-----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, DFWjZHwcjjOh8EAWmpoDmLQ1EaOR5HpxMYgp9ctLVW9AHBB3oeL8qgDlMlGqVT7B Mjn5V6dbrEayZ0h2mMLAQg== 0000950135-99-005672.txt : 19991222 0000950135-99-005672.hdr.sgml : 19991222 ACCESSION NUMBER: 0000950135-99-005672 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARQULE INC CENTRAL INDEX KEY: 0001019695 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 043221586 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-21429 FILM NUMBER: 99778275 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/A 1 ARQULE INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q/A Amendment No. 1 Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1999 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) 200 BOSTON AVENUE, MEDFORD, MASSACHUSETTS 02155 (Address of Principal Executive Offices) (781) 395-4100 (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 November 5, 1999: Common Stock, par value $.01 12,838,465 shares outstanding 2 EXPLANATORY NOTE The sole purpose of this amendment is to re-file Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 without redaction of certain language for which ArQule no longer seeks confidential treatment. 3 ARQULE, INC. PART II - OTHER INFORMATION Item 6(a) - Exhibits:
EXHIBITS DESCRIPTION -------- ----------- 10.1 Technology Acquisition Agreement between and by Pfizer Inc. and ArQule, Inc. dated July 19, 1999 10.2 Sublease by and among Pfizer Inc. and ArQule, Inc. dated July 16, 1999 10.3 Research Cooperation Agreement between Bayer AG and ArQule, Inc. dated October 1, 1999 10.4 Employment Agreement with Philippe Bey dated July 21, 1999
-1- 4
11.1 Statement Re Computation of Unaudited Net Income (Loss) Per Share 27 Financial Data Schedule
-2- 5 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. Date: December 21, 1999 /s/ James R. Fitzgerald, Jr. ------------------------------------- James R. Fitzgerald, Jr. (Vice President, Chief Financial Officer and Treasurer) -3- 6 ARQULE, INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.1+ Technology Acquisition Agreement between and by Pfizer Inc. and ArQule, Inc. dated July 19, 1999 10.2+ Sublease by and among Pfizer Inc. and ArQule, Inc. dated July 16, 1999 10.3+ Research Cooperation Agreement between Bayer AG and ArQule, Inc. dated October 1, 1999 10.4* Employment Agreement with Philippe Bey dated July 21, 1999(1) 11.1 Statement Re Computation of Unaudited Net Income (Loss) Per Share(1) 27 Financial Data Schedule(1)
- ----------------- + Confidential treatment has been requested for certain portions of these Exhibits pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended. * Indicates a management contract. (1) Exhibit was originally filed with the Registrant's Quarterly Report on Form 10-Q on November 15, 1999 and is not affected by this Form 10-Q/A. -4- EX-10.1 2 TECHNOLOGY ACQUISITION AGREEMENT 1 EXHIBIT 10.1 TECHNOLOGY ACQUISITION AGREEMENT This TECHNOLOGY ACQUISITION AGREEMENT is entered into as of July 19, 1999 by and between PFIZER INC, a Delaware corporation, having an office at 235 East 42nd Street, New York, New York 10017 and its Affiliates ("Pfizer"), and ARQULE, INC, a Delaware corporation, having an office at 200 Boston Avenue, Medford, MA 02155 and its Affiliates ("ArQule"). WHEREAS, Pfizer has expertise in medicinal chemistry and its use in the discovery, research, and development of pharmaceutical products; and WHEREAS, ArQule has certain technology, know-how and expertise relating to the automated synthesis of compounds and has ownership of the patent applications and the patents set forth in Exhibit A, attached to and made part of this Agreement; and WHEREAS, Pfizer seeks to license ArQule's automated compound synthesis technology and to access ArQule's expertise and know-how in the automated synthesis of compounds for production of compound libraries; and WHEREAS, Pfizer and ArQule wish to enter into this Agreement for transfer of automated compound synthesis technology to Pfizer and to produce compound libraries for Pfizer; NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS Whenever used in this Agreement, the terms defined in this Section 1 shall have the meanings specified. 2 1.1 "AFFILIATE" means any corporation or other legal entity owning, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or ArQule; any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by Pfizer or ArQule or any corporation or other legal entity fifty percent (5 0%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which owns, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or ArQule. 1.2 "AMAP(TM) PARALLEL SYNTHESIS SYSTEM" or "System" means ArQule's combinatorial chemistry synthesis platform comprising [*], as more fully described in Exhibit B (AMAP Description) and Exhibit C (System Equipment), attached to and made part of this Agreement. The term "AMAP" is a trademark of ArQule. 1.3 "ARQULE COMPOUNDS" means [*]. 1.4 "ARQULE CONFIDENTIAL INFORMATION" means all information about any element of the ArQule Technology which is disclosed by ArQule to Pfizer and designated "Confidential' in writing by ArQule at the time of disclosure or within thirty (30) days following disclosure to the extent that such information (i) as of the date of disclosure to Pfizer is not known to Pfizer other than by virtue of a prior confidential disclosure to Pfizer by ArQule; or (ii) is not disclosed in published literature, or otherwise generally known to the public through no fault or omission of Pfizer; or (iii) is not obtained by Pfizer from a third party free from any obligation of confidentiality to ArQule. - ------------------ *Confidential treatment has been requested for the marked portion. -2- 3 1.5 "ARQULE STAFF" means the full time equivalent ("FTE") ArQule employees in the Production Facility who shall perform the Collaboration Program. 1.6 "ARQULE TECHNOLOGY" means Technology, including, but not limited to Technology described and made a part of this Agreement in Exhibit A, comprising the System and Improvements thereto, which Technology is developed by employees of or consultants to ArQule alone or jointly with third parties prior to the Effective Date and during the Contract Period, but excluding technology that ArQule does not have the right to license, sublicense, or practice as set forth in this Agreement without the consent of or payment to a third party. ArQule Technology also includes all Improvements to the System that are developed under the Plans by Pfizer employees alone or jointly with ArQule Staff during the Contract Period; provided, however, that Pfizer Confidential Information has been removed. ArQule Technology does not include Pfizer Compounds. 1.7 "AUTOMATED TRANSFORMATION" means [*]. 1.8 "CHEMICAL TRANSFORMATION" means [*]. 1.9 "COLLABORATION PLAN" means the written plan describing and governing the activities to be carried out by Pfizer and ArQule pursuant to this Agreement. The initial Collaboration Plan is attached to and made a part of this Agreement as Exhibit D. 1.10 "COLLABORATION PROGRAM" is the ArQule Technology transfer program and the Pfizer Compound synthesis program conducted by ArQule and Pfizer pursuant to the Plans. 1.11 "CONTRACT PERIOD" means the period beginning on the Effective Date and ending on the date on which this Agreement terminates. 1.12 "EFFECTIVE DATE" means July 19, 1999. - ------------------ *Confidential treatment has been requested for the marked portion. -3- 4 1.13 "IMPROVEMENT" means any improvement, augmentation, or enhancement to the System that is developed by a party during the Contract Period. 1.14 "LEGAL BOOKS" mean the formal laboratory notebooks issued to ArQule Staff and owned by Pfizer in which all work performed by ArQule Staff in the Production Facility will be recorded. Legal Books will not be removed from the Production Facility. Pfizer may review Legal Books at any time. 1.15 "LIBRARY PROTOCOLS" means [*]. 1.16 "MOVE-IN DATE" means such date after the Effective Date and on or before [*] ArQule shall certify the Production Facility as ready for occupancy and operations by Pfizer employees and ArQule Staff. 1.17 "PATENT RIGHTS" shall mean all patent rights in and to inventions within Pfizer Technology and ArQule Technology including patents and patent applications, whether domestic or foreign, claiming such patentable inventions, including all continuations, continuations-in-part, divisions, and renewals, and letters patent granted thereon, and all reissues, re-examinations and extensions. 1.18 "PFIZER COMPOUNDS" means [*]. 1.19 "PFIZER CONFIDENTIAL INFORMATION" means all information about any element of Pfizer Technology which is disclosed by Pfizer to ArQule and designated "Confidential" in writing by Pfizer at the time of disclosure or within thirty (30) days following disclosure to the extent that such information (i) as of the date of disclosure to ArQule is not known to ArQule other than by virtue of a prior confidential disclosure to ArQule by Pfizer; or (ii) is not disclosed in published literature, or otherwise generally known to the public through no fault or omission - ------------------ *Confidential treatment has been requested for the marked portion. -4- 5 of ArQule; or (iii) is not obtained by ArQule from a third party free from any obligation of confidentiality to Pfizer. 1.20 "PFIZER STAFF" means Pfizer FTE employees in the Production Facility who shall perform the Collaboration Program. 1.21 "PFIZER TECHNOLOGY" means Technology developed by employees of or consultants to Pfizer alone or jointly with third parties prior to the Effective Date and during the Contract Period and shall include, without limitation, Pfizer Compounds. 1.22 "PLANS" are the Collaboration Plan and the Production Plan. 1.23 [*]. 1.24 "PRODUCTION FACILITY" means the space that Pfizer has leased from ArQule under the terms and conditions of the Sublease Agreement, attached to and made part of this Agreement as Exhibit E. 1.25 "PRODUCTION GOALS" mean [*]. 1.26 "PRODUCTION PLAN" means the plan, first adopted by both parties during the initial [*] months of the Contract Period and thereafter, amended every calendar quarter ("Quarter") in advance. The Production Goals for each Quarter will be described in the Production Plan. Each Production Plan will be attached to and made part of this Agreement as Exhibit F. 1.27 "SUPPLEMENTARY STAFF" means the supplementary, full time Pfizer employees who occupy the Production Facility but perform operations outside the Collaboration Program, as further described in Section 2.5.4. (iv). 1.28 "TECHNOLOGY" means all information and materials, including, but not limited to chemical reagents, monomers, compounds, protocols, chemistry, hardware and software - ------------------ *Confidential treatment has been requested for the marked portion. -5- 6 technology, Automated Transformations, Chemical Transformations, technical information, know-how, expertise and trade secrets as further described in the Plans. 2. COLLABORATION PROGRAM 2.1 PURPOSE. ArQule and Pfizer shall conduct the Collaboration Program throughout the Contract Period. The objectives of the Collaboration Program are to transfer ArQule Technology to Pfizer and to produce Pfizer Compounds. 2.2 Collaboration Plan. The initial Collaboration Plan is described in Exhibit D. The Steering Committee shall prepare an amended Collaboration Plan no later than [*] and every [*] thereafter, during the Contract Period. Such amended Collaboration Plans shall be appended to Exhibit D and made part of this Agreement. 2.3 STEERING COMMITTEE 2.3.1 PURPOSE. Each party shall establish a committee to manage the activities of both parties during the course of the Collaboration Program (the "Steering Committee'): (a) to review and evaluate progress under the Collaboration Plan; (b) to prepare the Plans and any amendments; (c) to review and monitor progress under the Production Plan and to report to Pfizer the completion of Production Goals: (d) to coordinate and monitor activities and staffing of the Production Facility as further described in Exhibit D; (e) to coordinate and monitor [*]; (f) to coordinate and monitor [*]; - ------------------ *Confidential treatment has been requested for the marked portion. -6- 7 (g) to monitor, review and approve [*] for the Production Facility. (Approval of such [*] by either party shall not be unreasonably withheld); (h) to establish, implement and manage a series of operational guidelines, including, but not limited to, FTE use reporting practices and invoicing procedures; (i) [*]; (j) to identify, to review and to coordinate licensing of third party Chemical Transformations for use in the Production Facility; (k) to establish and implement procedures to control both physical and other security measures relating to the collaboration and the Production Facility, including procedures controlling access to the Production Facility (see Section 2.5.1 (vii) below); and (l) to coordinate and monitor publication of Technology developed during the Contract Period as specified in Section 4.2 and to coordinate and monitor the exchange of information and materials that relate to the Collaboration Program. (This function shall survive termination of this Agreement.) The Steering Committee may have other duties as mutually agreed by the parties or as expressly set forth in this Agreement. 2.3.2 MEMBERSHIP. Pfizer and ArQule each shall appoint four (4) members to the Steering Committee. Subject to the terms and conditions of Section 2.10, either party may appoint substitutes at any time upon written notice to the other party. The members initially shall be: Pfizer Appointees: [*] ArQule Appointees: [*] - ------------------ *Confidential treatment has been requested for the marked portion. -7- 8 2.3.3 CHAIR. Two co-chairpersons shall chair the Steering Committee, one appointed by Pfizer and the other appointed by ArQule. 2.3.4 MEETINGS. The Steering Committee shall meet at least quarterly, at places and on dates selected by each party in turn. Representatives of either party, in addition to members of the Steering Committee, may attend such meetings at the invitation of both parties. 2.3.5 MINUTES. The Steering Committee shall keep accurate minutes of its deliberations, which record all proposed decisions and all actions recommended or taken. Specifically, the minutes shall provide a record of operational details relating to, among other things, training on the System and the transfer of Improvements to the ArQule Technology (e.g., which Improvements and the timing for their delivery and implementation). Drafts of the minutes shall be delivered to all Steering Committee members within ten (10) business days after each meeting. The party hosting the meeting shall be responsible for the preparation and circulation of the draft minutes. Draft minutes shall be edited by the co-chairpersons and shall be issued in final form only with their approval and agreement. 2.3.6 DECISIONS. All decisions of the Steering Committee shall be made [*]. ArQules' representatives on the Steering Committee shall [*] vote and Pfizer's representatives on the Steering Committee shall [*] vote. 2.3.7 EXPENSES. Pfizer and ArQule shall each bear all expenses of their respective members related to their participation on the Steering Committee. 2.4 REPORTS 2.4.1 REPORTS. During the Contract Period, Pfizer and ArQule each shall furnish to the Steering Committee: - ------------------ *Confidential treatment has been requested for the marked portion. -8- 9 (a) summary written reports within [*] days after the end of each Quarter commencing on the Effective Date[*]. (b) comprehensive written reports within [*] days after the end of each calendar year, describing in detail the work accomplished by it under the Plans during the year and discussing and evaluating the results of such work as further described in Section 2.4.1(a). 2.5 PRODUCTION FACILITY. During the Contract Period, the Collaboration Program shall be performed in the Production Facility. The System and Improvements shall be assembled, constructed and maintained in the Production Facility as more fully described and provided below. ArQule covenants that the Production Facility shall be made suitable in all respects for the performance of its duties pursuant to this Agreement and shall be maintained in such condition during the term of this Agreement. 2.5.1 ArQule shall be responsible for the following operations in the Production Facility: [*]. 2.5.2 Pfizer may inspect environmental health and safety procedures in the Production Facility and may make recommendations with respect to improvements to ensure compliance with local, state and federal regulations. At ArQules' own expense, ArQule will make all such improvements to the Production Facility as may be required to comply with any government regulations as identified by Pfizer or the responsible government agency. If Pfizer seeks to improve the standards of environmental health and safety beyond those required by law, Pfizer may do so at Pfizer's own expense. 2.5.3 Pfizer may inspect security procedures in the Production Facility and may seek to improve such procedures at Pfizer's own expense. - ------------------ *Confidential treatment has been requested for the marked portion. -9- 10 2.5.4 ArQule Staff, Pfizer Staff and Supplementary Staff will co-occupy the Production Facility. (i) The skills of ArQule Staff with respect to disciplines, roles. level of education and ArQule employment experience will be as described in the Collaboration Plan. (ii) [*] will be responsible for management of ArQule Staff and [*] or his appointee will be responsible for management of Pfizer Staff and Supplementary Staff. The day to day operations of the Production Facility shall be the responsibility of [*] or his successor pursuant to Section 2.10. (iii) Subject to the terms and conditions of Section 2.5.4 (iv), commencing on [*], with [*] months written notice, Pfizer may substitute ArQule Staff with Pfizer Staff for the performance of Plans; provided, however, at least [*] ArQule Staff remain in the facility. Pfizer will replace ArQule Staff with an equivalent number of Pfizer Staff, so that the total number of FTEs dedicated to Pfizer Compound production is [*]. Commencing [*], until the termination of this Agreement. Pfizer Staff may be increased to a maximum of [*] FTEs so that there may be as many as [*] FTEs performing the Production Plan. (iv) In addition to Pfizer Staff specified in Section 2.5.4 (iii), [*] Supplementary Staff may also occupy the facility to perform operations which include, but are not limited to: [*]. (v) For each Pfizer Staff or Supplementary Staff member occupying the Production Facility, Pfizer will compensate ArQule at the rates provided in Section 3.6, applied to such staff members pro rata on the basis of the time they actually occupy - ------------------ *Confidential treatment has been requested for the marked portion. -10- 11 the Production Facility. The Steering Committee shall establish methods to record such occupancy times. 2.6 PRODUCTION PLAN AND GOALS. Subject to the Production Plans, if ArQule achieves all Production Goals during the Contract Period, they will produce a total of [*] Pfizer Compounds, each of which satisfies the following general specifications: [*] Compounds produced during the Contract Period that fail to satisfy such specifications will not count toward ArQule's Production Goal of [*] and ArQule will destroy any such compounds, unless Pfizer notifies ArQule to the contrary in writing, within [*] days of the end of the quarter in which such compounds were a part of the Production Plan. 2.6.1 During the Contract Period, Key Investigators will be solely responsible for the process of [*]. ArQule shall be responsible for ensuring that ArQule does not [*]. Such procedures shall be described in detail in the Collaboration Plan as the same is updated from time to time. 2.7 ARQULE TECHNOLOGY TRANSFER. Upon execution of this Agreement by both parties, ArQule will [*], as further described in the Collaboration Plan and the Steering Committee minutes. The Steering Committee will govern these [*] activities. [*] will continue throughout the Contract Period; provided, however, that Pfizer acknowledges that [*] will be limited until Pfizer has full access to [*]. As further described in the Collaboration Plans and in minutes of the Steering Committee, during the Contract Period ArQule will document and transfer to Pfizer any Improvements to ArQule Technology. - ------------------ *Confidential treatment has been requested for the marked portion. -11- 12 2.8 [*]. Within [*] days of the Effective Date, ArQule shall transfer to Pfizer [*]. From time to time, during the Contract Period, ArQule will provide Pfizer with all additional [*]. 2.9 DILIGENT EFFORTS. Pfizer and ArQule each shall use reasonably diligent efforts to achieve the objectives of the Collaboration Program. ArQule will use reasonably diligent efforts to achieve the Plans and Pfizer will use reasonably diligent efforts to assist ArQule in the Plans in pursuit of those objectives. 2.10 KEY INVESTIGATORS. (a) Subject to the provisions of Section 2.10 (b), during the Contract Period, [*] ("Key Investigators") shall serve on the Steering Committee. During such period, [*] shall commit approximately [*] of his time each week to the Collaboration Program and [*] shall commit approximately [*] of his time each week, (b) Promptly after execution of this Agreement, ArQule shall [*]. Following approval by Pfizer, ArQule shall [*] and during the Contract Period shall [*]. If for any reason, either [*], ArQule shall within [*] days [*]. 3. PAYMENTS AND RESPONSIBILITIES. 3.1 SYSTEM. In return for [*], Pfizer shall pay ArQule an amount (the "[*] Cost") between [*] (the "Minimum [*] Cost") and [*] (the "Maximum [*] Cost") depending upon [*]. ArQule shall deliver [*] no later than [*] months from the Effective Date, at which time Pfizer shall acquire legal title and shall bear the risk of loss. The Minimum [*] Cost shall be paid as follows: [*] shall be payable within [*] days of execution of this Agreement and the remaining [*] shall be payable over [*] years beginning on [*], in advance quarterly installments, each of [*] during [*] years, and each of [*] during [*] years. In addition to the Minimum [*] Cost, Pfizer will pay ArQule an additional amount of up to [*] payable over [*] years beginning on the [*], in quarterly installments, each of up to[*] during [*] years, and each of up to [*] during [*] years, in - ------------------ *Confidential treatment has been requested for the marked portion. -12- 13 each case if, as, and when the [*] achieves [*], as determined by the Steering Committee. Such additional amount (the "[*] Amount") shall be determined at the end of each Quarter during the [*] year period beginning [*]. At the end of each quarter, if [*]. Pfizer will pay ArQule the Quarterly installments of [*] Costs within thirty (30) days of receipt of invoice and certification. 3.2 [*] COST FOR [*]. Pfizer shall reimburse ArQule for direct costs incurred by ArQule to [*] that are needed to [*] any [*] to the ArQule Technology; provided, however, that each such [*] and ArQule's estimated costs are approved in advance by the Steering Committee in accordance with the procedures set forth in the Collaboration Plan. Pfizer will pay ArQule within thirty (30) days of receipt of an itemized invoice for each such [*]. At Pfizer's option, Pfizer may purchase part or all of any such [*] directly from the vendor (for example, [*]) and may pay the vendor directly. 3.3 SUBLEASE FOR PRODUCTION FACILITY. Commencing on the Move-In Date, during the Contract Period, Pfizer will pay ArQule [*] annually for the sublease to the Production Facility, which will be paid quarterly, in advance, upon invoice from ArQule. As further described in the Sublease Agreement, Pfizer will also pay ArQule for [*]. If ArQule fails or refuses to execute this Agreement, Pfizer shall have no obligation to execute the Sublease Agreement. 3.4 [*] COSTS. From the Move-In Date and thereafter during the Contract Period, Pfizer shall pay ArQule for [*] produced in the [*], an amount not to exceed [*] in quarterly installments, each of [*] payable against ArQule's invoice submitted in advance of such quarter. Pfizer shall supply the [*] with any [*] necessary for performance of the [*] and not available by purchase from an outside vendor. - ------------------ *Confidential treatment has been requested for the marked portion. -13- 14 3.5 [*] FEES. As set forth in the Collaboration Plan, ArQule will dedicate [*] ArQule Staff FTEs per year (a) [*] and (b) [*]. After the Effective Date, Pfizer will pay ArQule a fee of [*] in support of [*], against invoice. Thereafter, commencing on Move-In Date, and until the termination of this Agreement, Pfizer will pay to ArQule an annual fee of [*] in support of [*]. Such fee will be paid to ArQule in equal quarterly installments, in advance, thirty (30) days after receipt of invoice. 3.6 [*] FEES. Pursuant to Section 2.5.4 (v), for each [*] person who replaces [*] person in the Production Facility, Pfizer will pay ArQule [*] for each year or part thereof during the Contract Period that each such [*] person is employed in the Production Facility; and, for each [*] person in the Production Facility, Pfizer will pay ArQule [*] for each year or part thereof during the Contract Period that each such [*] person is employed in the Production Facility. The Steering Committee will determine the methods for tracking and pro-rating the time spent by Pfizer employees in the Production Facility. 3.7 REBATES. If Pfizer substitutes Pfizer Staff for ArQule Staff as permitted by Section 2.5.4. (iii), then during the period of such substitution the quarterly amount due ArQule as set forth in Section 3.4 shall be reduced by the Steering Committee as further described in the Collaboration Plan. 3.8 RECORDS. ArQule shall keep for three (3) years from the conclusion of each year complete and accurate records of its expenditures pursuant to the Plans. The records shall conform to good accounting principles as applied to a similar company similarly situated. Pfizer shall have the right at its own expense during the term of this Agreement and during the subsequent three year period to appoint an independent certified public accountant,-reasonably - ------------------ *Confidential treatment has been requested for the marked portion. -14- 15 acceptable to ArQule, to verify the accuracy of such expenditures. Upon reasonable notice by Pfizer, ArQule shall make its records available for inspection by the auditing company or the independent certified public accountant during regular business hours at the place or places where such records are customarily kept. This right of inspection shall not be exercised more than once in any calendar year and not more than once with respect to records covering any specific period of time. All information concerning such expenditures, and all information learned in the course of any audit or inspection, shall be deemed to be ArQule Confidential Information, except to the extent that it is necessary for Pfizer to reveal the information in order to enforce any rights it may have pursuant to this Agreement or if disclosure is required by law. The failure of Pfizer to request verification of any expenditures before or during the three year period shall be considered acceptance by Pfizer of the accuracy of such expenditures, and ArQule shall have no obligation to maintain any records pertaining to such report or statement beyond such three year period. The results of such inspection, if any, shall be binding on the parties. 4. TREATMENT OF CONFIDENTIAL INFORMATION 4.1 CONFIDENTIALITY 4.1.1 Pfizer and ArQule each recognize that the other's Confidential Information constitutes highly valuable, confidential information. Subject to the terms and conditions of this Agreement, the obligations set forth in Section 4.3, the publication rights set forth in Section 4.2. Pfizer and ArQule each agree that during the term of this Agreement and for ten (10) years thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all ArQule Confidential Information or Pfizer Confidential Information, as the case may be, that is disclosed to it, or to any of its Affiliates pursuant to this Agreement. Neither Pfizer nor - ------------------ *Confidential treatment has been requested for the marked portion. -15- 16 ArQule nor any of their respective Affiliates shall use such Confidential Information except as expressly permitted in this Agreement. 4.1.2 Pfizer and ArQule each agree that any disclosure of the other's Confidential Information to any officer, employee or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its responsibilities under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Pfizer and ArQule each agree not to disclose the other's Confidential Information to any third parties under any circumstance without written permission from the other party. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information as it would take to preserve the confidentiality of its own Confidential Information. Upon the termination of this Agreement by either party by its breach, the breaching party, upon the other's request, will return all the Confidential Information disclosed to the other party pursuant to this Agreement, including all copies and extracts of documents, within sixty (60) days of the request upon the termination of this Agreement except for one (1) copy which may be kept for the purpose of complying with continuing obligations under this Agreement. 4.1.3 ArQule and Pfizer each represent that all of its employees, and any consultants to such party, participating in the Collaboration Program who shall have access to Pfizer Technology, ArQule Technology and Pfizer Confidential Information and ArQule Confidential Information are bound by agreement to maintain such information in confidence consistent with the terms and conditions of this Agreement. 4.2 PUBLICATION. Notwithstanding any matter set forth with particularity in this Agreement to the contrary, results obtained in the course of the Collaboration Program may be -16- 17 submitted for publication following scientific review by the Steering Committee and subsequent approval by ArQule's and Pfizer's managements. After receipt of the proposed publication by both Pfizer's and ArQule's managements written approval or disapproval shall be provided within thirty (30) days for a manuscript, within fourteen (14) days for an abstract for presentation at, or inclusion in the proceedings of a scientific meeting, and within fourteen (14) days for a transcript of an oral presentation to be given at a scientific meeting. 4.3 PUBLICITY. Except as required by law, neither party may disclose the terms of this Agreement, nor the Collaboration Program described in it, without the written consent of the other party, which consent shall not be unreasonably withheld. Either party shall have the right to issue a press release or other public statement concerning this Agreement provided that the content of such release or statement has first been agreed by the other party, such agreement not to be unreasonably withheld or delayed. 4.4 DISCLOSURE OF INVENTIONS. ArQule shall inform Pfizer about all Improvements to ArQule Technology and Pfizer shall inform ArQule about all Improvements to ArQule Technology which Pfizer employees invent and use in the Production Facility. The Steering Committee shall establish and implement appropriate procedures to ensure that each party is given complete and timely information about Improvements to ArQule Technology. 4.5 RESTRICTIONS ON TRANSFERRING MATERIALS. Subject to the grant of license to Pfizer in Section 5.2, Pfizer and ArQule recognize that the synthetic chemical materials, including, but not limited to, monomers, chemical components, intermediates, and reagents which are part of ArQule Technology or Pfizer Technology, represent valuable commercial assets. Therefore, throughout the Contract Period and for [*] years thereafter, ArQule and Pfizer agree not to - ------------------ *Confidential treatment has been requested for the marked portion. -17- 18 transfer such materials received from the other party to any third party, unless prior written consent for any such transfer is obtained from the other party. For the purposes of this Section 4.5, ArQule employees outside of the Production Facility shall be viewed as third parties with respect to Pfizer Technology (i.e. materials within Pfizer Technology shall not be transferred to ArQule outside the Production Facility). 5. INTELLECTUAL PROPERTY RIGHTS. The following provisions relate to rights in the intellectual property developed by ArQule or Pfizer, or both, during the course of carrying out the Collaboration Program. 5.1 OWNERSHIP. ArQule shall own all ArQule Confidential Information and ArQule Technology and ArQule Patent Rights relating to them. Pfizer shall own all Pfizer Confidential Information, Pfizer Technology and Pfizer Patent Rights relating to them. 5.2 GRANTS OF LICENSES. 5.2.1 ArQule hereby grants to Pfizer a non-exclusive, worldwide, [*] license, including the right to grant sublicenses to Affiliates, to make and use [*] for [*]. Such license shall continue until termination of this Agreement, whereupon its status shall be determined as provided in Sections 8 or 9, as the case may be. 5.2.2 At all times Pfizer owns all intellectual property with respect to all [*], and shall be free to use and dispose of any [*] in any manner it sees fit without any compensation or other obligation to ArQule. ArQule covenants that during the Contract Period and for a period of twenty (20) years after [*], it shall not [*] any [*]. In furtherance of the foregoing covenant, ArQule shall [*]. If ArQule consults such [*] determines that it has [*], it shall promptly [*]. Pfizer shall have the right to monitor and review ArQule activities with respect to [*] during normal business - ------------------ *Confidential treatment has been requested for the marked portion. -18- 19 hours and upon reasonable notification; provided, however; that Pfizer shall not have access to ArQule confidential information or confidential information of ArQule's collaborators (other than Pfizer) for this purpose. ArQule shall not [*] for a period of twenty (20) years after [*], after which ArQule will [*]. 5.2.3 At Pfizer's expense, but without further compensation to ArQule, ArQule shall (a) prepare and complete any documents and take such actions as Pfizer may require to file patent applications and to prosecute patents with respect to Pfizer Compounds and Pfizer Technology in Pfizer's name or ArQule's name or both; and (b) if Pfizer deems it necessary or desirable, to execute an assignment of rights in favor of Pfizer with respect to such patent applications and patents. 5.2.4 At ArQule's expense, but without further compensation to Pfizer, Pfizer shall (a) prepare and complete any documents and take such actions as ArQule may require to file patent applications and to prosecute patents with respect to ArQule Technology in Pfizer's name or ArQule's name or both; and (b) if ArQule deems it necessary or desirable, to execute an assignment of rights in favor f ArQule with respect to such patent applications and patents. 5.3 [*]. ArQule will have the right to use and transfer to third parties [*] developed under the Collaboration Program, which the Steering Committee certifies, acting by an affirmative vote, that the [*] would not [*]. 5.4 [*]. During the Contract Period, Pfizer shall not have the right to modify any [*] without the prior written consent of ArQule. ArQule acknowledges that from time to time Pfizer [*] staff will seek to [*] between [*]. ArQule will provide [*] within thirty (30) days of Pfizer's written request for such [*]. - ------------------ *Confidential treatment has been requested for the marked portion. -19- 20 6. PROVISIONS CONCERNING THE FILING, PROSECUTION AND MAINTENANCE OF PATENTS. ArQule and Pfizer shall each be responsible for the filing, prosecuting and maintaining all ArQule Patent Rights and Pfizer Patent Rights, respectively. 7. OTHER AGREEMENTS. Concurrently with the execution of this Agreement, ArQule and Pfizer shall enter into the Sublease Agreement. This Agreement, Exhibits A, B, C, D, E and F, each appended to and made part of this Agreement, are the sole agreements with respect to the subject matter and supersede all other agreements and understandings between the parties with respect to same. 8. TERM, TERMINATION AND DISENGAGEMENT 8.1 TERM. Unless sooner terminated or extended, this Agreement shall expire on December 31, 2003 at which time, provided that Pfizer has then paid all amounts earned by ArQule under Section 3 of this Agreement, (a) Pfizer shall [*] as set forth in Section 5 and (b) Pfizer shall [*]. 8.2 EVENTS OF TERMINATION. The following events shall constitute events of termination ("Events of Termination"): (a) any material written representation or warranty by ArQule or Pfizer, or any of its officers, made under or in connection with this Agreement shall prove to have been incorrect in any material respect when made. (b) ArQule or Pfizer shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for thirty (30) days after written notice to the failing party. 8.3 TERMINATION. - ------------------ *Confidential treatment has been requested for the marked portion. -20- 21 8.3.1 Upon the occurrence of any Event of Termination, the party not responsible may, by notice to the other party, terminate this Agreement. 8.3.2 If Pfizer terminates this Agreement pursuant to Section 8.3.1 and Pfizer pays ArQule within sixty (60) days of termination the full amount of the Minimum System Cost payable under Section 3.1 not previously paid, Pfizer's research license to ArQule Technology, ArQule Confidential Information, and ArQule Patent Rights granted under Section 5 shall become worldwide, perpetual, irrevocable, and fully paid and Pfizer shall retain ownership of all equipment and software comprising the System and delivered Improvements; otherwise, the aforesaid research license to Pfizer shall thereupon terminate and Pfizer shall return any components of the System and Improvements that incorporate or rely on ArQule Technology. If ArQule terminates this Agreement pursuant to Section 8.3.1, then the aforesaid research license to Pfizer shall thereupon terminate. Insofar as the components of the System and Improvements then in Pfizer's possession do not incorporate or rely upon ArQule Technology, Confidential Information or Patent Rights, Pfizer shall retain ownership of them and the right to use them. 9. TERMINATION BY PFIZER. 9.1 Eighteen (18) months after the date of initiation of Pfizer Compound Production and occupancy of the Production Facility by Pfizer, Pfizer may terminate this Agreement, without cause, upon six (6) months' notice to ArQule, effective at the conclusion of the six-month notice period. If Pfizer does not provide ArQule notice at that time, Pfizer may only terminate the Agreement pursuant to Section 8.3. 9.2 If Pfizer terminates this Agreement pursuant to this Section, (i) Pfizer will pay ArQule a termination fee of [*] within thirty (30) days of termination; (ii) the research license granted to Pfizer under Section 5 shall thereupon terminate; (iii) the sublease shall terminate and Pfizer shall have no further obligation thereunder (except for rent accrued and unpaid through the - ------------------ *Confidential treatment has been requested for the marked portion. -21- 22 effective date of termination; (iv) the equipment purchased by Pfizer including, the System, components and Improvements shall be returned to ArQule; and (v) Pfizer shall continue to [*], and ArQule shall act with respect to all such [*], as provided in Section 5 of this Agreement. 9.3 Termination of this Agreement for any reason shall be without prejudice to: (a) the rights and obligations of the parties provided in those Sections of the Agreement which by virtue of their term and condition extend beyond any termination of this Agreement including Pfizer's rights in, and ArQule's obligations respecting Pfizer Compounds set forth in Section 5; (b) ArQule's right to receive all payments accrued under Section 3; or (c) (c) any other remedies which either party may otherwise have. 10. REPRESENTATIONS AND WARRANTIES. ArQule and Pfizer each represents and warrants as follows: 10.1 It is a corporation duly organized, validly existing and is in good standing under the laws of the State of Delaware, is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business of the ownership of its properties requires such qualification and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. 10.2 The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of its stockholders, (b) violate any provision of any law, rule, regulations, order, writ, judgment, injunctions, decree, determination award presently in effect having applicability to it - ------------------ *Confidential treatment has been requested for the marked portion. -22- 23 or any provision of its certificate of incorporation or by-laws or (c) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. 10.3 This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. 10.4 It is not under any obligation to any person, or entity, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 10.5 It has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets necessary for the fulfillment of its responsibilities under the Collaboration Program, subject to no claim of any third party other than the relevant lessors or licensors. 11. COVENANTS OF ARQULE AND PFIZER OTHER THAN REPORTING REQUIREMENTS. Throughout the Contract Period, ArQule and Pfizer each shall: 11.1 maintain and preserve its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is from time to time necessary or desirable in view of their business and operations or the ownership of their properties. 11.2 comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority to the extent necessary to conduct the -23- 24 Research Program, except for those laws, rules, regulations, and orders it may be contesting in good faith. 12. INDEMNIFICATION. Pfizer will indemnify ArQule and its agents and employees ("the Indemnitees") for damages, settlements, costs, legal fees and other expenses incurred in connection with a claim against the Indemnitees based on an action or omission of Pfizer, its agents or employees related to the rights or obligations of Pfizer under this Agreement; provided, however, that the foregoing shall not apply (i) if the claim is found to be based upon the negligence, recklessness or willful misconduct of the Indemnitees or (ii) if ArQule fails to give Pfizer prompt notice of any claim it receives and such failure materially prejudices Pfizer with respect to any claim or action to which Pfizer's obligation pursuant to this Section applies. Pfizer, in its sole discretion, shall choose legal counsel, shall control the defense of such claim or action and shall have the right to settle same on such terms and conditions it deems advisable; provided, however, it shall obtain ArQule's prior consent to such part of any settlement which requires payment or other action by ArQule or is likely to have a material adverse effect on ArQule's business. 13. NOTICE. All notices shall be in writing mailed via certified mail, return receipt requested, courier, or confirmed facsimile transmission addressed as follow, or to such other address as may be designated from time to time: If to Pfizer: To Pfizer at its address as set forth at the beginning of this Agreement. Attention: President, Central Research with copy to: Counsel, Central Research Pfizer Inc Eastern Point Road Groton, CT 06340 If to ArQule: To ArQule at its address as set forth at the beginning of this Agreement. Attention: President with copy to: General Counsel -24- 25 Notices shall be deemed given as of the date received. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. MISCELLANEOUS. 15.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 15.2 HEADING. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 15.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 15.4 AMENDMENT, WAIVER. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 15.5 NO THIRD PARTY BENEFICIARIES. No third party including any employee of any party to this Agreement shall have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any third party. 15.6 ASSIGNMENT AND SUCCESSORS. This Agreement may not be assigned by either arty, except that each party may assign this Agreement and the rights and interests of such party, in -25- 26 whole or in part, to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation of such party with or into such corporations. 15.7 Y2K COMPLIANCE. ArQule represents and covenants that Y2K issues will not materially affect Production Facility and ArQule Technology. Pfizer shall have the right to inspect and/or evaluate the Production Facility and ArQule Technology and documentation thereof in order to confirm such representation. 15.8 FORCE MAJEURE. Neither Pfizer nor ArQule shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes reasonably beyond the control of Pfizer or ArQule. 15.9 SEVERABILITY. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall lot be affected. 15.10 [*] - ------------------ *Confidential treatment has been requested for the marked portion. -26- 27 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. PFIZER INC. ARQULE, INC. By: /s/ George Milne By: /s/ Stephen Hill ----------------------------------- --------------------------------- Title: Sr. Vice President Title: CEO ------------------------------- ------------------------------ Date: 14 June 1999 Date: 19 July 1999 -------------------------------- ------------------------------- cc: Pfizer Inc, Legal Division, Groton, CT -27- 28 EXHIBIT A ArQule Patents [*] - ----------------- * Confidential Treatment has been requested for the marked portion. -28- 29 EXHIBIT B AMAP Description [*] - ----------------- *Confidential Treatment has been requested for the marked portion. -29- 30 EXHIBIT C System Equipment [*] - ----------------- *Confidential Treatment has been requested for the marked portion. -30- 31 EXHIBIT D Collaboration Plan [*] - ----------------- *Confidential Treatment has been requested for the marked portion. -31- 32 EXHIBIT E Sublease [Filed as Exhibit 10.2 to Arqule's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 and incorporated herein by reference.] -32- 33 EXHIBIT F Production Plan - ----------------- *Confidential Treatment has been requested for the marked portion. -33- EX-10.2 3 SUBLEASE DATED 7/16/99 1 EXHIBIT 10.2 SUBLEASE This Sublease (the "Sublease") is made as of this 16th day of July, 1999, by and among ArQule, Inc., a Delaware corporation (the "Sublessor"), and Pfizer Inc. a Delaware corporation (the "Sublessee"). The parties to this instrument hereby agree with each other as follows: ARTICLE I SUMMARY OF BASIC SUBLEASE PROVISIONS ------------------------------------ 1.1 BASIC DATA ALL CAPITALIZED TERMS USED HERE[N SHALL HAVE THE MEANINGS ASCRIBED TO THEM [N THE PRIME LEASE (HEREINAFTER DEFINED) UNLESS OTHERWISE DEFINED HEREIN. Commencement Date: The date on which the Premises are deemed ready for occupancy by Sublessee. See Section 3.1. Sublessor: ArQule, Inc. Present Mailing Address 200 Boston Avenue of Sublessor: Medford, Massachusetts 02155 Sublessor' s Representative: [*] Sublessee: Pfizer Inc Present Mailing Address of Sublessee: 235 East 42nd Street New York, New York 10017 Sublessee's Representative: [*] Prime Lessor: Cummings Properties, LLC (successor-in-interest to Cummings Properties Management, Inc.), as agent for Beautyrest, Inc. and Boston North, LLC (successor-in- interest to WRB, Inc.) Present Mailing Address 200 West Cummings Park of Prime Lessor: Woburn, Massachusetts 01801 - ------------------ *Confidential treatment has been requested for the marked portion. 2 Permitted Uses: For Suites [*]: As described in Section 3 of Prime Lease 1 (as defined below), and Sections G and H of the Rider to Prime Lease 1. For Suites [*]: As described in Section 3 of Prime Lease 2 (as defined below), and Sections 5 and 6 of Amendment #1 to Prime Lease 2. Premises: [*] rentable square feet of space in Suites [*], located on [*] of the building known as 200 Boston Avenue, Medford, Massachusetts (the "Building"), together with the right to use Sublessor's FF&E (as hereinafter defined), and together with the right to have access to and use in common with Sublessor the Collaboration Areas (as described in Section 2.1 of this Sublease). The Premises demised under this Sublease consist of a portion of the premises leased by Sublessor from Prime Lessor under Prime Lease 1, Prime Lease 2, and a separate Commercial Lease dated September 29, 1993, as amended, between Prime Lessor, as landlord, and ArQule Partners, L.P (Sublessor's predecessor in interest) as tenant, with respect to approximately [*] square feet on the [*] floors of the Building (the "Third Floor Lease"); Prime Lease 1, Prime Lease 2, and the [*] Lease are referred to herein collectively as the "Overlease" and the premises leased by Sublessor under the Overlease are referred to herein collectively as the "Leased Premises". Prime Lease 1: Collectively, that certain Commercial Lease dated July 27, 1995, as supplemented by Rider to Lease dated July 27, 1995 (the "Rider to Prime Lease 1"), and as amended by Amendment to Lease #1 dated January 24, 1996 ("Amendment #1 to Prime Lease 1"), Amendment to Lease #2 dated September 10, 1997 ("Amendment #2 to Prime Lease 1"), and Amendment to Lease #3 dated January 12, 1998 ("Amendment #3 to Prime Lease 1") - ------------------ *Confidential treatment has been requested for the marked portion. 2 3 between Prime Lessor, as landlord, and Sublessor, as tenant. A copy of Prime Lease I is attached hereto and incorporated herein by reference as EXHIBIT A. Prime Lease 2: Collectively, that certain Commercial Lease dated December 20, 1996, as supplemented by Rider to Lease dated December 20, 1996 (the "Rider to Prime Lease 2"), and as amended by Amendment to Lease #1 dated August 15, 1997 ("Amendment #1 to Prime Lease 2"), Amendment to Lease #2 dated March 18, 1997 ("Amendment #2 to Prime Lease 2"), Amendment to Lease #3 dated September 15, 1997 ("Amendment #3 to Prime Lease 2"), Amendment to Lease #4 dated September 30, 1997 ("Amendment #4 to Prime Lease 2"), Amendment to Lease #5 dated November 28, 1997 ("Amendment #5 to Prime Lease 2"), and Amendment to Lease #6 dated January 12, 1998 ("Amendment #6 to Prime Lease 2") between Prime Lessor, as landlord, and Sublessor, as tenant. A copy of Prime Lease 2 is attached hereto and incorporated herein by reference as EXHIBIT B. Prime Lease: Collectively, Prime Lease 1 and Prime Lease 2. Base Rent: [*] per annum payable in advance in equal quarterly installments of [*] each. See Section 6.1. Additional Rent: So that the Base Rent payable to Sublessor hereunder shall be net to Sublessor, Sublessee shall pay as additional rent hereunder: Sublessee's Prorata Share of [*] Prorata Share: The percentage equal to area of the pertinent portion of the Premises divided by the area of the pertinent portion of the entire Leased Premises. The Prorata Share shall be adjusted in the event the area of either the Premises demised under this Sublease or the Leased Premises shall change during the Sublease - ------------------ *Confidential treatment has been requested for the marked portion. 3 4 Term. As of the Commencement Date, Sublessee's Prorata Share shall be as follows: - With respect to items of Additional Rent, if any, allocable solely to the portion of the Premises [*] located within the portion of the Leased Premises [*] demised under Prime Lease 1 and related to costs and expenses attributable solely to such portion of the Leased Premises as is demised under Prime Lease 1,[*]. - With respect to items of Additional Rent, if any, allocable solely to the portion of the Premises [*] located within the portion of the Leased Premises [*] demised under Prime Lease 2 and related to costs and expenses attributable solely to such portion of the Leased Premises as is demised under Prime Lease 2, [*]. - With respect to items of Additional Rent, if any, allocable to the Premises [*] and related to costs and expenses attributable solely to such portion of the Leased Premises [*] as is demised under the Prime Lease, [*]. - With respect to items of Additional Rent, if any, allocable to the Premises [*] and related to costs and expenses attributable to all of the Leased Premises [*]. Sublease Term or Term: Beginning on the Commencement Date and expiring on the Term Expiration Date. Term Expiration Date: December 31, 2003, unless extended or earlier terminated as provided herein. Sublessor's FF&E: All furnishings, fixtures and equipment physically located in the Premises as of the - ------------------ *Confidential treatment has been requested for the marked portion. 4 5 date of this Sublease, including, without limitation, [*] , as such furnishings, fixtures and equipment are more fully described on the attached Exhibit C; explicitly excluded from Sublessor's FF&E, however, shall be all fixtures, equipment, workstations and the like that constitute [*] physically located in the Premises as of the date of this Sublease as more fully described in Exhibits C and E of the Technology Agreement as defined below (the [*]). Technology Agreement: That certain Technology Acquisition Agreement, dated July __, 1999, between Sublessor and Sublessee. The parties hereby agree that, except as otherwise expressly provided in this Sublease to the contrary, the respective rights and obligations of the parties under the Technology Agreement are wholly independent of and separate from the respective rights and obligations of the parties under this Sublease. ARTICLE II PREMISES -------- 2.1 LEASE OF PREMISES Sublessor hereby leases to Sublessee, and Sublessee hereby accepts and leases from Sublessor, upon and subject to the terms and provisions of the Prime Lease (except as may otherwise be expressly Set forth in the written Sublease Consent entered into on or about the date hereof by and among Prime Lessor, Sublessor and Sublessee), all of Sublessor's right, title and interest in and to the Premises for the Permitted Uses, subject to the right of Sublessor, which right Sublessor hereby reserves, for itself, its employees, licensees, consultants and contractors, during the term of the Technology Agreement to have access to and use the Premises in common with Sublessee in furtherance of the parties' business collaboration to the extent and in the manner described in the Technology Agreement. Subject to the terms and provisions of the Prime Lease and the collaboration procedures, if any, agreed upon by the parties pursuant to the Technology Agreement, Sublessee shall have the right to have access to and use in common with Sublessor and subtenants or other occupants of other portions of the Leased Premises to whom Sublessor may from time to time grant similar rights (provided that no such other subtenant's or occupants' rights may be inconsistent with or unreasonably interfere with the respective rights - ------------------ (continued...) *Confidential treatment has been requested for the marked portion. 5 6 and obligations of Sublessor and Sublessee under the Technology Agreement) the following: [*] (the items described in the preceding clauses (i) through (iii) are referred to herein collectively as the "Collaboration Areas"). Also included as part of the Premises sublet hereunder is the right, in common with Sublessor, to exercise all of Sublessor's appurtenant rights under the Prime Lease to use the common areas and facilities of the Building (including, without limitation, the parking facilities serving the Building), subject in all events to the Prime Lessor's rights expressly reserved and excepted in the Prime Lease and to Prime Lessor's rules and regulations, if any. 2.2 PRIME LEASE 2.2.1 Sublessor hereby represents and warrants that: (i) Sublessor is lessee under the Prime Lease; (ii) the Prime Lease is in full force and effect, Sublessor has submitted to Sublessee a true and complete copy of the Prime Lease and the Prime Lease has not been modified except as set forth in Section 1.1 hereof; (iii) Sublessor has not received any notice of default on the part of Sublessor as tenant under the Prime Lease which has not been cured, nor has Sublessor given Prime lessor notice of any default on the part of Prime Lessor as landlord under the Prime Lease which has not been cured, nor does Sublessor have any knowledge of any default by either party under the Prime Lease; and (iv) Sublessor has not received any notice or complaint that any portion of the Premises built out or otherwise improved by Sublessor fails to comply with the physical accessibility requirements of the Americans With Disabilities Act. Sublessee warrants and acknowledges that it has reviewed the Prime Lease and is satisfied with the arrangements therein reflected. Sublessee also warrants that it is satisfied with the present condition of the Premises (which Sublessee takes "as is" without any representation or warranty by Sublessor regarding the condition of the Premises or the fitness of the Premises for any particular use except as otherwise specifically set forth in the Technology Agreement) and with Sublessee's ability to use the Premises on the terms herein set forth. Sublessor also represents that it has heretofore used and/or stored, and shall from the date hereof through the Commencement Date use and/or store, in the Leased Premises certain hazardous or toxic materials or substances, including without limitation oil and radioactive materials (collectively, "Hazardous Substances") regulated by local, state or Federal law (for example, the Federal Comprehensive Environmental Response Compensation Liability Act of 1980, the Massachusetts Hazardous Waste Management Act and the Massachusetts Oil and Hazardous Material Release Prevention Act). Sublessor further represents and warrants that it has heretofore used, stored and disposed of, and shall from the date hereof through the Commencement Date use, store and dispose of, all such Hazardous Substances strictly in accordance with all applicable laws and that it has not caused or permitted the release or discharge of any Hazardous Substances in or about the Premises that has not been fully cleaned up and remediated in accordance with all applicable laws. Sublessor shall indemnify and hold harmless Sublessee from any claims, losses, liability, costs and expenses incurred by Sublessee as a result of any breach by Sublessor of any of the foregoing representations relating to Sublessor's use, storage and disposal of Hazardous Substances. Sublessor shall, prior to the - ------------------ *Confidential treatment has been requested for the marked portion. 6 7 Commencement Date, engage an independent and accredited industrial hygiene consultant to certify that the Premises are free from any biological or chemical contamination or any contamination by other Hazardous Substances. 2.2.2 The Prime Lease is by this reference incorporated into and made a part hereof, except that: (i) all of the following references in the Prime Lease to "Lessor", "Lessee", "lease" and "leased premises", respectively, shall be deemed to refer to Sublessor, Sublessee, this Sublease and the Premises subleased hereunder, respectively: PRIME LEASE 1 (a) Section 3 (Use of Premises) (b) Section 4 (Additional Rent), except that Sublessee shall only be obligated to pay its Prorata Share of the additional rent described in this Section 4. (c) Section 6 (Compliance with Laws), except that nothing in the second sentence of this Section shall obligate, or be deemed to obligate, Sublessee to provide worker's compensation insurance for any of Sublessor's employees. (d) Section 8 (Maintenance), except for the first and last grammatical sentences; and except further, that in the second grammatical sentence of this provision the phrase "fire or other casualty or Lessor's negligence or misconduct only excepted" shall be deemed to be revised to read "fire or other casualty or Prime Lessor's or Sublessor's negligence or misconduct only excepted." (e) The first grammatical sentence of Section 15 (Lessee's Liability and Insurance), except that the last phrase of such sentence shall be deemed to read "resulting from the sole willful misconduct or omission or negligence of Prime Lessor or Sublessor." (f) Section 19 (Default) except that the references in the second grammatical sentence to "security deposit" and the reference to "to any unamortized improvements completed for Lessee's occupancy," shall be deemed to be deleted, since they are inapplicable. (g) Section 21 (Occupancy), except for the second and third grammatical sentences; and except further, that in the first grammatical sentence the phase "except the obligation for the payment of extra rent for any period of less than one month" shall be deemed to be deleted, since it is inapplicable. 7 8 (h) Section 22 (Fire Prevention) (i) Section 24 (Environment) (j) Section 26 (Surrender), except that in the second grammatical sentence of this provision the phrase "fire or other casualty or Lessor's negligence or misconduct only excepted" shall be deemed to be revised to read "fire or other casualty or Prime Lessor's or Sublessor's negligence or misconduct only excepted." (k) Section 27 (General), except that clause (h) of this Section shall be deemed to be revised to read "Sublessor makes no representation or warranty, express or implied, concerning the suitability of the Premises for Sublessee's intended use except as otherwise expressly set forth in the Technology Agreement"; and that clause (i) shall be deleted. (l) Section 29 (Waivers) (m) Sections E, G, H, I, T and X of Rider to Prime Lease 1 (n) The second grammatical sentence of Section K of Rider to Prime Lease 1 (o) Section 3 of Amendment Ito Prime Lease 1 provided that Sublessee shall be entitled to remove the equipment set forth in this Section 3 only to the extent that Sublessee has installed such equipment at its sole expense. PRIME LEASE 2 (a) Section 3 (Use of Premises) (b) Section 4 (Additional Rent), except that Sublessee shall only be obligated to pay its Prorata Share of the additional rent described in this Section 4. (c) Section 6 (Compliance with Laws) , except that nothing in the second sentence of this Section shall obligate, or be deemed to obligate, Sublessee to provide worker's compensation insurance for any of Sublessor's employees. (d) Section 9 (Maintenance), except for the first and last grammatical sentence; and except further, that in the second grammatical sentence of this provision the phrase "fire or other casualty or Lessor's negligence or misconduct only excepted" shall be deemed to be revised to read "fire or other casualty or Prime Lessor's or Sublessor's negligence or misconduct only excepted." 8 9 (e) Section 16 (Liability), except that the last phase of such sentence shall be deemed to read "resulting from the sole willful misconduct or omission or negligence of Prime Lessor or Sublessor." (f) Section 20 (Default), except that the references in the second grammatical sentence to "security deposit" and the reference to "to any unamortized improvements completed for Lessee's occupancy," shall be deemed to be deleted, since they are inapplicable. (g) Section 22 (Occupancy), except for the second and third grammatical sentences; and except further, that in the first grammatical sentence the phrase "except the obligation for the payment of extra rent for any period of less than one month" shall be deemed to be deleted, since it is inapplicable. (h) Section 23 (Fire Prevention) (i) Section 25 (Environment) (j) Section 27 (Surrender), except that in the second grammatical sentence of this provision the phrase "fire or other casualty or Lessor's negligence or misconduct only excepted" shall be deemed to be revised to read "fire or other casualty or Prime Lessor's or Sublessor's negligence or misconduct only excepted." (k) Section 28 (General), except that clause (h) of this Section shall be deemed to be revised to read "Sublessor makes no representation or warranty, express or implied, concerning the suitability of the Premises for Sublessee's intended use except as otherwise expressly set forth in the Technology Agreement"; and that clause (i) shall be deleted. (l) Section 30 (Waivers) (m) Sections 1, K, V and Z, provided that Sublessee shall be entitled to remove the equipment set forth in Section Z only to the extent that Sublessee has installed such equipment at its sole expense (n) The second grammatical sentence of Section M of Rider to Prime Lease 2 (o) Sections 4, 5 and 6 of Amendment #1 to Prime Lease 2 (ii) All references in the following sections and/or provisions of each of Prime Lease and Prime Lease 2 to "Lessor", "Lessee", "lease", and "leased premises", respectively, shall be deemed to refer to Prime Lessor, Sublessee, this Sublease and the Premises subleased hereunder, respectively [i.e., it is the intention of the 9 10 parties that Prime Lessor shall retain all of its rights and obligations under such sections and/or provisions; that Sublessor shall not be entitled to exercise any of Prime Lessor's rights, nor shall be bound by any of Prime Lessor's obligations, under such sections and/or provisions; and that Sublessee shall be entitled to exercise all of Lessee's rights, and shall be bound by all of Lessee's obligations, under such sections and/or provisions]: PRIME LEASE 1 (a) The first and last grammatical sentence of Section 5 (Utilities) (b) Section 7 (Fire, Casualty, Eminent Domain) (c) The first and last grammatical sentence of Section 8 (Maintenance) (d) Section 9 (Alterations) (e) Section 11 (Subordination) (f) Section 12 (Lessor's Access) (g) Section 13 (Snow Removal) (h) Section 14 (Access and Parking) (i) Section 16 (Fire Insurance) (j) Section 23 (Outside Area) (k) Section 25 (Responsibility) (l) Section A of Rider to Prime Lease I (m) Section B of Rider to Prime Lease I (n) Section C of Rider to Prime Lease 1 (o) Section D of Rider to Prime Lease 1 (p) Section F of Rider to Prime Lease 1 (q) Section J of Rider to Prime Lease 1 (r) The first grammatical sentence of Section K of Rider to Prime Lease 1 (s) Section M of Rider to Prime Lease 1 (t) Section C) of Rider to Prime Lease 1 10 11 (u) Section P of Rider to Prime Lease 1 (v) Section Q of Rider to Prime Lease 1 (w) Section R of Rider to Prime Lease 1 (x) Section S of Rider to Prime Lease 1 (y) Section U of Rider to Prime Lease 1 (z) Section X of Rider to Prime Lease I (aa) The second grammatical sentence of Section Z of Rider to Prime Lease 1 (bb) Section 3 of Amendment #1 to Prime Lease I, provided that Sublessee be entitled to remove the equipment set forth in this Section 3 only to the extent that Sublessee has installed such equipment at its sole expense. (cc) Sections 1, 2 and 3 of Amendment #2 to Prime Lease 1 (dd) Section 1 of Amendment #3 to Prime Lease 1, except that such industrial hygiene consultant's certification shall run to the benefit of both Prime Lessor and Sublessor PRIME LEASE 2 (a) The first and last grammatical sentence of Section 5 (Utilities) (b) Section 7 (Fire, Casualty, Eminent Domain) (c) Section 8 (Fire Insurance) (d) Section 9 (Maintenance), first and last sentences only (e) Section 10 (Alterations) (f) Section 12 (Subordination) (g) Section 13 (Lessor's Access) (h) Section 14 (Snow Removal) (i) Section 15 (Access and Parking) (j) Section 24 (Outside Area) (k) Section 26 (Responsibility) 11 12 (l) The second grammatical sentence of Section B of Rider to Prime Lease 2 (m) Section E of Rider to Prime Lease 2 (n) Section F of Rider to Prime Lease 2 (o) Section G of Rider to Prime Lease 2 (p) Section H of Rider to Prime Lease 2 (q) Section J of Rider to Prime Lease 2 (r) Section L of Rider to Prime Lease 2 (s) The first grammatical sentence of Section M of Rider to Prime Lease 2 (t) Section 0 of Rider to Prime Lease 2 (u) Section Q of Rider to Prime Lease 2 (v) Section R of Rider to Prime Lease 2 (w) Section S of Rider to Prime Lease 2 (x) Section T of Rider to Prime Lease 2 (y) Section U of Rider to Prime Lease 2 (z) Section W of Rider to Prime Lease 2 (aa) Section Z of Rider to Prime Lease 2 (bb) Section Z of Rider to Prime Lease 2, provided that Sublessee shall be entitled to remove the equipment set forth in this Section Z only to the extent that Sublessee has installed such equipment at its expense. (cc) Section 2 of Amendment #6 to Prime Lease 2, except that such industrial hygiene consultant's certification shall run to the benefit of both Prime Lessor and Sublessor. (iii) The following sections and/or provisions of each of Prime Lease I and Prime Lease 2 are expressly excluded from this Sublease (i.e., they shall be deemed to be incorporated into this Sublease) either because they are inapplicable, or they are superseded by specific provisions hereof: 12 13 PRIME LEASE 1 (a) Section 1 (Rent) (b) Section 2 (Security Deposit) (c) Section 5 (Utilities), except for the first and last grammatical sentence (d) Section 10 (Assignment or Subleasing) (e) Section 15 (Lessee's Liability and Insurance), except for the first grammatical sentence (f) Section 17 (Brokerage) (g) Section 18 (Signs) (h) Section 20 (Notice) (i) The second and third grammatical sentences of Section 21 (Occupancy) (j) Section 28 (Security Agreement) (k) Section L of Rider to Prime Lease 1 (l) Section N of Rider to Prime Lease 1 (m) Section Q of Rider to Prime Lease 1 (n) Section V of Rider to Prime Lease 1 (o) Section W of Rider to Prime Lease 1 (p) Section Y of Rider to Prime Lease 1 (q) The first grammatical sentence of Section Z of Rider to Prime Lease 1 (r) Sections 1 and 2 of Amendment #1 to Prime Lease 1 PRIME LEASE 2 (a) Section 1 (Rent) (b) Section 2 (Security Deposit) 13 14 (c) Section 5 (Utilities), except for the first and last grammatical sentence (d) Section 11 (Assignment or Subleasing) (e) Section 17 (Insurance) (f) Section 18 (Signs) (g) Section 19 (Brokerage) (h) Section 21 (Notice) (i) The second and third grammatical sentences of Section 21 (Occupancy) (j) Section 29 (Security Agreement) (k) Section A of Rider to Prime Lease 2 (l) Section C of Rider to Prime Lease 2 (m) Section D of Rider to Prime Lease 2 (n) Section N of Rider to Prime Lease 2 (o) Section P of Rider to Prime Lease 2 (p) Section V of Rider to Prime Lease 2 (q) Section X of Rider to Prime Lease 2 (r) Section Y of Rider to Prime Lease 2 (s) Sections 1, 2 and 3 of Amendment #1 to Prime Lease 2 (t) Amendment #2 to Prime Lease 2 (u) Amendment #3 to Prime Lease 2 (v) Amendment #4 to Prime Lease 2 (w) Amendment #5 to Prime Lease 2 (x) Section 1 to Amendment #6 to Prime Lease 2 2.2.3 Except as otherwise expressly set forth in the written Sublease Consent entered into on or about the date hereof by and among Prime Lessor, Sublessor and Sublessee, this Sublease is and shall remain subject and subordinate in all respects to the Prime Lease, and to all 14 15 renewals, modifications, consolidations, replacements and extensions thereof. In the event of termination or cancellation of the Prime Lease for any reason whatsoever with respect to all or any portion of the Premises, this Sublease shall automatically terminate with respect to all or such portion of the Premises. 2.2.4 Except as may otherwise be specifically set forth in the Technology Agreement or this Sublease, Sublessor shall have no obligation to provide any services of any nature whatsoever to Sublessee or to or for the benefit of the Premises, or to expend any money for the repair of the Premises, and Sublessee agrees to look solely and directly to Prime Lessor for the furnishing of any services, expenditure of any sums, or performance of any obligations that Sublessor is not required to furnish, expend or perform under the Technology Agreement or this Sublease, but nothing in the foregoing shall be deemed to exculpate or otherwise release Sublessor from, or prevent Sublessee from looking directly to Sublessor for, any liability arising out of Sublessor's negligent, willful or malicious acts or omissions or Sublessor's misconduct, or the failure of Sublessor to perform its express obligations hereunder; nor shall the foregoing relieve Sublessor of its express obligations set forth in this Sublease. Sublessor shall, however, upon the request of Sublessee from time to time (which request may be oral), use due diligence and reasonable efforts to cause Prime Lessor to furnish such services, expend such sums, and observe and perform such obligations. Sublessor's only obligations under the Prime Lease with respect to such obligations of Prime Lessor are to use the aforesaid due diligence and reasonable efforts and to make those payments of all rent and other charges due to Prime Lessor thereunder. Sublessor hereby agrees that, so long as Sublessee makes timely payment to Sublessor of all rent and other charges payable by Sublessee hereunder, Sublessor shall make timely payment of all rent and other charges due to Prime Lessor as landlord under the Sublease. Except to the extent that this Sublease imposes such obligations on Sublessee, it is the intention of the parties that Sublessee comply with, and to such extent Sublessee agrees to comply with, all of Sublessor's obligations as lessee under the Prime Lease with respect to the Premises to the same extent and with the same force and effect as if Sublessee were Lessee thereunder. Sublessee shall have no claim against Sublessor for any default by Prime Lessor under Prime Lease. If as a result of any default by Prime Lessor as landlord under the Prime Lease, Sublessor as tenant under the Prime Lease is entitled to any offset or similar rights against Prime Lessor, Sublessee shall be entitled to a fair and equitable share of such offset or similar rights. If Prime Lessor shall default under any of it obligations under the Prime Lease with respect to the Premises, Sublessee shall have the right, at Sublessee's sole cost and expense, but in the name of Sublessor, to make demand or prosecute any appropriate action or proceeding against Prime Lessor for the enforcement of the obligations of Prime Lessor with respect to the Premises. Sublessor agrees that it will sign such demand, pleading and/or other papers as may be required or appropriate to enable Sublessee to proceed in Sublessor's name to enforce the obligations of Prime Lessor; provided, however, that Sublessee will pay all costs and expenses in the prosecution of any action or any proceeding so taken by Sublessee, and agrees to defend and indemnify Sublessor against all costs and liability arising therefrom. 2.2.5 Sublessee shall neither do, nor permit anyone else to do, nor permit to be done anything that would increase Sublessor's obligations to Prime Lessor under the Prime Lease (unless Sublessee shall indemnify Sublessor from such increased obligation), or that would cause the Prime Lease to be cancelled, terminated or forfeited. Sublessor shall not amend or modify (nor agree to amend or modify) the Prime Lease in any way that would increase Sublessee's 15 16 obligations or diminish Sublessee's rights under this Sublease, nor shall Sublessor do, nor permit to do or be done, anything that would cause the Prime Lease to be cancelled, terminated or forfeited. 2.2.6 Sublessor shall copy Sublessee on any notice of default, termination or otherwise affecting the existence or validity of the Sublease, given by Sublessor or Prime Lessor to the other. 2.2.7 Sublessor hereby agrees that, as set forth in the written Sublease Consent entered into on or about the date hereof by and among Prime Lessor, Sublessor and Sublessee, to enable Sublessee to use and occupy the Premises for the full Sublease Term, Sublessor has exercised its option to extend the lease term of Prime Lease 1 with respect to the Premises, through July 30, 2005 and its option to extend the lease term of Prime Lease 2 with respect to the Premises through July 30, 2006. 2.3 SUBLESSEE'S EXPANSION OPTION So long as Sublessee is not in default hereunder beyond any applicable notice, grace and cure period, Sublessee shall have the one time only right and option to sublease all or any substantial portion of the Leased Premises currently retained and occupied by Sublessor ("Sublessor's Retained Space"). If Sublessee exercises its option as hereinafter set forth, Sublessee's occupancy of such expansion space shall be pursuant to a separate sublease agreement on terms substantially similar to this Sublease, but modified to delete all references and provisions relating to the Technology Agreement and to incorporate the economic terms and conditions applicable to such new sublease for new expansion space; and rent for any such expansion space shall be fair market rent, on a triple net basis, for a sublease term co-terminous with the expiration of the term of the Prime Lease. To exercise such expansion option, Sublessee must give written notice to Sublessor not later than September 30, 1999, which notice shall specify the portion of the Leased Premises that Sublessor wishes to sublease, and the date (which date shall be no later than three (3) months after the date of such notice) on which Sublessee wishes to enter into a sublease for such expansion space. Within thirty (30) days after Sublessor's receipt of any expansion notice from Sublessee, Sublessor shall give Sublessee written notice of Sublessor's reasonable determination of fair market rent for such expansion space (`Sublessor's Rent Rate Determination"). Sublessee shall have the option, within twenty (20) days of receipt of the Sublessor's Rent Rate Determination to accept Sublessor's Rent Rate Determination or to reject Sublessor's Rent Rate Determination and withdraw the exercise of its option to expand. If Sublessee accepts Sublessor's Rent Rate Determination, Sublessor and Sublessee shall enter into a new sublease agreement with respect to such expansion space as aforesaid. If Sublessee exercises this option, the expansion space shall be delivered to Sublessee in its then existing condition, "as is", and Sublessor shall have no obligation to make any alterations or improvements to the expansion space. If Sublessee shall fail to exercise its expansion option hereunder within the time periods set forth above Sublessee shall have no further expansion rights under this Section. - ------------------ *Confidential treatment has been requested for the marked portion. 16 17 If, however, Sublessee exercises such option but rejects Sublessor's Rent Rate Determination, Sublessee shall have no further right or option to expand the Premises, but in such case if Sublessor desires to sublease all or any substantial portion of Sublessor's Retained Space to any third party at any time prior to September 1, 2003 (unless Sublessee has exercised its right under Section 9.1 to request that Sublessor surrender its interest in and to the Premises and the Prime Lease [to the extent applicable to the Premises], in which case such date shall be deemed to be the Term Expiration Date), at a rent rate materially more favorable to such third party subtenant than the amount of Sublessor's Rent Rate Determination rejected by Sublessee (for purposes of this Sublease, a reduction in the fair market rent, on a triple net basis, of more than [*] percent [*] shall be deemed to be "materially more favorable"), prior to consummating any such third party sublease, Sublessor shall first offer such expansion space to Sublessee at such materially more favorable rent rate but otherwise on the terms and conditions described above in this Section 2.3. Within twenty (20) days after Sublessee's receipt of any such reduced rent rate proposal, Sublessee shall notify Sublessor in writing whether or not Sublessee wishes to sublease such expansion space at such reduced rent rate. If Sublessee accepts Sublessor's reduced rent rate notice, then Sublessor and Sublessee shall enter into a new sublease agreement with respect to such expansion space as described above. If Sublessee fails or declines to accept Sublessor's reduced rent rate notice within such twenty day period, then Sublessor shall be entitled to sublease such expansion space or any other portion of Sublessor's Retained Space to any party at a rent rate not materially more favorable to such third party than the amount of such reduced rent rate rejected by Sublessee. Once Sublessor has subleased any portion of Sublessor's Retained Space to any third party in the manner as aforesaid, all of Sublessee's rights under this Section 2.3 in and to such portion of Sublessor's Retained Space so subleased to such third party shall terminate and be of no further force and effect and Sublessee's rights under this Section 2.3 shall thereupon terminate and be of no further force and effect. Sublessee acknowledges, however, that any such sublease by Sublessee of expansion space under this Section 2.3 shall be subject to the approval of the Prime Lessor in accordance with the Prime Lease (Sublessor shall not be responsible for the failure or refusal of Prime Lessor to consent to any such sublease of expansion space). ARTICLE III TERM OF SUBLEASE ---------------- 3.1 TERM The term of this Sublease shall be for the period specified in Section 1.1 as the Sublease Term. For purposes of this Sublease, the Premises shall be deemed ready for occupancy on the date on which Sublessor certifies to Sublessee that the Premises are in a condition and otherwise ready for use and occupancy by Sublessee for the conduct of the parties' business collaboration to the extent and in the manner contemplated by the Technology Agreement. - ------------------ *Confidential treatment has been requested for the marked portion. 17 18 3.2 SUBLESSEE'S EARLY TERMINATION OPTION If Sublessee exercises its right under Sections 9.1 and 9.2 of the Technology Agreement to terminate the Technology Agreement and makes the termination and other payments required under such Section 9.2, then this Sublease shall terminate, effective on the termination date of the Technology Agreement, with the same force and effect as if such early termination date were the originally scheduled Term Expiration Date. The parties expressly acknowledge and agree that notwithstanding the termination of the Technology Agreement for any reason, other than a termination under Sections 9.1 and 9.2 thereof as expressly described above, this Sublease shall remain in force and effect and the respective rights and obligations of the parties under this Sublease shall remain unchanged as a result of termination of the Technology Agreement. ARTICLE IV PREMISES -------- 4.1 CONDITION OF PREMISES; MAINTENANCE Sublessee agrees to accept the Premises and Sublessor's FF&E in their "as is" condition, generally in the same order and condition as the Premises as Sublessor's FF&E are in as of the date hereof, without any representation or warranty other than as set forth in the Technology Agreement. Sublessor shall maintain and repair the Premises, at Sublessee's sole cost and expenses (which costs and expenses shall be payable by Sublessee as part of Additional Rent), in a professional and workmanlike manner, and keep the Premises in the same order, repair and condition that they were in on the Commencement Date, reasonable wear and tear and damage by fire, other casualty, improvements made to the Premises in accordance with Section 4.4, below, or the acts or omissions of Sublessee excepted. 4.2 SUBLESSOR'S SERVICES In addition to Sublessor's repair and maintenance obligations with respect to the Premises set forth in Section 4.1 above, for so long as the Technology Agreement remains in force and effect, Sublessor shall provide to Sublessee, at Sublessee's cost and expense (which costs and expenses shall be payable by Sublessee as part of Additional Rent), the following services and facilities ("Sublessor's Additional Services") to substantially the same extent and in substantially the same manner that Sublessor provided such services and facilities for the conduct of Sublessor's business in the Premises as of the date of this Sublease: (a) [*] (b) [*] - ------------------ *Confidential treatment has been requested for the marked portion. 18 19 (c) [*] (d) [*] (e) [*] From and after the date on which the Technology Agreement is terminated, for any reason whatsoever, Sublessor shall have no obligation to provide any of Sublessor's Additional Services. 4.3 FURNISHINGS, FIXTURES AND EQUIPMENT Sublessee shall have the right to use all of Sublessor's FF&E. Until such time as Sublessee has exercised, and closed the purchase under, the FF&E Purchase Option set forth in Section 9.2, below, Sublessor shall maintain and repair Sublessor's FF&E, at Sublessee's sole cost and expense, in the same order, repair and condition that they were in on the Commencement Date or the condition they are thereafter placed by virtue of improvements to Sublessor's FF&E made in accordance with Section 4.4 below, reasonable wear and tear [not affecting functionality] and damage by fire, other casualty, or the acts or omissions of Sublessee excepted. Sublessor shall, at its expense prior to the Commencement Date, remove from the Premises the Sublessor's existing AMAP(TM) System to enable Sublessor to configure and install in the Premises a new AMAP(TM) System in the Premises in the manner and within the time periods specified in Section 3.1 of the Technology Agreement. 4.4 IMPROVEMENTS IN OR TO THE PREMISES Sublessee shall make no improvements, alterations, renovations, or additions in or to the Premises or Sublessor's FF&E, or any portion thereof without the prior written consent of Sublessor, which consent shall not be unreasonably withheld or delayed, subject in any event to Sublessee also having obtained the consent of Prime Lessor (Sublessor shall not be responsible for the failure or refusal of Prime Lessor to consent to any such improvements, alterations, renovations or additions); Sublessor hereby agrees that it shall not withhold or delay its consent to any improvements, alterations, renovations or additions to which Prime Lessor consents, so long as Sublessee agrees, upon the expiration or earlier termination of this Sublease, to remove the same and restore the Premises to substantially the condition they were in prior to such improvements, alterations, renovations or additions. Any such approved improvements, alterations, renovations or additions shall be constructed by Sublessee (or by Sublessor if required under the Technology Agreement), at the sole cost and expense of Sublessee in accordance with plans and specifications therefor reasonably approved in advance by Sublessor and shall be done in a good and workmanlike manner, and in compliance with all applicable laws, rules and regulations. - ------------------ *Confidential treatment has been requested for the marked portion. 19 20 Without limiting the generality of the foregoing, Sublessee shall have the right, at its sole cost and expense, to install such security system and equipment as it deems necessary, provided that such system and equipment shall not impair either Sublessor's or Prime Lessor's own security systems. Toward achieving the goal that each party's security system and equipment does not interfere with the other party's, Sublessor and Sublessee agree to review the design and installation of their respective security systems with one another, subject to the reasonable security and business confidentiality needs of each party. Sublessor shall not be responsible for any financial or property losses which Sublessee may suffer relating to actions of third parties other than Sublessor, including, but not limited to, thefts, robberies, or other crimes; nothing in this Section 4.4 or elsewhere in this Sublease, however, shall be deemed to exculpate Sublessor from any liability arising out of the negligence or willful misconduct of Sublessor, its agents, contractors or employees. 4.5 ACCESS, ENTRY AND INSPECTION 4.5.1 For so long as the Technology Agreement remains in force and effect, Sublessor agrees to limit access to the Premises to ArQule Staff (as such capitalized term is defined in the Technology Agreement) and Sublessor's management personnel, employees and other individuals who are otherwise authorized by Sublessee to have access to the Premises (e.g., for training, technical support or facilities maintenance); provided, however, that Sublessee shall also allow Sublessor access to the Premises as otherwise required under this Sublease. 4.5.2 Sublessor and Sublessee acknowledge that the Premises occupy only portions of the Leased Premises and that Sublessor (or its other subtenants) occupies and uses Sublessor's Retained Space for its (or their) purposes. The parties agree that the Premises and the Sublessor's Retained Space shall each be safe, secure and separate from the other. But Sublessor and/or other subtenants or occupants and Sublessee will occupy and use the Collaboration Areas for its or their business purposes. Accordingly, Sublessor and Sublessee each agrees that it (and its subtenants) will use the Collaboration Areas in such manner as to prevent and/or minimize any unreasonable interference to the business activities of the other party and to recognize and respect the reasonable business security and confidentiality needs of the other party. 4.5.3 At reasonable times, and upon reasonable advance notice to Sublessee (except that, in the event of any emergency, Sublessor may enter the Premises at any time without notice), Sublessee shall permit Sublessor, its agents and invitees to enter and inspect the Premises or any portion thereof during Sublessee's regular business hours, subject in all events to Sublessee's reasonable confidentiality and security needs. 4.6 SURRENDER 4.6.1 Sublessee shall surrender the Premises to Sublessor at the end of the Term in accordance with Section 26 of the Prime Lease and (as applicable) Section 1 of Amendment #3 to Prime Lease 1 and Section 2 of Amendment #6 to Prime Lease 2, all to the extent modified by the terms of this Sublease (together as so modified, the "Surrender Obligations"), and in the condition described in Section 4.1, above, reasonable wear and tear and damage by fire or other casualty and acts or omissions of Sublessor excepted. 20 21 4.6.2 If Sublessee has not exercised the FF&E Purchase Option on or before the Term Expiration Date, Sublessee shall surrender all of Sublessor's FF&E not then owned by Sublessee to Sublessor at the end of the Term in accordance with the Surrender Obligations, and in the condition described in Section 4.3, above, reasonable wear and tear and damage by fire or other casualty and acts or omissions of Sublessor excepted. ARTICLE V USES; ASSIGNMENT AND SUBLETTING ------------------------------- 5.1 PERMITTED USES Sublessee agrees that the Premises shall be used and occupied for the Permitted Uses only, and in compliance with all applicable laws, rules and regulations now or hereafter in effect. As set forth in Section 4.2 above and in the Technology Agreement, for so long as the Technology Agreement remains in force and effect. Sublessor shall, to the extent requested by and at the sole cost and expense of Sublessee, apply for and obtain all licenses, permits and approvals, renew, amend or modify existing licenses, permits and approvals, and perform all other obligations as required to conduct Sublessee's business operations in the Premises in compliance with all such laws, rules and regulations. If the Technology Agreement is terminated but this Sublease remains in full force and effect, Sublessor shall cooperate with Sublessee, reasonably and in good faith but at no out-of-pocket expense to Sublessor, to transfer any such licenses, permits and approvals to Sublessee or otherwise to assist Sublessee to apply for and seek to obtain such licenses, permits and approvals in Sublessee's own name. 5.2 ASSIGNMENT AND SUBLETTING BY SUBLESSEE Sublessee shall not, by operation of law or otherwise, assign, mortgage, pledge, encumber or in any manner transfer this Sublease or any interest of Sublessee hereunder, or sublet or permit the Premises or any part thereof to be used or occupied by others, without the prior consent of Sublessor, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Sublessor hereby agrees that Sublessee may, without the consent of Sublessor but upon prior notice to Sublessor, assign this Sublease or sub-sublet all or any portion of the Premises to any "affiliate" of Sublessee, or to any corporation or other business entity into which Sublessee may merge or to which Sublessee may sell all or substantially all of its assets or capital stock. For purposes of this Sublease, the term "affiliate" shall mean any corporation or other legal entity owning directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Sublessee; any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by Sublessee or any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which own, directly or indirectly, fifty percent (50%) or more of the voting capital share or similar voting securities of Sublessee. The foregoing restrictions on transfer of any interest in Sublessee shall not apply to any transfer of the capital stock of Sublessee for so long as the capital stock of Sublessee is publicly traded on any nationally or regionally recognized securities exchange. Sublessee acknowledges, however, that any such assignment or sub-sublet shall be subject to the approval of the Prime Lessor in 21 22 accordance with the Prime Lease (Sublessor shall not be responsible for the failure or refusal of Prime Lessor to consent to any such assignment or sub-sublet). Notwithstanding any assignment by Sublessee or sub-sublease by Sublessee of all or any portion of the Premises, the Sublessee originally named herein shall remain liable to Sublessor for all obligations of Sublessee hereunder. 5.3 ASSIGNMENT BY SUBLESSOR Sublessor hereby agrees that for so long as the Technology Agreement remains in force and effect. Sublessor shall not assign its rights as lessee under the Prime Lease (and Sublessor under this Sublease) without the prior written consent of Sublessee, which consent shall not be unreasonably withheld or delayed. ARTICLE VI RENT AND UTILITIES ------------------ 6.1 BASE RENT AND ADDITIONAL RENT 6.1.1 The Base Rent and Additional Rent specified in Section 1.1 hereof, and any other charges payable pursuant to this Sublease, shall be payable by Sublessee to Sublessor at Sublessor's mailing address (or to such other place as Sublessor may from time to time designate by notice to Sublessee). 6.1.2 During the Term of this Sublease, Base Rent shall be due and payable, in advance, on the first day of each and every calendar quarter during the Term of this Sublease. 6.1.3 During the term of this Sublease, Sublessee shall pay to Sublessor, monthly in advance, prorata monthly installments on account of the projected Additional Rent payable by Sublessee for the coming calendar year. Attached hereto as Exhibit D is a schedule, in reasonable detail, showing by line items, the costs and expenses incurred by Sublessor in calendar year 1998 in operating the Leased Premises. Not less than forty-five (45) days prior to the Commencement Date, Sublessor shall deliver to Sublessee a written invoice, in reasonable detail, calculating the estimated monthly installments on account of projected Additional Rent on the basis of Sublessor's most recent operating and maintenance budget information available; Sublessor may adjust such estimated monthly installments from time to time if Sublessor determines that the annual amount of Additional Rent will increase above Sublessor's initial estimate due to increase in costs of services or supplies or other reasonable grounds, but monthly installments at any such adjusted amount shall not be due and payable until forty-five (45) days after receipt by Sublessee of a written invoice, in reasonable detail, calculating such adjusted monthly installment amount. Promptly after the end of each calendar year, Sublessor shall provide Sublessee with a statement, in reasonable detail, that calculates the actual amount of Additional Rent for the preceding calendar year, the actual amount of monthly installments paid by Sublessee for such year and the amount of the adjustment, if any, between Sublessor and Sublessee on account of Additional Rent for each calendar year. If the total of such monthly installments in any calendar year is greater than the actual amount of Additional Rent for such year, Sublessee shall be entitled to a credit against Sublessee's rental obligations hereunder in the 22 23 amount of such excess (or if after the expiration of the Sublease Term, such excess shall be paid to Sublessee). If the total of such monthly installments is less than the actual amount of Additional Rent for such calendar year, Sublessee shall pay to Sublessor the amount of such deficiency within forty-five (45) days after receipt of an invoice thereafter. Within six (6) months after receipt of Sublessor's annual reconciliation statement, Sublessee may request to audit (at Sublessee's expense) the Additional Rent for the preceding calendar year. Such audit shall take place at Sublessor's office in the Metropolitan Boston Area where its books and records are kept or at such other location in the Metropolitan Boston area are designed by Sublessor. If such audit discloses a discrepancy (a "Discrepancy") between (a) the final amount of the Additional Rent for such year determined by Sublessor and used for purposes of making the annual adjustment described above and (b) the actual amount of the Additional Rent for such year as determined and confirmed by such audit, and Sublessor concurs in the result of such audit, or if Sublessor does not concur but any arbitration proceedings (as described below) regarding such audit determine and confirm the existence of a Discrepancy, additional appropriate adjustments shall be paid to Sublessor or Sublessee as the case may be; if the Discrepancy resulted in Sublessee being overcharged by more than three and one-half percent (3.50%) for such year, the cost of such audit shall be borne by Sublessor, otherwise the costs of such audit shall be paid by Sublessee. If the Sublessor does not concur with the results of such audit, the matter shall be submitted to binding arbitration with the American Arbitration Association at its office in Boston, Massachusetts in accordance with procedures designated by its applicable rules. 6.1.4 Base Rent for any partial calendar quarter shall be paid by Sublessee to Sublessor on a prorata basis. Other charges payable by Sublessee on a monthly basis, as provided, shall likewise be prorated. 6.1.5 All Base Rent, Additional Rent and other amounts due under this Sublease shall be paid without demand (except as otherwise expressly provided herein to the contrary), offset or deduction. Sublessee shall be entitled to a fair and equitable share of all rent abatements set forth in the Prime Lease which Sublessor has been granted with respect to the Premises. 6.2 LATE PAYMENTS If any installment of Base Rent, Additional Rent or other charges is not paid on or before the date such payment is due and payable and such non-payment continues for more than five (5) days after written notice thereof from Sublessor, it shall bear interest at a rate equal to the average prime commercial rate from time to time established by Fleet Bank of Massachusetts plus three percent (3%) per annum from such due date, which interest shall be immediately due and payable to Sublessor; provided, however, that nothing contained herein shall be construed as permitting Sublessor to charge or receive interest in excess of the maximum legal rate then allowed by law. 23 24 ARTICLE VII INSURANCE --------- 7.1 INSURANCE COVERAGE 7.1.1 To the extent Sublessee does not self-insure as described in Section 7.1.4, below, Sublessee shall carry and maintain, throughout the Term hereof, at its own cost and expense, (a) a commercial general liability insurance policy insuring against any claim up to [*] for each occurrence, and up to [*] in the aggregate, involving bodily injury (including death) or damage to property and (b) a fire and other casualty policy insuring (i) the full replacement value of the [*] and other laboratory equipment, (ii) the full replacement value of Sublessee's improvements, fixtures, furnishings, equipment and personal property located in the Premises or any portion thereof, and (iii) the full replacement value of Sublessor's FF&E against loss or damage by fire, theft, sprinkler leakage and such other risks or hazards as are insurable under present and future forms of "All Risk" insurance policies, and (c) during any period that construction or renovations are being performed at any portion of the Premises, the insurance required in (b) above shall be written on a builder's risk, completed value, non-reporting form, meeting all of the terms in (b) above, cover the total value of the work performed, materials, equipment, machinery and supplies furnished, and contain soft cash (loss of rents) coverage and permission to occupy endorsements. Said casualty policy shall also insure against physical damage to the Premises arising out of an accident covered thereunder. 7.1.2 All insurance policies required under Section 7.1.1, above, are to be written by good and solvent insurance companies licensed or authorized to do business in the Commonwealth of Massachusetts with a minimum Best's rating of A-VI; shall be for such limits and with such maximum deductibles as Sublessor may reasonably require (Sublessee hereby agreeing that Sublessor shall in no event be responsible for payment of any such deductibles); and shall name Sublessor, Prime Lessor, Beautyrest Property, Inc. and Boston North, LLC (successor-in-interest to WRB, Inc.) as loss payees and additional insureds, as applicable (provided, however, that the casualty policy insuring Sublessor's FF&E shall name Sublessor as the insured, and Sublessee, Prime Lessor, Beautyrest Property, Inc. and Boston North, LLC (successor-in-interest to WRB, Inc.) as loss payees and additional insureds, as applicable. Sublessor expressly reserves the right to increase limits and require adjustments to coverage as industry standards hereafter change and Prime Lessor hereafter requires. Sublessee will furnish Sublessor with such information as Sublessor may reasonably request from time to time as to the full replacement cost of Sublessee's improvements, fixtures, furnishings, equipment and personal property located in the Premises or any portion thereof or Sublessor's FF&E within ten (10) days after a request therefor. 7.1.3 Sublessee shall also pay its Prorata Share of all insurance premiums allocable to both the Premises and other portions of the Leased Premises that Sublessor is required to pay to Prime Lessor as additional rent under the Prime Lease. - ------------------ *Confidential treatment has been requested for the marked portion. 24 25 7.1.4 So long as this Sublease remains in full force and effect and Sublessee has a net worth in excess of [*] (as "net worth" is defined and determined in accordance with generally accepted accounting principles), Sublessee may self-insure against the risks described in Section 7.1.1, above, and shall not be required to maintain insurance under this Article 7; provided, however, that to the extent any type of risk may not be self-insured under any applicable law, rule or regulation (including, without limitation, risks covered by industrial accident insurance, occupational disease insurance or workmen's compensation insurance), Sublessee shall obtain insurance covering such risks in accordance with applicable laws, rules and regulations to the extent of the respective statutory limits pertaining to the work or operations conducted in or on the Premises. 7.2 EVIDENCE OF INSURANCE Prior to the time insurance is first required to be carried (or self-insurance is first required to be maintained) by Sublessee under Section 7.1, above (e.g., upon execution of this Sublease), and thereafter at least fifteen (15) days prior to the expiration date of any such policy, Sublessee agrees to deliver to Sublessor a certificate of insurance (or other evidence of such insurance satisfactory to Sublessor) upon which both Sublessor and Prime Lessor are entitled to rely, which shall contain an endorsement that any such insurance policy may not be cancelled without at least ten (10) days' prior written notice to each insured. Sublessee's failure to provide and keep in force the aforementioned insurance (or self-insurance) or to make the aforementioned payments to Sublessor shall be regarded as a default hereunder, entitling Sublessor to exercise any or all of the remedies provided in this Sublease in the event of Sublessee's default. All insurance policies carried by Sublessee shall be written as primary coverage policies not contributing with or secondary to coverage which Sublessor carries. 7.3 INSURANCE SUBROGATION Insofar as, and to the extent that, the following may be effective without invalidating or making it impossible to secure insurance coverage obtainable from good and solvent insurance companies licensed or authorized to do business in the Commonwealth of Massachusetts with a minimum Best's rating of A-VI, each of Sublessor and Sublessee mutually agrees that, with respect to any hazard that is covered by property insurance, real and personal, including betterments and improvements, then being carried by them respectively, the one carrying such insurance and such loss releases the other of and from any and all claims with respect to such loss. Each of Sublessor and Sublessee further mutually agrees that its respective insurance company shall have no right of subrogation against the other or the other's insurance company on account thereof. - ------------------ *Confidential treatment has been requested for the marked portion. 25 26 ARTICLE VIII CASUALTY AND TAKING ------------------- If the Premises or any portion thereof is damaged by fire or other casualty, or taken by eminent domain, Sublessee shall promptly notify Prime Lessor and Sublessor. Under Section 7 of the Prime Lease, Prime Lessor may terminate the Prime Lease if a substantial portion of the Premises or the Building is substantially damaged or taken. If (a) Prime Lessor fails to give written notice of its intention to restore as set forth in Section 7 of the Prime Lease, or (b) Prime Lessor does not complete restoration or reconstruction of the Premises or any portion thereof in the manner and within the time periods set forth in such Section 7, Sublessee shall have the right to terminate this Sublease by giving both Sublessor and Prime Lessor written notice of such termination within the applicable notice period set forth in Section 7 of the Prime Lease. In addition, if Sublessor elects to terminate the Prime Lease pursuant to such Section 7, the Prime Lease shall cease and come to an end, and this Sublease shall similarly terminate. Sublessee acknowledges that Sublessor shall, in no event, have any obligation whatsoever to reconstruct or restore the Premises or any portion thereof damaged by fire or other casualty or taken by eminent domain. If this Sublease is not terminated as a result of damage by fire or other casualty or eminent domain, Sublessor shall repair and/or replace any items of Sublessor's FF&E damaged, in no event, however, shall Sublessor be required to expend for such repair and restoration any amount in excess of the net insurance proceeds made available to Sublessor as a result of such damage if and to the extent that Sublessee is required hereunder to carry the insurance covering such risks. ARTICLE IX SUBLESSOR'S SURRENDER OF PRIME LEASE; SUBLESSEE'S FF&E PURCHASE OPTION ------------------------------------- 9.1 SURRENDER OF PRIME LEASE Sublessor shall, upon Sublessee's prior written request given to Sublessor at least one hundred twenty (120) days prior to the Term Expiration Date, surrender all of its interest in and to the Premises and the Prime Lease (to the extent applicable to the Premises) to Prime Lessor in order to enable Sublessee to enter into a direct lease with Prime Lessor for the Premises; provided, however, that such surrender shall not be effective unless and until Prime Lessor has agreed in writing to accept Sublessor's surrender with the same force and effect as if the date of such surrender were the originally scheduled expiration date of the Prime Lease with respect to the Premises. 9.2 SUBLESSEE'S FF&E PURCHASE OPTION Sublessee shall have the option to purchase those portions of Sublessor's FF&E described on Schedule C as "Assets Owned/Controlled by ArQule" at the expiration of the Term of this Sublease, provided that (a) Sublessee provides Sublessor written notice of its exercise of such 26 27 purchase option at least [*] days prior to the Term Expiration Date and (b) Sublessor surrenders its interest in and to the Premises to Prime Lessor in accordance with Section 9.1 above. The purchase price for such portions of Sublessor's FF&E shall be the fair market value of such portions of Sublessor's FF&E as of the Term Expiration Date. Upon the closing of the sale of such portions of Sublessor's FF&E or any part thereof to Sublessee, Sublessor shall convey good title (free and clear of Prime Lessor's security interest under Section 28 of the Prime Lease and all other liens and encumbrances) to such portions of Sublessor's FF&E, and such portions of Sublessor's FF&E shall be substantially in the condition the same is required to be maintained hereunder, but otherwise without any representation or warranty from Sublessor. Sublessor agrees to assign to Sublessee any manufacturer's warranty in its name covering such portions of Sublessor's FF&E to the extent such manufacturer's warranty is assignable. Sublessor shall provide to Sublessee its determination of the fair market value of such portions of Sublessor's FF&E within [*] days of Sublessor's receipt of Sublessee's written notice of the exercise of such purchase option. Sublessee shall have the option, within [*] days of the Sublessor's notice, to accept the Sublessor's estimate or to reject Sublessor's estimate and request arbitration. Failure by the Sublessee to respond to the Sublessor's notice within the [*] day period shall be deemed an acceptance of the Sublessor's estimate. In the event Sublessee rejects Sublessor's estimate, then the fair market value shall be arbitrated in accordance with the following procedure. The parties within [*] days after Sublessee's rejection of Sublessor's estimate shall each identify an impartial third party to serve as an arbitrator and these two arbitrators shall seek to identify one mutually acceptable impartial third party to serve as the third arbitrator. If either party has not designated its arbitrator to the other in a timely fashion, then the determination of the other party's arbitrator shall be final. All such arbitrators shall be facilities managers of biotechnology or pharmaceutical facilities, having current and at least ten (10) years' prior experience in operating, designing or constructing biotechnology or pharmaceutical facilities in the Greater Boston area. If the two arbitrators are unable to agree upon a third arbitrator within [*] days, the third arbitrator shall be selected by J.A.M.S/ENDISPUTE, or any successor entity. If neither J.A.M.S/ENDISPUTE nor any successor entity exists at the time of the dispute, the third arbitrator shall be selected by the American Arbitration Association ("AAA") or any successor entity. If neither AAA nor any successor exists at the time of the dispute, the third arbitrator shall be selected by the largest private provider of dispute resolution services then doing business in the Greater Boston area. Within [*] days after the parties are notified as to the identity of the third arbitrator, each of the three arbitrators shall submit his or her final determination of the fair market value of such portions of Sublessor's FF&E (the "Final Value Determination") to the other arbitrators. The two Final Value Determinations which are closest to each other shall be averaged and this average shall be designated as the fair value. If the highest and lowest Final Value Determinations are equally close to the middle Final Value Determination then the middle one shall be designated as the fair market value. If one of the arbitrators has not submitted its Final Value Determination to the other arbitrators within the time limits set forth herein, the other - ------------------ *Confidential treatment has been requested for the marked portion. 27 28 arbitrators will designate the average of their Final Value Determinations as the fair market value. The arbitrators shall notify the parties of their decision in writing within such [*] day period. All costs incurred for the services of the arbitrator shall be borne equally by the parties. The fair market value as designated by the arbitrators shall be final and binding and the parties shall have no further recourse to such determination. ARTICLE X MISCELLANEOUS PROVISIONS ------------------------ 10.1 INDEMNIFICATION BY SUBLESSEE Sublessee hereby indemnifies and covenants to save Sublessor harmless from and against any and all claims, liabilities or penalties asserted by or on behalf of any person, firm, corporation or public authority regarding: (i) any injury to person, or loss of or damage to property, sustained or occurring on the Premises or any portion thereof arising from or related to the act, omission, fault, negligence or misconduct of Sublessee, its servants, agents, employees or invitees (provided, however, that nothing in this Section shall require Sublessee to indemnify Sublessor from any claims, liabilities or penalties arising out of any negligent acts or omissions of, or misconduct by, Sublessor or Sublessor's servants, agents, employees or invitees on the Premises from time to time pursuant to the Technology Agreement). (ii) any injury to person, or loss of or damage to property, sustained or occurring in or about the Building or the lot surrounding the Building and other than on the Premises or any portion thereof (and, in particular, without limiting the generality of the foregoing, on or about the elevators, stairways, public corridors, sidewalks, concourses, approaches, area ways, roof or other appurtenances and facilities used in connection with the Building, the Premises or any portion thereof) arising from the use or occupancy of the Building, the Premises or any portion thereof by Sublessee or any person claiming by, through or under Sublessee (other than Sublessor, its servants, agents, employees or invitees), and arising from or related to the act, omission, fault, negligence or misconduct of any person other than Sublessor, or its servants, agents, employees or invitees, and in addition to, and not in limitation of the foregoing provision (i); and (iii) any work or thing whatsoever (including monies due on account thereof) done on the Premises or any portion thereof during the Term of this Sublease and during the period of time, if any, prior to the Commencement Date when Sublessee may have been given access to the Premises or any portion thereof, - ------------------ *Confidential treatment has been requested for the marked portion. 28 29 except to the extent caused by any negligent acts or omissions or misconduct of Sublessor, its servants, agents, employees or invitees; and, with respect to any of the foregoing, from and against all costs, expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred in connection with any such claim, or any action or proceeding brought thereon. If any action or proceeding is brought against Sublessor based on any such claim, Sublessee, upon notice from Sublessor, shall at Sublessee's sole cost and expense resist or defend such action or proceeding, and employ counsel therefor reasonably satisfactory to Sublessor. The foregoing indemnification shall survive termination of this Sublease. 10.2 INDEMNIFICATION BY SUBLESSOR Sublessor hereby indemnifies and covenants to save Sublessee harmless from and against any and all claims, liabilities or penalties asserted by or on behalf of any person, firm, corporation or public authority regarding any injury to person, or loss of or damage to property, arising from or related to the act, omission, fault, negligence or misconduct of Sublessor, its servants, agents, employees or invitees (provided, however, that nothing in this Section shall require Sublessor to indemnify Sublessee from any claims, liabilities or penalties arising out of any negligent acts or omissions of, or misconduct by, Sublessee or any of Sublessee's servants, agents, employees or invitees on the Premises or in the Building, provided further, however, that for purposes of this limitation on Sublessor's indemnification obligations, neither Sublessor nor its servants, agents, employees or invitees shall be deemed to constitute Sublessee's agents or invitees by virtue of the Technology Agreement or otherwise) and, with respect to any of the foregoing, from and against all costs, expenses (including, without limitation, reasonable attorneys' fees) and liabilities incurred in connection with any such claim, or any action or proceeding brought thereon. If any action or proceeding is brought against Sublessee based on any such claim, Sublessor, upon notice from Sublessee, shall at Sublessor's sole cost and expense resist or defend such action or proceeding, and employ counsel therefor reasonably satisfactory to Sublessee. The foregoing indemnification shall survive termination of this Sublease. 10.3 LIMITATION OF SUBLESSOR'S LIABILITY The agreements contained in this Sublease on the part of Sublessor shall be binding on Sublessor only during and in respect to such period as Sublessor holds the interest as lessee under the Prime Lease. In no event shall Sublessor or Sublessee ever be responsible to the other for loss of business or other indirect or consequential damages arising out of any breach of the agreements contained in this Sublease. 10.4 NO BROKERAGE The parties represent that they have dealt with no real estate broker or agent in connection with this Sublease or with anyone who would otherwise be entitled to a brokerage commission or other compensation with respect to this Sublease. Each of Sublessor and Sublessee agrees to defend and indemnify the other against any claims, losses, damages, 29 30 liabilities or expenses (including reasonable attorneys' fees) arising out of the breach of any of its respective foregoing representations. 10.5 NOTICES Whenever by the terms of this Sublease notice, demand or other communication shall or may be given, either to Sublessor, Sublessee or Prime Lessor, the same shall be adequately given if in writing and delivered by hand or sent by registered or certified mail, postage prepaid: If intended for Sublessor, addressed to it at the Present Mailing Address of Sublessor, with a copy to Sublessor's attorneys, Palmer & Dodge LLP, One Beacon Street, Boston, Massachusetts 02108, Attention: Michael Lytton, Esquire (or to such other address or addresses as may from time to time hereafter be designated by Sublessor by like notice). If intended for Sublessee, addressed to it at the Present Mailing Address of Sublessee, with a copy to Pfizer Central Research, Eastern Point Road, Groton, Connecticut 06340, Attention: General Counsel and to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: Keith Barnett, Esquire (or to such other address or addresses as may from time to time hereafter be designated by Sublessee by like notice). If intended for Prime Lessor, addressed to it at the Present Mailing Address of Prime Lessor (or to such other address or addresses as may from time to time hereafter be designated by Prime Lessor by like notice). All such notices shall be effective upon receipt or refusal to receive. 10.6 EFFECTIVENESS OF SUBLEASE This Sublease shall not be effective until and unless Prime Lessor has given its consent hereto, which consent shall be in form and substance reasonably satisfactory to Sublessee; Sublessor shall be responsible for paying all costs and expenses payable to Prime Lessor under the Prime Lease in connection with obtaining such consent. Sublessor shall use reasonable efforts to obtain Prime Lessor's consent, but shall not be responsible for the failure or refusal of Prime Lessor to consent to this Sublease. 10.7 BINDING AGREEMENT This Sublease shall bind and inure to the benefit of the parties hereto and such respective heirs, representatives, successors or assigns as are permitted by this Sublease. This Sublease contains the entire agreement of the parties with respect to the subleasing of the Premises and may not be modified except by an instrument in writing signed by the parties hereto. This Sublease shall be governed by the laws of The Commonwealth of Massachusetts. 10.8 REPRESENTATIVES Each party authorizes the others to rely in connection with their respective rights and obligations under this Sublease upon approval and other actions on the party's behalf by Sublessor's Representative, in the case of Sublessor, and by Sublessee's Representative, in the 30 31 case of Sublessee, or by any person designated in substitution of or in addition to said representatives by notice to the parties thereon relying. 10.9 COUNTERPARTS This Sublease may be signed in any number of counterparts, and in such event each shall act as an original for all purposes, so long as each party has signed at least one counterpart. Executed under seal as of the date first written above. Sublessor: ARQULE, INC. By: /s/ Stephen Hill --------------------------- Its Here unto duly authorized Sublessee: PFIZER INC By: /s/ George Milne --------------------------- Its Here unto duly authorized Exhibits: - -------- Exhibit A: Prime Lease I Exhibit B: Prime Lease 2 Exhibit C: List of Sublessor's FF&E Exhibit D: List of Operating Expense Line Items 31 32 EXHIBIT A --------- [Previously filed as Exhibit 10.7 to ArQule's Registration Statement on Form S-1 (File No. 333-11105) and incorporated herein by reference.] 33 EXHIBIT B --------- [Previously filed as Exhibit 10.22 to ArQule's Registration Statement on Form S-1 (File No. 333-22945) and incorporated herein by reference.] 34 EXHIBIT C --------- [*] - ----------------- * Confidential treatment has been requested for the marked portions. 35 EXHIBIT D --------- - ----------------- * Confidential treatment has been requested for the marked portions. 36 CUMMINGS PROPERTIES, LLC STANDARD FORM SUBLEASE CONSENT In connection with two leases currently in effect between the parties at 200 Boston Avenue, Suites [*] ("lease 1") and Suites [*] ("lease 2"), Medford, Massachusetts, executed on July 27, 1995 (lease 1), and December 20, 1996 (lease 2), both as heretofore amended, and terminating July 30, 2000 (lease 1), and July 30, 2001 (lease 2), and in consideration of one dollar ($1.00) and other mutual benefits to be derived herefrom, Cummings Properties, LLC, LESSOR, and ArQule, Inc., LESSEE, hereby agree to amend said lease 1 and lease 2 (collectively, the "lease") as follows: 1. LESSEE desires to sublease to Pfizer Inc. (SUBLESSEE) approximately [*] rentable square feet at the above-referenced premises ("the subleased premises") effective on the Commencement Date established under the sublease (scheduled to occur on or before February 1, 2000), LESSOR acknowledges receipt of $250 towards its expenses in connection with this consent, and LESSEE shall, upon execution of this Sublease Consent by all three parties, pay any additional reasonable charges that me be due in accordance with the lease in connection with this consent. 2. LESSOR, as provided in the lease, hereby approves LESSEE's sublease to SUBLESSEE. LESSEE represents that the attached document is a true and complete copy of the sublease. LESSEE and SUBLESSEE shall not amend the attached sublease without LESSOR's prior written consent, which consent shall not be unreasonably withheld or delayed. Notwithstanding the provisions of this sublease, LESSOR is not a party to it and shall not be bound by it. 3. SUBLESSEE agrees to comply with all covenants, conditions and terms of the lease as fully as if, for purposes hereof, SUBLESSEE were LESSEE under the lease, except as expressly stated in the attached Rider to Sublease Consent. 4. Notwithstanding the foregoing, however, LESSEE shall continue to remain liable to LESSOR, as provided in the lease, for the payment of all rent and for the full performance of all covenants and conditions of the lease. 5. LESSEE shall pay LESSOR an additional security deposit of [*] upon execution of this Sublease Consent by all three parties, subject to the same terms and conditions provided in Section 2 of the lease. 6. SUBLESSEE shall, upon its execution of this Sublease Consent, supply LESSOR with a certificate of insurance in the amount of [*] naming LESSOR and the owner of the building (OWNER) as additional insureds. LESSOR and OWNER shall be included as - ------------------ *Confidential treatment has been requested for the marked portion. 32 37 additional insureds using standard endorsement ISO Form CG 20 26 11 85 or another similar form specifically approved in advance by LESSOR. 7. Any notices from LESSOR to LESSEE shall be served at 200 Boston Avenue, Suite 1000, Medford, Massachusetts 02155 and otherwise as provided in the lease. Any notices from LESSOR to SUBLESSEE shall be served at the subleased premises, with copy to Pfizer Central Research, Eastern Point Road, Groton, Connecticut 06340, Attention: General Counsel and otherwise as provided in the lease. 8. Acceptance of any payments by LESSOR from SUBLESSEE pursuant to the Rider to Sublease Consent shall not establish a new tenancy or in any way affect the relationship between LESSOR and LESSEE and LESSEE's covenants and obligations under the lease. See the attached Rider to Sublease Consent. 9. Intentionally deleted. 10. To the extent any inconsistency exists between the lease and the sublease, the terms and conditions of the lease shall govern, except as expressly stated in the attached Rider to Sublease Consent. 11. *LESSOR represents that Cummings Properties, LLC has succeeded to all interests of Cummings Properties Management, Inc. as LESSOR, that Beautyrest, Inc. and Boston North, LLC (successor-in-interest to WRB, Inc.) are the owners of the building, and that LESSOR has full right, power and authority, by its signature below, to bind Beautyrest, Inc. and Boston North, LLC (successor-in-interest to WRB, Inc.). 12. See the attached Rider to Sublease Consent for additional provisions. All other terms, conditions and covenants of the lease shall continue to apply. In Witness Whereof, LESSOR, LESSEE and SUBLESSEE have hereunto set their hands and commons seals this 16th day of July, 1999. LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: ArQule, Inc. By: /s/ Douglas Stephens By: James Fitzgerald ------------------------------ --------------------------- Executive Vice President SUBLESSEE: Pfizer Inc. By: George Milne --------------------------- 33 38 CUMMINGS PROPERTIES, LLC RIDER TO SUBLEASE CONSENT ------------------------- The following additional provisions are incorporated into and made a part of the attached Sublease Consent by and among ArQule, Inc., as LESSEE, Pfizer Inc. as SUBLESSEE, and Cummings Properties, LLC, as LESSOR: A. LESSOR and LESSEE hereby agree that the lease is modified as follows: (1) Notwithstanding any provisions in the lease to the contrary, LESSOR hereby acknowledges that LESSEE has duly exercised its options to extend the terms of lease 1 and lease 2; accordingly; the termination date of lease 1 is now July 30, 2005, and the termination date of lease 2 is now July 30, 2006. (2) Notwithstanding any provisions in the lease to the contrary, LESSEE hereby agrees that LESSEE shall pay to LESSOR [*]. B. LESSOR hereby agrees that upon SUBLESSEE's attornment as stated below, SUBLESSEE's use, possession and enjoyment of the subleased premises shall not be interfered with, notwithstanding termination of the lease, and such use, possession and enjoyment shall continue uninterrupted as more completely set forth herein. C. Except as stated below in this Rider Paragraph C and Rider Paragraph D below, upon the expiration or other termination of the lease prior to its scheduled expiration date, for any reason whatsoever, SUBLESSEE shall attorn to LESSOR, and LESSOR shall accept SUBLESSEE's attornment, as tenant of the subleased premises, on all the terms and conditions of the lease as modified by Rider Paragraph D below (the lease with such Rider Paragraph D modifications being referred to as the "Attorned Lease"); provided however, that if the lease is being terminated in whole or in part by reason of any default arising from or related to acts of the SUBLESSEE in or with respect to the subleased premises which would entitle LESSOR to exercise the remedy of termination under the terms and conditions of the lease ("SUBLESSEE Defaults"), then LESSOR shall be fully entitled to terminate the lease and to rescind the recognition and attornment set forth herein (in such case SUBLESSEE shall vacate and surrender the subleased premises peaceably; any holding over in the subleased premises by SUBLESSEE in such case shall be deemed a holding over under the terms of the lease and SUBLESSEE shall be liable for all loss, damage or expense incurred by LESSOR as a result of such holding over and shall pay rent at the revised monthly rate set forth in Section 21 of lease 1 and Section 22 of lease 2). Such recognition and attornment shall be self-operative and shall be effective without the execution of any further instrument on the part of either party; however, SUBLESSEE - ------------------ *Confidential treatment has been requested for the marked portion. 34 39 and LESSOR shall execute, upon the written request of either party, an instrument confirming such recognition and attornment. D. In the event of any recognition and attornment between LESSOR and SUBLESSEE as provided in Rider Paragraph C above, SUBLESSEE's use and occupancy of the subleased premises shall be on all of the terms and conditions of the lease, as modified by the following provisions: (1) All references in the lease to LESSOR shall be deemed to refer to LESSOR named in this Sublease Consent and all references in the lease to LESSEE shall be deemed to refer to SUBLESSEE named in this Sublease consent. (2) The premises demised under the lease shall be deemed to be the subleased premises consisting of [*] square feet of space in Suites [*] in the building only, not the premises described in the lease. (3) The base rent payable by SUBLESSEE shall be the base rent set forth in Section 1.1 of the Sublease, not the base rent set forth in the lease. (4) The term of SUBLESSEE's occupancy shall be the "Sublease Term" set forth in Section 1.1 of the Sublease, not the term set forth in the lease. (5) SUBLESSEE shall be entitled to terminate the Attorned Lease (as if the Attorned Lease were the Sublease) in accordance with Section 3.2 of the Sublease. (6) The following provisions of the lease shall be deemed deleted in their entirety: lease 1 - a) Section 1 (Rent) b) Section 2 (Security Deposit) c) Section 17 (Brokerage) d) The second and third grammatical sentences of Section 21 (Occupancy) e) Section 28 (Security Agreement) f) Section Y of Rider to lease 1 g) The first grammatical sentence of Section Z of Rider to lease 1 h) Sections 1 and 2 of Amendment #1 to lease 1 lease 2 - a) Section 1 (Rent) b) Section 2 (Security Deposit) c) Section 19 (Brokerage) - ------------------ *Confidential treatment has been requested for the marked portion. 35 40 d) The second and third grammatical sentences of Section 22 (Occupancy) e) Section 29 (Security Agreement) f) Section A of Rider to lease 2 g) Section C of Rider to lease 2 h) Section D of Rider to lease 2 i) Sections 1, 2 and 3 of Amendment #1 to lease 2 j) Amendment #2 to lease 2 k) Amendment #3 to lease 2 l) Amendment #4 to lease 2 m) Amendment #5 to lease 2 n) Section 1 to Amendment #6 to lease 2 E. From and after receipt of a copy of the LESSOR's notice to LESSEE of LESSOR's intention to terminate the lease, SUBLESSEE shall pay all rent thereafter due and payable under the Sublease directly to LESSOR (any such rent payments received by LESSOR from SUBLESSEE shall be applied by LESSOR as a credit toward LESSEE's obligations under the lease) and shall otherwise fully and faithfully observe and perform (x) all of its obligations under the Sublease while the Sublease remains in effect, and (z) all of its obligations as LESSEE under the Attorned Lease. LESSOR hereby agrees to indemnify SUBLESSEE and hold SUBLESSEE harmless from any claims made by LESSEE with respect to any rents so paid by SUBLESSEE to LESSOR at LESSOR's direction; LESSEE hereby agrees that SUBLESSEE shall have the right to rely on any such notice and direction from LESSOR, without any obligation to inquire as to whether there exists any default by LESSEE under the lease; that LESSEE shall have no right or claim against SUBLESSEE on account of any rental payments made by SUBLESSEE to LESSOR following receipt of such notice and direction; and that as between LESSEE and SUBLESSEE, any payments made, or obligations performed, by SUBLESSEE to or for the benefit of LESSOR from and after receipt of such notice and direction shall be deemed to have be paid to and/or performed for the benefit of, LESSEE. F. LESSOR agrees to give to SUBLESSEE a copy of notice of any default given to LESSEE respecting the performance of any obligations of LESSEE that would entitle LESSOR, under the terms of the Lease or by law, to terminate the lease. G. LESSOR agrees to list SUBLESSEE on the tenant directories in the lobbies of the building at 200 Boston Avenue, Medford. H. Nothing in this Rider to Sublease Consent or the Sublease Consent to which this Rider is attached, nor anything in the Sublease or any Attorned Lease, shall be deemed or construed to amend, modify, alter or otherwise affect in any way the lease or the respective rights and obligations of LESSOR and LESSEE under the lease. The recognition and attornment of SUBLESSEE by LESSOR shall have no effect on any obligations of LESSEE under the lease or on any rights and remedies of LESSOR against LESSEE under the lease. 36 41 LESSOR: CUMMINGS PROPERTIES, LLC LESSEE: ArQule, Inc. By: /s/ Douglas Stephens By: /s/ James Fitzgerald ----------------------------- ------------------------- Executive Vice President SUBLESSEE: Pfizer Inc. By: /s/ George Milne ------------------------- 37 EX-10.3 4 RESEARCH COOPERATION AGREEMENT 1 EXHIBIT 10.3 RESEARCH COOPERATION AGREEMENT This Research Cooperation Agreement effective as of October 1, 1999 (the "Effective Date") is between Bayer AG ("Bayer"), a German corporation, and ArQule, Inc. ("ArQule"), a Delaware Corporation. RECITALS WHEREAS, ArQule has expertise relating to the design and synthesis of libraries of chemical compounds using rapid parallel synthesis methods; WHEREAS, Bayer desires to obtain chemical compounds on a custom synthesis basis; and WHEREAS, ArQule is willing to use its expertise to produce such chemical compounds for Bayer under the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, Bayer and ArQule hereby agree as follows: 1. DEFINITIONS. 1.1 "AFFILIATE" means any business entity which directly or indirectly controls, is controlled by, or is under common control with either party to this Agreement. A business entity shall be deemed to control another business entity if it owns, directly or indirectly, at least fifty percent of the outstanding voting securities, capital stock, or other comparable equity or ownership interest of such business entity, or exercises equivalent influence over such entity. If the Laws of the jurisdiction in which such entity operates prohibit ownership by a party of 50% control shall be deemed to exist at the maximum level of ownership allowed by such jurisdiction. 1.2 "CHEMICAL BUILDING BLOCK" means a chemical component used in the synthesis of a compound in a combinatorial library, and specifically refers to the chemical components used to produce Custom Array Compounds under this Agreement. 1.3 "CHEMICAL THEME" means chemical, structural, or other physical characteristics that define a Custom Array Set, as determined by the Research Committee in accordance with Section 3.2. Typically, a Chemical Theme will be defined by a core structure or synthesis pathway. 1.4 "CONFIDENTIAL INFORMATION" means 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 identity or use of a chemical compound, the identity or use of a biological target, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, and Research Committee reports. 1.5 "CUSTOM ARRAY COMPOUND" means a chemical compound in the Custom Array Sets provided by ArQule to Bayer under the Custom Array Program. 2 1.6 "CUSTOM ARRAY PROGRAM" means a synthesis program under which ArQule produces Custom Array Compounds and delivers the Custom Array Compounds to Bayer, as further described in Article 3 below. 1.7 "CUSTOM ARRAY SET" means a set of Custom Array Compounds consisting of diverse, structurally related small organic chemical compounds with a single Chemical Theme arranged in a spatially addressable format, which are produced by ArQule for Bayer under the Custom Array Program as described in Article 3 below. 1.8 "PATENT RIGHTS" means any United States and foreign patent application and any divisional, continuation, or continuation-in-part of such patent application (to the extent the claims are directed to subject matter specifically described therein), as well as any patent issued thereon and any reissue or reexamination of such patent, and any foreign counterparts to such patents and patent applications. "ARQULE PATENT RIGHTS" means Patent Rights that are either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and a party other than Bayer, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "BAYER PATENT RIGHTS" means Patent Rights that are either (i) assigned solely to Bayer, (ii) assigned jointly to Bayer and a party other than ArQule, or (iii) licensed to or otherwise controlled by Bayer, in each case to the extent that Bayer has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "JOINT PATENT RIGHTS" means Patent Rights assigned to both ArQule and Bayer as joint owners. Joint Patent Rights will include (i) Patent Rights claiming Joint Technology and (ii) Patent Rights claiming both ArQule Technology and Bayer Technology in a single filing. 1.9 "PRODUCTION PLAN" means an initial [*] plan developed by the parties prior to the Effective Date and each successive [*] plan developed by the Research Committee and approved by the Steering Committee for the production of Custom Array Sets by ArQule for Bayer under the Custom Array Program as described in Section 3.3. The Research Committee may periodically modify the Production Plans during the performance of the Custom Array Program, subject to the approval of the Steering Committee in the case of material changes. 1.10 "PROPRIETARY MATERIALS" means any tangible research materials, whether biological, chemical, physical, or otherwise, that one party (the "Provider") furnishes to the other party (the "Recipient") under this Agreement and designates as proprietary or confidential, excluding Custom Array Compounds and compounds within the virtual libraries designated in accordance with the procedures set forth on Exhibit C. 1.11 "RESEARCH COMMITTEE" means the joint Research Committee described in Section 2.1. 1.12 "STEERING COMMITTEE" means the joint Steering Committee described in Section 2.2. -2- 3 1.13 "TECHNOLOGY" means any proprietary development, idea, design, concept, technique, process, invention, Proprietary Material, discovery, or improvement, whether or not patentable or copyrightable. "ARQULE TECHNOLOGY" means Technology that is either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and a party other than Bayer, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "BAYER TECHNOLOGY" means Technology that is either (i) assigned solely to Bayer, (ii) assigned jointly to Bayer and a party other than ArQule, or (iii) licensed to or otherwise controlled by Bayer, in each case to the extent that Bayer has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "JOINT TECHNOLOGY" means Technology that is developed or discovered jointly by one or more employees or consultants of Bayer and one or more employees or consultants of ArQule in connection with this Agreement. 1.14 "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 or unappealed decision or (ii) a claim of a patent application that is pending and has not been abandoned or finally rejected without the possibility of appeal or refiling. 2. MANAGEMENT OF CUSTOM ARRAY PROGRAM. 2.1 RESEARCH COMMITTEE 2.1.1 ESTABLISHMENT OF RESEARCH COMMITTEE. The parties hereby establish a Research Committee comprised of six (6) members, with three (3) representatives appointed by each party. The members initially designated by Bayer are [*]. The members initially designated by ArQule are [*]. A party may change any of its representatives to the Research Committee at any time upon written notice to the other party. 2.1.2 DUTIES OF RESEARCH COMMITTEE. The Research Committee shall monitor, manage, and administer the Custom Array Program under this Agreement. In general, the Research Committee will have responsibility for all issues of a scientific or technical nature (e.g., scheduling, quality, and delivery formats). Specifically, the Research Committee will select Chemical Themes for production, develop Production Plans, determine whether to publish research results, and resolve all matters involving scientific questions. The Research Committee may have other responsibilities as expressly set forth in this Agreement. All decisions of the Research Committee are subject to the authority of the Steering Committee. 2.1.3 MEETINGS OF RESEARCH COMMITTEE. Unless otherwise determined by the Research Committee, the Research Committee shall meet at least once each calendar quarter alternately at the location of each party, or at other times, locations, or manner (e.g., telephone conferences) determined by the Research Committee. Each party shall bear its own costs incurred in connection with such meetings. A representative of the Research Committee jointly appointed by its members shall provide each member with live (5) business days notice of the - ------------------ *Confidential treatment has been requested for the marked portion. -3- 4 time and location of each quarterly meeting, unless such notice is waived by all members. If a designated representative of a party cannot attend a 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 Agreement, all actions and decisions of the Research Committee will require [*]. If the Research Committee fails to reach agreement upon any matter, the dispute will be resolved by the Steering Committee. Within ten (10) business days following each quarterly meeting of the Research Committee, a representative of the Research Committee jointly appointed by its members shall prepare and deliver, to both parties, a written report describing the program status and the issues, decisions, conclusions, and other actions taken by the Research Committee. The written minutes will be approved by the Research Committee at its next quarterly meeting. 2.2 STEERING COMMITTEE 2.2.1 ESTABLISHMENT OF THE STEERING COMMITTEE. The parties hereby establish a Steering Committee comprised of six (6) members, with three (3) representatives appointed by each party. The members initially designated by Bayer are [*]. The members initially designated by ArQule are [*]. A party may change any of its representatives to the Steering Committee at any time upon written notice to the other party. 2.2.2 DUTIES OF THE STEERING COMMITTEE. The Steering Committee shall monitor the Custom Array Program, and shall have general approval authority for all matters within the Custom Array Program. Specifically, the Steering Committee shall approve each Production Plan and material changes to the Production Plan, including any variances to the standard criteria in Section 3.5. The Steering Committee may have other responsibilities as expressly set forth in this Agreement. [*]. 2.2.3 MEETINGS OF THE STEERING COMMITTEE. Unless otherwise determined by the Steering Committee, the Steering Committee shall meet at least once each calendar quarter alternately at the location of each party, or at other times, locations, or manner (e.g., telephone conferences) determined by the Steering Committee. Each party shall bear its own costs incurred in connection with such meetings. A representative of the Steering Committee jointly appointed by its members shall provide each member with five (5) business days notice of the time and location of each quarterly meeting, unless such notice is waived by all members. If a designated representative of a party cannot attend a meeting of the Steering 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 Agreement, all actions and decisions of the Steering Committee will require [*]. If the Steering Committee fails to reach agreement upon any matter, the dispute will be resolved in accordance with the procedures set forth in Article 10 below. Within ten (10) business days following each quarterly meeting of the Research Committee, a representative of the Steering Committee jointly appointed by its members shall prepare and - ------------------ *Confidential treatment has been requested for the marked portion. -4- 5 deliver, to both parties, a written report describing the program status and the issues, decisions, conclusions, and other actions taken by the Steering Committee. The written minutes will be approved by the Steering Committee at its next quarterly meeting. 2.3 COOPERATION. Each party agrees to provide the Research Committee and Steering Committee with information and documentation as reasonably required for the Research Committee and Steering Committee to fulfill their duties under this Agreement. In addition, each party agrees to make available its employees and consultants as reasonably requested by the Research Committee and Steering Committee. The parties anticipate and intend 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 Custom Array Program. 2.4 PROJECT LEADER. ArQule shall appoint a full-time Project Leader who will manage the day-to-day operations of the Custom Array Program. The Project Leader shall serve on the Research Committee. The initial Project Leader shall be [*]. If the Project Leader becomes unavailable for any reason, ArQule shall promptly appoint a new Project Leader after consulting with Bayer. 3. CONDUCT OF CUSTOM ARRAY PROGRAM. 3.1 DESCRIPTION OF CUSTOM ARRAY PROGRAM. The Custom Array Program under this Agreement consists of the production and delivery by ArQule of Custom Array Sets containing an aggregate of [*] Custom Array Compounds over a [*} period, as further described in this Article. As described in Section 3.3., ArQule will produce and deliver the Custom Array Sets in accordance with a Production Plan that is developed and modified by the Research Committee. As described in Section 3.5., each Custom Array Set will [*], subject to modification by the Research Committee. ArQule will use diligent efforts to produce and deliver to Bayer approximately [*] Custom Array Compounds [*] and approximately [*] Custom Array Compounds [*]. 3.2 DESIGN OF CUSTOM ARRAY SETS. The parties will design and plan the Custom Array Sets according the following procedures. [*]. Each party shall follow the "Operational Procedures for Library Exclusivity" set forth on Exhibit C for the disclosure, evaluation, and acceptance of each library proposal in the Custom Array Program, which exhibit is hereby incorporated into and made a part of this Agreement. In accordance with the Operational Procedures for Library Exclusivity, ArQule reserves the right to exclude from the Custom Array Program any compound that was previously committed to a third party or an internal ArQule program. In such event, ArQule will notify the Research Committee as soon as possible after the Custom Array Set is designed, but in any event before the Custom Array Set is delivered to Bayer. 3.3 DEVELOPMENT OF PRODUCTION PLAN. At the first Steering Committee meeting, the parties shall approve an initial Production Plan pursuant to which ArQule will use diligent efforts to produce and deliver the Custom Array Sets to Bayer during the first [*] of the Custom Array - ------------------ *Confidential treatment has been requested for the marked portion. -5- 6 Program, commencing on the Effective Date. Thereafter, the parties shall develop Production Plans at least once every [*]. The Research Committee shall submit each Production Plan to the Steering Committee for approval. Each Production Plan shall become effective only after approval by the Steering Committee. The Research Committee may modify any Production Plan at its discretion, subject to approval of material changes by the Steering Committee. Each Production Plan will include the following: [*]. The Production Plan shall also include an expected production and delivery schedule of Custom Array Sets by ArQule and may include other issues or items that the Research Committee determines would facilitate the Custom Array Program. 3.4 SUPPLY OF CHEMICAL BUILDING BLOCKS. Bayer will supply any Chemical Building Blocks required under each Production Plan that are Bayer Proprietary Materials or are otherwise not readily available to ArQule [*] from the most recent version of the Available Chemicals Directory (ACD) or, in the case of Chemical Blocks that are ArQule Proprietary Materials, within the ArQule inventory. To the extent that Bayer does not supply such Chemical Building Blocks on schedule or within the specifications required by the Production Plan (e.g., quantity and purity), ArQule will be relieved of its obligations under that Production Plan for producing Custom Array Sets that require those Chemical Building Blocks. However, in such event, the Research Committee shall determine whether to substitute different Chemical Building Blocks or postpone production of the library until Bayer supplies the required Chemical Building Blocks. 3.5 PERFORMANCE OF CUSTOM ARRAY PROGRAM. ArQule will use diligent efforts to produce and deliver the Custom Array Sets in accordance with the Production Plan. The parties intend that ArQule will produce and deliver [*] Custom Array Compounds in [*] Custom Array Compounds in [*]; and [*] Custom Array Compounds in [*]. The parties further intend that the Custom Array Sets delivered under the Custom Array Program will, on average, contain approximately [*] Custom Array Compounds per Custom Array Set. The parties will determine whether to proceed with full production of a Custom Array Set based on the "Standard Procedure for the Automated Process Development of Bayer Custom Arrays" set forth on EXHIBIT D, which exhibit is hereby incorporated into and made a part of this Agreement. After ArQule completes each step of this standard procedure, the Research Committee will decide whether to proceed with the next step in the development and production of a proposed Custom Array Set. If the Research Committee decides to proceed. ArQule will use diligent efforts to complete the next step in the development and production of the Custom Array Set; otherwise, the proposed Custom Array Set is eliminated from that Production Plan (but may be incorporated into future Production Plans as circumstances change). Unless otherwise determined by the Research Committee, ArQule will deliver the following of each Custom Array Compound: [*] Upon the shipment of each Custom Array Set. ArQule will provide Bayer with electronic data files containing, among other things, [*]. ArQule will format the data for compatibility with the Bayer chemical registration system. 3.6 EXCLUSIVITY FOR CUSTOM ARRAY COMPOUNDS. For a period [*] after ArQule ships a Custom Array Set to Bayer pursuant to this Agreement. ArQule will not disclose or - ------------------ *Confidential treatment has been requested for the marked portion. -6- 7 transfer to any third party any Custom Array Compound within that Custom Array Set or any other compound within a virtual library based on that Custom Array Set as defined in accordance with the procedures set forth on EXHIBIT C. At the conclusion of the [*] exclusivity period, the above restriction shall expire except with respect to compounds that are covered by a Valid Claim of a patent or patent application within the Bayer Patent Rights as identified by Bayer in a list provided to ArQule before the exclusivity period expires. 3.7 USE AND DISCLOSURE OF [*]. Bayer shall have the right to use the [*] furnished by ArQule under Section 3.5. above for each Chemical Theme for internal research and development purposes. All proprietary [*] furnished by ArQule to Bayer shall he considered ,ArQule Confidential Information and treated in accordance with Article 7 of this Agreement; provided, however, that Bayer shall have the right to disclose such [*] as required to [*], with written notice to ArQule which is received by ArQule at least twenty (20) days before such [*]. ArQule shall have the right to use [*] furnished by Bayer for use in the Custom Array Program for any purpose, except as otherwise provided in this Agreement. All proprietary [*] furnished by Bayer to ArQule shall be considered Bayer Confidential Information and treated in accordance with Article 7 of this Agreement. 4. TECHNOLOGY TRANSFER. 4.1 TECHNOLOGY TRANSFER TO ARQULE. Bayer agrees to disclose to ArQule the proprietary Bayer Technology set forth on Exhibit A and any improvements thereto that Bayer develops during the term of this Agreement (the "[*]") and to furnish ArQule with detailed specifications, protocols, and know-how. Bayer will undertake diligent efforts to enable ArQule to achieve the results achieved by Bayer using the [*]. ArQule acknowledges that establishing the [*] at ArQule may require certain adjustments which are specific for ArQule and that Bayer cannot guarantee the success of this process. Bayer hereby grants ArQule a non-exclusive, worldwide, perpetual, royalty-free license (without the right to sublicense) under the Bayer Patent Rights and other rights in Bayer Technology to use the [*] within ArQule and its Affiliates. ArQule acknowledges that the [*] constitutes Bayer Confidential Information. 4.2 TECHNOLOGY TRANSFER TO BAYER. ArQule hereby agrees to disclose to Bayer the proprietary ArQule Technology set forth on Exhibit B and any improvements thereto that ArQule develops during the term of this Agreement (the "[*]") and to furnish Bayer with detailed specifications, protocols, and know-how. ArQule will undertake diligent efforts to enable Bayer to achieve the results achieved by ArQule using the [*]. Bayer acknowledges that establishing the [*] at Bayer may require certain adjustments which are specific for Bayer and that ArQule cannot guarantee the success of this process. ArQule hereby grants Bayer a non-exclusive, worldwide, perpetual, royalty-free license (without the right to sublicense) under the ArQule Patent Rights and other rights in ArQule Technology to use the [*] within Bayer and its Affiliates. Bayer acknowledges that the [*] constitutes ArQule Confidential Information. 5. PAYMENTS, PROCEDURES, AND RECORDS. - ------------------ *Confidential treatment has been requested for the marked portion. -7- 8 5.1 UP-FRONT FEES. In consideration of the ongoing development and production of the Custom Array Sets by ArQule under the Custom Array Program and of the [*] exclusive right granted to Bayer for filing Patent Rights on such compounds as described in Section 3.6., Bayer shall pay ArQule the following up-front fees:
Contract Year Payment ------------- ------- 1st [*] 2nd [*] 3rd [*]
Bayer shall pay the initial [*] up-front fee within ten (10) business days after the Effective Date. Thereafter, the up-front fee will be payable in four equal installments at the beginning of each calendar quarter during the term of the Agreement. 5.2 SUCCESS FEES. In consideration of the delivery of the Custom Array Sets by ArQule under the Custom Array Program and of the [*] exclusive right granted to Bayer for filing Patent Rights on such compounds as described in Section 3.6. Bayer shall pay ArQule the following success fees for each Custom Array Compound delivered:
Contract Year Success Fee Per Compound Aggregate Success Fees ------------- ------------------------ ---------------------- 1st [*] [*] 2nd [*] [*] 3rd [*] [*]
The success fees shall be due on a quarterly basis at the conclusion of each calendar quarter, payable within thirty (30) days. 5.3 EXTRAORDINARY EXPENSES. In the unusual event that ArQule incurs extraordinary expenses at the request of the Research Committee in order to produce a specific Custom Array Set (e.g., the purchase or development of special capital equipment or the purchase or synthesis of Chemical Building Blocks or other stoichiometric chemicals or reagents that cost in excess of [*] per gram), Bayer shall pay such extraordinary expenses as approved by the Steering Committee. 5.4 METHOD AND CURRENCY OF PAYMENT. The parties shall use a mutually acceptable method of payment for all amounts payable by Bayer to ArQule under this Agreement. All payments due to ArQule under this Agreement shall be payable in United States dollars within thirty (30) days after invoice. 5.5 LATE PAYMENTS. Any payments by Bayer 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 Prime Rate of interest as reported in the WALL STREET JOURNAL on - ------------------ *Confidential treatment has been requested for the marked portion. -8- 9 the date payment is due, with interest calculated based on the number of days that payment is delinquent. 5.6 WITHHOLDING AND SIMILAR TAXES. Each party shall pay any and all taxes levied on account of amounts it receives as payments under this Agreement. If laws or regulations require that taxes be withheld, the party making payments to the other party will (i) deduct those taxes from the remittable payment, (ii) timely pay the taxes to the proper taxing authority, and (iii) send to the party receiving a payment evidence of such taxes within thirty (30) days following that payment. The selling party agrees to make all reasonable and lawful efforts to minimize such taxes to the other party. 5.7 TRANSIT OF COMPOUNDS. ArQule shall have responsibility for the Custom Array Compounds during transit to Germany, including payment of associated expenses and the risk of transit. Bayer shall have responsibility for the Custom Array Compounds after they are unloaded in Germany, including payment of associated expenses, customs and duties, and the risk of transit. 6. INTELLECTUAL PROPERTY. 6.1 OWNERSHIP OF INTELLECTUAL PROPERTY. Neither party shall have any rights in Patent Rights and Technology that is developed or discovered by the other party prior to the Effective Date or outside of the research performed under this Agreement. Ownership of Patent Rights and Technology arising from the research performed under this Agreement shall be allocated in the following manner: (i) [*] (ii) [*] (iii) [*]. 6.2 PATENT RIGHTS. 6.2.1 PATENT RIGHTS IN CUSTOM ARRAY COMPOUNDS.[*]. 6.2.2 PATENT RIGHTS IN COMBINATORIAL LIBRARIES. [*]. 6.2.3 OTHER PATENT RIGHTS. Bayer shall have sole responsibility for and control over the management of Bayer Patent Rights and ArQule shall have sole responsibility for and control over the management of ArQule Patent Rights. Each party will bear its own expenses in connection with such Patent Rights. The Research Committee will recommend and the Steering Committee will decide whether to seek Joint Patent Rights. If the Steering Committee decides to seek any Joint Patent Rights under this Subsection, the parties shall jointly prepare, file, prosecute, and maintain such Patent Rights, and all related expenses shall be borne equally by - ------------------ *Confidential treatment has been requested for the marked portion. -9- 10 the parties. In the event that a party desires to cease further payment of patent-related expenses for such a Joint Patent Right in any country and the other party desires to maintain the Joint Patent Right, the withdrawing party may assign to the continuing party all rights in that Joint Patent Right in such country and thereafter have no further obligation to pay such expenses. 6.2.4 COOPERATION. Each party agrees to cooperate fully in the preparation, filing, and prosecution of any Patent Rights arising under the Custom Array Program. Such cooperation includes, but is not limited to: (i) 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 as established under this Agreement and to enable the other party to apply for and to prosecute patent applications in any country; (ii) 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 (iii) undertaking no actions that are potentially deleterious to the preparation, filing, or prosecution of such patent applications. 6.3 INFRINGEMENT. 6.3.1 OFFENSIVE ACTIONS. Each party will promptly notify the other party if they become aware of any potential infringement of Patent Rights arising under this Agreement. Neither party shall have any obligation to initiate an infringement action to assert any Patent Right under this Agreement. 6.3.2 DEFENSIVE ACTIONS. Bayer will indemnify, defend, and hold harmless ArQule, its Affiliates, and their respective officers, directors, employees, and agents from any and all loss, damage, cost, and expense (including reasonable attorneys fees) and amounts paid in settlement arising from any actual or alleged infringement claim brought by a third party, in law or in equity, based on activities undertaken pursuant to this Agreement (except for claims based solely on the practice of an ArQule Patent Right or the use of an ArQule Technology) or based on the manufacture or sale of a final product based on a Custom Array Compound. In the event that ArQule intends to claim indemnification under this Subsection. ArQule shall promptly notify Bayer of the infringement action and Bayer shall assume the defense of the action under its sole control, including the right to effect a settlement. A failure to deliver notice to Bayer within a reasonable time shall relieve Bayer of its indemnity obligation under this Subsection to the extent such failure prejudices the ability of Bayer to defend such action. ArQule shall cooperate fully with Bayer and its legal representatives in the investigation and defense of the action. In the event of a settlement, Bayer shall obtain the prior consent of ArQule (which will not be unreasonably withheld) before agreeing to any settlement that imposes restrictions which are inconsistent with the rights and obligations of the parties under this Agreement. 6.4 ACCESS TO RESTRICTED TECHNOLOGY. Bayer acknowledges that ArQule is subject to restrictions on the use of certain synthetic methods and chemical compositions that Bayer may desire to access in the Custom Synthesis Program. For the purposes of this Section, the term -10- 11 "RESTRICTED PATENT RIGHTS" means Patent Rights that, as of the Effective Date and thereafter during the term of this Agreement, ArQule has the ability to license, sublicense, or practice in the Custom Array Program with the consent of or payment to a third party, and the term "RESTRICTED TECHNOLOGY" means Technology that, as of the Effective Date and thereafter during the term of this Agreement, ArQule has the ability to license, sublicense, or use in the Custom Array Program with the consent of or payment to a third party. At the request of Bayer, ArQule will use commercially reasonable efforts to obtain the ability for Bayer (i) to practice Restricted Patent Rights and to use Restricted Technology within the Custom Array Program and (ii) to grant to Bayer and its Affiliates, for internal research and development purposes, a non-exclusive, worldwide license (without the right to sublicense) under the Restricted Patent Rights and other rights in Restricted Technology. ArQule will grant this license to Bayer on terms which, considered in the aggregate, are at least as favorable as the terms given to any third party. Bayer acknowledges that the grant of such rights may require execution of a separate sublicense agreement or payment of additional consideration, or both. Bayer shall not have any obligation to enter into any sublicense agreement or pay any additional consideration that Bayer has not approved in advance; however, in such event, ArQule shall have no obligation to practice any Restricted Patent Rights or use any Restricted Technology in the Custom Array Program. 7. CONFIDENTIAL INFORMATION. 7.1 DESIGNATION OF CONFIDENTIAL INFORMATION. Confidential Information that is disclosed in writing shall be marked with a legend indicating its confidential status. Confidential Information that is disclosed orally or visually shall be documented in a written notice prepared by the Disclosing Party and delivered to the Receiving Party within thirty (30) days of the date of disclosure; such notice shall summarize the Confidential Information disclosed to the Receiving Party and reference the time and place of disclosure. 7.2 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, and its 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; (ii) use all Confidential Information solely for the purposes set forth in, or as permitted by, 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. 7.3 EXCEPTIONS. The obligations of the Receiving Party under Section 7.2. above shall not apply to the extent that the Receiving Party can demonstrate that certain Confidential Information: -11- 12 (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 to the Disclosing Party with respect to such Confidential Information; or (v) is required to he disclosed to comply with applicable laws or regulations (such as disclosure to the FDA 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. 7.4 RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of this Agreement, at the request of the Disclosing Party, the Receiving Party shall destroy or 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 (i) Bayer shall retain the Confidential Information disclosed by ArQule under Section 3.5. pertaining to structures of Custom Array Compounds, purity of Custom Array Sets, experimental procedures for Chemical Themes, and information disclosed pursuant to Section 4.2. (Technology Transfer), (ii) ArQule shall retain the Confidential Information disclosed by Bayer pertaining to Chemical Themes, experimental procedures for Chemical Themes, and information disclosed pursuant to Section 4.1. (Technology Transfer), and (iii) the Receiving Party may retain one copy of the Confidential Information in the possession of its Legal Department solely for the purpose of monitoring its obligations under this Agreement. 7.5 PUBLICATION. Either party may disclose Confidential Information of the other party in a scientific publication or presentation approved by the Steering Committee and approved by the appropriate procedures within Bayer and ArQule. 7.6 SURVIVAL OF OBLIGATIONS. Except as otherwise expressly provided in this Agreement, the obligations set forth in this Article shall remain in effect for a period of ten (10) years after termination of this Agreement, provided that the obligations of the Receiving Party to destroy or return Confidential Information to the Disclosing Party shall survive until fulfilled. - ------------------ *Confidential treatment has been requested for the marked portion. -12- 13 8. PROPRIETARY MATERIALS. 8.1 OWNERSHIP. Bayer acknowledges and agrees that any Proprietary Materials provided to Bayer and its Affiliates under this Agreement are and shall remain the property of ArQule. ArQule acknowledges and agrees that any Proprietary Materials provided to ArQule and its Affiliates under this Agreement are and shall remain the property of Bayer. The foregoing notwithstanding, the parties agree that ownership of any intellectual property rights in Proprietary Materials shall be determined in accordance with Articles 6.1. and 6.2.3. 8.2 RESTRICTIONS ON USE AND TRANSFER. Each Recipient agrees to use such Proprietary Materials only for the purposes indicated by the Provider, and shall not transfer the Proprietary Materials to any third party without the prior written consent of the Provider. Each Recipient further agrees to inform its employees and consultants about the proprietary nature of the Proprietary Materials and to take reasonable precautions, at least as stringent as those observed by Recipient to protect its own Proprietary Materials, to ensure that such employees and consultants observe the obligations of Recipient under this Section. 8.3 DISPOSITION OF UNUSED MATERIALS. Upon the expiration or termination of this Agreement, or earlier at the request of the Provider, Recipient will return or destroy any unused Proprietary Materials furnished by Provider. 8.4 COMPLIANCE WITH LAW. Recipient agrees to comply with all United States, German, and international laws and regulations applicable to the use, storage, disposal, and transfer of Proprietary Materials furnished by 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, and all Export Administration Regulations of the Department of Commerce, Recipient assumes sole responsibility for any violation of such laws or regulations by Recipient or any of its Affiliates. 8.5 LIMITATION OF LIABILITY. Any Proprietary Materials delivered pursuant to this Agreement are understood to be experimental in nature and may have hazardous properties. Recipient should assume that the materials are dangerous and should use appropriate precautions. PROVIDER MAKES NO REPRESENTATIONS, AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPRIETARY MATERIALS FURNISHED TO RECIPIENT. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. PROVIDER DISCLAIMS ANY WARRANTY, EXPRESS OR IMPLIED, THAT THE USE OF ANY PROPRIETARY MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHTS OF A THIRD PARTY, AND PROVIDER SHALL HAVE NO LIABILITY RELATING THERETO EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT. 9. TERM AND TERMINATION. -13- 14 9.1 TERM. This Agreement shall commence on the Effective Date and shall remain in effect for a period of three (3) years, unless earlier terminated as provided in this Article 9. 9.2 MATERIAL BREACH. In the event that either party commits a material breach of any of its obligations under this Agreement and such party fails (i) to remedy that breach within sixty (60) days after receiving written notice thereof from the other party or (ii) to commence dispute resolution pursuant to Article 10, within sixty (60) 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. If ArQule has substantially not met the requirements of the Production Plan for two consecutive calendar quarters, according to objective criteria set in advance by the Steering Committee, the parties agree that such event shall constitute a material breach under this Agreement. 9.3 TERMINATION DUE TO ACQUISITION. If any third party which is a competitor of Bayer shall purchase substantially all the assets of ArQule, or if there is a change of control of ArQule. Bayer may terminate this Agreement upon ninety (90) days' written notice which is received by ArQule or its parent; successor, or the surviving or new entity resulting from the business combination, as the case may be. As used herein, the term "change of control" shall mean the acquisition by a third party which is a competitor of Bayer of more than fifty percent (50%) of the voting stock of ArQule. 9.4 FORCE MAJEURE. Neither party will be responsible for delays resulting from acts beyond the control of such party, provided that the nonperforming 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. 9.5 EFFECT OF TERMINATION. Termination of this Agreement shall not relieve the parties of any obligation accruing prior to such termination. The following provisions shall survive the expiration or termination of this Agreement: Sections 3.6., 3.7., 5.4., 5.5., 5.6., 6.1., 6.2., 6.3., 9.5., 12.8., 12.10., and 12.13.; and Articles 4, 7, 8, 10, and 11. 10. DISPUTE RESOLUTION. 10.1 PROCEDURES MANDATORY. The parties agree that any dispute arising out of or relating to this Agreement shall be resolved solely by means of the procedures set forth in this Article, and that such procedures constitute legally binding obligations that are an essential provision of this Agreement; provided, however, that all procedures and deadlines specified in this Article may be modified by written agreement of the parties. If either party fails to observe the procedures of this Article, as modified by their written agreement, the other party may bring an action for specific performance in any court of competent jurisdiction. 10.2 DISPUTE RESOLUTION PROCEDURES. - ------------------ *Confidential treatment has been requested for the marked portion. -14- 15 10.2.1 NEGOTIATION. In the event of any dispute arising out of or relating to this Agreement, the affected party shall notify the other party, and the Steering Committee shall attempt in good faith to resolve the matter, subject to the approval of the senior management of both parties, within ten (10) days after the date such notice is received by the other party (the "Notice Date"). Any disputes not resolved by good faith discussions by the Steering Committee shall be referred to the Chief Executive Officer of ArQule and the Head of Pharmaceutical Research of Bayer, who shall meet at a mutually acceptable time and location within sixty (60) days after the Notice Date and attempt to negotiate a settlement. 10.2.2 TRIAL WITHOUT JURY. If the matter remains unresolved within ninety (90) days after the Notice Date, each party shall have the right to pursue any other remedies legally available to resolve the dispute, provided, however, that the parties expressly waive any right to a jury trial in any legal proceeding under this Section. Any legal action taken under this Section by either party shall be brought only in a federal or state court located in the State of New York, and the parties hereby irrevocably consent to jurisdiction in the federal and state courts of the State of New York. 11. INDEMNIFICATION AND INSURANCE. 11.1 INDEMNIFICATION. Bayer agrees to defend, indemnify and hold ArQule, its Affiliates and their respective directors, officers, employees, and agents (the "Indemnitees") harmless from all costs, judgments, liabilities, and damages assessed by a court of competent jurisdiction arising from claims asserted by a third party against any of the Indemnitees as a result of: (i) actual or asserted violations by Bayer or its Affiliates, sublicensees, or third party manufacturers of any applicable law or regulation that relates to the manufacture, distribution, or sale of any product containing an Custom Array Compound, or any derivative or analog thereof, including without limitation any alleged or actual claim that such product was adulterated, misbranded, or mislabeled; (ii) claims for bodily injury, death, or property damage attributable to the manufacture, distribution, sale, or use by Bayer or its Affiliates, subicensees, or third party manufacturers of any product containing an Custom Array Compound or any derivative or analog thereof; or (iii) a recall ordered by a governmental agency, or required by a confirmed failure, of any product containing an Custom Array Compound or any derivative or analog thereof, that is manufactured, distributed, or sold by Bayer, its Affiliates, sublicensees, or third party manufacturers. 11.2 PROCEDURE. The Indemnitees agree to provide Bayer with prompt written notice of any claim, suit, action, demand, or judgment for which indemnification is sought under this Agreement. Bayer agrees, at its own expense, to provide attorneys reasonably acceptable to ArQule to defend against any such claim. The Indemnitees shall cooperate fully with Bayer in such defense and will permit Bayer 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 Bayer, if representation of such Indemnitee by the counsel retained by Bayer would be inappropriate because of actual or potential differences in the interests of such Indemnitee and any other party represented by such counsel. Bayer agrees to keep ArQule informed of the progress in the defense and disposition of such claim and to consult with ArQule with regard to any proposed settlement. -15- 16 11.3 INSURANCE. Bayer shall maintain appropriate product liability insurance or self-insurance with respect to development, manufacture, and sales of products containing Custom Array Compounds or any derivatives or analogs thereof, in such amount as Bayer customarily maintains with respect to sales of its other products. Bayer shall each maintain such insurance for so long as it continues to manufacture or sell such products, and thereafter for so long as Bayer maintains insurance for itself covering such manufacture or sales. 12. MISCELLANEOUS. 12.1 PUBLICITY. Neither party shall reveal the terms of this Agreement or use the name of the other party in connection with any promotional statements to the public about the work performed under this Agreement or the relationship between the parties. Whether in a press release, advertisement, promotional sales literature, or other promotional oral or written statements, without the prior written approval of the other party, which consent shall not he unreasonably withheld or delayed, except for restatements of previously-approved statements and disclosures required by applicable law or regulation. 12.2 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 action which shall be binding on the other party, except as may be explicitly provided for herein or authorized in writing. 12.3 REPRESENTATIONS AND WARRANTIES. Each party represents and warrants to the other party (i) that it has the legal right, power, and authority to enter into this Agreement, to extend the rights and licenses granted to the other party in this Agreement, and to fully perform its obligations under this Agreement, and (ii) 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. In the event that a party becomes aware that any of its representations and warranties under this Section become untrue during the term of this Agreement, such party shall immediately furnish the other party with written notice which describes the facts in reasonable detail. 12.4 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. 12.5 HEADINGS. All headings in this Agreement are for convenience only and shall not affect the meaning of any provision hereof. 12.6 BINDING EFFECT. This Agreement shall inure to the benefit of and be binding upon the parties and their respective lawful successors and assigns. 12.7 ASSIGNMENT. Neither party may assign this Agreement without the prior written consent of the other party, except that a party may assign this Agreement to an Affiliate or to a 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. -16- 17 12.8 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 it' 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 Bayer: Bayer AG Pharmaceuticals Business Group Attn: International Cooperation and Licensing Q30 D-51368 Leverkusen Germany with a copy (which shall not constitute notice) to: Bayer AG KB-RP Attn: Patents and Licensing/Pharma Q18 D-51368 Leverkusen Germany If to ArQule: ArQule, Inc. 200 Boston Avenue Medford, MA 02155 Attn: President Tel: (781) 395-4100 Fax: (781) 393-8321 with a copy (which shall not constitute notice) to: ArQule, Inc. 200 Boston Avenue Medford, MA 02155 Attn: Legal Department Tel: (781) 395-4100 Fax: (781) 393-8321 Either party may change its designated address and facsimile number by notice to the other party in the manner provided in this Section. 12.9 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 -17- 18 and shall not be construed as an agreement to waive any rights or fail to act in any other instance, whether or not similar. 12.10 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 New York irrespective of any conflict of laws principles. 12.11 HART-SCOTT-RODINO ACT. If required by law, the parties shall, at their own expense, prepare and make appropriate filings under Title II of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder (16 C.F.R. 801.1 et. seq.) (the "Act") as soon as reasonably practicable. The parties shall co-operate in the antitrust clearance process and agree to furnish promptly to the FTC and the Antitrust Division of the Department of Justice any additional information reasonably requested by them in connection with such filings. In such event, the parties shall delay performance under this Agreement until such time as the requirements of the Act are met, and shall adjust the time periods for performance accordingly. 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 this Agreement shall be construed as if such invalid or unenforceable provision had not been included herein. 12.13 NON-SOLICITATION. During the term of this Agreement and thereafter for a period of [*] years, Bayer shall not persuade or induce, or attempt to persuade or induce, any ArQule employee to discontinue his or her employment with ArQule in order to become employed by or associated with Bayer; its Affiliates; or any other business, enterprise, or effort that is associated with Bayer. 12.14 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. - ------------------ *Confidential treatment has been requested for the marked portion. -18- 19 IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as a sealed instrument effective as of the date first above written. BAYER A.G. By: /s/ Dr. P. Bamelis -------------------------------- Name: Dr. P. Bamelis Title: Member of the Board of Management By: /s/ Dr. Van der Kerchhoff -------------------------------- Name: Dr. Van der Kerchhoff Title: Licensing Manager ARQULE, INC. By: /s/ Stephen Hill 09/08/99 -------------------------------- Name: Stephen Hill Title: President and Chief Executive Officer -19- 20 EXHIBIT A DESCRIPTION OF [*] ------------------ - ------------------ *Confidential treatment has been requested for the marked portion. -20- 21 [*] - ------------------ *Confidential treatment has been requested for the marked portion. -21- 22 EXHIBIT B DESCRIPTION OF [*] ------------------ - ------------------ *Confidential treatment has been requested for the marked portion. -22- 23 [*] - ------------------ *Confidential treatment has been requested for the marked portion. -23- 24 EXHIBIT C OPERATIONAL PROCEDURES FOR LIBRARY EXCLUSIVITY ---------------------------------------------- -24- 25 [*] - ------------------ *Confidential treatment has been requested for the marked portion. -25- 26 EXHIBIT D STANDARD PROCEDURE FOR THE AUTOMATED PROCESS DEVELOPMENT OF ----------------------------------------------------------- CUSTOM ARRAY SETS ----------------- -26- 27 [*] - ------------------ *Confidential treatment has been requested for the marked portion. -27- -----END PRIVACY-ENHANCED MESSAGE-----