-----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, WTx+qIuBP/K98URVfgW7KZ5sqYc2HsubC4TiZaEDHZNf8eXdd7CvdAu+OY623XVv ++sN1JA3Y++godFI7LULhw== 0001157523-09-002131.txt : 20090316 0001157523-09-002131.hdr.sgml : 20090316 20090316160251 ACCESSION NUMBER: 0001157523-09-002131 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090316 DATE AS OF CHANGE: 20090316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARIAD PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000884731 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 223106987 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21696 FILM NUMBER: 09684328 BUSINESS ADDRESS: STREET 1: 26 LANDSDOWNE ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6174940400 MAIL ADDRESS: STREET 1: 26 LANDSDOWNE CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-K 1 a5915319.htm ARIAD PHARMACEUTICALS, INC. 10-K a5915319.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________
Commission file number 0-21696

ARIAD Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
22-3106987
(I.R.S. Employer Identification No.)

26 Landsdowne Street, Cambridge, Massachusetts 02139-4234
(Address of principal executive offices)           (Zip Code)

Registrant’s telephone number, including area code: (617) 494-0400

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $.001 par value
Rights to Purchase Series A Preferred Stock
The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  [    ]     No  [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes  [    ]     No  [ X ]

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  [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [    ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [    ]    Accelerated filer [ X ]
Non-accelerated filer [    ] (Do not check if a smaller reporting company)         Smaller reporting company  [    ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  [    ]     No  [ X ]

The aggregate market value of the registrant’s common stock held by nonaffiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate), computed by reference to the price at which the common stock was last sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $163 million.

As of March 6, 2009, the registrant had 86,357,681 shares of common stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K:  Certain information required in Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.
 
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ITEM 1:    BUSINESS

The following Business Section contains forward-looking statements, which involve risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors (see Part I, Item 1A:  Risk Factors).  Unless the content requires otherwise, references to “ARIAD,” “we,” “our,” and “us,” in this Annual Report on Form 10-K refer to ARIAD Pharmaceuticals, Inc. and our subsidiaries.

Overview

Our Business and Strategy

ARIAD’s vision is to transform the lives of cancer patients with breakthrough medicines.  Our mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest and most urgent unmet medical need – aggressive cancers where current therapies are inadequate.  Our goal is to build a fully integrated oncology company focused on novel, molecularly targeted therapies to treat solid tumors and hematologic cancers, as well as the spread of primary tumors to distant sites.  Our business strategy is to:

·  
build a fully integrated oncology company and become a leader in the discovery, development and commercialization of molecularly targeted oncology therapies;

·  
broadly develop our lead oncology product candidates and build a pipeline of innovative follow-on product candidates;

·  
enter into partnerships with major pharmaceutical or biotechnology companies, after obtaining definitive clinical data, to assist in developing our cancer product candidates and commercializing them in selected markets;

·  
license our NF-κB and ARGENT cell-signaling regulation technologies to pharmaceutical and biotechnology companies; and

·  
leverage the market potential of our product candidates by licensing them to other companies for development and commercialization in potential non-oncology indications or non-core applications.

 
Our Product Candidates

Our lead cancer product candidate, deforolimus (previously known as AP23573), is an internally discovered, potent inhibitor of the protein mTOR, a “master switch” in cancer cells.  Blocking mTOR creates a starvation-like effect in cancer cells by interfering with cell growth, division, metabolism and angiogenesis.

We are developing deforolimus in partnership with Merck & Co., Inc., or Merck, under a collaboration agreement signed in July 2007.  The collaboration agreement provides that we together with Merck will conduct a broad-based development program in multiple potential indications.  The collaboration agreement establishes responsibilities for development, manufacturing, promotion, distribution and sales of the product, governance of the collaboration, termination provisions and other matters.

The collaboration agreement provides for (i) an up-front payment of $75 million which was paid to us in July 2007, (ii) sharing of the costs of development, (iii) up to $652 million in milestone payments based on successful development of and achievement of specific sales thresholds related to deforolimus, and (iv) the availability of up to $200 million of repayable advances to fund ongoing development upon obtaining regulatory approval to market deforolimus.  The collaboration agreement also provides for profit-sharing and royalties upon successful commercialization of deforolimus.  See “Our Licenses to Third Parties” under this Part I for a detailed description of our collaboration agreement with Merck.

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Pursuant to a global development plan established by us and Merck, we are developing deforolimus in multiple potential cancer indications, both as a single agent and in combination with various targeted agents.   In 2007, we initiated our first Phase 3 clinical trial of oral deforolimus in patients with metastatic soft-tissue and bone sarcomas and, in 2008, we and Merck initiated Phase 2 clinical trials of oral deforolimus in patients with endometrial, breast and prostate cancers, and Phase 1 studies of deforolimus in combination with other agents, all as part of our global development plan.

Deforolimus is also being developed pursuant to license agreements with medical device companies for use on drug-eluting stents to prevent restenosis, or reblockage, of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  We have entered into two such license agreements to date, one with Medinol Ltd., or Medinol, and another with ICON Medical Corp., or ICON, and have retained the right to enter into one additional non-exclusive agreement in this area.

Our second product candidate, AP24534, is a novel multi-targeted kinase inhibitor that we believe has broad potential applications in cancer and is wholly owned by us. Kinases are a large family of cell-signaling proteins that control many aspects of cell behavior, and are often inappropriately activated in cancer cells.  In preclinical studies, AP24534 demonstrated potent inhibition of Bcr-Abl, a kinase that causes chronic myeloid leukemia, or CML,  as well as mutants of this kinase, including the T315I mutant, that is resistant to all of the currently marketed therapies for CML.  In preclinical studies, AP24534 was also shown to inhibit Flt3, a kinase involved in acute myeloid leukemia, or AML, as well as kinases that control angiogenesis, or new blood vessel formation, a process important in the progression of multiple solid tumors. AP24534 has undergone extensive preclinical testing, including efficacy and safety assessment studies, which we believe indicate that it should be well tolerated at anticipated therapeutic dose levels in cancer patients.  In 2008, we initiated a Phase 1 clinical trial of AP24534 in patients with refractory CML, AML and other hematological malignancies.

We also have a focused drug discovery program centered on small-molecule therapies, molecularly targeted to cell-signaling pathways implicated in cancer.  Our drug discovery program builds on our expertise in cell signaling, cancer biology, structure-based drug design and computational chemistry in designing and characterizing small-molecule drugs, such as deforolimus and AP24534, to treat disease.  In 2009, we plan to initiate preclinical studies of our third internally discovered drug candidate, an anaplastic lymphoma kinase, or ALK, inhibitor.  We believe this product candidate has the potential to regulate multiple cancer pathways and to change the treatment of patients with various cancers, including non-small cell lung cancer, lymphoma and neuroblastoma.

See the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K for a description of the risks related to our business and our clinical and preclinical programs.

Our Technologies

We are the exclusive licensee of a family of patents, three in the U.S. and one in Europe, including a pioneering U.S. patent covering methods of treating human disease by regulating NF-κB cell-signaling activity, hereinafter referred to as the ‘516 Patent, awarded to a team of inventors from The Whitehead Institute for Biomedical Research, Massachusetts Institute of Technology and Harvard University.  NF-κB is a protein that can be generally thought of as a “biological switch” that can be turned off using these treatment methods to treat disorders such as inflammation, cancer, sepsis and osteoporosis.  We permit broad use of our NF-κB intellectual property, at no cost, by investigators at academic and not-for-profit institutions to conduct non-commercial research.  Our goal is to license our NF-κB technology to pharmaceutical and biotechnology companies that are conducting research to discover and develop drugs that modulate NF-κB cell signaling and/or that are marketing such drugs.  We have entered into two license agreements for use of our NF-κB cell-signaling technology for research and development purposes.  However, the ‘516 Patent is the subject of two outstanding lawsuits and a proceeding before the United States Patent and Trademark Office, or PTO.  See Part I, Item 3 entitled “Legal Proceedings” and Part I, Item IA  entitled “Risk Factors” of this Annual Report on Form 10-K for a description of the status of these proceedings and related risks.

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Our Lead Development Programs

Potential Oncology Indications of our mTOR Inhibitor, Deforolimus

Human cells, both healthy and malignant, share an elaborate system of molecular pathways that carry signals back and forth from the cell surface to the nucleus and within the cell.  Such signaling is essential to cell functioning and viability.  When disrupted or over-stimulated, such pathways may trigger diseases such as cancer.  For example, growth and proliferation of cancer cells are dependent on signals from external growth factors, as well as signals indicating the availability of sufficient nutrients and blood supply.  These signals are conveyed along well-defined pathways, several of which are regulated by the protein called the mammalian target of rapamycin, or mTOR.

Our lead cancer product candidate, deforolimus, is an internally discovered, potent mTOR inhibitor.  The protein, mTOR, serves as a “master switch” and has a central function in cancer cells.  Blocking mTOR creates a starvation-like effect in cancer cells by interfering with cell growth, division, metabolism and angiogenesis.

As part of our global clinical development plan and registration strategy, we have studied deforolimus as a single agent in multiple Phase 1 and Phase 2 clinical trials in the U.S. and Europe in patients with solid tumors, including sarcomas, hormone refractory prostate cancer, endometrial cancer, brain cancer and certain leukemias and lymphomas.  We have also conducted several multi-center Phase 1b trials of deforolimus in combination with other anti-cancer therapies.  These trials focused primarily on patients with various types of solid tumors.  Intravenous and oral tablet formulations of deforolimus have been studied in these trials.
 
In clinical trials to date, deforolimus has been well tolerated at the doses administered, and adverse events were generally mild to moderate in severity and manageable.  The most common treatment-related adverse events experienced by patients in the trials were mouth sores, rash, fatigue, anemia, nausea and lipid abnormalities.

We are developing deforolimus in partnership with Merck pursuant to our collaboration agreement signed in July 2007.  We have established and are implementing with Merck a global development plan which provides for the development of deforolimus in multiple potential cancer indications, including sarcomas, breast, prostate, non-small cell lung and endometrial cancers.  Deforolimus is being studied as a single agent and in combination with various targeted agents.  The global development plan encompasses multiple corporate sponsored clinical trials of deforolimus, the majority of which will be Phase 2 and Phase 3 trials of oral deforolimus, supplemented by investigator and cooperative group-led trials, subject to review of clinical data by the companies.  As part of the plan, deforolimus is being studied in countries throughout the world, including Japan.

Our most advanced potential indication and initial registration path for deforolimus is sarcomas.  In a multi-center Phase 2 trial of 212 patients with advanced sarcomas, at least 90 percent of whom had progressive disease, deforolimus demonstrated efficacy and was well tolerated. The primary endpoint of the trial – evidenced by clinical-benefit response, or CBR, rates – was achieved in the three most prevalent types of sarcoma (i.e., bone sarcoma, leiomyosarcoma and liposarcoma). Treatment with deforolimus more than doubled progression-free survival when compared to historical control data published by the European Organization for Research and Treatment of Cancer, or EORTC.

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In September 2007, we initiated our first Phase 3 clinical trial of deforolimus in patients with metastatic soft-tissue and bone sarcomas.  The SUCCEED (Sarcoma Multi-Center Clinical Evaluation of the Efficacy of Deforolimus) trial is a randomized, double-blind, placebo-controlled study designed to assess the impact of oral deforolimus on progression-free survival, or PFS, the primary endpoint of the trial, and several secondary endpoints, in metastatic soft-tissue and bone sarcoma patients who have achieved a favorable response to chemotherapy. Continued treatment with traditional chemotherapeutic drugs has not been established to provide additional clinical benefit after such a response. Thus, absent new alternatives, physicians generally either continue potentially toxic chemotherapy until the side effects become unacceptable or, more commonly, monitor patients carefully for disease progression, or tumor growth, prior to initiating another line of chemotherapy. Therefore, the placebo arm represents a current standard of care for patients in this clinical setting.

The SUCCEED trial is designed to evaluate approximately 650 patients who will be randomized one-to-one to oral deforolimus or placebo at over 125 sites worldwide. The trial is 90 percent powered to detect a 33 percent increase in median PFS comparing the deforolimus arm with the placebo arm.  We are planning two interim efficacy analyses.  We have agreement with the U.S. Food and Drug Administration, or FDA, on a Special Protocol Assessment, or SPA, for the SUCCEED trial.  The European Medicines Agency, or EMEA, has provided protocol advice consistent with that of the FDA regarding the trial design as part of its Protocol Assistance program.  We expect to complete enrollment of patients in this Phase 3 clinical trial in late 2009.

The FDA and the EMEA have designated deforolimus as an orphan drug for treatment of soft-tissue and bone sarcomas.  The FDA has also designated deforolimus as a fast-track product for the same potential indication.

In addition to the ongoing conduct of the SUCCEED clinical trial, in 2008, pursuant to the global development plan established with Merck, we and Merck have initiated multiple clinical trials, including Phase 2 trials in endometrial, breast and prostate cancers, and Phase 1 clinical trials of deforolimus in combination with other agents.  The global development plan also includes a focused biomarker research program that exploits the companies' expertise in cell-signaling, mTOR biology and diverse state-of-the-art molecular profiling technologies.  We believe this program will help characterize and identify rational combinations with deforolimus, identify responder profiles and inform decisions in alignment with the development plan.

Potential Cardiovascular Indications of our mTOR Inhibitor, Deforolimus

As an mTOR inhibitor, deforolimus has also been shown to potently block the growth, proliferation and migration of vascular smooth muscle cells, the primary cause of narrowing and blockage of injured vessels and is an analog of sirolimus, another mTOR inhibitor that has been approved for use in drug-eluting stents. Recent clinical studies have found lower reblockage rates in patients treated with stents that deliver small-molecule drugs, such as sirolimus or paclitaxel, a cytotoxic agent, locally to the site of vascular injury. Such stents have become the standard of care for patients undergoing interventional procedures to open narrowed coronary arteries.

We have entered into license agreements with Medinol, a leading innovator in stent technology, in January 2005, and with ICON, an emerging medical device company, in October 2007, to develop and commercialize stents and other medical devices to deliver deforolimus to prevent restenosis, or reblockage, of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  We have retained the right to enter into one additional non-exclusive license agreement, in addition to the licenses granted to ICON and Medinol, to develop and commercialize medical devices delivering deforolimus for use in vascular disease.

4
Additional Potential Non-Oncology Indications of our mTOR Inhibitor, Deforolimus

We believe that inhibition of the mTOR pathway may be useful for additional indications beyond oncology and drug-delivery stents, and we are evaluating with Merck such indications as part of a broader potential development plan for deforolimus.  Such a development plan for potential non-oncology indications would be subject to a separate negotiation of terms specific to such plans pursuant to our collaboration agreement with Merck.

Our Multi-Targeted Kinase Inhibitor, AP24534

Our second oncology product candidate, AP24534, is an internally discovered novel oral multi-targeted kinase inhibitor that we believe has broad potential applications in cancer, including various forms of leukemia, a blood-based cancer. In preclinical studies, AP24534 was shown to be a potent inhibitor of Bcr-Abl, a target associated with drug-resistant chronic myeloid leukemia, or CML.  Preclinical studies showed that AP24534 demonstrated efficacy and oral dosing flexibility in animal models of CML, including forms of CML caused by clinically relevant variants of the target protein, Bcr-Abl. Specifically, AP24534 potently inhibited a specific mutant, T315I, which is resistant to all currently marketed drugs. Additional preclinical studies demonstrated that AP24534 also inhibits Flt3, a target associated with acute myeloid leukemia, or AML.

In addition, AP24534 has demonstrated in preclinical studies potent inhibition of additional targets that control the process of angiogenesis, or blood vessel growth, including the receptors for vascular endothelial growth factors, or VEGFRs, fibroblast growth factors, or FGFRs, and angiopoietin, or Tie2. Inhibiting angiogenesis is a clinically validated approach to treating multiple solid tumors. Based on AP24534’s differentiated profile, we believe these findings support the broad potential of the drug not only in drug-resistant CML, but also in other hematological cancers, such as AML, and various solid tumors.

We completed extensive preclinical studies of AP24534, including efficacy and safety assessment studies, which we believe indicate that the drug candidate should be well tolerated at anticipated therapeutic dose levels in cancer patients.  In 2008, we initiated a Phase 1 clinical trial of AP24534 in patients with drug-resistant and refractory CML and other hematologic malignancies.  This multi-center, sequential dose-escalation study in approximately 50 patients is designed to determine the safety and tolerability of AP24534, as well as its pharmacokinetics (the behavior of AP24534 in patients) and its pharmacodynamics (the effects of AP24534 on patients’ cells).  Clinical proof of concept data on AP24534 is expected from this study in the second half of 2009.

Our Discovery Programs

Our research and development programs are focused on discovering and developing small-molecule drugs that regulate cell signaling.  Many of the critical functions of cells, such as cell growth, differentiation, gene transcription, metabolism, motility and survival, are dependent on signals carried back and forth from the cell surface to the nucleus and within the cell through a system of molecular pathways.  When disrupted or over-stimulated, such pathways may trigger diseases such as cancer.  From our inception, our research has focused on exploring cell-signaling pathways, identifying their role in specific diseases, and discovering drug candidates to treat those diseases by interfering with the aberrant signaling pathways of cells.  The specific cellular proteins blocked by our product candidates have been well characterized and validated as targets.  Product candidates like AP24534 and our ALK inhibitor have been developed in-house through the integrated use of structure-based drug design and computational chemistry, and their targets have been validated with techniques such as functional genomics, proteomics, and chemical genetics.

5
We have a focused drug discovery program centered on small-molecule therapies, molecularly targeted to cell-signaling pathways implicated in cancer.  Our drug discovery program builds on our expertise in cell signaling, cancer biology, structure-based drug design and computational chemistry in designing and characterizing small-molecule drugs, such as deforolimus, AP24534 and our ALK inhibitor, to treat disease.
 
Our Proprietary Technologies

NF-kB Cell-signaling Technology

Dr. David Baltimore, former director of the Whitehead Institute for Biomedical Research, Dr. Phillip Sharp of the Massachusetts Institute of Technology, and Dr. Thomas Maniatis of Harvard University, together with a team of scientists in their respective laboratories, discovered a family of genes that encode proteins they called NF-κB and I-κB, its inhibitor; the critical role played by NF-κB cell signaling in regulating cellular processes involved in various difficult-to-treat diseases; methods to identify compounds to regulate NF-κB cell-signaling activity; and methods of treating disease by inhibiting NF-κB activity.  NF-κB can be generally thought of as a “biological switch” that can be turned off using these methods to treat disorders, such as inflammation, cancer, sepsis and osteoporosis.

We have an exclusive license from these academic institutions to pioneering technology and patents related to methods of treating human disease by regulating NF-κB cell-signaling activity, and the discovery and development of drugs to regulate NF-κB cell-signaling activity.  We have a program to license this technology and these treatment methods to pharmaceutical and biotechnology companies that are conducting research to discover and develop drugs that modulate NF-κB cell-signaling and/or that are marketing such drugs.  One of the NF-κB patents is the subject of reexamination proceedings in the U.S. Patent and Trademark Office, or PTO, a patent infringement lawsuit filed in 2002 by us and the academic institutions against Eli Lilly and Company, or Lilly, and a lawsuit filed in April 2006 against us by Amgen Inc., or Amgen, and certain affiliated entities.  See Part I, Item 3 entitled “Legal Proceedings” of this Annual Report on Form 10-K for a description of the status of these proceedings.

ARGENT Cell-signaling Regulation Technology

Our proprietary portfolio of cell-signaling regulation technologies includes the ARGENT signaling and transcription technologies.  Our ARGENT technologies allow intracellular processes to be controlled with small molecules, which may be useful in the development of therapeutic vaccines and gene and cell therapy products, and which provide versatile tools for applications in cell biology, functional genomics and drug-discovery research, including three-hybrid screening approaches to discover and characterize targets and lead molecules.  To maximize their use by the scientific community, we distribute our technologies at no cost to academic investigators in the form of our Regulation Kits.  As of February 28, 2009, we have entered into more than 1,550 material transfer agreements with more than 550 different institutions in 35 countries for the use of this technology in diverse areas of research, and more than 300 scientific papers describing their use have been published.  In addition, we have licensed the ARGENT technology to several pharmaceutical and biotechnology companies for research and development and/or commercial purposes.

Our Intellectual Property

Patents and other intellectual property rights are essential to our business.  We file patent applications to protect our technology, inventions and improvements to our inventions that are considered important to the development of our business.

As of February 28, 2009, our patent portfolio contained 64 U.S. patents and 33 pending U.S. patent applications, which together with their various foreign counterparts, are owned, co-owned or exclusively licensed by us.  We also have several nonexclusive technology licenses from certain institutions in support of our research programs, and may seek additional such licenses where applicable technology complements our research and development efforts.

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Approximately one-half of the patents and patent applications in our portfolio relate generally to our mTOR inhibitor, deforolimus; to our multi-targeted kinase inhibitor, AP24534; or to our preclinical drug discovery programs.  These patents cover deforolimus and its uses, the related use of biomarkers, related therapies and inventions involving the mTOR gene, as well as AP24534, and our various families of novel kinase inhibitors.  Our patent protection for deforolimus currently extends to at least 2023.  The remainder of the portfolio is primarily focused on our ARGENT and NF-κB cell-signaling regulation technologies.  These patents and pending applications cover technologies for biological regulation, including critical nucleic acid components and small-molecule drugs, the identification and use of dimerizer hormone mimetics, and various uses of the technologies in health care and drug discovery.  Patents issued to date include 34 patents covering our cell-signaling regulation technologies.

We also rely on unpatented trade secrets and proprietary know-how, some of which is not believed to be adequately protectable through patents.  In order to protect our trade secrets, we enter into confidentiality agreements with our employees, consultants, investigators, clinical trial sites, contractors, collaborators and other third parties to whom we disclose confidential information, although protection of trade secrets is generally recognized as challenging.

Our Licenses to Third Parties

Our Collaboration with Merck & Co., Inc.

On July 11, 2007, we entered into a collaboration agreement with Merck for the joint global development and commercialization of deforolimus.  Under the terms of the agreement, Merck and we are conducting a broad-based development program in which clinical trials, preclinical studies and biomarker studies are being conducted concurrently in multiple potential cancer indications, pursuant to a global development plan agreed upon by the parties.  Each party funds 50 percent of the global development costs, except that Merck funds 100 percent of any cost of development that is specific to development or commercialization of deforolimus outside the United States.  The agreement provides that, in certain circumstances, either party may opt out of conducting and funding certain late-stage clinical trials, which would result in changes in development and commercialization responsibilities and compensation arrangements.  We are responsible for supplying the active pharmaceutical ingredient used in deforolimus drug product, and Merck is responsible for the formulation of the finished product, all under a separate supply agreement between the parties.

The collaboration agreement provides that, in the United States, we and Merck will co-promote deforolimus, we will distribute and sell deforolimus for all cancer indications and record all sales, and each party will receive 50 percent of the net profit from such sales.  Outside the United States, Merck will distribute, sell and promote deforolimus and book all sales, and Merck will pay us tiered double-digit royalties on such sales.  Royalties are payable by Merck, on a country by country basis, until the later of (i) the expiration of the last valid claim of any patent rights owned by either us or Merck that cover deforolimus, (ii) a specified number of years from first commercial sale, or (iii) the last date upon which we supply active pharmaceutical ingredient to Merck under the supply agreement, subject to partial reduction in certain circumstances.

Under the terms of the collaboration agreement, Merck paid us an initial up-front payment of $75 million in July 2007, and has agreed to pay up to $452 million in milestone payments based on the successful development of deforolimus in multiple potential cancer indications, of which $31.0 million has been paid to us through December 31, 2008, and up to $200 million in milestone payments based on achievement of specified product sales thresholds.  Merck has also agreed to provide us with up to $200 million in interest-bearing, repayable, development cost advances to cover a portion of our share of global development costs, after we have paid $150 million in global development costs and have obtained regulatory approval to market deforolimus from the FDA in the United States or similar regulatory authorities in Europe or Japan.  All amounts to be paid to us by Merck, with the exception of any development cost advances, are non-refundable.

7
The collaboration agreement may be terminated (i) by either party based on insolvency or uncured breach by the other party, (ii) by Merck on or after the third anniversary of the effective date by providing at least 12 months prior written notice, (iii) by Merck upon the failure of deforolimus to meet certain developmental and safety requirements, or (iv) after discussions between the parties, in the event Merck concludes it is not advisable to continue the development of deforolimus for use in a potential cancer indication.  Upon termination of the collaboration agreement, depending upon the circumstances, the parties have varying rights and obligations with respect to the continued development and commercialization of deforolimus and continuing royalty obligations.

Under the terms of the collaboration agreement, we and Merck have established a series of joint committees which are responsible for the development and commercialization of deforolimus.  Under the committee structure, if the committees are unable to reach a decision, the matter is referred to senior executives of the parties.  Each party has ultimate decision making authority with respect to a specified limited set of issues, and for all other issues, the matter must be resolved by consensus of the parties.  Either party may choose not to appoint members to any of the joint committees and such a determination by either party has no impact on the financial or other terms of the collaboration.

Our Stent Collaborations

In January 2005, we entered into a license agreement with Medinol to develop and commercialize deforolimus-eluting stents and other medical devices to prevent restenosis, or reblockage, of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  In October 2007, we entered into a license agreement with ICON to develop and commercialize deforolimus-eluting stents to prevent restenosis of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  We have retained the right to enter into one additional non-exclusive license agreement, in addition to the licenses granted to ICON and Medinol, to develop and commercialize medical devices delivering deforolimus for use in vascular disease.

Other

We have a program to license our NF-κB cell-signaling technology and treatment methods to pharmaceutical and biotechnology companies conducting research to discover and develop drugs that modulate NF-κB cell-signaling and/or marketing such drugs.  To date, we have entered into several licenses for this technology with pharmaceutical companies and companies manufacturing and commercializing kits, technologies and tools for research applications.

We also have a program to license our ARGENT cell-signaling regulation technologies to pharmaceutical and biotechnology companies to develop and commercialize innovative therapeutic products and to conduct drug discovery research.  To date, we have entered into several licenses for use of our ARGENT cell-signaling regulation technologies for a variety of applications, including the development of therapeutic vaccines and gene and cell therapy products and for use in drug discovery.  In addition, several biotechnology companies have conducted collaborative studies of these technologies for use in gene and cell therapy applications.

Our Licenses from Third Parties

In 1991, we entered into an exclusive license agreement with Massachusetts Institute of Technology and the Whitehead Institute (on behalf of themselves and Harvard University) to the rights to our NF-κB cell-signaling technologies and treatment methods.  This license agreement was amended in 1995 and provides for the payment by us to these academic institutions of an up-front fee, license maintenance fees, a milestone payment, sublicense fees, and royalties based on commercial sales of products and processes developed using the NF-κB cell-signaling technologies and treatment methods.  The license agreement also grants us the right to undertake the enforcement and/or defense of these patent rights at our sole expense, subject to our right to withhold a percentage of the royalties otherwise due the academic institutions to be applied toward reimbursement of our fees and expenses in connection with any such litigation, including our litigation against Lilly and Amgen.  The license agreement also provides that we will share a percentage of any damages, net of fees and expenses, awarded in such litigations with the academic institutions.

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We have entered into license agreements with various institutions and universities pursuant to which we are the licensees of certain technologies relating to our research and development programs.  In particular, in 1997, we entered into an amended and restated exclusive license agreement with Stanford University (on behalf of itself and Harvard University) to rights to certain of our ARGENT cell-signaling regulation technologies.  This license agreement provides for the payment by us of an up-front fee, license maintenance fees, milestone payments based on achievement of development and commercial milestones and royalties on commercial sales of products, including therapies and research reagents.

In some instances, our third-party licenses also impose insurance, development, sublicensing and other obligations.  Failure by us to comply with these requirements could result in the termination of the applicable agreement, which, depending upon the technologies which are the subject of the applicable agreement, could have a material adverse effect on our business, financial condition, and results of operations.

Research and Development Spending

During each of the three years ended December 31, 2008, 2007 and 2006, we spent approximately $50.8 million, $39.6 million and $43.3 million, respectively, on our research and development activities.

Manufacturing

Our drug candidates and preclinical compounds are small molecules that can be readily synthesized by processes that we have developed.  We are able to manufacture in-house the quantities of our product candidates necessary for certain preclinical studies.  We do not own or operate manufacturing facilities for the production of clinical or commercial quantities of our product candidates.  We contract with third-party manufacturers to assist in the development and optimization of our manufacturing processes and methods and to supply sufficient quantities of our product candidates in bulk quantities and in suitable dosage forms for use in our clinical trials.  We also expect to depend on third-party manufacturers for the supply of our products upon commercialization.

Our lead product candidate, deforolimus, is produced by an established manufacturing process using conventional synthetic and natural-product fermentation techniques.  The production of deforolimus is based in part on technology that we believe is proprietary to us.  Pursuant to our collaboration agreement and a separate supply agreement with Merck, we are responsible for supplying the active pharmaceutical ingredient used in deforolimus drug product and Merck is responsible for the formulation of the finished product.  We, with Merck, may license this technology to contract manufacturers to enable them to manufacture deforolimus for us.  In addition, a contract manufacturer may develop process technology related to the manufacture of our drug candidates that the manufacturer owns either independently or jointly with us.  This would increase our reliance on that manufacturer or require us to obtain a license from that manufacturer in order to have our product manufactured by other parties.  We are negotiating with our existing suppliers and other third-party manufacturers to secure the long-term supply and manufacture of the active pharmaceutical ingredient used in deforolimus at commercially reasonable costs with appropriate redundancy for commercialization.

Contract manufacturers are subject to extensive governmental regulation and we depend on them to manufacture our product candidates in accordance with the FDA’s current good manufacturing practice regulations, or cGMPs.  We have an established quality assurance program intended to ensure that third-party manufacturers under contract produce our compounds in accordance with cGMPs, and other applicable domestic and foreign regulations.  We believe that our current contractors comply with such regulations.

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Competition

The pharmaceutical and biotechnology industries are intensely competitive.  We compete directly and indirectly with other pharmaceutical companies, biotechnology companies and academic and research organizations, many of whom have greater resources than us.  We compete with companies who have products on the market or in development for the same indications as our product candidates.  We may also complete with organizations that are developing similar technology platforms.

In the area of oncology, pharmaceutical and biotechnology companies such as Amgen Inc., AstraZeneca PLC, Bristol-Myers Squibb Company, Eli Lilly and Company, Genentech, Inc., GlaxoSmithKline plc, Hoffmann LaRoche & Co., Johnson & Johnson, Merck & Co., Inc., Merck KGaA, Novartis AG, Pfizer, Inc., and Wyeth Corp. are developing and marketing drugs to treat cancer, including mTOR inhibitors.  Specifically, Wyeth Corp. and Novartis AG are developing mTOR inhibitors for use in cancer and Wyeth’s mTOR inhibitor, temsirolimus, has been approved to treat patients with advanced renal cell carcinoma.  Biotechnology companies such as Amgen Inc., Biogen-Idec, Inc., Onyx Pharmaceuticals, Inc. and OSI Pharmaceuticals, Inc., are developing and, in some cases, marketing drugs to treat various diseases, including cancer, by inhibiting cell-signaling pathways.  Other companies have products on the market or in development against which our drug candidates, if approved, may have to compete.  Specifically, PharmaMar, a wholly owned subsidiary of Zeltia Group, has a product, trabectedin, approved for the treatment of soft-tissue sarcomas in Europe, and IDM Pharma, Inc. has an immunotherapy approved in Europe for bone sarcomas.  We may also experience competition from companies that have acquired or may acquire technology from companies, universities, and other research institutions.  As these companies develop their technologies, they may develop proprietary positions that may materially and adversely affect us.

Government Regulation

Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of products such as those we are developing. The process of obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
 
United States Drug Development Process
 
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implementing regulations. Our products must be approved by the FDA through the new drug application, or NDA, process before they may be legally marketed in the United States, which generally involves the following:
 
 
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completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations;
 
 
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submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;
 
 
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performance of adequate and well-controlled human clinical trials according to Good Clinical Practices to establish the safety and efficacy of the proposed drug for its intended use;
 
 
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submission to the FDA of an NDA;
 
 
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
 
 
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FDA review and approval of the NDA.
 
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As part of the IND, an IND sponsor must submit to the FDA the results of preclinical tests, which may include laboratory evaluations and animal studies, together with manufacturing information and analytical data, and the proposed clinical protocol for the first phase of the clinical trial of the drug.  The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a “clinical hold,” pending resolution between the IND sponsor and the FDA of any outstanding concerns. Clinical holds may be imposed by the FDA at any time before or during clinical studies due to safety concerns or non-compliance by the sponsor.

All clinical trials must be conducted under the supervision of a qualified investigator(s) in accordance with good clinical practice regulations. An institutional review board, or IRB, must also review and approve each new clinical protocol and patient informed consent form prior to commencement of the corresponding clinical trial at that institution. Protocols detail, among other things, the objectives of the study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor patient safety.
 
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
 
 
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Phase 1: The drug is introduced into healthy human subjects or patients (in the case of certain inherently toxic products for severe or life-threatening diseases) and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion.
 
 
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Phase 2: Involves studies in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.
 
 
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Phase 3: Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide, if appropriate, an adequate basis for product labeling.
 
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events. The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the study participants are being exposed to an unacceptable health risk.
 
If a drug is intended to treat a serious or life threatening condition for which there is an unmet medical need, a company may request that the FDA consider the drug for a fast track development program at the time of submitting its IND or at any time prior to receiving marketing approval.  The fast track program is designed to facilitate the development and expedite the review of a new drug for the treatment of the specific conditions. If the FDA agrees that the drug meets the criteria for fast track development for treatment of one or more conditions, it will grant fast track status.  The FDA granted fast track status to deforolimus for treatment of soft tissue sarcomas and bone sarcomas.

United States Review and Approval Processes
 
The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product.

The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. Once the submission is accepted for filing, the FDA begins an in-depth and substantive review.  The FDA may seek advice and a recommendation from an external advisory committee as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require submission of additional clinical or other data and information which, upon agency review and interpretation, may or may not be deemed by the FDA to satisfy the criteria for approval.  The FDA may also issue a “complete response” letter, which may require additional clinical or other data or impose other conditions that must be met in order to secure final approval of the NDA.
 
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NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. In addition, products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials. Priority review and accelerated approval do not change the standards for approval, but may expedite the approval process.

If approved by the FDA, the product’s use may be limited to specific diseases, dosages or indications.  In addition, the FDA may require us to conduct post-NDA approval, or  Phase 4, testing which involves further nonclinical studies or clinical trials designed to further assess the drug’s safety and effectiveness and may require additional testing and surveillance programs to monitor the safety of the drug in the marketplace.

Marketing Exclusivity
 
Market exclusivity provisions under the FDCA can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages, or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

Pediatric exclusivity is another type of exclusivity in the United States.  Pediatric exclusivity, if granted, provides an additional six months to an existing exclusivity or statutory delay in approval resulting from a patent certification.  This six-month exclusivity, which runs from the end of other exclusivity protection or patent delay, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.  The current pediatric exclusivity provision under the FDCA was reauthorized on September 27, 2007.

Orphan Drug Designation
 
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition which is defined as one affecting fewer than 200,000 individuals in the United States or more than 200,000 individuals where there is no reasonable expectation that the product development cost will be recovered from product sales in the United States. Orphan drug designation must be requested before submitting an NDA and does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
 
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If an orphan drug-designated product subsequently receives the first FDA approval for the disease for which it was designed, the product will be entitled to seven years of product exclusivity.  If a competitor obtains approval of the same drug, as defined by the FDA, or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease, the competitor’s exclusivity could block the approval of our product candidate in the designated orphan indication for seven years.  The FDA granted two orphan drug designations for deforolimus; the first for the treatment of soft tissue sarcoma and the second for the treatment of bone sarcoma.

Post-Approval Requirements
 
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.
 
Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the drug, providing the FDA with updated safety and efficacy information, drug sampling and distribution requirements, and complying with FDA promotion and advertising requirements.  The FDA strictly regulates labeling, advertising, promotion and other types of information on products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label.

From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. For example, on September 27, 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-market authority, including the authority to require post-market studies and clinical trials, labeling changes based on new safety information, and compliance with a risk evaluation and mitigation strategy approved by the FDA. Additionally, the new law expands the clinical trial registry so that sponsors of all clinical trials, except for Phase I trials, are required to submit certain clinical trial information for inclusion in the clinical trial registry data bank.  Failure to comply with any requirements under the new law may result in significant penalties.  In addition to new legislation, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether further legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.

Foreign Regulation
 
In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

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As in the U.S., the European Union may grant orphan drug status for specific indications if the request is made before an application for marketing authorization is made. The European Union considers an orphan medicinal product to be one that affects less than five of every 10,000 people in the European Union. A company whose application for orphan drug designation in the European Union is approved is eligible to receive, among other benefits, regulatory assistance in preparing the marketing application, protocol assistance and reduced application fees. Orphan drugs in the European Union also enjoy economic and marketing benefits, including up to ten years of market exclusivity for the approved indication, unless another applicant can show that its product is safer, more effective or otherwise clinically superior to the orphan designated product.  We have been granted orphan designation in the European Union for deforolimus for the treatment of soft tissue sarcoma and bone sarcoma.
 
Reimbursement
 
Sales of pharmaceutical products depend in significant part on the availability of third-party reimbursement. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. We anticipate third-party payors, including Medicare, will provide reimbursement for our products. However, Medicare or other third-party reimbursement may not be available or sufficient to allow us to sell our products on a competitive and profitable basis.
 
We expect that there will continue to be a number of federal and state proposals, including changes to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, to implement governmental pricing controls and limit the growth of healthcare costs, including the cost of prescription drugs. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products.

Our Employees

As of February 28, 2009, we had 150 employees, 81 of whom hold post-graduate medical or science degrees, including 45 with a Ph.D. or M.D.  Most of our employees are engaged directly in research and development.  We have entered into confidentiality, assignment of inventions and non-disclosure agreements with all of our employees and non-competition agreements with all of our senior level employees.  None of our employees are covered by a collective bargaining agreement, and we consider relations with our employees to be good.

Our Company

ARIAD was organized as a Delaware corporation in April 1991.  Our principal executive offices are located at 26 Landsdowne Street, Cambridge, Massachusetts 02139-4234, and our telephone number is (617) 494-0400.  We maintain an internet website at http://www.ariad.com, the contents of which are not incorporated herein.  Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and all amendments to such reports are made available free of charge through the Investor Relations section of our website as soon as reasonably practicable after they have been electronically filed with or furnished to the United States Securities and Exchange Commission, or SEC.

ARIAD and the ARIAD logo are our registered trademarks.  ARGENT is our trademark.  Other service marks, trademarks and trade names appearing in this report are the property of their respective owners.

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Merger of ARIAD Gene Therapeutics, Inc. into ARIAD Pharmaceuticals, Inc.

On September 11, 2008, ARIAD Pharmaceuticals, Inc. or ARIAD, and ARIAD Gene Therapeutics, Inc., or AGTI, entered into an agreement pursuant to which AGTI was merged with and into ARIAD on September 12, 2008, with ARIAD as the surviving company.  Prior to the merger, AGTI was an 80 percent owned subsidiary of ARIAD.  AGTI owned or licensed from others the intellectual property related to our ARGENT technology and know-how, as well as the product candidates developed from the application of this technology, including deforolimus.  We effectuated the merger to eliminate conflicts of interest between ARIAD and AGTI, to ensure that ARIAD will receive benefits from the successful commercialization of its products proportionate to its investment and to create additional value for our stockholders.

Under the terms of the merger agreement, each outstanding share of AGTI common stock owned by AGTI’s minority stockholders, a total of 1,126,064 AGTI shares, was converted into the right to receive two shares of ARIAD common stock.  Under Delaware law, any of the AGTI minority stockholders had the right to demand appraisal of his or her AGTI shares and to seek judicial determination of the fair value of such shares.  Four AGTI stockholders holding a total of 226,426 shares of AGTI common stock notified us of their intent to pursue appraisal of their shares.  We reached a settlement with such AGTI stockholders in January 2009 pursuant to which these AGTI stockholders received two shares of ARIAD common stock plus approximately $2.43 in cash for each share of AGTI common stock they owned.  In total, in exchange for all of the AGTI common stock owned by the AGTI minority stockholders, we issued 2,252,128 shares of ARIAD common stock, or approximately 3.1 percent of the outstanding common stock of ARIAD at the time of the merger, and $550,000 in cash.  The total cost of the acquisition of the 20 percent minority interest of AGTI was approximately $5.9 million.
 
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ITEM 1A:     RISK FACTORS

THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THOSE THAT WE CURRENTLY BELIEVE MAY MATERIALLY AFFECT OUR COMPANY.  IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, THEY MAY MATERIALLY HARM OUR BUSINESS, OUR FINANCIAL CONDITION AND OUR RESULTS OF OPERATIONS.

Risks Relating to Our Business

We have no product candidates that have been approved by the FDA or any foreign regulatory authority, and we and our partners may never succeed in obtaining regulatory approval for any products, developing marketable products or generating product revenues.

We are a biopharmaceutical company focused on the discovery and development of drugs to provide therapeutic intervention in treating human diseases at the cellular level.  As with all scientific endeavors, we face much trial and error, and we may fail at numerous stages along the way, which would inhibit us from successfully developing, manufacturing and marketing our drug candidates.

Our lead product candidate, deforolimus, is currently being developed by us in collaboration with Merck for potential cancer indications and by our partners, Medinol and ICON, for use in stents or other medical devices to reduce reblockage of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  Deforolimus is currently being studied in a Phase 3 clinical trial in patients with metastatic sarcomas and in multiple Phase 1 and Phase 2 clinical trials in various potential cancer indications and in combination with other agents.    Our second product candidate, AP24534, is currently being studied in a Phase 1 clinical trial in patients with hematologic malignancies.  We do not currently have any products on the market and have no product revenues.  Therefore, our success is substantially dependent on (1) our ability to work in collaboration with Merck to obtain marketing approval for deforolimus for metastatic sarcoma and other cancer indications, (2) the ability of our partners, Medinol and ICON, to obtain marketing approval for stents or other medical devices delivering deforolimus, and (3) our ability to successfully complete clinical development and obtain marketing approval for AP24534.

Neither we nor our partners have submitted any new drug applications for deforolimus, AP24534 or any other product candidate of ours to the FDA or foreign regulatory authorities for marketing approval.  Factors which could affect the ability to obtain regulatory approval and to achieve market acceptance and gain market share for deforolimus, AP24534 and any other product candidate of ours include, among other factors, product formulation, dose, dosage regimen, the ability to obtain timely and sufficient patient enrollment in clinical trials, the risk of occurrence of adverse side effects in patients participating in clinical trials, the ability to manufacture, directly or indirectly, sufficient and cost-effective quantities of product candidates, the ability to fund commercial development and to build or access a sales force in the marketplace, the ability to successfully differentiate product candidates from competitive product(s) and to sell, market and distribute, directly or indirectly, such product candidates.

In addition, positive results from early-stage clinical trials may not be replicated in later-stage Phase 3 clinical trials.  Similarly, positive results from preclinical studies of a product candidate may not be predictive of similar results in humans during clinical trials.  A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, the results from the completed preclinical studies and clinical trials for deforolimus may not be predictive of the results to be obtained in the SUCCEED Phase 3 clinical trial, and the promising activity we have seen in AP24534 in preclinical studies may not be predictive of the results obtained in clinical trials.

Although we have entered into a collaboration agreement with Merck for the joint global development and commercialization of deforolimus, we do not currently have any partners to assist in developing and commercializing our other cancer product candidates.  We will depend heavily on Merck for the successful development and commercialization of deforolimus, particularly with respect to the commercialization of deforolimus outside of the United States.  We would expect to be dependent upon other partners, if we enter into arrangements with one or more of them, to successfully develop and commercialize our other cancer product candidates, including AP24534.  There can be no assurance that our collaboration with Merck will be successful or that we will be able to secure any other partners on terms favorable to us, or at all.

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We and our medical device partners have limited experience in designing, conducting and managing the clinical trials necessary to obtain regulatory approval of stents or other medical devices that deliver small-molecule drugs.   We are dependent upon the success of Medinol and ICON and any future medical device partner to successfully develop, manufacture and market stents or other medical devices to deliver deforolimus to reduce blockage of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  If Medinol or ICON is not successful and/or if we are not able to enter into an agreement with an additional medical device company experienced in the development, manufacture, and marketing of medical devices to deliver deforolimus, we will not be able to generate revenues from the marketing of stents or other medical devices that deliver deforolimus.

We do not expect to have any products on the market before 2010, at the earliest, and, ultimately, we and our partners may not succeed in developing or commercializing any products which will generate product revenues for our company.  If we and our partners are not successful in developing or marketing deforolimus or other product candidates, we will not be profitable.

If our collaboration with Merck relating to the development and commercialization of deforolimus is unsuccessful, our ability to commercialize deforolimus on a timely basis, or at all, could be affected and our business could be materially harmed.

In July 2007, we entered into a collaboration agreement with Merck for the joint global development and commercialization of deforolimus, our lead product candidate, for use in cancer.  Other than with respect to our collaborative efforts in developing deforolimus to date, we do not have a history of working together with Merck and cannot predict the success of this collaboration.  The collaboration involves a complex allocation of responsibilities, costs and benefits and provides for milestone payments to us upon the achievement of specified clinical, regulatory and sales milestones.

With respect to responsibilities and control over decisions, we and Merck have established a series of joint committees which are responsible for the development and commercialization of deforolimus.  Under the committee structure, if the committees are unable to reach a decision, the matter is referred to senior executives of the parties.  Each party has ultimate decision making authority with respect to a specified limited set of issues, and for all other issues, the matter must be resolved by consensus of the parties.  Accordingly, Merck’s failure to devote sufficient resources to the development and commercialization of deforolimus or the failure of the parties to reach consensus on development or commercialization activities may delay its clinical development, which could lead to the delay in payment of clinical and regulatory milestones under the collaboration agreement and may delay commercialization of deforolimus.

The collaboration agreement provides that, in certain circumstances, either party may opt out of conducting and funding certain late-stage clinical trials, which would result in changes in development and commercialization responsibilities and compensation arrangements.  Furthermore, the collaboration agreement may be terminated by Merck (i) based on an uncured breach by us, (ii) on or after the third anniversary of the effective date of the agreement by providing at least 12 months prior written notice, (iii) upon the failure of deforolimus to meet certain developmental and safety requirements, or (iv) after discussions between the parties, in the event Merck concludes that it is not advisable to continue the development of deforolimus for use in a potential cancer indication.  In addition, unrelated to our deforolimus collaboration, Merck's research and development plans may be affected by its corporate, business or other developments, such as its recently announced pending merger with Schering-Plough Corporation, which may impact the joint development plans for deforolimus.  Any loss of Merck as a collaborator in the development or commercialization of deforolimus, any dispute over the terms of, or decisions regarding, the collaboration, or any other adverse developments in our relationship with Merck could result in our inability to fully develop and/or commercialize deforolimus, or at all, could materially harm our business and could accelerate our need for additional capital.

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Insufficient funding may jeopardize our research and development programs and may require us to reduce our operations or prevent commercialization of our products and technologies.

We have funded our operations to date through sales of equity securities, debt, the upfront and milestone payments received from Merck since July 2007, and, to a limited extent, operating revenues.  Most of our operating revenue to date has been generated through previous collaborative research and development agreements and existing licenses.  Although our collaboration agreement with Merck for the global development and commercialization of deforolimus is structured to provide substantial funding for the remaining development of deforolimus if we are successful in meeting specified milestones, we will require substantial additional funding for our other research and development programs (including pre-clinical development and clinical trials), for the pursuit of regulatory approvals and for establishing or accessing manufacturing, marketing and sales capabilities related to other product candidates, and for other operating expenses (including intellectual property protection and enforcement) as well as capital expenditures to maintain and improve our facility, equipment and systems.  We may from time to time access funding by issuing common stock or other securities in private placements or under our universal shelf registration statement under which we currently have approximately $40 million available for issuance.  We may also from time to time seek additional funding from other product-based collaborations, technology licensing, issuance of debt, and public or private financings.  However, such additional funding may not be available on terms acceptable to us, or at all.  Accordingly, we may not be able to secure the significant funding which is required to maintain our operations or continue to fund current or future research and development programs at their current levels or at levels that may be required in the future.  If we cannot secure adequate financing, we may be required to reduce our operations, to delay, scale back, eliminate or terminate clinical trials for one or more of our other research and development programs, or to enter into licenses, settlements or other arrangements with third parties on terms that may be unfavorable to us to purchase, commercialize or otherwise obtain rights in our product candidates, approved products, technologies or intellectual property.

Raising additional capital by issuing securities or through collaboration and licensing arrangements may cause dilution to existing stockholders, restrict our operations or require us to relinquish proprietary rights.

We may seek to raise the additional capital necessary to fund our operations through public or private equity offerings, debt financings, and collaboration and licensing arrangements.  To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect our stockholders’ rights.  Under an existing loan agreement with a bank, we are required to maintain certain financial and non-financial covenants, including covenants limiting or restricting our ability to incur additional debt or declare dividends.  If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

We have incurred significant losses to date and may never be profitable.

We have incurred significant losses in each year since our formation in 1991, including a net loss of $71.1 million in 2008, and have an accumulated deficit of $438.6 million through December 31, 2008.  Our losses have resulted principally from costs incurred in research and development of our product candidates, including clinical development of deforolimus and AP24534, and from general and administrative costs, including costs incurred to prosecute and protect our intellectual property, associated with our operations.  Although the collaboration with Merck is structured so that the expected milestone payments to be paid by Merck to us should largely offset our share of the costs of development of deforolimus over the first three years of the collaboration, it is likely that we will incur significant operating losses for the foreseeable future, and we expect such losses to increase as we continue our research and development activities and begin to build a sales and marketing organization in anticipation of obtaining regulatory approval to market deforolimus in the United States, which approval may never occur.  We currently have no product revenues, limited license revenues and limited commitments for future licensing revenues, and may not be able to generate such revenues in the future.  If our losses continue and we and our existing partners or potential future partners are unable to successfully develop, commercialize, manufacture and market our product candidates and/or we are unable to enter into agreements and licenses of our intellectual property, we may never generate sufficient revenues to achieve profitability.  Even if we and our partners are able to commercialize products and we are able to enter into agreements or licenses in the future, we may never generate sufficient revenues to have profitable operations.

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We have limited manufacturing experience and are dependent upon the ability of third parties, including Merck, to manufacture our product candidates, which raises uncertainty as to our ability to develop and commercialize our product candidates.

Under our collaboration with Merck, we are responsible for providing the active pharmaceutical ingredient used in deforolimus drug product and Merck is responsible for the formulation of the finished product.  Under our agreements with Medinol and ICON, we are responsible for providing the deforolimus to be delivered by the stents or medical devices being developed by Medinol and ICON. We have no experience in manufacturing any of our product candidates on a large scale and have contracted and expect to continue to contract with third-party manufacturers, including Merck, to provide material for clinical trials and potential commercial launch, and to assist in the development and optimization of our manufacturing processes and methods.  Our ability to conduct clinical trials and commercialize our product candidates will depend on the ability of such third parties to manufacture our products on a large scale at a competitive cost and in accordance with current good manufacturing practices, or cGMPs, and other regulatory requirements.  If we are not able to obtain contract manufacturing on commercially reasonable terms, obtain or develop the necessary materials and technologies for manufacturing, or obtain intellectual property rights necessary for manufacturing, or if our contract manufacturers fail to provide us with the quantities and quality of the products we require in a timely manner, we may not be able to conduct or complete clinical trials or commercialize our product candidates, including deforolimus.  There can be no assurance that we will be able to obtain such requisite terms, materials, technologies and intellectual property necessary to successfully manufacture our product candidates for clinical trials or commercialization.

We have limited experience in conducting clinical trials and are dependent upon the ability of third parties, including Merck, contract research organizations, collaborative academic groups, clinical trial sites and investigators, to conduct or to assist us in conducting clinical trials for our product candidates, which raises uncertainty as to our ability to develop and commercialize our product candidates.

We have limited experience in designing, initiating, conducting and monitoring the clinical trials necessary to obtain regulatory approval of our product candidates.  Our collaboration agreement with Merck provides that the development and commercialization of deforolimus, our lead product candidate, will be jointly conducted pursuant to a global development plan.  Pursuant to the global development plan, we are conducting multiple clinical trials of deforolimus in multiple potential cancer indications.  Together with the efforts of Merck, contract research organizations, advisory boards, review committees, collaborative academic groups, clinical trial sites and investigators, we are heavily dependent on our and their ability to successfully initiate, enroll, conduct and monitor our SUCCEED Phase 3 clinical trial and other clinical trials of deforolimus, particularly outside the United States.  In particular, we are dependent upon the review, advice and/or services of several independent committees, consultants and contractors with respect to protocol design, patient enrollment, data monitoring, radiology review, pathology and drug distribution to clinical trial sites for our SUCCEED trial and other clinical trials of deforolimus. We are also dependent upon our ability and the ability of Merck and our contractors to coordinate with us and to timely and accurately collect and report to regulatory authorities worldwide the patient data generated in our SUCCEED trial and other clinical trials of deforolimus.  We, Merck, and our respective contractors, collaborative academic groups, clinical trial sites or investigators may lack sufficient personnel, technology, expertise, experience or resources to effectively initiate clinical trial sites, recruit and enroll patients, conduct and monitor clinical trials, and to collect and report patient data relating to our SUCCEED trial or other clinical trials of deforolimus, either generally or in specific countries.

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We also initiated in 2008 and are conducting a Phase 1 clinical trial of AP24534 in patients with hematologic malignancies.  We do not currently have a partner for the development and commercialization of AP24534 and are dependent upon our ability and/or the ability of our contractors, collaborative academic groups, clinical trial sites and investigators, to successfully design, initiate, conduct and monitor clinical trials of AP24534, including the ongoing Phase 1 trial.  Failure by us or our partners, contractors, collaborative academic groups, clinical trial sites or investigators to timely and effectively initiate, conduct and monitor our clinical trials could significantly delay or materially impair our ability to complete clinical trials and/or obtain regulatory approval of deforolimus, AP24534 or our other product candidates and, consequently, could delay or materially impair our ability to generate revenues therefrom.

We will continue to expend significant resources on the enforcement and licensing of our NF-κB patent portfolio and may be unable to generate material revenues from these efforts if we are unable to enforce against, or license our NF-κB patents to, pharmaceutical and biotechnology companies.

We are the exclusive licensee of a family of patents, three in the U.S. and one in Europe, including a pioneering U.S. patent covering methods of treating human disease by regulating NF-κB cell-signaling activity, hereinafter referred to as the ’516 Patent, awarded to a team of inventors from The Whitehead Institute for Biomedical Research, Massachusetts Institute of Technology and Harvard University.  Dr. David Baltimore, the former president of the California Institute of Technology and one of our consultants and scientific founders, is a lead inventor of the ’516 Patent and a member of the board of directors of Amgen Inc.  We have a licensing program to generate revenues from the discovery, development, manufacture and sale of products covered by our NF-κB patent portfolio.  These patents have been, and in the future may be, challenged and may be subsequently narrowed, invalidated, declared unenforceable or circumvented, any of which could materially impact our ability to generate licensing revenues from them.

We are currently engaged in two litigations concerning the ‘516 Patent.  Together  with the academic institutions, we filed a lawsuit in June 2002 in the United States District Court for the District of Massachusetts, against Lilly, alleging infringement of certain claims of the ’516 Patent through sales of Lilly’s osteoporosis drug, Evista ®, and its septic shock drug, Xigris ®.  Both a jury and a bench trial were held in this case in 2006.  We prevailed with favorable verdicts in both trials followed by entry of a final judgment in September 2007.  Lilly then filed a notice of appeal on March 10, 2008 which appeal was heard on February 6, 2009 and for which we are awaiting the court’s ruling.  We are also the defendant in a lawsuit filed by Amgen and certain affiliated entities in the U.S. District Court for the District of Delaware seeking a declaratory judgment that each of the claims contained in the ’516 Patent is invalid and that Amgen has not infringed any of the claims of the ’516 Patent based on activities related to Amgen’s products, Enbrel ® and Kineret ®.  We have filed a counterclaim against Amgen, and, for purposes of trial, we are alleging infringement of the ‘516 Patent based on activities related to Enbrel.  In addition, upon requests filed by Lilly and by a third party, the PTO is reexamining the patentability of certain claims of the ’516 Patent in reexamination proceedings that are currently pending.  See a description of the status of these matters in the section entitled “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.  We cannot provide any assurance that other third parties, who may be infringing our NF-κB patents, will not seek to initiate similar, further proceedings for declaratory relief or reexamination with regard to the ’516 Patent or other NF-κB patents. As exclusive licensee of the ’516 Patent, we are obligated for the costs expended for its prosecution in the PTO, for its enforcement in the above noted litigations and otherwise.  Therefore, we will continue to expend significant capital and management resources pursuing these matters in court and in the reexamination process in the PTO, and the outcome is uncertain.

If some of the claims of the ’516 Patent are invalidated by the PTO or in the courts or found not to be infringed in these matters, we will not realize any revenues on sales of the above-named products, and could be liable under certain limited circumstances in these litigation proceedings for litigation costs and potentially attorneys’ fees.  Additionally, although we have prevailed in the jury and bench trials in the Lilly litigation, the damages awarded to us and the other Plaintiffs could be subsequently eliminated or limited by an adverse ruling upon appeal, or in the event that the claims of the ’516 Patent are invalidated at trial or on appeal in the Amgen litigation or by the PTO.  Invalidation of any of the claims of the ’516 Patent by the PTO or in the courts would have a significant adverse impact on our ability to generate revenues from our NF-κB licensing program from any potential licensee.  Moreover, significant expenditures to enforce these patent rights, particularly with respect to the pending litigation initiated by Amgen, without generating revenues or accessing additional capital or other funding, could adversely impact our ability to further our clinical programs and our research and development programs at the current levels or at levels that may be required in the future.

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The loss of key members of our scientific and management staff could delay and may prevent the achievement of our research, development and business objectives.

Our performance as a specialized scientific business is substantially dependent on our key officers and members of our scientific staff responsible for areas such as drug development, clinical trials, regulatory affairs, drug discovery, manufacturing, marketing, business development and intellectual property protection and licensing.  We also are dependent upon a few of our scientific advisors to assist in formulating our research and development strategy.  While we have entered into employment agreements with all of our executive officers, these officers may terminate their employment with us at any time.  The loss of, and failure to promptly replace, any member of our management team could significantly delay and may prevent the achievement of our research, development and business objectives.

We are dependent upon the ability of our medical device partners to develop, manufacture, test and market stents or other medical devices to deliver deforolimus.

We have no experience in the development of medical devices and do not intend ourselves to develop stents or other medical devices to deliver deforolimus.  Instead, we have granted two licenses (to Medinol and to ICON) and, under those license agreements, we may grant one additional license, under our rights to deforolimus to a medical device company for its use in developing and commercializing such medical devices to reduce blockage of injured vessels following stent-assisted angioplasty.

While we expect to supply deforolimus to our medical device partners and any additional partner, we will be otherwise dependent upon them to develop and commercialize stents or other medical devices to deliver deforolimus.  Such medical device partners have varying degrees of scientific, technical, medical and regulatory experience and resources to, directly or through third parties, develop, manufacture, test or market stents or other medical devices to deliver deforolimus.  Their ability to conduct clinical trials and commercialize such medical devices will be dependent on both the safety profile of their medical devices and deforolimus, as well as their ability to manufacture and supply medical devices for clinical trials and marketing purposes and our ability to manufacture and supply deforolimus, either directly or through third parties, at a competitive cost and in accordance with cGMPs and other regulatory requirements.  Although, under our collaboration with Merck, Merck is responsible for the formulation of deforolimus finished product for potential indications covered by the collaboration, we depend upon third-party manufacturers or collaborative partners for the production of deforolimus for clinical trials to be conducted by our medical device partners, and we intend to use third-party manufacturers to produce deforolimus on a commercial scale, if any partner receives regulatory approval.  Our reliance on third-party manufacturers and their potential inability to meet our supply commitments to one or more of our partners could adversely impact the ability of our partners to commercialize stents or other medical devices to deliver deforolimus.

We anticipate that our partners will seek to develop and commercialize stents or other medical devices to deliver deforolimus that do not infringe third-party patents.  However, there can be no assurance that the devices delivering deforolimus marketed by our partners will not be subject to third-party claims.  Furthermore, the patents issued to us or our partners covering deforolimus and/or medical devices, including stents, may be subject to challenge and may be subsequently narrowed, invalidated or circumvented.  Any such event would adversely impact the ability of one or more of our partners to market their stents or other medical devices to deliver deforolimus.

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Our existing license agreements with Medinol and ICON allow either party to terminate under certain circumstances, including our partner’s reasonable business judgment that development of a medical device to deliver deforolimus is not feasible.  Medinol or ICON may be unable to develop a medical device to deliver deforolimus and we may also not be able to enter into any additional licensing agreements with any other medical device companies to develop such devices on terms which are acceptable to us, or at all.  Our inability to enter into such transactions, or the inability of one or more of our partners to develop or commercialize stents or other medical devices to deliver deforolimus for any reason, will adversely impact our ability to generate revenues from any licenses of deforolimus.

We may not be able to protect our intellectual property relating to our research programs, technologies and product candidates.

We and our licensors have issued patents and pending patent applications covering research methods useful in drug discovery, new chemical compounds discovered in our drug discovery programs including, among others, deforolimus, certain components, configurations and uses of our cell-signaling regulation technologies and products-in-development, methods and materials for manufacturing our products-in-development and other pharmaceutical products and methods and materials for conducting pharmaceutical research.  Pending patent applications may not issue as patents and may not issue in all countries in which we develop, manufacture or sell our products or in countries where others develop, manufacture and sell products using our technologies.  In addition, patents issued to us or our licensors may be challenged, as is the case with the PTO proceeding and the Lilly and Amgen litigations regarding the NF-κB ’516 Patent, and they may be subsequently narrowed, invalidated or circumvented.  In that event, such patents may not afford meaningful protection for our technologies or product candidates, which would materially impact our ability to develop and market our product candidates and to generate licensing revenues from our patent portfolio.  Certain technologies utilized in our research and development programs are already in the public domain.  Moreover, a number of our competitors have developed technologies, filed patent applications or obtained patents on technologies, compositions and methods of use that are related to our business and may cover or conflict with our patent applications, technologies or product candidates.  Such conflicts could limit the scope of the patents that we may be able to obtain or may result in the denial of our patent applications.  If a third party were to obtain intellectual property protection for any of the foregoing, we may be required to challenge such protection, terminate or modify our programs impacted by such protection or obtain licenses from such third parties, which might not be available on acceptable terms, or at all.  Also, if a third party were to introduce a product into the market which we believe infringes our patents, we may be required to enforce our patent rights or seek to obtain an injunction or other relief, which could be time-consuming and expensive.

We may be unable to develop or commercialize our product candidates if we are unable to obtain or maintain certain licenses on commercial terms or at all.

We have entered, and will continue to enter, into agreements, with third parties to test compounds, blood and tissue samples, to perform gene expression analysis and to develop biological tests for use with our product candidates, which testing may yield new inventions and discoveries requiring us to obtain licenses in order to exclusively develop or market new products, alone or in combination with our product candidates, or to develop or market our product candidates for new indications.  We have also entered into license agreements for some of our technologies.  We use third parties to test blood and tissue samples and other biological materials in our clinical programs and to develop biological tests, with respect to which we may be required to obtain licenses or pay royalties or other fees in order to commercialize such tests for use with our product candidates.  We also use gene sequences or proteins encoded by those sequences and other biological materials in each of our research programs which are, or may become, patented by others and to which we would be required to obtain licenses in order to develop or market our product candidates.  Manufacturing and/or use of our products may also require licensing biological materials, technologies and intellectual property from third parties.  Our inability to obtain any one or more of these licenses, on commercially reasonable terms, or at all, or to circumvent the need for any such license, could cause significant delays and cost increases and materially affect our ability to develop and commercialize or prevent us from developing and commercializing our product candidates.  Obtaining licenses for these discoveries, materials and technologies may require us to make cumulative royalty payments or other payments to several third parties, potentially reducing amounts paid to us or making the cost of our products commercially prohibitive.

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Some of our licenses obligate us to exercise diligence in pursuing the development of product candidates, to make specified milestone payments and to pay royalties.  In some instances, we are responsible for the costs of filing and prosecuting patent applications and actions to enforce our rights against infringers.  These licenses generally expire upon the earlier of a fixed term of years after the date of the license or the expiration of the applicable patents, but each license is also terminable by the other party upon default by us of our obligations.  Our inability or failure to meet our diligence requirements or make any payments required under these licenses would result in a reversion to the licensor of the rights granted which, with respect to the licenses pursuant to which we have obtained exclusive rights, would materially and adversely affect our ability to develop and market products based on our licensed technologies.

Competing technologies may render some or all of our programs or future products noncompetitive or obsolete.

Many well-known pharmaceutical, healthcare and biotechnology companies, academic and research institutions and government agencies, which have substantially greater capital, research and development capabilities and experience than us or our potential partners, are presently engaged in one or more of the following activities:
 
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developing products based on cell signaling, cancer biology, and computational chemistry;

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conducting research and development programs for the treatment of the various potential disease indications in which we are focused; and

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manufacturing, promoting, marketing and selling pharmaceutical or medical device products for treatment of diseases in all of the various disease indications in which we or our current or possible future partners are focused.

Some of these entities already have competitive products on the market or product candidates in clinical trials or in more advanced preclinical studies than we do.  Many of these entities also have substantially greater research, development, manufacturing and marketing resources and experience than us.  In particular, we are aware that Wyeth and Novartis have mTOR inhibitors on the market and/or in development which are competitive with deforolimus, our lead product candidate.  Additionally, PharmaMar has a marine derived antitumoral agent currently approved for the treatment of soft tissue sarcomas in Europe.  By virtue of having or introducing competitive products on the market before us, these entities may gain a competitive advantage.  Competing technologies may render some or all of our programs or future products noncompetitive or obsolete, and we may not be able to make the enhancements to our technology necessary to compete successfully with newly emerging technologies.  If we are unable to successfully compete in our chosen markets, we will not become profitable.

If our product candidates are not accepted by patients, physicians and insurers, we will not be successful.

Our success is dependent on the acceptance of any approved products.  Our product candidates may not achieve market acceptance among patients, physicians or third-party payors, even if we obtain necessary regulatory and reimbursement approvals.  Physicians and health care payors may conclude that any of our product candidates are not as safe and/or effective as competing therapies or are not as attractive based on a cost/benefit analysis as alternative treatments.  Failure to achieve significant market acceptance of our product candidates will harm our business.  We believe that recommendations by physicians and health care payors will be essential for market acceptance of any product candidates.

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If we are unable to establish sales, marketing and distribution capabilities or to enter into agreements with third parties to do so, we may be unable to successfully market and sell any products.

Pursuant to our collaboration with Merck, we will distribute, sell and with Merck co-promote deforolimus for all cancer indications in the United States, and Merck will distribute, sell and promote deforolimus outside the United States.  We are currently establishing a commercial oncology organization, but we have no experience in marketing or selling any products.  Accordingly, we may be unable to successfully, directly or indirectly, sell deforolimus or any other product candidates that we obtain marketing approval to sell.  If we are unable to effectively sell our products, our ability to generate revenues will be materially adversely affected.  We may not be able to hire, in a timely manner, the qualified sales and marketing personnel we need, if at all. In addition, we may not be able to enter into any marketing or distribution agreements on acceptable terms, if at all.  If we cannot establish sales, marketing and distribution capabilities as we intend, either by developing our own capabilities or entering into agreements with third parties, sales of future products, if any, may be harmed.

If we develop a product for commercial use, a subsequent product liability-related claim or recall could have an adverse effect on our business.

Our business exposes us to potential product liability risks inherent in the testing, manufacturing and marketing of pharmaceutical products.  Prior to obtaining regulatory approval to market our products, we or our partners are required to test such products in human clinical trials at health care institutions pursuant to agreements which indemnify such institutions in case of harm caused to patients by our products.  We may not be able to avoid significant product liability exposure resulting from use of our products.  A product liability-related claim or recall could be detrimental to our business.  In addition, except for insurance covering product use in our clinical trials, we do not currently have any product liability insurance, and we may not be able to obtain or maintain such insurance on acceptable terms, or we may not be able to obtain any insurance to provide adequate coverage against potential liabilities, including liabilities arising from our clinical trials.  Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products that we or our partners may develop.

Significant additional losses or insufficient funding may cause us to default on certain covenants of our loan documents.

At December 31, 2008, we had $13.0 million outstanding under a term loan agreement with a bank, pursuant to which we are required to maintain certain financial and non-financial covenants, including minimum cash, cash equivalents and investments of $15 million, a default of any of which would allow the bank to demand payment of its loan.  We currently have sufficient liquidity to fund payment of this loan if demand for payment were made.    However, if we are unable to raise adequate financing to fund continuing operations or otherwise to refinance our loan, we may not be able to maintain compliance with loan covenants, may be required to pay off the loan and may be required to reduce our spending on operations.

Risks Relating to Governmental Approvals

We have limited experience in conducting clinical trials, which may cause delays in commencing and completing clinical trials of our product candidates.

Clinical trials must meet applicable FDA and foreign regulatory requirements.  We have limited experience in designing, conducting and managing the preclinical studies and clinical trials necessary to obtain regulatory approval for our product candidates in any country and no experience in conducting and managing post-approval studies of any products.  We or our collaborative partners may encounter problems in clinical trials that may cause us or the FDA or foreign regulatory agencies to delay, suspend or terminate our clinical trials at any phase.  These problems could include the possibility that we may not be able to manufacture sufficient quantities of cGMP materials for use in our clinical trials, conduct clinical trials at our preferred sites, enroll a sufficient number of patients for our clinical trials at one or more sites, or begin or successfully complete clinical trials in a timely fashion, if at all.  Furthermore, we, our partners, the FDA or foreign regulatory agencies may suspend clinical trials of our product candidates at any time if we or they believe the subjects participating in the trials are being exposed to unacceptable health risks as a result of adverse events occurring in our trials or if we or they find deficiencies in the clinical trial process or conduct of the investigation.  If clinical trials of any of our product candidates fail, we or our partners will not be able to market the product candidate which is the subject of the failed clinical trials.  The FDA and foreign regulatory agencies could also require additional clinical trials before or after granting of marketing approval for any products, which would result in increased costs and significant delays in the development and commercialization of such products and could result in the withdrawal of such products from the market after obtaining marketing approval.  Our failure, or the failure of our partners, to adequately demonstrate the safety and efficacy of a product candidate in clinical development could delay or prevent obtaining marketing approval of the product candidate and, after obtaining marketing approval, data from post-approval studies could result in the product being withdrawn from the market, either of which would likely have a material adverse effect on our business.

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We may not be able to obtain government regulatory approval to market our product candidates.

To date, neither we nor our partners have submitted a marketing application for any of our product candidates to the FDA or any foreign regulatory agency, and none of our product candidates has been approved for commercialization in any country.  Prior to commercialization, each product candidate will be subject to an extensive and lengthy governmental regulatory approval process in the United States and in other countries.  We or our partners may not be able to obtain regulatory approval for any product candidates, or even if approval is obtained, the labeling for such products may place restrictions on their use that could materially impact the marketability and profitability of the product subject to such restrictions.  Satisfaction of these regulatory requirements, which includes satisfying the FDA and foreign regulatory authorities that the product is both safe and effective for its intended uses, typically takes several years or more depending upon the type, complexity and novelty of the product and requires the expenditure of substantial resources.  Uncertainty with respect to meeting the regulatory requirements governing our product candidates may result in excessive costs or extensive delays in the regulatory approval process, adding to the already lengthy review process.  If regulatory approval of a product is granted, such approval will be limited to those disease states and conditions for which the product is proven safe and effective, as demonstrated by clinical trials, and may not include all of the indications necessary to successfully market the product.  Even though we have obtained orphan drug designation from the FDA and EMEA for deforolimus in bone and soft-tissue sarcomas, this designation may be challenged by others or may prove to be of no practical benefit. In addition, even though we have reached agreement on a Special Protocol Assessment, or SPA, with the FDA with respect to our SUCCEED Phase 3 clinical trial of deforolimus for metastatic sarcoma, the FDA is not obligated to approve deforolimus as a result of the SPA, even if the clinical outcome of the SUCCEED trial is positive.  Therefore, we cannot provide assurance that positive results in the SUCCEED trial will be sufficient for FDA approval of deforolimus.

We will not be able to sell our product candidates if we, Merck or our third-party manufacturers fail to comply with FDA manufacturing and quality requirements.

Under our collaboration with Merck, we are responsible for providing the active pharmaceutical ingredient used in deforolimus drug product, and Merck will be responsible for the formulation of the finished product.  Under our agreements with Medinol and ICON, we are responsible for providing the deforolimus to be delivered by the stents or other medical devices being developed by Medinol and ICON.  Before approving any of our product candidates, the FDA will inspect the facility or facilities at which the drug product is manufactured and will not approve the drug candidate unless it is satisfied with our or our third-party manufacturer’s compliance with manufacturing and quality requirements.  The manufacturing of our product candidates must comply with cGMP requirements of the FDA and similar requirements of regulatory agencies in other countries.  These requirements govern, among other things, quality control and documentation procedures.  We, Merck or any third-party manufacturer of product candidates, may not be able to comply with these requirements, which would prevent us from obtaining approval for or selling such products.  Material changes to the manufacturing processes of products after approvals have been granted are also subject to review and approval by the FDA or other regulatory agencies.  Following approval, such facilities are subject to continuing FDA and foreign regulatory inspections and failure to comply with cGMPs or similar regulations can result in regulatory action up to and including cessation of shipment of product.

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Even if we or our partners bring products to market, we or they may be unable to effectively price the products or obtain adequate reimbursement for sales of the products, which would prevent the products from becoming profitable.

If we or our partners succeed in bringing any product candidates to the market, they may not be considered cost-effective, and coverage and adequate payments may not be available or may not be sufficient to allow us to sell such products on a competitive basis.  In both the United States and elsewhere, sales of medical products and the availability or acceptance of treatments are dependent, in part, on the availability of reimbursement from third-party payors, such as health maintenance organizations and other private insurance plans and governmental programs such as Medicare.  Third-party payors are increasingly challenging the prices charged for pharmaceutical products and medical procedures.  Our business may be affected by the efforts of government and third-party payors to contain or reduce the cost of health care through various means.  In the United States, there have been and will continue to be a number of federal and state proposals to implement government controls on pricing.  Similar government pricing controls exist in varying degrees in other countries.  In addition, the emphasis on managed care in the United States has increased and will continue to increase the pressure on the pricing of pharmaceutical products.  We cannot predict whether any legislative or regulatory proposals will be adopted or the effect these proposals or managed care efforts may have on our business.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009.  This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress.   Although the results of the comparative effectiveness studies are not intended to mandate any policies for public or private payors, it is not clear what if any effect the research will have on the sales of our product candidates if any such product or the condition that it is intended to treat is the subject of a study.  Decreases in third-party reimbursement for our product candidates or a decision by a third-party payor to not cover our product candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

We cannot predict whether any other legislative or regulatory proposals will be adopted or the effect these proposals or managed care efforts may have on our business.

Risks Relating to Our Common Stock

Results of our operations, general market conditions for biotechnology stocks and other factors could result in a sudden change in the value of our stock.

As a biopharmaceutical company, we have experienced significant volatility in our common stock.  In 2008, our stock price ranged from a high of $4.48 to a low of $0.72.  Factors that can contribute to such volatility may include: announcements regarding results and timing of preclinical studies and clinical trials for our product candidates; announcements regarding our collaborations and partnerships; evidence of the safety or efficacy of our product candidates; announcements regarding product developments or regulatory approvals obtained by companies developing competing products; decisions by regulatory agencies that impact or may impact our product candidates; the results and timing of efforts by our partner or future partners to develop stents or other medical devices to deliver deforolimus; announcements of new collaborations or failure to enter into collaborations; our funding requirements; announcements of new equity or debt financings; announcements of technological innovations or new therapeutic products; developments relating to intellectual property rights, including licensing, litigation and governmental regulation and, in particular, our litigation with Lilly and with Amgen and reexamination proceedings in the PTO with respect to the ‘516 Patent; healthcare or cost-containment legislation; general market trends for the biotechnology industry and related high-technology industries; the impact of exchange rates for the U.S. dollar; the impact of changing interest rates and policies of the Federal Reserve; and public policy pronouncements.  These and other factors could have a significant impact on the value and volatility of our common stock in future periods.

26
Anti-takeover provisions of Delaware law, provisions in our charter and bylaws and our stockholders’ rights plan, or poison pill, could make a third-party acquisition of us difficult.

Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders.  We are subject to the provisions of Section 203 of the General Corporation Law of Delaware, which prohibits us from engaging in certain business combinations, unless the business combination is approved in a prescribed manner.  In addition, our certificate of incorporation and our bylaws, each as currently in effect, also contain certain provisions that may make a third-party acquisition of us difficult, including:

·  
a classified board of directors, with three classes of directors each serving a staggered three-year term;
·  
the ability of the board of directors to issue preferred stock; and
·  
the inability of our stockholders to call a special meeting.

We also have implemented a stockholders’ rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis.  These provisions, as well as Section 203, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over the current market price, and may limit the ability of our stockholders to approve transactions that they think may be in their best interests.

27

None.

ITEM 2:     PROPERTIES

We have leased approximately 100,000 square feet of laboratory and office space at 26 Landsdowne Street, Cambridge, Massachusetts through July 2012, with two consecutive five-year renewal options.  We believe that our currently leased facility will be adequate for our research and development and other business activities at least through the year 2010.  We believe that any additional space we may require will be available on commercially reasonable terms.

ITEM 3.      LEGAL PROCEEDINGS

We are from time to time involved in legal proceedings regarding patent, contract and other matters.  Legal proceedings that management believes have or may have a material impact on ARIAD are described below and more fully in Note 13 of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, which is incorporated herein by reference.

Certain of our patents are the subject of a patent infringement lawsuit filed in June 2002 in the U.S. District Court in Massachusetts by us and others against Lilly and a lawsuit filed in April 2006 in the U.S. District Court in Delaware against us by Amgen and certain affiliated entities.  One of these patents is also the subject of reexamination proceedings in the PTO.

A shareholder derivative complaint was filed in the Delaware Court of Chancery in February 2009 by a stockholder alleging breaches of fiduciary duties and naming each of the members of our board of directors as a defendant and ARIAD as a nominal defendant.  We believe these claims are without merit and that the complaint constitutes a frivolous lawsuit.  We and our directors intend to vigorously oppose the lawsuit.


No matters were submitted to a vote of security holders during the quarter ended December 31, 2008.
 
28
PART II


Market Information

Our common stock is traded on The NASDAQ Global Market under the symbol “ARIA”.  The following table sets forth the high and low sales prices of our common stock as quoted on The NASDAQ Global Market for the periods indicated.

2008:
  
High
    
Low
  
First Quarter
   $ 4.48     $ 2.66  
Second Quarter
     3.72       2.37  
Third Quarter
     3.55       2.10  
Fourth Quarter
     2.49       0.72  
                 
2007:
                
First Quarter
   $ 5.68     $ 4.07  
Second Quarter
     5.80       4.19  
Third Quarter
     6.40       3.84  
Fourth Quarter
     5.29       4.05  

On March 10, 2009, the last reported sale price of our common stock was $1.30.

Stock Performance Graph

The following graph compares the yearly percentage change in the cumulative total stockholder return on our common stock since December 31, 2003, with the total cumulative return of the NASDAQ Biotechnology Index and the Russell 2000® Index, each of which ARIAD is a member.  The Russell 2000 Index is a market capitalization-weighted index of stock price performance for the 2,000 smallest companies in the Russell 3000® Index.  Since the Russell 2000 Index is specifically designed to measure the stock price trends of smaller companies, we believe it is a meaningful index against which to compare our stock price performance.

The price of a share of common stock is based upon the closing price per share as quoted on The NASDAQ Global Market on the last trading day of the year shown.  The graph lines merely connect year-end values and do not reflect fluctuations between those dates.  The comparison assumes $100 was invested on December 31, 2003 in our common stock and in each of the foregoing indices.  We did not declare or pay any dividends during the comparison period.  The stock price performance as shown in the graph below is not necessarily indicative of future stock price performance.

29
Stock Performance Graph

   
2003
    
2004
    
2005
    
2006
    
2007
    
2008
  
ARIAD Pharmaceuticals, Inc.
     100.00       99.73       78.52       68.99       57.05       11.41  
                                                 
Nasdaq Biotechnology Index
     100.00       106.13       109.14       110.25       115.30       100.75  
                                                 
Russell 2000 Index
     100.00       117.00       120.88       141.43       137.55       89.68  

The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such acts.

Stockholders

As of February 28, 2009, the approximate number of holders of record of our common stock was 454, and the approximate total number of beneficial holders of our common stock was 45,000.

Dividends

We have not declared or paid dividends on our common stock in the past and do not intend to declare or pay such dividends in the foreseeable future.  Our long-term debt agreement prohibits the payment of cash dividends.

Unregistered Sales of Securities

On September 11, 2008, we entered into an agreement and plan of merger, or the Merger Agreement, pursuant to which our 80 percent owned subsidiary, AGTI, was merged with and into ARIAD effective as of September 12, 2008.  Pursuant to the Merger Agreement, each of the 1,126,064 outstanding shares of AGTI common stock owned by AGTI’s minority stockholders was converted into the right to receive two shares of ARIAD common stock.  In October 2008, pursuant to the Merger Agreement, we issued an aggregate of 1,799,276 shares of ARIAD common stock to former AGTI minority stockholders who had not exercised appraisal rights under Delaware law.  In addition, in January 2009, we reached a settlement with the former AGTI minority stockholders who had exercised their appraisal rights, pursuant to which we issued an aggregate of 452,852 shares of ARIAD common stock and made cash payments, as detailed in Note 3 to our financial statements included in this Annual Report on Form 10-K.  Accordingly, a total of 2,252,128 shares of our common stock were issued in connection with the AGTI merger.

30
The shares of ARIAD common stock issued in connection with the merger were not registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act (and the regulations promulgated thereunder, including Regulation D) relating to sales by an issuer not involving a public offering.

Issuer Purchases of Equity Securities

Not applicable.
 
31

The selected financial data set forth below as of December 31, 2008, 2007, 2006, 2005 and 2004 and for each of the years then ended have been derived from the audited consolidated financial statements of the Company, of which the financial statements as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 are included elsewhere in this Annual Report on Form 10-K, and are qualified by reference to such financial statements.  The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the audited consolidated financial statements, and the notes thereto, and other financial information included herein.

   
Years Ended December 31,
  
In thousands, except share and per share data
  
2008
    
2007
    
2006
    
2005
    
2004
  
Consolidated Statements of Operations Data:                              
License and collaboration revenue
   $ 7,082     $ 3,583     $ 896     $ 1,217     $ 742  
Operating expenses:                                        
Research and development
     50,841       39,565       43,312       45,916       27,711  
General and administrative
     28,092       24,712       21,251       12,261       9,442  
Operating expenses
     78,933       64,277       64,563       58,177       37,153  
Loss from operations
     (71,851 )     (60,694 )     (63,667 )     (56,960 )     (36,411 )
Other income (expense):
                                        
Interest income
     1,349       2,509       2,222       1,900       1,110  
Interest expense
     (550 )     (337 )     (483 )     (422 )     (272 )
Other income, net
     799       2,172       1,739       1,478       838  
                                         
Net loss
   $ (71,052 )   $ (58,522 )   $ (61,928 )   $ (55,482 )   $ (35,573 )
                                         
Net loss per share
   $ (1.02 )   $ (0.86 )   $ (0.99 )   $ (0.99 )   $ (0.69 )
Weighted average number of shares of common stock outstanding
     69,790,784       68,215,803       62,679,807       56,283,948       51,294,160  


   
As of December 31,
  
In thousands
  
2008
    
2007
    
2006
    
2005
    
2004
  
Consolidated Balance Sheet Data:
                              
Cash, cash equivalents and marketable securities
   $ 39,068     $ 85,198     $ 39,804     $ 81,516     $ 75,506  
Working capital
     14,174       64,591       25,859       65,971       68,874  
Total assets
     68,188       101,105       51,043       96,174       87,189  
                                         
Total deferred revenue
     97,264       85,845       454       875       1,117  
Long-term debt
     11,550       0       3,815       5,735       7,655  
Accumulated deficit
     (438,600 )     (367,549 )     (309,026 )     (247,098 )     (191,616 )
Stockholders’ equity (deficit)
     (69,198 )     (7,900 )     30,262       71,378       67,440  
 
32

Unless stated otherwise, references in this Annual Report on Form 10-K to “we,” “us,” or “our” refer to ARIAD Pharmaceuticals, Inc., a Delaware corporation, and our subsidiaries unless the context requires otherwise.

Overview

Our vision is to transform the lives of cancer patients with breakthrough medicines.  Our mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest and most urgent unmet medical need – aggressive cancers where current therapies are inadequate.  Our goal is to build a fully integrated oncology company focused on novel, molecularly targeted therapies to treat solid tumors and hematologic cancers, as well as the spread of primary tumors to distant sites.
 
Our lead cancer product candidate, deforolimus, previously known as AP23573, is being studied in multiple clinical trials in patients with various types of cancers.  In July 2007, we entered into a global collaboration with Merck & Co., Inc., or Merck, to jointly develop and commercialize deforolimus for use in cancer.  We initiated patient enrollment in our initial Phase 3 clinical trial of deforolimus in patients with metastatic sarcoma in the third quarter of 2007.  In addition, in 2008 we and Merck initiated patient enrollment in Phase 2 clinical trials in patients with metastatic breast cancer, advanced endometrial cancer and advanced prostate cancer, and Phase 1 clinical trials of deforolimus in combination with other agents.

Our collaboration with Merck for the global development and commercialization of deforolimus anticipates that we together with Merck will conduct a broad-based development program in multiple potential indications.  The collaboration agreement provides that each party will fund 50 percent of global development costs, except for certain specific costs to be funded 100 percent by Merck.  The collaboration agreement establishes responsibilities for supply of the product for development and commercial purposes, promotion, distribution and sales of the product, governance of the collaboration, termination provisions and other matters.

In addition to cost-sharing provisions, the collaboration agreement provides for an up-front payment by Merck of $75 million, which was paid to us in July 2007, up to $452 million in milestone payments based on the successful development of deforolimus in multiple potential cancer indications, of which $31.0 million has been paid to us through December 31, 2008, and up to $200 million in milestone payments based on achievement of specified product sales thresholds.  The upfront payment and milestone payments, when earned by us and paid by Merck, are non-refundable.  Merck has also agreed to provide us with up to $200 million in interest-bearing, repayable, development cost advances to cover a portion of our share of global development costs, after we have paid $150 million in global development costs and have obtained regulatory approval to market deforolimus from the FDA in the United States or similar regulatory authorities in Europe or Japan.  The collaboration agreement provides that each party will receive 50 percent of the profit from the sales of deforolimus in the United States, and Merck will pay us tiered double-digit royalties on sales of deforolimus outside the United States.

Our second product candidate, AP24534, has entered clinical development.  We filed an Investigational New Drug application, or IND, for this product candidate with the FDA in the fourth quarter of 2007 and initiated a Phase 1 clinical trial in patients with hematologic cancers in the second quarter of 2008.

In addition to our lead development programs, we have a focused drug discovery program centered on small-molecule, molecularly targeted therapies and cell-signaling pathways implicated in cancer.  We also have an exclusive license to a family of patents, three in the United States and one in Europe, including a pioneering U.S. patent covering methods of treating human disease by regulating NF-κB cell-signaling activity.  Additionally, we have developed a proprietary portfolio of cell-signaling regulation technologies, our ARGENT technology, to control intracellular processes with small molecules, which may be useful in the development of therapeutic vaccines and gene and cell therapy products and which provide versatile tools for applications in cell biology, functional genomics and drug discovery research.

33
Since our inception in 1991, we have devoted substantially all of our resources to our research and development programs.  We receive no revenue from the sale of pharmaceutical products, and most of our revenue to date was received in connection with a joint venture we had with a major pharmaceutical company from 1997 to 1999.  Except for the gain on the sale of our 50 percent interest in that joint venture in December 1999, which resulted in net income for the year ended December 31, 1999, we have not been profitable since inception.  As a result of our collaboration with Merck for the development and commercialization of deforolimus, we expect that our license and collaboration revenue will increase in future periods.  However, we expect to incur substantial and increasing operating losses for the foreseeable future, primarily due to costs associated with our pharmaceutical product development programs, including costs for clinical trials and product manufacturing, pre-commercial activities, personnel and our intellectual property.  We expect such costs and operating losses will be offset in part by development cost-sharing provisions and license revenue from our collaboration with Merck for the development and commercialization of deforolimus.  We expect that losses will fluctuate from quarter to quarter and that these fluctuations may be substantial.

On September 11, 2008, we entered into a merger agreement with our 80 percent owned subsidiary, ARIAD Gene Therapeutics, Inc., or AGTI, pursuant to which AGTI was merged with and into ARIAD on September 12, 2008, as described in more detail in Note 3 to the accompanying financial statements.

As of December 31, 2008, we had cash, cash equivalents and marketable securities of $39.1 million, working capital of $14.2 million and total stockholders’ deficit of $69.2 million.  Subsequently, on February 25, 2009, we raised net proceeds of $22.8 million from the sale of 14,378,698 shares of our common stock and warrants to purchase an additional 10,784,024 shares of our common stock to institutional investors.

General

Our operating losses are primarily due to the costs associated with our pharmaceutical product development programs, personnel and intellectual property protection and enforcement.  As our product development programs progress, we incur significant costs for toxicology and pharmacology studies, product development, manufacturing, clinical trials and regulatory support.  We also incur costs related to planning for potential regulatory approval and commercial launch of products, including market research and assessment.  These costs can vary significantly from quarter to quarter depending on the number of product candidates in development, the stage of development of each product candidate, the number of patients enrolled in and complexity of clinical trials and other factors.  Costs associated with our intellectual property include legal fees and other costs to prosecute, maintain, protect and enforce our intellectual property, which can fluctuate from quarter to quarter depending on the status of patent issues being pursued, including our on-going patent litigation.

Historically, we have relied primarily on the capital markets as our source of funding.  We may also obtain funding from collaborations with pharmaceutical, biotechnology and/or medical device companies for development and commercialization of our product candidates, such as our collaboration with Merck for the global development and commercialization of deforolimus.  These collaborations can take the form of licensing arrangements, co-development or joint venture arrangements or other structures.  In addition, we utilize long-term debt to supplement our funding, particularly as a means of funding investment in property and equipment and infrastructure needs.  If funding from these various sources is unavailable on reasonable terms, we may be required to reduce our operating expenses in order to conserve cash and capital by delaying, scaling back or eliminating one or more of our product development programs.

34
Critical Accounting Policies and Estimates

Our financial position and results of operations are affected by subjective and complex judgments, particularly in the areas of revenue recognition, the carrying value of intangible assets, deferred compensation benefits for executives, and stock-based compensation.

For the year ended December 31, 2008, we reported license and collaboration revenue of $7.1 million.  License and collaboration revenue is recorded based on up-front payments, periodic license payments and milestone payments received or deemed probable of receipt, spread over the estimated performance period of the license or collaboration agreement.  Regarding our collaboration with Merck for the development and commercialization of deforolimus, as of December 31, 2008, we have received an up-front payment of $75 million and we have received and/or earned milestone payments totaling $31.0 million.  We are recognizing revenues related to such payments on a straight-line basis through 2023, the estimated patent life of the underlying technology.  Changes in development plans could impact the probability of earning future milestone payments on which revenue recognition is based.  In addition, changes in estimated performance periods, including changes in patent lives of underlying technology, could impact the rate of revenue recognition in any period.  Such changes in revenue could have a material impact on our statement of operations.

At December 31, 2008, we reported $9.9 million of intangible assets, consisting of the recorded value of the technology associated with our acquisition in September 2008 of the 20 percent minority interest of AGTI that we did not previously own, as well as capitalized costs related primarily to purchased and issued patents, patent applications and licenses, net of accumulated amortization.  These costs are being amortized over the estimated useful lives of the underlying technology, patents or licenses.  Changes in these lives or a decision to discontinue using the technologies could result in material changes to our balance sheet and statements of operations.  We have concluded that the carrying value of our intangible assets is not currently impaired because such carrying value does not exceed the future net cash flows expected to be generated by such intangible assets.  If we were to abandon the ongoing development of the underlying product candidates or technologies or terminate our efforts to pursue collaborations or license agreements, we may be required to write off a portion of the carrying value of our intangible assets.  The net book value as of December 31, 2008 of intangible assets related to our NF-κB technology is $361,000.  If the patentability of our NF-κB patents, one of which is currently the subject of litigation and reexamination proceedings, is successfully challenged and such patents are subsequently narrowed, invalidated or circumvented, we may be required to write off some or all of the net book value related to such technology.

Under our deferred executive compensation plans, we are required to adjust our recorded obligations to our officers on a periodic basis based on the quoted market value of certain underlying mutual funds.  Fluctuations in the quoted market value of such mutual funds can result in uneven expense charges or credits to our statements of operations.  If, for example, the quoted market prices of the underlying mutual funds were 10 percent higher at December 31, 2008, we would have recognized an additional $191,000 in compensation expense in 2008.

In determining expense related to stock-based compensation, we utilize the Black-Scholes valuation model to estimate the fair value of stock options granted to employees, consultants and directors.  Application of the Black-Scholes option valuation model requires the use of factors such as the market value and volatility of our common stock, a risk-free discount rate and an estimate of the life of the option contract.  Fluctuations in these factors can result in adjustments to our statements of operations.  If, for example, the market value of our common stock, its volatility, or the expected life of stock options granted during the year ended December 31, 2008 were 10 percent higher or lower than used in the valuation of such stock options, our valuation of, and total stock-based compensation expense to be recognized for, such awards would have increased or decreased by up to $541,000, $335,000, or $199,000 respectively.

35
Results of Operations

Years Ended December 31, 2008 and 2007

Revenue

We recognized license and collaboration revenue of $7.1 million for the year ended December 31, 2008, compared to $3.6 million for the year ended December 31, 2007.  The increase in license and collaboration revenue was due primarily to an increase in the revenue recognized from the Merck collaboration, based on the non-refundable up-front and milestone payments, totaling $106.0 million, paid by Merck through December 31, 2008, in accordance with our revenue recognition policy.  We entered into this collaboration with Merck in July 2007, and thus our statement of operations reflects a full year of revenue recognition in 2008 as compared to a partial year in 2007.  We expect our license and collaboration revenue will increase in 2009 based on the expected receipt of additional milestone payments in accordance with the Merck collaboration agreement.

Operating Expenses

Research and Development Expenses

Research and development expenses increased by $11.2 million, or 28 percent, to $50.8 million in 2008, compared to $39.6 million in 2007.  The research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the United States and other countries.  This process typically takes years to complete and requires the expenditure of substantial resources.  Current requirements include:

·  
preclinical toxicology, pharmacology and metabolism studies, as well as in vivo efficacy studies in relevant animal models of disease;

·  
manufacturing of drug product for preclinical studies and clinical trials and ultimately for commercial supply;

·  
submission of the results of preclinical studies and information regarding manufacturing and control and proposed clinical protocol to the U.S. Food and Drug Administration, or FDA, in an Investigational New Drug application, or IND (or similar filings with regulatory agencies outside the United States);

·  
conduct of clinical trials designed to provide data and information regarding the safety and efficacy of the product candidate in humans; and

·  
submission of all the results of testing to the FDA in a New Drug Application, or NDA (or similar filings with regulatory agencies outside the United States).

Upon approval by the appropriate regulatory authorities, including in some countries approval of product pricing, we may commence commercial marketing and distribution of the product.

We group our research and development, or R&D, expenses into two major categories: direct external expenses and all other R&D expenses.  Direct external expenses consist of costs of outside parties to conduct laboratory studies, to develop manufacturing processes and manufacture product candidates, to conduct and manage clinical trials and similar costs related to our clinical and preclinical studies.  These costs are accumulated and tracked by product candidate.  All other R&D expenses consist of costs to compensate personnel, to purchase lab supplies and services, to lease, operate and maintain our facility, equipment and overhead and similar costs of our research and development efforts.  These costs apply to work on our clinical and preclinical candidates as well as our discovery research efforts.  These costs have not been tracked by product candidate because the number of product candidates and projects in R&D may vary from time to time and because we utilize internal resources across multiple projects at the same time.

36
Direct external expenses are further categorized as costs for clinical programs and costs for preclinical programs.  Preclinical programs include product candidates undergoing toxicology, pharmacology, metabolism and efficacy studies and manufacturing process development required before testing in humans can begin.  Product candidates are designated as clinical programs once we have filed an IND with the FDA, or a similar filing with regulatory agencies outside the United States, for the purpose of commencing clinical trials in humans.

Our R&D expenses for 2008 as compared to 2007 were as follows:

   
Year ended December 31,
    
Increase /
  
In thousands
  
2008
    
2007
    
(decrease)
  
Direct external expenses:
                  
Clinical programs
   $ 24,168     $ 10,026     $ 14,142  
Preclinical programs
     ---       3,881       (3,881 )
All other R&D expenses
     26,673       25,658       1,015  
    $ 50,841     $ 39,565     $ 11,276  

In 2008, our clinical programs consisted of our development of deforolimus, for which we initiated clinical development in 2003, and of AP24534, for which we initiated clinical development in 2008.  Prior to 2008, we classified AP24534 as a preclinical program.

Direct external expenses for deforolimus were $20.4 million in 2008, an increase of $10.4 million, as compared to the corresponding period in 2007.  This increase is due to an increase in clinical trial costs of $9.8 million, costs of non-clinical studies of $3.6 million and manufacturing costs of $1.9 million in 2008 as compared to 2007, offset in part by an increase in Merck’s share of expenses of $10.4 million in 2008.  In addition, costs for Merck’s services provided to the collaboration increased by $4.5 million in 2008 as compared to 2007.  Clinical trial costs and contract manufacturing costs increased due primarily to increasing enrollment in our Phase 3 clinical trial of deforolimus in patients with metastatic sarcomas and initiation of enrollment in 2008 in Phase 2 clinical trials of deforolimus in patients with breast cancer and endometrial cancer.  Costs of non-clinical studies increased due to the initiation and conduct of toxicology studies of deforolimus required to support regulatory filings with the FDA.  We expect our direct external expenses for deforolimus will increase in 2009 due to initiation of and enrollment of patients in new clinical trials as well as ongoing enrollment in existing clinical trials for this product candidate.

Direct external expenses for our second clinical program, AP24534, were $3.7 million in 2008, which consisted primarily of clinical trial costs of $923,000, toxicology costs of $812,000 and contract manufacturing costs of $1.8 million as we initiated enrollment in our first Phase 1 clinical trial of this product candidate.  We expect our direct external expenses for AP24534 will increase in 2009 as we continue to enroll patients in our Phase 1 trial and perform related manufacturing and non-clinical studies for this product candidate.

We incurred no direct external expenses for preclinical programs in 2008 as, during that year, no R&D programs were designated as preclinical programs.  All programs other than clinical and preclinical programs are designated as discovery research and are included in “all other R&D expenses” in the above table.  Direct external expenses for preclinical programs for the period ended December 31, 2007 relate primarily to costs for toxicology and contract manufacturing studies for AP24534 in support of the filing of the IND for this product candidate in late 2007.  We expect to nominate our next clinical candidate, an anaplastic lymphoma kinase, or ALK, inhibitor, and move it into preclinical testing in 2009.  The direct external expenses to be incurred in 2009 upon nomination of this clinical candidate will be reflected in this analysis as a preclinical program.

37
All other R&D expenses increased by $1.0 million in 2008 as compared to 2007.  This increase is due primarily to an increase in personnel expenses of $3.1 million, related to the hiring of additional R&D personnel and related expenses ($3.9 million) offset in part by reduced stock-based compensation expense ($796,000) resulting from previous year stock-option awards fully vested prior to 2008 and forfeitures in 2008, and an increase in overhead expenses of $1.8 million due to the expiration of a sub-lease agreement for a portion of our office and laboratory facility in July 2007, as well as miscellaneous increases in lab supplies and services and professional services.  These variances were offset in part by an increase in Merck’s allocated share of such expenses under the terms of the collaboration agreement of $5.3 million in 2008.  We expect that all other R&D expenses will increase in 2009 in support of continuing discovery research and product development activities.

The successful development of our product candidates is uncertain and subject to a number of risks.  We cannot be certain that any of our product candidates will prove to be safe and effective or will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval.  Data from preclinical studies and clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory clearance.  We, the FDA or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our products under development.  Delays or rejections may be encountered based on additional governmental regulation, legislation, administrative action or changes in FDA or other regulatory policy during development or the review process.  Other risks associated with our product development programs are described in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.  Due to these uncertainties, accurate and meaningful estimates of the ultimate cost to bring a product to market, the timing of completion of any of our drug development programs and the period in which material net cash inflows from any of our drug development programs will commence are unavailable.

General and Administrative Expenses

General and administrative expenses increased by $3.4 million, or 14 percent, from $24.7 million in 2007 to $28.1 million in 2008.  Professional fees increased by $2.1 million to $18.9 million in 2008 as compared to $16.8 million in 2007, due primarily to costs related to corporate and commercial development initiatives, including costs related to the development of systems and processes to support growth, and to our patent infringement litigations against Eli Lilly and Company, or Lilly, and Amgen Inc., or Amgen.  Personnel and related costs increased by $1.8 million due to an increase in the number of personnel and salary adjustments ($2.1 million), offset in part by reduced stock-based compensation expense ($349,000) resulting from previous year stock-option awards fully vested prior to 2008 and forfeitures in 2008.  These increases were partially offset by an increase in Merck’s allocated share of such expenses under the terms of the collaboration agreement.  We expect that our general and administrative expenses will decrease in 2009 reflecting primarily an expected decrease in activity related to our patent infringement litigation and certain corporate initiatives.

We expect that our operating expenses in total, net of Merck’s share of development costs of deforolimus, will increase in 2009 for the reasons described above.  Operating expenses may fluctuate from quarter to quarter.  The actual amount of any increase in operating expenses will depend on, among other things,  the progress of our product development programs, including the planned increase in clinical trials and other studies related to deforolimus pursuant to our collaboration with Merck, product manufacturing and increased clinical trials related to AP24534, and developments in our patent infringement litigation.

Interest Income / Expense

Interest income decreased by 46 percent to $1.3 million in 2008 from $2.5 million in 2007, as a result of lower interest yields from our cash equivalents and marketable securities and a lower average balance of funds invested in 2008.

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Interest expense increased by 63 percent to $550,000 in 2008 from $337,000 in 2007, due to higher average loan balances in 2008, as a result of our amendment of our loan agreement in March 2008 which, among other things, provided us an additional $10 million in loan proceeds, offset in part by lower interest rates in 2008.

Operating Results

We reported a loss from operations of $71.9 million in 2008 compared to a loss from operations of $60.7 million in 2007, an increase in loss of $11.2 million, or 18 percent.  We also reported a net loss of $71.1 million in 2008 compared to a net loss of $58.5 million in 2007, an increase in net loss of $12.5 million or 21 percent, and a net loss per share of $1.02 and $0.86, in 2008 and 2007, respectively.  Such increases were due primarily to the net effect of changes in R&D expenses and general and administrative expenses noted above.  We expect that our loss from operations and our net loss in 2009 will increase as compared to 2008 due to the various factors described under “Revenue” and “Operating Expenses” above.  Actual losses will depend on the progress of our product development programs, the progress of our discovery research programs, the impact of commercial and business development activities and developments in our legal proceedings, among other factors.  The extent of such losses will also depend on the sufficiency of funds on hand or available from time to time, which will influence the amount we will spend on operations and capital expenditures, as well as the development timelines for our product candidates.

Years Ended December 31, 2007 and 2006

Revenue

We recognized license and collaboration revenue of $3.6 million for the year ended December 31, 2007 compared to $896,000 for the year ended December 31, 2006.  The increase in license and collaboration revenue was due primarily to the revenue recognized from the Merck collaboration, based on the non-refundable up-front and milestone payments, totaling $88.5 million, paid by Merck in the third and fourth quarters of 2007, in accordance with our revenue recognition policy.

Operating Expenses

Research and Development Expenses

Research and development expenses decreased by $3.7 million, or 9 percent, to $39.6 million in 2007, compared to $43.3 million in 2006, as follows:

   
Year ended December 31,
    
Increase /
  
In thousands
  
2007
    
2006
    
(decrease)
  
Direct external expenses:
                  
Clinical programs
   $ 10,026     $ 15,584     $ (5,558 )
Preclinical programs
     3,881       843       3,038  
All other R&D expenses
     25,658       26,885       (1,227 )
    $ 39,565     $ 43,312     $ (3,747 )

Deforolimus was our only clinical program in 2007 and 2006.  Commencing in the third quarter of 2007, the direct external expenses for deforolimus reflect our share of such expenses pursuant to the cost-sharing arrangements of our collaboration with Merck.  Direct external expenses for deforolimus decreased by $5.6 million in 2007 as compared to 2006 due primarily to the impact of Merck’s share of such expenses in 2007 of $4.2 million, plus lower clinical trial and manufacturing costs related to a lower number of patients in trials in 2007 as compared to 2006.

Our preclinical program in 2007 and 2006 consisted of our second product candidate, AP24534, for which we filed an IND in late 2007.  Direct external expenses on preclinical programs will increase or decrease over time depending on the status and number of programs in this stage of development and the mix between external and internal efforts applied to such programs.  Direct external expenses for preclinical programs increased by $3.0 million in 2007 as compared to 2006 due primarily to the cost of certain toxicology studies and contract manufacturing we conducted for AP24534 in 2007 in support of the filing of the IND for this product candidate in the fourth quarter of 2007.

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All other R&D expenses decreased by $1.2 million in 2007 as compared to 2006 due to the impact of Merck’s allocated share of such expenses of $2.2 million, and a decrease in depreciation and amortization expenses of $2.2 million reflecting an increase in the useful life of leasehold improvements upon the extension of the term of the lease of our laboratory and office facility.  These favorable variances were partially offset by an increase in personnel expenses of $1.3 million, primarily related to stock-based compensation expense of $797,000 resulting from grants of stock options in 2007 and an increase in the number of personnel and related expenses of $515,000, an increase in overhead expenses of $1.2 million due to the expiration of a sub-lease agreement for a portion of our office and laboratory facility in July 2007 and increases in other miscellaneous expenses, including maintenance and travel.

General and Administrative Expenses

General and administrative expenses increased by $3.5 million, or 16 percent, from $21.3 million in 2006 to $24.7 million in 2007.  Professional fees increased by $3.3 million to $16.8 million in 2007 as compared to $13.5 million in 2006 due primarily to costs related to corporate and business development initiatives and to our patent infringement litigations against Eli Lilly and Company, or Lilly, and Amgen Inc., or Amgen, respectively.  Personnel and related costs increased by $1.1 million due to an increase in the number of personnel and salary adjustments ($365,000) and stock-based compensation expense ($633,000) resulting from grants of stock options in 2007.  These increases were partially offset by decreases in miscellaneous expenses, including taxes and travel.

Interest Income / Expense

Interest income increased by 13 percent to $2.5 million in 2007 from $2.2 million in 2006, due to a higher average balance of funds invested in 2007, offset in part by lower interest yields from our cash equivalents and marketable securities in 2007.

Interest expense decreased by 30 percent to $337,000 in 2007 from $483,000 in 2006, as a result of lower interest rates and lower average loan balances in 2007 compared to 2006.

Operating Results

We reported a loss from operations of $60.7 million in 2007 compared to a loss from operations of $63.7 million in 2006, a decrease in loss of $3.0 million, or 5 percent.  We also reported a net loss of $58.5 million in 2007 compared to a net loss of $61.9 million in 2006, a decrease in net loss of $3.4 million or 5 percent, and a net loss per share of $0.86 and $0.99, in 2007 and 2006, respectively.  Such decreases were due primarily to the net effect of changes in R&D expenses and general and administrative expenses noted above and the increase in license and collaboration revenue of $2.7 million as a result of the Merck collaboration.

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Selected Quarterly Financial Data

Summarized unaudited quarterly financial data are as follows:

   
2008
  
In thousands, except per share amounts
  
First
    
Second
    
Third
    
Fourth
  
                         
Total license and collaboration revenue
   $ 1,495     $ 1,450     $ 1,536     $ 2,601  
Net loss
     (17,011 )     (17,267 )     (19,993 )     (16,781 )
Net loss per share
     (0.25 )     (0.25 )     (0.29 )     (0.24 )

   
2007
  
In thousands, except per share amounts
  
First
    
Second
    
Third
    
Fourth
  
                         
Total license and collaboration revenue
   $ 190     $ 189     $ 1,602     $ 1,602  
Net loss
     (14,951 )     (17,005 )     (10,850 )     (15,716 )
Net loss per share
     (0.23 )     (0.25 )     (0.16 )     (0.23 )

Liquidity and Capital Resources

We have financed our operations and investments to date primarily through sales of our common stock to institutional investors and, to a lesser extent, through issuances of our common stock pursuant to our stock option and employee stock purchase plans, supplemented by the issuance of long-term debt.  We sell securities and incur debt when the terms of such transactions are deemed favorable to us and as necessary to fund our current and projected cash needs.  Our collaboration with Merck for the development and commercialization of deforolimus provides for additional funding in the form of up-front and potential milestone payments, as well as the sharing of development costs for deforolimus.  We seek to balance the level of cash, cash equivalents and marketable securities on hand with our projected needs and to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms.

Sources of Funds

During the years ended December 31, 2008, 2007 and 2006, our sources of funds were as follows:

In thousands
  
2008
    
2007
    
2006
  
Up-front payment from Merck, included in cash provided by operating activities
         $ 75,000        
Maturities of marketable securities, net of purchases
   $ 2,902       (8,460 )   $ 49,642  
Proceeds from long-term borrowings
     10,505                  
Sales/issuances of common stock:
                        
In common stock offerings
             12,300       14,271  
Pursuant to stock option and employee stock purchase plans
     385       2,071       1,955  
    $ 13,792     $ 80,911     $ 65,868  

Our up-front payment from Merck of $75 million was received pursuant to our collaboration agreement for the development and commercialization of deforolimus.  This up-front payment is included in cash provided by operating activities in our consolidated statement of cash flows for the year ended December 31, 2007 but is presented separately in this analysis due to the non-recurring nature of this payment.  The agreement also provides for, among other things, the payment by Merck of up to $452 million in development and regulatory milestones during the remaining development of deforolimus, including $31.0 million in milestone payments received through December 31, 2008 related to the start of various Phase 2 and the Phase 3 clinical trials, and up to $200 million based on the achievement of specified product sales thresholds.  Milestone payments, including the $31.0 million in payments referred to above, are reflected as a reduction of cash used in operating activities in ”Uses of Funds” later in this analysis.

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We manage our marketable securities portfolio to provide cash for payment of our obligations.  We purchase marketable securities to enhance our yield on invested funds and when such amounts are not needed for near-term payment of obligations.  We generally hold our marketable securities to maturity.  Upon maturity of such marketable securities, a portion may be retained as cash to provide for payment of current obligations while the remainder will be reinvested in accordance with our investment policy.  For the years ended December 31, 2008, 2007 and 2006, proceeds from maturities of marketable securities, purchases of marketable securities and the resulting net amount retained as cash for payment of obligations or reinvested were as follows:

In thousands
  
2008
    
2007
    
2006
  
Proceeds from maturities of marketable securities
   $ 60,168     $ 59,197     $ 92,561  
Purchases of marketable securities
     (57,266 )     (67,657 )     (42,919 )
    $ 2,902     $ (8,460 )   $ 49,642  

The amount of funding we raise through sales of our common stock depends on many factors, including, but not limited to, the status and progress of our product development programs, projected cash needs, availability of funding from other sources, our stock price and the status of the capital markets.  In 2006 and 2007, we completed sales of our common stock for net proceeds of $14.3 million and $12.3 million, respectively.  We had no common stock financings in 2008.  The following table details our common stock sales in 2006 and 2007:

   
Number of Shares
    
Price Per Share
    
Net Cash Proceeds
  
               
In thousands
  
October, 2006
     3,112,945     $ 4.65     $ 14,271  
                         
March, 2007
     3,072,393     $ 4.07     $ 12,300  

We have filed shelf registration statements with the SEC, from time to time, to register shares of our common stock or other securities for sale, giving us the opportunity to raise funding when needed or otherwise considered appropriate.  On January 30, 2007, we filed a shelf registration statement with the SEC for the issuance of common stock, preferred stock, various series of debt securities and/or warrants to purchase any of such securities, either individually or in units, with a total value of up to $100 million, from time to time at prices and on terms to be determined at the time of any such offerings.  This filing was declared effective on February 6, 2007.

In March 2007, we sold 3,072,393 shares of our common stock to Azimuth Opportunity Ltd. pursuant to an equity financing facility between the parties dated February 14, 2007.  We received aggregate gross proceeds from this sale of $12.5 million, or $12.3 million net of issuance expenses.  These shares were registered under our shelf registration statement filed on January 30, 2007.  The equity financing facility expired on September 1, 2008.  Following this sale, and as of December 31, 2008, we had $87.5 million of securities available for sale under our shelf registration statement.

In March 2008, we amended our existing term loan with a bank.  The amendment provided for an increase of $10.5 million in our loan balance to $14.0 million, the extension of the maturity date from March 31, 2008 to March 31, 2013, and changes to the repayment provisions.  The amended terms of the loan require us to maintain at least $15.0 million in unrestricted cash, cash equivalents and investments.  The agreement also contains certain covenants that restrict additional indebtedness, additional liens, and sales of assets, and dividends, distributions or repurchases of common stock.  At December 31, 2008, the balance outstanding on our term loan agreement was $13.0 million.

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Uses of Funds

The primary uses of our cash are to fund our operations and working capital requirements and, to a lesser degree, to repay our long-term debt, to invest in intellectual property and to invest in our property and equipment as needed for our business.  Our uses of cash during the years ended December 31, 2008, 2007 and 2006 were as follows:

In thousands
  
2008
    
2007
    
2006
  
Net cash (provided by) used in operating activities
   $ 48,522     $ (33,988 )   $ 56,038  
Less up-front payment from Merck
     ---       75,000       ---  
Adjusted net cash used in operating activities
     48,522       41,012       56,038  
Repayment of long-term borrowings
     1,370       1,920       1,920  
Investment in intangible assets
     1,091       497       568  
Investment in property and equipment
     6,651       1,346       1,067  
    $ 57,634     $ 44,775     $ 59,593  

Net cash (provided by) used in operating activities is comprised of our net losses, adjusted for non-cash expenses, deferred revenue, including deferrals of the up-front and milestone payments received from Merck, and working capital requirements.   Adjusted net cash used in operating activities excludes the favorable impact of the non-recurring, up-front payment from Merck of $75.0 million in the third quarter of 2007 pursuant to our collaboration agreement.  As noted above, our net loss increased in 2008, due primarily to the increased costs of advancing our product candidates through clinical phases of development, expansion of business and commercial development initiatives and patent litigation, and decreased in 2007, due primarily to the favorable impacts of the Merck collaboration.  Our adjusted net cash used in operating activities as presented above varied from year to year for the same reasons, including the favorable impact of milestone payments received from Merck of $13.5 million in 2007 and $17.5 million in 2008.  As noted above, we expect that our net loss will increase in 2009 due to ongoing development of our product candidates.  However, we expect that our milestone payments from Merck related to development of deforolimus will also increase and such increase will more than offset the impact of the increase in net loss on our cash used in operating activities.  Thus, we expect that our net cash used in operating activities will decrease in 2009 when compared to 2008.  We expect that our investment in intangible assets, consisting of our intellectual property will increase in 2009 in support of our product development activities.  We also expect that our investment in property and equipment will decrease in 2009 due to completion of certain renovations in 2008 and fewer needs for replacement of equipment in 2009.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities for financial partnerships, such as entities often referred to as structured finance or special purpose entities which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As of December 31, 2008, we maintained an outstanding letter of credit of $699,000 in accordance with the terms of our long-term lease for our office and laboratory facility.

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Contractual Obligations

We have substantial fixed contractual obligations under various research and licensing agreements, consulting and employment agreements, lease agreements and long-term debt agreement.  These contractual obligations were comprised of the following as of December 31, 2008:

In thousands
  
Payments Due By Period
  
   
 
Total
    
In 2009
    
2010
through
2012
    
2013
through
2014
    
After 2014
  
Long-term debt
   $ 12,950     $ 1,400     $ 10,325     $ 1,225     $ ---  
Operating leases
     7,660       2,161       5,499       ---       ---  
Employment agreements
     15,494       5,637       9,249       608       ---  
Other long-term obligations
     4,399       1,116       2,297       591       395  
    $ 40,503     $ 10,314     $ 27,370     $ 2,424     $ 395  
 
Long-term debt consists of scheduled principal payments on such debt.  Interest on our long-term debt is based on variable interest rates.  Assuming a constant interest rate of 3.65 percent, the interest rate on our debt at December 31, 2008, over the remaining term of the debt, our interest expense would total approximately $447,000 in 2009.

Other long-term obligations are comprised primarily of obligations under our deferred executive compensation plans and license agreements.  The license agreements generally provide for payment by us of annual license fees, milestone payments and royalties upon successful commercialization of products.  All license agreements are cancelable by us.  The above table reflects remaining license fees for the lives of the agreements but excludes milestone and royalty payments, as such amounts are not probable or estimable at this time.

Liquidity

At December 31, 2008, we had cash, cash equivalents and marketable securities totaling $39.1 million and working capital of $14.2 million, compared to cash, cash equivalents and marketable securities totaling $85.2 million and working capital of $64.6 million at December 31, 2007.  The decrease in cash, cash equivalents, and marketable securities and working capital is primarily attributable to operating losses and changes in working capital requirements.

On February 25, 2009, we raised net proceeds of $22.8 million from the sale of 14,378,698 shares of our common stock and warrants to purchase 10,784,024 shares of our common stock from our existing shelf registration statement.  Following this transaction, we have approximately $40.0 million of securities remaining available for issuance under our existing shelf registration statement.

Based on our current operating plans, including the continued clinical development of deforolimus, in conjunction with Merck, and AP24534, we expect to incur a net loss for the year ending December 31, 2009 in the range of $78 million to $82 million.  In addition, we expect to receive approximately $50 million in milestone payments from Merck in 2009 related to the start of various Phase 2 and Phase 3 clinical trials of deforolimus.  Accordingly, we expect to report cash used in operating activities for the year ending December 31, 2009 in the range of $24 million to $28 million.  While we believe that the milestone payments from Merck will be received as forecasted, we do have contingency plans in place should the receipt of the milestone payments be deferred into the first part of 2010, which plans focus on the reduction of spending on non-critical research and development activities.  Based on these plans and projections, we believe that our cash, cash equivalents and marketable securities on hand at December 31, 2008 and the $22.8 million in net proceeds raised in February 2009 are sufficient to fund our operations through at least the next twelve months.

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There are numerous factors that are likely to affect our spending levels, including the extent of clinical trials and other development activities for deforolimus in collaboration with Merck, the timing and amount of milestone payments to be received from Merck, the rate of enrollment of patients in clinical trials for deforolimus and AP24534, the progress of our discovery research and preclinical programs, the impact of potential business development activities, and developments in our NF-κB patent litigation and reexamination proceedings, among other factors.  These variables could result in higher or lower spending levels which could impact the sufficiency of our current funds if we are to continue operations in accordance with our current plans and achieve our intended timelines for development.  In any event, we will require substantial additional funding for our R&D programs, including preclinical development and clinical trials, for operating expenses, including intellectual property protection and enforcement, for the pursuit of regulatory approvals, and for establishing manufacturing, marketing and sales capabilities.  In order to fund our needs, we may, among other things, (1) sell our securities through public or private offerings as market conditions permit, (2) enter into new long-term debt or other credit agreements, (3) enter into or amend partnership agreements for development and commercialization of our product candidates, and/or (4) license our cell-signaling technologies, including our ARGENT and NF-κB intellectual property portfolios.  

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

There can be no assurance that additional funds will be available when we need them on terms that are acceptable to us, or at all.  If adequate funds are not available to us on a timely basis, we may be required to: (1) delay, limit, reduce or terminate preclinical studies, clinical trials or other clinical development activities for one or more of our product candidates; (2) delay, limit, reduce or terminate our discovery research or preclinical development activities; or (3) delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Recently Adopted or Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157 (“SFAS No. 157”), Fair Value Measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS No. 157 as of January 1, 2008, for financial instruments. Although the adoption of SFAS No. 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.  A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company's marketable securities are classified as available for sale and are stated at fair value based on quoted market prices, which are considered Level 1 inputs within the fair value hierarchy.

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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides companies with the option to measure specified financial instruments and certain other items at fair value.  SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  The Company did not elect to apply the fair value method to any of its financial instruments at January 1, 2008.

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.  EITF No. 07-3 states that nonrefundable advance payments for goods or services that will be used for future research and development activities should be deferred and capitalized and that such amounts should be recognized as an expense as the goods are delivered or the services are performed.  EITF No. 07-3 is effective for fiscal years beginning after December 15, 2007.  The adoption of EITF No. 07-3 did not have a material impact on the Company’s financial statements.

In December 2007, the EITF issued EITF No. 07-1, Accounting for Collaborative Arrangements.  EITF No. 07-1 provides guidance on the determination of a collaborative arrangement, reporting of costs incurred and revenue generated on sales to third parties in the statement of operations, and classification of payments made between participants in a collaborative arrangement in the statement of operations.  EITF No. 07-1 is effective for fiscal years beginning after December 15, 2008.  The adoption of this EITF is not expected to have a material impact on the Company’s financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which requires companies, in estimating the useful life of a recognized intangible asset, to consider the company’s historical experience in renewing or extending similar arrangements.  In the absence of historical experience, the company shall consider assumptions that market participants would use that are consistent with the highest and best use of the asset. FSP No. FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  The Company does not expect the impact of FSP No. FAS 142-3 to have a material impact on its consolidated financial statements.


We invest our available funds in accordance with our investment policy to preserve principal, maintain proper liquidity to meet operating needs and maximize yields.  Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.

We invest cash balances in excess of operating requirements first in short-term, highly liquid securities, with original maturities of 90 days or less, and money market accounts.  Depending on our level of available funds and our expected cash requirements, we may invest a portion of our funds in marketable securities, consisting generally of corporate debt and U.S. government and agency securities.  Maturities of our marketable securities are generally limited to periods necessary to fund our liquidity needs and may not in any case exceed three years.  These securities are classified as available-for-sale.  Available-for-sale securities are recorded on the balance sheet at fair market value with unrealized gains or losses reported as a separate component of stockholders' equity (accumulated other comprehensive income or loss).  Realized gains and losses on marketable security transactions, if any, are reported on the specific-identification method.  Interest income is recognized when earned.  A decline in the market value of any available-for-sale security below cost that is deemed other than temporary results in a charge to earnings and establishes a new cost basis for the security.

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Our investments are sensitive to interest rate risk.  We believe, however, that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations and cash flows generally would not be material due to the current short-term nature of these investments.  In particular, at December 31, 2008, because our available funds were invested solely in cash equivalents and short-term marketable securities with maturities of six months or less, our risk of loss due to changes in interest rates is not material.

We have a deferred executive compensation plan which provides participants with deferred compensation based on the value of certain designated mutual funds.  The fair value of our obligations under this program is reflected as a liability on our balance sheet.  In the event of a hypothetical 10 percent increase in the fair market value of the underlying mutual funds as of December 31, 2008, we would have incurred approximately $191,000 of additional compensation expense for the year ended December 31, 2008.

At December 31, 2008, we had $13.0 million outstanding under a bank term note which bears interest at prime or, alternatively, LIBOR +1.25 to 2.25 percent.  This note is sensitive to changes in interest rates.  In the event of a hypothetical 10 percent increase in the interest rate on which the loan is based (36.5 basis points at December 31, 2008), we would incur approximately $45,000 of additional interest expense per year based on expected balances over the next twelve months.

Certain Factors That May Affect Future Results of Operations

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions.  This Annual Report on Form 10-K contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements may be made directly in this Annual Report, and they may also be made a part of this Annual Report by reference to other documents filed with the SEC, which is known as "incorporation by reference."  Such  statements in connection with any discussion of future operating or financial performance are identified by use of words such as "may," "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning.  Such statements are based on management's expectations and are subject to certain factors, risks and uncertainties that may cause actual results, outcome of events, timing and performance to differ materially from those expressed or implied by such forward-looking statements.  These risks include, but are not limited to, the costs associated with our research, development, manufacturing and other activities, the conduct and results of preclinical and clinical studies of our product candidates, difficulties or delays in obtaining regulatory approvals to market products resulting from our development efforts, our reliance on our strategic partners and licensees and other key parties for the successful development, manufacturing and commercialization of products, the adequacy of our capital resources and the availability of additional funding, patent protection and third-party intellectual property claims relating to our and any partner's product candidates, the timing, scope, cost and outcome of legal proceedings, future capital needs, risks related to key employees, markets, economic conditions, prices, reimbursement rates and competition, and other factors.  Please also see the discussion under “Risk Factors” in Part I, Item 1A appearing elsewhere in this Annual Report on Form 10-K for more details regarding these and other risks.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Annual Report or in any document incorporated by reference might not occur.  Stockholders are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference in this Annual Report.  We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.  All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
 
47
Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on our assessment we believe that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

Deloitte & Touche LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2008, which is included below.

48
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
ARIAD Pharmaceuticals, Inc.
Cambridge, Massachusetts

We have audited the internal control over financial reporting of ARIAD Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2008 of the Company and our report dated March 12, 2009 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 12, 2009
 
49

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
ARIAD Pharmaceuticals, Inc.
Cambridge, Massachusetts

We have audited the accompanying consolidated balance sheets of ARIAD Pharmaceuticals, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ARIAD Pharmaceuticals, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2009 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 12, 2009
 
50
 ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
December 31,
  
In thousands, except share and per share data
  
2008
    
2007
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
   $ 24,243     $ 67,864  
Marketable securities (Note 4)
     14,825       17,334  
Inventory and other current assets
     4,055       2,374  
Amounts due under collaboration agreement (Note 2)
     5,580       4,588  
Total current assets
     48,703       92,160  
Property and equipment:
                
Leasehold improvements
     22,004       18,400  
Equipment and furniture
     14,991       11,749  
Total
     36,995       30,149  
Less accumulated depreciation and amortization
     (27,402 )     (25,134 )
Property and equipment, net
     9,593       5,015  
Intangible and other assets, net (Note 5)
     9,892       3,930  
Total assets
   $ 68,188     $ 101,105  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
            
Current liabilities:
            
Accounts payable
   $ 9,370     $ 5,049  
Current portion of long-term debt (Note 6)
     1,400       3,815  
Accrued compensation and benefits
     817       523  
Accrued product development expenses
     9,936       7,287  
Other accrued expenses
     3,990       4,331  
Current portion of deferred executive compensation (Note 7)
     941       745  
Current portion of deferred revenue (Note 2)
     6,982       5,819  
Current portion of capital lease payable
     70       ---  
Accrued merger consideration (Note 3)
     1,023       ---  
Total current liabilities
     34,529       27,569  
Long-term debt (Note 6)
     11,550       ---  
Capital lease payable
     72       ---  
Deferred revenue (Note 2)
     90,282       80,026  
Deferred executive compensation (Note 7)
     953       1,410  
Commitments and contingent liabilities (Notes 1, 8, 13)
                
Stockholders’ equity (deficit) (Notes  9, 10 and 11):
                
Preferred stock, $.01 par value, authorized 10,000,000 shares, none issued and outstanding
                
Common stock, $.001 par value, authorized 145,000,000 shares, issued and outstanding 71,365,339 shares in 2008, 69,241,490 shares in 2007
     71       69  
Additional paid-in capital
     369,313       359,576  
Accumulated other comprehensive income
     18       3  
Accumulated deficit
     (438,600 )     (367,548 )
Total stockholders’ equity (deficit)
     (69,198 )     (7,900 )
Total liabilities and stockholders’ equity (deficit)
   $ 68,188     $ 101,105  
 
See notes to consolidated financial statements.
 
51
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Years Ended December 31,
  
In thousands, except share and per share data
  
2008
    
2007
    
2006
  
                   
License and collaboration revenue (Note 2)
   $ 7,082     $ 3,583     $ 896  
Operating expenses:
                        
Research and development
     50,841       39,565       43,312  
General and administrative
     28,092       24,712       21,251  
Operating expenses
     78,933       64,277       64,563  
Loss from operations
     (71,851 )     (60,694 )     (63,667 )
Other income (expense):
                        
Interest income
     1,349       2,509       2,222  
Interest expense
     (550 )     (337 )     (483 )
Other income, net
     799       2,172       1,739  
Net loss
   $ (71,052 )   $ (58,522 )   $ (61,928 )
                         
Net loss per share
   $ (1.02 )   $ (0.86 )   $ (0.99 )
                         
Weighted average number of shares of common stock outstanding
     69,790,784       68,215,803       62,679,807  
 
See notes to consolidated financial statements.
 
52
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2006, 2007 and 2008
 
                           
Accumulated
              
               
Additional
          
Other
          
Stockholders’
  
   
Common Stock
    
Paid-in
    
Deferred
    
Comprehensive
    
Accumulated
    
Equity
  
In thousands, except share data
  
Shares
    
Amount
    
Capital
    
Compensation
    
Income (Loss)
    
Deficit
    
(Deficit)
  
                                           
Balance, January 1, 2006
     61,698,129     $ 62     $ 318,684     $ (246 )   $ (24 )   $ (247,098 )   $ 71,378  
Issuance of common stock, net of issuance costs
     3,112,945       3       14,268                               14,271  
Issuance of shares pursuant to ARIAD stock plans
     580,273               1,955                               1,955  
Stock-based compensation
                     4,559                               4,559  
Elimination of deferred compensation
                     (246 )     246                          
Comprehensive loss:
                                                        
Net loss
                                             (61,928 )     (61,928 )
Other comprehensive income (loss)
                                                        
          Net unrealized gains on marketable securities
                                     27               27  
Comprehensive loss
                                                           (61,901 )
Balance, December 31, 2006
     65,391,347       65       339,220       0       3       (309,026 )     30,262  
                                                         
Issuance of common stock, net of issuance costs
     3,072,393       3       12,297                               12,300  
Issuance of shares pursuant to ARIAD stock plans
     777,750       1       2,070                               2,071  
Stock-based compensation
                     5,989                               5,989  
Comprehensive loss:
                                                        
Net loss
                                                  (58,522 )     (58,522 )
Balance, December 31, 2007
     69,241,490       69       359,576       0       3       (367,548 )     (7,900 )
                                                         
Issuance of shares pursuant to ARIAD stock plans
     324,573               385                               385  
Issuance of shares to minority shareholders of AGTI
     1,799,276       2       4,601                               4,603  
Stock-based compensation
                     4,751                               4,751  
Comprehensive loss:
                                                        
Net loss
                                             (71,052 )     (71,052 )
Other comprehensive income (loss)
                                                        
          Net unrealized gains on marketable securities
                                     15               15  
Comprehensive loss
                                                           (71,037 )
Balance, December 31, 2008
     71,365,339     $ 71     $ 369,313     $ 0     $ 18     $ (438,600 )   $ (69,198 )

See notes to consolidated financial statements.
 
53
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Years Ended December 31,
  
In thousands
  
2008
    
2007
    
2006
  
Cash flows from operating activities:
                  
Net loss
   $ (71,052 )   $ (58,522 )   $ (61,928 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                        
Depreciation and amortization
     3,016       2,307       4,634  
Accretion of discount on marketable securities
     (381 )     (798 )     (1,628 )
Stock-based compensation
     4,751       5,989       4,559  
Deferred executive compensation expense
     402       955       888  
Increase (decrease) from:
                        
Inventory and other current assets
     (1,681 )     (535 )     386  
Amounts due under collaboration agreement
     (992 )     (4,588 )        
Other assets
     7       (9 )     34  
Accounts payable
     4,321       1,046       42  
Accrued compensation and benefits
     294       95       (69 )
Accrued product development expenses
     2,649       675       (1,832 )
Other accrued expenses
     (341 )     2,490       (256 )
Deferred revenue
     11,419       85,391       (421 )
Deferred executive compensation paid
     (663 )     (508 )     (447 )
Net cash provided by (used in) operating activities
     (48,251 )     33,988       (56,038 )
Cash flows from investing activities:
                        
Acquisitions of marketable securities
     (57,264 )     (67,657 )     (42,919 )
Proceeds from maturities of marketable securities
     60,169       59,197       92,561  
Investment in property and equipment
     (6,651 )     (1,346 )     (1,067 )
Investment in intangible assets
     (1,091 )     (497 )     (568 )
Net cash provided by (used in) investing activities
     (4,837 )     (10,303 )     48,007  
Cash flows from financing activities:
                        
Proceeds from long-term borrowings
     10,505                  
Repayment of long-term borrowings
     (1,370 )     (1,920 )     (1,920 )
Proceeds from issuance of common stock, net of issuance costs
             12,300       14,271  
Principal payments under capital lease obligation
     (53 )                
Proceeds from issuance of common stock pursuant to stock option and purchase plans
     385       2,071       1,955  
Net cash provided by financing activities
     9,467       12,451       14,306  
Net increase (decrease) in cash and cash equivalents
     (43,621 )     36,136       6,275  
Cash and cash equivalents, beginning of year
     67,864       31,728       25,453  
Cash and cash equivalents, end of year
   $ 24,243     $ 67,864     $ 31,728  
Interest paid
   $ 511     $ 379     $ 517  
Supplemental disclosure on non-cash activities:
                        
Property and equipment acquired through capital lease
   $ 195     $ ---     $ ---  
 
See notes to consolidated financial statements.
 
54
ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  
Nature of Business and Summary of Significant Accounting Policies

Nature of Business

ARIAD’s vision is to transform the lives of cancer patients with breakthrough medicines.  The Company’s mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest and most urgent unmet medical need – aggressive cancers where current therapies are inadequate.  The Company’s goal is to build a fully integrated oncology company focused on novel, molecularly targeted therapies to treat solid tumors and hematologic cancers, as well as the spread of primary tumors to distant sites.  The Company’s lead cancer product candidate, deforolimus, previously known as AP23573, has been or is being studied in multiple clinical trials in patients with various types of cancers, including sarcomas, hormone refractory prostate cancer, endometrial cancer, brain cancer and leukemias and lymphomas.  The Company entered into a global collaboration in July 2007 with Merck & Co., Inc. (“Merck”) to jointly develop and commercialize deforolimus for use in cancer.  The Company also has partnerships with two medical device companies to develop and commercialize stents to deliver deforolimus to prevent restenosis, or reblockage, of injured vessels following interventions in which stents are used in conjunction with balloon angioplasty.  The Company’s second product candidate, AP24534, is in a Phase 1 clinical trial in patients with hematologic cancers.

The Company has a focused drug discovery program centered on small molecule, molecularly targeted therapies and cell-signaling pathways implicated in cancer.  The Company also has an exclusive license to pioneering technology and patents related to certain NF-κB cell-signaling activity, which may be useful in treating certain diseases.  Additionally, the Company has developed a proprietary portfolio of cell-signaling regulation technologies, the Company’s ARGENT technology, to control intracellular processes with small molecules, which may be useful in the development of therapeutic vaccines and gene and cell therapy products, and which provide versatile tools for use in cell biology, functional genomics and drug discovery research.

Since its inception, the Company has incurred significant operating losses related to its research and development programs and supporting activities.  The Company has funded its losses through the sale of equity securities, debt and cash received pursuant to collaboration agreements, including its collaboration agreement with Merck for the development and commercialization of deforolimus. At December 31, 2008, the Company had cash, cash equivalents and marketable securities totaling $39.1 million.  In February 2009, the Company raised net proceeds of $22.8 million from the sale of common stock and warrants to institutional investors (see Note 15).

The Company expects to incur a net loss in the range of $78 million to $82 million during the year ending December 31, 2009.  The Company also anticipates that it will receive approximately $50 million in milestone payments from Merck in 2009 related to the start of various Phase 2 and Phase 3 clinical trials of deforolimus, of which $22.5 million has been received or is expected to be received in the first half of the 2009 (see Note 2).  Accordingly, the Company expects to report cash used in operating activities for the year ending December 31, 2009 in the range of $24 million to $28 million.  While management believes that the milestone payments from Merck will be received as forecasted, it does have contingency plans in place should the receipt of the milestone payments be deferred into the first part of fiscal 2010, which plans focus primarily on the reduction of spending on non-critical research and development activities.  Based on these projections and its contingency plans, the Company believes that its cash, cash equivalents and marketable securities at December 31, 2008, together with the net proceeds of $22.8 million received in February 2009 from the sale of common stock and warrants  are sufficient to fund its anticipated spending through at least the next twelve months.

55
Principles of Consolidation

The consolidated financial statements include the accounts of ARIAD Pharmaceuticals, Inc. and its wholly-owned subsidiaries, ARIAD Corporation, ARIAD Pharma S.A. and ARIAD Pharma Ltd.  Intercompany accounts and transactions have been eliminated in consolidation.  Until September 12, 2008, the consolidated financial statements also included the accounts of ARIAD Gene Therapeutics, Inc. (“AGTI”), an 80 percent owned subsidiary of ARIAD Pharmaceuticals, Inc. which was merged with and into ARIAD Pharmaceuticals, Inc. on that date (see Note 3).

Fair Value of Financial Instruments

The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature.  Marketable securities are recorded in the consolidated financial statements at aggregate fair value (see Note 4).  The carrying amount of the Company’s bank term note of $13.0 million at December 31, 2008 approximates fair value due to its variable interest rate (see Note 6).  The Company’s obligation under its executive compensation plans (see Note 7) is based in part on the current fair market value of underlying securities, which is therefore stated at its estimated fair value.

Accounting Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosure of assets and liabilities at the date of the consolidated financial statements and the reported amounts and disclosure of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Cash Equivalents

Cash equivalents include short-term, highly liquid investments, which consist principally of United States government and agency securities, purchased with remaining maturities of 90 days or less, and money market accounts.

Marketable Securities

The Company has classified its marketable securities as “available-for-sale” and, accordingly, carries such securities at aggregate fair value.  The difference between fair value and original cost is reflected as a component of accumulated other comprehensive income (loss).  Fair value has been determined based on quoted market prices, in a dealer market, at the closing bid price for each individual security held.

Inventory

Inventory consists of bulk pharmaceutical material to be used for multiple development programs.  Inventories are carried at cost using the first-in, first-out method and are charged to research and development expense when consumed.  The carrying value of inventory amounted to $1.1 million and $1.3 million at December 31, 2008 and 2007, respectively.

56
Property and Equipment

Property and equipment are recorded at cost.  Depreciation is recorded using the straight-line method over the estimated useful lives of the assets (3 to 10 years).  Leasehold improvements are amortized over the shorter of their useful lives or lease term using the straight-line method.

Intangible and Other Assets

Intangible and other assets consist primarily of purchased technology and capitalized patent and license costs.  The cost of purchased technology, patents and patent applications, costs incurred in filing patents and certain license fees are capitalized.  Capitalized costs related to purchased technology are amortized over the estimated useful life of the technology.  Capitalized costs related to issued patents are amortized over a period not to exceed seventeen years or the remaining life of the patent, whichever is shorter, using the straight-line method.  Capitalized license fees are amortized over the periods to which they relate.  In addition, capitalized costs are expensed when it becomes determinable that the related patents, patent applications or technology will not be pursued.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including the above-mentioned intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Revenue Recognition

The Company generates revenue from license and collaboration agreements with third parties related to use of the Company’s technology and/or development and commercialization of product candidates.  Such agreements may provide for payment to the Company of up-front payments, periodic license payments, milestone payments and royalties.

The Company recognizes revenue in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, SAB No. 104, Revenue Recognition, and Emerging Issues Task Force (“EITF”) No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.  Revenue is recognized when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable and collection is reasonably assured.  Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered element has stand-alone value to the customer and whether there is objective and reliable evidence of the fair value of the undelivered items.  Consideration received is allocated to the separate units of accounting based on the fair value of each unit and the appropriate revenue recognition principles are applied to each unit.

Up-front and annual license fees associated with collaboration and license agreements are recorded as deferred revenue upon receipt and recognized as revenue on a systematic basis over the period of time they are earned in accordance with the terms of the agreements.  Milestone payments are also recognized as revenue on a systematic basis over the remaining performance period of the agreements, commencing when the milestone has been achieved or is probable of achievement.  Royalty payments will be recognized as revenue based on contract terms and reported sales of licensed products, when reported sales are reliably measurable and collectability is reasonably assured.

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Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future.  Such deferred income tax computations are based on enacted tax laws and rates applicable to the years in which the differences are expected to affect taxable income.  A valuation allowance is established when it is necessary to reduce deferred income tax assets to the expected realized amounts.

On January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), Accounting for Uncertainties in Income Taxes.  FIN 48 defines the threshold for recognizing the benefits of tax-return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authorities.  FIN 48 also requires explicit disclosure requirements about a company’s uncertainties related to its income tax positions, including a detailed roll-forward of tax benefits taken that do not quality for financial statement recognition.  Adoption of FIN 48 did not have a material impact on the Company’s financial statements.

Segment Reporting

The Company organizes itself into one segment reporting to the chief executive officer.  No revenues from product sales or services occurred in 2008, 2007 or 2006.

Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants and provides employees the right to purchase common stock (collectively “share-based payments”), pursuant to stockholder approved plans.  The Company accounts for stock options and other share-based payments in accordance with SFAS No. 123R, Share-Based Payment.

Under the provisions of SFAS No. 123R, the Company recognizes compensation expense in its financial statements associated with awards of stock options and other equity-based instruments to employees, directors and consultants.  Compensation cost is measured based on the fair value of the instrument on the grant date and is recognized on a straight-line basis over the requisite service period, which generally equals the vesting period.  All of the Company’s stock-based compensation is based on grants of equity instruments and no liability awards have been granted.

Earnings Per Share

Basic earnings per common share are computed using the weighted average number of common shares outstanding during each year.  Diluted earnings per common share reflect the effect of the Company’s outstanding options using the treasury stock method, except where such items would be anti-dilutive.  In years in which a net loss is reported, basic and diluted per share amounts are the same.  In 2008, 2007 and 2006, options amounting to 7,424,428, 7,568,044 and 6,571,341 shares of common stock, respectively, were not included in the computation of dilutive earnings per share, because the effect would be anti-dilutive.  There were no other potential common stock equivalents outstanding at December 31, 2008, 2007 or 2006.

Executive Compensation Plan

The Company maintains a deferred executive compensation plan, established in 1997 (the “1997 Plan”), which provides participants, in lieu of a cash bonus, an option to purchase certain designated mutual funds at a discount.  EITF No. 02-8, Accounting for Options Granted to Employees in Unrestricted, Publicly Traded Shares of an Unrelated Party, and SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities require that the Company account for such benefits as derivatives.  Under these pronouncements, the Company records the fair value of the awards as an asset and a liability and amortizes the asset to expense over the vesting period of the awards.  Subsequent changes in the fair value of the liability are included in the determination of net income or loss.

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The Company has a deferred executive compensation plan (the “2005 Plan”) that defers the payment of annual bonus awards to future periods as specified in each award.  The Company accrues a liability based on the value of the awards ratably over the vesting period.  The recorded balances of such awards are increased or decreased based on the actual total return and quoted market prices of specified mutual funds.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 157 (“SFAS No. 157”), Fair Value Measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. The Company has adopted the provisions of SFAS No. 157 as of January 1, 2008, for financial instruments. Although the adoption of SFAS No. 157 did not materially impact its financial condition, results of operations, or cash flow, the Company is now required to provide additional disclosures as part of its financial statements.

SFAS No. 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.  A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company's marketable securities are classified as available for sale and are stated at fair value based on quoted market prices which are considered Level 1 inputs within the fair value hierarchy.  There are no other financial assets or liabilities that are subject to fair value measurements under this pronouncement.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which provides companies with the option to measure specified financial instruments and certain other items at fair value.  SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.  The Company has not elected to apply the fair value method to any of its financial instruments.

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities.  EITF No. 07-3 states that nonrefundable advance payments for goods or services that will be used for future research and development activities should be deferred and capitalized and that such amounts should be recognized as an expense as the goods are delivered or the services are performed.  EITF No. 07-3 is effective for fiscal years beginning after December 15, 2007.  The adoption of EITF No. 07-3 did not have a material impact on the Company’s financial statements.

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In December 2007, the EITF issued EITF No. 07-1, Accounting for Collaborative Arrangements.  EITF No. 07-1 provides guidance on the determination of a collaborative arrangement, reporting of costs incurred and revenue generated on sales to third parties in the statement of operations, and classification of payments made between participants in a collaborative arrangement in the statement of operations.  EITF No. 07-1 is effective for fiscal years beginning after December 15, 2008.  The adoption of this EITF is not expected to have a material impact on the Company’s financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets, which requires companies, in estimating the useful life of a recognized intangible asset, to consider a company’s historical experience in renewing or extending similar arrangements.  In the absence of historical experience, a company shall consider assumptions that market participants would use that are consistent with the highest and best use of the asset. FSP No. FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years.  The Company does not expect the impact of FSP No. FAS 142-3 to have a material impact on its consolidated financial statements.

2.  
Collaboration Agreement with Merck & Co., Inc.

In July 2007, the Company entered into a collaboration agreement with Merck & Co., Inc. (“Merck”) for the joint global development and commercialization of deforolimus, the Company’s lead product candidate, for use in cancer (the “Collaboration Agreement”).

Under the terms of the Collaboration Agreement, Merck and the Company will conduct a broad-based development program in multiple types of cancer, pursuant to a global development plan agreed upon by the parties.  Each party will fund 50 percent of the global development costs, except that Merck will fund 100 percent of any cost of development that is specific to development or commercialization of deforolimus outside the United States.  The Collaboration Agreement provides that, in certain circumstances, either party may opt out of conducting and funding certain late-stage clinical trials, which would result in changes in development and commercialization responsibilities and compensation arrangements.  The Company is responsible for supplying the active pharmaceutical ingredient used in the product and Merck is responsible for the formulation of the finished product, all under a separate supply agreement between the parties entered into in May 2008.

The Collaboration Agreement provides that, in the United States, the Company and Merck will co-promote the product, the Company will distribute and sell the product for all cancer indications and record all sales, and each party will receive 50 percent of the profit from such sales.  Outside the United States, Merck will distribute, sell and promote the product and book all sales, and Merck will pay the Company tiered double-digit royalties on such sales.  Royalties are payable by Merck, on a country by country basis, until the later of (i) the expiration of the last valid claim of any patent rights owned by either the Company or Merck that cover the product, (ii) a specified number of years from first commercial sale, or (iii) the last date upon which the Company supplies the active pharmaceutical ingredient to Merck under the supply agreement, subject to partial reduction in certain circumstances.

Under the terms of the Collaboration Agreement, Merck paid the Company an initial up-front payment of $75 million in July 2007, and has agreed to pay up to $452 million in milestone payments of which $31.0 million has been paid through December 31, 2008, based on the successful development of deforolimus in multiple potential cancer indications, and up to $200 million in milestone payments based on achievement of specified product sales thresholds.  Merck has also agreed to provide the Company with up to $200 million in interest-bearing, repayable, development cost advances to cover a portion of the Company’s share of global development costs, after the Company has paid $150 million in global development costs and has obtained regulatory approval to market deforolimus from the FDA in the United States or similar regulatory authorities in Europe or Japan.  All amounts to be paid to the Company by Merck, with the exception of any development cost advances, are non-refundable.

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Through December 31, 2008, ARIAD has received the following up-front and milestone payments under the Collaboration Agreement.  These up-front and milestone payments have been deferred and are being recognized as revenue on a straight-line basis through 2023, the estimated expiration of the patents related to the underlying technology.
 
 
Amount
 (in millions)
    
Period
Received
    
Event
$ 75.0      
3Q2007
  
Up-front payment
               
  13.5      
4Q2007
  
Initiation of Phase 3 clinical trial in patients with metastatic soft-tissue and bone sarcomas
               
  15.0      
3Q2008
  
Initiation of Phase 2 clinical trial in patients with advanced breast cancer
               
  2.5      
4Q2008
  
Initiation of Phase 2 clinical trial in patients with advanced endometrial cancer
$ 106.0            

In addition, ARIAD has announced the initiation of additional clinical trials for which it has received or expects to receive additional milestone payments under the Collaboration Agreement upon treatment of the first patient in each of the trials, as follows:

Amount
 (in millions)
    
Period
Received
  
Event
           
$ 12.5      
1Q09
  
Initiation of Phase 2 clinical trial in patients with advanced prostate cancer
               
  10.0    
Expected 1H09
  
Initiation of Phase 2 clinical trial in patients with non-small-cell lung cancer
$ 22.5            

Development costs under the Collaboration Agreement are aggregated and split between the Company and Merck in accordance with the terms of the agreement.  The Company’s share of such development costs are reflected in operating expenses in the Company’s statement of operations.  Any amounts due to or from Merck in respect of such development costs and milestone payments earned but not received are recorded as such on the Company’s balance sheet.  At December 31, 2008, the Company has recorded an amount due from Merck under the collaboration agreement of $5.6 million.

3.  
Merger of AGTI into ARIAD Pharmaceuticals, Inc.

On September 11, 2008, ARIAD and AGTI entered into a merger agreement, pursuant to which AGTI was merged with and into ARIAD on September 12, 2008, with ARIAD as the surviving company.  Prior to the merger, AGTI was an 80 percent owned subsidiary of ARIAD.  The minority stockholders of AGTI included Harvey J. Berger, M.D., the Company’s Chairman and Chief Executive Officer, Jay R. LaMarche, the Company’s former Chief Financial Officer and a member of the Board of Directors of the Company, several of the Company’s current and former officers and scientific advisors, Harvard University, and Stanford University.  ARIAD effectuated the merger to eliminate conflicts of interest between ARIAD and AGTI, to ensure that ARIAD will receive benefits from the successful commercialization of its products proportionate to its investment and to create additional value for its stockholders.

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Under the terms of the merger agreement, each outstanding share of AGTI common stock owned by AGTI’s minority stockholders, a total of 1,126,064 AGTI shares, was converted into the right to receive two shares of ARIAD common stock.  Under Delaware law, any of the AGTI minority stockholders had the right to demand appraisal of his or her AGTI shares and to seek judicial determination of the fair value of such shares.  Four AGTI stockholders holding a total of 226,426 shares of AGTI common stock notified the Company of their intent to pursue appraisal of their shares.  The Company reached a settlement with such AGTI stockholders in January 2009 pursuant to which these AGTI stockholders received two shares of ARIAD common stock plus approximately $2.43 in cash for each share of AGTI common stock they owned.  In total, in exchange for all of the AGTI common stock owned by the AGTI minority stockholders, ARIAD issued 2,252,128 shares of ARIAD common stock, or approximately 3.1 percent of the outstanding common stock of ARIAD at the time of the merger, and $550,000 in cash.  The total value of the acquisition of the 20 percent minority interest of AGTI was approximately $5.9 million.  The shares of ARIAD common stock issued to the former minority stockholders of AGTI were not registered under the Securities Act of 1933, as amended, and were issued in reliance on an exemption from registration related to sales by an issuer not involving a public offering.

The total cost of the acquisition of the 20 percent minority interest of $5.9 million was accounted for using the purchase method of accounting.  The cost has been allocated to intangible assets and will be amortized over approximately fifteen years, the remaining life of the patents related to AGTI’s technology.  The cost of the settlement reached in January 2009 with the dissenting stockholders of AGTI is reflected in the cost of the intangible asset and is recorded as a liability at December 31, 2008.

4.  
Marketable Securities

The Company has classified its marketable securities as available-for-sale and, accordingly, carries such securities at aggregate fair value.  At December 31, 2008 and 2007, all of the Company’s marketable securities consisted of United States government agency securities.

At December 31, 2008, the aggregate fair value and amortized cost of the Company’s marketable securities were $14,825,000 and $14,807,000, respectively.  Gross unrealized gains and losses were $18,000 and $0, respectively, at December 31, 2008.

At December 31, 2007, the aggregate fair value and amortized cost of the Company’s marketable securities were $17,334,000 and $17,331,000, respectively.  Gross unrealized gains and losses were $4,000 and $0, respectively, at December 31, 2007.

Realized gains and losses on investment security transactions are reported on the specific-identification method.  There were no realized gains and losses on sales of marketable securities in 2008, 2007 and 2006.  Changes in market values resulted in a decrease in net unrealized losses or increase in net unrealized gains of $15,000, $1,000 and $27,000 in 2008, 2007 and 2006, respectively.

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5.  
Intangible and Other Assets, Net

Intangible and other assets, net, were comprised of the following at December 31:

In thousands
  
2008
    
2007
  
Capitalized patent and license costs
   $ 11,107     $ 10,290  
Purchased technology (see Note 3)
     5,901       ---  
      17,008       10,290  
Less accumulated amortization
     (7,142 )     (6,393 )
      9,866       3,897  
Other
     26       33  
    $ 9,892     $ 3,930  

Amortization expense for intangible assets amounted to $749,000, $851,000 and $750,000 in 2008, 2007 and 2006 respectively.  The weighted average amortization period for intangible assets was 14.8 years, 13.8 years and 13.5 years in 2008, 2007 and 2006, respectively.  In addition, the Company expensed unamortized patent and license costs of $1,000, $36,000 and $174,000 in 2008, 2007 and 2006, respectively, related to patent applications or technology no longer being pursued.  The estimated future amortization expenses for capitalized patent and license costs and purchased technology are $808,000 for 2009, $788,000 for 2010, $718,000 for 2011, $718,000 for 2012 and $718,000 for 2013.

6.  
Long-Term Debt

Long-term debt was comprised of the following at December 31:

In thousands
  
2008
    
2007
  
Bank term note at prime rate or LIBOR +1.25% to 2.25% (effective interest rate of 3.65% at December 31, 2008)
   $ 12,950     $ 3,815  
Less current portion
     (1,400 )     (3,815 )
    $ 11,550     $ ---  

In March 2008, the Company amended its term loan with the bank, increasing the balance due to $14.0 million, extending the maturity date from March 2008 to March 2013 and providing for repayment of the loan in quarterly payments of principal, increasing from 2.5 percent of the total loan amount in the second quarter of 2008 to 8.75 percent of the total loan amount in the first quarter of 2013, together with interest.  The loan as amended bears interest at LIBOR plus 1.25 to 2.25 percent, depending on the percentage of the Company’s liquid assets on deposit with or invested through the bank, or at the prime rate, as provided in the amendment.  The loan is secured by a lien on all assets of the Company excluding intellectual property, which the Company has agreed not to pledge to any other party.  The loan, as amended, also requires the Company to maintain a minimum of $15.0 million in unrestricted cash, cash equivalents and investments.  The agreement also contains certain covenants that restrict additional indebtedness, additional liens and sales of assets, and dividends, distributions or repurchases of common stock.

The annual aggregate future principal payments of the above loan, as amended, are $1.4 million in 2009, $1.9 million in 2010, $3.7 million in 2011, $4.7 million in 2012 and $1.2 million in 2013.

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7.
Executive Compensation Plans

Under the Company’s deferred executive compensation plan established in 1997 (the “1997 Plan”), the Company recorded an asset and a liability on the date of grant equal to the fair value of awards granted under the 1997 Plan.  The asset is amortized to expense over the vesting period and the liability is revalued and adjusted to fair value at each reporting period.  Under the Company’s 2005 Plan, the Company accrues a liability for the value of the awards ratably over the vesting period.  The value of awards made in 2008 and 2007 under the 2005 Plan were $812,000 and $1,535,000, respectively.  There were no awards made in 2006.  The net expense for these plans was $403,000, $955,000 and $888,000 in 2008, 2007 and 2006, respectively.  The estimated future expenses for awards made through December 31, 2008 are $560,000, $416,000, $217,000 and $38,000 for 2009, 2010, 2011 and 2012, respectively.

8.
Leases, Licensed Technology and Other Commitments

Facility Lease

The Company conducts its operations in a 100,000 square foot office and laboratory facility under a non-cancelable operating lease.  The lease was amended in 2006 and provides that the current lease term extends to July 2012 with two consecutive five-year renewal options.  The Company maintains an outstanding letter of credit of $699,000 in accordance with the terms of the amended lease.  The Company subleased approximately 31,000 square feet of space to one tenant and such sublease expired in July 2007.  Rent expense, net of sublease income of $710,000 and $1.3 million in 2007, and 2006 respectively, amounted to $2.1 million, $1.3 million and $636,000 in 2008, 2007 and 2006 respectively.  Future minimum annual rental payments through July 2012 are $2.1 million for 2009 through 2011 and $1.2 million in 2012.

Licensed Technology

The Company has entered into agreements with several universities under the terms of which the Company has received exclusive licenses to technology and intellectual property.  The agreements, which are generally cancelable by the Company, provide for the payment of license fees and/or minimum payments, which are generally creditable against future royalties.  Fees paid by the Company amounted to $145,000 in each of 2008, 2007 and 2006, and are expected to amount to approximately $145,000 annually in 2009 and thereafter.  In addition, the agreements provide for payments upon the achievement of certain milestones in product development.  The agreements also require the Company to fund certain costs associated with the filing and prosecution of patent applications.

Other Commitments

The Company has entered into various employment agreements with eighteen officers of the Company.  The agreements provide for aggregate annual base salaries of $5.6 million for 2009, $5.4 million for 2010, $2.5 million for 2011, $1.3 million for 2012 and $608,000 for 2013, and remaining terms of employment of up to five years.

9.  
Stockholders’ Equity

Preferred Stock

The Company has authorized 10,000,000 shares of preferred stock which the Board of Directors is authorized to designate and issue in different series.  At December 31, 2008, the Board of Directors had designated 500,000 shares as series A preferred stock for potential issuance under the Company’s stockholder rights plan and 9,500,000 shares remained undesignated.

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Common Stock

On January 30, 2007, the Company filed a shelf registration statement with the SEC for the issuance of common stock, preferred stock, various series of debt securities and warrants to purchase any of such securities, either individually or in units, with a total value of up to $100 million, from time to time at prices and on terms to be determined at the time of any such offering.  This filing was declared effective on February 6, 2007.

In March 2007, the Company sold 3,072,393 shares of its common stock to Azimuth Opportunity Ltd. pursuant to an equity financing facility between the parties dated February 14, 2007.  The Company received aggregate gross proceeds from this sale of $12.5 million, or $12.3 million net of issuance expenses.  These shares were registered under the Company’s shelf registration statement filed on January 30, 2007.  The equity financing facility expired on September 1, 2008.  As of December 31, 2008, the Company had $87.5 million of securities remaining available for issuance under its shelf registration statement.  As noted in Note 15, in February 2009, the Company raised net proceeds of $22.8 million from the sale of 14,378,698 shares of common stock and warrants to purchase 10,784,024 shares of common stock.  Following this transaction, the Company had approximately $40 million of securities remaining available for issuance under its shelf registration statement.

Stockholder Rights Plan

The Board of Directors of the Company adopted a Rights Agreement, dated as of June 8, 2000 (the “Rights Agreement”), between the Company and State Street Bank and Trust Company, as Rights Agent, and approved the declaration of a dividend distribution of one Preferred Share Purchase Right (a “Right”) on each outstanding share of its Common Stock.  In general, the Rights become exercisable if a person or group hereafter acquires 15 percent or more of the Common Stock of the Company or announces a tender offer for 15 percent or more of the Common Stock.  The Board of Directors will, in general, be entitled to redeem the Rights at one cent per Right at any time before any such person hereafter acquires 15 percent or more of the outstanding Common Stock.  The plan is designed to protect the Company’s stockholders in the event that an attempt is made to acquire the Company without an offer of fair value.

If a person hereafter acquires 15 percent or more of the outstanding Common Stock of the Company (the “Acquiring Person”), each Right will entitle its holder to purchase, for an initial exercise price of $65, a number of shares of Common Stock having a market value at that time of twice the Right’s exercise price.  Rights held by the Acquiring Person will become void.  If the Company is acquired in a merger or other business combination transaction after a person acquires 15 percent or more of the Company’s Common Stock, each Right will entitle its holder to purchase, at the Right’s then-current exercise price, a number of the acquiring company’s common shares having a market value at that time of twice the Right’s exercise price.

The dividend distribution of Rights was payable on July 19, 2000 to shareholders of record on June 19, 2000.  The Rights distribution is not taxable to the Company’s stockholders.  The Rights Agreement will expire on June 8, 2010.

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10.  
Stock Plan

ARIAD Stock Option and Stock Plans

The Company’s 1991, 1994, 2001 and 2006 stock option and stock plans (the “Plans”) provide for the awarding of nonqualified and incentive stock options, stock grants and restricted stock units to officers, directors, employees and consultants of the Company.  Stock options become exercisable as specified in the related option certificate, typically over a four-year period, and expire ten years from the date of grant.  Stock grants and restricted stock units provide the recipient with ownership of common stock subject to any rights the Company may have to repurchase the shares granted or other restrictions.  The 1991 and 1994 Plans have expired according to their terms and the 2001 Plan has no shares remaining available for grant, although existing stock options granted under these Plans remain outstanding.  As of December 31, 2008, there are 1,953,556 shares available for awards under the 2006 Plan.

Employee Stock Purchase Plan

In 1997, the Company adopted the 1997 Employee Stock Purchase Plan and reserved 500,000 shares of common stock for issuance under this plan.  In June 2008, the Plan was amended to reserve an additional 500,000 shares of common stock for issuance.  Under this plan, substantially all of the Company’s employees may, through payroll withholdings, purchase shares of the Company’s common stock at a price of 85 percent of the lesser of the fair market value at the beginning or end of each three-month withholding period.  In 2008, 2007 and 2006, 92,698, 52,113 and 37,421 shares of common stock were issued under the plan, respectively.

11.  
 Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants and provides employees the right to purchase common stock (collectively “share-based payments”), pursuant to stockholder approved plans.  The Company’s statement of operations included total compensation cost from share-based payments for the years ended December 31, as follows:

In thousands
  
2008
    
2007
    
2006
  
Compensation cost from:
                  
Stock options
   $ 3,798     $ 5,254     $ 3,773  
Stock and stock units
     900       662       737  
Purchases of common stock at a discount
     53       73       49  
    $ 4,751     $ 5,989     $ 4,559  
Compensation cost included in:
                        
Research and development expenses
   $ 2,441     $ 3,237     $ 2,440  
General and administrative expenses
     2,310       2,752       2,119  
    $ 4,751     $ 5,989     $ 4,559  
 
Stock Options

Stock options are granted with an exercise price equal to the closing market price of the Company’s common stock on the date of grant.  Stock options generally vest ratably over four years and have contractual terms of ten years.  Stock options are valued using the Black-Scholes option valuation model and compensation cost is recognized based on such fair value over the period of vesting on a straight-line basis.

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The following table summarizes information about stock options as of and for the years ended December 31, 2008, 2007 and 2006:

In thousands, except per share amounts
  
2008
    
2007
    
2006
  
Weighted average fair value of options granted, per share
   $ 1.83     $ 3.24     $ 4.33  
Total cash received from exercises of stock options
     154       1,872       1,791  
Total intrinsic value of stock options exercised
     90       1,388       1,403  
Total fair value of stock options vested
     4,114       4,742       4,320  
 
The weighted average fair value of options granted in the years ended December 31, 2008, 2007 and 2006, reflect the following weighted-average assumptions:

   
2008
    
2007
    
2006
  
Expected life of options granted (in years)
     7.04       7.54       7.02  
Expected volatility
     69.37 %     68.03 %     70.65 %
Risk-free rate
     3.04 %     4.41 %     4.68 %
Expected dividends
     0 %     0 %     0 %
                         

The expected life assumption is based on an analysis of historical behavior of participants related to options awarded over time.  The expected volatility assumption for the years ended December 31, 2008, 2007 and 2006 is based on the implied volatility of the Company’s common stock, derived from analysis of historical traded and quoted options on the Company’s common stock over the period commensurate with the expected life of the options granted.  The risk-free rate is based on the forward U.S. Treasury yield curve.  The expected dividends reflect the Company’s current and expected future policy for dividends on its common stock.

Based on the Company’s historical employee departure rates, an estimated forfeiture rate of 8.47 percent has been used in calculating compensation cost.  Under the provisions of SFAS No. 123R, additional expense is recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense is recorded if the actual forfeiture rate is higher than estimated.  In 2008, actual forfeitures exceeded estimated forfeitures for certain historical stock option grants and compensation expense was adjusted accordingly.

Stock option activity under the Company’s stock plans for the year ended December 31, 2008 was as follows:
 
   
Number of
Shares
    
Weighted Average
Exercise Price
Per Share
  
Options outstanding, January 1, 2008
     7,568,044     $ 5.30  
Granted
     1,182,465       2.70  
Forfeited
     (1,246,706 )     4.98  
Exercised
     (79,375 )     1.94  
Options outstanding, December 31, 2008
     7,424,428     $ 4.98  
Options exercisable, December 31, 2008
     4,271,372     $ 5.43  

67
The following table summarizes information about stock options outstanding as of December 31, 2008:

   
Options
    
Options
    
Options Expected
  
   
Outstanding
    
Exercisable
    
To Vest
  
Number of options
     7,424,428       4,721,372       2,231,983  
Weighted-average exercise price per share
   $ 4.98     $ 5.43     $ 4.27  
Aggregate intrinsic value (in 000’s)
   $ 18     $ 18     $ --  
Weighted average remaining contractual term  (in years)
     5.84       4.36       8.43  

Options expected to vest consist of options scheduled to vest in the future less expected forfeitures.

At December 31, 2008, total unrecognized compensation cost related to non-vested stock options outstanding amounted to $7.9 million.  That cost is expected to be recognized over a weighted-average period of 1.9 years.

Stock and Stock Unit Grants

Stock and stock unit grants are provided to non-employee directors as compensation and generally carry no restrictions as to resale.  Stock grants to officers carry restrictions as to resale for periods of time specified in the grant.  Stock and stock unit grants are valued at the closing market price of the Company’s common stock on the date of grant and compensation is recognized over the requisite service period or period during which restrictions remain on the common stock or stock units granted.

Stock and stock units amounting to 612,500, 134,000 and 80,000 were granted to non-employee directors and officers in the years ended December 31, 2008, 2007 and 2006, respectively.  The weighted-average fair value of stock and stock unit awards granted in the years ended December 31, 2008, 2007 and 2006 was $3.57, $4.94 and $6.43, respectively.  At December 31, 2008, total unrecognized compensation cost related to stock and stock unit awards amounted to $1.1 million.

Purchase of Common Stock Pursuant to Employee Stock Purchase Plan

Purchases of common stock by employees are provided pursuant to the Company’s employee stock purchase plan.  Purchase price is calculated as 85 percent of the lower of the closing price of our common stock on the first trading day or last trading day of each calendar quarter.  Compensation cost is equal to the fair value of the discount on the date of grant and is recognized as compensation in the period of purchase.

68
12.  
Income Taxes

The components of deferred income taxes were as follows at December 31:
 
In thousands
  
2008
    
2007
  
Deferred tax liabilities:
            
Intangible and other assets
   $ 3,946     $ 1,559  
Deferred tax assets:
                
Net operating loss carryforwards
     124,991       135,536  
Federal and State tax credit carryovers
     22,043       19,488  
Depreciation
     4,422       4,407  
Deferred revenue
     32,011       68  
Stock-based compensation
     1,799       1,426  
Other
     871       960  
Total deferred tax assets
     186,137       161,885  
Deferred tax assets, net
     182,191       160,326  
Valuation allowance
     (182,191 )     (160,326 )
Total deferred taxes
   $ ---     $ ---  

In 2008, the Company generated taxable income of approximately $5 million due primarily to the inclusion in taxable income in 2008 of the up-front payment of $75 million received from Merck which was deferred for tax purposes in 2007.  This taxable income was offset by utilization of net operating loss carryforwards and available tax credits in 2008, thereby eliminating any income tax liability in 2008.

At December 31, 2008, the Company had available estimated net operating loss carryforwards and research and development credit carryforwards for federal and state tax reporting purposes as follows:

   
Amount
  
Expiring if not utilized
   
(in 000s)
    
Net operating loss carryforwards:
        
Federal
   $ 354,497  
2009 through 2027
State
   $ 74,359  
2009 through 2013
           
Research and development credit carryforwards:
          
Federal
   $ 14,948  
2009 through 2028
State
   $ 6,597  
2009 through 2023

Since the Company has not yet achieved sustained profitable operations, management believes the tax benefits as of December 31, 2008 and 2007 do not satisfy the realization criteria set forth in SFAS No. 109 and has recorded a valuation allowance for the entire net deferred tax asset.  The increase in the valuation allowance of $21.9 million in 2008 resulted primarily from revenue recognized for tax purposes but not book purposes offset in part by utilization of net operating loss carryforwards.  The increase in the valuation allowance of $21.8 million in 2007 resulted primarily from net operating losses and tax credits from operations in that year that were not benefited.

69
13.  
Legal Proceedings

NF-κB Patent Infringement Litigation and Reexamination
 
Lilly Litigation
 
In 2002, the Company, together with Massachusetts Institute of Technology (“MIT”), The Whitehead Institute for Biomedical Research (“Whitehead”) and Harvard University (“Harvard”) (collectively, the Plaintiffs) filed a lawsuit in the United States District Court for the District of Massachusetts (the “U.S. District Court“) against Eli Lilly and Company (“Lilly”) alleging infringement of four claims (the “NF-κB ‘516 Claims”) of the Plaintiffs’ U.S. Patent No. 6,410,516 (the “‘516 Patent”), covering methods of treating human disease by regulating NF-κB cell-signaling activity through sales of Lilly’s drugs, Evista® and Xigris®. In 2006, a jury rendered a verdict in favor of the Plaintiffs and awarded damages of $65.2 million to the Plaintiffs, plus further damages equal to 2.3 percent of U.S. sales of Evista and Xigris from February 28, 2006 through the year 2019, when the patent expires.  On March 10, 2008, Lilly filed a notice of appeal of the jury’s verdict and other rulings by the U.S. District Court with the U.S. Court of Appeals for the Federal Circuit (the “CAFC”).  That appeal was heard at the CAFC on February 6, 2009.  The ruling of the CAFC on this appeal is pending.
 
Amgen Litigation
 
In April 2006, Amgen Inc. and certain affiliated entities (“Amgen“) filed a lawsuit against the Company in the U.S. District Court for the District of Delaware (the “Delaware Court“) seeking a declaratory judgment that each of the claims contained in the ‘516 Patent is invalid and that Amgen has not infringed any of the claims of the ‘516 Patent based on activities related to Amgen’s products, Enbrel® and Kineret®. In April 2007, the Company, together with MIT, Whitehead, and Harvard, filed a counterclaim against Amgen, alleged infringement of the ‘516 Patent based on activities related to Enbrel and Kineret, as well as the Company’s answer to Amgen’s complaint, counter-claim and demand for jury trial.

On September 19, 2008, the Delaware Court issued a series of rulings that, among other things: (i) granted Amgen’s motion for summary judgment of non-infringement of the asserted seven (7) claims of the ‘516 Patent based on the Delaware Court’s interpretation of these claims to exclude extracellular methods of reducing NF-κB activity, (ii) granted the Company’s motion seeking to dismiss for lack of jurisdiction under the Declaratory Judgment Act Amgen’s challenges to the validity of claims of the ‘516 Patent that are not being asserted against Enbrel,  and (iii) granted in part and denied in part the Company’s motion for partial summary judgment with respect to Amgen’s inequitable conduct defense.

With leave of the Delaware Court, on October 6, 2008, the Company filed in the CAFC a notice of appeal of the Delaware Court's summary judgment ruling in order to seek reinterpretation of the asserted ‘516 Patent claims by the CAFC so that the Company’s infringement case against Amgen may proceed in the Delaware Court.  The CAFC has not yet scheduled oral argument on the issues presented for appeal.  
 
PTO Reexamination
 
On April 4, 2005, Lilly filed a request in the PTO to reexamine the patentability of certain claims of the ‘516 Patent.  An unrelated third party filed a similar request in the PTO on December 2, 2005 to reexamine the patentability of certain claims of the ‘516 Patent.  These two requests have been granted and were merged by the PTO into a single reexamination proceeding.

70
On October 16, 2008, the PTO issued a final office action confirming as patentable 53 claims of the ‘516 patent, while rejecting 45 of the remaining  claims, including claims relating to the Lilly litigation and claims relating to the Amgen litigation, and also rejecting the eight new claims filed by the Company on October 22, 2007.  The Company’s response to the final office action was filed on January 26, 2009.  The PTO replied on February 14, 2009 to the Company’s response and set a due date of March 16, 2009 for submission of a further response by the Company.  The Company intends to submit a response by the March 16, 2009 deadline and to appeal the PTO’s ruling if deemed necessary.

Shareholder Derivative Suit

On February 13, 2009, a shareholder derivative complaint alleging breaches of fiduciary duties was filed in the Delaware Court of Chancery, naming each member of the Company's board of directors as a defendant and the Company as a nominal defendant.  The complaint, filed by a stockholder of the Company, alleges breaches of fiduciary duties by the defendants related to the merger of AGTI with and into ARIAD, the departure of the Company’s former chief legal officer and changes in the by-laws of the Company and roles and responsibilities of members of the Board of Directors, and seeks unspecified damages plus reimbursement of the legal and other costs of the plaintiffs.  The Company believes that the claims are without merit and that the complaint constitutes a frivolous lawsuit.  The Company and its directors intend to vigorously oppose the lawsuit.

The timing and ultimate outcome of the legal proceedings described above cannot be determined at this time.

14.  
Related Party Transactions

In June 2007, the Company entered into an agreement with its chief executive officer and with a member of its Board of Directors in their individual capacities as shareholders of AGTI. The agreement contains provisions regarding (i) confidentiality of material non-public information provided to them and their advisors in the course of evaluation of any potential transaction to acquire the 20 percent interest in AGTI that the Company did not own, (ii) reimbursement by the Company of certain reasonable expenses incurred by them to retain financial advisors and legal counsel to advise them in connection with any potential transaction, (iii) indemnification of them by the Company for claims arising out of or relating to any potential transaction and (iv) the maintenance by the Company of liability insurance for their benefit.  For the years ended December 31, 2008 and 2007, the Company has reimbursed $259,000 and $290,000, respectively, in expenses pursuant to this agreement.  AGTI was merged with and into ARIAD Pharmaceuticals, Inc. on September 12, 2008 and the 20 percent minority interest in AGTI was acquired by the Company consequent to the merger (see Note 3).

15.  
Subsequent Event

On February 25, 2009, the Company sold 14,378,698 shares of its common stock in a registered direct offering to institutional investors, at a purchase price of $1.69 per share, resulting in net proceeds of approximately $22.8 million.  The investors also received warrants to purchase an additional 10,784,024 shares of the Company’s common stock exercisable at a price of $2.15 per share or pursuant to the net exercise provisions of the warrants.  The warrants have a three-year term from the date of issuance and are exercisable beginning six months after the date of issuance.  Following this offering, the Company has approximately $40.0 million of securities remaining available under its shelf registration statement.

71

Not applicable.

ITEM 9A:       CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this Annual Report on Form 10-K, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this Annual Report on Form 10-K was being prepared.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their desired control objectives.  Our principle executive officer and principle financial officer have concluded that our controls and procedures are effective at that reasonable assurance level.

(b) Changes in Internal Controls.  There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B:       OTHER INFORMATION

Not applicable.

72


The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Board of Directors,” “Executive Officers,“ “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Code of Conduct and Ethics” in the Company’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.

ITEM 11:       EXECUTIVE COMPENSATION

The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Executive Compensation,” “Compensation Discussion and Analysis”, “Compensation Committee Report” and “Board of Directors” in the Company’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.


The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.


The response to this item is incorporated by reference from the discussion responsive thereto under the captions “Board of Directors” and “Certain Relationships and Related Transactions” in the Company’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.


The response to this item is incorporated by reference from the discussion responsive thereto under the caption “Proposal 3:  Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders.

73


 
(a)(1)
The following Consolidated Financial Statements, Notes thereto and Report of Independent Registered Public Accounting Firm have been presented in Item 8:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

 
(a)(2)
Financial Statement Schedules:

Schedules have been omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements or notes thereto.

 
(a)(3)
The Exhibits listed in the Exhibit Index are filed herewith in the manner set forth therein.

 
(b)
See (a) (3) above.

 
(c)
See (a) (2) above.
 
74
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Cambridge and Commonwealth of Massachusetts on the 12th day of March, 2009.
 
  ARIAD PHARMACEUTICALS, INC.  
       
 
By:
 /s/ Harvey J. Berger, M.D.  
  Name: Harvey J. Berger, M.D.  
  Title: Chairman, Chief Executive Officer and President  
       

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
Title
Date
     
/s/ Harvey J. Berger, M.D.
Harvey J. Berger, M.D.
Chairman of the Board of Directors, Chief Executive Officer and President
(Principal Executive Officer)
March 12, 2009
     
     
/s/ Edward M. Fitzgerald
Edward M. Fitzgerald
Senior Vice President, Chief Financial Officer and Treasurer  
(Principal Financial Officer and Principal Accounting Officer)
March 12, 2009
     
     
/s/ Jay R. LaMarche
Jay R. LaMarche
Director
March 12, 2009
     
     
/s/ Athanase Lavidas, Ph.D.
Athanase Lavidas, Ph.D.
Director
March 12, 2009
     
     
/s/ Massimo Radaelli, Ph.D.
Massimo Radaelli, Ph.D.
Director
March 12, 2009
     
     
/s/ Wayne Wilson
Wayne Wilson
Director
March 12, 2009
 
75
 
ARIAD Pharmaceuticals, Inc.

Form 10-K for the year ended December 31, 2008

Exhibit List

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
3.1
  
Certificate of Incorporation of ARIAD Pharmaceuticals, Inc., as amended
    
S-8
(Exhibit 4.2)
06/30/04
333-116996
3.2
  
Restated By-laws of ARIAD Pharmaceuticals, Inc., as amended
    
8-K
(Exhibit 3.1)
11/05/08
000-21696
4.1
  
Specimen common stock certificate of ARIAD Pharmaceuticals, Inc.
    
S-3
(Exhibit 4.5)
10/14/94
33-85166
4.2
  
Rights Agreement, dated as of June 8, 2000, between the ARIAD Pharmaceuticals, Inc. and State Street Bank and Trust Company, which includes the Form of Certificate of Designations in respect of the Series A Preferred Stock, as Exhibit A, the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Series A Preferred Stock as Exhibit C
    
8-A
(Exhibit 1)
06/19/00
000-21696
Leases and Credit Agreements
10.1
.1
Lease Agreement, dated January 8, 1992, between ARIAD Pharmaceuticals, Inc. and Forest City Cambridge, Inc.
    
10
(Exhibit 10.1)
04/30/93
000-21696
 
.2
Eighth Amendment to Lease dated October 30, 2006
    
10-K
(Exhibit 10.57)
03/14/07
000-21696
10.2
.1
Credit Agreement, dated as of March 12, 2003, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts
    
10-Q
(Exhibit 10.1)
05/13/03
000-21696
 
.2
Amendment No. 1 to Credit Agreement, dated as of December 31, 2003
    
10-K
(Exhibit 10.57)
03/02/04
000-21696
 
.3
Amendment No. 2 to Credit Agreement dated as of December 31, 2004
    
10-K
(Exhibit 10.52)
02/18/05
000-21696
 
 
76

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
 
.4
Amendment No. 3 to Credit Agreement, dated as of March 26, 2008, by and among ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. and RBS Citizens, National Association, successor by merger to Citizens Bank of Massachusetts
    
8-K
(Exhibit 10.2.4)
03/27/08
000-21696
10.3
  
Security Agreement - All Assets, dated as of March 12, 2003, by and between ARIAD Pharmaceuticals, Inc. and Citizens Bank of Massachusetts
    
10-Q
(Exhibit 10.3)
05/13/03
000-21696
10.4
  
Security Agreement - All Assets, dated as of March 12, 2003, by and between ARIAD Corporation and Citizens Bank of Massachusetts
    
10-Q
(Exhibit 10.4)
05/13/03
000-21696
10.5
  
Security Agreement - All Assets, dated as of March 12, 2003, by and between ARIAD Gene Therapeutics, Inc. and Citizens Bank of Massachusetts
    
10-Q
(Exhibit 10.5)
05/13/03
000-21696
10.6
  
Third Amended and Restated Term Note, dated March 26, 2008, issued by ARIAD Pharmaceuticals, Inc., ARIAD Corporation and ARIAD Gene Therapeutics, Inc. to RBS Citizens, National Association, successor by merger to Citizens Bank of Massachusetts
    
8-K
(Exhibit 10.2.4)
03/27/08
000-21696
Agreements with Respect to Collaborations, Licenses, Research and Development
10.7
  
License Agreement dated August 19, 1991 by and among The Massachusetts Institute of Technology, The Whitehead Institute and ARIAD Pharmaceuticals, Inc.*
    
10-Q
(Exhibit 10.1)
05/10/06
000-21696
10.8
  
Amended and Restated Agreement, dated as of December 12, 1997, between The Board of Trustees of The Leland Stanford Junior University and ARIAD Gene Therapeutics, Inc.*
    
10-K
(Exhibit 10.14)
03/10/98
000-21696
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
77
 
Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
10.9
  
Revised and Restated Research and Development Agreement, dated as of March 15, 2002, by and between ARIAD Pharmaceuticals, Inc. and ARIAD Corporation
    
10-K
(Exhibit 10.53)
03/22/02
000-21696
10.10
  
License Agreement, effective January 26, 2005, by and between ARIAD Pharmaceuticals, Inc. and Medinol Ltd.*
    
10-Q
(Exhibit 10.1)
05/10/05
000-21696
10.11
  
Supply Agreement, entered into as of January 26, 2005, by and between ARIAD Pharmaceuticals, Inc. and Medinol Ltd.*
    
10-Q
(Exhibit 10.2)
05/10/05
000-21696
10.12
  
Collaboration Agreement, dated July 11, 2007, by and among ARIAD Pharmaceuticals, Inc., ARIAD Gene Therapeutics, Inc. and Merck & Co., Inc.*
    
10-Q
(Exhibit 10.1)
11/09/07
000-21696
10.13
  
Deforolimus API and Tablet Supply Agreement dated May 7, 2008 among ARIAD Pharmaceuticals, Inc., ARIAD Gene Therapeutics, Inc. and Merck & Co., Inc.*
    
10-Q
(Exhibit 10.2)
08/11/08
000-21696
Agreements with Executive Officers and Directors
10.14
.1
Executive Employment Agreement, dated as of January 1, 1992, between ARIAD Pharmaceuticals, Inc. and Harvey J. Berger, M.D.+
    
10
(Exhibit 10.3)
04/30/93
000-21696
 
.2
Amendment to Executive Employment Agreement, dated April 19, 1994+
    
S-1
(Exhibit 10.25)
05/10/94
33-76414
 
.3
Amendment to Executive Employment Agreement, dated June 30, 1994+
    
10-K
(Exhibit 10.23)
03/31/95
000-21696
 
.4
Amendment to Executive Employment Agreement, dated as of January 1, 2006+
    
10-K
(Exhibit 10.56)
03/16/06
000-21696
 
.5
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.6
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
78

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
10.15
.1
Executive Employment Agreement dated May 1, 1992, between ARIAD Pharmaceuticals, Inc. and John Iuliucci, Ph.D., as amended March 2, 1994, January 1, 1997, January 1, 1999 and June 8, 2000+
    
10-Q
(Exhibit 10.3)
08/10/00
000-21696
 
.2
Amendment to Executive Employment Agreement, dated September 2, 2003+
    
10-Q
(Exhibit 10.6)
11/04/03
000-21696
 
.3
Amendment to Executive Employment Agreement, dated April/May 2007+
    
10-Q
(Exhibit 10.2)
08/09/07
000-21696
 
.4
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.16
.1
Executive Employment Agreement, dated August 1, 1993, between ARIAD Pharmaceuticals, Inc. and David L. Berstein, J.D., as amended March 2, 1994, January 1, 1997 and June 8, 2000+
    
10-Q
(Exhibit 10.4)
08/10/00
000-21696
 
.2
Amendment to Executive Employment Agreement, dated as of January 1, 2001+
    
10-Q
(Exhibit 10.2)
05/14/01
000-21696
 
.3
Amendment to Executive Employment Agreement, dated September 2, 2003+
    
10-Q
(Exhibit 10.3)
11/04/03
000-21696
 
.4
Amendment to Employment Agreement, dated April 14, 2008+
  
X
      
 
.5
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.6
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.17
.1
Executive Employment Agreement, dated May 6, 2002, between ARIAD Pharmaceuticals, Inc. and Edward M. Fitzgerald+
    
10-Q
(Exhibit 10.1)
05/09/02
000-21696
 
.2
Amendment to Executive Employment Agreement, dated September 2, 2003+
    
10-Q
(Exhibit 10.5)
11/04/03
000-21696
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
79

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
 
.3
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.4
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.18
.1
Executive Employment Agreement, dated June 8, 2000, between ARIAD Pharmaceuticals, Inc. and Timothy Clackson, Ph.D.+
    
10-K
(Exhibit 10.49)
03/14/03
000-21696
 
.2
Amendment to Executive Employment Agreement, dated July 1, 2001+
    
10-K
(Exhibit 10.50)
03/14/03
000-21696
 
.3
Amendment to Executive Employment Agreement, dated June 12, 2002+
    
10-K
(Exhibit 10.51)
03/14/03
000-21696
 
.4
Amendment to Executive Employment Agreement, dated September 2, 2003+
    
10-Q
(Exhibit 10.4)
11/04/03
000-21696
 
.5
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.6
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.19
.1
Executive Employment Agreement, dated May 29, 2007, by and between ARIAD Pharmaceuticals, Inc. and Pierre F. Dodion+
    
10-Q
(Exhibit 10.1)
08/09/07
000-21696
 
.2
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.3
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.20
.1
Executive Employment Agreement, dated November 4, 2008, between ARIAD Pharmaceuticals, Inc. and Daniel M. Bollag, Ph.D.+
  
X
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
80

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
 
.2
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.21
.1
Executive Employment Agreement, dated February 1, 2008, between ARIAD Pharmaceuticals, Inc. and Raymond T. Keane, Esq.+
  
X
      
 
.2
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.3
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
10.22
.1
Executive Employment Agreement, dated October 25, 2007, between ARIAD Pharmaceuticals, Inc. and Matthew E. Ros+
  
X
      
 
.2
Amendment to Executive Employment Agreement, dated October 14, 2008 (solely to extend term)+
  
X
(See Ex. 10.23)
      
 
.3
Amendment to Executive Employment Agreement, dated December 31, 2008 (related to §409A)+
  
X
(See Ex. 10.24)
      
 
.4
Amendment to Employment Agreement dated January 8, 2009+
  
X
      
10.23
  
Amendments to Executive Employment Agreements, dated October 14, 2008 (solely to extend term)+
  
X
      
10.24
  
Amendments to Executive Employment Agreements, dated December 31, 2008 (related to §409A)+
  
X
      
10.25
.1
Executive Employment Agreement, dated as of March 4, 2002, between ARIAD Pharmaceuticals, Inc. and Laurie A. Allen, Esq.+
    
10-K
(Exhibit 10.56)
03/22/02
000-21696
 
.2
Amendment to Executive Employment Agreement, dated September 2, 2003+
    
10-Q
(Exhibit 10.2)
11/04/03
000-21696
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
81

Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
 
.3
Amendment to Executive Employment Agreement, dated April/May 2007+
    
10-Q
(Exhibit 10.2)
08/09/07
000-21696
 
.4
Amendment to Executive Employment Agreement, dated September 11, 2008+
    
8-K
(Exhibit 10.3)
09/17/08
000-21696
10.26
  
Indemnity Agreement, dated September 11, 2008, by and between ARIAD Pharmaceuticals, Inc. and Laurie A. Allen, Esq.+
    
8-K
(Exhibit 10.1)
09/17/08
000-21696
10.27
  
Indemnity Agreement, dated September 11, 2008, by and between ARIAD Gene Therapeutics, Inc. and Laurie A. Allen, Esq.+
    
8-K
(Exhibit 10.2)
09/17/08
000-21696
10.28
  
Guarantee, dated September 11, 2008, by and between ARIAD Gene Therapeutics, Inc. and Laurie A. Allen, Esq.+
    
8-K
(Exhibit 10.4)
09/17/08
000-21696
10.29
  
Consulting Agreement, dated September 11, 2008, by and between ARIAD Gene Therapeutics, Inc. and Laurie A. Allen, Esq.+
    
8-K
(Exhibit 10.5)
09/17/08
000-21696
10.30
.1
ARIAD Pharmaceuticals, Inc. 1997 Executive Compensation Plan+
    
10-K
(Exhibit 10.41)
03/10/98
000-21696
 
.2
Amendment to ARIAD Pharmaceuticals, Inc. 1997 Executive Compensation Plan+
    
10-Q
(Exhibit 10.2)
11/09/05
000-21696
10.31
  
ARIAD Pharmaceuticals, Inc. 2005 Executive Compensation Plan (as amended and restated effective October 1, 2008)+
  
X
      
10.32
  
Director Compensation Arrangements+
    
10-K
(Exhibit 10.53)
03/14/07
000-21696
10.33
  
Form of Indemnity Agreement between ARIAD Pharmaceuticals, Inc. and its directors and officers+
  
X
      
10.34
  
Letter Agreement, dated June 19, 2007, by and among ARIAD Pharmaceuticals, Inc. Harvey J. Berger, M.D. and Jay LaMarche+
    
8-K
(Exhibit 10.1)
06/21/07
000-21696
Equity Compensation Plans
10.35
.1
ARIAD Pharmaceuticals, Inc. 1991 Stock Option Plan for Employees and Consultants, as amended+
    
10-K
(Exhibit 10.13)
03/31/95
000-21696
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82
 
Exhibit
Number
  
Exhibit Description
  
Filed
with
this
Report
Incorporated
by Reference
herein from
Form or
Schedule
Filing Date
SEC File/
Reg.
Number
 
.2
Amendment to the 1991 Stock Option Plan for Employees and Consultants+
    
10-Q
(Exhibit 10.36)
08/12/97
000-21696
10.36
  
ARIAD Pharmaceuticals, Inc. 1991 Stock Option Plan for Directors+
    
10
(Exhibit 10.15)
04/30/93
000-21696
10.37
.1
ARIAD Pharmaceuticals, Inc. 1994 Stock Option Plan for Non-Employee Directors+
    
10-K
(Exhibit 10.24)
03/31/95
000-21696
 
.2
Amendment to the 1994 Stock Option Plan for Non-Employee Directors.+
    
10-Q
(Exhibit 10.37)
08/12/97
000-21696
10.38
  
Amended and Restated ARIAD Pharmaceuticals, Inc. 1997 Employee Stock Purchase Plan+
    
Def 14A
(Appendix A)
04/29/08
000-21696
10.39
  
ARIAD Pharmaceuticals, Inc. 2001 Stock Plan, as amended and restated+
    
10-Q
(Exhibit 10.3)
11/09/05
000-21696
10.40
.1
ARIAD Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan+
    
Def 14A
(Appendix A)
04/28/06
000-21696
 
.2
Form of Stock Option Certificate under the ARIAD Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan+
    
10-Q
(Exhibit 10.2)
08/08/06
000-21696
 
.3
Form of Stock Grant Certificate under the ARIAD Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan+
    
10-Q
(Exhibit 10.3)
08/08/06
000-21696
 
.4
Form of Restricted Stock Unit Certificate under the ARIAD Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan+
    
10-Q
(Exhibit 10.4)
08/08/06
000-21696
21.1
  
Subsidiaries of ARIAD Pharmaceuticals, Inc.
  
X
      
23.1
  
Consent of Deloitte & Touche LLP
  
X
      
31.1
  
Certification of the Chief Executive Officer
  
X
      
31.2
  
Certification of the Chief Financial Officer
  
X
      
32.1
  
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
X
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(+)
Management contract or compensatory plan or arrangement.

(*)
Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions.
 
 
83
 EX-10.16.4 2 a5915319-ex10164.htm EXHIBIT 10.16.4 a5915319-ex10164.htm
Exhibit 10.16.4

NINTH AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “Ninth Amendment”) is made as of April 14, 2008 between ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and David Berstein, Esq. (the “Employee”).

The Company and the Employee previously entered into an Employment Agreement dated as of August 1, 1993 as previously amended (the “Agreement”), and the parties hereto desire further to amend certain provisions of the Agreement.

NOW, THEREFORE, in consideration of the promises set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree further to amend the Agreement as follows:

I.              
Employment, Duties and Acceptance:

The final sentence of Section 1.1 shall be replaced with the following:
“As of May 1, 2008, the Employee’s title shall be Senior Vice President and Chief Intellectual Property Officer.”

II.             
Consulting Period:

The Agreement shall be amended by the inclusion of a new Section 15, as follows:

Employee and the Company acknowledge and agree that from September 1, 2007 until April 30, 2008, the Employee was on leave from his regular, full-time employment with the Company (hereafter, the “Consulting Period”).  During the Consulting Period, the Employee rendered part-time services to the Company as an independent Consultant in matters relating to intellectual property, while he was also employed with Tempo Pharmaceuticals, Inc.  The parties agree that the Employee’s covenants under the Agreement remained in full force and effect during the Consulting Period, and the Employee acknowledges that the Company has compensated him fully for all services rendered during the Consulting Period.  The parties agree that the Employee will re-join the Company on a full-time basis as of May 1, 2008.  It is further agreed that all stock, stock options, restricted stock awards or units, similar equity rights and deferred compensation performance awards granted to the Employee shall continue to vest on their original schedules and remain fully exercisable through their original terms with all rights.

III.           Except as modified by this Ninth Amendment, the Agreement remains in full force and effect.

  ARIAD PHARMACEUTICALS, INC.  
       
       
 
By:
/s/ Harvey J. Berger
  
   
 
  
   
Harvey J. Berger, M.D.
  
   
Chairman and Chief Executive Officer
  
       
       
  EMPLOYEE  
       
  /s/ David L. Berstein  
     
  David L. Berstein, Esq.  
EX-10.20.1 3 a5915319-ex10201.htm EXHIBIT 10.20.1 a5915319-ex10201.htm
Execution Copy
 
Exhibit 10.20.1
Executive Employment Agreement
 
EMPLOYMENT AGREEMENT (the "Agreement") made as of November 4, 2008, 2008 between ARIAD Pharmaceuticals, Inc. (the "Company") a Delaware corporation, and Daniel M. Bollag, Ph.D. (the "Employee").
 
 
1.
Employment, Duties and Acceptance.
 
1.1           The Company hereby employs the Employee, for the Term (as hereinafter defined), to render full-time services to the Company, and to perform such duties as the Chief Executive Officer of the Company shall reasonably direct the Employee to perform.  The Employee's title shall be designated by the Chief Executive Officer and initially shall be Senior Vice President, Regulatory Affairs and Quality.
 
1.2            The Employee hereby accepts such employment and agrees to render the services described above.
 
1.3           The principal place of employment of the Employee hereunder shall be in the greater Boston, Massachusetts area, or other locations reasonably acceptable to the Employee.  The Employee acknowledges that for limited periods of time the Employee may be required to provide services to the Company outside of the Boston, Massachusetts area.
 
1.4           Notwithstanding anything to the contrary herein, although the Employee shall provide services as a full-time employee, it is understood that the Employee may (a) have an academic appointment and (b) participate in professional activities (collectively, "Permitted Activities'); provided, however, that such Permitted Activities do not interfere with the Employee's duties to the Company.
 
1.5           The Employee represents and affirms that the Employee does not have any other contractual obligations to any other person or entity that would prohibit or limit Employee’s employment with the Company, except for the duty not to use or disclose another entity’s confidential information without authorization.  Employee further acknowledges that the Company instructs the Employee not to bring to the Company, use or disclose in the course of Employee’s employment any confidential information belonging to another person or entity, without that person or entity’s express authorization.
 
1
Execution Copy
 
2.             Term of Employment.
 
The term of the Employee's employment under this Agreement (the "Term") shall commence on January 2, 2009 (the "Effective Date"), or such other date mutually agreed upon by the parties, and shall end on December 31, 2010, unless sooner terminated pursuant to Section 4 or 5 of this Agreement; provided, however, that this Agreement shall automatically be renewed for successive one-year terms (the Term and, if the period of employment is so renewed, such additional period(s) of employment are collectively referred to herein as the "Term") unless terminated by written notice given by either party to the other at least ninety (90) days prior to the end of the applicable Term.
 
  
3.
Compensation.
 
3.1            As full compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay the Employee, during the Term, a salary at the fixed rate of $325,000 per annum during the first year of the Term and increased each year, by amounts, if any, to be determined by the Board of Directors of the Company (the "Board"), in its sole discretion, payable in equal biweekly installments, less such deductions or amounts to be withheld as shall be required by applicable law and regulations.
 
3.2            Each year, Employee shall be eligible to receive a discretionary bonus.  The target for such discretionary bonus shall be 30% of base salary, but the Company may elect to pay a greater or lesser bonus, in its sole discretion, which shall be determined annually by the Board.  Factors that may be considered by the Board in determining bonus eligibility and the size of a bonus awarded, if any, include the Employee’s level of performance, the Company’s achievement of its business goals, and special contributions of the Employee.  The bonus, if any, may be paid in the form of stock options, restricted stock awards or units, deferred compensation or cash, as determined by the Board.  Further details on bonuses are provided in the Company’s incentive compensation plans; in the event of any conflict between the plans and this Agreement, the terms of this Agreement shall control.
 
2
Execution Copy
 
3.3            The Company shall pay or reimburse the Employee for all reasonable and documented expenses actually incurred or paid by the Employee during the Term in the performance of Employee’s services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require.
 
3.4            The Employee shall be eligible under any incentive plan, stock award plan, bonus, deferred or extra compensation plan, pension, group health, disability, long-term care, and life insurance or other so-called "fringe" benefits, which the Company provides for its executives at the comparable level.  All stock options and restricted stock awards or units granted to the Employee shall be subject to a vesting schedule, which shall be determined by the Compensation Committee of the Board.  The stock options and restricted stock awards or units, if any, granted to the Employee shall also be subject to the terms of the Company’s long-term incentive plan and certificates.  Any unvested stock options or restricted stock awards or units subject to repurchase shall be forfeited to the Company in the event (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein, except as provided in Section 3.6 herein with respect to the initial grant of restricted stock units.
 
3.5           The Company shall grant the Employee an option to purchase 75,000 shares of the Company's Common Stock at the fair market value on the date of the Board's approval of the grant.  The Employee agrees that all such options shall be subject to a four-year vesting schedule, vesting in equal increments of 25% on each anniversary of their issuance.  Any unvested options shall be forfeited to the Company in the event that (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein.
 
3
Execution Copy
 
3.6           The Company shall grant the Employee 50,000 ARIAD restricted stock units on the date of the Board’s approval of the grant.  The Employee agrees that all such restricted stock units shall be subject to a period of restriction as to transfer and to repurchase by the Company with respect to 100% of such grant until April 11, 2011, and the underlying shares of the Company’s Common Stock shall be issued upon lapsing of the period of restriction.  In the event that (a) Employee dies before April 11, 2011 or (b) this Agreement is not renewed prior to December 31, 2010 pursuant to Section 2 herein, the restrictions on these ARIAD restricted stock units will lapse, and the underlying shares shall be issued within thirty (30) days of the occurrence of either event.  Notwithstanding the foregoing, any restricted stock units shall be forfeited in the event that this Agreement is terminated by the Company for Cause pursuant to Section 4 herein.
 
4.            Termination by the Company.
 
The Company may terminate this Agreement, if any one or more of the following shall occur:
 
(a)           The Employee shall die during the Term; provided, however, the Employee's legal representatives shall be entitled to receive the compensation provided for hereunder to the last day of the month in which Employee’s death occurs.
 
(b)            The Employee shall become physically or mentally disabled, whether totally or partially, so that the Employee is unable substantially to perform the Employee’s services hereunder for (i) a period of one-hundred eighty (180) consecutive days, or (ii) for shorter periods aggregating one-hundred eighty (180) days during any twelve (12) month period.
 
4
Execution Copy
 
(c)  The Employee acts, or fails to act, in a manner that provides Cause for termination.  For purposes of this Agreement, the term "Cause" means (i) the failure by the Employee to perform any of Employee’s material duties hereunder, (ii) the conviction of the Employee of any felony, (iii) any acts of fraud or embezzlement by the Employee or the conviction of any crime involving the Company or any of its Affiliates, (iv) violation of any federal, state or local law, or administrative regulation related to the business of the Company, (v) a conflict of interest, (vi) conduct that could result in publicity reflecting unfavorably on the Company in a material way, (vii) failure to comply with the written policies of the Company, or (viii) a material breach of the terms of this Agreement by the Employee.  If the conduct constituting Cause hereunder is susceptible to cure, the Company shall provide the Employee written notice of termination pursuant to this Section 4, and Employee shall have thirty (30) days to cure or remedy such failure or breach, in which case this Agreement shall not be terminated.  If the conduct is not susceptible to cure, this Agreement shall terminate upon written notice by the Company.
 
5.             Termination by the Employee.
 
                        5.1   The Employee may terminate this Agreement, if any one or more of the following shall occur:
 
(a)            a material breach of the terms of this Agreement by the Company and such breach continues for thirty (30) days after the Employee gives the Company written notice of such breach;
 
(b)            the Company shall make a general assignment for benefit of creditors; or any proceeding shall be instituted by the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property or the Company shall take any corporate action to authorize any of the actions set forth above in this subsection 5(b);
 
5
Execution Copy
 
(c)            an involuntary petition shall be filed or an action or proceeding otherwise commenced against the Company seeking reorganization, arrangement or readjustment of the Company's debts or for any other relief under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state or federal, now or hereafter existing and remain undismissed or unstayed for a period of thirty (30) days; or
 
(d)            a receiver, assignee, liquidator, trustee or similar officer for the Company or for all or any part of its property shall be appointed involuntarily.
 
(e)           a Change in Control as defined in Section 14.

6.             Severance.
   
6.1  If (i) the Company terminates this Agreement without Cause or (ii) the Employee terminates this Agreement pursuant to Section 5.1(a), then: (1) except in the case of death or disability, the Company shall continue to pay Employee his then-current salary for the remaining period of the applicable Term; (2) all stock options granted pursuant to this Agreement that would have vested during the Term shall vest upon the effective date of such termination; and (3) the Company shall continue to provide all benefits subject to COBRA at its expense for up to one (1) year.
 
6.2  In the event of a consummation of a Change in Control of the Company, and if the Employee gives notice of termination within ninety (90) days after such occurrence, then (i) all stock, stock options, restricted stock awards or units, and similar equity rights granted to the Employee shall immediately vest and remain fully exercisable through their original term with all rights; and (ii) the Company shall continue to pay the Employee his then-current salary for the shorter of (a) six (6) months, or (b) the remaining period of the applicable Term.
 
6
Execution Copy

 
7.             Other Benefits.
 
In addition to all other benefits contained herein, the Employee shall be entitled to:
 
(a)            Paid time-off of five (5) weeks per year taken in accordance with the paid time-off policy of the Company.
 
(b)            After six (6) years of full-time employment, one (1) three-month period of fully paid leave of absence in accordance with the Company’s Officer Sabbatical Policy in place at that time.  The Policy currently provides the following eligibility criteria: Employee must complete six (6) years of full-time service; Employee must be in good standing at the time of the Sabbatical; and Employee must affirm the intent to return to full-time service of the Company at the end of the Sabbatical.  In addition, the Company must approve the scheduling of a Sabbatical and may ask the Employee to postpone a Sabbatical until a time that meets its business needs.
 
(c)           Group health, disability, long-term care and life insurance.
 
(d)           The Company shall provide the Employee with an automobile allowance of $750 per month and standard tax preparation and planning services.
 
(e)           To facilitate the Employee's transition, the Company will provide the Employee with a one-time transition advance (the “Advance”) in the total amount of $150,000:  $75,000 of which shall be payable by the Company within thirty (30) days of the start of employment and $75,000 of which shall be payable seven (7) months thereafter or, if not previously paid, upon a Change in Control.  In order to be eligible to receive any portion of the Advance, the Employee must be a full-time employee of the Company at the time such payment is due.  The Employee shall be obligated to repay any portion of the Advance made by the Company immediately upon the occurrence of any of the following events:  (a) the Employee terminates his employment or this Agreement at any time prior to December 31, 2010, except as provided pursuant to Section 5.1 herein, or (b) the Company terminates this Agreement for Cause at any time pursuant to Section 4 herein.  Notwithstanding the foregoing, if the Company terminates this Agreement for reasons other than Cause between July 1, 2009 and December 31, 2010, the Employee shall be obligated to repay the Transition Advance within thirty (30) days of such termination, but the amount due from Employee in such circumstances shall be reduced pro rata by the number of complete months of full-time service that Employee has completed at the time of termination.  As of January 1, 2011, the Advance shall no longer be subject to repayment by the Employee.  The Employee authorizes the Company to withhold from final wages, expense reimbursements, or other forms of compensation due to him at the time of separation any portion of the Advance that he is required to repay.
 
7
Execution Copy
 
  
8.
Confidentiality.
   
8.1           The Employee acknowledges that, during the course of performing Employee’s services hereunder, the Company shall be disclosing information to the Employee related to the Company's Field of Interest, Inventions, projects and business plans, as well as other information (collectively, "Confidential Information").  The Employee acknowledges that the Company's business is extremely competitive, dependent in part upon the maintenance of secrecy, and that any disclosure of the Confidential Information would result in serious harm to the Company.
 
8.2           The Employee agrees that the Confidential Information only shall be used by the Employee in connection with Employee’s activities hereunder as an employee of the Company, and shall not be used in any way that is detrimental to the Company.
 
8
Execution Copy
 
8.3           The Employee agrees not to disclose, directly or indirectly, the Confidential Information to any third person or entity, other than representatives or agents of the Company.  The Employee shall treat all such information as confidential and proprietary property of the Company.
 
8.4           The term "Confidential Information" does not include information that (a) is or becomes generally available to the public other than by disclosure in violation of this Agreement, (b) was within the Employee's possession prior to being furnished to such Employee, (c) becomes available to the Employee on a non-confidential basis or (d) was independently developed by the Employee without reference to the information provided by the Company.
 
8.5            The Employee may disclose any Confidential Information that is required to be disclosed by law, government regulation or court order.  If disclosure is required, the Employee shall give the Company advance notice so that the Company may seek a protective order or take other action reasonable in light of the circumstances.
 
8.6           Upon termination of this Agreement, the Employee shall promptly return to the Company all materials containing Confidential Information, as well as data, records, reports and other property, furnished by the Company to the Employee or produced by the Employee in connection with services rendered hereunder.  Notwithstanding such return or any of the provisions of this Agreement, the Employee shall continue to be bound by the terms of the confidentiality provisions contained in this Section 8 for a period of three (3) years after the termination of this Agreement.
 
8.7           In connection with Employee’s employment by the Company, the Employee hereby acknowledges that Employee may enter into more than one agreement with regard to (a) the confidentiality of certain books, records, documents and business, (b) rights to certain inventions, proprietary information, and writings, (c) publication of certain materials, and (d) other related matters (the "Confidential Matters") of the Company (the "Confidentiality Agreements").  In order to clarify any potential conflicts between certain respective provisions of such Confidentiality Agreements, the Employee and the Company hereby agree that, as among such Confidentiality Agreements, the provision (or part thereof) in any such Confidentiality Agreement that affords the greatest protection to the Company with respect to the Confidential Matters shall control.
 
9
Execution Copy
 
9.             Inventions Discovered by the Employee WhilePerforming Services Hereunder.
 
During the Term, the Employee shall promptly disclose to the Company any invention, improvement, discovery, process, formula, or method or other intellectual property, whether or not patentable, whether or not copyrightable (collectively, "Inventions") made, conceived or first reduced to practice by the Employee, either alone or jointly with others, while performing service hereunder.  The Employee hereby assigns to the Company all of the Employee’s right, title and interest in and to any such Inventions.  During and after the Term, the Employee shall execute any documents necessary to perfect the assignment of such Inventions to the Company and to enable the Company to apply for, obtain, and enforce patents and copyrights in any and all countries on such Inventions.  The Employee hereby irrevocably designates the Chief Intellectual Property Officer of the Company as the Employee’s agent and attorney-in-fact to execute and file any such document and to do all lawful acts necessary to apply for and obtain patents and copyrights and to enforce the Company's rights under this paragraph.  This Section 9 shall survive the termination of this Agreement.
 
10
Execution Copy
 
 
10.
Non-Competition and Non-Solicitation.
 
During the Term and for a period of one (1) year following the date of termination or nonrenewal of Employee’s employment with the Company, for any reason and whether voluntary or involuntary (other than termination pursuant to Section 5.1(a):  (a) the Employee shall not in the United States or in any country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation engaged in any business that is competitive with the business of the Company or of any of its subsidiaries or affiliates of which the Employee may become an employee or officer during the Term;  Employee shall not engage in such business on Employee’s own account; and Employee shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section 10 shall be deemed to prohibit the Employee from acquiring, solely as an investment, shares of capital stock of any public corporation;  (b) neither the Employee nor any Affiliate of the Employee shall solicit or utilize, or assist any person in any way to solicit or utilize, the services, directly or indirectly, of any of the Company's directors, consultants, members of the Board of Scientific and Medical Advisors, officers or employees (collectively, "Associates of the Company").  This non-solicitation and non-utilization provision shall not apply to Associates of the Company who have previously terminated their relationship with the Company.
 
10.1            If the Employee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 10, the Company shall have the following rights and remedies:
 
10.1.1                       The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Company and that money damages shall not provide an adequate remedy to the Company; and
 
11
Execution Copy
 
10.1.2                       The right and remedy to require the Employee to account for and pay over to the Company all compensation, profits, monies, accruals,increments or other benefits (collectively "Benefits") derived or received by the Employee as the result of any transactions constituting a breach of any of the provisions of the preceding paragraph, and the Employee hereby agrees to account for and pay over such Benefits to the Company.
 
Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity.
 
10.2           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect without regard to the invalid portions.
 
10.3           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, such provision shall then be enforceable.
 
10.4           The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in Sections 8, 9 and 10 upon the courts of any state within the geographical scope of such covenants.  In the event that the courts of any one or more of such states shall hold any such covenant wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants.
 
12
Execution Copy
 
10.5.  The covenants in Sections 8, 9, and 10 are conditions of Employee’s continued employment with the Company, and they are not tied to Employee’s performance of any particular role or job; therefore, the covenants in Sections 8, 9, and 10 shall survive any change in Employee’s title, compensation, benefits, role, or responsibilities and shall remain in full force and effect following any such change.  By continuing in the Company’s employ, Employee continually re-affirms the intention to be bound by these ongoing covenants.
 
11.           Indemnification.
 
The Company shall indemnify the Employee, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by Employee in connection with any action, suit or proceeding to which Employee may be made a party by reason of being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company.  The Company shall provide to the Employee, subject to its availability upon reasonable terms (which determination shall be made by the Board of Directors) at its expense, directors and officers insurance for the Employee in reasonable amounts.  Determination with respect to (a) the availability of insurance upon reasonable terms and (b) the amount of such insurance coverage shall be made by the Board of Directors in its sole discretion.
 
12.           Notices.
 
All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by prepaid telegram (confirmed delivery by the telegram service), private overnight mail service (delivery confirmed by such service), registered or certified mail (return receipt requested), or delivered personally, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):
 
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If to the Company:
 
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
Attention: Chief Executive Officer
Telephone: (617) 494-0400
Facsimile: (617) 494-1828

If to the Employee:
 
Daniel M. Bollag, Ph.D.
7 Apollo Circle
Lexington, Massachusetts 02421
Telephone: (781) 863-0209.
 
13.           General.
 
13.1           This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed entirely in Massachusetts.
 
13.2     The parties agree that any action, claim, or other proceeding involving any dispute between them shall be resolved by a judge alone in a bench trial, and both parties expressly waive their right to a trial by jury of any such action, claim or proceeding.
 
13.3            The Section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
 
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13.4            This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof.  No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.
 
13.5            This Agreement and the Employee's rights and obligations hereunder may not be assigned by the Employee or the Company; provided, however, the Company may assign this Agreement to an Affiliate or a successor-in-interest.
 
13.6           This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance.  In order to be effective, any such modification or amendment must be signed by the Company’s Chief Executive Officer.  Employee acknowledges that no other officer, employee, Director, or representative is authorized to modify or amend the terms of this Agreement.  The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same.  No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
 
14.           Definitions.  As used herein the following terms have the following meaning:
 
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(a)            "Affiliate" means and includes any corporation or other business entity controlling, controlled by or under common control with the corporation in question.
 
(b)           The “Company’s Field of Interest” is the discovery, development and commercialization of pharmaceutical products based on (a) intervention in signal transduction pathways and (b) gene and cell therapy.  The Company’s Field of Interest may be changed at any time at the sole discretion of the Company and upon written notice to Employee.
 
(c)            "Person" means any natural person, corporation, partnership, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental body or other entity.
 
(d)            "Subsidiary" means any corporation or other business entity directly or indirectly controlled by the corporation in question.
 
(e)           "Change in Control” means the occurrence of any of the following events (without the consent of the Employee):
 
(i)  Any corporation, person or other entity makes a tender or exchange offer for shares of the Company's Common Stock pursuant to which such corporation, person or other entity acquires more than 50% of the issued and outstanding shares of the Company's Common Stock;
 
(ii)  The stockholders of the Company approve a definitive agreement to merge or consolidate the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of the Company's assets; or
 
(iii) Any person within the meaning of Section 3 (a) (9) or Section 13 (d) of the Securities Exchange Act of 1934 acquires more than 50% of the combined voting power of Company's issued and outstanding voting securities entitled to vote in the election of the Board.

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This Space Left Intentionally Blank.
 
 
 
 
 
 
 
 
 
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.




 
ARIAD PHARMACEUTICALS, INC.
  
       
       
 
By:
/s/ Harvey J. Berger
  
     
   
Harvey J. Berger, M.D.
  
   
Chairman and Chief Executive Officer
  
       
       
 
EMPLOYEE
  
     
 
/s/ Daniel M. Bollag
  
     
 
Daniel M. Bollag, Ph.D.
  
 
 
 
 
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 EX-10.21.1 4 a5915319-ex10211.htm EXHIBIT 10.21.1 a5915319-ex10211.htm
Execution Copy
 
Exhibit 10.21.1
Executive Employment Agreement
 
EMPLOYMENT AGREEMENT (the "Agreement") made as of February 1, 2008 between ARIAD Pharmaceuticals, Inc. (the "Company") a Delaware corporation, and Raymond T. Keane, Esq. (the "Employee").
 
 
1.
Employment, Duties and Acceptance.
 
1.1           The Company hereby employs the Employee, for the Term (as hereinafter defined), to render full-time services to the Company, and to perform such duties, as the Chief Executive Officer of the Company shall reasonably direct him to perform.  The Employee's title shall be designated by the Chief Executive Officer and initially shall be Vice President, General Counsel, and Chief Compliance Officer.
 
1.2            The Employee hereby accepts such employment and agrees to render the services described above.
 
1.3           The principal place of employment of the Employee hereunder shall be in the greater Boston, Massachusetts area, or other locations reasonably acceptable to the Employee.  The Employee acknowledges that for limited periods of time he may be required to provide services to the Company outside of the Boston, Massachusetts area.
 
1.4           Notwithstanding anything to the contrary herein, although the Employee shall provide services as a full-time employee, it is understood that the Employee may (a) have an academic appointment and (b) participate in professional activities (collectively, "Permitted Activities'); provided, however, that such Permitted Activities do not interfere with the Employee's duties to the Company.
 
1.5           The Employee represents and affirms that he does not have any other contractual obligations to any other person or entity that would prohibit or limit his employment with the Company, except for the duty not to use or disclose another entity’s confidential information without authorization.  Employee further acknowledges that the Company instructs him not to bring with him, use or disclose in the course of his employment any confidential information belonging to another person or entity, without that person or entity’s express authorization.
 
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2.           Term of Employment.
 
The term of the Employee's employment under this Agreement (the "Term") shall commence on April 14, 2008 (the "Effective Date"), or such other date mutually agreed upon by the parties, and shall end on December 31, 2010, unless sooner terminated pursuant to Section 4 or 5 of this Agreement; provided, however, that this Agreement shall automatically be renewed for successive one-year terms (the Term and, if the period of employment is so renewed, such additional period(s) of employment are collectively referred to herein as the "Term") unless terminated by written notice given by either party to the other at least ninety (90) days prior to the end of the applicable Term.
 
 
3.
Compensation.
 
3.1            As full compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay the Employee, during the Term, a salary at the fixed rate of $320,000 per annum during the first year of the Term and increased each year, by amounts, if any, to be determined by the Board of Directors of the Company (the "Board"), in its sole discretion, payable in equal biweekly installments, less such deductions or amounts to be withheld as shall be required by applicable law and regulations.
 
3.2            Each year, Employee shall be eligible to receive a discretionary bonus of up to 30% of base salary, which bonus shall be determined annually by the Board.  The bonus, if any, may be paid in the form of stock options, restricted stock awards or units, deferred compensation or cash, as determined by the Board.
 
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3.3            The Company shall pay or reimburse the Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require.
 
3.4            The Employee shall be eligible under any incentive plan, stock award plan, bonus, deferred or extra compensation plan, pension, group health, disability, long-term care, and life insurance or other so-called "fringe" benefits which the Company provides for its executives at the comparable level.  All stock options and restricted stock awards or units granted to the Employee shall be subject to a vesting schedule which shall be determined by the Compensation Committee of the Board.  The stock options and restricted stock awards or units, if any, granted to the Employee shall also be subject to the terms of the Company’s long-term incentive plan and certificates.  Any unvested stock options or restricted stock awards or units subject to repurchase shall be forfeited to the Company in the event (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein.
 
3.5           The Company shall grant the Employee an option to purchase 80,000 shares of the Company's Common Stock at the fair market value on the date of the Board's approval of the grant.  The Employee agrees that all such options shall be subject to a four-year vesting schedule, vesting in equal increments of 25% on each anniversary of their issuance.  Any unvested options shall be forfeited to the Company in the event (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein.
 
4.            Termination by the Company.
 
The Company may terminate this Agreement, if any one or more of the following shall occur:
 
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(a)           The Employee shall die during the Term; provided, however, the Employee's legal representatives shall be entitled to receive the compensation provided for hereunder to the last day of the month in which his death occurs.
 
(b)            The Employee shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of one-hundred eighty (180) consecutive days, or (ii) for shorter periods aggregating one-hundred eighty (180) days during any twelve (12) month period.
 
(c)  The Employee acts, or fails to act, in a manner that provides Cause for termination.  For purposes of this Agreement, the term "Cause" means (i) the failure by the Employee to perform any of his material duties hereunder, (ii) the conviction of the Employee of any felony involving moral turpitude, (iii) any acts of fraud or embezzlement by the Employee involving the Company or any of its Affiliates, (iv) violation of any federal, state or local law, or administrative regulation related to the business of the Company, (v) conduct that could result in publicity reflecting unfavorably on the Company in a material way, (vi) failure to comply with the written policies of the Company, or (vii) a material breach of the terms of this Agreement by the Employee (including, without limitation, actions taken by the Employee which create a conflict of interest for Employee between the Company or any of its Affiliates and a competitor).  If the conduct constituting Cause hereunder is susceptible to cure, the Company shall provide the Employee written notice of termination pursuant to this Section 4, and Employee shall have thirty (30) days to cure or remedy such failure or breach, in which case this Agreement shall not be terminated. If the conduct is not susceptible to cure, this Agreement shall terminate upon written notice by the Company.
 
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5.            Termination by the Employee.
 
                                                5.1   The Employee may terminate this Agreement, if any one or more of the following shall occur:
 
(a)            a material breach of the terms of this Agreement by the Company and such breach continues for thirty (30) days after the Employee gives the Company written notice of such breach;
 
(b)            the Company shall make a general assignment for benefit of creditors; or any proceeding shall be instituted by the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property or the Company shall take any corporate action to authorize any of the actions set forth above in this subsection 5(b);
 
(c)            an involuntary petition shall be filed or an action or proceeding otherwise commenced against the Company seeking reorganization, arrangement or readjustment of the Company's debts or for any other relief under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state or federal, now or hereafter existing and remain undismissed or unstayed for a period of thirty (30) days;
 
(d)            a receiver, assignee, liquidator, trustee or similar officer for the Company or for all or any part of its property shall be appointed involuntarily; or,
 
(e)           a Change in Control as defined in Section 14.
 
6.             Severance.
 
                    6.1  If (i) the Company terminates this Agreement without Cause or (ii) the Employee terminates this Agreement pursuant to Section 5.1(a), then: (1) except in the case of death or disability, the Company shall continue to pay Employee his then-current salary for the remaining period of the applicable Term; (2) all stock options granted pursuant to this Agreement that would have vested during the Term shall vest immediately prior to such termination; and (3) the Company shall continue to provide all benefits subject to COBRA at its expense for up to one (1) year.
 
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6.2  In the event of a consummation of a Change in Control of the Company, and if the Employee gives notice of termination within ninety (90) days after such occurrence, then (i) all stock, stock options, restricted stock awards or units, and similar equity rights granted to the Employee shall immediately vest and remain fully exercisable through their original term with all rights; and (ii) the Company shall continue to pay the Employee his then-current salary for the shorter of (a) six (6) months, or (b) the remaining period of the applicable Term.

7.             Other Benefits.
 
In addition to all other benefits contained herein, the Employee shall be entitled to:
 
(a)           Relocation expenses for the Employee, consisting of (i) all reasonable direct out-of-pocket costs of transporting the Employee, the Employee’s immediate family, and the Employee's household items from the Employee's current residence in New Jersey to a new residence in the greater Boston, Massachusetts area; (ii) reasonable travel and lodging to visit the greater Boston, Massachusetts area to search for a new residence; (iii) reasonable costs of rent and primary services associated with temporary housing at an approved location in the greater Boston, Massachusetts area for a maximum period of six (6) months or until he finds a suitable residence, if earlier, (iv) reasonable costs of travel between his current residence and Boston, Massachusetts during the time he is living in temporary housing for a maximum period of six (6) months, (v) except as described in the next succeeding sentence and subject to prior approval, the reasonable closing costs associated with the Employee’s purchase of a new residence in the greater Boston, Massachusetts area within nine (9) months of the Employee's date of employment.  The following closing (settlement) costs will not be paid by the Company:  (1) real estate and other taxes, (2) insurance premiums other than title insurance, and (3) commitment fees and prepaid interest (i.e., "points") in excess of two percent (2%).
 
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(b)            Paid time-off of five (5) weeks per year taken in accordance with the paid time-off policy of the Company.
 
(c)            After six (6) years of employment, one three-month period of fully paid leave of absence in accordance with Company policies in place at that time; it being understood that such policies may restrict the Employee from taking such leave of absence until a time that is acceptable to the Company and may include other such limitations.
 
(d)           Group health, disability, long-term care and life insurance.
 
(e)           The Company shall provide the Employee with an automobile allowance of $750 per month and standard tax preparation and planning services.
 
(f)           To facilitate the Employee's relocation, the Company will provide the Employee with a transition advance (the “Advance”) in the total amount of $100,000,  $50,000 of which shall be payable by the Company within thirty (30) days of the start of employment, and $50,000 of which shall be payable, upon written request by the Employee to the Company at least five (5) days in advance of the date upon which the Employee is required to make a material down-payment towards the purchase of a new residence in the greater Boston area.  In order to be eligible to receive any portion of the Advance, the Employee must be a full-time employee of the Company at the time such payment is due.  The Employee shall be obligated to repay any portion of the Advance made by the Company immediately upon the occurrence of any of the following events:  (a) the Employee terminates his employment or this Agreement at any time prior to March 31, 2010, except as provided pursuant to Section 5.1 herein, or (b) the Company terminates this Agreement for Cause at any time pursuant to Section 4 herein.  As of April 1, 2010, the Advance shall no longer be subject to repayment by the Employee.  The Employee authorizes the Company to withhold from final wages, expense reimbursements, or other forms of compensation due to him at the time of separation any portion of the Advance that he is required to repay.
 
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8.
Confidentiality.
 
8.1           The Employee acknowledges that, during the course of performing his services hereunder, the Company shall be disclosing information to the Employee related to the Company's Field of Interest, Inventions, projects and business plans, as well as other information (collectively, "Confidential Information").  The Employee acknowledges that the Company's business is extremely competitive, dependent in part upon the maintenance of secrecy, and that any disclosure of the Confidential Information would result in serious harm to the Company.
 
8.2           The Employee agrees that the Confidential Information only shall be used by the Employee in connection with his activities hereunder as an employee of the Company, and shall not be used in any way that is detrimental to the Company.
 
8.3           The Employee agrees not to disclose, directly or indirectly, the Confidential Information to any third person or entity, other than representatives or agents of the Company.  The Employee shall treat all such information as confidential and proprietary property of the Company.
 
8.4           The term "Confidential Information" does not include information that (a) is or becomes generally available to the public other than by disclosure in violation of this Agreement, (b) was within the Employee's possession prior to being furnished to such Employee, (c) becomes available to the Employee on a nonconfidential basis or (d) was independently developed by the Employee without reference to the information provided by the Company.
 
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8.5            The Employee may disclose any Confidential Information that is required to be disclosed by law, government regulation or court order.  If disclosure is required, the Employee shall give the Company advance notice so that the Company may seek a protective order or take other action reasonable in light of the circumstances.
 
8.6           Upon termination of this Agreement, the Employee shall promptly return to the Company all materials containing Confidential Information, as well as data, records, reports and other property, furnished by the Company to the Employee or produced by the Employee in connection with services rendered hereunder.  Notwithstanding such return or any of the provisions of this Agreement, the Employee shall continue to be bound by the terms of the confidentiality provisions contained in this Section 8 for a period of three (3) years after the termination of this Agreement.
 
8.7           In connection with his employment by the Company, the Employee hereby acknowledges that he may enter into more than one agreement with regard to (a) the confidentiality of certain books, records, documents and business, (b) rights to certain inventions, proprietary information, and writings, (c) publication of certain materials, and (d) other related matters (the "Confidential Matters") of the Company (the "Confidentiality Agreements").  In order to clarify any potential conflicts between certain respective provisions of such Confidentiality Agreements, the Employee and the Company hereby agree that, as among such Confidentiality Agreements, the provision (or part thereof) in any such Confidentiality Agreement which affords the greatest protection to the Company with respect to the Confidential Matters shall control.
 
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9.             Inventions Discovered by the Employee WhilePerforming Services Hereunder.
 
During the Term, the Employee shall promptly disclose to the Company any invention, improvement, discovery, process, formula, or method or other intellectual property, whether or not patentable, whether or not copyrightable (collectively, "Inventions") made, conceived or first reduced to practice by the Employee, either alone or jointly with others, while performing service hereunder.  The Employee hereby assigns to the Company all of his right, title and interest in and to any such Inventions.  During and after the Term, the Employee shall execute any documents necessary to perfect the assignment of such Inventions to the Company and to enable the Company to apply for, obtain, and enforce patents and copyrights in any and all countries on such Inventions.  The Employee hereby irrevocably designates the Chief Patent Counsel to the Company as his agent and attorney-in-fact to execute and file any such document and to do all lawful acts necessary to apply for and obtain patents and copyrights and to enforce the Company's rights under this paragraph.  This Section 9 shall survive the termination of this Agreement.
 
 
10.
Non-Competition and Non-Solicitation.
 
During the Term and for a period of one year following the date of termination or nonrenewal for any reason (other than termination pursuant to Section 5.1(a):  (a) the Employee shall not in the United States or in any country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation engaged in any business competitive with the business of the Company or of any of its subsidiaries or affiliates of which the Employee may become an employee or officer during the Term; he shall not engage in such business on his own account; and he shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section 10 shall be deemed to prohibit the Employee from acquiring, solely as an investment, shares of capital stock of any public corporation;  (b) neither the Employee nor any Affiliate of the Employee shall solicit or utilize, or assist any person in any way to solicit or utilize, the services, directly or indirectly, of any of the Company's directors, consultants, members of the Board of Scientific and Medical Advisors, officers or employees (collectively, "Associates of the Company").  This nonsolicitation and nonutilization provision shall not apply to Associates of the Company who have previously terminated their relationship with the Company.
 
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10.1            If the Employee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 10, the Company shall have the following rights and remedies:
 
10.1.1                       The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Company and that money damages shall not provide an adequate remedy to the Company; and
 
10.1.2                       The right and remedy to require the Employee to account for and pay over to the Company all compensation, profits, monies, accruals,increments or other benefits (collectively "Benefits") derived or received by the Employee as the result of any transactions constituting a breach of any of the provisions of the preceding paragraph, and the Employee hereby agrees to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity.
 
10.2           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect without regard to the invalid portions.
 
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10.3           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, such provision shall then be enforceable.
 
10.4           The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in Sections 8, 9 and 10 upon the courts of any state within the geographical scope of such covenants.  In the event that the courts of any one or more of such states shall hold any such covenant wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants.
 
11.           Indemnification.
 
The Company shall indemnify the Employee, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company.  The Company shall provide, subject to its availability upon reasonable terms (which determination shall be made by the Board of Directors) at its expense, directors and officers insurance for the Employee in reasonable amounts.  Determination with respect to (a) the availability of insurance upon reasonable terms and (b) the amount of such insurance coverage shall be made by the Board of Directors in its sole discretion.
 
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12.           Notices.
 
All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by prepaid telegram (confirmed delivery by the telegram service), private overnight mail service (delivery confirmed by such service), registered or certified mail (return receipt requested), or delivered personally, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):
 
If to the Company:
 
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
Attention: Chief Executive Officer
Telephone: (617) 494-0400
Fax: (617) 494-1828

If to the Employee:
 
Raymond T. Keane, Esq.
44 Oakwood Way
West Windsor, New Jersey 08550
Telephone: (609) 936-8462
 
13.           General.
 
13.1           This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed entirely in Massachusetts.
 
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13.2            The Section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
 
13.3            This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof.  No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.
 
13.4            This Agreement and the Employee's rights and obligations hereunder may not be assigned by the Employee or the Company; provided, however, the Company may assign this Agreement to an Affiliate or a successor-in interest.
 
13.5           This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance.  The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same.  No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
 
14.           Definitions.  As used herein the following terms have the following meaning:
 
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(a)            "Affiliate" means and includes any corporation or other business entity controlling, controlled by or under common control with the corporation in question.
 
(b)           The “Company’s Field of Interest” is the discovery, development and commercialization of pharmaceutical products based on (a) intervention in signal transduction pathways and (b) gene and cell therapy.  The Company’s Field of Interest may be changed at any time at the sole discretion of the Company and upon written notice to Employee.
 
(c)            "Person" means any natural person, corporation, partnership, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental body or other entity.
 
(d)            "Subsidiary" means any corporation or other business entity directly or indirectly controlled by the corporation in question.
 
(e)           "Change in Control” means the occurrence of any of the following events (without the consent of the Employee):
 
(i)  Any corporation, person or other entity makes a tender or exchange offer for shares of the Company's Common Stock pursuant to which such corporation, person or other entity acquires more than 50% of the issued and outstanding shares of the Company's Common Stock;
 
(ii)  The stockholders of the Company approve a definitive agreement to merge or consolidate the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of the Company's assets; or
 
(iii) Any person within the meaning of Section 3 (a) (9) or Section 13 (d) of the Securities Exchange Act of 1934 acquires more than 50% of the combined voting power of Company's issued and outstanding voting securities entitled to vote in the election of the Board.
 
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[This space intentionally left blank.]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
 

 
ARIAD PHARMACEUTICALS, INC.
  
       
       
 
By:
/s/ Harvey J. Berger
  
     
   
Harvey J. Berger, M.D.
  
   
Chairman and Chief Executive Officer
  
       
       
 
EMPLOYEE
  
     
 
/s/ Raymond T. Keane
  
     
 
Raymond T. Keane, Esq.
  
.




 
 
 
 
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 EX-10.22.1 5 a5915319-ex10221.htm EXHIBIT 10.22.1 a5915319-ex10221.htm
Execution Copy
 
Exhibit 10.22.1
Executive Employment Agreement
 
EMPLOYMENT AGREEMENT (the "Agreement") made as of October 25, 2007 between ARIAD Pharmaceuticals, Inc. (the "Company") a Delaware corporation, and Matthew E. Ros (the "Employee").
 
 
1.
Employment, Duties and Acceptance.
 
1.1           The Company hereby employs the Employee, for the Term (as hereinafter defined), to render full-time services to the Company, and to perform such duties, as the Chief Commercial Officer of the Company shall reasonably direct him to perform.  The Employee's title shall be designated by the Chief Executive Officer and initially shall be Vice President, Marketing.
 
1.2            The Employee hereby accepts such employment and agrees to render the services described above.
 
1.3           The principal place of employment of the Employee hereunder shall be in the greater Boston, Massachusetts area, or other locations reasonably acceptable to the Employee.  The Employee acknowledges that for limited periods of time he may be required to provide services to the Company outside of the Boston, Massachusetts area.
 
1.4           Notwithstanding anything to the contrary herein, although the Employee shall provide services as a full-time employee, it is understood that the Employee may (a) have an academic appointment and (b) participate in professional activities (collectively, "Permitted Activities'); provided, however, that such Permitted Activities do not interfere with the Employee's duties to the Company.
 
1.5           The Employee represents and affirms that he does not have any other contractual obligations to any other person or entity that would prohibit or limit his employment with the Company, except for the duty not to use or disclose another entity’s confidential information without authorization.  Employee further acknowledges that the Company instructs him not to bring with him, use or disclose in the course of his employment any confidential information belonging to another person or entity, without that person or entity’s express authorization.
 
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2.            Term of Employment.
 
The term of the Employee's employment under this Agreement (the "Term") shall commence on November 19, 2007 (the "Effective Date"), or such other date mutually agreed upon by the parties, and shall end on October 31, 2010, unless sooner terminated pursuant to Section 4 or 5 of this Agreement; provided, however, that this Agreement shall automatically be renewed for successive one-year terms (the Term and, if the period of employment is so renewed, such additional period(s) of employment are collectively referred to herein as the "Term") unless terminated by written notice given by either party to the other at least ninety (90) days prior to the end of the applicable Term.
 
 
3.
Compensation.
 
3.1            As full compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay the Employee, during the Term, a salary at the fixed rate of $245,000 per annum during the first year of the Term and increased each year, by amounts, if any, to be determined by the Board of Directors of the Company (the "Board"), in its sole discretion, payable in equal biweekly installments, less such deductions or amounts to be withheld as shall be required by applicable law and regulations.
 
3.2            Each year, Employee shall be eligible to receive a discretionary bonus of up to 30% of base salary, which bonus shall be determined annually by the Board.  The bonus, if any, may be paid in the form of stock options, restricted stock awards or units, deferred compensation or cash, as determined by the Board.
 
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3.3            The Company shall pay or reimburse the Employee for all reasonable expenses actually incurred or paid by him during the Term in the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as it may require.
 
3.4            The Employee shall be eligible under any incentive plan, stock award plan, bonus, deferred or extra compensation plan, pension, group health, disability, long-term care, and life insurance or other so-called "fringe" benefits which the Company provides for its executives at the comparable level.  All stock options and restricted stock awards or units granted to the Employee shall be subject to a vesting schedule which shall be determined by the Compensation Committee of the Board.  The stock options and restricted stock awards or units, if any, granted to the Employee shall also be subject to the terms of the Company’s long-term incentive plan and certificates.  Any unvested stock options or restricted stock awards or units subject to repurchase shall be forfeited to the Company in the event (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein.
 
3.5           The Company shall grant the Employee an option to purchase 50,000 shares of the Company's Common Stock at the fair market value on the date of the Board's approval of the grant.  The Employee agrees that all such options shall be subject to a four-year vesting schedule, vesting in equal increments of 25% on each anniversary of their issuance.  Any unvested options shall be forfeited to the Company in the event (a) this Agreement is terminated by the Company for Cause pursuant to Section 4 herein, or (b) either party elects not to renew this Agreement pursuant to Section 2 herein.
 
4.            Termination by the Company.
 
The Company may terminate this Agreement, if any one or more of the following shall occur:
 
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(a)           The Employee shall die during the Term; provided, however, the Employee's legal representatives shall be entitled to receive the compensation provided for hereunder to the last day of the month in which his death occurs.
 
(b)            The Employee shall become physically or mentally disabled, whether totally or partially, so that he is unable substantially to perform his services hereunder for (i) a period of one-hundred eighty (180) consecutive days, or (ii) for shorter periods aggregating one-hundred eighty (180) days during any twelve (12) month period.
 
(c)  The Employee acts, or fails to act, in a manner that provides Cause for termination.  For purposes of this Agreement, the term "Cause" means (i) the failure by the Employee to perform any of his material duties hereunder, (ii) the conviction of the Employee of any felony involving moral turpitude, (iii) any acts of fraud or embezzlement by the Employee involving the Company or any of its Affiliates, (iv) violation of any federal, state or local law, or administrative regulation related to the business of the Company, (v) a conflict of interest, (vi) conduct that could result in publicity reflecting unfavorably on the Company in a material way, (vii) failure to comply with the written policies of the Company, or (viii) a breach of the terms of this Agreement by the Employee.  If the conduct constituting Cause hereunder is susceptible to cure, the Company shall provide the Employee written notice of termination pursuant to this Section 4, and Employee shall have thirty (30) days to cure or remedy such failure or breach, in which case this Agreement shall not be terminated. If the conduct is not susceptible to cure, this Agreement shall terminate upon written notice by the Company.
 
5.             Termination by the Employee.
 
                        5.1   The Employee may terminate this Agreement, if any one or more of the following shall occur:
 
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(a)            a material breach of the terms of this Agreement by the Company and such breach continues for thirty (30) days after the Employee gives the Company written notice of such breach;
 
(b)            the Company shall make a general assignment for benefit of creditors; or any proceeding shall be instituted by the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property or the Company shall take any corporate action to authorize any of the actions set forth above in this subsection 5(b);
 
(c)            an involuntary petition shall be filed or an action or proceeding otherwise commenced against the Company seeking reorganization, arrangement or readjustment of the Company's debts or for any other relief under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state or federal, now or hereafter existing and remain undismissed or unstayed for a period of thirty (30) days; or
 
(d)            a receiver, assignee, liquidator, trustee or similar officer for the Company or for all or any part of its property shall be appointed involuntarily.
 
6.             Severance.
 
6.1  If (i) the Company terminates this Agreement without Cause or (ii) the Employee terminates this Agreement pursuant to Section 5.1(a), then: (1) except in the case of death or disability, the Company shall continue to pay Employee his then-current salary for the remaining period of the applicable Term; (2) all stock options granted pursuant to this Agreement that would have vested during the Term shall vest immediately prior to such termination; and (3) the Company shall continue to provide all benefits subject to COBRA at its expense for up to one (1) year.
 
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7.             Other Benefits.
 
In addition to all other benefits contained herein, the Employee shall be entitled to:
 
(a)           Relocation expenses for the Employee, consisting of (i) all reasonable direct out-of-pocket costs of transporting the Employee, the Employee’s immediate family, and the Employee's household items from the Employee's current residence in Pennsylvania to a new residence in the greater Boston, Massachusetts area; (ii) reasonable travel and lodging to visit the greater Boston, Massachusetts area to search for a new residence; (iii) reasonable costs of rent and primary services associated with temporary housing at an approved location in the greater Boston, Massachusetts area for a maximum period of seven (7) months from January 1, 2008 or until he finds a suitable residence, if earlier, (iv) reasonable costs of travel between his current residence and Boston, Massachusetts during the time he is living in temporary housing for a maximum period of one-hundred eighty (180) days, (v) except as described in the next succeeding sentence and subject to prior approval, the reasonable closing costs associated with the Employee’s purchase of a new residence in the greater Boston, Massachusetts area within ten months of the Employee's date of employment.  The following closing (settlement) costs will not be paid by the Company:  (1) real estate and other taxes, (2) insurance premiums other than title insurance, and (3) commitment fees and prepaid interest (i.e., "points") in excess of 2%.
 
(b)            Paid time-off of five (5) weeks per year taken in accordance with the paid time-off policy of the Company.
 
(c)            After six (6) years of employment, one three-month period of fully paid leave of absence in accordance with Company policies in place at that time; it being understood that such policies may restrict the Employee from taking such leave of absence until a time that is acceptable to the Company and may include other such limitations.
 
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(d)           Group health, disability, long-term care and life insurance.
 
(e)           The Company shall provide the Employee with an automobile allowance of $750 per month and standard tax preparation and planning services.
 
(f)           To facilitate the Employee's relocation, the Company will provide the Employee with a transition advance (the “Advance”) in the total amount of $100,000,  $50,000 of which shall be payable by the Company within thirty (30) days of the start of employment, $25,000 of which shall be payable upon purchase of a new residence in the greater Boston area, and $25,000 of which shall be payable one (1) year after the purchase of said residence.  In order to be eligible to receive any portion of the Advance, the Employee must be a full-time employee of the Company at the time such payment is due.  The Employee shall be obligated to repay any portion of the Advance made by the Company immediately upon the occurrence of any of the following events:  (a) the Employee terminates his employment or this Agreement at any time prior to December 31, 2009, except as provided pursuant to Section 5.1 herein, or (b) the Company terminates this Agreement for Cause at any time pursuant to Section 4 herein.  As of January 1, 2010, the Advance shall no longer be subject to repayment by the Employee.  The Employee authorizes the Company to withhold from final wages, expense reimbursements, or other forms of compensation due to him at the time of separation any portion of the Advance that he is required to repay.
 
 
8.
Confidentiality.
 
8.1           The Employee acknowledges that, during the course of performing his services hereunder, the Company shall be disclosing information to the Employee related to the Company's Field of Interest, Inventions, projects and business plans, as well as other information (collectively, "Confidential Information").  The Employee acknowledges that the Company's business is extremely competitive, dependent in part upon the maintenance of secrecy, and that any disclosure of the Confidential Information would result in serious harm to the Company.
 
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8.2           The Employee agrees that the Confidential Information only shall be used by the Employee in connection with his activities hereunder as an employee of the Company, and shall not be used in any way that is detrimental to the Company.
 
8.3           The Employee agrees not to disclose, directly or indirectly, the Confidential Information to any third person or entity, other than representatives or agents of the Company.  The Employee shall treat all such information as confidential and proprietary property of the Company.
 
8.4           The term "Confidential Information" does not include information that (a) is or becomes generally available to the public other than by disclosure in violation of this Agreement, (b) was within the Employee's possession prior to being furnished to such Employee, (c) becomes available to the Employee on a nonconfidential basis or (d) was independently developed by the Employee without reference to the information provided by the Company.
 
8.5            The Employee may disclose any Confidential Information that is required to be disclosed by law, government regulation or court order.  If disclosure is required, the Employee shall give the Company advance notice so that the Company may seek a protective order or take other action reasonable in light of the circumstances.
 
8.6           Upon termination of this Agreement, the Employee shall promptly return to the Company all materials containing Confidential Information, as well as data, records, reports and other property, furnished by the Company to the Employee or produced by the Employee in connection with services rendered hereunder.  Notwithstanding such return or any of the provisions of this Agreement, the Employee shall continue to be bound by the terms of the confidentiality provisions contained in this Section 8 for a period of three (3) years after the termination of this Agreement.
 
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8.7           In connection with his employment by the Company, the Employee hereby acknowledges that he may enter into more than one agreement with regard to (a) the confidentiality of certain books, records, documents and business, (b) rights to certain inventions, proprietary information, and writings, (c) publication of certain materials, and (d) other related matters (the "Confidential Matters") of the Company (the "Confidentiality Agreements").  In order to clarify any potential conflicts between certain respective provisions of such Confidentiality Agreements, the Employee and the Company hereby agree that, as among such Confidentiality Agreements, the provision (or part thereof) in any such Confidentiality Agreement which affords the greatest protection to the Company with respect to the Confidential Matters shall control.
 
9.             Inventions Discovered by the Employee WhilePerforming Services Hereunder.
 
During the Term, the Employee shall promptly disclose to the Company any invention, improvement, discovery, process, formula, or method or other intellectual property, whether or not patentable, whether or not copyrightable (collectively, "Inventions") made, conceived or first reduced to practice by the Employee, either alone or jointly with others, while performing service hereunder.  The Employee hereby assigns to the Company all of his right, title and interest in and to any such Inventions.  During and after the Term, the Employee shall execute any documents necessary to perfect the assignment of such Inventions to the Company and to enable the Company to apply for, obtain, and enforce patents and copyrights in any and all countries on such Inventions.  The Employee hereby irrevocably designates the Chief Patent Counsel to the Company as his agent and attorney-in-fact to execute and file any such document and to do all lawful acts necessary to apply for and obtain patents and copyrights and to enforce the Company's rights under this paragraph.  This Section 9 shall survive the termination of this Agreement.
 
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10.
Non-Competition and Non-Solicitation.
 
During the Term and for a period of one year following the date of termination or nonrenewal for any reason (other than termination pursuant to Section 5.1(a):  (a) the Employee shall not in the United States or in any country in which the Company shall then be doing business, directly or indirectly, enter the employ of, or render any services to, any person, firm or corporation engaged in any business competitive with the business of the Company or of any of its subsidiaries or affiliates of which the Employee may become an employee or officer during the Term; he shall not engage in such business on his own account; and he shall not become interested in any such business, directly or indirectly, as an individual, partner, shareholder, director, officer, principal, agent, employee, trustee, consultant, or any other relationship or capacity; provided, however, that nothing contained in this Section 10 shall be deemed to prohibit the Employee from acquiring, solely as an investment, shares of capital stock of any public corporation;  (b) neither the Employee nor any Affiliate of the Employee shall solicit or utilize, or assist any person in any way to solicit or utilize, the services, directly or indirectly, of any of the Company's directors, consultants, members of the Board of Scientific and Medical Advisors, officers or employees (collectively, "Associates of the Company").  This nonsolicitation and nonutilization provision shall not apply to Associates of the Company who have previously terminated their relationship with the Company.
 
10.1            If the Employee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 10, the Company shall have the following rights and remedies:
 
10.1.1                       The right and remedy to have the provisions of this Agreement specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause irreparable injury to the Company and that money damages shall not provide an adequate remedy to the Company; and
 
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10.1.2                       The right and remedy to require the Employee to account for and pay over to the Company all compensation, profits, monies, accruals,increments or other benefits (collectively "Benefits") derived or received by the Employee as the result of any transactions constituting a breach of any of the provisions of the preceding paragraph, and the Employee hereby agrees to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the other, and shall be severally enforceable, and all of such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity.
 
10.2           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect without regard to the invalid portions.
 
10.3           If any of the covenants contained in Section 8, 9 or 10, or any part thereof, is held to be unenforceable because of the duration of such provision or the area covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration and/or area of such provision and, in its reduced form, such provision shall then be enforceable.
 
10.4           The parties hereto intend to and hereby confer jurisdiction to enforce the covenants contained in Sections 8, 9 and 10 upon the courts of any state within the geographical scope of such covenants.  In the event that the courts of any one or more of such states shall hold any such covenant wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination not bar or in any way affect the Company's right to the relief provided above in the courts of any other states within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants.
 
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11.           Indemnification.
 
The Company shall indemnify the Employee, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company.  The Company shall provide, subject to its availability upon reasonable terms (which determination shall be made by the Board of Directors) at its expense, directors and officers insurance for the Employee in reasonable amounts.  Determination with respect to (a) the availability of insurance upon reasonable terms and (b) the amount of such insurance coverage shall be made by the Board of Directors in its sole discretion.
 
12.           Notices.
 
All notices, requests, consents and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by prepaid telegram (confirmed delivery by the telegram service), private overnight mail service (delivery confirmed by such service), registered or certified mail (return receipt requested), or delivered personally, as follows (or to such other address as either party shall designate by notice in writing to the other in accordance herewith):
 
 
If to the Company:
 
ARIAD Pharmaceuticals, Inc.
26 Landsdowne Street
Cambridge, Massachusetts 02139
Attention: Chief Executive Officer
Telephone: (617) 494-0400
Fax: (617) 494-1828
 
 
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If to the Employee:
 
Matthew E. Ros
5099 Grundy Way
Doylestown, Pennsylvania 18901
Telephone: (267) 880-0482
 
13.           General.
 
13.1           This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed entirely in Massachusetts.
 
13.2            The Section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
 
13.3            This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof.  No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth.
 
13.4            This Agreement and the Employee's rights and obligations hereunder may not be assigned by the Employee or the Company; provided, however, the Company may assign this Agreement to an Affiliate or a successor-in interest.
 
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13.5           This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms or covenants hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance.  The failure of a party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same.  No waiver by a party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
 
14.           Definitions.  As used herein the following terms have the following meaning:
 
(a)            "Affiliate" means and includes any corporation or other business entity controlling, controlled by or under common control with the corporation in question.
 
(b)           The “Company’s Field of Interest” is the discovery, development and commercialization of pharmaceutical products based on (a) intervention in signal transduction pathways and (b) gene and cell therapy.  The Company’s Field of Interest may be changed at any time at the sole discretion of the Company and upon written notice to Employee.
 
(c)            "Person" means any natural person, corporation, partnership, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental body or other entity.
 
(d)            "Subsidiary" means any corporation or other business entity directly or indirectly controlled by the corporation in question.
 
(e)           "Change in Control” means the occurrence of any of the following events (without the consent of the Employee):
 
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(i)  Any corporation, person or other entity makes a tender or exchange offer for shares of the Company's Common Stock pursuant to which such corporation, person or other entity acquires more than 50% of the issued and outstanding shares of the Company's Common Stock;
 
(ii)  The stockholders of the Company approve a definitive agreement to merge or consolidate the Company with or into another corporation or to sell or otherwise dispose of all or substantially all of the Company's assets; or
 
(iii) Any person within the meaning of Section 3 (a) (9) or Section 13 (d) of the Securities Exchange Act of 1934 acquires more than 50% of the combined voting power of Company's issued and outstanding voting securities entitled to vote in the election of the Board.


 
 
[This space intentionally left blank.]
 
 
 
 
 
 
 
 
 
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
 
 
 
ARIAD PHARMACEUTICALS, INC.
  
       
       
 
By:
/s/ Harvey J. Berger
  
     
   
Harvey J. Berger, M.D.
  
   
Chairman and Chief Executive Officer
  
       
       
 
EMPLOYEE
  
       
       
 
/s/  Matthew E. Ros
  
     
  Matthew E. Ros   
 
 
 
 
 
 
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 EX-10.22.4 6 a5915319-ex10224.htm EXHIBIT 10.22.4 a5915319-ex10224.htm
Execution Copy
 
Exhibit 10.22.4
 

THIRD AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (the “ Third Amendment") made as of January 8, 2009, between ARIAD Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Matthew E. Ros (the "Employee").

The Company and the Employee have entered into an Employment Agreement dated as of October 25, 2007 (the "Agreement"), as previously amended, and the parties hereto desire to further amend certain provisions of the Agreement.

NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree to further amend the Agreement as follows:

I.           Employment, Duties and Acceptance.  The second sentence of Section 1.1 is hereby amended to read as follows:

"The Employee's title shall be designated by the Chief Executive Officer and initially shall be Senior Vice President, Commercial Operations.

II.           Termination by the Employee. Section 5 is hereby replaced and amended in its entirety as follows:

"5.1.  The Employee may terminate this Agreement, if any one or more of the following shall occur:
 
(a) a material breach of the terms of this Agreement by the Company and such breach continues for thirty (30) days after the Employee gives the Company written notice of such breach;
 
(b) the Company shall make a general assignment for benefit of creditors; or any proceeding shall be instituted by the Company seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking entry of an order for relief of the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property or the Company shall take any corporate action to authorize any of the actions set forth above in this subsection 5.1(b);

(c) an involuntary petition shall be filed or an action or proceeding otherwise commenced against the Company seeking reorganization, arrangement or readjustment of the Company's debts or for any other relief under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency act or law, state or federal, now or hereafter existing and remain undismissed or unstayed for a period of thirty (30) days;

(d) a receiver, assignee, liquidator, trustee or similar officer for the Company or for all or any part of its property shall be appointed involuntarily; or

(e)           a Change in Control as defined in Section 14(e)."
 
 
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III.           Severance.   Section 6 is hereby replaced and amended in its entirety as follows:

"6.1   If (i) the Company terminates this Agreement without Cause or (ii) the Employee terminates this Agreement pursuant to Section 5.1(a), then: (1) except in the case of death or disability, the Company shall continue to pay Employee his then-current salary for the remaining period of the applicable Term; (2) all stock options granted pursuant to this Agreement that would have vested during the Term shall vest immediately prior to such termination; and (3) the Company shall continue to provide all benefits subject to COBRA at its expense for up to one (1) year.

It is intended that salary continuation payments under this Section 6.1 that are paid no later than December 31st of the second full calendar year following the calendar year in which the Employee separates from service shall be exempt from Section 409A as payments resulting from an involuntary separation from service under to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations.

6.2   In the event of a consummation of a Change in Control of the Company, and if the Employee gives notice of termination within ninety (90) days after such occurrence, then (i) all stock, stock options, stock awards and similar equity rights granted to the Employee shall immediately vest and remain fully exercisable through their original term with all rights; and (ii) the Company shall continue to pay Employee his then-current salary for the shorter of (a) six (6) months, or (b) the remaining period of the applicable Term.  Notwithstanding the foregoing, the notice of termination must be provided no later than the March 15th immediately following the calendar year in which the Change in Control occurs (the ‘Short-Term Deferral Payment Due Date’), and all continued salary payments must be completed not later than Short-Term Deferral Payment Due Date.  Any amount paid under clause (ii) of this Section 6.2 is intended to satisfy the ‘short-term deferral’ rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations, and shall not be deferred compensation subject to Section 409A.”

IV.           Section 14.5 is hereby amended to insert the following words at the end of the first parenthetical contained in such Section:  “ but excluding Section 6.2”.

V.           This Amendment shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts applicable to agreements made and to be performed entirely in Massachusetts.

VI.           Except as modified by this Third Amendment, the Agreement remains in full force and effect and unchanged.

IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the date first written above.
 
 
 
ARIAD PHARMACEUTICALS, INC.
  
       
       
 
By:
/s/ Harvey J. Berger
  
     
   
Harvey J. Berger, M.D.
  
   
Chairman and Chief Executive Officer
  
       
       
 
EMPLOYEE
  
       
 
/s/ Matthew E. Ros
  
     
 
Matthew E. Ros
  
 
 
 
 
 
 
 
 
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 EX-10.23 7 a5915319-ex1023.htm EXHIBIT 10.23 a5915319-ex1023.htm
 Exhibit 10.23


AMENDMENTS TO EMPLOYMENT AGREEMENTS

ARIAD Pharmaceuticals, Inc. (the “Company”) entered into an amendment to the employment agreement between the Company and each of the following executive officers, on October 14, 2008, to extend the term of employment thereunder as follows:

 
Term of Agreement Extended
Name and Title
From
To
 
(December 31 of each year)
Harvey J. Berger, M.D.
Chairman and Chief Executive Officer
2011
2013
     
David L. Berstein, Esq.
Senior Vice President, Chief Intellectual Property Officer
2010
2011
     
Timothy P. Clackson, Ph.D.
Senior Vice President, Chief Scientific Officer
2010
2012
     
Edward M. Fitzgerald
Senior Vice President, Chief Financial Officer and Treasurer
2010
2012
     
Pierre F. Dodion, M.D.
Senior Vice President, Chief Medical Officer
2009
2011
     
Raymond T. Keane, Esq.
 Vice President, General Counsel, Secretary and Chief Compliance Officer
2010
2011
     
Matthew E. Ros
 Vice President, Commercial Operations
2010
2011


The term of employment for each officer is thereafter subject to automatic renewal for successive one-year terms (three-year terms in the case of Dr. Berger) absent notice to the contrary by either party.
 EX-10.24 8 a5915319-ex1024.htm EXHIBIT 10.24 a5915319-ex1024.htm
Exhibit 10.24

FORM OF
SECTION 409A AMENDMENT
TO
EMPLOYMENT AGREEMENT


THIS AMENDMENT TO EMPLOYMENT AGREEMENT (the “Amendment”) is made December 31, 2008, by and between ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”) and ________________ (the “Employee”).
 
WHEREAS, the Company and the Employee entered into that certain Employment Agreement dated as of ____________, as last amended on _____________ (the “Employment Agreement”);

WHEREAS, the Company has determined with the assistance of outside legal counsel that an amendment to the Employment Agreement is necessary by December 31, 2008 in order to comply with, or be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”);
 
WHEREAS, the Company has proposed amendments to avoid violating final regulations issued under Section 409A of the Code as practicable without impacting the Employee’s substantive rights under the Employment Agreement;
 
WHEREAS, the Employee agrees to amend the Employment Agreement in the form set forth below in order to avoid violating Section 409A of the Code.
 
NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is acknowledged, the parties hereto agree as follows effective as of December 31, 2008:
 
1.           The following sentence is hereby added at the end of Section 5.1 of the Employment Agreement:
 
“In no event shall the Employee be entitled to terminate employment with the Company on account of an event described in this Section 5.1 unless the Employee provides notice of the existence of a purported condition described above within a period not to exceed ninety days of its initial existence, and the Company fails to cure such condition (if curable) within thirty days after the receipt of such notice.”

2.           The following sentence shall be added at the end of Section 6 of the Employment Agreement:

“It is intended that salary continuation payments under this Section 6 that are paid no later than December 31st of the second full calendar year following the calendar year in which the Employee separates from service shall be exempt from Section 409A as payments resulting from an involuntary separation from service under to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations.”

3.           The following sentences shall also be added at the end of Section 6 of the Employment Agreement:

“Notwithstanding the foregoing, the notice of termination must be provided no later than the March 15th immediately following the calendar year in which the Change in Control occurs (the ‘Short-Term Deferral Payment Due Date’), and all continued salary payments must be completed not later than Short-Term Deferral Payment Due Date.  Any amount paid under clause (ii) of the second paragraph of this Section 6 is intended to satisfy the "short-term deferral" rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations, and shall not be deferred compensation subject to Section 409A.”
 

4.           Section 7(b) of the Employment Agreement shall be amended in its entirety to read as follows:

“After six (6) years of full-time employment, one three-month period of fully paid leave of absence in accordance with the Company’s Officer Sabbatical Policy in place at that time.”

5.           Section 14 is renumbered Section 15 and a new Section 14 is added to the Employment Agreement as follows:

“14.           Section 409A

14.1           The parties agree that this Agreement shall be interpreted to comply with or be exempt from Section 409A and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.

14.2           If the Employee is considered by the Company to be a ‘specified employee’ (within the meaning of Section 409A) upon separation from service, then with regard to any payment or the provision of any benefit that is otherwise considered deferred compensation under Section 409A payable on account of separation from service, such payment or benefit shall be made or provided at the date which is the earlier of (i) the first payroll period commencing during the seventh month immediately following the date of such separation from service, and (ii) the date of Employee’s death (the ‘Delay Period’).  Upon the expiration of the Delay Period, all payments and benefits delayed hereunder (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Employee in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

14.3           Each payment and benefit payable under this Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.  For avoidance of doubt, salary continuation benefits and continued employer paid COBRA benefits described in Section 6 are intended to be exempt from the delayed payment restriction in Section 14.2.

14.4           All expenses or other reimbursements as provided under the Agreement shall be payable in accordance with the Company’s policies in effect from time to time, but in any event shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Employee.  No reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year and the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchanged for another benefit.

14.5           All payments and benefits that are payable upon a termination of the Agreement (including the first paragraph of Section 6 but excluding the second paragraph of  Section 6) or a termination of the Employee’ employment hereunder shall be paid or provided only upon the Employee’s  ‘separation from service’ from the Company within the meaning of Section 409A (determined after applying the presumptions set forth in Section 1.409A-1(h)(1) of the Treasury Regulations.”
 
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6.             Section 15 of the Employment Agreement shall be amended by adding a new Section 15(f) as follows:

“(f)           ‘Section 409A’ means Section 409A of the Internal Revenue Code of 1986, as amended, and the final regulations and any guidance promulgated thereunder.”

7.             All other terms of the Employment Agreement shall remain in full force and effect.
 
This instrument, together with the Employment Agreement, contains the entire agreement of the parties with respect to the subject matter hereof.

IN WITNESS WHEREOF, the Employee and the Company have caused this Agreement to be executed as of the day and year first written above.
 
 
ARIAD PHARMACEUTICALS , INC.
  
       
       
       
 
By:
    
   
Name:
  
   
Title:
  
       
       
       
   
Name:
  
       

 
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Schedule

The Executive Officers listed in the table below have all executed this Section 409A Amendment to Employment Agreement as of December 31, 2008.

Name and Title
 
Harvey J. Berger, M.D.
Chairman and Chief Executive Officer
 
John D. Iuliucci, Ph.D.
Senior Vice President, Development
 
David L. Berstein, Esq.
Senior Vice President, Chief Intellectual Property Officer
 
Timothy P. Clackson, Ph.D.
Senior Vice President, Chief Scientific Officer
 
Edward M. Fitzgerald
Senior Vice President, Chief Financial Officer and Treasurer
 
Pierre F. Dodion, M.D.
Senior Vice President, Chief Medical Officer
 
Daniel M. Bollag, Ph.D.
Senior Vice President of Regulatory Affairs and Quality
 
Raymond T. Keane, Esq.
Vice President, General Counsel, Secretary
and Chief Compliance Officer
 
Matthew E. Ros
Vice President, Commercial Operations
 

 
 
 
 
 
 
4
 EX-10.31 9 a5915319-ex1031.htm EXHIBIT 10.31 a5915319-ex1031.htm
Exhibit 10.31

 

 

 
 
 

 

 

 

 
ARIAD PHARMACEUTICALS, INC.
 
2005 EXECUTIVE COMPENSATION PLAN
 
(AS AMENDED AND RESTATED EFFECTIVE AS OF OCTOBER 1, 2005)
 

 

 

 

 

 

 
 
 
 
 
 
 
 
ARIAD PHARMACEUTICALS, INC.
 
2005 EXECUTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED
 
TABLE OF CONTENTS
 

 

 

 
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ARIAD PHARMACEUTICALS, INC.
 
2005 EXECUTIVE COMPENSATION PLAN, AS AMENDED AND RESTATED
 

 
ARIAD Pharmaceuticals, Inc. (the “Company”) hereby amends and restates the 2005 ARIAD Pharmaceuticals, Inc. Executive Compensation Plan (the “Plan”) effective as of October 1, 2005 (the “Effective Date”).
 
 
PURPOSE
 
1.1           Purpose.  The purpose of the Plan is to assist the Company and any Affiliate (as defined below) to recruit, motivate and retain executive officers, key employees and key advisors who will contribute to the Company’s long range success by providing incentives in a form that will reward superior performance and provide tax-advantaged savings opportunities.
 
1.2           Intent.  The Plan is intended to be an unfunded deferred compensation arrangement for the benefit of a select group of management and highly compensated employees of the Company and its Affiliates, within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).  As such, the Plan is intended to be a “top hat” plan exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA.  Any obligation of the Company or its Affiliates to pay benefits hereunder shall be deemed to be an unsecured promise, and any right of a Participant (as defined below) or Beneficiary (as defined below) to enforce such obligation shall be solely as a general creditor of the Company.
 
 
DEFINITIONS
 
2.1           “Account” means one or more bookkeeping entries maintained by the Committee with respect to each Participant.
 
2.2           “Affiliate” means any corporation or other form of entity of which the Company owns, directly or indirectly, fifty percent or more of the total combined voting power of all classes of stock or other equity interests, provided that such entity is designated by the Committee as a participating entity hereunder.
 
2.3           “Award” means a credit made to a Participant’s Account in accordance with the provisions of Article V hereof, as the case may be.  An Award may either be an Annual Award under Section 5.1 or an Initial Award under Section 5.2.
 
2.4           “Beneficiary” means the person, persons, entity or entities designated by a Participant in accordance with Article VIII of the Plan.  If no Beneficiary is designated with respect to the Plan, a Participant’s designation made under the Prior Plan shall control; if there is no such designation or such designation cannot be administered, a Participant’s designation under the ARIAD Retirement Savings Plan (or the default provisions thereof) shall control.
 
2.5           “Board” or “Board of Directors” means the Board of Directors of the Company.
 
2.6           “Bonus” means remuneration that (i) is “performance-based compensation,” as defined by Section 409A(a)(4)(B)(iii) of the Code, (ii) is designated as a Bonus by the Committee and (iii) relates to services performed by a Participant during a performance period of at least twelve months.  A Bonus shall not include an Award granted under Article V of the Plan.
 
 
 
 
 
2.7           “Change of Control” means any one of the following events:
 
(a)            any “person” (as such term is defined in Section 3(a)(9) of Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), or more than one person acting as a group (within the meaning of Section 409A of the Code), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) directly or indirectly securities of the Company representing more than 50% of the combined voting power of the Company’s securities; provided, however, that the event described in this clause (a) shall not be deemed to be a Change in Control by virtue of any of the following acquisitions: (i) by the Company or any of its subsidiaries, (ii) by any employee benefit plan sponsored or maintained by the Company or any of its subsidiaries, or (iii) by any underwriter temporarily holding securities pursuant to an offering of such securities.
 
 
(b)            the date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board (not including an endorsement by any individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company) before the date of the appointment or election.
 
 
(c)           the consummation of a merger, consolidation, or other similar form of corporate reorganization of the Company, other than a merger, consolidation or reorganization which would result in the voting securities of the Company outstanding immediately prior to such merger, consolidation or reorganization continuing to represent (either by remaining outstanding or being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power or the total fair market value of the securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation; or
 
 
(d)           a sale of all or substantially all of the Company’s assets is consummated.
 
2.8           “Code” means the Internal Revenue Code of 1986, as amended, related regulations and, in the absence of regulations, revenue rulings, revenue procedures, notices or transition guidance from the IRS.
 
2.9           “Committee” means the Compensation Committee of the Board, which shall act as the administrator of the Plan.
 
2.10           “Company” means ARIAD Pharmaceuticals, Inc. or its successor.
 
2.11           “Compensation” means the Participant’s Salary and Bonus.
 
2.12           “Deferrals” means the portion of Compensation that a Participant elects to defer under the Plan in accordance with Section 4.1.
 
2.13           “Deferral Election” means the separate written agreement, submitted to the Committee, by which a Participant agrees to participate in the Plan and make Deferrals.
 
2.14           “Installment Period” means the period for paying installments as elected by the Participant under a Payment Election Form that complies with Section 7.3(a).
 
2.15           “Investment Funds” means the investment funds designated by the Committee from time to time for the purpose of determining the investment return to be credited to each Participant’s Account.  Participants shall not have the right to designate Investment Funds.
 
 
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2.16           “Participant” means an executive officer, key employee or key advisor of the Company or its Affiliates for whom an Account is maintained hereunder.
 
2.17           “Payment Date” means the last day of the first calendar month that is at least sixty (60) days after the date or event triggering payment under the Plan, or as soon as practicable thereafter.
 
2.18           “Payment Election Form” means a form required to be used by Participants to elect the time and form of benefit payments under Section 7.1 of the Plan.
 
2.19           “Plan” means this 2005 ARIAD Pharmaceuticals, Inc. Executive Compensation Plan, as the same may be amended or restated from time to time.
 
2.20           “Plan Year” means the 12-month period beginning each January 1st and ending each December 31st; provided, however, that the first Plan Year means the period from October 1, 2005 to December 31, 2005.
 
2.21           “Prior Plan” means the ARIAD Pharmaceuticals, Inc. Executive Compensation Plan, which was first approved on September 16, 1997.
 
2.22           “Salary” means a Participant’s base salary rate or rates in effect at the time of a Participant’s Deferral Election.
 
2.23           “Separation from Service” means cessation of service with the Company and its Affiliates within the meaning of Section 409A of the Code (after giving effect to the presumptions contained therein).
 
2.24           “Unforeseeable Emergency” means the occurrence of a severe financial hardship resulting from (i) an illness or accident of a Participant or his or her spouse or dependents, (ii) the loss of a Participant’s property due to casualty or (iii) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of a Participant.
 
2.25           “Valuation Date” means (a) the last day of each calendar quarter for purposes of periodically adjusting Account balances under Article VI, (b) the last day of the calendar month for purposes of paying Account balances under Articles VII, VIII and XI, and (c) any other date or dates as may be designated in good faith by the Committee.
 
 
PARTICIPATION
 
3.1           Eligibility.  Executive officers, key employees and key advisors of the Company or an Affiliate shall participate in the Plan when and as designated by the Committee in its sole discretion, which designation may be made individually or by groups or categories, in the discretion of the Committee.  The Committee shall notify each individual who becomes eligible to participate in the Plan.  Without the necessity of further action, Participants hereunder shall include those individuals listed on Schedule A hereto, which shall be deemed a part of the Plan by this reference.
 
3.2           Loss of Eligible Status.  If the Committee determines that a Participant shall no longer be eligible to participate in the Plan, such Participant shall no longer be entitled to receive an Award or make Deferrals thereafter.  However, amounts credited to the Account of such Participant shall continue to be held pursuant to the terms of the Plan and shall be distributed as provided in Article VII or Article VIII.

 
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DEFERRALS
 
4.1           Right to Defer Compensation.  The Committee may from time to time in its sole discretion allow Participants to defer payment of part of their Compensation under the Plan on a pre-tax basis under this Article IV.  If a Participant is allowed to defer Compensation for a Plan Year, the Committee shall credit to the Account of a Participant an amount equal to the amount designated in the Participant’s Deferral Election for that Plan Year.  Amounts shall not be made available to such Participant, except as provided in Article VII, and shall reduce such Participant’s Compensation in accordance with the provisions of the applicable Deferral Election.

4.2           Timing for Deferral Elections.  A Deferral Election shall be void with respect to Salary unless submitted before the beginning of the calendar year during which the amount to be deferred will be earned.  A Deferral Election shall be void with respect to any Bonus unless submitted at least six months prior to the end of the performance period over which the services for such Bonus are performed.  Notwithstanding the foregoing, in the year in which the Plan is first adopted or an individual is first eligible to participate, such Deferral Election may be filed within thirty (30) days of the date on which the Plan is adopted or the date on which such individual is first eligible to participate (after taking into account the plan aggregation rules under Section 409A of the Code), respectively, with respect to Compensation earned during the remainder of the calendar year after the filing and acceptance of such Deferral Election.  A Deferral Election must be delivered to the Committee before any Deferrals can become effective.

4.3           Matters for Deferral Election.  A Participant’s Deferral Election shall, subject to the limitation set forth in Section 4.4 hereof, designate the amount of Compensation to be deferred on the Participant’s behalf as a fixed dollar amount, the Beneficiary to receive any Death Benefits and such other items as may be prescribed by the Committee.  A Participant shall file a Payment Election Form (as defined in Section 7.1 below) with the Committee at the same time as a Deferral Election.  A Deferral Election filed by a Participant for a Plan Year shall be irrevocable after the beginning of such Plan Year except as may be permitted by the Committee consistent with the requirements of Section 409A of the Code.

4.4           Minimum and Maximum Deferral.  The minimum amount that may be deferred hereunder each Plan Year is ten thousand dollars ($10,000).  The maximum amount that may be deferred hereunder each Plan Year is fifty percent (50%) of the Participant’s Salary and one hundred percent (100%) of the Participant’s Bonus.

4.5           Vesting.  A Participant shall have a fully vested right to the portion of his or her Account attributable to Deferrals and any earnings or losses on the deemed investment of the Deferrals at all times.

 
AWARDS
 
5.1           Annual Awards.  The Committee reserves the right annually to award credits (each, an “Annual Award”) to Accounts in its sole discretion.  The Committee may grant Annual Awards in such amounts and in such manner as it considers appropriate or desirable.
 
(a)           Performance-based Awards.  Performance-based Awards shall be based on a Participant attaining pre-established organizational or individual performance criteria over a performance period of at least twelve months or with respect to other circumstances as described below.  Performance criteria may be objective or subjective in nature, provided that the criteria relate to the performance of the Participant, a group of service providers that includes the Participant, the Company, or any business unit (including an Affiliate) to which the Participant provides services.  The Committee shall establish performance criteria not later than ninety days after the beginning of the performance period, provided that the outcome is not substantially certain at the time the criteria are established.  The Committee shall independently determine to what extent performance criteria have been satisfied for an Award.  The Committee shall grant and administer performance-based Awards so as to qualify them as “performance-based compensation” as defined under Section 409A(a)(4)(B)(iii) of the Code.
 
(b)           Ad Hoc Awards.  The Committee may grant an Annual Award in a form other than a performance-based Award under Section 5.1(a) above, provided that the grant must be subject to a bona fide vesting condition requiring continued services by the Participant over a period of at least twelve months.
 
 
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A Participant who receives an Annual Award with respect to all or part of a Plan Year shall not have the right to receive an Annual Award in a subsequent Plan Year.  Any power that may be exercised by the Committee under this Section 5.1 may be delegated to an officer of the Company as provided under Section 9.3 below.
 
5.2           Initial Award.  An individual providing services to the Company or an Affiliate who became a Participant on the Effective Date and who participated in the Prior Plan shall receive an Initial Award under this Section 5.2 equal to the “Rollover Amount” (as defined under Section 3.10 of the Prior Plan) and any additional amount that may be determined by the Committee in its sole discretion.  Except as provided to the contrary in Section 5.4 below, the Initial Award shall be subject to the same terms and conditions as any other Award granted under the Plan.
 
5.3           Vesting of Annual Awards.  A Participant shall have a vested right to the portion of his or her Account attributable to a specific Annual Award and any earnings or losses on the deemed investment of such Annual Awards according to such vesting schedule as the Committee shall determine at the time an Annual Award is made.
 
5.4           Vesting of Initial Award.  A Participant shall have a vested right to the portion of his or her Account attributable to his or her Rollover Amount and any earnings or losses on the investment of his or her Rollover Amount according to the vesting schedule as in effect under Section 3.4 of the Prior Plan.  Any additional amount that may be determined by the Committee as part of the Initial Award shall vest (a) fifty percent upon the first anniversary of the grant date and (b) one hundred percent upon the second anniversary of the grant date; provided that the Participant is then employed or otherwise providing services to the Company and/or its Affiliates on such date.
 
5.5           Discretionary Vesting on Change of Control.  Notwithstanding anything to the contrary in Sections 5.3 and 5.4, upon a Change of Control, the Committee may elect to accelerate the vesting of some or all amounts credited to a Participant’s Account upon such Change of Control.  For avoidance of doubt, nothing in this Section 5.5 shall be construed to prohibited accelerated vesting upon a Change of Control or similar event to the extent required under an employment agreement or other contract with a Participant.
 
5.6           Amounts Not Vested.  Any amounts credited to a Participant’s Account with respect to an Award granted under Article V and any earnings or losses on the investment of such Awards that are not vested at the time of the Participant’s Separation from Service shall be forfeited.
 
 
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ACCOUNTS AND ACCOUNTING
 
6.1           Establishment of Accounts.  The Committee shall establish and maintain an Account with respect to each Participant.  The Committee shall establish and maintain sub-accounts as it determines are necessary, appropriate or desirable to track vested amounts and to administer Payment Elections under the Plan.

6.2           Status of Accounts.  Accounts are bookkeeping entries only.  Assets that may be set aside by the Company or an Affiliate to pay for Plan benefits shall not create a trust or other form of fiduciary relationship between the Company, its Affiliates and any persons entitled to a benefit under the Plan.  No Participant or Beneficiary shall have rights or interests in any specific asset of the Company or of any Affiliate under the Plan.
 
6.3           Investment Funds.  The Committee shall credit a “hypothetical rate of return” to the Accounts on each Valuation Date.  The rate shall equal the actual investment performance of one or more Investment Funds selected by the Committee.  The Committee shall have the right to add and delete investment funds, on a prospective basis.  Each Participant’s Account will be credited monthly with a “hypothetical rate of return” under Section 6.4 until the amount in each Participant’s Account is completely distributed to the Participant.  Nothing contained in this Article VI shall in any way require the Company to make actual investments of deferred amounts in any particular investment vehicle, including the Investment Funds.
 
6.4           Accounting.  As of each Valuation Date, each Account:
 
(a)           will be increased or decreased to reflect the investment experience of the Investment Funds selected by the Committee for the period since the immediately preceding Valuation Date;
 
(b)           will be credited with the amount of any Deferral or Award made on a Participant’s behalf since the immediately preceding Valuation Date;
 
(c)           will be reduced by the amount of any payment from the Account made since the immediately preceding Valuation Date, including any tax withholding payments made under Section 10.4; and
 
(d)           will be reduced by the amount of any forfeitures since the immediately preceding Valuation Date.
 
 
PAYMENT OF ACCOUNTS
 
7.1           Payment Elections.  A Participant shall file a “Payment Election Form” designating the time and form of payment of his or her Account with the Committee.  Designations may be made separately with respect to each Award and Deferral except as otherwise provided by the Committee.  To be valid, a Payment Election Form must be filed as follows:
 
(a)           Initial Award: no later than 90 days after the Effective Date.
 
(b)           Performance-based Award (other than a Bonus): not later than the end of the sixth month after the beginning of the performance period for that Annual Award.
 
(c)           Ad hoc Award: not later than thirty days after the grant date.
 
(d)           Deferral: at the same time as the applicable Deferral Election under Article IV of the Plan.
 
 
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A Payment Election Form shall be irrevocable except that it can be changed prior to the applicable deadlines noted above or as allowed under Section 7.5 below.  A Participant’s failure to properly and timely file a Payment Election Form shall result in payment being made in a lump sum not later than two and one-half months after the calendar year in which such Deferral or Award first becomes vested.
 
7.2           Time of Payment.  A Participant is eligible to receive payment in connection with:
 
(a)           a specified date, which may include vesting of an Award,
 
(b)           the first anniversary of the Participant’s Separation from Service, or
 
(c)           the earlier of (a) or (b) (each, a “Benefit Eligibility Date”).
 
Payment of a Participant’s Account shall commence on the Payment Date that immediately follows the Benefit Eligibility Date elected by the Participant; provided, however, that a Participant may modify his or her Payment Election Form to change the time of payment under Section 7.5.  The Committee shall establish rules from time to time setting forth which dates may be specified by a Participant in a Payment Election Form consistent with the requirements of Section 409A of the Code. Notwithstanding the elected time of payment, the Committee may elect to accelerate payment of a Participant’s Account under Section 7.6 (regarding small payments).
 
7.3           Forms of Payment.  To the extent provided by the Committee, Participant may elect in his or her Payment Election Form one of the following forms of payment with respect to any Award or Deferral (including any applicable earnings): (a) substantially equal annual installment payments for a period not to exceed 20 years, or (b) a single-sum payment.  Each installment payment shall be treated as a separate payment for purposes of Section 409A of the Code.  A Participant may modify his or her Payment Election Form to change the form of payment under Section 7.5.  Notwithstanding the elected form of payment, the Committee may elect to pay a Participant’s Account in a single lump sum under Section 7.6 (regarding small payments).
 
7.4           Amount of Participant’s Account Available for Payment.  The amount of a Participant’s Account available for payment shall be determined as follows:
 
(a)           Lump Sum Payment.  The amount of any lump sum payment shall equal the Participant’s vested Account balance as of the Valuation Date that immediately precedes the applicable Payment Date.
 
(b)           Installment Payment.  The amount of any installment payment shall equal the Participant’s vested Account balance as of the Valuation Date that immediately precedes the applicable Payment Date, multiplied by a fraction (i) the numerator of which is one, and (ii) the denominator of which is the number of annual installments then remaining to be paid under the Participant’s Payment Election Form.  The Participant’s Account shall be adjusted under Article VI during the Installment Period.
 
7.5           Changes to Payment Election Form.  A Participant shall be entitled to modify his or her Payment Election Form to change the time of payment, form of payment or both under the Plan by providing an amended Payment Election Form provided that the modification:
 
(a)           will be effective no earlier than twelve months following the date on which it is received and accepted by the Committee;
 
(b)           shall be received and accepted not less than twelve months prior to the date on which distributions are otherwise scheduled to commence;
 
(c)           shall designate a new Benefit Eligibility Date that is not less than five years after the Benefit Eligibility Date then in effect;
 
(d)           will not result in an acceleration of payments except to the extent allowed under Section 409A; and
 
 
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(e)           complies with all rules and regulations established by the Committee for changes to payment elections.
 
7.6           Small Payment.  If the value of a Participant’s Account balance is less than the applicable dollar amount under Section 402(g)(1)(B) of the Code as of the Valuation Date immediately following a Participant’s Benefit Eligibility Date, then notwithstanding any provision of this Article to the contrary, the Committee may distribute the value of that Account as a single-sum payment as of the Payment Date that coincides with or immediately follows his or her Benefit Eligibility Date, and no additional benefit shall be payable hereunder.
 
7.7           Hardship Withdrawals.  If a Participant experiences an Unforeseeable Emergency, such Participant shall be permitted to withdraw all or a portion of his or her vested Accounts in the form of an immediate single-sum payment, subject to the following limitations:
 
(a)           A request for withdrawal shall be made, in writing, and shall set forth the circumstances surrounding the Unforeseeable Emergency.  As a condition of and part of such request, the Participant shall provide to the Committee his or her written representation that:
 
(i)           the hardship cannot be relieved by insurance or other reimbursement available to the Participant,
 
(ii)           the hardship cannot be relieved by the cessation of Deferrals under the Plan, and
 
(iii)           the hardship can only be relieved by liquidation of the Participant’s assets and any such liquidation would itself result in severe financial hardship to the Participant.
 
The Committee shall be entitled to request such additional information as may be reasonably required to determine whether an Unforeseeable Emergency exists and the amount of the hardship and to establish additional conditions precedent to the review or granting of a request for a withdrawal on account of an Unforeseeable Emergency.
 
(b)           If the Committee determines that an Unforeseeable Emergency exists, the Committee shall authorize the immediate distribution of an amount required to meet the financial need created by such hardship, including any taxes payable on account of such withdrawal.
 
7.8           Plan Termination in Connection with a Change of Control.  The Committee shall have the discretion to irrevocably elect to terminate and liquidate the Plan within 30 days preceding or 12 months following a Change of Control.  It shall be a condition of the Plan’s  termination and liquidation under this Section 7.8 that all agreements, methods, programs, and other arrangements sponsored by the Company or its Affiliates immediately after the time of the Change of Control with respect to which deferrals of compensation are treated as having been deferred under a single plan under Treas. Reg. Sect. 1.409A-1(c)(2) are also terminated and liquidated with respect to each Participant that experienced the Change of Control.  All liquidation payments under the Plan shall be in the form of a lump sum cash payment and shall be provided consistent with the requirements under Treas. Reg. Section 1.409A-3(j)(4)(ix)(B).  The Committee shall establish the Valuation Date for any lump sum payment to be made under this Section 7.8.
 
7.9           Forfeiture.  Notwithstanding any other provision of the Plan, all Accounts, whether vested or not, shall be forfeited upon the occurrence of any of the following events:
 
(a)           Termination of Participant’s service relationship for “cause” as defined in the Participant’s employment, consulting or other service related agreement with the Company or its Affiliates;
 
(b)           Violation of the non-compete or non-solicitation provision of the Participant’s employment, consulting or other service related agreement with the Company or its Affiliates; or
 
 
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(c)           Failure to comply with the conflicts of interest provisions of the Participant’s employment, consulting or other service related agreement with the Company or its Affiliates.
 
In addition, the Company shall have a right of action against the Participant with respect to any amounts distributed from the Plan before discovering the Participant’s conduct described in (a), (b) or (c) above.  The Committee, in its sole discretion and with the consent of the Board, may reinstate any amounts which would otherwise be forfeited under this Section 7.9.
 
 
DEATH BENEFITS
 
8.1           Beneficiary Designation.  A Participant shall be entitled to designate one or more Beneficiaries and the manner of payment to each Beneficiary on forms provided by the Committee.  A Participant may modify a beneficiary designation by delivering a new designation to the Committee.  Any designation or modification shall be effective upon its receipt and acceptance by the Committee.
 
8.2           Participant’s Death Before Scheduled Time for Payment.  A Participant’s Beneficiary shall be paid a lump sum death benefit if a Participant dies before his or her Benefit Eligibility Date, as modified under Section 7.5.  The amount of the lump sum payment shall be equal the vested portion of the Participant’s Account as of the Valuation Date immediately following the Participant’s death.  Payment shall be made as of the Payment Date that coincides with or immediately follows the Participant’s death.

8.3           Participant’s Death During Installment Period.  The Company shall continue to pay any installments that commenced during the Participant’s lifetime and that remain to be paid after a Participant’s death to the Participant’s Beneficiary.  Payments shall be made at such times and in such amounts as provided in the deceased Participant’s Payment Election Form.

8.4           Death of Beneficiary.  Any death benefit that remains to be paid from the Plan following a Beneficiary’s death shall be paid to one or more persons designated in writing by the Beneficiary in such form and in such manner as required by the Committee.  If a Beneficiary fails to make a designation or the Committee rejects a designation, any remaining death benefit shall be paid to the estate of such Beneficiary.

8.5           Small Payments.  If the value of an Account balance is less than the applicable dollar amount under Section 402(g)(1)(B) of the Code as of the Valuation Date immediately preceding the scheduled payment of a death benefit, then notwithstanding any provision of this Article to the contrary, the Committee may distribute the value of that Account to the affected Beneficiary or Beneficiaries as a single-sum payment as of the Payment Date that coincides with or immediately follows the date of the Participant’s death, and no additional benefit shall be payable under the Plan.


PLAN ADMINISTRATION
 
9.1           Powers.  The Committee shall administer the Plan.  The Committee shall have discretionary authority to take any and all actions it deems necessary, appropriate to administer the Plan, including the following:

(a)           interpret Plan provisions, including, without limitation, correcting any defect, supplying any omission or reconciling any inconsistency in the Plan,

(b)           determine all questions arising under the Plan including, without limitation, all questions concerning administration, eligibility, benefit amounts, timing of payments and the interpretation of any form or other document related to the Plan,

(c)           reject or modify any Deferral Election, Payment Election Form, Beneficiary Designation or other form filed by a Participant or Beneficiary with the Committee,
 
 
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(d)           modify Awards, including, without limitation, changing the vesting terms applicable to an Award,

(e)           prescribe, amend and rescind rules and administrative procedures relating to the operation of the Plan,

(f)           select special Valuation Dates, and

(g)           engage the services of independent professionals and administrative personnel as it deems necessary to administer the Plan.

Any Committee determination or interpretation shall be binding on all parties and need not be uniform as to all interested parties.

9.2           Payments.  The Committee shall have the discretionary authority to finally determine the time and amount of any payment under the Plan, subject to the provisions of the Plan and any properly filed Payment Election Form.

9.3           Delegation of Administrative Authority.  The Committee may delegate to appropriate officers of the Company or its Affiliates all or any portion of the power and authority granted to it under the Plan, subject to any limitations imposed under applicable law.  Notwithstanding the foregoing, the Committee shall in no event delegate its authority in a manner that allows a Participant to grant an Award to himself or herself or to determine whether he or she has met performance criteria for a performance based Award under Section 5.1(a).  The Committee’s delegation authority is discretionary and may be exercised orally or in writing.  An officer acting under delegated authority shall be deemed to possess the power and authority granted to the Committee.  Without requirement of further action, the Committee shall be deemed to have delegated to its appropriate officers:

(a)           the authority to review and administer all payments under the Plan; and

(b)           the authority to make such ministerial amendments to the Plan or any ancillary form or document related to the Plan to the extent reasonably necessary to facilitate its administration or to avoid Federal income taxation on Accounts prior to payment or to maintain the Plan’s status as an unfunded “top hat” plan under ERISA.
9.4           Claims.  If a person claiming status as a Participant or Beneficiary (each, a “Claimant”) believes a benefit is payable to him or her under the Plan, the Claimant may request payment in writing, on forms acceptable to the Committee.  If a payment request is disputed or denied by the Committee, the following action shall be taken:
 
(a)           First, the Claimant shall be notified, in writing, of the dispute or denial as soon as reasonably possible (but no later than ninety days) after receipt of the payment request.  The notice shall set forth the specific reasons for the denial, including any relevant provisions of the Plan, and shall explain the review procedures of the Plan.

(b)           Second, the Claimant shall be entitled to a full review of his or her payment request.  A Claimant desiring a review of the dispute or denial must request review, in writing, not later than sixty days after the notification of the dispute or denial is received.

The Committee shall render a final decision within sixty days after receiving a Claimant’s review request.  If special circumstances require an extension of time, the Committee shall notify the Claimant, in writing, and the decision shall be rendered no later than one hundred and twenty days after the receipt of the request.  The Committee’s final decision shall be in writing and shall include specific reasons for the action taken and specific references to the Plan provisions on which the decision is based.

Nothing in this Section 9.4 shall modify, amend or otherwise detract from the validity and enforcement of the forfeiture provisions in Section 7.8.
 
 
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9.5           Fees and Expenses.  The Company shall bear all costs, fees and expenses associated with the establishment, administration, and maintenance of the Plan.

9.6           Facility of Payment.  If the Committee determines that any person to whom a benefit is payable hereunder is or may be unable to care for his or her affairs on account of an illness or accident, or is a minor, then any benefit due such person may be paid to such person’s spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person. Any such payment shall be deemed to discharge, in full, the liability of the Plan and the Company therefore


PARTICIPANTS’ RIGHTS

10.1           Spendthrift Provision.  No Participant or Beneficiary shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber any amount payable under the Plan.  No amount payable under the Plan shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debt, judgment, alimony or separate maintenance owed by a Participant or Beneficiary.  No amount payable under the Plan shall be transferable by operation of law if a Participant or Beneficiary becomes bankrupt or insolvent.

10.2           No Continued Employment.  No Participant shall have any right to continue in the employ or other service of the Company or an Affiliate for any period of time or any right to continue his or her present or any other rate of compensation on account of participation in the Plan.

10.3           Obligation for Benefit Payments.  Notwithstanding any provision of the Plan to the contrary, the payment of Plan benefits shall remain the obligation of the Company or the Affiliate that employed the Participant.  If the Participant’s employer designates an affiliated third-party to pay that Participant’s benefits and the third-party’s assets are insufficient to pay all Plan benefits, the Participant’s employer shall be responsible to pay any deficiency.

10.4           Taxes.  The Company or an Affiliate shall withhold as a condition of payment, or as a condition of the crediting of a Deferral or an Award, the amount of any income, employment or other taxes required to be withheld under applicable Federal or state law.  Any taxes may be withheld from Accounts at any time or from any amount otherwise payable from the Company or an Affiliate to a Participant or Beneficiary.


MISCELLANEOUS

11.1           Termination of Plan.
 
(a)           The Board of Directors shall have the right to terminate the Plan at any time.  Plan termination shall not reduce the amount payable to Participants and Beneficiaries.  Upon plan termination:
 
(1)           no additional Deferrals or Awards shall be credited to Accounts,
 
(2)           amounts then credited to Accounts shall continue to be credited with investment experience under Article VI, and
 
(3)           Plan Accounts shall be paid in accordance with outstanding Payment Election Forms and Article VII.
 
(b)           Notwithstanding Section 11(a) above, the Company may elect to make a lump sum payment to all persons entitled to Plan benefits following plan termination.  The amount to be paid shall equal the payee’s Account balance as of the Valuation Date immediately following the plan termination.  Payment of Plan benefits can be accelerated under this Section 11(b) only if all of the conditions are satisfied:
 
 
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(i)           the Plan termination and liquidation does not occur proximate to a downturn in the financial health of the Company,
 
(ii)           all arrangements of the same type (as determined under Section 409A) as the Plan are also terminated with respect to all employees who participate in the Plan,
 
(iii)           no payments other than those otherwise payable under the terms of the Plan absent a termination of the Plan are made within twelve months of the Board vote to terminate the Plan,
 
(iv)           all payments on account of plan termination under this Section 11(b) are made within twenty-four months of the Board vote to terminate the Plan, and
 
(v)           the Company does not adopt a new arrangement that would be aggregated with the Plan under Section 409A at any time during the three years following the Board vote to terminate the Plan.
 
(c)           This Section 11.1 shall only apply to Plan terminations that are not covered by Section 7.8 of the Plan.
 
11.2           Section 409A.
 
(a)           The Plan is intended to comply and shall be interpreted and construed in a manner consistent with the provisions of Section 409A of the Code.  Any Plan provision that would cause amounts allocated to an Account to be subject to Federal income tax prior to payment shall be void as of the Effective Date without the necessity of further action by the Board or the Committee.
 
(b)           There shall be no acceleration of the time or schedule of any payment under the Plan except as permitted under Section 409A.  Distributions shall not be made to an employee while employed by the Company except as provided under a timely and properly filed Payment Election Form (under Section 7.1 above), an Unforeseeable Emergency (but only to the extent permitted under Section 7.7), the Plan’s termination (but only to the extent permitted under Section 7.8 or 11.1(b)) or a requirement to pay employment taxes with respect to Deferrals.
 
(c)           There shall be no subsequent deferral of the time or schedule of any payment under the Plan except as allowed under Section 7.5.
 
(d)           All references to Section 409A in the Plan shall also refer to Notice 2007-86 (as applicable to periods prior to January 1, 2009) and Treasury regulations (as applicable to periods after December 31, 2008).
 
(e)           The provisions of the Plan shall not apply to the Prior Plan or constitute a material modification of the Prior Plan.
 
11.3           Delay in Payment of Plan Benefits.
 
(a)           There shall be a delay of any payment otherwise required under the Plan if it would (i) violate Federal securities laws, or (ii) jeopardize the ability of the Company to continue as a going concern.  The delay shall last until the first calendar year in which the Company reasonably anticipates that the payment would not violate these restrictions.
 
 
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(b)           There shall be a delay of any payment otherwise required under the Plan if the Company’s deduction of such payment would not be permitted under Section 162(m) of the Code.  The delay shall last until the first calendar year in which the Company reasonably anticipates that the deduction of the payment will be permitted under Section 162(m) or, if earlier, the calendar year in which the Participant separates from service.
 
(c)           The Company shall be entitled to add to the list of events that will result in a delay of payments under this Section 11.3 to the extent allowed under guidance issued after the date hereof by the Treasury or Internal Revenue Service under Section 409A.
 
11.4           Inurement.  The Plan shall be binding upon and shall inure to the benefit of the Company, each Participant and Beneficiary and their respective heirs, executors, administrators, successors and assigns.
 
11.5           No Effect on Other Benefits.  Any compensation paid or benefits provided to a Participant shall be in addition to, and not in lieu of, the benefits provided under the Plan.  Nothing in the Plan shall be construed as limiting, varying or reducing the provision of any benefit available to a Participant, a Participant’s estate or Beneficiary under any employment agreement, retirement plan, including any qualified pension or profit-sharing plan, health, disability or life insurance plan or any other form of agreement or arrangement between the Company, an Affiliate or both, and a Participant.
 
11.6           Amendment and Modification.
 
(a)           The Board may amend the Plan in its sole discretion.
 
(b)           The Committee may amend the Plan, any Payment Election Form or any ancillary form or document related to the Plan to facilitate its administration or to comply or make the Plan consistent with applicable law, including ERISA and the Code.
 
(c)           Any amendment that reduces the amount credited to an Account shall be effective only with the affected Participant’s or Beneficiary’s written consent.  Notwithstanding the foregoing, consent shall not be required if the Board or the Committee, as the case may be, reasonably determines that an amendment is necessary to avoid Federal income taxation on Accounts prior to payment or to maintain the Plan’s status as an unfunded “top hat” plan under ERISA.
 
(d)           No amendment shall provide for the payment or notional investment of an Award in the form of units or shares of common stock issued by the Company or in a manner otherwise constituting a security or derivative security within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended.
 
11.7           Governing Law.  The Plan is governed by the internal laws of the Commonwealth of Massachusetts, in all respects, including matters of construction, validity and performance.
 
11.8           Merger or Consolidation.  The obligations and responsibilities of the Company under the Plan shall be assumed by any successor or acquirer, and all of the rights, privileges and benefits of the Participants and Beneficiaries shall continue.  This Section 11.8 shall apply to any merger or a consolidation by the Company with another corporation or entity, or the acquisition of substantially all of the assets or outstanding stock of the Company by another corporation or entity, whether or not it qualifies as a Change of Control.
 
11.9           Entire Plan.  The Plan, any written amendments hereto, Payment Election Forms, and each designation of a Beneficiary hereunder shall be deemed to contain all the terms and provisions of the Plan and shall constitute the entire Plan.
 
The Plan, as amended and restated, was approved by the Compensation Committee of the Board of Directors on December 31, 2008, to be effective as of the date first set forth above.
 
 
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ARIAD PHARMACEUTICALS, INC.
  
     
 
/s/ Harvey J. Berger
  
     
 
By:
Harvey J. Berger, M.D.
  
 
Its:
Chairman and Chief Executive Officer
  
 
 
 
 
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INITIAL PARTICIPANTS
 
Set forth below are the individuals who shall be deemed Participants in the Plan as of the Effective Date:
 

 
Laurie Allen
 
Camille Bedrosian
 
David Berstein
 
Joseph Bratica
 
Timothy Clackson
 
David Dalgarno
 
Edward Fitzgerald
 
John Iuliucci
 
Maryann Krane
 
Jay LaMarche
 
Thomas Pearson
 
Tomi Sawyer
 
 
 
 
 
 
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 EX-10.33 10 a5915319-ex1033.htm EXHIBIT 10.33 a5915319-ex1033.htm
Exhibit 10.33

ARIAD PHARMACEUTICALS, INC.

INDEMNITY AGREEMENT

THIS INDEMNITY AGREEMENT (this “Agreement”) is made as of [DATE], by and between ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and [NAME] (“Indemnitee”).

RECITALS

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among U.S.-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The Restated Certificate of Incorporation (the “Charter”) and Amended and Restated Bylaws (the “Bylaws”) of the Company require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to applicable provisions of the Delaware General Corporation Law (“DGCL”). The Charter, the Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons in order to protect such persons against claims and expenses arising from their services on behalf of the Company.

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons.

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future.

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, hold harmless, exonerate and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so protected against liabilities.

WHEREAS, this Agreement is a supplement to and in furtherance of the Charter and Bylaws of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

WHEREAS, Indemnitee does not regard the protection available under the Charter, Bylaws and liability insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
 
 
 
 

TERMS AND CONDITIONS

1. SERVICES TO THE COMPANY.  Indemnitee will agree to serve or to continue to serve as an officer or director of the Company for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his resignation.  Nothing contained in this Agreement shall be construed as giving Indemnitee any right to be retained in the employ of the Company or any of its subsidiaries or affiliated entities.

2. DEFINITIONS.  As used in this Agreement:

(a) References to “agent” shall mean any individual who is or was a director, officer, or employee of the Company or a Subsidiary of the Company or other individual authorized by the Company to act for the Company, to include such individual serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other Enterprise at the request of, for the convenience of, or to represent the interests of the Company or a Subsidiary of the Company.

(b) The terms “Beneficial Owner” and “Beneficial Ownership” shall have the meanings set forth in Rule 13d-3 promulgated under the Exchange Act (as defined below) as in effect on the date hereof.

(c) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

(i) Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors, unless (1) the change in the relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors, or (2) such acquisition was approved in advance by the Continuing Directors (as defined below) and such acquisition would not constitute a Change in Control under part (iii) of this definition;

(ii) Change in Board of Directors. Individuals who, as of the date hereof, constitute the Board, and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds of the directors then still in office who were directors on the date hereof or whose nomination for election was previously so approved (collectively, the “Continuing Directors”), cease for any reason to constitute at least a majority of the members of the Board;

(iii) Corporate Transactions. The effective date of a reorganization, merger or consolidation of the Company (a “Business Combination”), in each case, unless, immediately following such Business Combination: (1) all or substantially all of the Persons who were the Beneficial Owners of securities entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the securities entitled to vote generally in the election of directors; (2) no Person (excluding any corporation resulting from such Business Combination) is the Beneficial Owner, directly or indirectly, of 15% or more of the combined voting power of the then outstanding securities entitled to vote generally in the election of directors of such corporation except to the extent that such ownership existed prior to such Business Combination; and (3) at least a majority of the Board of Directors of the corporation resulting from such Business Combination were Continuing Directors at the time of the execution of the initial agreement, or of the action of the Board of Directors, providing for such Business Combination;

(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets (or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions); or
 
 
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(v) Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement.

(d) “Corporate Status” describes the status of an individual who is or was a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of the Company or of any other Enterprise that such individual is or was serving at the request of the Company.

(e) “Delaware Court” shall mean the Court of Chancery of the State of Delaware.

(f) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(g) “Enterprise” shall mean the Company and any other corporation, constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger to which the Company (or any of its wholly owned subsidiaries) is a party, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or
agent.

(h) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(i) “Expenses” shall include all direct and indirect costs, fees and expenses of any type or nature whatsoever, including, without limitation, all attorneys’ fees and costs, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, fees of private investigators and professional advisors, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, fax transmission charges, secretarial services and all other disbursements, obligations or expenses in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settlement or appeal of, or otherwise participating in, a Proceeding, including, without limitation, reasonable compensation for time spent by the Indemnitee for which he or she is not otherwise compensated by the Company or any third party.  Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the principal, premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(j) “Independent Counsel” shall mean a law firm or a member of a law firm with significant experience in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements); or (ii) any other party to the Proceeding (as defined below) giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(k) References to “fines” shall include any excise tax assessed on Indemnitee with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee, agent or fiduciary of the Company which imposes duties on, or involves services by, such director, officer, employee, agent or fiduciary with respect to an employee benefit plan, its participants or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.
 
 
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(l) The term “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act as in effect on the date hereof; provided, however, that “Person” shall exclude: (i) the Company; (ii) any Subsidiary of the Company; (iii) any employment benefit plan of the Company or of a Subsidiary or of any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company; and (iv) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary or of a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(m) A “Potential Change in Control” shall be deemed to have occurred if: (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person or the Company publicly announces an intention to take or consider taking actions which if consummated would constitute a Change in Control; (iii) any Person who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing five percent (5%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote generally in the election of directors increases his Beneficial Ownership of such securities by five percent (5%) or more over the percentage so owned by such Person on the date hereof unless such acquisition was approved in advance by the Board; or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(n) The term “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative nature, in which Indemnitee was, is, will or might be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, by reason of any action (or failure to act) taken by him or of any action (or failure to act) on his part while acting as a director, officer, employee or agent of the Company, or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, trustee, general partner, managing member, fiduciary, employee or agent of any other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement.

(o) The term “Subsidiary,” with respect to any Person, shall mean any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by that Person.

(p) In connection with any merger or consolidation, references to the “Company” shall include not only the resulting or surviving company, but also any constituent company or constituent of a constituent company, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents.  The intent of this provision is that a person who is or was a director of such constituent company after the date hereof or is or was serving at the request of such constituent company as a director, officer, employee, trustee or agent of another company, partnership, joint venture, trust, employee benefit plan or other Enterprise after the date hereof, shall stand in the same position under this Agreement with respect to the resulting or surviving company as the person would have under this Agreement with respect to such constituent company if its separate existence had continued.

3. INDEMNITY IN THIRD-PARTY PROCEEDINGS.  The Company shall indemnify, hold harmless and exonerate Indemnitee in accordance with the provisions of this Section 3 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified, held harmless and exonerated against all Expenses, judgments, liabilities, fines, penalties and amounts paid in settlement (including, without limitation, all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding, had no reasonable cause to believe that his conduct was unlawful.
 
 
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4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY.  The Company shall indemnify, hold harmless and exonerate Indemnitee in accordance with the provisions of this Section 4 if Indemnitee was, is, or is threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified, held harmless and exonerated against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification, hold harmless or exoneration for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought or the Delaware Court shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification, to be held harmless or to exoneration.

5. INDEMNIFICATION FOR EXPENSES OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.  Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify, hold harmless and exonerate Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify, hold harmless and exonerate Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify, hold harmless and exonerate Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

6. INDEMNIFICATION FOR EXPENSES OF A WITNESS.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified, held harmless and exonerated against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

7. ADDITIONAL INDEMNIFICATION, AND EXONERATION RIGHTS.

(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify, hold harmless and exonerate Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnification, hold harmless or exoneration rights shall be available under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

(b) Notwithstanding any limitation in Sections 3, 4, 5 or 7(a), the Company shall indemnify, hold harmless and exonerate Indemnitee if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement) actually and reasonably incurred by Indemnitee in connection with the Proceeding.

 
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8. CONTRIBUTION IN THE EVENT OF JOINT LIABILITY.

(a) To the fullest extent permissible under applicable law, if the indemnification, hold harmless and/or exoneration rights provided for in this Agreement are unavailable to Indemnitee in whole or in part for any reason whatsoever, the Company, in lieu of indemnifying, holding harmless or exonerating Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for judgments, liabilities, fines, penalties, amounts paid or to be paid in settlement and/or for Expenses, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

(b) The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(c) The Company hereby agrees to fully indemnify, hold harmless and exonerate Indemnitee from any claims for contribution which may be brought by officers, directors or employees of the Company other than Indemnitee who may be jointly liable with Indemnitee.

9. EXCLUSIONS.  Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnification, hold harmless or exoneration payment:

(a) in connection with any claim made against Indemnitee for which payment has actually been received by or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount actually received under any insurance policy, contract, agreement, other indemnity provision or otherwise;

(b) in connection with any claim made against Indemnitee for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or

(c) except as otherwise provided in Sections 14(e)-(f) hereof, prior to a Change in Control, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) such payment arises in connection with any mandatory counterclaim or cross-claim that the Indemnitee asserts against the Company or its directors, officers, employees or other indemnitees or any affirmative defense Indemnitee raises, or (iii) the Company provides the indemnification, hold harmless or exoneration payment, in its sole discretion, pursuant to the powers vested in the Company under applicable law.
 
 
 
 
 

 
 
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10. ADVANCES OF EXPENSES; DEFENSE OF CLAIM.

(a) Notwithstanding any provision of this Agreement to the contrary, and to the fullest extent permitted by applicable law, the Company shall advance the Expenses incurred by Indemnitee (or reasonably expected by Indemnitee to be incurred by Indemnitee within three months) in connection with any Proceeding within ten (10) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to be indemnified, held harmless or exonerated under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing a Proceeding to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances, to the fullest extent permitted by applicable law, solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Charter, the Bylaws of the Company, applicable law or otherwise. This Section 10(a) shall not apply to any claim made by Indemnitee for which an indemnification, hold harmless or exoneration payment is excluded pursuant to Section 9.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

(c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which would impose any Expense, judgment, fine, penalty or limitation on the Indemnitee without the Indemnitee’s prior written consent.

11. PROCEDURE FOR NOTIFICATION AND APPLICATION FOR INDEMNIFICATION.

(a) Indemnitee agrees to notify promptly the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, hold harmless or exoneration rights, or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement, or otherwise.

(b) Indemnitee may deliver to the Company a written application to indemnify, hold harmless or exonerate Indemnitee in accordance with this Agreement.  Such application(s) may be delivered from time to time and at such time(s) as Indemnitee deems appropriate in Indemnitee’s sole discretion. Following such a written application for indemnification by Indemnitee, the Indemnitee’s entitlement to indemnification shall be determined according to Section 12(a) of this Agreement.
 
 
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12. PROCEDURE UPON APPLICATION FOR INDEMNIFICATION.

(a) A determination, if required by applicable law, with respect to Indemnitee’s entitlement to indemnification shall be made in the specific case by one of the following methods, which shall be at the election of Indemnitee: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board or (ii) by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including, without limitation, a description of any reason or basis for which indemnification has been denied. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the Person or Persons making such determination with respect to Indemnitee’s entitlement to indemnification, including, without limitation, providing to such Person or Persons upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). The Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement. If the Independent Counsel is selected by the Board, the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected and certifying that the Independent Counsel so selected meets the requirements of “Independent Counsel” as defined in Section 2 of this Agreement. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within twenty (20) days after submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Delaware Court, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

(c) The Company agrees to pay the reasonable fees and expenses of Independent Counsel and to fully indemnify and hold harmless such Independent Counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(d) If the Company disputes a portion of the amounts for which indemnification is requested, the undisputed portion shall be paid and only the disputed portion withheld pending resolution of any such dispute.

13. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a) In making a determination with respect to entitlement to indemnification hereunder, the Person or Persons making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(b) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any Person or Persons of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 
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(b) If the Person or Persons empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a final judicial determination that any or all such indemnification is expressly prohibited under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise, its Board, any committee of the Board or any director, or on information or records given or reports made to the Enterprise, its Board, any committee of the Board or any director, by an independent certified public accountant or by an appraiser or other expert selected by the Enterprise, its Board, any committee of the Board or any director. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.

(e) The knowledge and/or actions, or failure to act, of any other director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

14. REMEDIES OF INDEMNITEE.

(a) In the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses, to the fullest extent permitted by applicable law, is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within thirty (30) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) a contribution payment is not made in a timely manner pursuant to Section 8 of this Agreement, (vi) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vii) payment to Indemnitee pursuant to any hold harmless or exoneration rights under this Agreement or otherwise is not made within ten (10) days after receipt by the Company of a written request therefor, Indemnitee shall be entitled to an adjudication by the Delaware Court to such indemnification, hold harmless, exoneration, contribution or advancement rights. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Except as set forth herein, the provisions of Delaware law (without regard to its conflict of laws rules) shall apply to any such arbitration. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 
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(b) Upon the occurrence or non-occurrence of any of the events set forth in Section 14(a) of this Agreement, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14, Indemnitee shall be presumed to be entitled to be indemnified, held harmless, exonerated and to receive advances of Expenses under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to be indemnified, held harmless, exonerated and to receive advances of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 12(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 14, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 10 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).

(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to payment, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.

(e) The Company shall indemnify and hold harmless Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) pay to Indemnitee, to the fullest extent permitted by applicable law, all such Expenses which are incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee (i) in connection with, to enforce his rights under, or to recover damages for breach of, this Agreement or any other indemnification, hold harmless, exoneration, advancement or contribution agreement or provision of the Charter or Bylaws now or hereafter in effect; or (ii) for recovery or advances under any insurance policy maintained by any person for the benefit of Indemnitee, regardless of the outcome and whether Indemnitee ultimately is determined to be entitled to such indemnification, hold harmless or exoneration right, advancement, contribution or insurance recovery, as the case may be (unless such judicial proceeding or arbitration was not brought by Indemnitee in good faith).

(f) Interest shall be paid by the Company to Indemnitee at the legal rate under Delaware law for amounts which the Company indemnifies, holds harmless or exonerates, or is obliged to indemnify, hold harmless or exonerate for the period commencing with the date on which Indemnitee pays such amounts for which Indemnitee requested indemnification, to be held harmless, exoneration, contribution, reimbursement or advancement of any Expenses and ending with the date on which such payment is made to or on behalf of Indemnitee by the Company.
 
 
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15. ESTABLISHMENT OF TRUST.  In the event of a Potential Change in Control, the Company shall, upon written request by Indemnitee, create a “Trust” for the benefit of Indemnitee and from time to time upon written request of Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all Expenses reasonably anticipated at the time of each such request to be incurred in connection with investigating, preparing for, participating in or defending any Proceedings, and any and all judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such judgments, fines penalties and amounts paid in settlement) in connection with any and all Proceedings from time to time actually paid or claimed, reasonably anticipated or proposed to be paid. The trustee of the Trust (the “Trustee”) shall be a bank or trust company or other individual or entity chosen by the Indemnitee and reasonably acceptable to the Company. Nothing in this Section 15 shall relieve the Company of any of its obligations under this Agreement. The amount or amounts to be deposited in the Trust pursuant to the foregoing funding obligation shall be determined by mutual agreement of the Indemnitee and the Company or, if the Company and the Indemnitee are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement. The terms of the Trust shall provide that, except upon the consent of both the Indemnitee and the Company, (a) the Trust shall not be revoked or the principal thereof invaded, without the written consent of the Indemnitee; and (b) upon a Change in Control: (i) the Trustee shall make advances of Expenses, to the fullest extent permitted by applicable law, within two (2) business days of a request by the Indemnitee and upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified, held harmless or exonerated by the Company; (ii) the Trust shall continue to be funded by the Company in accordance with the funding obligations set forth above; (iii) the Trustee shall promptly pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to indemnification, or to be held harmless or exonerated pursuant to this Agreement or otherwise; and (iv) all unexpended funds in such Trust shall revert to the Company upon mutual agreement by the Indemnitee and the Company or, if the Indemnitee and the Company are unable to reach such an agreement, by Independent Counsel selected in accordance with Section 12(b) of this Agreement, that the Indemnitee has been fully indemnified, held harmless and exonerated under the terms of this Agreement. The Trust shall be governed by Delaware law (without regard to its conflicts of laws rules) and the Trustee shall consent to the exclusive jurisdiction of the Delaware Court in accordance with Section 23 of this Agreement.
 
16. SECURITY.  Notwithstanding anything herein to the contrary, to the extent requested by the Indemnitee and approved by the Board, the Company may at any time and from time to time provide security to the Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to the Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.
 

 
 
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17. NON-EXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.

(a) The rights of Indemnitee as provided by this Agreement (i) shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise and (ii) shall be enforced and this Agreement shall be interpreted independently of and without reference to or limitation or constraint (whether procedural, substantive or otherwise) by any other such rights to which Indemnitee may at any time be entitled. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or judicial decision, permits greater indemnification, hold harmless or exoneration rights or advancement of Expenses than would be afforded currently under the Charter, the Bylaws or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. To the extent that a change in Delaware law, whether by statute or judicial decision, narrows or limits indemnification or advancement of Expenses that are afforded currently under the Charter, the Bylaws or this Agreement, it is the intent of the parties hereto that such change, except to the extent required by applicable law, shall have no effect on this Agreement or the parties’ rights and obligations hereunder.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) The DGCL, the Charter and the Company’s Bylaws permit the Company to purchase and maintain insurance or furnish similar protection or make other arrangements including, but not limited to, providing a trust fund, letter of credit, or surety bond (“Indemnification Arrangements”) on behalf of Indemnitee against any liability asserted against him or incurred by or on behalf of him or in such capacity as a director, officer, employee or agent of the Company, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Agreement or under the DGCL, as it may then be in effect. The purchase, establishment, and maintenance of any such Indemnification Arrangement shall not in any way limit or affect the rights and obligations of the Company or of the Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such Indemnification Arrangement.

(c) The Company shall maintain directors’ and officers’ insurance programs providing coverage to Indemnitee for Expenses during the time period Indemnitee serves the Company in a Corporate Status, and for a period of no less than six (6) years following the conclusion of such service.  If, at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(d) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e) The Company’s obligation to indemnify, hold harmless, exonerate or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification, hold harmless or exoneration payments or advancement of expenses from such Enterprise.  Notwithstanding any other provision of this Agreement to the contrary, (i) Indemnitee shall have no obligation to reduce, offset, allocate, pursue or apportion any indemnification, hold harmless, exoneration, advancement, contribution or insurance coverage among multiple parties possessing such duties to Indemnitee prior to the Company’s satisfaction and performance of all its obligations under this Agreement, and (ii) the Company shall perform fully its obligations under this Agreement without regard to whether Indemnitee holds, may pursue or has pursued any indemnification, advancement, hold harmless, exoneration, contribution or insurance coverage rights against any person or entity other than the Company.
 
 
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18. DURATION OF AGREEMENT.  All agreements and obligations of the Company contained herein shall continue during the period Indemnitee serves as a director or officer of the Company or as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee serves at the request of the Company and shall continue thereafter so long as Indemnitee may be subject to any possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement) by reason of his Corporate Status, whether or not Indemnitee is acting in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

19. SEVERABILITY.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

20. ENFORCEMENT AND BINDING EFFECT.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to encourage Indemnitee to serve and/or continue to serve as a director, officer or key employee of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer or key employee of the Company.

(b) Without limiting any of the rights of Indemnitee under the Charter or Bylaws of the Company as they may be amended from time to time, and except as provided in Section 17(a), this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

(c) The rights to be indemnified and to receive contribution and advancement of Expenses provided by or granted Indemnitee pursuant to this Agreement shall apply to Indemnitee’s service as an officer, director, employee or agent of the Company prior to the date of this Agreement, as well as service on or after the date of this Agreement.

(d) The indemnification, hold harmless, exoneration and advancement of expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, estate, heirs, devisees, executors and administrators and other legal representatives.

(e) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
 
 
13
 

(f) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking, among other things, injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of such a bond or undertaking.

21. MODIFICATION AND WAIVER.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

22. NOTICES.  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (i) if delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third (3rd) business day after the date on which it is so mailed:

(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide in writing to the Company.

(b) If to the Company, to:

ARIAD Pharmaceuticals, Inc.
Attention: Chief Executive Officer
26 Landsdowne St.
Cambridge, Massachusetts 02139

With a copy to the Company’s outside counsel:

Mintz, Levn, Cohn, Ferris, Glovsky and Popeo, PC
Attention: Jeffrey Wiesen, Esq.
One Financial Center
Boston, Massachusetts 02111

or to any other address as may have been furnished to Indemnitee in writing by the Company.


23. APPLICABLE LAW AND CONSENT TO JURISDICTION.  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States of America or any court in any other country; (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) appoint irrevocably, to the extent such party is not a resident of the State of Delaware, Abrams & Laster LLP, 20 Montchanin Road, Suite 200, Wilmington, Delaware 19807 as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware; (d) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court; and (e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum, or is subject (in whole or in part) to a jury trial.

 
14
 
 
24. IDENTICAL COUNTERPARTS.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

25. MISCELLANEOUS.  Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

26. PERIOD OF LIMITATIONS.  No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.

27.  ADDITIONAL ACTS.  If for the validation of any of the provisions in this Agreement any act, resolution, approval or other procedure is required, the Company undertakes to cause such act, resolution, approval or other procedure to be affected or adopted in a manner that will enable the Company to fulfill its obligations under this Agreement.







[Remainder of page intentionally left blank;
Signatures appear on following page]
 
 
 
 
 
 
 
 
 
 
15
 
 

IN WITNESS WHEREOF, the parties hereto have caused this Indemnity Agreement to be signed as of the day and year first above written.


ARIAD PHARMACEUTICALS, INC.
 
 
______________________________
Name:
Title:
INDEMNITEE
 
 
______________________________
Name:
Title:
 
 
 
 
 
 
 
 
 
 
 
 
16
 EX-21.1 11 a5915319ex21_1.htm EXHIBIT 21.1 a5915319ex21_1.htm
EXHIBIT 21.1

SUBSIDIARIES OF ARIAD PHARMACEUTICALS, INC.


 
Subsidiary
  
 
Jurisdiction of Organization
  
 
% Owned
 
ARIAD Corporation
  
Delaware
  
100%
 
ARIAD Pharma, S.A.
  
Greece
  
    99% *
 
ARIAD Pharma, Ltd.
  
United Kingdom
  
100%


* The remaining 1% of ARIAD Pharma, S.A is owned by ARIAD Corporation.
 EX-23.1 12 a5915319ex23_1.htm EXHIBIT 23.1 a5915319ex23_1.htm
EXHIBIT 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 33-90854, 333-36597, 333-63706, 333-90480, 333-135473 and 333-151683 on Form S-8 and Registration Statement No. 333-140333 on Form S-3 of our reports dated March 12, 2009, relating to the consolidated financial statements of ARIAD Pharmaceuticals, Inc. and the effectiveness of ARIAD Pharmaceuticals, Inc.’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of ARIAD Pharmaceuticals, Inc. for the year ended December 31, 2008.



/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
March 12, 2009
 
 EX-31.1 13 a5915319ex31_1.htm EXHIBIT 31.1 a5915319ex31_1.htm
EXHIBIT 31.1

CERTIFICATIONS


I, Harvey J. Berger, M.D., certify that:
 
1. 
I have reviewed this annual report on Form 10-K of ARIAD Pharmaceuticals, Inc.;
   
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. 
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
   
 
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
 
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
   
 
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
   
 
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
   
5. 
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
 
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
   
 
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
March 12, 2009
/s/ Harvey J. Berger, M.D.
  
 
Harvey J. Berger, M.D.
  
 
Chairman of the Board of Directors,
  
 
Chief Executive Officer and President
  
EX-31.2 14 a5915319ex31_2.htm EXHIBIT 31.2 a5915319ex31_2.htm
EXHIBIT 31.2

 
CERTIFICATIONS

I, Edward M. Fitzgerald, certify that:

1. 
I have reviewed this annual report on Form 10-K of ARIAD Pharmaceuticals, Inc.;
   
2. 
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. 
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
   
 
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
   
 
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
   
 
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
   
 
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
   
5. 
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
   
 
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
   
 
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
 
March 12, 2009
/s/ Edward M. Fitzgerald
  
 
Edward M. Fitzgerald
  
 
Senior Vice President,
  
 
Chief Financial Officer and Treasurer
  
EX-32.1 15 a5915319ex32_1.htm EXHIBIT 32.1 a5915319ex32_1.htm
EXHIBIT 32.1


CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2008 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: March 12, 2009
/s/ Harvey J. Berger, M.D.
  
 
Harvey J. Berger, M.D.
  
 
Chairman of the Board of Directors,
  
 
Chief Executive Officer and President
  
     
     
Dated: March 12, 2009
/s/ Edward M. Fitzgerald
  
 
Edward M. Fitzgerald
  
 
Senior Vice President,
  
 
Chief Financial Officer and Treasurer
  
 
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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