AVALON PHARMACEUTICALS INC
EX-10.7
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<TYPE>EX-10.7
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<FILENAME>w71327exv10w7.htm
<DESCRIPTION>EX-10.7
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<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;10.7
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>INTELLECTUAL PROPERTY SECURITY AGREEMENT</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>This Intellectual Property Security Agreement </B></FONT>dated as of October&nbsp;27, 2008 (&#147;<B><I>Security
Agreement</I></B>&#148;), is made by <FONT style="font-variant: SMALL-CAPS"><B>Avalon Pharmaceuticals, Inc.</B></FONT>, a Delaware corporation (&#147;<B><I>Grantor</I></B>&#148;),
in favor of <FONT style="font-variant: SMALL-CAPS"><B>Clinical Data, Inc.</B></FONT> (&#147;<B><I>Secured Party</I></B>&#148;).
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Recitals</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A.&nbsp;</B>Secured Party has made or has agreed to make certain advances of money and to extend
certain financial accommodations to Grantor pursuant to that certain Note Purchase Agreement dated
of even date herewith between Grantor and Secured Party (as the same may be amended, the &#147;<B><I>Note
Purchase Agreement</I></B>&#148;) and as evidenced by that certain Term Note dated of even date herewith
executed by Grantor in favor of Secured Party and such other promissory notes which may be executed
by Grantor in favor of Secured Party after the date hereof (as each may be amended, individually,
the &#147;<B><I>Note</I></B>&#148; and, collectively, the &#147;<B><I>Notes</I></B>&#148;), such advances, future advances, and financial
accommodations being referred to herein as the &#147;<B><I>Loans</I></B>&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B.&nbsp;</B>Secured Party is willing to make the Loans to Grantor, but only upon the condition, among
others, that Grantor shall have executed and delivered to Secured Party this Security Agreement.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><FONT style="font-variant: SMALL-CAPS"><B>Agreement</B></FONT>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>Now, Therefore</B></FONT>, in order to induce Secured Party to make the Loans and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and
intending to be legally bound, Grantor hereby represents, warrants, covenants and agrees as
follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Defined Terms</B></FONT>. Terms used but not otherwise defined herein shall have the
meanings given to them in the Note Purchase Agreement. When used in this Security Agreement the
following terms shall have the following meanings (such meanings being equally applicable to both
the singular and plural forms of the terms defined):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>AvalonRx&#174; Technology</I></B>&#148; shall have the meaning given such term in the License Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Bankruptcy Code</I></B>&#148; means Title XI of the United States Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Collateral</I></B>&#148; shall have the meaning assigned to such term in <B>Section&nbsp;2 </B>of this Security
Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Contracts</I></B>&#148; means all contracts (including any customer, vendor, supplier, service or
maintenance contract), leases, licenses, undertakings, purchase orders, permits, franchise
agreements or other agreements, whether in written or electronic form, in or under which Grantor
now holds or hereafter acquires any right, title or interest, including, without limitation, with
respect to an account receivable, any agreement relating to the terms of payment or the terms of
performance thereof.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Copyright License</I></B>&#148; means any agreement, whether in written or electronic form, in which
Grantor now holds or hereafter acquires any interest, granting any right in or to any Copyright or
Copyright registration (whether Grantor is the licensee or the licensor thereunder) including,
without limitation, licenses pursuant to which Grantor has obtained the exclusive right to use a
copyright owned by a third party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Copyrights</I></B>&#148; means all of the following now owned or hereafter acquired or created (as a work
for hire for the benefit of Grantor) by Grantor or in which Grantor now holds or hereafter acquires
or receives any right or interest, in whole or in part: (a)&nbsp;all copyrights, whether registered or
unregistered, held pursuant to the laws of the United States, any State thereof or any other
country; (b)&nbsp;registrations, applications, recordings and proceedings in the United States Copyright
Office or in any similar office or agency of the United States, any State thereof or any other
country; (c)&nbsp;any continuations, renewals or extensions thereof; (d)&nbsp;any registrations to be issued
in any pending applications, and shall include any right or interest in and to work protectable by
any of the foregoing which are presently or in the future owned, created or authorized (as a work
for hire for the benefit of Grantor) or acquired by Grantor, in whole or in part; (e)&nbsp;prior
versions of works covered by copyright and all works based upon, derived from or incorporating such
works; (f)&nbsp;income, royalties, damages, claims and payments now and hereafter due and/or payable
with respect to copyrights, including, without limitation, damages, claims and recoveries for past,
present or future infringement; (g)&nbsp;rights to sue for past, present and future infringements of any
copyright; and (h)&nbsp;any other rights corresponding to any of the foregoing rights throughout the
world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Event of Default</I></B>&#148; means any &#147;Event of Default&#148; as defined in the Note Purchase Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>General Intangible</I></B>&#148; means and includes any &#147;<I>general intangible,</I>&#148; as such term is defined in
Article&nbsp;9 of the UCC, now owned or hereafter acquired or received by Grantor or in which Grantor
now holds or hereafter acquires or receives any right or interest, and shall include, in any event,
any Contract (including any License), Copyright, Trademark, Patent or other Intellectual Property,
Payment Intangible, books and records, ledger card, file, correspondence, computer program, tape,
disk and related data processing software that at any time evidences or contains information
relating to any of the Collateral, permit, goodwill (including the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark License), insurance
policy or any claim in or under any policy of insurance (including unearned premiums), <I>chose in
action</I>, judgment taken or any rights or claims included in the Collateral, any right to sue for
past, present and future infringement of any Copyright, Trademark, Patent, any right to any tax
refund of any kind from any governmental authority, any right to receive the proceeds of any
indemnity, warranty (including any manufacturer&#146;s warranty) or guaranty (including any performance
guaranty) in favor of Grantor, any claim of Grantor arising out of any breach or default under any
Contract (including any License) or claim for damages arising out of such breach or default and any
right of Grantor to terminate, amend, supplement, modify or exercise rights, options or remedies
under any Contract (including any License).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Intellectual Property</I></B>&#148; means any intellectual property, in any medium, of any kind or nature
whatsoever, now or hereafter owned or acquired or received by Grantor or in which
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Grantor now holds or hereafter acquires or receives any right or interest, and shall include,
in any event, any Copyright, Trademark, Patent, trade secret, customer list, marketing plan,
internet domain name (including any right related to the registration thereof), proprietary or
confidential information, mask work, source, object or other programming code, invention (whether
or not patented or patentable), technical information, procedure, design, knowledge, know-how,
software, data base, data, skill, expertise, recipe, experience, process, model, drawing, material
or record.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>License</I></B>&#148; means any Copyright License, Patent License, Trademark License or other license of
rights or interests, whether in-bound or out-bound, whether in written or electronic form, now or
hereafter owned or acquired or received by Grantor or in which Grantor now holds or hereafter
acquires or receives any right or interest, and shall include any renewals or extensions of any of
the foregoing thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>License Agreement</I></B>&#148; shall mean that certain AvalonRx<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> License Agreement between the Buyer and
Seller, dated on or about the date hereof, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Lien</I></B>&#148; means any mortgage, lien, deed of trust, charge, pledge, security interest or other
encumbrance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Patent License</I></B>&#148; means any agreement, whether in written or electronic form, in which Grantor
now holds or hereafter acquires any interest, granting any right with respect to any invention on
which a Patent is in existence (whether Grantor is the licensee or the licensor thereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Patents</I></B>&#148; means all of the following in which Grantor now holds or hereafter acquires any
interest: (a)&nbsp;all letters patent of the United States or any other country, all registrations and
recordings thereof and all applications for letters patent of the United States or any other
country, including, without limitation, registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country; (b)&nbsp;all reissues, divisions, continuations, renewals,
continuations-in-part or extensions thereof; (c)&nbsp;all petty patents, divisionals and patents of
addition; (d)&nbsp;all patents to issue in any such applications; (e)&nbsp;income, royalties, damages, claims
and payments now and hereafter due and/or payable with respect to patents, including, without
limitation, damages, claims and recoveries for past, present or future infringement; and (f)&nbsp;rights
to sue for past, present and future infringements of any patent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Payment Intangibles</I></B>&#148; means and includes any &#147;<I>payment intangible</I>&#148; as such term is defined in
Article&nbsp;9 of the UCC, now or hereafter owned or acquired or received by Grantor or in which Grantor
now holds or hereafter acquires or receives any right or interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Proceeds</I></B>&#148; means and includes any &#147;<I>proceeds,</I>&#148; as such term is defined in Article&nbsp;9 of the UCC,
now or hereafter owned or acquired or received by Grantor or in which Grantor now holds or
hereafter acquires or receives any right or interest
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Secured Obligations</I></B>&#148; means the Obligations (as such term is defined in the Note Purchase
Agreement).
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Security Agreement</I></B>&#148; means this Security Agreement and all Schedules hereto, as the same may
from time to time be amended, modified, supplemented or restated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Trademark License</I></B>&#148; means any agreement, whether in written or electronic form, in which
Grantor now holds or hereafter acquires any interest, granting any right in and to any Trademark or
Trademark registration (whether Grantor is the licensee or the licensor thereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>Trademarks</I></B>&#148; means any of the following in which Grantor now holds or hereafter acquires any
interest: (a)&nbsp;any trademarks, tradenames, corporate names, company names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and labels on which any
of the foregoing have appeared or appear, designs and general intangibles of like nature, now
existing or hereafter adopted or acquired, all registrations and recordings thereof and any
applications in connection therewith, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country (collectively, the &#147;<B><I>Marks</I></B>&#148;); (b)&nbsp;any
reissues, extensions or renewals thereof; (c)&nbsp;the goodwill of the business symbolized by or
associated with the Marks; (d)&nbsp;income, royalties, damages, claims and payments now and hereafter
due and/or payable with respect to the Marks, including, without limitation, damages, claims and
recoveries for past, present or future infringement; and (e)&nbsp;rights to sue for past, present and
future infringements of the Marks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<B><I>UCC</I></B>&#148; means the Uniform Commercial Code as the same may from time to time be in effect in the
State of New York (and each reference in this Security Agreement to an Article thereof (denoted as
a Division of the UCC as adopted and in effect in the State of New York) shall refer to that
Article (or Division, as applicable) as from time to time in effect; <I>provided, however, </I>in the
event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or
priority of Secured Party&#146;s security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York, the term &#147;<I>UCC</I>&#148;
shall mean the Uniform Commercial Code (including the Articles thereof) as in effect at such time
in such other jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such provisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Grant of Security Interest</B></FONT>. As collateral security for the full, prompt,
complete and final payment and performance when due (whether at stated maturity, by acceleration or
otherwise) of all the Secured Obligations and in order to induce Secured Party to cause the Loans
to be made, Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to
Secured Party, and hereby grants to Secured Party, a security interest in all of Grantor&#146;s right,
title and interest in, to and under the following, whether now owned or hereafter acquired (all of
which being collectively referred to herein as the &#147;<B><I>Collateral</I></B>&#148;):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>the AvalonRx&#174; Technology;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>All Intellectual Property of Grantor, including without limitation, in respect of the
AvalonRx<SUP style="font-size: 85%; vertical-align: text-top">&#174;</SUP> Technology, and General Intangibles related to all Intellectual Property of Grantor;
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;</B>All Contracts of Grantor in respect of the AvalonRx&#174; Technology;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;</B>To the extent not otherwise included, all books and records of Grantor with respect to
each of the foregoing, all Proceeds of each of the foregoing and all accessions to, substitutions
and replacements for and rents, profits and products of each of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding anything to the contrary set for in this Security Agreement, &#147;Collateral&#148;
shall not include any asset, now owned or hereafter acquired or arising, to the extent that the
creation or attachment of a security interest in such asset would require the consent of any third
party under a Contract to which the Grantor is a party in order for the Grantor to avoid a breach
of or default under the Contract if the requirement of consent under the Contract for the creation
or attachment of the security interest is enforceable under applicable law and such consent has not
be obtained, <U>provided</U>, <U>however</U>, that the &#147;Collateral&#148; shall include and the
security interests hereunder shall immediately attach to any Contract upon receipt of any required
consent or amendment to such Contract modifies such Contract to eliminate the requirement for any
required consent.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Rights Of Secured Party</B></FONT>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>Notwithstanding anything contained in this Security Agreement to the contrary, Grantor
expressly agrees that it shall remain liable under each of its Contracts and Licenses to observe
and perform all the conditions and obligations to be observed and performed by it thereunder and
that it shall perform all of its duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract and License. Secured Party shall not
have any obligation or liability under any such Contract or License by reason of or arising out of
this Security Agreement or the granting to Secured Party of a lien therein or the receipt by
Secured Party of any payment relating to any such Contract or License pursuant hereto, nor shall
Secured Party be required or obligated in any manner to perform or fulfill any of the obligations
of Grantor under or pursuant to any such Contract or License, or to make any payment, or to make
any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any such Contract or License, or to present or file any claim,
or to take any action to collect or enforce any performance or the payment of any amounts which may
have been assigned to it or to which it may be entitled at any time or times.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>Secured Party may at any time, upon the occurrence and during the continuance of any Event
of Default, without notifying Grantor of its intention to do so, notify parties to the Contracts of
Grantor which constitute Collateral that the right, title and interest of Grantor in and under such
Contracts have been assigned to Secured Party and that payments shall be made directly to Secured
Party. Upon the occurrence and during the continuance of any Event of Default, upon the request of
Secured Party, Grantor shall so notify such parties to such Contracts. Upon the occurrence and
during the continuance of any Event of Default, Secured Party may, in its name or in the name of
others, communicate with such parties to such Contracts to verify with such parties, to Secured
Party&#146;s satisfaction, the existence, amount and terms of any such Contracts.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Representations And Warranties</B></FONT>. Grantor hereby represents and warrants to Secured
Party that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>Except for the security interest granted to Secured Party under this Security Agreement,
Grantor is the sole legal and equitable owner of each item of the Collateral in which it purports
to grant a security interest hereunder, having good and marketable title thereto, free and clear of
any and all Liens.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>No effective security agreement, financing statement, equivalent security or lien
instrument or continuation statement covering all or any part of the Collateral exists, except such
as may have been filed by Grantor in favor of Secured Party pursuant to this Security Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;</B>This Security Agreement creates a legal and valid security interest on and in all of the
Collateral in which Grantor now has rights and will create a legal and valid security interest in
the Collateral in which Grantor later acquires rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;</B>Grantor&#146;s taxpayer identification number is set forth in the signature page hereof. If
Grantor is a corporation, limited liability company, limited partnership, corporate trust or other
registered organization, the State (or if not a state, the other jurisdiction) under whose law such
registered organization was organized is set forth on the signature page hereof. Grantor&#146;s chief
executive office, principal place of business, and the place where Grantor maintains its records
concerning the Collateral are presently located at the address set forth on the signature page
hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;</B>All Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks and Trademark
Licenses comprising the Collateral now owned, held or in which Grantor otherwise has any interest
are listed on <B>Schedule&nbsp;A </B>attached hereto. Grantor shall amend <B>Schedule&nbsp;A </B>from time to time in
accordance with <B>Section&nbsp;5.8 </B>below to reflect any additions to or deletions from this list. Except
as set forth on <B>Schedule&nbsp;A</B>, none of the Patents, Trademarks or Copyrights have been licensed to any
third party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Covenants</B></FONT>. Grantor covenants and agrees with Secured Party that from and after
the date of this Security Agreement and until the Secured Obligations have been performed and paid
in full and any commitment of Secured Party to make Loans to Grantor has expired or terminated:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.1 Disposition of Collateral</B>. Grantor shall not sell, lease, transfer or otherwise dispose
of any of the Collateral, or attempt or contract to do so.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.2 Change of Jurisdiction of Organization, Relocation of Business or Collateral</B>. Grantor
shall not change its jurisdiction of organization, relocate its chief executive office, principal
place of business or its records, or allow the relocation of any Collateral from such address(es)
provided to Secured Party pursuant to <B>Section&nbsp;</B><B>4(d)</B> above without fifteen (15)&nbsp;days prior written
notice to Secured Party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.3 Limitation on Liens on Collateral</B>. Grantor shall not, directly or indirectly, create,
permit or suffer to exist, and shall defend the Collateral against and take such
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">other action as is necessary to remove, any Lien on the Collateral, except the Lien granted to
Secured Party under this Security Agreement. Grantor shall further defend the right, title and
interest of Secured Party in and to any of Grantor&#146;s rights under the Collateral against the claims
and demands of all persons whomsoever.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.4 &#091;Reserved&#093;</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.5 Taxes, Assessments, Etc</B>. Grantor shall pay promptly when due all property and other
taxes, assessments and government charges or levies imposed upon Grantor, except to the extent the
validity thereof is being contested in good faith and adequate reserves are being maintained in
connection therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.6 Maintenance of Records</B>. Grantor shall keep and maintain at its own cost and expense
satisfactory and complete records of the Collateral.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.7 Registration of Intellectual Property Rights</B>. Subject to Grantor&#146;s reasonable business
judgment, (i)&nbsp;Grantor shall promptly register or cause to be registered (to the extent not already
registered) the most recent version of any Copyright, Copyright License, Patent, Patent License,
Trademark or Trademark License constituting the Collateral, with the United States Copyright Office
or Patent and Trademark Office, as applicable, including, without limitation, in all such cases the
filing of applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings and (ii)&nbsp;Grantor shall register or cause
to be registered with the United States Copyright Office or Patent and Trademark Office, as
applicable, those additional rights and interests developed or acquired by Grantor in respect of
the AvalonRx&#174; Technology after the date of this Security Agreement, including, without limitation,
any additions to the rights and interests of Grantor listed on <B>Schedule&nbsp;A </B>hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.8 Notification Regarding Changes in Intellectual Property</B>. Grantor shall:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>promptly advise Secured Party in writing of any subsequent ownership right or interest of
the Grantor in or to any Copyright, Patent, Trademark or License constituting Collateral not
specified on <B>Schedule&nbsp;A </B>hereto, and shall amend or permit Secured Party to amend such Schedule, as
necessary, to reflect any addition or deletion to such ownership rights;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>promptly give Secured Party written notice of any applications or registrations of
intellectual property rights filed with the United States Patent and Trademark Office, including
the date of such filing and the registration or application numbers, if any; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;</B>(i)&nbsp;give Secured Party not less than 30&nbsp;days prior written notice of the filing of any
applications or registrations in respect of the Collateral with the United States Copyright Office,
including the title of such intellectual property rights to be registered, as such title will
appear on such applications or registrations, and the date such applications or registrations will
be filed, and (ii)&nbsp;prior to the filing of any such applications or registrations, shall execute
such documents as Secured Party may reasonably request for Secured Party to maintain its perfection
and priority in such intellectual property rights to be registered by Grantor, and upon the request
of Secured Party, shall file such documents simultaneously with the filing of any such
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">applications or registrations. Upon filing any such applications or registrations with the
United States Copyright Office, Grantor shall promptly provide Secured Party with (x)&nbsp;a copy of
such applications or registrations, without the exhibits, if any, thereto, (y)&nbsp;evidence of the
filing of any documents requested by Secured Party to be filed for Secured Party to maintain the
perfection and priority of its security interest in such intellectual property rights, and (z)&nbsp;the
date of such filing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;</B>Secured Party may audit the Collateral, at reasonable times and upon reasonable notice, to
confirm compliance with <B>Section&nbsp;5.7 </B>and this <B>Section&nbsp;5.8</B>. Secured Party shall have the right, but
not the obligation, to take, at Grantor&#146;s sole expense, any actions that Grantor is required under
this <B>Section&nbsp;5.8 </B>to take but which Grantor fails to take, after five (5)&nbsp;days&#146; notice to Grantor
(provided that no such notice shall be required if an Event of Default has occurred and is
continuing). Grantor shall reimburse and indemnify Secured Party for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under <B>Section&nbsp;5.7 </B>or this
<B>Section&nbsp;5.8</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.9 Defense of Intellectual Property</B>. Grantor shall (a)&nbsp;protect, defend and maintain the
validity and enforceability of its Copyrights, Patents and Trademarks, (b)&nbsp;use its commercially
reasonable efforts to detect infringements of its Copyrights, Patents and Trademarks and promptly
advise Secured Party in writing of material infringements detected and (c)&nbsp;not allow any of its
Copyrights, Patents or Trademarks to be abandoned, forfeited or dedicated to the public without the
prior written consent of Secured Party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.10 Further Assurances</B>. At any time and from time to time, upon the written request of
Secured Party, and at the sole expense of Grantor, Grantor shall promptly and duly execute and
deliver any and all such further instruments and documents and take such further action as Secured
Party may reasonably deem necessary or desirable to obtain the full benefits of this Security
Agreement, including, without limitation, (a)&nbsp;using commercially reasonable efforts to secure all
consents and approvals necessary or appropriate for the grant of a security interest to Secured
Party in any item of Collateral held by Grantor or in which Grantor has any right or interest, (b)
executing, delivering and causing to be filed any financing or continuation statements (including
&#147;in lieu&#148; continuation statements) under the UCC with respect to the security interests granted
hereby, (c)&nbsp;filing or cooperating with Secured Party in filing any forms or other documents
required to be recorded with the United States Patent and Trademark Office, United States Copyright
Office, or any actions, filings, recordings or registrations in any foreign jurisdiction or under
any international treaty, required to secure or protect Secured Party&#146;s interest in the Collateral,
(d)&nbsp;transferring the Collateral to Secured Party&#146;s possession (if a security interest in such
Collateral can be perfected only by possession), and (e)&nbsp;at Secured Party&#146;s reasonable request,
executing and delivering or causing to be delivered written notice to insurers of Secured Party&#146;s
security interest in, or claim in or under, any policy of insurance (including unearned premiums).
Any such financing statements, continuation statements or amendments may be signed by Secured Party
on behalf of Grantor and may be filed at any time in any jurisdiction. Grantor hereby authorizes
Secured Party to file any financing or continuation statement (including &#147;in lieu&#148; continuation
statements) without the signature of Grantor.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Secured Party&#146;s Appointment as Attorney-in-Fact; Performance by Secured Party</B></FONT>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>Subject to <B>Section&nbsp;</B><B>6(b)</B> below, Grantor hereby irrevocably constitutes and appoints Secured
Party, and any officer or agent of Secured Party, with full power of substitution, as its true and
lawful attorney-in-fact with full, irrevocable power and authority in the place and stead of
Grantor and in the name of Grantor or in its own name, from time to time at Secured Party&#146;s
discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and
all appropriate action and to execute and deliver any and all documents and instruments which may
be necessary or desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby gives Secured Party the power and right, on behalf
of Grantor, without notice to or assent by Grantor to do the following:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;</B>to ask, demand, collect, receive and give acquittances and receipts for any and all monies
due or to become due under any Collateral and, in the name of Grantor, in its own name or otherwise
to take possession of, endorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of monies due under any Collateral and to file any claim or take or
commence any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by Secured Party for the purpose of collecting any and all such monies due under any
Collateral whenever payable;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(ii)&nbsp;</B>to pay or discharge any Liens, including, without limitation, any tax lien, levied or
placed on or threatened against the Collateral, to effect any repairs or any insurance called for
by the terms of this Security Agreement and to pay all or any part of the premiums therefor and the
costs thereof, which actions shall be for the benefit of Secured Party and not Grantor;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iii)&nbsp;</B>to (1)&nbsp;direct any person liable for any payment under or in respect of any of the
Collateral to make payment of any and all monies due or to become due thereunder directly to
Secured Party or as Secured Party shall direct, (2)&nbsp;receive payment of any and all monies, claims
and other amounts due or to become due at any time arising out of or in respect of any Collateral,
(3)&nbsp;sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in connection with any
Collateral, (4)&nbsp;commence and prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral, (5)&nbsp;defend any suit, action or proceeding brought against
Grantor with respect to any Collateral, (6)&nbsp;settle, compromise or adjust any suit, action or
proceeding described above, and in connection therewith, give such discharges or releases as
Secured Party may deem appropriate, (7)&nbsp;license, or, to the extent permitted by an applicable
License, sublicense, whether general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any Copyright, Patent or Trademark throughout the world for such term or
terms, on such conditions and in such manner as Secured Party shall in its discretion determine and
(8)&nbsp;sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though Secured Party were the absolute owner thereof for all
purposes; and
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(iv)&nbsp;</B>to do, at Secured Party&#146;s option and Grantor&#146;s expense, at any time, or from time to
time, all acts and things which Secured Party may reasonably deem necessary to protect, preserve or
realize upon the Collateral and Secured Party&#146;s security interest therein in order to effect the
intent of this Security Agreement, all as fully and effectively as Grantor might do.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>Secured Party agrees that, except upon the occurrence and during the continuation of an
Event of Default, it shall not exercise the power of attorney or any rights granted to Secured
Party pursuant to this <B>Section&nbsp;6</B>. Grantor hereby ratifies, to the extent permitted by law, all
that said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted pursuant to this <B>Section&nbsp;6 </B>is a power coupled with an interest and shall be irrevocable
until the Secured Obligations are completely and indefeasibly paid and performed in full and
Secured Party no longer has any commitment to make any Loans to Grantor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;</B>If Grantor fails to perform or comply with any of its agreements contained herein and
Secured Party, as provided for by the terms of this Security Agreement, shall perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable expenses, including
reasonable attorneys&#146; fees and costs, of Secured Party incurred in connection with such performance
or compliance, together with interest thereon at a rate of interest equal to the highest per annum
rate of interest charged on the Loans, shall be payable by Grantor to Secured Party within five (5)
business days of demand and shall constitute Secured Obligations secured hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Rights And Remedies Upon Default. </B></FONT>After any Event of Default shall have occurred
and while such Event of Default is continuing:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;</B>Secured Party may exercise in addition to all other rights and remedies granted to it
under this Security Agreement, the Notes or any other agreement between Grantor and Secured Lender,
and under any other instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the UCC. Without limiting the
generality of the foregoing, Grantor expressly agrees that in any such event Secured Party, without
demand of performance or other demand, advertisement or notice of any kind (except the notice
specified below of time and place of public or private sale) to or upon Grantor or any other
person (all and each of which demands, advertisements and notices are hereby expressly waived to
the maximum extent permitted by the UCC and other applicable law), may (i)&nbsp;reclaim, take
possession, recover, store, maintain, finish, repair, prepare for sale or lease, shop, advertise
for sale or lease and sell or lease (in the manner provided herein) the Collateral, and in
connection with the liquidation of the Collateral and collection of the accounts receivable pledged
as Collateral, use any Trademark, Copyright, or process used or owned by Grantor and (ii)
forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase or sell or otherwise
dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sale or sales, at any exchange or broker&#146;s board or at any of Secured
Party&#146;s offices or elsewhere at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. To the extent Grantor has the right to do
so, Grantor authorizes Secured Party, on the terms set forth in this <B>Section&nbsp;7 </B>to enter the
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">premises where the Collateral is located, to take possession of the Collateral, or any part of
it, and to pay, purchase, contact, or compromise any encumbrance, charge, or lien which, in the
opinion of Secured Party, appears to be prior or superior to its security interest. Secured Party
shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free
of any right or equity of redemption, which equity of redemption Grantor hereby releases. Grantor
further agrees, at Secured Party&#146;s request, to assemble the Collateral and make it available to the
Secured Party at places which Secured Party shall reasonably select, whether at Grantor&#146;s premises
or elsewhere. Secured Party shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale as provided in this <B>Section&nbsp;7</B>, and only after so paying
over such net proceeds and after the payment by Secured Party of any other amount required by any
provision of law, need Secured Party account for the surplus, if any, to Grantor. To the maximum
extent permitted by applicable law, Grantor waives all claims, damages, and demands against Secured
Party arising out of the repossession, retention or sale of the Collateral. Grantor agrees that
Secured Party need not give more than ten (10)&nbsp;days&#146; notice of the time and place of any public
sale or of the time after which a private sale may take place and that such notice is reasonable
notification of such matters. Grantor shall remain liable for any deficiency if the proceeds of any
sale or disposition of the Collateral are insufficient to pay all amounts to which Secured Party is
entitled from Grantor, Grantor also being liable for the attorney costs of any attorneys employed
by Secured Party to collect such deficiency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;</B>Grantor agrees that in any sale of any of such Collateral, whether at a foreclosure sale
or otherwise, Secured Party is hereby authorized to comply with any limitation or restriction in
connection with such sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including compliance with such procedures as may restrict the number
of prospective bidders and purchasers, require that such prospective bidders and purchasers have
certain qualifications and restrict such prospective bidders and purchasers to persons who will
represent and agree that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral), or in order to obtain any required approval
of the sale or of the purchaser by any governmental authority, and Grantor further agrees that such
compliance shall not result in such sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall Secured Party be liable nor accountable to Grantor for
any discount allowed by the reason of the fact that such Collateral is sold in compliance with any
such limitation or restriction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;</B>Grantor also agrees to pay all fees, costs and expenses of Secured Party, including,
without limitation, attorneys&#146; fees, incurred in connection with the enforcement of any of its
rights and remedies hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;</B>Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security Agreement or any
Collateral.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;</B>The Proceeds of any sale, disposition or other realization upon all or any part of the
Collateral shall be distributed by Secured Party in the following order of priorities:
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>First</B></FONT>, to Secured Party in an amount sufficient to pay in full the costs of Secured
Party in connection with such sale, disposition or other realization, including all fees, costs,
expenses, liabilities and advances incurred or made by Secured Party in connection therewith,
including, without limitation, attorneys&#146; fees;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>Second</B></FONT>, to Secured Party in an amount equal to the then unpaid Secured Obligations;
and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>Finally</B></FONT>, upon payment in full of the Secured Obligations, to Grantor or its
representatives, in accordance with the UCC or as a court of competent jurisdiction may direct.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Indemnity</B></FONT>. Grantor agrees to defend, indemnify and hold harmless Secured Party
and its officers, employees, and agents against (a)&nbsp;all obligations, demands, claims, and
liabilities claimed or asserted by any other party in connection with the transactions contemplated
by this Security Agreement and (b)&nbsp;all losses or expenses in any way suffered, incurred, or paid by
Secured Party as a result of or in any way arising out of, following or consequential to
transactions between Secured Party and Grantor, whether under this Security Agreement or otherwise
(including without limitation, reasonable attorneys fees and expenses), except for losses arising
from or out of Secured Party&#146;s (or any Secured Party&#146;s officer&#146;s, employee&#146;s or agent&#146;s) gross
negligence or willful misconduct.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>9.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Limitation on Secured Party&#146;s Duty in Respect of Collateral</B></FONT>. Secured Party shall
be deemed to have acted reasonably in the custody, preservation and disposition of any of the
Collateral if it takes such action as Grantor requests in writing except during an Event of
Default, but failure of Secured Party to comply with any such request shall not in itself be deemed
a failure to act reasonably, and no failure of Secured Party to do any act not so requested shall
be deemed a failure to act reasonably.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>10.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Reinstatement</B></FONT>. This Security Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Grantor for liquidation or
reorganization, should Grantor become insolvent or make an assignment for the benefit of creditors
or should a receiver or trustee be appointed for all or any significant part of Grantor&#146;s property
and assets, and shall continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable
law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of
the Secured Obligations, whether as a &#147;voidable preference,&#148; &#147;fraudulent conveyance,&#148; or otherwise,
all as though such payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or
returned.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.&nbsp;</B><FONT style="font-variant: SMALL-CAPS"><B>Miscellaneous</B></FONT>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.1 Waivers; Modifications</B>. None of the terms or provisions of this Security Agreement may
be waived, altered, modified or amended except by an instrument in writing, duly executed by
Grantor and Secured Party.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.2 Termination of this Security Agreement</B>. Subject to <B>Section&nbsp;10 </B>hereof, this Security
Agreement shall terminate upon the payment and performance in full of the Secured Obligations
(other than contingent indemnification or reimbursement Obligations other than those related to
claims, causes of action, or liabilities that have been asserted or threatened).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.3 Successor and Assigns</B>. This Security Agreement and all obligations of Grantor hereunder
shall be binding upon the successors and assigns of Grantor, and shall, together with the rights
and remedies of Secured Party hereunder, inure to the benefit of Secured Party, any future holder
of any of the Secured Obligations and their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other dispositions of any agreement
governing or instrument evidencing the Secured Obligations or any portion thereof or interest
therein shall in any manner affect the lien granted to Secured Party hereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.4 Governing Law</B>. In all respects, including all matters of construction, validity and
performance, this Security Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws, except to the extent that the
UCC provides for the application of the law of a different jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>11.5 Waiver of Jury Trial</B>. GRANTOR AND SECURED PARTY EACH WAIVE THEIR RIGHT TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS SECURITY AGREEMENT, INCLUDING
CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH
PARTIES TO ENTER INTO THIS SECURITY AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS
COUNSEL.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">&#091;<I>Signature pages follow.</I>&#093;
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->13.<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<FONT style="font-variant: SMALL-CAPS"><B>In Witness Whereof</B></FONT>, each of the parties hereto has caused this Intellectual Property
Security Agreement to be executed and delivered by its duly authorized officer on the date first
set forth above.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left"><FONT style="font-variant: SMALL-CAPS"><B><br>Address Of Grantor</B></FONT>
&nbsp;</TD>
    <TD colspan="3" align="left"><BR>
<FONT style="font-variant: SMALL-CAPS"><B>Avalon Pharmaceuticals, Inc.</B></FONT>, as Grantor<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left"><B>20358 Seneca Meadows Parkway<br>
Germantown, MD 20876</B>&nbsp;</TD>
    <TD valign="bottom">By:&nbsp;&nbsp;</TD>
    <TD valign="bottom" colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Kenneth C. Carter
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" valign="top">Printed Name:
Kenneth C. Carter&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;</TD>
    <TD align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>

    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="53%">&nbsp;</TD>
</TR>
<TR>

    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS"><B>Taxpayer Identification Number of Grantor</B></FONT>
<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left"><FONT style="font-variant: SMALL-CAPS"><B>Jurisdiction of Organization of Grantor</B></FONT>&nbsp;</TD>
</TR>
<TR>

    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS"><U><B>52-2209310</B></U></FONT><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left"><FONT style="font-variant: SMALL-CAPS"><B>Delaware</B></FONT>
&nbsp;</TD>
</TR>

<TR>

    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS"><B>Accepted And Acknowledged By:</B></FONT><BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD></TR>
<TR>

    <TD colspan="3" align="left"><FONT style="font-variant: SMALL-CAPS"><B>Clinical Data, Inc.</B></FONT>, as Secured Party<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top" align="left">&nbsp;</TD></TR>
<TR>

    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Caesar J. Belbel
&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>

    <TD>&nbsp;</TD>
    <TD colspan="2" valign="top">Printed Name:
Caesar J. Belbel&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR><TR>

    <TD>&nbsp;</TD>
    <TD valign="top">Title:&nbsp;</TD>
    <TD align="left">Executive Vice President, Chief Legal
Officer and Secretary&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>



<P align="center" style="font-size: 10pt"><!-- Folio -->14.<!-- /Folio -->
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