which have not been so raised but if so raised by
the Internal Revenue Service or any other taxing authority in
connection with any of the Tax returns could, in the aggregate,
reasonably be expected to have such a material adverse effect.
3.9
Financial Condition .
3.9.1 Financials . The Financials fairly present the
business’ operating income and financial condition at such
dates and for the periods then ended; and
3.9.2 Interim Financials . The Interim Financials fairly
present Seller’s operating income and financial condition (as
applicable) at such date and for the period then ended, subject to
normal year-end adjustments and the absence of footnotes.
8.
3.10 Solvency . As of the date hereof, giving effect to the
transactions contemplated by this Agreement, the present fair
saleable value of Seller’s assets is greater than the amount
required to pay Seller’s total Indebtedness (contingent or
otherwise), and is greater than the amount that will be required to
pay such Indebtedness as it matures and as it becomes absolute and
matured. The transactions contemplated hereby were effectuated
without actual intent to hinder, delay or defraud present or future
creditors of Seller; it is Seller’s express intention that it
will maintain a solvent financial condition, giving effect to the
Obligations incurred hereunder, as long as any of the Obligations
remain outstanding or Seller is obligated to the Buyer in any other
manner whatsoever. Seller has sufficient capital to carry on its
business and transactions as now conducted and as planned to be
conducted in the future.
3.11 No Untrue Statements or Material Omissions . To the
Knowledge of Seller, no statement in writing furnished by Seller to
Buyer in connection with the Investment or the transactions
contemplated herein contains any untrue statement of material fact
or omits to state a material fact necessary to make the statement
not misleading provided that Buyer acknowledges that forecasts and
projections are not statements of fact and actual results may vary.
3.12 [Reserved]
3.13 No Material Change . Since September 30, 2008,
Seller has not, nor, to the Knowledge of Seller, has Seller:
(a) suffered any Material Adverse Change; (b) entered
into any material transactions or incurred any debt, obligation or
liability (whether liquidated or unliquidated, mature or not yet
mature, absolute or contingent, secured or unsecured) other than
the Obligations and obligations and liabilities arising in the
ordinary course of Seller’s business; (c) sustained any
material loss or damage to its property or
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