-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C/mqp45YMc2Z7S8/V55jFZLR9tRv5omQT06U9eeU+vJuGIoAJY8r16l4T/6Wr7Bf Std0a1yZendn3xrmwdxPXQ== /in/edgar/work/20000804/0000950135-00-003781/0000950135-00-003781.txt : 20000921 0000950135-00-003781.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950135-00-003781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000804 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARQULE INC CENTRAL INDEX KEY: 0001019695 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043221586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21429 FILM NUMBER: 686504 BUSINESS ADDRESS: STREET 1: 200 BOSTON AVE CITY: MEDFORD STATE: MA ZIP: 02155 BUSINESS PHONE: 6173954100 MAIL ADDRESS: STREET 1: 200 BOSTON AVE CITY: MEDFORD STATE: MA ZIP: 02155 10-Q 1 e10-q.txt ARQULE, INC. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2000 Commission File No. 000-21429 ARQULE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-3221586 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
19 PRESIDENTIAL WAY, WOBURN, MASSACHUSETTS 01801 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (781) 994-0300 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ Number of shares outstanding of the registrant's Common Stock as of July 26, 2000: Common Stock, par value $.01 13,557,033 shares outstanding - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 ARQULE, INC. QUARTER ENDED JUNE 30, 2000 TABLE OF CONTENTS
PAGE ---- PART I -- FINANCIAL INFORMATION Item 1 -- Unaudited Consolidated Financial Statements Consolidated Balance Sheet June 30, 2000 (Unaudited) and December 31, 1999........ 3 Consolidated Statement of Operations (Unaudited) Three months ended June 30, 2000 and 1999 and six months ended June 30, 2000 and 1999.......... 4 Consolidated Statement of Cash Flows (Unaudited) Six months ended June 30, 2000 and 1999................ 5 Notes to Unaudited Consolidated Financial Statements... 6 Management's Discussion and Analysis of Financial Condition and Results of Operations................... 8 PART II -- OTHER INFORMATION................................ 10 Item 4 -- Submission of Matters to a Vote of Security Holders................................................... 10 Signatures.................................................. 12
2 3 ARQULE, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, 2000 DECEMBER 31, (UNAUDITED) 1999 ----------- ------------ ASSETS Current Assets: Cash and cash equivalents.............................. $ 9,068 $ 4,208 Marketable securities.................................. 24,930 32,213 Accounts receivable.................................... 1,451 2,529 Accounts receivable related party...................... 1,550 1,424 Inventory.............................................. 344 486 Prepaid expenses and other current assets.............. 743 579 ------- ------- Total current assets.............................. 38,086 41,439 Property and equipment, net............................ 31,869 34,093 Non-current marketable securities...................... 5,257 -- Other assets........................................... 1,786 1,814 ------- ------- $76,998 $77,346 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses.................. $ 3,067 $ 5,719 Current portion of capital lease obligations........... 72 316 Current portion of long-term debt...................... 3,500 2,525 Deferred revenue....................................... 15,551 14,375 Deferred revenue related party......................... 101 1,133 ------- ------- Total current liabilities......................... 22,291 24,068 Long-term debt.............................................. 8,950 10,700 Deferred revenue............................................ 2,313 3,825 Stockholders' Equity: Common stock, $0.01 par value; 30,000,000 shares authorized; 13,557,033 and 12,864,225 shares issued and outstanding at June 30, 2000 and December 31, 1999, respectively.................................... 136 129 Additional paid-in capital............................. 79,048 73,167 Deferred compensation.................................. (371) (5) Unrealized loss on marketable securities............... (98) -- Accumulated deficit.................................... (35,271) (34,538) ------- ------- Total stockholders' equity............................. 43,444 38,753 ------- ------- $76,998 $77,346 ======= =======
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 4 ARQULE, INC. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 ------- ------- ------- ------- Revenue: Compound development revenue................... $ 9,543 $ 2,369 $17,233 $ 4,173 Compound development revenue -- related parties...................................... 2,541 2,222 5,239 4,430 ------- ------- ------- ------- Total revenue............................. 12,084 4,591 22,472 8,603 ------- ------- ------- ------- Costs and expenses: Cost of revenue................................ 4,199 2,031 8,201 3,683 Cost of revenue -- related parties............. 1,118 1,888 2,522 3,910 Research and development....................... 4,405 3,156 8,593 6,503 Marketing, general and administrative.......... 2,091 1,494 4,452 2,737 ------- ------- ------- ------- Total costs and expenses.................. 11,813 8,569 23,768 16,833 ------- ------- ------- ------- Income (loss) from operations............. 271 (3,978) (1,296) (8,230) Interest income..................................... 592 404 1,094 828 Interest expense.................................... (254) (20) (531) (158) ------- ------- ------- ------- Net income (loss).............................. $ 609 $(3,594) $ (733) $(7,560) ======= ======= ======= ======= Basic net income (loss) per share................... $ 0.05 $ (0.29) $ (0.05) $ (0.61) ======= ======= ======= ======= Weighted average common shares outstanding -- Basic.............................. 13,520 12,560 13,362 12,438 ======= ======= ======= ======= Diluted net income (loss) per share................. $ 0.04 $ (0.29) $ (0.05) $ (0.61) ======= ======= ======= ======= Weighted average common shares outstanding -- Diluted............................ 14,398 12,560 13,362 12,438 ======= ======= ======= ======= Comprehensive income (loss) Net income (loss).............................. $ 609 $(3,594) $ (733) $(7,560) Unrealized loss on investment securities....... (98) -- -- -- ------- ------- ------- ------- Comprehensive income (loss)......................... $ 511 $(3,594) $ (733) $(7,560) ======= ======= ======= =======
The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 5 ARQULE, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------- 2000 1999 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities: Net loss............................................... $ (733) $ (7,560) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization........................ 3,663 2,801 Amortization of deferred compensation................ 402 192 Decrease in accounts receivable...................... 952 3,148 Decrease (increase) in inventory..................... 142 (30) (Increase) decrease in prepaid expenses and other current assets...................................... (164) 341 Decrease in other assets............................. 28 20 (Decrease) increase in accounts payable and accrued expenses............................................ (2,652) 832 Decrease in deferred revenue......................... (1,368) (1,743) -------- -------- Net cash provided by (used in) operating activities...................................... 270 (1,999) -------- -------- Cash flows from investing activities: Purchases of available-for-sale securities........... (38,527) (30,957) Proceeds from sale or maturity of marketable securities.......................................... 40,455 32,226 Proceeds from tenant improvement allowance........... 2,212 -- Additions to property and equipment.................. (3,651) (7,736) -------- -------- Net cash provided by (used in) investing activities...................................... 489 (6,467) -------- -------- Cash flows from financing activities: Principal payments of capital lease obligation....... (244) (581) Principal payments of long-term debt................. (775) -- Borrowings of long-term debt......................... -- 6,200 Proceeds from issuance of common stock............... 5,120 783 -------- -------- Net cash provided by financing activities......... 4,101 6,402 -------- -------- Net increase (decrease) in cash and cash equivalents......................................... 4,860 (2,064) Cash and cash equivalents, beginning of period....... 4,208 5,780 -------- -------- Cash and cash equivalents, end of period............. $ 9,068 $ 3,716 ======== ========
The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 6 ARQULE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to these rules and regulations. These consolidated financial statements should be read in conjunction with our audited financial statements and footnotes related thereto for the year ended December 31, 1999 included in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2000. The unaudited consolidated financial statements include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly our financial position as of June 30, 2000, and the results of our operations for the three and six month periods ended June 30, 2000 and 1999. The results of operations for such interim periods are not necessarily indicative of the results to be achieved for the full year. 2. NEW ACCOUNTING PRONOUNCEMENTS During April 2000, the Financial Accounting Standards Board issued Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- an Interpretation of Accounting Principles Board ("APB") No. 25". Among other issues, FIN 44 clarifies (a) the definition of an employee, (b) the criteria for determining whether a stock award plan qualifies as non-compensatory, and (c) the accounting consequence of various award modifications. This interpretation became effective July 1, 2000. We evaluated the effects of FIN 44 on our financial position and results of operations and have determined any such effects to be immaterial. During June 2000, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101B, an amendment to SAB 101, "Revenue Recognition in Financial Statements." SAB 101B defers the required implementation of SAB 101 until the fiscal quarter ended December 31, 2000. We are currently evaluating the effects, if any, of SAB 101 on our financial position and results of operations. During June 2000, the Financial Accounting Standards Board issued Financial Accounting Standard ("FAS") No. 138, "Accounting for Certain Derivative Instruments -- An amendment of FAS 133 "Accounting for Derivative Instruments and Hedging Activities". FAS 138 shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. We do not expect this to have a material impact on our financial position and results of operations. 3. MONSANTO COLLABORATION On June 30, 2000, at the request of Monsanto Company (now Pharmacia Corporation), we replaced our existing collaboration agreement with Monsanto with a new collaboration agreement with G.D. Searle & Co., a subsidiary of Pharmacia Corporation. This transaction was completed in connection with the merger between Monsanto and Pharmacia. The scope of the new agreement is substantially unchanged from that of the prior agreement. However, ArQule will now receive all payments due in 2000 and 2001 immediately. Nonetheless, as compound deliveries and most other obligations are unchanged, we will continue to recognize these payments as revenue over the same time period. We also expanded the scope of the agreement to enable Pharmacia Corporation and its affiliates to screen our compounds, which may result in milestone and royalty payments in the future. 4. AMERSHAM PHARMACIA BIOTECH COLLABORATION On July 10, 2000, we terminated our existing Research Collaboration and License Agreement dated August 13, 1998 with Amersham Pharmacia and entered into a new Technology Transfer and License 6 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Agreement with Amersham Pharmacia. Under the new agreement, we will transfer to Amersham Pharmacia certain ArQule technologies to enable them to exploit those technologies in the chromatographic bioseparations field. As a result, we are no longer obligated to perform chemistry services in support of this collaboration. We may in the future receive royalties on products, but at a lower rate than in the prior agreement. We do not anticipate any decrease in revenue or increase in expense for 2000 or 2001 in connection with this collaboration. The change reflects our strategic decision to focus on drug discovery. 7 8 ARQULE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We are engaged in the production and development of novel chemical compounds with commercial potential in the pharmaceutical, biotechnology, bioseparations and agrochemical industries. We primarily manufacture arrays of synthesized compounds for delivery to our customers for use in lead compound generation and lead compound optimization activities. We also offer other research and development services to meet the needs of our customers. In addition, we have established a number of joint drug discovery programs with biotechnology companies and academic institutions, and are pursuing a limited number of our own internal drug discovery programs. We primarily generate revenue through our collaborative agreements for production and delivery of compound arrays and other research and development services. Under most of these collaborative agreements, we are also entitled to receive milestone and royalty payments if the customer develops products resulting from the collaboration. To date, we have received two milestone payments and no royalty payments. In addition, we have not yet realized any significant revenue from our joint discovery programs with biotechnology companies and academic institutions, or from our internal drug discovery programs. Quarterly variations in financial performance may be expected because levels of revenue are dependent on expanding or continuing existing collaborations, entering into additional corporate collaborations, receiving future milestones and royalty payments, and realizing value from ongoing drug discovery programs, all of which are difficult to anticipate. We will continue to invest in technologies that enhance and expand our capabilities in drug discovery. These continued investments in technology are intended to enhance the novelty, diversity, and medical relevance of our compound arrays and to augment the power and scope of our chemistry capabilities. In addition to investments in technology, we may invest in internal lead optimization programs with the goal of delivering clinical candidates. In November 1999, we moved our main operations to a new facility in Woburn, Massachusetts, which includes 128,000 square feet of laboratory and office space. Investments of this nature may result in near term earnings fluctuations or impact the magnitude of profitability or loss. We have incurred a cumulative net loss of $35.3 million through June 30, 2000. Losses have resulted principally from costs incurred in research and development activities related to our efforts to develop our technologies and from the associated administrative costs required to support those efforts. Our ability to achieve profitability is dependent on a number of factors, including our ability to perform under our collaborations at the expected cost, expand or continue existing collaborations, and realize value from the development and commercialization of products in which we have an economic interest, all of which are difficult to anticipate. The Management's Discussion and Analysis of Financial Condition and Results of Operation contains forward-looking statements reflecting management's current expectations regarding our future performance. Such expectations are based on certain assumptions regarding the progress of product development efforts under collaborative agreements, the executions of new collaborative agreements and other factors relating to our growth. Such expectations may not materialize if product development efforts are delayed or suspended, if negotiations with potential collaborators are delayed or unsuccessful or if other assumptions prove incorrect. See also "Important Factors Regarding Forward-Looking Statements" described more fully in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended December 31, 1999. RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 REVENUE. Our revenue for the three months ended June 30, 2000 increased $7.5 million to $12.1 million from $4.6 million for the same period in 1999. Revenue was $22.5 million and $8.6 million for the six months 8 9 ended June 30, 2000 and 1999, respectively. These increases are primarily due to the amortization of upfront fees and fees for delivery of Custom Array sets to Pfizer and Bayer and from the success fees earned from our collaborations. COST OF REVENUE. Our cost of revenue for the three months ended June 30, 2000 increased $1.4 million to $5.3 million from $3.9 million for the same period in 1999. Cost of revenue was $10.7 million and $7.6 million for the six months ended June 30, 2000 and 1999, respectively. These increases are primarily attributable to the overhead and depreciation related to additional facilities and scientific personnel and the necessary supplies and overhead expenses related to the delivery of the Mapping Array and Directed Array sets pursuant to our collaborative agreements. RESEARCH AND DEVELOPMENT EXPENSES. Our research and development expenses for the three months ended June 30, 2000 increased $1.2 million to $4.4 million from $3.2 million for the same period in 1999. Research and development expenses were $8.6 million and $6.5 million for the six months ended June 30, 2000 and 1999, respectively. This increase is the result of our ongoing efforts to augment and enhance our chemistry capabilities and related proprietary technologies as we expand our lead optimization programs. MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. Our marketing, general and administrative expenses for the three months ended June 30, 2000 increased $0.6 million to $2.1 million from $1.5 million for the same period in 1999. Marketing, general and administrative expenses were $4.5 million and $2.7 million for the six months ended June 30, 2000 and 1999, respectively. These increases include a charge of $0.3 million related to the withdrawn registration statement for our follow-on stock offering. NET INTEREST INCOME. Our net interest income for the three months ended June 30, 2000 decreased $0.1 million to $0.3 million from $0.4 million for the same period in 1999. Net interest income was $0.6 million and $0.7 million for the six months ended June 30, 2000 and 1999, respectively. Higher interest expense in 2000 resulted primarily from our holding higher average debt balance on our term loan with Fleet National Bank. NET INCOME (LOSS). Our net income for the three months ended June 30, 2000 was $0.6 million, compared to a net loss of $(3.6) million for the same period in 1999. Our net loss was $(0.7) million and $(7.6) million for the six months ended June 30, 2000 and 1999, respectively. Our net income in 2000 is primarily attributable to increased revenue from our collaborator base. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, we held cash, cash equivalents and marketable securities with a value of $39.3 million, compared to $36.4 million at December 31, 1999. Our working capital at June 30, 1999 was $15.8 million. We have funded operations through June 30, 2000 with sales of common stock, revenues from corporate collaborators, and the utilization of capital equipment lease financing. On March 18, 1999, we consummated a term loan agreement with Fleet National Bank to support our facilities expansion. Under this agreement, we borrowed $14.0 million of the potential $15.0 million available. As of June 30, 2000, we have made four principal payments of $0.4 million each. We expect that our available cash and marketable securities, together with operating revenues and investment income will be sufficient to finance our working capital and capital requirements for the foreseeable future. Our cash requirements may vary materially from those now planned depending upon the results of our drug discovery and development strategies, our ability to enter into any additional corporate collaborations in the future and the terms of such collaborations, the results of research and development, the need for currently unanticipated capital expenditures, competitive and technological advances, acquisitions and other factors. We cannot guarantee that will be able to obtain additional customers for our products and services, or that such products and services will produce revenues adequate to fund our operating expenses. If we experience increased losses, we may have to seek additional financing from public or private sales of our securities, including equity securities. There can be no assurance that additional funding will be available when needed or on acceptable terms. 9 10 ARQULE, INC. PART II -- OTHER INFORMATION Items 1-3 -- None Item 4 -- Submission of Matters to a Vote of Security Holders At the Annual Meeting of Stockholders held on May 18, 2000, our stockholders voted as follows: (a) To elect Dr. Stephen A. Hill as a director: Total Votes "For"........................................ 10,537,452 Total Votes "Withheld"................................... 685,436
The proposal received a plurality of the votes cast by the stockholders entitled to vote thereon and, therefore, Dr. Hill was re-elected to the Board of Directors. In addition, the terms in office of Laura Avakian, Werner Cautreels, Ph.D., L. Patrick Gage, Ph.D., Tuan Ha-Ngoc, Ph.D., Stephen Dow and Michael Rosenblatt, M.D. continued after the meeting. Mr. Dow decided not to seek re-election at the 2000 Annual Meeting and resigned from the Board of Directors effective July 25, 2000. (b) To approve an amendment to our Amended and Restated 1994 Equity Incentive Plan to increase the aggregate number of shares of common stock that may be issued under the plan by 1,000,000 shares from 4,700,000 to 5,700,000 shares: Total Votes for the Proposal.............................. 4,688,663 Total Votes Against the Proposal.......................... 2,419,472 Abstentions............................................... 8,730
The proposal received the affirmative vote of a majority of the shares of common stock present or represented at the meeting and entitled to vote thereon and, therefore, was adopted. (c) To approve an amendment to our Amended and Restated 1996 Employee Stock Purchase Plan to increase the aggregate number of shares of common stock that may be issued under the plan by 300,000 shares from 120,000 to 420,000 shares: Total Votes for the Proposal.............................. 7,052,513 Total Votes Against the Proposal.......................... 53,222 Abstentions............................................... 11,130
The proposal received the affirmative vote of a majority of the shares of common stock present or represented at the meeting and entitled to vote thereon and, therefore, was adopted. (d) To approve an amendment to our Amended and Restated 1996 Director Stock Option Plan to increase the aggregate number of shares of common stock that may be issued under the plan by 65,500 shares from 125,000 to 190,500 shares: Total Votes for the Proposal.............................. 6,783,897 Total Votes Against the Proposal.......................... 325,578 Abstentions............................................... 7,390
The proposal received the affirmative vote of a majority of the shares of common stock present or represented at the meeting and entitled to vote thereon and, therefore, was adopted. 10 11 Item 5 -- None Item 6(a) -- Exhibits:
EXHIBITS DESCRIPTION - -------- ----------- 10.1 Array Delivery and Testing Agreement between ArQule, Inc. and G.D. Searle & Co. dated June 20, 2000.(1) 10.2 Termination Agreement between ArQule, Inc. and Pharmacia Corporation dated June 30, 2000.(1) 10.3 Technology Transfer and License Agreement between ArQule, Inc. and Amersham Pharmacia Biotech A.B. dated July 10, 2000.(1) 11.1 Statement Re: Computation of Unaudited Net Income (Loss) Per Share. 27 Financial Data Schedule.
- --------------- (1) Certain confidential material contained in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. Item 6(b) -- None 11 12 ARQULE, INC. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ArQule, Inc. /s/ DAVID C. HASTINGS -------------------------------------- David C. Hastings (Vice President, Chief Financial Officer and Treasurer) Date: August 4, 2000 12 13 ARQULE, INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1 Array Delivery and Testing Agreement between ArQule, Inc. and G.D. Searle & Co. dated June 20, 2000.(1) 10.2 Termination Agreement between ArQule, Inc. and Pharmacia Corporation dated June 30, 2000.(1) 10.3 Technology Transfer and License Agreement between ArQule, Inc. and Amersham Pharmacia Biotech A.B. dated July 10, 2000.(1) 11.1 Statement Re: Computation of Unaudited Net Income (Loss) Per Share. 27 Financial Data Schedule.
- --------------- (1) Certain confidential material contained in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. 13 EX-10.1 2 ex10-1.txt ARRAY DELIVERY AND TEST AGREEMEMT 1 EXHIBIT 10.1 ARRAY DELIVERY AND TESTING AGREEMENT This Array Delivery and Testing Agreement, dated as of June 20, 2000, is between ArQule, Inc. ("ArQule"), a Delaware corporation, and G.D. Searle & Co. ("Searle"), a Delaware corporation. For the purposes of this Agreement, the name "Searle" is used for Searle and its Primary Affiliates (as defined below), and the name "ArQule" is for ArQule and its Primary Affiliates (as defined below). RECITALS WHEREAS, ArQule has developed certain technology that has applications in the discovery and development of compounds for use in the Field (as defined below); WHEREAS, Searle desires that ArQule apply its technologies to the research and development of compounds with applications for Searle in the Field; and WHEREAS, in exchange for payment by Searle of research funds, milestone payments and royalties, ArQule is willing to provide compound arrays for testing by Searle and to perform certain other compound development activities, subject to the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the parties hereby agree as follows: 1. DEFINITIONS. "ACTIVE HOMOLOG" shall mean (i) any ArQule Compound that exhibits substantial homology with an Active Compound in the same Mapping Array or (ii) any Directed Array Compound that exhibits substantial homology with an Active Compound in the same Directed Array Program, with "substantial homology" determined by Searle in good faith according to predetermined thresholds set by Searle in good faith. "ACTIVE COMPOUND" shall mean any ArQule Compound or Directed Array Compound that exhibits significant functional activity as determined by Searle according to a predetermined threshold set by Searle for each Target consistent with the manner it treats other compounds resulting from its discovery program. "ADVANCED FIELD TRIALS" shall mean advanced testing trials conducted by or for Searle in a manner representative of actual agricultural or industrial practices including (i) determining the performance or safety of a Royalty-Bearing Product or (ii) greenhouse, growth chamber or laboratory testing including radio-labeled synthesis and associated testing, advanced toxicity, environmental fate, and toxicity on non-target species including mammals and/or assembling field information necessary to obtain an EUP. "AGREEMENT" shall mean this Array Delivery and Testing Agreement. 2 "AGROCHEMICAL FIELD" means all agricultural and in planta applications. "ANIMAL HEALTH FIELD" means animal health applications. "ARQULE COMPOUND" shall mean any chemical molecule that is synthesized by ArQule using its proprietary technology and provided by ArQule to Searle under the Mapping Array Program, or as part of a Compass Array library, as described below. "ARQULE DERIVATIVE COMPOUND" shall mean a Derivative Compound that is derived from an ArQule Compound in the course of a development program for the molecular target or other target (e.g., whole cell screen) against which ArQule Compound was initially discovered to have biological activity, i.e., a compound is not an ArQule Derivative Compound if that compound is independently developed by Searle for a different target. "ARQULE INTERNAL DISCOVERY PROGRAM" shall mean any testing or screening activity performed (i) by ArQule itself or (ii) in a collaboration in which ArQule retains an ownership interest in an ArQule Compound or ArQule Derivative Compound, in each case with the primary purpose of determining the functional activity in the Field of ArQule Compounds or ArQule Derivative Compounds. "ARQULE PATENT RIGHTS" shall mean Patent Rights controlled or owned by ArQule as of the Effective Date or during the Research Period, as set forth in Section 5.1(b); all to the extent and only to the extent that ArQule now has or hereafter will have the right to grant licenses, immunities or other rights thereunder. "ARQULE TECHNOLOGY" shall mean all information and data which is owned by or licensed by third parties to ArQule prior to the Effective Date and during the Research Period and is necessary or useful to conduct the screening to discover Active Compounds or to develop, make, use, sell or seek regulatory approval in any country to market a product containing a Royalty-Bearing Product; all to the extent and only to the extent that ArQule now has or hereafter will have the right to grant licenses, immunities or other rights thereunder. "ARRAY" shall mean a set of samples of structurally related chemical compounds arranged in a format such as a microtiter screening plate or another format as mutually agreed to by the Parties. "AVAILABLE COMPOUND" means an ArQule Compound that is an Active Compound and that is not (i) then licensed or otherwise committed to a third party in the Field or (ii) then committed to an Internal ArQule Discovery Program in the Field. As used in this definition, the term "committed" means a compound that is subject to a legally binding obligation to a third party that precludes a grant of an exclusive license to Searle in the Field or a compound for which ArQule has previously identified biological activity and designated in its internal compound database as the subject of an Internal ArQule Discovery Program. "BASE RATE OF INTEREST" shall mean the base rate of interest charged to its best commercial customers from time to time by the Bank of Boston or its successor. 2 3 "COMPASS ARRAY(TM) LIBRARY" means a collection of ArQule Compounds that is a diverse subset of the Mapping Arrays produced by ArQule. The Compass Array Library uses approximately [*] of the total ArQule Compounds to represent the chemical diversity present in all of the Mapping Arrays. "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 8.1. "CONTRACT YEAR" shall mean each twelve (12) month fiscal year of the Research Period, commencing on January 1 of each year and concluding twelve (12) months thereafter. "DERIVATIVE COMPOUND" shall mean a chemical compound structurally derived in one or more steps from another by a process of modification or partial substitution of at least one component wherein at least one structural feature is retained at each process step. A Derivative Compound may be synthesized (i) from a parent compound through manipulation of the parent compound or (ii) from a compound or compounds other than the parent compound if the Derivative Compound could have been synthesized from the parent compound but a different synthetic pathway was used. The number of intermediate steps or compounds is not relevant to the classification of a compound as a Derivative Compound. A compound need not have structural similarity to another compound in order to be classified as a Derivative Compound. However, a compound is not a Derivative Compound merely because the compound is, in theory, a synthetically accessible compound from a parent compound; rather, a Derivative Compound results from a series of synthetic steps that are actually undertaken in an effort to produce a desired end-product in a particular development program. "DIRECTED ARRAY(TM)" shall mean an Array of ArQule Derivative Compounds or Searle Derivative Compounds that was synthesized by ArQule under the Directed Array Program. "DIRECTED ARRAY(TM) COMPOUND" means any ArQule Derivative Compound or Searle Derivative Compound that was synthesized by ArQule under the Directed Array Program. "DIRECTED ARRAY(TM) PROGRAM" shall mean the Directed Array Program that was terminated by the Parties under the Prior Agreement. "DISCLOSING PARTY" shall mean that Party disclosing Confidential Information to the other Party under Section 8. "EU" shall mean Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, United Kingdom and such other countries that may be subsequently admitted to or excluded from the EU. "EUP" shall mean an Experimental Use Permit. - --------------- *Confidential treatment has been requested for the marked portion. 3 4 "EFFECTIVE DATE" shall mean the date of execution of this Agreement by the Parties hereto, at which time this Agreement shall become effective. "EPA" shall mean the Environmental Protection Agency (or its foreign equivalent responsible for approval of commercial use of Royalty-Bearing Products as defined in the Field). "EXPERIMENTAL USE PERMIT" shall mean a permit for field application issued by the EPA prior to label approval. FDA means the United States Food and Drug Administration (or its foreign equivalent). "FIELD" means, collectively, the Agrochemical Field, the Human Therapeutics Field, the Nutrition Field, and the Animal Health Field. "HUMAN THERAPEUTICS FIELD" means human therapeutic applications. "IND" means an investigational new drug application filed with the FDA prior to beginning clinical trials in humans or any comparable application filed with the regulatory authorities of a country other than the United States, prior to beginning clinical trials in humans in that country. "JOINT PATENT RIGHTS" shall mean any Patent Rights that are jointly owned by the Parties as of the Effective Date or during the Research Period, as set forth in Section 5.1(c). "LICENSED COMPOUND" shall mean (i) all Directed Array Compounds, (ii) any ArQule Compound that the Research Committee designated as a Licensed Compound under the Prior Agreement, and (iii) any ArQule Compound that the Research Committee has designated as a Licensed Compound as provided in Section 3.1.2 below. "MAPPING ARRAY(TM)" shall mean an Array of ArQule Compounds synthesized by ArQule under the Mapping Array Program. "MAPPING ARRAY(TM) PROGRAM" shall mean the program under which ArQule provides ArQule Compounds to its collaborators to screen on a non-exclusive basis, with the right to obtain an exclusive license to Active Compounds in substantially the manner set forth in Section 3.2. "PRIOR AGREEMENT" shall mean the Array Delivery and Testing Agreement between the Parties dated December 23, 1996, as subsequently amended and restated on January 11, 2000. "SEARLE COMPOUND" shall mean any chemical molecule that was provided by Searle or its Primary Affiliates to ArQule under the Directed Array Program. "SEARLE DERIVATIVE COMPOUND" shall mean a Derivative Compound that was synthesized by ArQule from a Searle Compound under the Directed Array Program. 4 5 "SEARLE PATENT RIGHTS" shall mean Patent Rights controlled or owned by Searle as of the Effective Date or during the Research Period, as set forth in Section 5.1(a); all to the extent and only to the extent that ArQule now has or hereafter will have the right to grant licenses, immunities or other rights thereunder. "NDA" means a New Drug Application, as such term is defined by the FDA, and any equivalent filing in a foreign jurisdiction. "NET SALES" shall mean the aggregate Net Sales Price of Royalty-Bearing Products in any Royalty Period. "NET SALES PRICE" shall mean [*]: (i) [*] (ii) [*] (iii) [*] (iv) [*] (v) [*] [*] "NUTRITION FIELD" means human nutrition applications. "PARTY" means ArQule, Searle, or one of their respective Primary Affiliates; "Parties" means ArQule, Searle, and their respective Primary Affiliates. "PATENT RIGHTS" shall mean all patent applications and issued and subsisting patents and reissues, reexaminations, extensions and supplementary protection certificates thereof and all patent applications and any divisions, continuations, or continuations-in-part thereof (to the extent directed to the same subject matter as the parent application). "PHASE II CLINICAL TRIALS" means clinical trials in a small sample of the intended patient population to assess the efficacy for a specific indication of a compound proposed to be used as a therapeutic pharmaceutical product, to determine dose tolerance and the optimal dose range as well as to gather additional information relating to safety and potential adverse effects, and meeting the requirements established by the FDA for Phase II clinical trials. A Phase II Clinical Trial is deemed to commence upon acceptance of a trial protocol with the FDA and concludes with the filing of a final study report with the FDA, but in any event not later than the commencement of a Phase III Clinical Trial for that product. - --------------- *Confidential treatment has been requested for the marked portion. 5 6 "PHASE III CLINICAL TRIALS" means clinical trials designed to demonstrate safety and efficacy of a compound proposed to be used as a therapeutic pharmaceutical product in an expanded patient population at geographically dispersed study sites, meeting the requirements established by the FDA for Phase III clinical trials. A Phase III Clinical Trial is deemed to commence upon acceptance of a trial protocol with the FDA and concludes with the filing of an NDA with the FDA. "PRELIMINARY FIELD TRIALS" shall mean, with respect to any Royalty-Bearing Product, preliminary testing first conducted by or for Searle to determine efficacy conducted under anticipated use conditions, generally in an external environment. Preliminary Field Trials does not include primary testing, which includes greenhouse, growth chamber or laboratory testing including associated testing for environmental fate, toxicity, and toxicity on non-target species including mammals. "PRIMARY AFFILIATE" of a Party shall mean (i) a corporation or other legal entity that owns, directly or indirectly, fifty percent (50%) or more of the outstanding equity securities of a Party which are entitled to vote in the election of directors or a fifty percent (50%) or greater interest in the net assets or profits of an entity which is not a corporation or any similar type of control relationship, (ii) any majority-owned subsidiary of such corporation or other legal entity, and (iii) any majority-owned subsidiary of a Party. "PRODUCT TEAM" shall mean a group of Searle employees formed to facilitate product development analysis following successful completion of Advanced Field Trials. "RECEIVING PARTY" shall mean that Party receiving Confidential Information under Section 8.1. "RESEARCH COMMITTEE" shall have the meaning set forth in Section 2.1. "RESEARCH PERIOD" shall mean the period commencing [*]. "ROYALTY-BEARING PRODUCT" shall mean a compound under development or a product sold by Searle or a Sublicensee, which compound is or which product contains [*]. "ROYALTY PERIOD" shall mean, with respect to each Royalty-Bearing Product and on a country-by-country basis, a [*] period commencing with the first arms-length, commercial sale of the relevant Royalty-Bearing Product in the relevant country. "SUBLICENSEE" shall mean any third party licensed by Searle to make, use (except where the implied right to use accompanies the sale to the third party of any Royalty-Bearing Product by Searle or its Sublicensees), sell, import, export, advertise, promote and otherwise commercialize any Royalty-Bearing Product. - --------------- *Confidential treatment has been requested for the marked portion. 6 7 "TARGET" shall mean any target within the Field selected by Searle. The above definitions are intended to encompass the defined terms in both the singular and plural tenses. 2. MANAGEMENT OF MAPPING ARRAY PROGRAM. 2.1. COMPOSITION OF RESEARCH COMMITTEE. The Parties shall establish a Research Committee comprised of four (4) members for the Agrochemical Field and the Human Therapeutics Field within thirty (30) days after the Effective Date, with two (2) representatives appointed by each Party for each such Research Committee, unless otherwise agreed by the Parties. In addition, the Parties agree to establish Research Committees in the Nutrition Field and Animal Health Field as appropriate. References to the "Research Committee" throughout this Agreement shall refer to any particular Research Committee, or all of the Research Committees, as appropriate from the context of such reference. A Party may change one or more of its representatives to the Research Committee at any time upon notice to the other Party. Each Party will designate one of its representatives as its team leader. 2.2. DUTIES OF THE RESEARCH COMMITTEE. The Research Committee shall direct and administer the research activities under this Agreement. The Research Committee shall (i) review test reports provided by Searle as to the significant functional activity derived from testing the ArQule Compounds to confirm that ArQule Compounds are Active Compounds in accordance with Section 3.2.2, (ii) confirm whether ArQule Compounds that are Active Compounds and any Active Homologs selected by Searle are properly designated as a Licensed Compounds in accordance with the procedures set forth in Section 3.2.2; (iii) maintain and update the list of Licensed Compounds; and (iv) resolve matters involving scientific questions and any operational issues that may arise in the research activities under this Agreement. 2.3. MEETINGS OF THE RESEARCH COMMITTEE. The Research Committee shall meet at least once each quarter at the facilities of ArQule or Searle, or at such other times and locations as the Research Committee determines. A representative of the Research Committee jointly appointed by its members shall provide each member with five (5) business days notice of the time and location of meetings, unless such notice is waived by all members. If a designated representative of a Party cannot attend any meeting of the Research Committee, such Party may designate a different representative for that meeting without notice to the other Party, and the substitute member will have full power to vote on behalf of the permanent member. Except as otherwise provided in this Section 2, all actions and decisions of the Research Committee will require the unanimous consent of all of its members (it being understood that each Party will cause its representatives to the Research Committee to act in good faith). If the Research Committee fails to reach agreement upon any matter, the dispute will be resolved in accordance with the procedures set forth in Section 12.5 below. Within ten (10) days following each quarterly meeting of the Research Committee, the Research Committee shall prepare and deliver, to both Parties, a written report describing the decisions made, conclusions and actions agreed upon. 7 8 2.4. COOPERATION. Each Party agrees to provide the Research Committee with information and documentation as reasonably required for the Research Committee to fulfill its duties under this Agreement. In addition, each Party agrees to make available its employees and consultants as reasonably requested by the Research Committee. The Parties anticipate that members of the Research Committee will communicate informally with each other and with employees and consultants of the Parties on matters relating to the research activities under this Agreement. 3. ACCESS FEE; DESCRIPTION OF PROGRAMS. 3.1. MAPPING ARRAY PROGRAM. 3.1.1. CONDUCT OF MAPPING ARRAY PROGRAM. As of the Effective Date, ArQule has delivered to Searle, and Searle has accepted, a total of approximately [*] ArQule Compounds in quantities of approximately [*] of each ArQule Compound. After the Effective Date, ArQule will supply Searle with approximately [*] of not less than [*] ArQule Compounds [*] (less any ArQule Compounds previously delivered in the year 2000 prior to the Effective Date) and [*] ArQule Compounds [*]. For the ArQule Compounds delivered [*], ArQule agrees that (i) each Mapping Array will be, on average, at least [*] pure as measured by HPLC/UV/ELSD analysis using standard ArQule analytical procedures and (ii) each year of the Mapping Array Program will include at least [*] new Mapping Arrays, with each such Mapping Array representing a different chemical core. ArQule shall also furnish Searle with approximately [*] of each ArQule Compound that is within the Compass Array libraries representing the Mapping Arrays produced under the [*] Mapping Array Programs, as follows: (i) for the Compass Array libraries representing Mapping Arrays produced under the [*] Mapping Array Programs, ArQule will provide the [*] of the subset ArQule Compounds in addition to the [*] of each ArQule Compound previously delivered; (ii) for the Compass Array libraries representing Mapping Arrays produced under the [*] Mapping Array Programs, ArQule will supply the [*] of the subset ArQule Compounds from the [*] quantity of each ArQule Compound that ArQule is obligated to supply to Searle (i.e., Searle will have [*] of these compounds in the Compass Array format and [*] of these compounds in the Mapping Array format); and (iii) subject to Section 12.15, for the Compass Array libraries representing Mapping Arrays produced under the [*] Mapping Array Program, ArQule will supply the [*] of the subset ArQule Compounds only, but not the Mapping Arrays. ArQule will also provide Searle with (i) [*] and (ii) [*], provided that Searle agrees [*] and further provided that Searle agrees that [*]. 3.1.2. IDENTIFICATION OF ACTIVE COMPOUNDS. Initially, ArQule will not identify the structures of the individual ArQule Compounds. Searle may screen the ArQule Compounds against any Targets within the Field during the term of this Agreement. If Searle detects any Active Compound, Searle shall disclose to ArQule the location of the Active Compound in the Compass Array Library or Mapping Array, and ArQule shall determine whether such Active Compound is an Available Compound as soon as reasonably practicable, but no later than [*] after such request if the request is for not more than [*] ArQule Compounds within any period of [*]. During the period in which ArQule determines whether an ArQule Compound is an Available Compound, ArQule shall tentatively reserve for Searle on an exclusive basis such ArQule - --------------- *Confidential treatment has been requested for the marked portion. 8 9 Compound pending its determination. If an Active Compound is not an Available Compound, then ArQule shall not disclose the structure of such Active Compound and such Active Compound may not be designated as a Licensed Compound under this Agreement. If an Active Compound is an Available Compound, then subject to confirmation of significant functional activity by the Research Committee (which confirmation will occur as soon as reasonably practicable but not more than [*] after Searle furnishes the confirmatory data to the Research Committee), ArQule will disclose (i) the full structure of the Active Compound correlated to the well location, (ii) [*] and (iii) if the Active Compound is identified in a Mapping Array, the structures, but not the locations in the Mapping Array, of the inactive ArQule Compounds that Searle has screened from the same Mapping Array, and ArQule shall reserve to Searle the Active Compound and up to [*] Active Homologs that are Available Compounds. All such disclosed information shall be treated as Confidential Information by the Receiving Party. ArQule shall furnish Searle with up to [*] resynthesized Active Compounds per month in quantities of not less than [*], as directed by the Research Committee, [*] and additional resynthesized Active Compounds in quantities of not less than [*], as directed by the Research Committee, at a cost of [*] per compound. ArQule shall maintain the compound reservation for a period of [*] after Searle receives the resynthesized Active Compound. Searle may extend the [*] reservation period for not more than [*] Active Compounds at the same time, subject to increase by the Research Committee. Searle may subsequently request that the Research Committee designate such Active Compound and the [*] Active Homologs thereof as Licensed Compounds; whereupon the Research Committee shall designate such Active Compound and such Active Homologs thereof as Licensed Compounds provided that the Research Committee confirms that the Active Compound meets the predefined criteria for significant functional activity. For any Active Compounds that are subject to reservation by Searle or are designated as Licensed Compounds to Searle as described in this Section, ArQule will deem such Active Compounds as committed to Searle and no longer available to third parties or to Internal ArQule Discovery Programs. At the request of Searle, ArQule will make available to Searle the synthetic protocols for Licensed Compounds in ACS experimental format. 3.1.3. ACTIVITY REPORTS. Within thirty (30) days after the conclusion of each calendar quarter, and only at the request of ArQule, Searle shall furnish ArQule with a report that sets forth for each class of Targets the percentage of Active Compounds, if any, that Searle has identified from the total ArQule Compounds screened for that class of Targets in that quarter. For purposes of this Section, the term "class of Targets" shall mean a named family or subfamily of Targets that includes at least [*] that are not Confidential Information of Searle. 3.1.4. TIMING OF DELIVERY. If ArQule provides Searle with the Compass Array Libraries together with their corresponding Mapping Arrays in any quarter during calendar years [*], ArQule agrees to ship the Compass Array Libraries and the corresponding Mapping Arrays to Searle at the same time as ArQule ships such ArQule Compounds to its other collaborators in the Field or uses such ArQule Compounds in an Internal ArQule Discovery Program. In the event that ArQule provides Searle with the Compass Array Libraries after ArQule ships the corresponding Mapping Arrays to its other collaborators or uses the corresponding Mapping Arrays in an Internal - --------------- *Confidential treatment has been requested for the marked portion. 9 10 ArQule Discovery Program in any quarter in calendar years [*], then notwithstanding the delivery requirements in Section 3.1.2, ArQule shall provide Searle with [*] of each ArQule Compound in the Mapping Arrays provided to its other collaborators or used in an Internal ArQule Discovery Program at the same time as ArQule ships such Mapping Arrays to those collaborators or uses such Mapping Arrays in an Internal ArQule Discovery Program and then shall provide Searle with another [*] of each such ArQule Compound (i) in the Compass Array Library format and (ii) in the Mapping Array format minus the ArQule Compounds provided in the Compass Array Library format (i.e., ArQule will split the total [*] of each ArQule Compound into [*] shipments, with the [*] shipment split into a Compass Array Library and a smaller Mapping Array library that contains the ArQule Compounds not included in the Compass Array Library) within [*] thereafter. In the event that ArQule provides a Compass Array Library to another collaborator or uses a Compass Array Library in an Internal ArQule Discovery Program in any quarter in calendar years [*], ArQule shall provide that Compass Array Library to Searle not later than the time that such Compass Array Library is provided to the other collaborator or used in an Internal ArQule Discovery Program. 3.1.5. PAYMENT. Searle shall pay ArQule a fee in the amount of [*] in the calendar year [*]. The payments under this Subsection shall be made in [*]. 3.2. LEAD OPTIMIZATION PROGRAM. 3.2.1. DIRECTED ARRAY PROGRAM. The parties previously terminated the Directed Array Program under the Prior Agreement. ArQule represents and warrants that it has delivered to Searle, or will promptly deliver to Searle, the structures of all Directed Array Compounds and the synthetic procedures for such Directed Array Compounds in ACS experimental format. ArQule agrees to provide Searle with reasonable technical and other support, at the expense of Searle, for future efforts by Searle to develop and commercialize Royalty-Bearing Products based on Directed Array Compounds. 3.2.2. CREDIT FOR LEAD OPTIMIZATION PROGRAM. ArQule agrees to furnish Searle with [*] full-time equivalents ("FTEs") of effort (i.e., the equivalent of [*] person-years of effort) towards a lead optimization program, with details to be agreed by the parties in good faith. Searle may initiate the lead optimization program at any time during the Research Period, but may not initiate the program before the earlier of (i) [*] or (ii) [*]; provided that the program cannot begin until the Parties have agreed upon the details in good faith, including without limitation the terms set forth in this Section. In the event that Searle proceeds with this lead optimization program, (i) Searle will pay ArQule [*], (ii) ArQule will provide [*], and (iii) [*]. In the event that Searle initiates the lead optimization program after [*], ArQule shall have the right to [*]. ArQule agrees that the [*] FTEs of effort includes ordinary laboratory supplies, consumables, and chemical costs, and Searle agrees that such effort does not include extraordinary expenses such as custom chemical monomers that are purchased from a third party or synthesized by ArQule with effort beyond the [*] FTEs of effort and chemical monomers and reagents that cost in excess of the amounts typically expended by ArQule in a lead optimization program of substantially similar scope. The - --------------- *Confidential treatment has been requested for the marked portion. 10 11 Parties acknowledge that the terms of this initial lead optimization program are not intended to apply to any future lead optimization programs provided by ArQule to Searle. 4. LICENSE GRANTS; DILIGENCE. 4.1. SCREENING LICENSES. ArQule hereby grants to Searle (a) [*] (b) [*], and (c) [*]. 4.2. COMMERCIALIZATION LICENSES. ArQule hereby grants to G. D. Searle & Co., (i) [*] (ii) [*](iii) [*]. 4.3. TERMINATION OF LICENSES. The licenses granted to Searle by ArQule pursuant to Sections 4.1 and 4.2 shall continue in perpetuity except as otherwise provided in Article 11 or Section 4.4. 4.4. RETURN OF MATERIALS. ArQule shall have the right to request information regarding the development and commercialization efforts with respect to any Licensed Compounds, in which event Searle shall conduct a reasonable investigation as to the status of any Royalty-Bearing Products that are based on or incorporate the relevant Licensed Compounds and report to ArQule within [*] from the date of request on the status of such Royalty-Bearing Products. ArQule may request such investigation and status report [*]. In the event that Searle ceases to use commercially reasonable efforts to develop and commercialize Royalty-Bearing Products in the Field based on or incorporating an ArQule Compound that is a Licensed Compound, or if Searle refuses or fails to provide ArQule with a status report with respect to such Licensed Compound within [*] after ArQule provides Searle with written notice that Searle has failed to provide such report within the - --------------- *Confidential treatment has been requested for the marked portion. 11 12 [*] period described above, ArQule shall have the right, upon [*] written notice to Searle, to terminate all licenses granted to Searle under this Agreement with respect to such Licensed Compound ( a "Discontinued Product") and, in such event, Searle shall assign to ArQule the ownership of the Discontinued Product and all Searle Patent Rights and Joint Patent Rights in the composition of such Discontinued Product; provided, however, that Searle may elect, upon written notice to ArQule that is received by ArQule during the [*] period set forth above, to retain its rights under this Agreement with respect to such Licensed Compound by [*]. In the event that Searle elects to [*]. Thereafter, for a period of [*], Searle shall [*]. 4.5. LICENSE REQUIREMENTS. The Parties recognize and agree that Searle does not and will not at any time need any license or other permission or authorization from ArQule for any activities (including by way of example and not limitation) making, using, offering for sale, selling and importing concerning or involving any compound or composition or its manufacture or use unless ArQule owns (to the exclusion of Searle) (i) ArQule Patent Rights, or (ii) proprietary and confidential ArQule Technology covering such compound or composition or its manufacture or use. 4.6. SCREENING OF ARQULE COMPOUNDS. During the Research Period, and subject to the screening licenses granted in Section 4.1. above, Searle shall have the right, either directly or through Searle's Primary Affiliates or third parties selected by Searle, to perform such testing in the Field as Searle deems appropriate on ArQule Compounds and ArQule Derivative Compounds, provided that, prior to delivering any ArQule Compounds or ArQule Derivative Compounds to any such third party, Searle, ArQule and each such third party enter into a materials transfer agreement reasonably acceptable to ArQule and including terms and conditions that are usual and customary for such agreements, and further provided that Searle shall not identify the compounds provided to any third party as ArQule Compounds. 4.7. REVERSE ENGINEERING. Searle shall not attempt to reverse engineer, or attempt to determine the structure of, any ArQule Compound until the structure of such compound has been disclosed to Searle by ArQule pursuant to Section 3.1.2. 5. INTELLECTUAL PROPERTY RIGHTS. 5.1. OWNERSHIP OF PATENT RIGHTS. (a) SEARLE PATENT RIGHTS. Searle will solely own any Patent Rights covering inventions that are conceived and reduced to practice solely by employees of Searle in connection with this Agreement. Searle will solely own any Patent Rights covering the composition or any method of making or using (i) Searle Compounds and (ii) Searle Derivative Compounds, except, and only to the extent that, ArQule can show that any such compounds were independently developed by ArQule employees who had no access to Searle Confidential Information or any information of ArQule developed or furthered as a result of this Agreement. - --------------- *Confidential treatment has been requested for the marked portion. 12 13 (b) ARQULE PATENT RIGHTS. ArQule will solely own any Patent Rights covering inventions that are conceived and reduced to practice solely by employees of ArQule in connection with this Agreement, except as otherwise provided in clause (a) above in the case of rights in Searle Compounds and Searle Derivative Compounds. (c) JOINT PATENT RIGHTS. ArQule and Searle will jointly own any Patent Rights covering inventions that are conceived and reduced to practice jointly by employees of ArQule and Searle in connection with this Agreement. 5.2. MANAGEMENT OF PATENT RIGHTS. Each party shall have responsibility for, and control over, the preparation, filing, prosecution, and maintenance of their respective Patent Rights. In the case of Joint Patent Rights, Searle shall have all control over and shall bear all responsibility for, and the expense of, the preparation, filing, prosecution, and maintenance of any Joint Patent Rights claiming such inventions. Searle shall consult with ArQule as to the preparation, filing, prosecution, and maintenance of such Joint Patent Right reasonably prior to any deadline or action with the U.S. Patent & Trademark Office or its foreign equivalent, and shall furnish to ArQule copies of all relevant documents reasonably in advance of such consultation. In the event that Searle desires to abandon such Joint Patent Right, or if Searle later declines responsibility for such Joint Patent Right, Searle shall provide reasonable prior written notice to ArQule of such intention to abandon or decline responsibility, and ArQule shall have the right, at its expense, to prepare, file, prosecute, and maintain such Joint Patent Rights. 5.3. COOPERATION OF THE PARTIES. Each Party agrees to cooperate fully in the preparation, filing, and prosecution of any Patent Rights under this Agreement. Such cooperation includes, but is not limited to: (a) executing all papers and instruments, or requiring its employees or agents, to execute such papers and instruments, so as to effectuate the ownership of Patent Rights set forth in Section 5.1 above and to enable the other Party to apply for and to prosecute patent applications in any country; (b) promptly informing the other Party of any matters coming to such Party's attention that may affect the preparation, filing, or prosecution of any such patent applications; and (c) undertaking no actions that are potentially deleterious to the preparation, filing, or prosecution of such patent applications. 5.4. INFRINGEMENT BY THIRD PARTIES. ArQule and Searle shall each promptly notify the other in writing of any alleged or threatened infringement by a third party of any ArQule Patent Right, Searle Patent Right or Joint Patent Right covering Licensed Compounds of which they become aware. The Parties shall consult concerning the action(s) to be taken in connection with any such alleged or threatened infringement. 13 14 6. OWNERSHIP OF COMPOUNDS. All Searle Compounds and Searle Derivative Compounds shall be owned by Searle. All ArQule Compounds shall be owned by ArQule. All ArQule Derivative Compounds shall be owned in the same manner as the Patent Rights to such compounds are owned as set forth in Article 5. 7. PAYMENTS, REPORTS, AND RECORDS. 7.1. MILESTONE PAYMENTS. In partial consideration of the rights granted Searle under this Agreement, Searle shall pay ArQule the following amounts within [*] after each occurrence of the following milestones: (a) MILESTONE PAYMENTS IN AGROCHEMICAL FIELD. Searle shall make the following milestone payments to ArQule with respect to Royalty-Bearing Products in the Agrochemical Field:
Payment Milestone ------- --------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
[*] (b) MILESTONE PAYMENTS IN HUMAN THERAPEUTIC FIELD. Searle shall make the following milestone payments to ArQule with respect to Royalty-Bearing Products in the Human Therapeutics Field:
Payment Milestone ------- --------- [*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
- --------------- *Confidential treatment has been requested for the marked portion. 14 15 (c) MILESTONE PAYMENTS IN NUTRITION AND ANIMAL HEALTH FIELDS. Searle shall pay ArQule up to a total of [*] in milestone payments with respect to Royalty-Bearing Products in each of the Nutrition Field and Animal Health Field. ArQule and Searle agree to negotiate in good faith the specific events and milestone payments attributable to each such field. Events and payments negotiated with respect to the first such Royalty-Bearing Product in each such field shall apply to all subsequent Royalty-Bearing Products in such field. Until such milestone terms have been agreed to by the Parties for a particular field, Searle will not have the right to market or sell Licensed Products in such field. (d) MILESTONE PAYMENTS FOR DIRECTED ARRAY COMPOUNDS. For the purposes of Subsections 7.1(b) and Section 7.1(c), the definition of "ArQule Compound" shall be deemed to include all Directed Array Compounds. Consequently, among other things, the term "Royalty-Bearing Product" shall include Derivative Compounds of Directed Array Compounds as if such Derivative Compounds were ArQule Derivative Compounds and the Directed Array Compounds shall be treated as if they were part of the Mapping Array Program when screened against targets outside of the Agrochemical Field. (e) Such milestone payments shall be non-refundable and shall not be credited against royalties payable to ArQule under this Agreement. Searle shall promptly notify ArQule of each occurrence of any of the foregoing milestones. 7.2. ROYALTIES. (a) In consideration of the licenses granted to Searle hereunder, Searle shall pay to ArQule a royalty of [*] of Net Sales of Royalty-Bearing Products in the Agrochemical Field. (b) In consideration of the licenses granted to Searle hereunder, Searle shall pay to ArQule a royalty based on a percentage of [*] in the Human Therapeutics Field, Nutrition Field, and Animal Health Field where such royalty percentage is determined by [*] as follows: [*] [*] --- --- [*] [*] [*] [*] [*] [*] - --------------- *Confidential treatment has been requested for the marked portion. 15 16 Where the [*]. For the purposes of this Subsection 7.2(a), the terms "Parent ArQule Compound" means (i) in the case of a Licensed Compound, the Licensed Compound itself, (ii) in the case of an ArQule Derivative Compound, an ArQule Compound in the Mapping Array from which the final ArQule Derivative Compound was derived, or (iii) in the case of any other compound discovered or designed by Searle directly as a result of information obtained by Searle under the Mapping Array Program from one or more ArQule Compounds, which information forms the primary basis for such discovery or development and which information was not previously known to Searle from sources other than ArQule or an ArQule Compound from which such information was obtained. The [*]. The Parties agree to periodically review the [*]. For the purposes of this paragraph, [*]. (c) ROYALTY PAYMENTS FOR DIRECTED ARRAY COMPOUNDS. For the purposes of Subsection 7.2(b), the definition of "ArQule Compound" shall be deemed to include all Directed Array Compounds. Consequently, among other things, the term "Royalty-Bearing Product" shall include Derivative Compounds of Directed Array Compounds as if such Derivative Compounds were ArQule Derivative Compounds and the Directed Array Compounds shall be treated as if they were part of the Mapping Array Program when screened against targets outside of the Agrochemical Field (d) No royalty shall accrue on sales among Searle and Sublicensees. Royalties shall only accrue on sales by Searle and Sublicensees to parties other than Searle or its Sublicensees and shall be payable only once for any given unit of Royalty-Bearing Product sold. 7.3. REPORTS AND PAYMENTS. Within sixty (60) days after the conclusion of each Royalty Period, Searle shall deliver to ArQule one or more reports containing the following information: (a) gross sales of Royalty-Bearing Products by Searle and Sublicensees during the applicable Royalty Period in each of the Agrochemical Field, Human Therapeutics Field, Animal Health Field, and Nutrition Field in each country of sale; (b) adjustments and calculation of Net Sales for the applicable Royalty Period in each country of sale; and (c) total Net Sales in U.S. dollars, together with the exchange rates used for conversion. All such reports shall be maintained in confidence by ArQule. If no royalties are due to ArQule for any reporting period, the report shall so state. Concurrent with this report, Searle shall remit to ArQule any payment due for the applicable Royalty Period using a method of payment mutually 16 17 agreed to by the Parties. All amounts payable to ArQule under this Section will first be calculated in the currency of sale and then converted into U.S. dollars in accordance with Section 7.4, and such amounts shall be paid without deduction, except as required by law, of any withholding taxes, value-added taxes, or other charges applicable to such payments. 7.4. INVOICES; PAYMENTS IN U.S. DOLLARS. With the exception of milestone payments due under Section 7.1 and royalty payments due under Section 7.2, ArQule shall submit invoices to Searle for each payment due ArQule hereunder, and Searle shall pay such invoices within sixty (60) days of receipt thereof. All payments due under this Agreement shall, except as provided in Section 7.5 below, be payable in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in THE WALL STREET JOURNAL) on the last working day of the calendar quarter preceding the applicable calendar quarter. Such payments shall be without deduction of exchange, collection, or other charges. 7.5. PAYMENTS IN OTHER CURRENCIES. If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, Searle shall give ArQule prompt written notice of such restriction, which notice shall satisfy the forty-five day payment deadline described in Section 7.4. Searle shall pay any amounts due ArQule through whatever lawful methods ArQule reasonably designates; provided, however, that if ArQule fails to designate such payment method within forty-five (45) days after ArQule is notified of the restriction, then Searle may deposit such payment in local currency to the credit of ArQule in a recognized banking institution selected by Searle and identified by written notice to ArQule, and such deposit shall fulfill all obligations of Searle to ArQule with respect to such payment. 7.7. RECORDS. Searle shall maintain reasonably complete and accurate records of Royalty-Bearing Products made, used or sold by them or their Sublicensees under this Agreement, and any amounts payable to ArQule in relation to such Royalty-Bearing Products, which records shall contain reasonably sufficient information to permit ArQule to confirm the accuracy of any reports delivered to ArQule in accordance with Section 7.3. The relevant Party shall retain such records relating to a given Royalty Period for at least three (3) years after the conclusion of that Royalty Period. Each Party (acting as the "Auditing Party") shall have the right, at its own expense, to cause an independent certified public accountant to inspect such records of the other Party (the "Audited Party") during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement. Such accountant shall not disclose to the Auditing Party any information other than information relating to accuracy of reports and payments delivered under this Agreement and shall provide the Audited Party with a copy of any report given to the Auditing Party. The Parties shall reconcile any underpayment or overpayment within forty-five (45) days after the accountant delivers the results of the audit. In the event that any audit performed under this Section reveals an underpayment in excess of [*] in any Royalty Period, the Audited Party shall bear the full cost of such audit. Each Party may exercise its rights under this Section only once every year and only with reasonable prior notice to the other Party. - --------------- *Confidential treatment has been requested for the marked portion. 17 18 7.8. LATE PAYMENTS. Any payments by Searle that are not paid on or before the date such payments are due under this Agreement shall bear interest, to the extent permitted by law, at two percentage points above the Base Rate of Interest calculated based on the number of days that payment is delinquent. 7.9 LATE DELIVERIES. In the event that ArQule makes a late delivery of Mapping Arrays to Searle pursuant to Section 3.1.1 or delivers a Compass Array Library after the [*] period described in Section 3.1.1, Searle may deduct from the next quarterly installment of the delivery fee set forth in Section 3.1.5 an amount determined by multiplying the amount of such quarterly installment by an annualized rate equal to [*] above the Base Rate of Interest calculated based on the number of days that delivery was late. 8. CONFIDENTIAL INFORMATION. 8.1. DEFINITION OF CONFIDENTIAL INFORMATION. Confidential Information shall mean any technical or business information furnished by the Disclosing Party to the Receiving Party in connection with this Agreement and specifically designated as confidential. Such Confidential Information may include, without limitation, the identity of a chemical compound, the use of a chemical compound, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, product and marketing plans, and customer and supplier information. 8.2. OBLIGATIONS. The Receiving Party agrees that it shall: (a) maintain all Confidential Information in strict confidence, except that the Receiving Party may disclose or permit the disclosure of any Confidential Information to its, and its Primary Affiliates, directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purposes set forth in this Agreement; (b) use all Confidential Information solely for the purposes set forth in, or as permitted by, this Agreement; and (c) allow its Primary Affiliates, directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information. 8.3. EXCEPTIONS. The obligations of the Receiving Party under Section 8.2 above shall not apply to any specific Confidential Information to the extent that the Receiving Party can demonstrate that such Confidential Information: - --------------- *Confidential treatment has been requested for the marked portion. 18 19 (a) was in the public domain prior to the time of its disclosure under this Agreement; (b) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the Receiving Party, its Primary Affiliates, directors, officers, employees, consultants, advisors or agents; (c) was independently developed or discovered by the Receiving Party without use of the Confidential Information; (d) is or was disclosed to the Receiving Party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the Disclosing Party and having no obligation of confidentiality to the Disclosing Party with respect to such Confidential Information; or (e) is required to be disclosed to comply with applicable laws or regulations (such as disclosure to the EPA or the United States Patent and Trademark Office or to their foreign equivalents), or to comply with a court or administrative order, provided that the Disclosing Party receives prior written notice of such disclosure and that the Receiving Party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure. 8.4. PUBLICATIONS. ArQule shall not publish any information with respect to Licensed Compounds without the prior written permission of Searle, which may be withheld in its sole discretion. 9. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants to the other that it has the legal right and power to enter into this Agreement, to extend the rights and licenses granted to the other in this Agreement, and to fully perform its obligations hereunder, and that the performance of such obligations will not conflict with its charter documents or any agreements, contracts, or other arrangements to which it is a party. 10. INDEMNIFICATION AND INSURANCE. 10.1. INDEMNIFICATION. Each Party (the "Indemnitor") shall indemnify, defend, and hold harmless the other Party and its Primary Affiliates and their directors, officers, employees, and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or expense (including reasonable attorneys fees and expenses of litigation) incurred by or imposed upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands, or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product (or any process or service) that is made, used, or sold by the Indemnitor pursuant to any right or license granted under this Agreement; provided, however, that such indemnification right shall not apply 19 20 to any liability, damage, loss, or expense to the extent directly attributable to the negligent activities, reckless misconduct, or intentional misconduct of the Indemnitees. 10.2. PROCEDURES. Any Indemnitee that intends to claim indemnification under Section 10.1 shall promptly notify the appropriate Indemnitor of any claim in respect of which the Indemnitee intends to claim such indemnification, and the Indemnitor shall assume the defense thereof with counsel mutually satisfactory to the Parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. The indemnity agreement in Section 10.1. shall not apply to amounts paid in settlement of any loss, claim, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve the Indemnitor of any liability to the Indemnitee under Section 10.1. Each party and its Primary Affiliates and their employees and agents shall cooperate fully with the other party and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 10.3. INSURANCE. Each Party shall maintain reasonably adequate insurance coverage or self-insurance for its own potential liabilities to the Indemnitees as set forth in this Article 10. 11. TERM AND TERMINATION. 11.1. TERM. This Agreement shall commence on the Effective Date and shall remain in effect until the expiration of the last to expire of the applicable Patent Rights covering any Royalty-Bearing Product, unless earlier terminated as provided in this Article 11. 11.2. BREACH OF PAYMENT OBLIGATIONS. In the event that Searle fails to make timely payment of any amounts due to ArQule under this Agreement, ArQule may terminate this Agreement upon ninety (90) days written notice to Searle, unless Searle pays all past-due amounts within such ninety-day notice period. 11.3. MATERIAL BREACH. In the event that either party commits a material breach of any of its obligations under this Agreement (other than as provided in Section 11.2) and such party fails (i) to remedy that breach within ninety (90) days after receiving written notice thereof from the other party or (ii) to commence dispute resolution pursuant to Section 12.5, within ninety (90) days after receiving written notice of that breach from the other party, the other party may immediately terminate this Agreement upon written notice to the breaching party. 11.4. EFFECT OF TERMINATION. Termination of this Agreement shall not relieve the parties of any obligation accruing prior to such termination. The provisions of Article 4, Article 5, Article 6, Article 7, Article 8, Article 9, Article 10, and Article 12 shall survive the expiration or termination of this Agreement. Notwithstanding the foregoing, if ArQule terminates this Agreement pursuant to Section 11.3, then (i) Searle shall have no further right to screen ArQule Compounds pursuant to Section 3.1 and 4.1, select Licensed Compounds pursuant to Section 3.1. 20 21 or to develop and commercialize ArQule Compounds pursuant to Section 4.2.; (ii) Searle shall immediately return or destroy (with such destruction certified in writing by an officer of Searle) all unused ArQule Compounds in a manner directed by ArQule; and (iii) ArQule shall have the right to effect reversion of the Licensed Compounds pursuant to Section 4.4. Notwithstanding the foregoing, if Searle terminates this Agreement pursuant to Section 11.3., then Searle [*]. 12. MISCELLANEOUS. 12.1. RELATIONSHIP OF PARTIES. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the parties. No party shall incur any debts or make any commitments for the other, except to the extent, if at all, specifically provided herein. 12.2. PUBLICITY. Except as otherwise expressly provided in this Section 12.2, neither Party shall (i) use the name of the other Party in relation to this transaction in any public announcement, press release, or other public document or (ii) originate any written publicity, news release, or other announcement relating to this Agreement, to performance under this Agreement, or to the existence of an arrangement between the Parties (collectively, "WRITTEN DISCLOSURE"), without the prior prompt review and approval of the other Party, which approval shall not be unreasonably withheld or delayed. Any Party may make any public Written Disclosure it believes in good faith, based upon the opinion of its general outside counsel, is required by applicable law or any listing or trading agreement concerning its publicly traded securities, provided that prior to making such Written Disclosure, the disclosing Party shall request confidential treatment of such information pursuant to Rule 406 of the Securities Act of 1933 or Rule 24b-2 of the Securities Exchange Act of 1934, as applicable (or any other applicable regulation relating to the confidential treatment of information) to the extent reasonably practicable and consistent with any applicable limitations imposed by such regulations. In addition, ArQule shall provide Searle with the relevant portion of its draft Form 10Q filing for Q2 2000, together with the draft exhibit to such Form 10Q which sets forth the Agreement and the redactions for which ArQule intends to seek confidential treatment. A Party may also make a Written Disclosure (i) to government agencies, courts, or other governmental bodies where required by law, so long as the disclosing Party notifies the other Party prior to the disclosure and seeks to obtain a protective order to maintain the confidentiality of the information and (ii) to third parties under an agreement of confidentiality, with the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Once a "Written Disclosure" is approved, either Party may reuse the disclosed information in a materially unaltered form without further consent or approval. Specifically, each Party may state that the other Party has entered into this Agreement after such information has appeared in an approved Written Disclosure, without the prior consent or approval of the other Party. 12.3. NON-SOLICITATION. During the term of this Agreement and thereafter for a period of [*], each party agrees not to seek to persuade or induce any employee of the other party to - --------------- *Confidential treatment has been requested for the marked portion. 21 22 discontinue his or her employment with that party in order to become employed by or associated with any business, enterprise, or effort that is associated with its own business. 12.4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 12.5. DISPUTE RESOLUTION PROCEDURES. 12.5.1. NEGOTIATION. In the event of any dispute or disagreement between Searle and ArQule as to the interpretation of any provision of this Agreement or the performance of their obligations hereunder, then upon written request of either Party, the matter shall be referred to representatives of the Parties for decision, each party being represented by a senior executive officer who has no direct operational responsibility for the matters contemplated by this Agreement (the "REPRESENTATIVES"). The Representatives shall promptly meet in a good faith effort to resolve the dispute. If the Representatives do not meet or do not agree upon a decision within thirty (30) calendar days after the date upon which the written request is received by the other Party, each of Searle and ArQule shall be free to exercise the remedies available to them under Section 12.5.2. 12.5.2. ARBITRATION. Any controversy, dispute or claim arising out of or relating in any way to this Agreement or the transactions arising hereunder that are not resolved by negotiation pursuant to Section 12.5.1 shall be settled exclusively by arbitration in the New York, New York. Such arbitration shall be administered by the Center for Public Resources Institute for Dispute Resolution (the "INSTITUTE") in accordance with its then prevailing Rules for Non-Administered Arbitration of Business Disputes (except as otherwise provided herein), by three independent and impartial arbitrators, one of whom shall be appointed by Searle and one of whom shall be appointed by ArQule, provided that in the case of a dispute as to decisions of the Research Committee or whether a product is a Royalty-Bearing Product, each party shall designate one (1) neutral having the following minimum scientific qualifications: a Ph.D. degree in chemistry or life sciences or an M.D. degree plus at least ten (10) years of relevant business or scientific research experience. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq. The fees and expenses of the Institute and the arbitrators shall be shared equally by the parties and advanced by them from time to time as required; provided that at the conclusion of the arbitration, the arbitrators shall award costs and expenses (including the costs of the arbitration previously advanced and the fees and expenses of attorneys, accountants and other experts) and interest to the prevailing party. The arbitrators shall render their award together with a summary explanation of their decision within ninety (90) days of the conclusion of the arbitration hearing. The arbitrators shall not be empowered to award to any party any consequential damages, lost profits, or punitive damages in connection with any dispute between the parties arising out of or relating in any way to this Agreement or the transactions arising hereunder, and each party hereby irrevocably waives any right to recover such damages. Notwithstanding anything to the contrary provided in this Section and without prejudice to the above procedures, (i) either party may apply to any court of competent jurisdiction for temporary injunctive or other provisional judicial relief if such action is necessary to avoid irreparable damage or to preserve the status quo until such time as the arbitration panel is convened and available to hear such party's request for temporary relief and (ii) the parties agree that all applicable statutes of limitation and time-based defenses (such as estoppel and laches) shall be 22 23 tolled while the procedures set forth in this Section and Section 12.5.1 are pending and the parties further agree to take any actions necessary to effectuate this result. The award rendered by the arbitrators shall be final and not subject to judicial review and judgment thereon may be entered in any court of competent jurisdiction. 12.6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. 12.7. HEADINGS. All headings in this Agreement are for convenience only and shall not affect the meaning of any provision hereof. 12.8. BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon the parties, their Primary Affiliates, and their respective lawful successors and assigns. 12.9. ASSIGNMENT. This Agreement may not be assigned by either party without the prior written consent of the other party, except that either party may assign this Agreement to a successor in connection with the merger, consolidation, spin-off or sale of all or substantially all of its assets or that portion of its business pertaining to the subject matter of this Agreement. Searle has the right to extend its rights and benefits under this Agreement to any Primary Affiliate. 12.10. NOTICES. All notices, requests, demands and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given upon the date of receipt if delivered by hand, recognized international overnight courier, confirmed facsimile transmission, or registered or certified mail, return receipt requested, postage prepaid to the following addresses or facsimile numbers: 23 24 If to Searle: If to ArQule: G.D. Searle & Co. ArQule, Inc. 5200 Old Orchard Road 19 Presidential Way Skokie, Illinois 60077 Woburn, MA 01801 Attention: Michael J. DuBois Attention: President Senior Vice President, Tel: (781) 994-0300 Corporate Licensing Fax: (781) 994-0676 Tel: (908) 901-8815 Fax: (908) 901-1813 with a copy to: with a copy to: G.D. Searle & Co. ArQule, Inc. 5200 Old Orchard Road 19 Presidential Way Skokie, Illinois 60077 Woburn, MA 01801 Attention: Asst. General Counsel Attention: Legal Department Tel: (847) 581-6740 Tel: (781) 994-0300 Fax: (847) 581-4045 Fax: (781) 994-0676 Either party may change its designated address and facsimile number by notice to the other party in the manner provided in this Section. 12.11. AMENDMENT AND WAIVER. This Agreement may be amended, supplemented, or otherwise modified only by means of a written instrument signed by both parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar. 12.12. SEVERABILITY. In the event that any provision of this Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, and the parties shall negotiate in good faith to modify the Agreement to preserve (to the extent possible) their original intent. 12.13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements or understandings between the parties relating to the subject matter hereof, including without limitation Section 7.1, Section 7.2, and all other provisions of the Prior Agreement. 12.14. FORCE MAJEURE. Neither party shall be held liable or responsible to the other party, nor be deemed to be in breach of this Agreement, for failure or delay in fulfilling or performing any provisions of this Agreement when such failure or delay is caused by or results from any cause whatsoever outside the reasonable control of the party concerned including, but not limited to, fire, explosion, breakdown of plant, strike, lock-out, labor disputes, casualty or accident, lack or failure of transportation facilities, flood, lack or failure of sources of supply or of labor, raw materials or energy, civil commotion, embargo, any law, regulation, decision, demand or requirement of any 24 25 national or local government or authority. The party claiming relief shall, without delay, notify the other party by registered airmail or by telefax of the interruption and cessation thereof and shall use its best efforts to remedy the effects of such hindrance with all reasonable dispatch. The onus of proving that any such Force Majeure event exists shall rest upon the party so asserting. During the period that one party is prevented from performing its obligations under this Agreement due to a Force Majeure event, the other party may, in its sole discretion, suspend any obligations that relate thereto. Upon cessation of such Force Majeure event the parties hereto shall use their best efforts to make up for any suspended obligations. If such Force Majeure event is anticipated to continue, or has existed for nine (9) consecutive months or more, this Agreement may be forthwith terminated by either party by registered airmail or by telefax. In case of such termination the terminating party will not be required to pay to the other party any indemnity whatsoever. 12.15. CHANGE TO MAPPING ARRAY PROGRAM. [*] [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK] - --------------- *Confidential treatment has been requested for the marked portion. IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written. G.D. SEARLE & CO. ARQULE, INC. By: /s/ Allan Heller By: /s/ Stephen A. Hill ---------------------------- --------------------------- Name: Name: Stephen A. Hill Title: Title: CEO 25 EX-10.2 3 ex10-2.txt TERMINATION OF AGREEMENT 1 EXHIBIT 10.2 TERMINATION OF AGREEMENT This Termination of Agreement, dated as of June 30, 2000, is between ArQule, Inc. ("ArQule"), a Delaware corporation, and Pharmacia Corporation, formerly known as Monsanto Company ("Pharmacia"), a Delaware corporation. RECITALS WHEREAS, ArQule and Pharmacia have previously entered into an Array Delivery and Testing Agreement dated December 23, 1996, as subsequently amended and restated on January 11, 2000 (the "Prior Agreement"), with respect to which ArQule provides certain compound arrays for testing by Pharmacia and its Affiliates and performs certain other compound development activities in exchange for payment by Pharmacia of research funds, milestone payments and royalties; and WHEREAS, Pharmacia has decided, and ArQule is willing to, terminate the Prior Agreement. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, the parties hereby agree as follows: 1. TERMINATION. The Prior Agreement previously executed and delivered by and between ArQule and Pharmacia entitled "Amended and Restated Array Delivery and Testing Agreement" dated January 2000 (including its predecessor agreement entitled "Array Delivery and Testing Agreement" dated December 23, 1996, and any other understandings and agreements relating to the subject matter thereof), and the obligations and rights of the parties with respect thereto, except as set forth below, are hereby terminated in their entirety. 2. TERMINATION PAYMENT. In consideration of the termination of the Prior Agreement, and the satisfaction and discharge of any and all of Pharmacia's obligations to make research and development and array delivery payments thereunder, including without limitation all payments pursuant to Subsections 3.2.5 and 3.3.2, Pharmacia shall pay to ArQule, within sixty (60) days following the date hereof, the sum of [*]. ArQule represents that, upon payment of the foregoing amount, there are no amounts outstanding or due from Pharmacia as of the date hereof under the Prior Agreement of which ArQule is aware or should have been aware. 3. SURVIVAL OF PROVISIONS. Notwithstanding the foregoing or anything to the contrary in Section 11.4 of the Prior Agreement, the following provisions of the Prior Agreement shall survive termination: Articles 8, 10, and 12 (except for Section 12.15 which shall not survive). - --------------- *Confidential treatment has been requested for the marked portion. 2 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written. G.D. SEARLE & CO. ARQULE, INC. By: [ILLEGIBLE] By: /s/ Stephen A. Hill --------------------------- ----------------------------- Name: Name: Stephen A. Hill Title: Title: CEO 26 EX-10.3 4 ex10-3.txt TECHNOLOGY TRANSFER AND LICENSE AGREEMENT 1 EXHIBIT 10.3 TECHNOLOGY TRANSFER AND LICENSE AGREEMENT This Technology Transfer and License Agreement (the "Agreement") dated July 10, 2000 (the "Effective Date") is between Amersham Pharmacia Biotech A.B. ("APB"), a Swedish corporation, and ArQule, Inc. ("ArQule"), a Delaware corporation. RECITALS WHEREAS, APB and ArQule previously entered into a Research and Development Agreement dated March 10, 1995, as amended, which expired and was replaced by a Research Collaboration and License Agreement dated August 13, 1998 and a Commercialization Agreement dated August 13, 1998 (collectively, all three agreements are referred to in this Agreement as the "Prior Agreements"); and WHEREAS, under both the Research Collaboration and License Agreement dated August 13, 1998 (the "Research Collaboration and License Agreement") and the Commercialization Agreement dated August 13, 1998 (the "Commercialization Agreement"), the parties attempted to develop certain technologies and to offer certain commercial services in the area of Integrated Separations Solutions (as defined in such agreements) on an exclusive basis; and WHEREAS, the parties have determined that technology development effort and the commercialization effort are not achieving the original expectations of the parties; and WHEREAS, ArQule has decided to focus its research and commercial endeavors in pharmaceuticals and agrochemicals, to the exclusion of bioseparations opportunities; and WHEREAS, the parties have agreed that ArQule will transfer certain technology to APB and to grant APB certain non-exclusive licenses that will enable APB to develop and offer Integrated Separations Solutions without the involvement of ArQule; NOW, THEREFORE, in consideration of the foregoing and the covenants and promises set forth herein, APB and ArQule hereby agree as follows: 1. DEFINITIONS. 1.1. "AFFILIATE" means any legal entity (such as a corporation, partnership, or limited liability company) that is controlled by a party. For the purposes of this definition, the term "control" means (i) beneficial ownership of at least fifty percent (50%) of the voting securities of a corporation or other business organization with voting securities or (ii) a fifty percent (50%) or greater interest in the net assets or profits of a partnership or other business organization without voting securities. 2 1.2. "APB CORE TECHNOLOGY" means Technology developed under one of the Prior Agreements that principally consists of (i) linkers, (ii) media coatings, (iii) chromatographic media, or (iv) chemical modification methods. 1.3. "ARQULE COMPOUND" means a small organic chemical molecule transferred by ArQule to APB pursuant to the Technology Transfer Plan. 1.4. "ARQULE CORE TECHNOLOGY" means Technology developed under one of the Prior Agreements that principally consists of (i) chemical synthesis of ligands, (ii) chemical compositions of ligands, including without limitation ArQule Compounds, (iii) combinatorial libraries of chemical compounds, and (iv) chemi- informatics. 1.5. "BIOMOLECULES" means polypeptides, proteins, oligonucleotides, polynucleotides, oligosaccharides, polysaccharides or any combination of such molecules, whether produced by natural means or by organic synthesis on solid support or in solution. 1.6. "CHROMATOGRAPHIC BIOSEPARATIONS" means a method to purify or isolate a particular Biomolecule from a mixture of Biomolecules by means of a differential or selective non-covalent interaction of the particular Biomolecule in a mobile phase with a stationary phase consisting of a small organic molecule ligand that is covalently attached to a particulate solid support (i.e., a chromatographic resin). 1.7. "CONFIDENTIAL INFORMATION" has the meaning set forth in Section 6.1.1. 1.8. "LICENSED PRODUCT" means any product (i) which incorporates an ArQule Compound; or (ii) which, absent the licenses granted to APB hereunder, the manufacture, use or sale of such product would infringe one or more Valid Claims of the ArQule Patent Rights or the Joint Patent Rights; or (iii) which is developed, manufactured or used through use of the ArQule Technology or the Joint Technology. 1.9. "LICENSED SERVICE" means any service (i) which involves the use of a Licensed Product; (ii) which, absent the licenses granted to APB hereunder, could not be provided without infringing one or more Valid Claims of the ArQule Patent Rights or the Joint Patent Rights; or (iii) which could not be provided without use of the ArQule Technology or the Joint Technology. 1.10. "MEDIA PRODUCT" means a Licensed Product that is chromatography media (e.g., a ligand covalently linked to media such as Sepharose). 1.11. "NET SALES" means [*]. [*] 1.12. "PATENT RIGHTS" means any claims covering APB Technology, ArQule Technology, or Joint Technology in United States or foreign patent applications, together with any and all patents that have issued or in the future issue therefrom, and all related divisionals, - --------------- *Confidential treatment has been requested for the marked portion. 2 3 continuations, continuations-in-part (to the extent directed to the same subject matter), reissues, renewals, extensions or additions and foreign counterparts thereof. "ARQULE PATENT RIGHTS" means Patent Rights that are either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and a party other than APB, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense the rights required under this Agreement without payment to a third party. "APB PATENT RIGHTs" means Patent Rights that are either (i) assigned solely to APB, (ii) assigned jointly to APB and a party other than ArQule, or (iii) licensed to or otherwise controlled by APB, in each case to the extent that APB has the ability to license or sublicense the rights required under this Agreement without payment to a third party. "JOINT PATENT RIGHTS" means Patent Rights assigned to both ArQule and APB as joint owners. Joint Patent Rights will include (i) Patent Rights claiming Joint Technology and (ii) Patent Rights claiming both ArQule Technology and APB Technology in a single filing. "COLLABORATION PATENT RIGHTS" means claims in Patent Rights that cover Collaboration Technology. 1.13. "PROPRIETARY MATERIALS" has the meaning set forth in Section 6.2.1. 1.14. "ROYALTY PERIOD" means [*]. 1.15. "STEERING COMMITTEE" means the Steering Committee described in Section 4.2. 1.16. "TECHNOLOGY" means any proprietary development, idea, design, concept, technique, process, invention, Proprietary Material, discovery, or improvement, whether or not patentable or copyrightable, that was developed, discovered, conceived, or reduced to practice prior to the Effective Date. "ARQULE TECHNOLOGY" means Technology that is either (i) assigned solely to ArQule (including ArQule Core Technology), (ii) assigned jointly to ArQule and a party other than APB, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense the rights required under this Agreement without payment to a third party. "APB TECHNOLOGY" means Technology that is either (i) assigned solely to APB (including APB Core Technology), (ii) assigned jointly to APB and a party other than ArQule, or (iii) licensed to or otherwise controlled by APB, in each case to the extent that APB has the ability to license or sublicense the rights required under this Agreement without payment to a third party. "JOINT TECHNOLOGY" means Technology that was developed or discovered jointly by one or more employees or consultants of APB and one or more employees or consultants of ArQule, excluding APB Core Technology and ArQule Core Technology. "COLLABORATION TECHNOLOGY" means APB Technology, ArQule Technology, and Joint Technology that was developed, discovered, conceived, or reduced to practice under any of the Prior Agreements. 1.17. "TECHNOLOGY TRANSFER PLAN" means the plan set forth on EXHIBIT A for transfer of certain ArQule Technology and Joint Technology to APB under this Agreement. 1.18. "VALID CLAIM" means either (i) a claim of an issued patent that has not been held unenforceable or invalid by an agency or a court of competent jurisdiction in any unappealable - --------------- *Confidential treatment has been requested for the marked portion. 3 4 or unappealed decision or (ii) a claim of a pending patent application that has not been abandoned or finally rejected without the possibility of appeal or refiling. 2. EFFECT ON PRIOR AGREEMENTS. The parties hereby agree to terminate the Research Collaboration and License Agreement and the Commercialization Agreement, effective as of the Effective Date of this Agreement. The surviving provisions of the Research Collaboration and License Agreement shall be as set forth in Section 10.7. of that agreement. The surviving provisions under the Commercialization Agreement shall be as set forth in Section 8.5. of that agreement. 3. LICENSES. 3.1. RIGHTS TO ARQULE TECHNOLOGY AND ARQULE PATENT RIGHTS. Subject to the terms of this Agreement, ArQule hereby grants to APB and its Affiliates the following licenses: (i) a worldwide, royalty-bearing, non-exclusive license, without the right to grant sublicenses, under the ArQule Patent Rights and other rights in the ArQule Technology, to develop, make, use, sell, import and distribute Licensed Products and to develop and provide Licensed Services in the field of Chromatographic Bioseparations; (ii) a worldwide, royalty-bearing, non-exclusive license under the ArQule Patent Rights and other rights in the ArQule Technology (i) to have a third party manufacture bulk quantities of ArQule Compounds for incorporation into Media Products and (ii) to have a third party manufacture Media Products; and (iii) a worldwide, royalty-bearing, exclusive license, without the right to grant sublicenses, under the ArQule Patent Rights and other rights in the ArQule Technology to use ArQule Compounds to develop Licensed Products, provide Licensed Services, and sell ArQule Compounds that are incorporated into Media Products; provided, however, that ArQule expressly excludes from this license grant and reserves to itself all rights in and to ArQule Compounds under the ArQule Patent Rights and other rights in ArQule Technology for its own internal programs for applications outside the field of Chromatographic Bioseparations, including without limitation pharmaceutical applications, without payment to APB. 3.2. RIGHTS TO APB TECHNOLOGY AND APB PATENT RIGHTS. Subject to the terms of this Agreement, APB hereby grants to ArQule and its Affiliates a worldwide, royalty-bearing, non-exclusive license, with the right to grant sublicenses, under the APB Patent Rights and other rights in the APB Technology, to the extent necessary to enable ArQule to practice ArQule Patent Rights or Joint Patent Rights that constitute Collaboration Patent Rights or to use ArQule Technology or Joint Technology that constitutes Collaboration Technology in any field other than the field of Chromatographic Bioseparations. 4 5 3.3. USE OF JOINT TECHNOLOGY. 3.3.1. APB RIGHTS. Subject to the terms of this Agreement, APB and its Affiliates shall have the right to use the Joint Technology and to practice the Joint Patent Rights for any purpose in the field of Chromatographic Bioseparations, with payment to ArQule in accordance with Section 5.5. APB and its Affiliates shall have the right to use the Joint Technology and to practice the Joint Patent Rights for any purpose outside the field of Chromatographic Bioseparations, without payment to ArQule. 3.3.2. ARQULE RIGHTS. Subject to the terms of this Agreement, ArQule and its Affiliates and sublicensees shall have the right to use the Joint Technology and to practice the Joint Patent Rights for any purpose in the field of Chromatographic Bioseparations, with payment to APB in accordance with Section 5.11. ArQule and its Affiliates and sublicensees shall have the right to use the Joint Technology and to practice the Joint Patent Rights for any purpose outside of the field of Chromatographic Bioseparations, without payment to APB. 4. TECHNOLOGY TRANSFER. 4.1. TECHNOLOGY TRANSFER PLAN. The parties have established a Technology Transfer Plan, set forth on EXHIBIT A, pursuant to which ArQule shall transfer to APB, and APB shall accept, certain identified ArQule Technology. Each party agrees to use commercially reasonable efforts to fulfill its obligations under the Technology Transfer Plan; provided, however, that notwithstanding anything to the contrary in this Agreement (i) ArQule shall have no further obligation to fulfill the Technology Transfer Plan after [*], (ii) ArQule shall have no obligation to commit more than [*] full-time equivalents ("FTEs") to the project during the period from the Effective Date through [*] (i.e., an effort equivalent to [*] individuals working full time on the Technology Transfer Plan during this period), and (iii) during the period from [*], ArQule shall have a limited obligation to provide reasonable technology transfer services subject to the availability of the requested personnel and subject to reimbursement from APB as set forth in Subsection 5.1.2. 4.2. MANAGEMENT OF TECHNOLOGY TRANSFER. 4.2.1. STEERING COMMITTEE. The parties hereby create a Steering Committee which shall consist of six (6) members, with three (3) members designated by each party, to manage the technology transfer activities under the Technology Transfer Plan. A party may change any of its members to the Steering Committee immediately upon written notice to the other party. If a member of the Steering Committee cannot attend a meeting for any reason, that member may appoint a substitute to attend the meeting in his or her place. The Steering Committee shall be responsible for oversight of the day-to-day conduct and progress of the Technology Transfer Plan and approval of all activities relating to the Technology Transfer Plan. 4.2.2. DECISIONS. Either party may call a meeting of the Steering Committee on fifteen (15) days written notice to the other party, unless notice is waived by the other party. A - --------------- *Confidential treatment has been requested for the marked portion. 5 6 quorum of the Steering Committee shall be present at any meeting of the Steering Committee if every member or a duly appointed substitute are present at such meeting in person or by telephone. If a quorum exists at any meeting, the unanimous consent of all members of the Steering Committee present at such meeting is required to take any action on behalf of the Steering Committee. Unless otherwise specifically stated to the contrary herein, no individual party shall purport to act on behalf of the other party unless and then only to the extent authorized to do so by the Steering Committee. 4.2.3. REPORTS. Within ten (10) days following each meeting of the Steering Committee, a member appointed by the Steering Committee shall prepare and send to the members of the Steering Committee a detailed written report of actions taken at the meeting in such form and containing such detail as shall be determined by the Steering Committee. 4.2.4 DEADLOCK. In the event that the Steering Committee cannot reach agreement with respect to any matter that is subject to its decision-making authority, then the matter shall be referred to the dispute resolution procedure described in Section 9.12. 5. PAYMENTS. 5.1. FEES. 5.1.1. COMPOUND TRANSFER. In consideration of the transfer of certain ArQule Compounds to APB under the Technology Transfer Plan, APB shall pay ArQule a fee of [*] within [*] after the Effective Date. 5.1.2. SERVICES. In the event that APB uses technology transfer services from ArQule after [*] as described in Section 4.1. above, APB shall pay ArQule for such services at the rate of [*] per ArQule FTE. 5.2. ROYALTIES ON MEDIA PRODUCTS. In consideration of the licenses under ArQule Technology granted to APB under this Agreement and the technology transfer provided to APB pursuant to this Agreement, APB shall pay ArQule a royalty [*]: [*] [*] [*] [*] [*] [*] [*] [*] provided, that, [*], the annual royalty [*]. By way of example, but not limitation, if [*], APB shall pay ArQule a royalty of [*]. 5.3. ADJUSTMENTS TO ROYALTY PAYMENTS. At the commencement of each calendar year APB will estimate the total annual Net Sales for each Media Product anticipated to be sold by - --------------- *Confidential treatment has been requested for the marked portion. 6 7 APB during such calendar year, and thereby determine the royalty percentage that will apply to the total annual Net Sales of such Media Product during such calendar year. After the end of each calendar year, APB will provide, together with the first quarterly report due pursuant to Section 5.6, a written report setting forth the total actual annual Net Sales for each such Media Product in such calendar year, reconciling the royalties paid by APB during such calendar year with the royalties actually due from APB. Together with said report, APB will either make a payment to ArQule or issue to ArQule an invoice for any overpayments. All invoices provided for under this Section 5.3 shall be stated, and all amounts payable thereunder shall be paid in United States dollars as provided in Section 5.7. 5.4. DURATION OF ROYALTY OBLIGATION. APB's obligation to pay royalties on the annual Net Sales of Media Products pursuant to Section 5.2 shall continue for as long as such Media Products are being sold. 5.5. ROYALTIES ON OTHER LICENSED PRODUCTS OR LICENSED SERVICES. If APB wishes to develop, market or sell Licensed Products other than Media Products or Licensed Services other than services in the development or support of Media Products, APB shall notify ArQule in writing and promptly thereafter the parties shall enter into good faith negotiations to arrive at commercially reasonable financial terms, including a royalty, for the development and commercialization of such Licensed Products or Licensed Services. Until such terms are established, APB will not have the right to develop, market or sell such Licensed Products or Licensed Services. 5.6. REPORTS. Within sixty (60) days after the conclusion of each Royalty Period, APB shall deliver to ArQule a report containing the following information: (i) gross sales of Licensed Products and Licensed Services by APB during the applicable Royalty Period in each country of sale; (ii) adjustments and calculation of Net Sales for each Licensed Product and Licensed Service for the applicable Royalty Period in each country of sale; (iii) total Net Sales of each Licensed Product and Licensed Service together with the exchange rates used for conversion; and (iv) total royalty payment due for the Royalty Period for each Licensed Product and Licensed Service. If no payment is to be made by APB for any reporting period, the report shall so state. All such reports shall be considered Confidential Information under this Agreement. Concurrent with this report, APB shall remit to ArQule any payment due for the applicable Royalty Period. 5.7. PAYMENTS IN U.S. DOLLARS. Subject to Section 5.8., all payments due under this Article 5 shall be payable in United States dollars. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in the WALL 7 8 STREET JOURNAL) on the last working day of the calendar quarter preceding the applicable Royalty Period. Such payments shall be without deduction of exchange, collection, or other charges. 5.8. PAYMENTS IN OTHER CURRENCIES. If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, APB shall give ArQule prompt written notice of such restriction, which notice shall satisfy the payment deadlines described in Section 5.6. APB shall pay any amounts due ArQule through whatever lawful methods ArQule reasonably designates; provided, however, that if ArQule fails to designate such payment method within thirty (30) days after being notified of the restriction, APB may deposit such payment in local currency to the credit of ArQule in a recognized banking institution selected by APB and identified by written notice to ArQule, and such deposit shall fulfill all obligations of APB to the other party with respect to such payment. 5.9. RECORDS. APB shall maintain complete and accurate records of (i) Licensed Products and Licensed Services sold or provided and (ii) any royalties payable to ArQule in relation to each such Licensed Product and Licensed Service, which records shall contain sufficient information to permit ArQule to confirm the accuracy of any reports delivered under Section 5.6. APB shall retain such records relating to a given Royalty Period for at least five (5) years after the conclusion of that Royalty Period, during which time ArQule shall have the right, at its expense, to cause an independent, certified public accountant to inspect such records during normal business hours for the sole purpose of verifying any reports and payments delivered under this Agreement. Such accountant shall not disclose to ArQule any information other than information relating to accuracy of reports and payments delivered under this Agreement. The parties shall reconcile any underpayment or overpayment within thirty (30) days after the accountant delivers the results of the audit. In the event that any audit performed under this Section reveals an underpayment in excess of [*] in any Royalty Period, APB shall bear the full cost of such audit. ArQule may exercise its rights under this Section only once every year and only with reasonable prior notice to APB. 5.10. LATE PAYMENTS. Any payments by APB that are not paid on or before the date such payments are due under this Agreement shall bear interest, to the extent permitted by law, at [*] above the Prime Rate of interest as reported in the WALL STREET JOURNAL on the date payment is due, with interest calculated based on the number of days that payment is delinquent. 5.11. PAYMENTS BY ARQULE. If ArQule wishes to develop, market or sell products or services for which a royalty or other payment is due to APB pursuant to Section 3.3.2., ArQule shall notify APB in writing and promptly thereafter the parties shall enter into good faith negotiations to establish a definitive license agreement on commercially reasonable financial terms for the development and commercialization of such products or services. Until the parties execute a definitive license agreement, ArQule will not have the right to develop, market or sell such products or services. 6. CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS. - --------------- *Confidential treatment has been requested for the marked portion. 8 9 6.1. CONFIDENTIAL INFORMATION. 6.1.1. DEFINITION OF CONFIDENTIAL INFORMATION. Confidential Information shall mean any technical or business information furnished by one party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with this Agreement. Such Confidential Information may include, without limitation, the use of a chemical compound, as well as trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, Steering Committee reports or minutes, product and marketing plans, and customer and supplier information. 6.1.2. OBLIGATIONS. The Receiving Party agrees that it shall: (i) maintain all Confidential Information in strict confidence, except that the Receiving Party may disclose or permit the disclosure of any Confidential Information to its directors, officers, employees, consultants, and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such Confidential Information for the purposes set forth in this Agreement; (ii) use all Confidential Information solely for the purposes set forth in this Agreement; and (iii) allow its directors, officers, employees, consultants, and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information. 6.1.3. EXCEPTIONS. The obligations of the Receiving Party under Section 6.1.2. above shall not apply to the extent that the Receiving Party can demonstrate that certain Confidential Information: (i) was in the public domain prior to the time of its disclosure under this Agreement; (ii) entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the Receiving Party; (iii) was independently developed or discovered by the Receiving Party without use of the Confidential Information; (iv) is or was disclosed to the Receiving Party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the Disclosing Party and having no obligation of confidentiality with respect to such Confidential Information; or 9 10 (v) is required to be disclosed to comply with applicable laws or regulations, or with a court or administrative order, provided, that the Disclosing Party receives prior written notice of such disclosure and that the Receiving Party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure. 6.2. PROPRIETARY MATERIALS. 6.2.1. DEFINITION OF PROPRIETARY MATERIALS. "Proprietary Materials" means any tangible chemical, biological, or physical materials that are furnished by one party (the "Materials Provider") to the other party (the "Materials Recipient") in connection with this Agreement regardless of whether such materials are specifically designated as proprietary to the Materials Provider, including without limitation all ArQule Compounds. The Materials Provider shall furnish such Proprietary Materials to the Materials Recipient in a mutually acceptable form, including appropriate labelling and packaging. 6.2.2. LIMITED USE. The Materials Recipient shall use the Proprietary Materials solely for the purposes set forth in this Agreement. The Materials Recipient shall use the Proprietary Materials only in compliance with all applicable governmental laws and regulations, and not for any IN VIVO experiments on human subjects. The Materials Recipient assumes all liability for damages that may arise from the use, storage, or disposal of any Proprietary Materials. The Materials Provider will not be liable to the Materials Recipient for any loss, claim, or demand made by Materials Recipient, or made against the Materials Recipient by any other party, due to or arising from the use, storage, or disposal of any Proprietary Materials by the Materials Recipient, and the Materials Recipient agrees, to the extent allowed under applicable law, to defend, indemnify, and hold the Materials Provider harmless from and against any such losses, claims, or demands, except to the extent caused by the gross negligence or willful misconduct of the Materials Provider. 6.2.3. LIMITED DISPOSITION. Except as otherwise expressly provided herein, the Materials Recipient shall not transfer or distribute any Proprietary Materials to any third party without the prior written consent of the Materials Provider, which consent may be withheld at the sole discretion of the Materials Provider. 6.2.4. APPLICABLE LAWS AND REGULATIONS. The Materials Recipient agrees to comply with all federal, state, and local laws and regulations applicable to the use, storage, disposal, and transfer of Proprietary Materials furnished by the Materials Provider, including without limitation the Toxic Substances Control Act (15 USC 2601 et seq.) and implementing regulations (in particular, 40 CFR 720.36 [Research and Development Exemption]), the Food, Drug, and Cosmetic Act (21 USC 301 et seq.) and implementing regulations, all Export Administration Regulations of the U.S. Department of Commerce, and equivalent laws and regulations in countries outside the United States. The Materials Recipient assumes sole responsibility for any violation of such laws or regulations by the Materials Recipient, its employees or its consultants. 6.3. RETURN OF CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS. 10 11 6.3.1. CONFIDENTIAL INFORMATION. Upon the termination of this Agreement, at the request of the Disclosing Party, the Receiving Party shall return to the Disclosing Party all originals, copies, and summaries of documents, materials, and other tangible manifestations of Confidential Information in the possession or control of the Receiving Party, except that the Receiving Party may retain one copy of the Confidential Information in the possession of its legal counsel solely for the purpose of monitoring its obligations under this Agreement. 6.3.2. PROPRIETARY MATERIALS. Upon the termination of this Agreement, the Materials Recipient shall, at the instruction of the Materials Provider, either destroy or return any unused Proprietary Materials. 6.4. EXCEPTION FOR CUSTOMER DISCLOSURES. Notwithstanding anything to the contrary in this Article 6, APB shall have the right to disclose and transfer to its customers ArQule Compounds, as well as derivatives and analogs of ArQule Compounds, that have demonstrated binding affinity for a Biomolecule in connection with the development of a Media Product. Moreover, in the event that APB determines that additional disclosure or transfer of ArQule Compounds to its customers is necessary or desirable for providing Licensed Products or Licensed Services, ArQule shall not unreasonably withhold consent to such disclosure or transfer. APB agrees that all disclosures of ArQule Confidential Information or transfer of ArQule Proprietary Materials under this Section 6.4. shall be covered by an agreement between APB and the customer that contains terms and conditions that are substantially similar to the provisions of this Article 6. 6.5. SURVIVAL OF OBLIGATIONS. The obligations set forth in this Article 6 shall remain in effect for a period of five (5) years after termination of this Agreement, except that the obligations of the Receiving Party to return Confidential Information to the Disclosing Party and the obligations of the Materials Recipient to return or destroy Proprietary Materials received from the Materials Provider shall survive until fulfilled. 7. TERM AND TERMINATION. 7.1. TERM. This Agreement shall commence on the Effective Date and, unless sooner terminated pursuant to this Article 7, shall expire on a Licensed Product-by-Licensed Product or Licensed Service-by-Licensed Service basis and country-by-country basis, upon the date of the last sale of such Licensed Product or the last provision of a Licensed Service in such country. 7.2. EVENTS OF DEFAULT. 7.2.1. DEFAULT BY EITHER PARTY. Subject to Section 7.2.2., an Event of Default by either party shall have occurred upon (i) the occurrence of a breach of a material term of this Agreement (other than a material breach described in clause (ii) hereof or in Section 7.2.2.) if the breaching party fails to remedy such breach within ninety (90) days after written notice thereof by the non-breaching party or (ii) the bankruptcy, insolvency, dissolution or winding up of a party. 11 12 7.2.2. DEFAULT BY APB. An Event of Default by APB shall have occurred if (i) APB fails to make payments due hereunder within thirty (30) days after ArQule delivers written notice thereof to APB specifying such failure and its claim of right to terminate, unless APB makes such payments plus interest within such thirty (30) day period. 7.3. EFFECT OF AN EVENT OF DEFAULT. 7.3.1. REMEDIES AVAILABLE TO ARQULE. If an Event of Default described in Section 7.2.1. or 7.2.2. occurs relating to APB, and APB fails to cure such default during any applicable cure period, ArQule shall have the right, at its option exercisable in its sole discretion, in addition to any other rights or remedies available to it at law or in equity, and subject to the limitations of Section 9.12, to terminate this Agreement upon written notice thereof to APB. 7.3.2. REMEDIES AVAILABLE TO APB. If an Event of Default described in Section 7.2.1. occurs relating to ArQule, and ArQule fails to cure such default during any applicable cure period, APB shall have the right, at its option exercisable in its sole discretion, in addition to any other rights or remedies available to it at law or in equity, and subject to the limitations of Section 9.12, to terminate this Agreement upon written notice thereof to ArQule. 7.4. SURVIVAL. The expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Articles 5 (with respect to payment obligations that accrue prior to the effective date of termination), 6, and 8, and Sections 9.8., 9.10., and 9.12. shall survive the expiration or termination of this Agreement 8. INDEMNIFICATION AND INSURANCE. 8.1. APB INDEMNIFICATION. APB (the "Indemnifying Party") shall indemnify and hold harmless ArQule, and its directors, officers, employees and agents (collectively, the "Indemnitees") from and against all claims, expenses or liability of whatever nature arising from or alleged to arise from (i) any default, act, omission or negligence of the Indemnifying Party, its agents or employees, or others exercising rights by, through, or under the Indemnifying Party, or the failure of the Indemnifying Party or such persons to comply with any applicable laws, rules, regulations, codes, ordinances or directives of governmental authorities, in each case to the extent the same are related, directly or indirectly, to the licenses described herein, and/or the sale of Licensed Products and/or the provision of Licensed Services; or (ii) any theory of product liability (including, but not limited to, actions in the form of tort, warranty or strict liability) concerning any Licensed Product sold or Licensed Service rendered by such party; provided, however, that in no event shall the Indemnifying Party be obligated under this section to indemnify an Indemnitee where such claim, expense or liability results solely from any omission, fault, negligence, or other misconduct of such Indemnitee. 8.2. ARQULE INDEMNIFICATION. ArQule (the "Indemnifying Party") shall indemnify and hold harmless APB, and its directors, officers, employees and agents (collectively, the "Indemnitees") from and against all claims, expenses or liability of whatever nature arising from or alleged to arise from (i) any default, act, omission or negligence of the Indemnifying Party, its 12 13 agents or employees, or others exercising rights by, through, or under the Indemnifying Party, or the failure of the Indemnifying Party or such persons to comply with any applicable laws, rules, regulations, codes, ordinances or directives of governmental authorities, in each case to the extent the same are related, directly or indirectly, to the licenses set forth in Section 3.2.; or (ii) any theory of product liability (including, but not limited to, actions in the form of tort, warranty or strict liability) concerning any product or service rendered by such party pursuant to the licenses granted under Section 3.2.; provided, however, that in no event shall the Indemnifying Party be obligated under this section to indemnify an Indemnitee where such claim, expense or liability results solely from any omission, fault, negligence, or other misconduct of such Indemnitee. 8.3. PROCEDURE. The Indemnitees agree to provide the Indemnifying Party with prompt written notice of any claim, suit, action, demand, or judgment for which indemnification is sought under this Agreement. If an Indemnitee fails to provide such notice within a reasonable time, and if such failure prejudicially affects the ability of the Indemnifying Party to defend such action, the Indemnifying Party shall be relieved of its liability to such Indemnitee under this Article 8. The Indemnifying Party agrees, at its own expense, to provide attorneys reasonably acceptable to the Indemnitees to defend against any such claim. The Indemnitees shall cooperate fully with the Indemnifying Party in such defense and will permit the Indemnifying Party to conduct and control such defense and the disposition of such claim, suit, or action (including all decisions relative to litigation, appeal, and settlement); provided, however, that any Indemnitee shall have the right to retain its own counsel, at the expense of the Indemnifying Party, if representation of such Indemnitee by the counsel retained by the Indemnifying Party would be inappropriate because of actual or potential differences in the interests of such Indemnitee and any other party represented by such counsel. The Indemnifying Party agrees to keep the other party informed of the progress in the defense and disposition of such claim and to consult with such party with regard to any proposed settlement. 8.4. INSURANCE. APB shall maintain adequate product liability insurance with respect to development, manufacture, and sale of Licensed Products and Licensed Services by APB in such amount as it customarily maintains with respect to sales of its other products, and in no event less than a reasonable amount. APB shall maintain such insurance for so long as it continues to manufacture or sell Licensed Products and/or to provide Licensed Services, and thereafter for so long APB customarily maintains such insurance for itself covering such manufacture or sale. 9. MISCELLANEOUS. 9.1. PUBLICITY. Neither party shall make any press release, advertising, promotional sales literature, or other promotional oral or written statements to the public in connection with this Agreement, or having or containing any reference to ArQule or APB, without the prior written approval of the other party, except for restatements of previously-approved statements and disclosures required by applicable law or regulation. 9.2. RELATIONSHIP OF PARTIES. For the purposes of this Agreement, each party is an independent contractor and not an agent or employee of the other party. Neither party shall have authority to make any statements, representations, or commitments of any kind, or to take any 13 14 action which shall be binding on the other party, except as may be explicitly provided for herein or authorized in writing. 9.3. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall be deemed to be one and the same instrument. 9.4. HEADINGS. All headings in this Agreement are for convenience only and shall not affect the meaning of any provision hereof. 9.5. BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon the parties and their respective lawful successors and assigns. 9.6. ASSIGNMENT. This Agreement may not be assigned by either party without the prior written consent of the other party, except that either of the parties may assign this Agreement to an Affiliate or successor in connection with the merger, consolidation, or sale of all or substantially all of its assets or that portion of its business pertaining to the subject matter of this Agreement. 9.7. FORCE MAJEURE. Neither party will be responsible for delays resulting from acts beyond the control of such party, provided, that the non-performing party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continues performance hereunder with reasonable dispatch whenever such causes are removed. 9.8. NOTICES. All notices, requests, demands and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been duly given upon the date of receipt if delivered by hand, recognized national overnight courier, confirmed facsimile transmission, or registered or certified mail, return receipt requested, postage prepaid, to the following addresses or facsimile numbers: If to APB: Amersham Pharmacia Biotech AB S-751-84 Uppsala Sweden Attention: Peter Ehrenheim Telephone: +46 18 612 0000 Facsimile: +46 18 612 1809 14 15 with a copy (which shall not constitute notice) to: Ulf Lundberg General Counsel Amersham Pharmacia Biotech S-751-84 Uppsala Sweden Telephone: +46 18 612 0001 Facsimile: +46 18 612 1810 If to ArQule: ArQule, Inc. 19 Presidential Way Woburn, MA 01801 Attn: President Telephone: (781) 994-0300 Facsimile: (781) 503-0009 with a copy (which shall not constitute notice) to: ArQule, Inc. 19 Presidential Way Woburn, MA 01801 Attn: Legal Department Telephone: (781) 994-0300 Facsimile: (781) 994-0676 Either party may change its designated address and facsimile number by notice to the other party in the manner provided in this Section 9.8. 9.9. AMENDMENT AND WAIVER. This Agreement may be amended, supplemented, or otherwise modified at any time, but only by means of a written instrument signed by both parties. Any waiver of any rights or failure to act in a specific instance shall relate only to such instance and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar. 9.10. GOVERNING LAW. This Agreement and the legal relations among the parties shall be governed by and construed in accordance with the laws of the State of Delaware irrespective of any conflict of laws principles. 9.11. SEVERABILITY. In the event that any provision of this Agreement shall, for any reason, be held to be invalid or unenforceable in any respect, such invalidity or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceable provision had not been included herein. 15 16 9.12. DISPUTE RESOLUTION. Any disputes between the parties that arise under or relate to this Agreement and are not resolved by the Steering Committee shall be resolved in accordance with the following procedures. The parties shall first attempt in good faith to resolve the matter among themselves. If the matter remains unresolved after a period of thirty (30) days after the dispute first arose, the dispute shall be referred to the Chief Executive Officers of each party, who shall meet at a mutually acceptable time and location. If the matter remains unresolved within sixty (60) days after the dispute first arose, the matter will be finally settled by binding arbitration as follows. The parties will submit the matter to binding arbitration in accordance with the then current Center for Public Resources Institute for Dispute Resolution Rules for Non-Administered Arbitration, with the exception that the arbitration shall be conducted in New York, New York by a sole arbitrator. Judgment upon the award rendered by the arbitrator may be entered and enforced in any court having jurisdiction thereof. 9.13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior or contemporaneous oral and prior written agreements and understandings including, without limitation, the Prior Agreements. 16 17 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written. AMERSHAM PHARMACIA ARQULE, INC. BIOTECH AB By: /s/ Ulf Lundberg By: /s/ Stephen A. Hill -------------------------------- -------------------------------- Name: Ulf Lundberg Name: Stephen A. Hill ------------------------------- ------------------------------- Title: VP-Legal Title: CEO ------------------------------- ------------------------------- 17 18 EXHIBIT A Technology Transfer Plan ------------------------ July 7, 2000 [*] - --------------- *Confidential treatment has been requested for the marked portion. EX-11.1 5 ex11-1.txt COMPUTATION OF NET INCOME(LOSS) PER SHARE 1 ARQULE, INC. EXHIBIT 11.1 ArQule, Inc. Statement Re Computation of Unaudited Net Loss Per Share (In thousands, except per share data)
Three Months Ended June 30, Six Months Ended June 30, (Unaudited) (Unaudited) -------------------------- ------------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Net income / (loss) $ 609 $(3,594) $ (733) (7,560) ======= ======= ======= ======= Weighted average shares outstanding: Common Stock 13,520 12,560 13,362 12,438 Weighted average common shares outstanding 13,520 12,560 13,362 12,438 ======= ======= ======= ======= Basic net income / (loss) per share $ 0.05 $ (0.29) $ (0.05) $ (0.61) ======= ======= ======= =======
Three Months Ended June 30, Six Months Ended June 30, (Unaudited) (Unaudited) --------------------------- ------------------------- 2000 1999 2000 1999 ------- -------- -------- -------- Net income / (loss) $ 609 $(3,594) $ (733) $ (7,560) ======= ======= ======= ======== Weighted average shares outstanding: Common Stock 13,520 12,560 13,362 12,438 Stock option common stock equivalents 878 -- -- -- ------- ------- ------- -------- Weighted average common shares and equivalents outstanding 14,398 12,560 13,362 12,438 ======= ======= ======= ======== Diluted net income / (loss) per share $ 0.04 $ (0.29) $ (0.05) $ (0.61) ======= ======= ======= ========
- 14 - EX-27 6 ex27.txt FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 1 9,068 24,930 3,001 0 344 36,086 52,289 20,420 76,998 22,291 0 0 0 136 43,308 76,998 22,472 22,472 10,723 23,768 0 0 563 (733) 0 (733) 0 0 0 (733) (0.05) (0.05)
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