<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ARQULE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3221586
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
------------------------
200 BOSTON AVENUE
MEDFORD, MASSACHUSETTS 02155
(617) 395-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ERIC B. GORDON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARQULE, INC.
200 BOSTON AVENUE
MEDFORD, MASSACHUSETTS 02155
(617) 395-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL LYTTON, ESQ. LAWRENCE S. WITTENBERG, ESQ.
LYNNETTE C. FALLON, ESQ. GEORGE W. LLOYD, ESQ.
PALMER & DODGE LLP TESTA, HURWITZ & THIBEAULT, LLP
ONE BEACON STREET HIGH STREET TOWER
BOSTON, MASSACHUSETTS 02108 125 HIGH STREET
(617) 573-0100 BOSTON, MASSACHUSETTS 02110
(617) 248-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share.... 2,300,000 $13.00 $29,900,000 $10,311
</TABLE>
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(1) Includes shares which the Underwriters may purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 29, 1996
PROSPECTUS
- ----------
2,000,000 SHARES
ARQULE, INC.
[LOGO]
COMMON STOCK
All of the 2,000,000 shares of Common Stock offered hereby are being sold
by ArQule, Inc. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently anticipated that the initial public
offering price will be between $11.00 and $13.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price. The Company has applied for quotation of the Common Stock
on the Nasdaq National Market under the symbol ARQL.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
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Total(3).......................... $ $ $
=================================================================================================
<FN>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $775,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
</TABLE>
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1996, at the offices of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
VECTOR SECURITIES INTERNATIONAL, INC.
, 1996.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AMAP[Trademark], Directed Array[Trademark] and Mapping Array[Trademark]
are trademarks of the Company for which there are pending applications for
registration in the U.S. Patent and Trademark Office.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including notes thereto, appearing
elsewhere in this Prospectus.
ArQule has created a new technology platform for the discovery and
production of novel chemical compounds with commercial potential and is a
leading provider of novel compounds to the pharmaceutical and biotechnology
industries. The Company has developed a proprietary modular building block
technology that it has integrated with structure-guided drug design, high speed
parallel chemical synthesis and information technology to identify and optimize
drug development candidates. To date, the Company has entered into collaborative
arrangements with Pharmacia Biotech AB, Abbott Laboratories and Solvay Duphar
B.V., and has formed joint discovery programs with several biotechnology
companies. ArQule believes that its technology will allow its collaborative
partners to accelerate the drug discovery process by several years, permitting
them to realize significant cost reductions and the earlier recovery of research
and development expenditures for successful drugs.
Using its proprietary "automated molecular assembly plant" (AMAP(TM))
system and structure-activity relationship ("SAR") data regarding biological
targets and modular molecular components, ArQule produces significant quantities
of pure small organic compounds in logically structured spatially addressable
arrays. Unlike traditional synthetic chemistry and current combinatorial
chemistry approaches to drug discovery, ArQule's arrays are created by using
structure-guided and rational drug design tools to systematically select and
assemble molecular building blocks with properties the Company's scientists
believe are likely to exhibit biological activity. ArQule's compound arrays are
designed around certain core structures or themes. Each compound in the array is
different from the adjacent compounds as a result of a single structural
modification. Each ArQule array omits compounds that are closely analogous to
other compounds in the array, using representative diversity to create a logical
representation of a virtual library of hundreds of times as many compounds as
are in the array. Drug developers are able to realize significant savings by
screening the thousands of compounds in each ArQule array rather than the
millions of compounds they represent.
ArQule manufactures and delivers two types of arrays of synthesized
compounds to its pharmaceutical and biotechnology partners: (i) Mapping
Array(TM) compound sets, which are arrays of novel, diverse small molecule
compounds used for screening and (ii) Directed Array(TM) compound sets, which
are arrays of analogs of a particular lead compound (identified through a
Mapping Array program or otherwise), synthesized for the purpose of optimizing
such lead compounds. Both Mapping Array and Directed Array sets are shipped in
industry-standard 96-well microtiter plates that are compatible with most drug
developers' screening protocols. Under the Mapping Array program, ArQule ships a
minimum of 100,000 compounds per year in 15 to 20 separate Mapping Array sets,
each consisting of 3,000 to 10,000 individual compounds based on a different
theme or core structure chosen by ArQule.
ArQule conducts drug discovery programs primarily with partners in the
pharmaceutical and biotechnology industries. To date, ArQule has entered into
collaborative arrangements with Pharmacia Biotech AB, Abbott Laboratories and
Solvay Duphar B.V., and has formed joint discovery programs with several
biotechnology companies. In exchange for non-exclusive access to ArQule's
Mapping Array program, the Company's pharmaceutical partners pay ArQule a
combination of up-front and annual subscription fees. In addition, these
companies agree to pay a fixed amount for Directed Array sets, as well as to
make payments upon the achievement of certain milestones and to pay royalties
upon the commercialization of drugs developed by the collaborator from ArQule
compounds. In exchange for providing the arrays to the Company's biotechnology
partners, the Company receives joint ownership of any drugs identified through
the joint discovery program.
ArQule's integrated technologies also present the Company with
opportunities in a number of biological and non-biological fields outside of
drug discovery. These opportunities include the production of separations media
for the purification of therapeutic proteins, novel agricultural chemicals,
industrial catalysts and the development of nano-scale polymeric structures for
specialized mechanical applications.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 2,000,000 shares
Common Stock to be outstanding after the
offering......................................... 8,976,487 shares(1)
Use of proceeds.................................... To fund research and product development
programs and for general corporate and
working capital purposes.
Proposed Nasdaq National Market symbol............. ARQL
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION SIX MONTHS ENDED
(MAY 6, 1993) THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------- ----------------- ----------------
1993 1994 1995 1995 1996
--------------------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................ $ -- $ 85 $ 3,330 $ 1,521 $2,975
Loss from operations........................... (1,456) (4,067) (1,966) (890) (907)
Net loss....................................... $(1,465) $(4,206) $(2,252) $(1,069) $ (754)
Unaudited pro forma net loss per share(2)...... $ (0.33) $(0.10)
Shares used in computing unaudited pro forma
net loss per share(2)........................ 6,851 7,441
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............. $ 6,367 $ 6,367 $27,912
Working capital.............................................. 1,394 1,394 22,939
Total assets................................................. 11,848 11,848 33,393
Capital lease obligations, less current portion.............. 1,426 1,426 1,426
Series B mandatorily redeemable convertible preferred
stock...................................................... 6,898 -- --
Total stockholders' equity (deficit)......................... (1,622) 5,276 26,821
</TABLE>
- ------------------------------
(1) Excludes 1,135,920 shares issuable upon the exercise of options outstanding
as of June 30, 1996 with a weighted average exercise price of $2.21 per
share.
(2) Unaudited pro forma Net loss per Share is determined by dividing Net loss by
Shares used in computing unaudited pro forma net loss per share. For
information regarding Shares used in computing unaudited pro forma net loss
per share, see Notes 2 and 10 of Notes to Financial Statements.
(3) Reflects the conversion of all outstanding shares of Preferred Stock into
6,219,948 shares of Common Stock upon the closing of this offering. See Note
10 of Notes to Financial Statements.
(4) As adjusted to give effect to the sale 2,000,000 shares of Common Stock
offered hereby, after deducting the underwriting discount and offering
expenses, at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefrom as set forth in
"Use of Proceeds" and the issuance of 234,992 shares of Common Stock upon
the cashless exercise of outstanding warrants upon the effective date of
this offering.
------------------------
Except as otherwise noted, all information in this Prospectus assumes (i) a
one-for-two reverse stock split of the Common Stock to be effected concurrently
with the effectiveness of the registration statement of which this Prospectus is
a part, (ii) the conversion of all outstanding shares of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock into an aggregate of
6,219,948 shares of Common Stock immediately prior to the closing of this
offering (after giving effect to the reverse stock split), (iii) the issuance of
234,992 shares of Common Stock upon the cashless exercise of outstanding
warrants and (iv) that the Underwriters' over-allotment option is not exercised.
The shares of Common Stock offered hereby involve a high degree of risk.
Investors should carefully consider the information set forth under "Risk
Factors."
4
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock being offered hereby involves a
high degree of risk. Prospective investors should carefully consider the
following risk factors, in addition to the other information contained in this
Prospectus, before purchasing the shares of Common Stock offered hereby.
Limited Operating History; History of Operating Losses; Uncertainty of
Future Profitability. The Company has had a limited operating history. For the
year ended December 31, 1994, the year ended December 31, 1995 and the six
months ended June 30, 1996, the Company had net losses of approximately $4.2
million, $2.3 million and $0.8 million, respectively. As of June 30, 1996, the
Company had an accumulated deficit of approximately $8.7 million. The Company's
expansion of its operations and enhancements to its combinatorial chemistry
technology will result in significant expenses over the next several years that
may not be offset by significant revenues. The Company expects that revenues for
the foreseeable future and the Company's ability to achieve profitability will
be dependent upon the ability of the Company to enter into additional
collaborative arrangements with customers. To date, all revenue received by the
Company has been from up-front fees and research and development funding paid
pursuant to collaborative agreements with the Company's collaborative partners.
The Company has not realized any revenues from the achievement of milestones or
royalties from the discovery, development or sale of a commercial product by one
of the Company's collaborative partners, and there can be no assurance that any
such revenues will be realized. The Company is unable to predict when, or if, it
will become profitable. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Unproven Business Strategy. The Company's modular building block approach
to combinatorial chemistry has not yet resulted in the commercialization of a
product. The Company uses chemical building blocks for the purpose of rapidly
identifying, optimizing and obtaining proprietary rights to as many compounds
with commercial potential as possible. The pricing and nature of the Company's
compound sets are such that there may only be a limited number of companies that
are potential customers for such sets. The Company's ability to succeed is
dependent upon the ability of potential customers to accept the Company's
approach to combinatorial chemistry and compound analysis as an effective tool
in the discovery and development of compounds with commercial potential. Due to
the highly proprietary nature of the activities being conducted, the central
importance of these activities to their drug discovery and development efforts,
and the desire to obtain maximum patent and other proprietary protection on the
results of their internal programs, pharmaceutical and biotechnology companies
have historically conducted lead compound identification and optimization within
their own research departments. There can be no assurance that the Company's
present or future collaborators will not pursue existing or alternative
technology, either independently or in collaboration with others, in preference
to that of the Company or that the Company will be able to attract future
collaborators on acceptable terms or develop a sustainable profitable business.
See "Business."
Competition and the Risk of Obsolescence of Technology. Competition among
the many organizations actively attempting to identify and optimize compounds
for development in the pharmaceutical industry and in other areas is intense. In
the pharmaceutical industry, ArQule competes with the research departments of
pharmaceutical companies, biotechnology companies, other combinatorial chemistry
companies and research and academic institutions. Many of these competitors have
greater financial and human resources, and more experience in research and
development, than the Company. Historically, pharmaceutical companies have
maintained close control over their research activities, including the
synthesis, screening and optimization of chemical compounds. Many of these
pharmaceutical companies, which represent the greatest potential market for
ArQule's products and services, have developed or are developing internal
combinatorial chemistry and other methodologies to improve productivity,
including major investments in robotics technology to permit the automated
parallel synthesis of compounds. In addition, ArQule competes with biotechnology
and combinatorial chemistry companies that offer a range of products and
services. Academic institutions, governmental agencies and other research
organizations are also conducting research in areas in which the Company
5
<PAGE> 7
is working, either on their own or in collaboration with others. The Company
anticipates that it will face increased competition in the future as new
companies enter the market and advanced technologies, including more
sophisticated information technologies, become available. The Company's
technological approaches may be rendered obsolete or uneconomical by advances in
existing technological approaches or the development of different approaches by
one or more of the Company's competitors. See "Business--Competition."
Dependence on Third Parties. The Company's strategy for the development
and commercialization of its products and services involves the formation of
collaborative arrangements with third parties, initially pharmaceutical and
biotechnology companies. To date, the Company has entered into numerous such
arrangements. There can be no assurance that the Company's existing
collaborations will not be terminated under certain circumstances by its
collaborators and any such terminations could have a material adverse effect on
the Company. There can be no assurance that the Company will be able to
establish additional collaborative arrangements, that any such arrangements will
be on terms favorable to the Company, or that current or future collaborative
arrangements will ultimately be successful. Further, ArQule's receipt of
revenues from collaborative arrangements is affected by the timing of efforts
expended by third parties and the timing of lead compounds optimized by third
parties. The Company's products and services will only result in commercialized
pharmaceutical products generating milestone payments and royalties after
significant preclinical and clinical development efforts, the receipt of
requisite regulatory approvals, and the integration of manufacturing
capabilities and successful marketing efforts. With the exception of certain
aspects of preclinical development, the Company does not currently intend to
perform any of these activities. Therefore, the Company will be dependent upon
the expertise of, and dedication of sufficient resources by, third parties to
develop and commercialize products. Should a collaborative partner fail to
develop or commercialize a compound or product to which it has obtained rights
from the Company, the Company may not receive any future milestone payments or
royalties associated with such compound or product. Furthermore, there can be no
assurance that any such development or commercialization would be successful or
that disputes will not arise over the application of payment provisions to such
drugs. There can be no assurance that current or future collaborative partners
will not pursue alternative technologies, or develop alternative products either
on their own or in collaboration with others, including the Company's
competitors, as a means for developing treatments for the diseases targeted by
collaborative arrangements with the Company. See "Business--ArQule's Drug
Discovery Programs."
Dependence on Key Employees. The Company is highly dependent on the
principal members of its scientific and management staff, in particular, Dr.
Joseph C. Hogan, Jr. and Dr. David L. Coffen. The loss of one or more members of
its staff could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company does not maintain key
person life insurance on the life of any employee. The Company's future success
also will depend in part on its ability to identify, hire and retain additional
qualified personnel, including individuals with doctorates in basic sciences.
There is intense competition for such personnel in the areas of the Company's
activities, and there can be no assurance that the Company will be able to
continue to attract and retain personnel with the advanced technical
qualifications necessary for the development of the Company's business. Failure
to attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Employees" and "Management."
Future Capital Needs; Uncertainty of Additional Funding. There can be no
assurance that the net proceeds from this offering, together with the Company's
existing capital resources and revenue from operations, will be adequate to fund
the Company's operations through December 1998. The Company may be required to
raise additional capital over a period of several years in order to conduct its
operations. Such capital may be raised through additional public or private
equity financings, as well as collaborative arrangements, borrowings and other
available sources. The Company's capital require-
6
<PAGE> 8
ments depend on numerous factors, including entering into additional
collaborative arrangements, competing technological and market developments,
changes in the Company's existing collaborative relationships, the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the purchase of additional capital equipment, the
progress of the Company's drug discovery programs and the progress of the
Company's collaborators' milestone and royalty-producing activities. The Company
does not currently plan to independently develop, manufacture or market any
drugs it discovers. Should the Company, however, choose to develop any such
drugs, the Company will require substantial funds to conduct research and
development, preclinical studies and clinical trials and to market any
pharmaceutical products that may be developed from such drugs. There can be no
assurance that additional funding, if necessary, will be available on favorable
terms, if at all. If adequate funds are not available, the Company may be
required to curtail operations significantly or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. To the extent that additional capital is raised
through the sale of equity or securities convertible into equity, the issuance
of such securities could result in dilution to the Company's existing
stockholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on Scale Up and Management of Growth. The Company's success
will depend on the expansion of its operations and the management of these
expanded operations. To be cost-effective in its delivery of services and
products, the Company must enhance productivity through further automation of
its processes and improvements to its technology. The Company also must
successfully structure and manage multiple additional collaborative
relationships. There can be no assurance that the Company will be successful in
its engineering efforts to further automate its processes or that the Company
will be successful in managing and meeting the staffing requirements of
additional collaborative relationships. Failure to achieve any of these goals
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Business--Collaborative Arrangements,"
"--ArQule's Drug Discovery Programs" and "--Employees."
Control By Management and Existing Stockholders. Upon completion of this
offering, the Company's significant stockholders, executive officers, directors
and affiliated entities together will beneficially own approximately 71.9% of
the outstanding shares of Common Stock (69.6% if the Underwriters'
over-allotment option is exercised in full). As a result, these stockholders,
acting together, will be able to influence significantly and possibly control
most matters requiring approval by the stockholders of the Company, including
the election of directors. Such a concentration of ownership may have the effect
of delaying or preventing a change in control of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. See "Principal Stockholders."
Dependence on Patents and Proprietary Rights. The Company's success will
depend in large part on its ability, and the ability of its licensees and its
licensors, to obtain patents for its technologies and the compounds and other
products, if any, resulting from the application of such technologies, to defend
such patents once obtained and to maintain trade secrets, both in the United
States and in foreign countries. The commercial success of the Company will also
depend upon avoiding the infringement of patents issued to others and
maintaining the technology licenses upon which certain of the Company's current
products are, or any future products under development might be, based.
Some of the Company's competitors have, or are affiliated with companies
having, substantially greater resources than the Company, and such competitors
may be able to sustain the costs of complex patent litigation to a greater
degree and for longer periods of time than the Company. Uncertainties resulting
from the initiation and continuation of any patent or related litigation could
have a material adverse effect on the Company's ability to compete in the
marketplace pending resolution of the disputed matters. To date, one patent has
been issued to the Company. There can be no assurance that other patents will
issue to the Company or its licensors as a result of their pending applications
or that, if issued, such patents will contain claims sufficiently broad to
afford protection against competitors
7
<PAGE> 9
with similar technology. Moreover, there can be no assurance that the Company or
its customers will be able to obtain significant patent protection for lead
compounds or pharmaceutical products based upon the Company's technology. There
can be no assurance that any patents issued to the Company or its collaborative
partners, or for which the Company has license rights, will not be challenged,
narrowed, invalidated or circumvented, or that the rights granted thereunder
will provide competitive advantages to the Company. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's patent and license rights, to enforce or defend an infringement claim,
or to determine the scope and validity of others' proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine the priority of invention, or opposition
proceedings in a foreign patent office, both of which could result in
substantial cost to the Company, even if the outcome is favorable to the
Company. An adverse outcome could subject the Company to significant liabilities
to third parties, and require the Company to cease using the technology or to
license disputed rights from third parties, which licenses may not be available
at reasonable cost.
A number of pharmaceutical and biotechnology companies, and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflicts could also
limit the scope of the claim of any patents that the Company may be able to
obtain, or result in the rejection of the Company's patent applications. The
Company currently has certain licenses to patents and patent applications from
third parties, and in the future may require additional licenses from other
parties, to develop, manufacture and market commercially viable products
effectively. There can be no assurance that: (i) such licenses will be
obtainable on commercially reasonable terms, if at all; (ii) the patents
underlying such licenses will be valid and enforceable; (iii) patents having
commercially valuable claims will issue from any licensed patent applications;
or (iv) the proprietary nature of the patented technology underlying such
licenses will remain proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to the Company's
competitors. The Company also relies on certain proprietary trade secrets and
know-how that are not patentable. Although the Company has taken steps to
protect its unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with its employees, consultants and certain of its
contractors, there can be no assurance that (i) the agreements will not be
breached; (ii) the Company would have adequate remedies for any breach; or (iii)
the Company's trade secrets will not otherwise become known or be independently
developed or discovered by competitors. See "Business--Patents and Proprietary
Rights."
No Prior Public Market for Common Stock; Possible Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. The initial public
offering price will be determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which the
Common Stock of the Company will trade after this offering. The market prices
for securities of comparable companies have been highly volatile and the market
has experienced significant price and volume fluctuations that are unrelated to
the operating performance of particular companies. Announcements of
technological innovations or new commercial products by the Company or its
competitors, developments concerning proprietary rights, including patents and
litigation matters, publicity regarding actual or potential results with respect
to products or compounds under development by the Company or its collaborative
partners, regulatory developments in both the United States and foreign
countries, public concern as to the efficacy of new technologies, general market
conditions, as well as quarterly fluctuations in the Company's revenues and
financial results and other factors, may have a significant impact on the market
price of the Common Stock. In particular, the realization of any of the risks
described in these "Risk Factors" could have a dramatic and adverse impact on
such market price. See "Underwriting."
8
<PAGE> 10
Anti-Takeover Effect of Certain Charter and By-Law Provisions and Delaware
Law. The Company's Certificate of Incorporation as it is proposed to be amended
and restated concurrently with the closing of this offering (the "Restated
Certificate") authorizes the Board of Directors to issue, without stockholder
approval, up to 1,000,000 shares of preferred stock ("Preferred Stock") with
voting, conversion and other rights and preferences that could adversely affect
the voting power or other rights of the holders of Common Stock. The issuance of
Preferred Stock or of rights to purchase Preferred Stock could be used to
discourage an unsolicited acquisition proposal. In addition, the possible
issuance of Preferred Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Company's Common Stock
or limit the price that investors might be willing to pay for shares of the
Company's Common Stock. The Restated Certificate provides for staggered terms
for the members of the Board of Directors. A staggered Board of Directors and
certain provisions of the Company's By-laws (the "By-laws") and of Delaware law
applicable to the Company could delay or make more difficult a merger, tender
offer or proxy contest involving the Company. The Company, for example, will be
subject to Section 203 of the General Corporate Law of Delaware which, subject
to certain exceptions, restricts certain transactions and business combinations
between a corporation and a stockholder owning 15% or more of the corporation's
outstanding voting stock (an "interested stockholder") for a period of three
years from the date the stockholder becomes an interested stockholder. These
provisions may have the effect of delaying or preventing a change of control of
the Company without action by the stockholders and, therefore, could adversely
affect the price of the Company's Common Stock. See "Management," "Description
of Capital Stock--Preferred Stock" and "--Anti-Takeover Measures."
Potential Liability Regarding Hazardous Materials. The research and
development processes of the Company involve the controlled use of hazardous
materials. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. The risk of accidental contamination
or injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company could be held liable for any damages that result
and any such liability could exceed the resources of the Company. In addition,
there can be no assurance that the Company will not be required to incur
significant costs to comply with environmental laws and regulations in the
future.
Government Regulation. Regulation by governmental entities in the United
States and other countries will be a significant factor in the production and
marketing of any pharmaceutical products that may be developed by a customer or
collaborative partner of the Company. The nature and the extent to which such
regulation may apply to the Company's customers or its collaborative partners
will vary depending on the nature of any such pharmaceutical products. Virtually
all pharmaceutical products developed by the Company's customers or its
collaborative partners will require regulatory approval by governmental agencies
prior to the commercialization. In particular, human pharmaceutical therapeutic
products are subject to rigorous preclinical and clinical testing and other
approval procedures by the U.S. Food and Drug Administration (the "FDA") and by
foreign regulatory authorities. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statues and regulations are time consuming and
require the expenditure of substantial resources. Generally, in order to gain
FDA approval, a company first must conduct preclinical studies in the laboratory
and in animal models to gain preliminary information on a compound's efficacy
and to identify any safety problems. The results of these studies are submitted
as a part of an Investigational New Drug application ("IND") that the FDA must
review before human clinical trials of an investigational drug can start. In
order to commercialize any products, the Company or its customers or its
collaborative partners or will be required to sponsor and file an IND and will
be responsible for initiating and overseeing the clinical studies to demonstrate
the safety and efficacy that are necessary to obtain FDA approval of any such
products. Clinical trials are normally done in three phases and generally take
two to five years, but may take longer, to complete. After completion of
clinical trials of a new product, FDA and foreign regulatory authority marketing
9
<PAGE> 11
approval must be obtained. If the product is classified as a new drug, a New
Drug Application ("NDA") must be filed and approved before commercial marketing
of the drug. The testing and approval processes require substantial time and
effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. NDAs submitted to the FDA can take several years to
obtain approval. Even if FDA regulatory clearances are obtained, a marketed
product is subject to continual review, and later discovery of previously
unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions. For marketing outside the United States, the Company will also be
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for pharmaceutical products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. See "Business--Government Regulation."
Shares Eligible for Future Sale and Potential Adverse Effect on Market
Price. Future sales of Common Stock in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have 8,976,487 shares of Common
Stock outstanding, assuming no exercise of currently outstanding options. Of
these shares, the 2,000,000 shares sold in this offering (plus any additional
shares sold upon exercise of the Underwriters' over-allotment option) will be
freely transferable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"), unless they are held by "affiliates" of the
Company as that term is used under the Securities Act and the regulations
promulgated thereunder. Approximately 560,288 shares of Common Stock will be
eligible for sale under Rule 144 and 701 on the ninety-first day after the
effectiveness of this offering. Stockholders of the Company, holding in the
aggregate 6,416,199 shares of Common Stock, have agreed, subject to certain
limited exceptions, not to sell or otherwise dispose of any of the shares held
by them as of the date of this Prospectus for a period of 180 days after the
date of this Prospectus without the prior written consent of the representatives
of the Underwriters of this offering. At the end of such 180-day period, an
additional 5,508,465 shares of Common Stock (plus approximately 223,726 shares
issuable upon exercise of vested options) will be eligible for immediate resale,
subject to compliance with Rule 144 and Rule 701. The remainder of the
approximately 907,734 shares of Common Stock held by existing stockholders will
become eligible for sale at various times over a period of less than two years
and could be sold earlier if the holders exercise any available registration
rights. The holders of 6,219,948 shares of Common Stock have the right in
certain circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning at the end of the 180 day
lock-up period. If such holders, by exercising their demand registration rights,
cause a large number of shares to be registered and sold in the public market,
such sales could have an adverse effect on the market price for the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. In addition, approximately 180 days
after the date of this Prospectus, the Company expects to file a registration
statement on Form S-8 registering a total of approximately 2,845,000 shares of
Common Stock subject to outstanding stock options or reserved for issuance under
the Company's stock option plans. See "Management--Stock Plans," "Description of
Capital Stock--Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Immediate and Substantial Dilution. Purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their investment from the initial public offering
price. Additional dilution will occur upon exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale."
Absence of Dividends. The Company has never paid dividends on its Common
Stock and does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain its earnings, if any, for the
development of its business.
10
<PAGE> 12
THE COMPANY
ArQule was incorporated in Delaware in December 1993 and is the successor
to a partnership formed on May 6, 1993. The Company's principal executive
offices are located at 200 Boston Avenue, Medford, Massachusetts 02155, and its
telephone number is (617) 395-4100.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting the underwriting discount and offering expenses, are
estimated to be $21.5 million ($24.9 million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$12.00 per share.
The principal purposes of this offering are to increase the Company's
equity capital and to create a public market for the Company's Common Stock in
order to facilitate future access by the Company to public equity markets as
well as create liquidity for its existing stockholders. The Company intends to
use the net proceeds of the offering, together with the Company's existing cash,
cash equivalents, short-term investments and cash generated from operations, for
research and development, working capital and general corporate purposes. Such
general corporate purposes may include acquisitions of other businesses,
technologies or products. The amount and timing of the Company's actual
expenditures for the purposes described above will depend upon a number of
factors, including the Company's ability to enter into additional collaborative
or licensing arrangements, as well as the timing and terms of such arrangements.
In addition, the Company's research and development expenditures will vary as
programs are expanded or abandoned and as a result of variability in funding
from its collaborative partners. The Company's management will have broad
discretion to allocate the net proceeds of this offering to uses that it
believes are appropriate. There can be no assurance that the proceeds of this
offering can or will be invested to yield a positive return.
The Company currently believes the net proceeds of the offering, together
with the Company's existing cash, cash equivalents, short-term investments, cash
generated from operations, and research funding from corporate collaborators,
will enable the Company to maintain its current and planned operations at least
through December 1998. However, there can be no assurance that this will be the
case. See "Risk Factors--Future Capital Needs; Uncertainty of Additional
Funding" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Pending use as set forth above, the net proceeds of the offering will be
invested primarily in interest-bearing, investment-grade securities.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, to fund the development of
its business.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth, as of June 30, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the conversion of all issued and outstanding preferred
stock into 6,219,948 shares of Common Stock, and (iii) the pro forma
capitalization of the Company as adjusted to reflect (a) the sale of the
2,000,000 shares of Common Stock offered hereby at after deducting the
underwriting discount and offering expense at an assumed initial public offering
price of $12.00 per share and the application of the estimated net proceeds
therefrom as set forth in "Use of Proceeds," (b) the issuance of 234,992 shares
of Common Stock upon the cashless exercise of outstanding warrants, and (c) the
filing of the Restated Certificate to increase the number of authorized shares
of Common Stock and to authorize 1,000,000 shares of undesignated Preferred
Stock. This table should be read in conjunction with the financial statements,
related notes and other financial information included herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
ACTUAL AS ADJUSTED
------- PRO FORMA ------------
--------------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital lease obligations, less current portion........ $ 1,426 $ 1,426 $ 1,426
------- ------- ------
Series B mandatorily redeemable convertible
preferred stock...................................... 6,898 -- --
------- ------- ------
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 15,000,000 shares
authorized actual and pro forma, 1,000,000 shares
authorized as adjusted
Series A convertible preferred stock, 10,624,429
shares issued and outstanding actual, none
issued and outstanding pro forma and as
adjusted........................................ 2,628 -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized actual and pro forma, 30,000,000
authorized as adjusted; 523,047 shares issued and
outstanding actual, 6,742,995 shares issued and
outstanding pro forma, 8,977,987 shares issued and
outstanding as adjusted(1)........................ 5 67 90
Additional paid-in capital........................... 4,435 13,899 35,421
Accumulated deficit.................................. (8,690) (8,690) (8,690)
------- ------- ------
Total stockholders' equity (deficit).............. (1,622) 5,276 26,821
------- ------- ------
Total capitalization......................... $ 6,702 $ 6,702 $ 28,247
======= ======= ======
</TABLE>
- ------------------------------
(1) Excludes 1,135,920 shares issuable upon the exercise of options outstanding
as of June 30, 1996 with a weighted average exercise price of $2.21 per
share.
12
<PAGE> 14
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was $5,276,000 or approximately $0.76 per share. Pro forma net tangible book
value per share represents the total tangible assets of the Company, less total
liabilities, divided by 6,977,987 shares of Common Stock outstanding after
giving effect to the conversion of all outstanding shares of convertible
preferred stock into 6,219,948 shares of Common Stock upon the completion of
this offering and the issuance of 234,992 shares of Common Stock upon the
cashless exercise of outstanding warrants upon the effective date of this
offering. Assuming the receipt by the Company of the net proceeds from the sale
of the 2,000,000 shares of Common Stock offered hereby at an assumed initial
public offering price of $12.00 per share, the pro forma net tangible book value
of the Company as of June 30, 1996 would have been $26,821,000, or $2.99 per
share. This represents an immediate increase in the pro forma net tangible book
value of $2.23 per share to existing stockholders of the Company and an
immediate dilution of $9.01 per share to new investors purchasing Common Stock
in this offering. The following table illustrates the per share dilution to be
incurred by new investors as of June 30, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $12.00
Pro forma net tangible book value per share at June 30, 1996...... $0.76
Increase per share attributable to new investors.................. 2.23
-----
Pro forma net tangible book value per share after the offering...... 2.99
Dilution per share to new investors................................. $ 9.01
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1996
(after giving effect to the conversion of all outstanding preferred stock into
6,219,948 shares of Common Stock upon the completion of this offering and for
the issuance of 234,992 shares of Common Stock upon the cashless exercise of
outstanding warrants upon the effective date of this offering), the differences
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock acquired from the Company, the total
consideration paid and the average price per share (assuming an initial public
offering price of $12.00 per share):
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 6,977,987 77.7% $13,737,000 36.4% $ 1.97
New investors..................... 2,000,000 22.3 24,000,000 63.6 12.00
--------- -----------
Total................... 8,977,987 100.0% $37,737,000 100.0%
========= ===========
</TABLE>
The above information excludes an aggregate of 1,135,920 shares of Common
Stock issuable upon the exercise of options outstanding as of June 30, 1996 with
a weighted average exercise price of $2.21 per share. To the extent that such
options are exercised, there will be further dilution to new investors.
13
<PAGE> 15
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following data, insofar as it relates to the period from inception (May
6, 1993) through December 31, 1993 and for the years 1994 and 1995, have been
derived from the Company's audited financial statements, including the balance
sheet as of December 31, 1994 and 1995 and the related statements of operations
and of cash flows for the two years ended December 31, 1995 and for the period
from inception (May 6, 1993) through December 31, 1993 and notes thereto
appearing elsewhere herein. The selected data presented below at June 30, 1996
and for the six months ended June 30, 1995 and 1996 have been derived from, and
are qualified by reference to, the Company's unaudited financial statements also
appearing herein. Such unaudited financial statements, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for the unaudited
interim period. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996. The data should be read in conjunction with the
Financial Statements and the Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this Prospectus. The historical results are not necessarily indicative of the
results of operations to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION SIX MONTHS
(MAY 6, 1993) THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------- ------------------- ------------------
1993 1994 1995 1995 1996
--------------------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue:
Compound development revenue........................... $ -- $ 85 $ 2,330 $ 521 $2,975
License option fees.................................... -- -- 1,000 1,000 --
------- ------- ------- ------ ------
Total revenue...................................... -- 85 3,330 1,521 2,975
------- ------- ------- ------ ------
Costs and expenses:
Cost of revenue........................................ -- -- 1,644 392 1,935
Research and development............................... 769 2,806 2,095 1,213 1,119
General and administrative............................. 687 1,346 1,557 806 828
------- ------- ------- ------ ------
Total costs and
expenses......................................... 1,456 4,152 5,296 2,411 3,882
------- ------- ------- ------ ------
Loss from operations..................................... (1,456) (4,067) (1,966) (890) (907)
Interest income (expense)................................ (9) (139) (286) (179) 153
------- ------- ------- ------ ------
Net loss................................................. $(1,465) $(4,206) $(2,252) $(1,069) $ (754)
======= ======= ======= ====== ======
Unaudited pro forma net loss per share(1)................ $ (0.33) $(0.10)
======= ======
Shares used in computing unaudited pro forma net loss per
share(1)............................................... 6,851 7,441
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------- -----------------------
1993 1994 1995 ACTUAL AS ADJUSTED(2)
------ ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities....................... $ 595 $ 425 $ 7,791 $ 6,367 $ 27,912
Working capital........................................................ 275 (2,108) 5,074 1,394 22,939
Total assets........................................................... 1,538 2,321 10,190 11,848 33,393
Capital lease obligations, less current portion........................ 376 962 911 1,426 1,426
Series B mandatorily redeemable convertible preferred stock............ -- -- 6,888 6,898 --
Total stockholders' equity (deficit)................................... 771 (1,203) (1,000) (1,622) 26,821
</TABLE>
- ------------------------------
(1) Unaudited pro forma net loss per share is determined by dividing the Net
loss by Shares used in computing unaudited pro forma net loss per share. For
information regarding shares used in computing unaudited pro forma net loss
per share, see Notes 2 and 10 of Notes to Financial Statements.
(2) Reflects the conversion of all outstanding shares of preferred stock into
6,219,948 shares of Common Stock upon the closing of this offering. See Note
10 of Notes to Financial Statements. Also gives effect to the sale of
2,000,000 shares of Common Stock offered by the Company hereby, after
deducting underwriting discount and offering expenses, at an assumed initial
public offering price of $12.00 per share and the application of the
estimated net proceeds therefrom as set forth in "Use of Proceeds" and the
issuance of 234,992 shares of Common Stock upon the cashless exercise of
outstanding warrants upon the closing of this offering.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ArQule is engaged in the discovery and development of novel chemical
compounds with commercial potential, and is a leading provider of novel
compounds to the pharmaceutical and biotechnology industries. ArQule
manufacturers and delivers two types of arrays of synthesized compounds to its
pharmaceutical and biotechnology partners: (i) Mapping Arrays compound sets,
which are arrays of novel, diverse small molecule compounds used for screening
and (ii) Directed Arrays compounds sets, which are arrays of analogs of a
particular lead compound (identified from a Mapping Array set or otherwise),
synthesized for the purpose of optimizing such lead compounds.
The Company currently generates revenue through compound development and
through license option fees. Compound development revenue relates to revenue
from collaborative agreements, which provide for the development and delivery of
Mapping Array and Directed Array sets. License option fee revenue represents
payments made to the Company for the option to license certain ArQule compounds.
The Company's revenue to date is primarily attributable to three major corporate
collaborations: Pharmacia Biotech AB, which was entered into in March 1995;
Abbott Laboratories, which was entered into in June 1995; and Solvay Duphar
B.V., which was entered into in November 1995. Under these collaborations, the
Company has received payments of $9.3 million through June 30, 1996, of which
$6.2 million has been recognized as revenue. The Company recognizes revenue
under its corporate collaborations as related work is performed and arrays are
delivered. Payments received from corporate partners prior to the completion of
the related work are recorded as deferred revenue. License option fees are
recognized as the options are granted because such fees are nonrefundable and
the Company has no further obligations to fulfill. Cost of revenue represents
the actual costs incurred in connection with the development, production and
delivery of compounds. The Company is entitled to receive milestone and royalty
payments if products generated under the collaborations are developed. The
Company has entered into joint discovery agreements with a number of
biotechnology companies to which it has provided Mapping Array and Directed
Array sets in exchange for joint ownership of resulting drug candidates. These
agreements have not yet yielded any significant revenue for the Company.
The Company has not been profitable since inception and has incurred a
cumulative net loss of $8.7 million through June 30, 1996. Losses have resulted
principally from costs incurred in research and development activities related
to the Company's efforts to develop its technologies and from the associated
administrative costs required to support these efforts. The Company's ability to
achieve profitability is dependent on its ability to market its Mapping Array
and Directed Array sets to pharmaceutical and biotechnology companies and the
joint development and commercialization of products in which it has an economic
interest.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenue. The Company's revenue for the six month period ended June 30,
1996 increased $1.5 million to $3.0 million from $1.5 million for the same
period in 1995. This was attributable to a $2.5 million increase in compound
development revenue related to the performance of work and the delivery of
Mapping Array and Directed Array sets under the Company's collaborative
agreements. The Company began recognizing revenue from the Pharmacia, Abbott and
Solvay collaborations in March, June and November 1995, respectively. This
increase in compound development revenue was partially offset by a $1.0 million
license option fee related to the Pharmacia collaborative agreement recognized
during the six month period ended June 30, 1995. No similar option payment was
received during the six month period ended June 30, 1996.
Cost of revenue. The Company's cost of revenue for the six month period
ended June 30, 1996 increased $1.5 million to $1.9 million from $0.4 million for
the six month period ended June 30, 1995.
15
<PAGE> 17
This increase was primarily attributable to the costs of additional scientific
personnel and the necessary supplies and overhead expenses related to the
performance of the work and the delivery of the Mapping Array and Directed Array
sets pursuant to its collaborative agreements. The Company anticipates that cost
of revenue, in connection with increasing compound development revenue, will
increase over the next several years.
Research and development expenses. The Company's research and development
expenses for the six month period ended June 30, 1996 decreased $0.1 million to
$1.1 million from $1.2 million for the same period in 1995. This decrease was
the result of the Company's increased use of its scientific personnel to produce
compounds delivered pursuant to its collaborative agreements. The Company has
the ability to direct its scientific personnel to work either on its
collaborative agreements or on its internal research and development projects as
the needs arise. The Company expects research and development spending to
increase over the next several years as the Company further expands its
chemistry discovery and development programs.
General and administrative expenses. The Company's general and
administrative expenses for the six month period ended June 30, 1996, $0.8
million, were relatively unchanged from the same period in 1995. These expenses
will likely increase in future periods to support the projected growth of the
Company.
Net interest income (expense). The Company's net interest income for the
six month period ended June 30, 1996 was $0.2 million, which compared to a net
expense of $0.2 million for the same period in 1995. Higher interest income in
1996 resulted primarily from the Company holding higher cash balances following
an equity investment by Solvay. See "Business--ArQule's Drug Discovery
Programs."
Net loss. The Company's net loss for the six month period ended June 30,
1996 decreased $0.3 million to $0.8 million from $1.1 million for the same
period in 1995. The decrease is primarily attributable to additional revenue
generated from corporate collaborations during 1996.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenue. The Company's revenue for the year ended December 31, 1995
increased to $3.3 million from $0.1 million for the same period in 1994. This
increase was attributable to compound development revenue related to the
performance of work and the delivery of Mapping Array and Directed Array sets
under the Company's collaborative agreements which were entered into during
1995. The Company also recognized a $1.0 million license option fee related to
the Pharmacia collaborative agreement entered into in 1995.
Cost of revenue. The Company's cost of revenue for the year ended December
31, 1995 was $1.6 million, reflecting costs associated with the development,
production and delivery of compounds pursuant to the corporate collaborations
entered into in 1995. There was no cost of revenue in 1994 as there were no
collaborative agreements during this year and as the Company's efforts were
directed towards the research and development of its technology.
Research and development expenses. The Company's research and development
expenses for the year ended December 31, 1995 decreased $0.7 million to $2.1
million from $2.8 million for the same period in 1994. This decrease was the
result of the Company focusing, in 1995, on producing compounds delivered
pursuant to its collaborative agreements.
General and administrative expenses. The Company's general and
administrative expenses for the year ended December 31, 1995 increased $0.3
million to $1.6 million from $1.3 million for the same period in 1994. This
increase was primarily due to costs associated with increased business
development activities and administrative support, which accompanied the
Company's expansion during 1995.
16
<PAGE> 18
Net interest expense. The Company's net interest expense for the year
ended December 31, 1995 was $0.3 million, which compared to $0.1 million for the
same period in 1994. This increase was primarily attributable to increased use
of capital equipment lease financing.
Net loss. The Company's net loss for the year ended December 31, 1995
decreased $1.9 million to $2.3 million from $4.2 million for the same period in
1993. The decrease was primarily attributable to the increase in revenue
generated from the three corporate collaborations.
YEAR ENDED DECEMBER 31, 1994 AND EIGHT MONTH PERIOD ENDED DECEMBER 31, 1993
Revenue. The Company's revenue for the year ended December 31, 1994 was
$0.1 million. The Company was founded in May 1993, and it did not generate
revenue until 1994.
Research and development expenses. The Company's research and development
expenses for the year ended December 31, 1994 increased $2.0 million to $2.8
million from $0.8 million for the eight month period ended December 31, 1993.
This increase primarily reflects the expansion and development of the Company's
combinatorial chemistry technologies and a full year of operations in 1994.
General and administrative expenses. The Company's general and
administrative expenses for the year ended December 31, 1994 increased $0.6
million to $1.3 million from $0.7 million for the eight month period ended
December 31, 1993, primarily reflecting a full year of operations in 1994.
Net interest expense. The Company's net interest expense for the year
ended December 31, 1994 was $0.1 million which compared to $9,000 for the eight
month period ended December 31, 1993. This increase was primarily attributable
to the Company's use of capital equipment lease financing.
Net loss. The Company's net loss for the year ended December 31, 1994
increased $2.7 million to $4.2 million from $1.5 million for the eight month
period ended December 31, 1993. This increase was primarily attributable to the
Company's scale-up of research and development activities.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company held cash and cash equivalents and marketable
securities with a value of $6.4 million. The Company's working capital at June
30, 1996 was $1.4 million. The Company has funded operations to date with sales
of preferred stock and common stock totaling $13.6 million, payments from
corporate collaborators totaling $9.3 million, and the utilization of capital
equipment lease financing totaling $3.1 million. The Company has maintained a
master lease agreement since February 1994. Under the terms of this agreement,
the Company has funded certain capital expenditures with lease terms ranging
from 40 to 42 months in duration. As of June 30, 1996, the Company had utilized
$2.6 million of the available $5.0 million financing facility.
Net cash used in financing activities for the six months ended June 30,
1996 was $0.3 million, primarily reflecting financing of capital equipment. Net
cash provided by financing activities for the year ended December 31, 1995 was
$7.2 million, largely due to a $7.0 million equity investment by Solvay. Net
cash provided by financing activities for the year ended December 31, 1994 was
$3.8 million, resulting mainly from capital contributions and proceeds from
bridge financing.
Net cash provided by operating activities for the six month period ended
June 30, 1996 and for the year ended December 31, 1995 was $1.3 million and $0.5
million, respectively. The positive cash flow from operating activities
primarily reflects additional payments received from the three corporate
collaborators. Net cash used in operating activities for the year ended December
31, 1994 was $3.6 million, largely due to the Company's scale-up of research and
development activities prior to generating significant revenue.
Net cash used in investing activities during the six month period ended
June 30, 1996 was $1.4 million, resulting primarily from additional capital
equipment purchases. Net cash used in investing activities for the year ended
December 31, 1995 was $5.1 million as compared to $0.4 million for the year
ended December 31, 1994. This increase primarily reflects purchases of
marketable securities.
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<PAGE> 19
Management estimates that the proceeds from this offering, together with
the Company's existing cash equivalents, short-term investments, cash generated
from operations and research funding from corporate collaborators, will enable
the Company to maintain its current and planned operations at least through
December 1998. The Company's cash requirements may vary materially from those
now planned depending upon the results of its combinatorial chemistry discovery
and development strategies, the ability of the Company to enter into any
corporate collaborations in the future and the terms of such collaborations, the
results of research and development, the need for currently unanticipated
capital expenditures, competitive and technological advances, and other factors.
There can be no assurance that the Company will be able to obtain additional
customers for the Company's products and services, or that such products and
services will produce revenues adequate to fund the Company's operating
expenses. If the Company experiences increased losses, the Company may have to
seek additional financing from public or private sale of its securities,
including equity securities. There can be no assurance that additional funding
will be available when needed or on acceptable terms.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 of Notes to Financial Statements.
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<PAGE> 20
BUSINESS
OVERVIEW
ArQule has created a new technology platform for the discovery and
production of novel chemical compounds with commercial potential and is a
leading provider of novel compounds to the pharmaceutical and biotechnology
industries. The Company has developed a proprietary modular building block
technology that it has integrated with structure-guided drug design, high speed
parallel chemical synthesis and information technology to identify and optimize
drug development candidates. To date the Company has entered into collaborative
arrangements with Pharmacia Biotech AB, Abbott Laboratories and Solvay Duphar
B.V., and has formed joint discovery programs with several biotechnology
companies. ArQule believes that its technology will allow its collaborative
partners to accelerate the drug discovery process by several years, permitting
them to realize significant cost reductions and the earlier recovery of research
and development expenditures for successful drugs.
INDUSTRY BACKGROUND
The potential market for ArQule's proprietary modular building block
technology is comprised of all consumers of novel chemical compounds, including
developers of drugs, separations media, agricultural products, industrial
catalysts, specialty materials and other industrial products. The Company's
initial business focus has been on the pharmaceutical and biotechnology
industries.
Traditional Drug Discovery and Its Limitations. Drugs are chemical
compounds that modulate the activity of biological targets associated with
particular disease states to achieve a desired therapeutic effect. The discovery
and development of drugs has traditionally been a lengthy, expensive and often
unsuccessful process. Typically, it takes 12 to 15 years from the original
concept of modulating the activity of a particular biological target to the
market introduction of a drug that performs such a function. The average cost of
bringing a new drug to market has been estimated to be in excess of $300
million.
The first major step in the drug discovery process is the identification of
one or more compounds that interact with a biological target, such as an enzyme,
receptor or other protein, that is associated with a disease state. To identify
such a compound, collections of compounds are tested or screened for activity
with respect to the biological target. A compound that interacts with a target
is referred to as a hit, and a hit with characteristics making it suitable as a
potential drug is referred to as a lead compound.
<TABLE>
<CAPTION>
TRADITIONAL DRUG DISCOVERY PROCESS
<S> <C> <C> <C> <C> <C> <C>
Secondary
Development Assays and
of Assays Other Tests Preclinical
Incorporating Target (6 to 12 months) Development
| | |
| | |
| | |
| | |
| | |
____________ ___________ | __________ ___________ | ____________ ____________ | ______________
| | | Clinical
Unmet Relevant | | Lead Drug | Trials/
Therapeutic _____ Biological _|_ Assays ___ Hit _|__ Compound ___ Development_|_ Regulatory
Need | Target | Candidate Approval
____________ | ___________ __________ ___________ ____________ | ____________ ______________
| | |
| _____|____ |
| Natural/ |
| Synthetic |
| Product |
Cellular Libraries Lead
Molecular __________ Optimization
Biology | (average 2 years)
|
|
|
Screening
(6 months to 2 years)
__________________________________ Average Time to Market: 12 to 15 years__________________________________
Average Cost: $300+ million
</TABLE>
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<PAGE> 21
Historically, drug developers have obtained collections of chemical
compounds for screening from natural product sources and by synthesis. These
collections are often neither sufficiently diverse to be likely to result in a
hit nor preselected to include compounds with promising structures or desirable
drug characteristics. This random screening approach has yielded a relatively
small percentage of hits and only a relatively small portion of those hits have
resulted in lead compounds.
The second major step in the drug discovery process is the optimization of
a lead compound by the sequential synthesis and testing of variations, or
analogs, of a lead compound to identify promising drug development candidates. A
drug development candidate is a lead compound that in preclinical studies
demonstrates pharmacological efficacy, lack of toxicity, potency, selectivity
and other desirable characteristics such as oral availability, cell penetration
and stability. Using traditional medicinal chemistry, lead optimization has
required an average of two years of synthesizing hundreds of analogs of a lead
compound and has been the most expensive and time consuming part of the drug
development process prior to clinical testing. The synthesis of a single
compound analog takes approximately 7 to 10 days and costs approximately $7,500.
As a result, a chemist is usually able to synthesize only 100 to 200 analogs per
year. On average, as many as 6,000 chemical compounds may be synthesized per
successful drug at a cost of approximately $45 million in chemistry costs.
Drug Development in Transition. Lower profit margins, shorter product
lives, the proliferation of generic drugs, managed care and cost containment
initiatives, combined with scientific and technological advances, have created
powerful incentives for drug developers to explore new technologies to discover
novel drugs more quickly and cost effectively. The growing biotechnology and
gene discovery (genomics) industries are rapidly identifying numerous new
biological targets and developing highly sensitive assays incorporating these
targets. Advances in robotics have led to automated high throughput screening
systems, allowing biologists to assay large numbers of chemical compounds
against novel targets. These developments have resulted in increased demand for
large and diverse collections of novel compounds.
In addition, in recent years, structure-guided and rational drug design
approaches have allowed scientists, using structure activity-relationship
("SAR") data about biological targets, to design compounds that are likely to
show activity with respect to a biological target. These developments, together
with the developments referred to in the preceding paragraph, have resulted in a
proliferation of hits, generating demand for tools to rapidly create analogs of
hits and optimize lead compounds.
Current Combinatorial Chemistry Technology and Its
Limitations. Combinatorial chemistry is the rapid creation of hundreds of
thousands of chemical compounds, most of which do not exist in nature, for the
purpose of rapidly identifying hits through random screening. Current
combinatorial chemistry has been successful in producing large numbers of
compounds and correspondingly large numbers of hits. However, current
combinatorial chemistry techniques have been less successful in generating lead
compounds and, ultimately, drug development candidates for some or all of the
following reasons:
- Time-Consuming Isolation of Hits. In certain combinatorial chemistry
applications, large numbers of chemical compounds are synthesized and
screened in mixtures. Hits must therefore be isolated from the mixtures,
which is a costly, slow, labor-intensive process.
- Lack of Structural and SAR Information. Once a hit is isolated, many
current combinatorial techniques fail to facilitate the identification of
the structure of the hit or to provide SAR data to guide the lead
optimization process.
- Incompatibility with Drug Developers' Screening Protocols. Many
combinatorial compounds are produced in a format that is incompatible
with standard screening protocols of drug developers. In addition, once a
hit is found and the compound is isolated, significant additional work
must often be performed by the combinatorial chemistry company to
determine the structure of the compound. Drug developers relying on this
format may therefore be required to transfer hits to the combinatorial
chemistry company.
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<PAGE> 22
- Limitations of Solid Phase Chemistry. Several combinatorial chemistry
techniques involve the production of compounds using solid phase
chemistry in which compounds are attached to small beads. Because many
compounds with desirable chemistries cannot be synthesized using solid
phase chemistry, collections of compounds based exclusively on solid
phase chemistry may have limited diversity.
- Limited Compound Quantities. Certain current combinatorial chemistry
techniques produce very small quantities of each compound, which limits
further testing once a lead compound is found and precludes archiving of
compounds for future testing against additional targets.
- Scale-Up Limitations. Many current combinatorial chemistry techniques
involve laboratory methods that cannot be easily translated into large
scale manufacturing processes. This creates the possibility that active
compounds will be identified that are difficult or impractical to produce
in quantities necessary for clinical trials or commercial production.
- Unproductive Screening. Because certain combinatorial chemistry
techniques involve the screening of random compounds without preselection
for desirable drug characteristics, suitable lead compounds often can be
identified only after many unproductive screenings. In addition, testing
of mixtures frequently produces equivocal or false positive screening
results because the observed activity with a biological target is caused
by several compounds within the mixture rather than the interaction of an
individual compound with a target, leading to further unproductive
screening.
Although recent developments in combinatorial chemistry have shortened the
time between identifying a biological target and obtaining a hit in the target
assay, the proliferation of hits has not led to a commensurate increase in lead
compounds. In addition, current combinatorial chemistry techniques have not
significantly improved the lead optimization process and, therefore, have not
significantly shortened the time it takes to produce a drug development
candidate from a lead compound.
THE ARQULE REVOLUTION
ArQule believes its modular building block technology overcomes many of the
limitations of current combinatorial chemistry approaches by accelerating the
identification and optimization of lead compounds.
Many organic molecules, including amino acids, peptides, nucleosides,
carbohydrates, steroids and alkaloids may be viewed as comprised of structural
components, consisting of a scaffold, or core structure, around which a set of
substituent groups and connectors (bonds) is varied. ArQule's scientists have
developed proprietary methods for selecting and combining molecular components,
or building blocks, to produce arrays of compounds that possess properties they
believe will exhibit activity in biological systems.
Using SAR data regarding biologically active compounds and modular
molecular components, ArQule's synthetic and computational chemists work closely
together to rapidly design compound arrays that include all combinations of a
set of selected building blocks around a common core structure or theme.
ArQule's arrays are created by using structure-guided and rational drug design
tools to systematically select and assemble molecular building blocks with
properties the Company's scientists believe are likely to exhibit biological
activity. Each compound in the array is different from the adjacent compound as
a result of a single structural modification. The representative diversity of
each array eliminates unnecessary screening of closely analogous compounds that
provide redundant information. As a result, each array is a logical
representation of a virtual library of compounds containing hundreds of times as
many compounds as are in the array. In addition, the SAR data of compounds
within the array provides a navigational tool for lead optimization by
indicating the most promising investigational direction for analoging.
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<PAGE> 23
In order to enhance the effectiveness of this modular building block
technology, ArQule integrates the following tools:
- structure-guided drug design;
- a proprietary "automated molecular assembly plant" (AMAP) system for high
speed parallel synthesis, purification and structural verification of
chemical compounds; and
- proprietary computer applications that facilitate the integration of all
of the Company's proprietary technologies.
Structure-Guided Drug Design. ArQule's scientists believe that the
likelihood of generating a drug development candidate can be substantially
increased if the collection of compounds used for screening is created using
three-dimensional structural and SAR data. The Company designs its arrays based
on chemical structures that are believed to be biologically active and also on
SAR data regarding a particular target and a particular lead compound. Using
this data, as well as knowledge of the chemical reactions that are feasible
using high speed parallel synthesis, ArQule's scientists design logically
arranged arrays of diverse compounds that can easily be synthesized. The Company
believes that this approach will accelerate the lead discovery and optimization
process by increasing the probability of identifying a lead compound that will
result in a drug development candidate.
The AMAP High Speed Parallel Synthesis System. Using its "automated
molecular assembly plant" (AMAP) system, ArQule synthesizes, purifies and
verifies structural information for individual compounds through automated high
speed parallel synthesis. The AMAP system is capable of synthesizing thousands
of compounds per day, each in milligram quantities adequate for multiple
screens, analyzing such compounds for structural integrity and purity,
registering the structural data in a relational database, and delivering the
compounds in a 96-well microtiter plate format for high throughput screening.
Integrated Proprietary Computer Applications. ArQule has developed a
proprietary information system which incorporates (i) databases of the molecular
structures of building blocks and arrays, (ii) multi-dimensional matrix geometry
which provides guidance for the creation of the Company's spatially addressable
arrays of compounds containing systematic variations of modular building blocks,
(iii) instructions for the robotics involved in the AMAP parallel synthesis
production process, (iv) resulting databases of structural information regarding
the compounds produced in any particular array which can be supplied in a format
compatible with customers' own data registration systems and (v) databases of
SAR data regarding particular compounds and their molecular components contained
in an array generated when these compounds are screened against biological
targets. This integrated information system enables ArQule to gather and apply
data on an ongoing basis to enhance the efficiency of the production process and
to design compounds based on a growing knowledge of the structure and activity
of its molecular components.
ADVANTAGES OF ARQULE'S COMBINATORIAL DRUG DISCOVERY AND DEVELOPMENT PLATFORM
The Company believes the integration of its technological capabilities
offers a unique combinatorial drug discovery and development platform. This
platform offers the following significant advantages over current combinatorial
chemistry approaches:
- Elimination of Isolation Issues. Unlike combinatorial chemistry
processes involving the production of synthesized compounds in mixtures,
ArQule's AMAP system produces one compound per well in microtiter plates,
with each well containing a known compound with a high level of purity.
- Enhanced Structural and SAR Data. ArQule produces arrays using
preselected modular building blocks that its scientists believe are
likely to produce lead compounds with desirable characteristics, and, in
the case of Directed Array sets, based upon the SAR data of the target
and lead compound. As a result, the Company believes the success rate for
drugs developed
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<PAGE> 24
using its arrays will be improved and the risk of downstream clinical
failure will be reduced. The wealth of SAR data available with respect to
compounds in its arrays will also facilitate the development of analogs
for the further optimization of active compounds.
- Compatibility with Drug Developers' Screening Protocols. ArQule's
compounds are delivered to its collaborators in 96-well microtiter plates
containing one known compound per well. This delivery format is
compatible with most existing screening protocols and permits the owner
of the assay to screen compounds in its own laboratories, thereby having
complete control over the screening process.
- Solution and Solid Phase Chemistry. ArQule's compounds may be produced
using either solution or solid phase chemistry, permitting the creation
of a broad range of novel chemical compounds.
- Significant Compound Quantities. ArQule's compounds are delivered to its
collaborators in milligram quantities, permitting the collaborator to
engage in extensive testing of a lead compound or to screen compounds
against multiple biological targets without having to obtain additional
samples from the Company.
- Ease of Scale-Up. ArQule's compounds are produced using fully
reproducible and scalable manufacturing processes.
- Reduction in Unproductive Screening. By creating logical arrays of
compounds based on known structural and SAR data and eliminating
compounds which are closely analogous to others in the array, ArQule
believes that fewer compounds will need to be screened prior to
identifying compounds with activity. In addition, because ArQule delivers
single compounds for screening, such compounds do not generate the false
positives and false negatives associated with screening mixtures of
compounds.
ArQule believes these significant advantages will allow its collaborative
partners to accelerate the drug discovery process by several years by shortening
the time required to identify a lead compound and to optimize that compound into
a drug development candidate. This acceleration should permit drug developers to
realize significant cost reductions and the earlier recovery of research and
development expenditures for successful drugs.
ARQULE'S PRODUCTS
ArQule's integrated technologies result in the production of significant
quantities of pure small molecule compounds contained in a logically structured
spatially-addressable array. ArQule provides its pharmaceutical and
biotechnology collaborative partners with two types of arrays of synthesized
compounds: (i) Mapping Array compound sets, which are arrays of novel, diverse,
small molecule compounds used for screening against biological targets and (ii)
Directed Array compound sets, which are arrays of analogs of a particular lead
compound synthesized for the purpose of optimizing that lead compound.
Mapping Array Sets. ArQule's Mapping Array sets are designed around
certain core structures or themes selected by ArQule. ArQule provides its
collaborative partners with a subscription to an annual Mapping Array program
comprised of a minimum of 100,000 compounds in 15 to 20 Mapping Array sets each
containing between 3,000 and 10,000 individual compounds. The Mapping Array
program is provided to subscribers without limitation as to the targets against
which the compounds may be screened. Each compound is related to the adjacent
compounds in the array by a single structural modification.
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ArQule believes this approach will maximize the number of targets against which
its Mapping Array sets are tested, thereby maximizing the potential for
identifying activity for each compound. Initially, the Company provides its
Mapping Array sets on a non-exclusive, subscription fee basis for screening
purposes only. If a compound shows activity in a subscriber's assay, the
subscriber may license that compound from the Company for development purposes
on an exclusive basis, unless such compound has already been licensed to another
collaborative partner. The Company does not provide any structural information
regarding the compounds in the Mapping Array sets until a particular compound is
licensed.
Directed Array Sets. Upon request, the Company provides Directed Array
sets in order to optimize lead compounds. In a Directed Array set, the Company
uses its modular building block technology to create analogs of a lead compound
identified by the collaborator, either independently or as a result of screening
a Mapping Array set. Directed Array sets are logical representations of a
virtual library of compounds closely analogous to a lead compound. Successive
Directed Array sets are generated in order to identify the compound or compounds
within a virtual library having the greatest biological activity and most
desirable drug development characteristics. When delivering a Directed Array
set, the Company provides the collaborator with structural information for each
compound in the array, and each compound is owned by the collaborator either
individually or jointly with ArQule, subject to the payment of fixed fees,
milestones and royalties to the Company.
BUSINESS STRATEGY
ArQule's goal is to become the leader in the development of novel chemical
compounds with commercial potential, with an initial focus on the pharmaceutical
and biotechnology industries. Key elements of the Company's strategy include:
- Collaborations with Pharmaceutical Companies. ArQule has sought
collaborations with large pharmaceutical companies who have established
manufacturing, marketing and sales resources and a strong commitment to
the development of pharmaceutical products. ArQule offers to each of its
collaborative partners access to its Mapping Arrays programs for an
annual subscription fee and, if requested, customized Directed Array sets
for a fixed fee. In addition, the Company is entitled to payments upon
the achievement of certain milestones and royalties upon the
commercialization of drugs developed by the collaborator from ArQule
compounds. The Company plans to pursue additional collaborations
aggressively to gain access to additional targets and development
expertise, and to generate additional revenue.
- Joint Discovery Programs with Biotechnology Companies. Biotechnology
companies represent important potential collaborators for joint discovery
and development efforts using ArQule's Mapping Array and Directed Array
sets and the biotechnology company's proprietary biological targets and
assays. ArQule provides Mapping Array and Directed Array sets to
biotechnology companies in exchange for joint ownership of any lead
compounds that exhibit activity in the proprietary assays developed by
the biotechnology company collaborators. ArQule seeks collaborators with
promising drug development programs in a broad range of therapeutic
areas.
- Extension of Chemistry Tools to Areas Other than Drug Discovery. The
Company intends to extend its integrated technologies to a wide variety
of applications outside the field of drug discovery, including
bioseparations and protein purification, industrial catalysts and novel
agricultural chemicals, as well as to the development of polymeric
structures for non-biological applications.
- Continued Investment in Proprietary Chemistry Technology. ArQule intends
to continue its aggressive investment in proprietary chemistry
technologies through internal development and licensing of third party
technologies. ArQule will also continue to invest in improving the cost-
effectiveness of its products through automation and information
technologies.
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ARQULE'S DRUG DISCOVERY PROGRAMS
Pharmaceutical Company Collaborations. To date, the Company has entered
into the following major collaborations with pharmaceutical companies:
Solvay Duphar B.V. In November 1995, the Company entered into a
collaborative agreement with Solvay Duphar B.V. ("Solvay") pursuant to which
Solvay has subscribed to the Company's Mapping Array program and has the right
to request customized Directed Array sets (the "Solvay Agreement"). To date, the
Company has provided several Mapping Array and Directed Array sets. Absent early
termination, Solvay agreed to pay the Company a minimum of $17.5 million over
five years. Solvay is also obligated to make additional payments upon the
achievement of certain milestones and to pay royalties on sales of drugs that
may result from the relationship. The Solvay Agreement expires in November 2000
and is terminable on twelve months' advance notice. To date, Solvay has paid the
Company an aggregate of $3.5 million under the Solvay Agreement. In connection
with this collaboration, an affiliate of Solvay, Physica B.V., made a $7.0
million equity investment in the Company. See "Certain Transactions." Under the
Solvay Agreement, Solvay has the right to license, on an exclusive basis, lead
compounds identified from a Mapping Array set that are active against specified
biological targets and that have not previously been committed to another of
ArQule's collaborative partners or to an internal program of the Company. Solvay
also has the right to use certain of ArQule's technologies internally.
Abbott Laboratories. In June 1995, the Company entered into a
collaborative agreement with Abbott Laboratories ("Abbott") pursuant to which
Abbott has subscribed to the Company's Mapping Array program and has the right
to request customized Directed Array sets (the "Abbott Agreement"). To date, the
Company has provided several Mapping Array and Directed Array sets. In August
1996, the Abbott Agreement was amended to provide for the Company to supply
Abbott with additional Mapping Array sets and to eliminate restrictions on the
period during which Abbott may screen the Mapping Array sets. The Abbott
Agreement, as amended, expires in June 1997, subject to Abbott's right to extend
the term of the Abbott Agreement for three additional one year terms. If Abbott
exercises its right to extend the Abbott Agreement for its full term, Abbott
will pay the Company a minimum of $11.0 million over a five year period. Abbott
is also obligated to make additional payments upon the achievement of certain
milestones and to pay royalties on the sale of drugs that may result from the
relationship. To date, Abbott has paid the Company an aggregate of $3.8 million
under the Abbott Agreement.
Pharmacia Biotech AB. In March 1995, the Company entered into a
collaborative agreement with Pharmacia Biotech AB ("Pharmacia"), a wholly-owned
subsidiary of Pharmacia & Upjohn, Inc., to allow Pharmacia to evaluate the
utility of the Company's technology for the development of products in the
fields of bioseparations, synthesis of biomolecules and cell culture (the
"Pharmacia Agreement"). On the same date, the Company and Pharmacia also signed
an agreement under which Pharmacia has an option to acquire an exclusive,
worldwide license to develop and commercialize specified compounds generated by
the Company in additional fields covered under the Pharmacia Agreement, subject
to the payment by Pharmacia of additional fees and the negotiation and execution
by the parties of a license agreement containing commercially reasonable terms
(the "Option Agreement"). To date, Pharmacia has paid the Company an aggregate
of $2.0 million under the Pharmacia Agreement and the Option Agreement.
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Joint Discovery Programs with Biotechnology Companies. ArQule has
initiated joint programs for lead generation and optimization with a number of
biotechnology companies. Some of ArQule's biotechnology collaborators and their
areas of focus are listed below:
<TABLE>
<CAPTION>
COMPANY AREA OF FOCUS
-------------------------------------------- -----------------------------
<S> <C>
Cadus Pharmaceuticals Corporation Signal Transduction
Cubist Pharmaceuticals, Inc. Infectious Diseases
ICAgen, Inc. Ion Channel Receptors
Scriptgen Pharmaceuticals, Inc. RNA/Protein Interaction
SUGEN, Inc. Signal Transduction
T Cell Sciences, Inc. T Cell Activation/Inhibition
</TABLE>
In the United States, small biotechnology companies have been highly
successful in the discovery of biological targets that mediate disease states.
Many of these companies, however, lack both (i) large libraries of chemical
compounds to screen against identified targets and (ii) the sophisticated
chemistry expertise required to optimize compounds once a lead compound has been
identified. Under the Company's typical arrangement with a biotechnology
company, ArQule provides Mapping Array sets for screening without collecting
upfront fees, and the biotechnology company executes a preliminary material
transfer agreement. If the collaborator detects an active compound within a
Mapping Array set, and that compound has not been previously committed to a
third party or to an internal ArQule program, the Company and the collaborator
establish a joint discovery program and execute the research collaboration
agreement that is attached to the material transfer agreement. If the parties
are unable to negotiate the scope of a joint discovery program within a certain
period, ArQule has the right to license such compound to any third party.
Although ArQule's formal research collaboration agreement varies from
transaction to transaction, it typically establishes a joint drug development
program for the lead compound and a particular target, and gives ArQule shared
control over the program. Under such an agreement, ArQule provides the
collaborator with Directed Array sets based on the hits identified through the
target screening program. If a lead compound is identified, the biotechnology
collaborator and the Company become joint inventors of the resulting
intellectual property. Each party is obligated under the agreement to bear the
costs and expenses of its activities in connection with the collaboration, which
costs and expenses may be reimbursed from proceeds received in connection with
the sale or licensing of any compounds produced in the collaboration. To date, T
Cell Sciences, Inc. has signed a formal research collaboration agreement with
the Company.
APPLICATIONS OF THE COMPANY'S TECHNOLOGY TO OTHER INDUSTRIES
ArQule's integrated technology platform permits the rapid design and
optimization of chemical compounds having specific properties. This presents the
Company with opportunities to address a wide variety of non-drug discovery
applications, including both biological and non-biological applications. An
example of a biological application is the Company's collaboration with
Pharmacia to produce highly selective separations media for the commercial scale
purification of therapeutic proteins. Another potential biological application
for the Company's technologies is the synthesis of novel agricultural chemicals.
Potential non-biological applications include the development of industrial
catalysts and nano-scale polymeric structures for specialized mechanical
applications. In general, non-biological applications cannot be evaluated using
mixtures produced by current combinatorial chemistry techniques because such
applications are not characterized by the sensitivity and selectivity exhibited
by biological ligand-target interactions. In addition, non-biological targets
require substantial quantities of individual compounds to use in rapid iterative
experimental cycles. ArQule believes its technologies will satisfy the needs of
non-biological applications by producing large quantities of pure compounds of
known structures that may be directly translated to large scale manufacturing
procedures.
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MARKETING AND SALES
The Company markets its products directly to customers through
participation in trade conferences and seminars and publications in scientific
and trade journals. The Company intends to increase its marketing efforts
through the creation of a direct sales force.
RESEARCH AND DEVELOPMENT
ArQule intends to continue its aggressive investment in its proprietary
technologies through internal development and licensing of third party
technologies in order to expand the breadth of the spectrum of compounds offered
and the selectivity of such compounds. The Company will also continue to invest
in improving the cost-effectiveness of its products through automation, and
information technologies. The Company is actively pursuing research projects
aimed at identifying and developing new chemistries to improve and expand on its
Mapping Array and Directed Array programs. These projects involve research
conducted by the Company, collaborations with other researchers and the
acquisition of chemistries and other technologies developed by universities and
other academic institutions. The commitments represented by these projects have
led to many formal and informal collaborations through which ArQule's scientists
have gained access to developments by others. These developments have been and
are being applied to the Company's business in the form of improved chemistry
methods and techniques.
PATENTS AND PROPRIETARY RIGHTS
ArQule has one issued patent and has filed a number of patent applications.
There can be no assurance that patent applications filed by ArQule will result
in patents being issued, that the claims of such patents will offer significant
protection of the Company's technology, or that any patents issued to or
licensed by ArQule will not be challenged, narrowed, invalidated or
circumvented. The Company may also be subject to proceedings that result in the
revocation of patent rights previously owned by or licensed to ArQule, as a
result of which the Company may be required to obtain licenses from others to
continue to develop, test or commercialize its products. There can be no
assurance that ArQule will be able to obtain such licenses on acceptable terms,
if at all. In addition, there may be pending or issued patents held by parties
not affiliated with ArQule that relate to the technology utilized by ArQule. As
a result, ArQule may need to acquire licenses, to assert infringement of, or
contest the validity of, such patents or other similar patents which may be
issued. ArQule could incur substantial costs in defending itself against patent
infringement claims, interference proceedings, opposition proceedings or other
challenges to its patent rights made by third parties, or in bringing such
proceedings or enforcing any patent rights of its own.
The Company also relies upon trade secrets, know how and continuing
technological advances to develop and maintain its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company. These agreements are
intended to enable the Company to protect its proprietary information by
controlling the disclosure and use of technology to which it has rights and
provide for ownership by the Company of proprietary technology developed at the
Company or with the Company's resources. There can be no assurance, however,
that these agreements will provide meaningful protection for the Company's trade
secrets or other confidential information in the event of unauthorized use or
disclosure of such information or that adequate remedies would exist in the
event of such unauthorized use or disclosure. The loss or exposure of trade
secrets possessed by ArQule could adversely affect its business. See "Risk
Factors--Dependence on Patents and Proprietary Rights."
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<PAGE> 29
COMPETITION
Many organizations are actively attempting to identify and optimize
compounds for potential pharmaceutical development. The Company's combinatorial
chemistry services and products face competition based on a number of factors,
including size and diversity of libraries of compounds, ease of use of
libraries, speed and costs of identifying and optimizing potential lead
compounds and patent position. ArQule competes with the research departments of
pharmaceutical companies, biotechnology companies, other combinatorial chemistry
companies and research and academic institutions. Many of these competitors have
greater financial and human resources and more experience in research and
development than the Company. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. In addition to
competition for customers, these companies and institutions also compete with
the Company in recruiting and retaining highly qualified scientific and
management personnel.
Historically, pharmaceutical companies have maintained close control over
their research activities, including the synthesis, screening and optimization
of chemical compounds. Many of these companies, which represent a significant
potential market for ArQule's products and services, are developing in-house
combinatorial chemistry and other methodologies to improve productivity,
including major investments in robotics technology to permit the automated
parallel synthesis of compounds. In addition, these companies may already have
large collections of compounds previously synthesized or ordered from chemical
supply catalogs or other sources against which they may screen new targets.
Other sources of compounds include extracts from natural products such as plants
and microorganisms and compounds created using rational drug design. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which the Company is working either on their own
or through collaborative efforts.
The Company anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. The Company's processes may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or more
of the Company's competitors. The existing approaches of the Company's
competitors or new approaches or technology developed by the Company's
competitors may be more effective than those developed by the Company.
There can be no assurance that the Company's competitors will not develop
more effective or more affordable technology or products, or achieve earlier
product development and commercialization than the Company, thus rendering the
Company's technologies and/or products obsolete, uncompetitive or uneconomical.
See "Risk Factors -- Competition and the Risk of Obsolescence of Technology."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other
countries will be a significant factor in the production and marketing of any
pharmaceutical products that may be developed by a customer of the Company, or
in the event the Company decides to develop a drug beyond the preclinical phase.
The nature and the extent to which such regulation may apply to the Company's
customers will vary depending on the nature of any such pharmaceutical products.
Virtually all pharmaceutical products developed by the Company's customers will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human pharmaceutical therapeutic products are subject to rigorous
preclinical and clinical testing and other approval procedures by the FDA and by
foreign regulatory authorities. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such pharmaceutical products.
The process of obtaining these approvals and the subsequent compliance with
appropriate federal and foreign statutes and regulations are time consuming and
require the expenditure of substantial resources.
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<PAGE> 30
Generally, in order to gain FDA approval, a company first must conduct
preclinical studies in the laboratory and in animal models to gain preliminary
information on a compound's efficacy and to identify any safety problems. The
results of these studies are submitted as a part of an IND that the FDA must
review before human clinical trials of an investigational drug can start. In
order to commercialize any products, the Company or its customer will be
required to sponsor and file an IND and will be responsible for initiating and
overseeing the clinical studies to demonstrate the safety and efficacy that are
necessary to obtain FDA approval of any such products. Clinical trials are
normally done in three phases and generally take two to five years, but may take
longer, to complete. After completion of clinical trials of a new product, FDA
and foreign regulatory authority marketing approval must be obtained. If the
product is classified as a new drug, the Company or its customer will be
required to file an NDA and receive approval before commercial marketing of the
drug. The testing and approval processes require substantial time and effort and
there can be no assurance that any approval will be granted on a timely basis,
if at all. NDAs submitted to the FDA can take, on average, two to five years to
obtain approval. If questions arise during the FDA review process, approval can
take more than five years. Even if FDA regulatory clearances are obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions. For marketing outside the United States, the Company will also be
subject to foreign regulatory requirements governing human clinical trials and
marketing approval for pharmaceutical products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. See "Risk Factors -- Government Regulation."
The research and development processes of the Company involve the
controlled use of hazardous materials. The Company is subject to federal state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of such materials and certain waste products. Although the Company
believes that its activities currently comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
these materials cannot be eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any liability could
exceed the resources of the Company. In addition, there can be no assurance that
the Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future. See "Risk Factors -- Potential
Liability Regarding Hazardous Materials."
EMPLOYEES
As of July 31, 1996, ArQule employed 51 people of whom 23 have Ph.D.
degrees. Of these, 31 were engaged in operations, 12 were engaged in research
and development and 6 were engaged in marketing and general administration. None
of ArQule's employees are covered by collective bargaining agreements. ArQule
believes its employee relations are good.
FACILITIES
ArQule's research facilities include approximately 34,800 square feet of
laboratory and office space in Medford, Massachusetts pursuant to two lease
agreements. These leases extend through July 30, 2000, at which time the Company
has an option to renew the leases for an additional five year period.
ArQule believes its current facilities are adequate for its current
operations. The Company believes that suitable additional space will be
available to it, when needed, on commercially reasonable terms.
LEGAL PROCEEDINGS
ArQule is not a party to any material legal proceedings.
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<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, key employees and directors of the Company as of August 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Eric B. Gordon................... 49 President, Chief Executive Officer and Director
Joseph C. Hogan, Jr., Ph.D. ..... 54 Chairman of the Board, Senior Vice President of
Research and Development, Chief Scientific Officer
and Director
David L. Coffen, Ph.D. .......... 58 Vice President of Chemistry
James R. Fitzgerald, Jr. ........ 51 Vice President, Chief Financial Officer and
Treasurer
John M. Sorvillo, Ph.D. ......... 42 Vice President of Business Development
Steven L. Gallion, Ph.D. ........ 39 Director of Computational Chemistry
Adrian de Jonge, Ph.D.(1)........ 41 Director
Stephen M. Dow(2)................ 41 Director
Allan R. Ferguson(1)(2).......... 54 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Eric B. Gordon has been the President and Chief Executive Officer of the
Company since January 1996. From 1987 until he joined the Company, Mr. Gordon
served in various capacities with Pasteur Merieux Connaught, a pharmaceutical
company, most recently as Vice President, Treasurer and CFO and since 1993 as
Chief Executive Officer of Virogenetics Corporation, its wholly-owned
subsidiary. Mr. Gordon received his A.M.P. from the Wharton School of Business
of the University of Pennsylvania and his B.S. in Accounting and Finance from
Syracuse University.
Joseph C. Hogan, Jr., Ph.D. is a founder of the Company and has served as
the Chief Scientific Officer and Senior Vice President of Research and
Development since its inception. Dr. Hogan has served as the Chairman of the
Board since January 1996. Prior to founding the Company, Dr. Hogan was the
founder and president of Applied Modular Chemistries, Inc., a chemistry company,
from 1990 to 1993. Dr. Hogan received his M.S. and B.S. in Chemistry from Boston
College and his Ph.D. from Boston College and the Max Planck Institut fuer
Kohlenforschung, Muelheim/Ruhr, Germany.
David L. Coffen, Ph.D. has been the Vice President of Chemistry since July
1995. From 1971 until he joined the Company, Dr. Coffen was employed by
Hoffman-LaRoche Inc., a pharmaceutical company, in a variety of positions
culminating in Vice President of Molecular Sciences at the time of his
departure. Dr. Coffen received his Ph.D. in Synthetic Organic Chemistry from the
Massachusetts Institute of Technology and his B.S. in Chemistry from the
University of Toronto.
James R. Fitzgerald, Jr. joined the Company in July 1996 as the Chief
Financial Officer. From 1988 until he joined the Company, Mr. Fitzgerald was the
Chief Financial Officer of Hoyts Cinemas Corporation, an owner and operator of
cinemas. Mr. Fitzgerald received his M.B.A. and his B.A. in Economics from
Northeastern University.
John M. Sorvillo, Ph.D. joined the Company in December 1995 as Vice
President of Business Development. Prior to joining the Company, Dr. Sorvillo
had provided consulting services to the Company since August 1995. From 1985
until he joined the Company, Dr. Sorvillo was employed by Oncogene Science,
Inc., a biotechnology company, in a variety of positions culminating in Vice
President and General Manager at the time of his departure. Dr. Sorvillo
attended the Massachusetts Institute of Technology Program for Senior
Executives. He received his Ph.D. in Immunology from the
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<PAGE> 32
New York University Medical Center and his B.A. in Biology from the City
University of New York, Hunter College.
Steven L. Gallion, Ph.D. joined the Company in 1994 as Research Fellow in
Computational Chemistry. In 1995, he become the Company's Director of
Computational Chemistry. Prior to joining the Company, he was employed by Marion
Merrell Dow, Inc., a pharmaceutical company, as the Senior Associate Scientist
of Theoretical Chemistry from 1993 to 1994 and the Associate Scientist of
Theoretical Chemistry from 1992 to 1993. From 1989 to 1992, he was the Director
of Product Development of Amber Systems, Inc., a molecular modeling software
company. He received his Ph.D. in Physical Chemistry from the University of
Georgia and his B.S. in Chemistry from Southhampton College of Long Island
University.
Adrian de Jonge, Ph.D. has been a director of the Company since November
1995. Dr. de Jonge is the Vice President of Research of Solvay's Pharmaceuticals
Division and has held such position since 1994. From 1987 through 1993, Dr. de
Jonge was employed by Solvay in a variety of positions, most recently as Sector
Manager of Drug Discovery.
Stephen M. Dow has been a director of the Company since its inception.
Since 1983, he has been a general partner of Sevin Rosen Funds, a venture
capital investment firm. Mr. Dow serves as a director of Citrix Systems, Inc.
and several privately held companies.
Allan R. Ferguson has been a director of the Company since its inception.
He has been a general partner of Atlas Venture since 1993 and managing partner
of Aspen Ventures since 1991, both venture capital firms. From 1986 through
1991, Mr. Ferguson was the President of 3i Ventures, a venture capital firm.
Prior to his venture capital experience, Mr. Ferguson held senior level
positions in operations at Johnson & Johnson and Damon Biotech. Mr. Ferguson
serves as a director of AutoImmune Inc. and several privately held companies.
The Company's Restated Certificate, to be filed concurrently with the
closing of this offering, provides for a classified board of directors
consisting of three classes, with each class being as nearly equal in number as
possible. The term of one class expires and their successors are elected for a
term of three years at each annual meeting of the Company's stockholders. The
Company has designated two class I directors (Messrs. Dow and Gordon), two class
II directors (Mr. Ferguson and Dr. Hogan) and one class III director (Dr. de
Jonge). These class I, class II and class III directors will serve until the
annual meetings of stockholders to be held in 1997, 1998 and 1999, respectively,
and until their respective successors are duly elected and qualified, or until
their earlier resignation or removal. The Restated Certificate provides that
directors may be removed only for cause by a majority of stockholders. See
"Description of Capital Stock--Anti-Takeover Measures." There are no family
relationships among any of the directors or executive officers.
BOARD COMMITTEES
The Company has standing Audit and Compensation Committees of the Board of
Directors. The Audit Committee consists of Mr. Ferguson and Dr. de Jonge. The
primary function of the Audit Committee is to assist the Board of Directors in
the discharge of its duties and responsibilities by providing the Board with an
independent review of the financial health of the Company and of the reliability
of the Company's financial controls and financial reporting systems. The Audit
Committee reviews the general scope of the Company's annual audit, the fee
charged by the Company's independent accountants and other matters relating to
internal control systems.
The Compensation Committee of the Board of Directors determines the
compensation to be paid to all executive officers of the Company, including the
Chief Executive Officer. The Compensation Committee's duties include the
administration of the Company's Amended and Restated 1994 Equity Incentive Plan
(the "Equity Plan") and the 1996 Employee Stock Purchase Plan. The Compensation
Committee is currently composed of Messrs. Dow and Ferguson.
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<PAGE> 33
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. Members also evaluate
the Company's research program, recommend personnel to the Company and advise
the Company on technology matters. While the Scientific Advisory Board has not
met collectively, its members have been available individually to advise the
Company on specific scientific and technical issues. Scientific Advisory Board
members are compensated on a time and expenses basis and have received shares of
Common Stock of the Company. The Company has entered into consulting agreements
with a number of the Scientific Advisory Board members.
No member of the Scientific Advisory Board is employed by the Company, and
members may have other commitments to or consulting or advisory contracts with
their employers or other entities that may conflict or compete with their
obligations to the Company. Accordingly, such persons are expected to devote
only a small portion of their time to the Company. The members of the Company's
Scientific Advisory Board are:
William D. Carlson, M.D., Ph.D. is the Director of Cardiovascular Research
for Harvard Community Health Plan, Associate Physician at Brigham and Women's
Hospital and Assistant Professor of Medicine at Harvard University Medical
School. He is widely known for his work in drug development and structural
biology including the renin-angiotensin and osteogenic growth factor systems. He
received his Ph.D. in Molecular Biophysics and Biochemistry from Yale University
and his M.D. from Yale Medical School.
George L. Kenyon, Ph.D. is the Dean of the School of Pharmacy and Professor
of Chemistry and Pharmaceutical Chemistry at the University of California, San
Francisco. He is widely known for mechanisms of enzymatic action, and synthetic
and mechanistic chemistry and the development of structure-based approaches to
the rational design of enzymatic inhibitions. He received his Ph.D. in Organic
Chemistry from Harvard University.
Irwin D. Kuntz, Ph.D. is the Acting Director of the Molecular Design
Institute, Chairman of the Graduate Group in Biophysics, and Professor in the
Department of Pharmaceutical Chemistry at the University of California, San
Francisco. He is widely known for his pioneering work in computational
chemistry. He received his Ph.D. in Physical Chemistry from the University of
California, Berkley.
Gregory Petsko, Ph.D. is the Lucille P. Markey Professor of Biochemistry
and Chemistry, and Director of the Rosenteil Basic Medical Sciences Research
Center at Brandeis University. He is widely known for development of protein
crystallography and its application to exploring fundamental aspects of protein
folding. He received his Ph.D. in Molecular Biology from Oxford University.
Dagmar Ringe, Ph.D. is the Lucille P. Markey Associate Professor and Chair
of the Graduate Program in Biophysics at Brandeis University. She is
internationally recognized for her contributions using x-ray crystallography to
explore fundamental aspects of drug binding behavior. She received her Ph.D. in
Organic Chemistry from Boston University.
William R. Roush, Ph.D. is a Professor of Chemistry at Indiana University.
He is widely known for his basic studies and applications for a wide variety of
synthetic chemical reactions. He received his Ph.D. in Chemistry from Harvard
University.
K. Barry Sharpless, Ph.D. is the William M. Keck Professor of Chemistry at
The Scripps Research Institute. He is widely known for his pioneering work in
asymmetric chemical synthesis. He received his Ph.D. in Organic Chemistry from
Stanford University.
1996 DIRECTOR STOCK OPTION PLAN
All of the directors who are not employees of the Company (the "Eligible
Directors") are currently eligible to participate in the Company's 1996 Director
Stock Option Plan (the "Director Plan"). Upon the adoption of the Director Plan
and upon the election of an Eligible Director, such
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<PAGE> 34
director is automatically granted an option to purchase 7,500 shares of Common
Stock (the "Initial Options"). The Initial Options become exercisable with
respect to 2,500 shares on the date of the Company's next annual meeting of
stockholders following the date of grant and on the date of each annual meeting
of stockholders thereafter. In addition, options under the Director Plan are
automatically granted once a year, at the annual meeting of stockholders of the
Company, to Eligible Directors elected or reelected at the meeting. Each such
Eligible Director receives an option to purchase 3,500 shares of Common Stock
(the "Annual Options") for each year of the term of office to which the director
is elected (normally, 10,500 shares for election to a three-year term of
office). The Annual Options become exercisable with respect to 3,500 shares on
the date on which the Annual Option was granted and on the date of each annual
meeting of stockholders thereafter, so long as the optionee is then a director
of the Company. The Initial Options and Annual Options have a term of ten years,
and an exercise price payable in cash or shares of Common Stock. The Director
Plan was adopted by the Board of Directors in August 1996 and, therefore,
Initial Options for 7,500 shares were issued to each of Mr. Dow, Mr. Ferguson
and Dr. de Jonge. The exercise price for the Initial Options granted on the date
of the adoption of the Plan was the fair market value on such date as determined
by the Board of Directors. The exercise price for the Initial Options and the
Annual Options granted after the Company's Common Stock is quoted on the Nasdaq
National Market will equal the last sale price for the Common Stock on the
business day immediately preceding the date of grant, as reported on the Nasdaq
National Market.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid or accrued by the Company for services
rendered to the Company in all capacities for the fiscal year ended December 31,
1995 by its Chief Executive Officer (both current and former), the current Chief
Financial Officer and another executive officer of the Company, whose total
salary exceeded $100,000 (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER
OF
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- ------------------------------------------------------ -------- ----- ------------
<S> <C> <C> <C>
Eric B. Gordon(1)..................................... -- -- --
President and Chief Executive Officer
James R. Fitzgerald, Jr.(2) .......................... -- -- --
Vice President, Chief Financial Officer and
Treasurer
Seth L. Harrison, M.D.(3)............................. $ 56,000(4) -- --
Former Chief Executive Officer
Joseph C. Hogan, Jr., Ph.D. .......................... 150,000.. -- --
Chairman of the Board, Senior Vice President of
Research and Development and Chief Scientific
Officer
</TABLE>
- ------------------------------
(1) Mr. Gordon commenced employment with the Company in January 1996. Terms of
his employment are described under "--Executive Employment Agreements."
(2) Mr. Fitzgerald commenced employment with the Company in July 1996. Terms of
his employment are described under "-- Executive Employment Agreements."
(3) Dr. Harrison has not been employed by the Company since July 1995.
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<PAGE> 35
(4) This amount was paid to Dr. Harrison by Sevin Rosen Bayless Management
Company and the Company then reimbursed Sevin Rosen Bayless Management
Company for this payment. In addition, pursuant to the terms of a severance
agreement with Dr. Harrison, the Company accelerated the vesting of 8,334
shares of Common Stock.
Options. Neither Dr. Seth L. Harrison nor Dr. Joseph C. Hogan, Jr. have
ever been issued options to purchase shares of Common Stock of the Company.
STOCK PLANS
Amended and Restated 1994 Stock Option Equity Plan. The Company's Equity
Plan authorizes the grant of incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
nonqualified stock options for the purchase of an aggregate of 2,600,000 shares
(subject to adjustment for stock splits and similar capital changes) of Common
Stock to employees of the Company and, in the case of non-qualified stock
options, to consultants of the Company or any Affiliate (as defined in the
Equity Plan) capable of contributing to the Company's performance. Grants of
options under the Equity Plan and all questions of interpretations with respect
to the Equity Plan are determined by the Compensation Committee of the Company.
The Board of Directors has appointed the Compensation Committee to administer
the Equity Plan. As of June 30, 1996, 1,135,920 shares of Common Stock were
subject to outstanding options granted under the Equity Plan, leaving 1,464,080
shares available for issuance upon future grants under the Equity Plan.
1996 Employee Stock Purchase Plan. The Company has also adopted an
employee stock purchase plan (the "Purchase Plan") under which employees may
purchase shares of Common Stock at a discount from fair market value. There are
120,000 shares of Common Stock reserved for issuance under the Purchase Plan. To
date, no shares of Common Stock have been issued under the Purchase Plan. The
Purchase Plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. Rights to purchase Common Stock under
the Purchase Plan are granted at the discretion of the Compensation Committee,
which determines the frequency and duration of individual offerings under the
Plan and the dates when stock may be purchased. Eligible employees participate
voluntarily and may withdraw from any offering at any time before stock is
purchased. Participation terminates automatically upon termination of
employment. The purchase price per share of Common Stock in an offering is 85%
of the lesser of its fair market value at the beginning of the offering period
or on the applicable exercise date and may be paid through payroll deductions,
periodic lump sum payments or a combination of both. The Purchase Plan
terminates on August 14, 2006.
401(K) PLAN
The Company has a 401(k) savings and retirement plan (the "401(k) Plan")
which covers substantially all employees of the Company. The 401(k) Plan allows
participants to agree to certain salary deferrals which the Company allocates to
the participants' plan account. These amounts may not exceed statutorily
mandated annual limits set forth in the Code. The Company currently does not
match employee contributions to the 401(k) Plan but may do so in the future.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Gordon and Mr.
Fitzgerald. The Company agreed to employ Mr. Gordon as President and Chief
Executive Officer of the Company, effective January 2, 1996, at an annual salary
of $225,000. In connection with this agreement, Mr. Gordon was granted options,
which vest over four years, to acquire 387,433 shares of Common Stock at $0.80
per share and options to acquire 77,486 shares of Common Stock at $0.80 per
share, which vest on the earlier of the achievement of certain milestones or
five years. Mr. Gordon has also been provided with moving and relocation
allowances. The agreement provides for continued employment until termination by
either party. If Mr. Gordon is terminated by the Company without
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<PAGE> 36
cause, the agreement provides that he will be entitled to receive his base
salary, plus any benefits to which he is entitled and any options granted to Mr.
Gordon which would have otherwise vested, for a period of up to six months
following such termination of employment. In July 1996, the Company also made a
loan in the principal amount of $250,000 to Mr. Gordon. The principal amount of
the loan will be repaid in three annual installments beginning three years from
the date of this offering and bears interest at the lowest applicable federal
rate of interest as published by the Internal Revenue Service. See "Certain
Transactions."
Under Mr. Fitzgerald's Agreement, the Company has agreed to employ Mr.
Fitzgerald as Vice President and Chief Financial Officer of the Company,
effective July 9, 1996, at an annual salary of $150,000. In connection with the
agreement, Mr. Fitzgerald was granted options, which vest over four years, to
acquire 50,000 shares of Common Stock at $6.00 per share. The agreement provides
for continued employment until termination by either party. If Mr. Fitzgerald is
terminated without cause by the Company during the first year of the agreement,
he will be entitled to receive his base salary, plus any benefits to which he is
entitled and any options granted to Mr. Fitzgerald which would have otherwise
vested, for a period of up to six months.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is responsible for determining salaries,
incentives and other forms of compensation for directors, officers and other
employees of the Company. The Compensation Committee also administers various
incentive compensation and benefit plans. See "Management--Stock Plans." The
Compensation Committee currently consists of Stephen M. Dow and Allan R.
Ferguson. Mr. Dow is a general partner of Sevin Rosen Funds, a venture capital
firm and a principal stockholder of the Company. Mr. Ferguson is a general
manager of Atlas Venture, a venture capital firm and a principal stockholder of
the Company. See "Principal Stockholders" and "Certain Transactions."
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<PAGE> 37
CERTAIN TRANSACTIONS
In December 1993, in exchange for substantially all of the assets and
liabilities of ArQule Partners, L.P., a Delaware limited partnership (the
"Partnership"), to the Company, the Company issued 1,500 shares of its Common
Stock to the Partnership, at which time the Partnership became the sole
stockholder of the Company. In November 1994, the Company declared a stock
dividend of 3,332.33 shares of its Common Stock on each outstanding share of
Common Stock held by the Partnership as of October 17, 1994. After certain
transfers of Common Stock by the Partnership, all the remaining outstanding
shares of Common Stock then held by the Partnership were surrendered to the
Company in exchange for shares of Series A Convertible Preferred Stock, $0.01
par value per share (the "Series A Preferred Stock"), which will convert into
4,295,500 shares of Common Stock concurrently with the closing of this offering.
The partners of the Partnership have agreed to dissolve the Partnership and
distribute the shares 180 days after the effective date of this offering. Sevin
Rosen Fund IV L.P., Atlas Venture Fund II, L.P. and Atlas Venture Europe B.V.,
which are significant stockholders of the Company, Dr. Hogan and a limited
partnership of which Dr. Hogan is a general partner, will receive shares of
Common Stock of the Company upon such Partnership distribution. See "Principal
Stockholders."
In November 1993, the Company made a loan in the amount of $63,000 to
Joseph C. Hogan, Jr., Ph.D., Chairman and Chief Scientific Officer of the
Company, which loan is represented by a promissory note due and payable in
November 1996, and which bears interest at the lowest applicable federal rate of
interest as published by the Internal Revenue Service. The entire accrued
interest and principal is currently outstanding.
During the period from August 1994 through February 1995, Sevin Rosen Fund
IV L.P., Atlas Venture Fund, II, L.P. and Atlas Venture Europe Fund B.V. made a
series of bridge loans to the Company in the aggregate amount of $2,400,000 (the
"Bridge Loans") in exchange for promissory notes and warrants to purchase an
aggregate of 155,300, 58,229 and 26,471 shares of Common Stock, respectively,
exercisable at $0.25 per share until the earlier of the effective date of an
initial public offering or various dates through December 31, 1999 (the "Bridge
Warrants"). In November 1995, the principal amount of the promissory notes
representing the Bridge Loans were converted into shares of Series A Preferred
Stock which will convert into an aggregate of 960,000 shares of Common Stock
concurrently with the closing of this offering. It is anticipated that the
Bridge Warrants will be exercised on a cashless basis prior to the closing of
this offering.
In November 1995, the Company issued 1,800,000 shares of Series B
Convertible Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock"), to Physica B.V. for cash at a purchase price of $3.89 per share. Such
shares of Series B Preferred Stock will convert into 900,000 shares of Common
Stock concurrently with the closing of this offering. Physica B.V. is an
affiliate of Solvay Duphar B.V., with whom the Company has a major corporate
collaboration. See "Business--ArQule's Drug Discovery Programs."
Also in November 1995, the Company made a loan in the amount of $120,000 to
Joseph C. Hogan, Jr., Ph.D., Chairman and Chief Scientific Officer of the
Company. The loan is represented by a promissory note and is secured by shares
of Common Stock issuable to Dr. Hogan upon dissolution of the Partnership. The
loan bears interest at the lowest applicable federal rate of interest as
published by the Internal Revenue Service. The original principal amount of the
loan is forgiven at a rate of 25% per year on each anniversary date of the note
as long as Dr. Hogan is employed by the Company. The entire accrued interest and
principal is currently outstanding.
In April 1996, all accrued interest outstanding on the Bridge Loans through
November 1995 in the aggregate amount of $141,787 was converted into shares of
Series A Preferred Stock, which will convert into an aggregate of 56,714 shares
of Common Stock concurrently with the closing of this offering. In addition, in
consideration of the waiver by Physica B.V. of its anti-dilution rights to
acquire its percentage interest in such shares of Series A Preferred Stock, the
Company issued to Physica B.V.
36
<PAGE> 38
additional shares of Series B Preferred Stock, which will convert into 7,734
shares of Common Stock concurrently with the closing of this offering.
In July 1996, the Company made a loan in the amount of $250,000 to Eric B.
Gordon, a director and the Chief Executive Officer of the Company, which loan is
secured by shares of Common Stock issuable to Mr. Gordon upon the exercise of
options. The loan is represented by a promissory note which is due and payable
in three equal annual installments beginning three years from the date of this
offering and which bears interest at the lowest applicable federal rate of
interest as published by the Internal Revenue Service. The entire accrued
interest and principal is currently outstanding.
37
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table and footnotes set forth certain information regarding
the beneficial ownership of the Company's Common Stock as of August 15, 1996, by
(i) persons known by the Company to be beneficial owners of more than 5% of the
Common Stock, (ii) the Chief Executive Officer (both current and former) and the
Named Executive Officer, (iii) each director of the Company and (iv) all current
executive officers and directors as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
---------------------
NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNERS(2)(3) BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Atlas Venture(4)..................................... 1,355,738 19.43% 15.10%
222 Berkeley Street
Boston, MA 02116
Physica B.V.......................................... 907,734 13.01% 10.11%
C.J. van Houtenlaan, 36
1381 CD Weiss
The Netherlands
Sevin Rosen Fund IV L.P.(5).......................... 2,362,833 33.87% 26.32%
550 Lytton Avenue, Suite 200
Palo Alto, CA 94301
Adrian de Jonge, Ph.D.(6)............................ 907,734 13.01% 10.11%
Stephen M. Dow(7).................................... 2,362,833 33.87% 26.32%
Allan R. Ferguson(8)................................. 1,355,738 19.43% 15.10%
Eric B. Gordon(9).................................... 38,743 * *
Seth L. Harrison, M.D.(10)........................... 128,689 1.84% 1.43%
Joseph C. Hogan, Jr., Ph.D.(11)...................... 1,208,194 17.32% 13.46%
All current executive officers and directors as a
group
(5 persons)(12).................................... 5,873,242 83.72% 65.15%
</TABLE>
- ------------------------------
* Indicates less than 1%.
(1) Reflects the conversion, contemporaneously with the closing of this
offering, of all outstanding shares of preferred stock of the Company into
an aggregate of 6,219,948 shares of Common Stock of the Company and the
issuance of 234,992 shares of Common Stock upon the cashless exercise of
outstanding warrants. The number of shares of Common Stock deemed
outstanding after this offering includes the 2,000,000 shares of Common
Stock of the Company being offered for sale by the Company in this
offering. The persons and entities named in the table have sole voting and
investment power with respect to the shares beneficially owned by them,
except as noted below. Share numbers include shares of Common Stock
issuable pursuant to the outstanding options and warrants that may be
exercised within 60 days after August 15, 1996.
(2) Except as otherwise indicated above, the address of each stockholder
identified above is c/o the Company, 200 Boston Avenue, Medford, MA 02155.
(3) ArQule Partner, L.P., which holds 4,295,000 shares of Common Stock,
representing 61.57% before the offering and 47.85% after the offering has
not been included in this table. The partners of the Partnership have
agreed to dissolve the Partnership. See "Certain Transactions" and
footnotes (4), (5) and (11).
(4) Consists of (i) 303,258 shares owned by Atlas Venture Fund II, L.P., (ii)
138,274 shares owned by Atlas Venture Europe Fund B. V. (collectively,
"Atlas Venture"), (iii) 628,300 shares estimated to be distributed to Atlas
Venture Fund II, L.P. by the Partnership, and (iv) 285,906 shares estimated
to be distributed to Atlas Venture Europe Fund B.V. The respective general
partners of
38
<PAGE> 40
Atlas Venture share voting and investment power with respect to the shares
owned by Atlas Venture. The numbers of shares of Common Stock attributed to
Atlas Venture in clauses (iii) and (iv) are estimates of the number of
shares which will be distributed to Atlas Venture upon dissolution of the
Partnership assuming (a) the fair market value per share at the time of
dissolution is equal to the assumed initial public offering price of
$12.00, and (b) the further pro rata distribution by Legomer Investors,
Inc., a general partner of the Partnership ("LII"), to its stockholders
(which include Atlas Venture) of the ArQule shares distributed to it by the
Partnership. See "Certain Transactions." The actual number of shares
received by each partner in the Partnership will depend on the per share
valuation at the time of the distribution.
(5) Consists of (i) 810,174 shares owned by Sevin Rosen IV L.P. ("Sevin Rosen")
and (ii) 1,552,659 shares estimated to be distributed by the Partnership.
The respective general partners of the Sevin Rosen exercise sole voting and
investment power with respect to the shares owned by the Sevin Rosen. The
number of shares of Common Stock attributed to Sevin Rosen is an estimate
of the number of shares which will be distributed to Sevin Rosen upon
dissolution of the Partnership assuming (a) the fair market value per share
at the time of dissolution is equal to the assumed initial public offering
price of $12.00, and (b) the further pro rata distribution by LII, to its
stockholders (which include Sevin Rosen) of the ArQule shares distributed
to it by the Partnership. See "Certain Transactions." The actual number of
shares received by each partner in the Partnership will depend on the per
share valuation at the time of the distribution.
(6) Consists of 907,734 shares of Common Stock owned by Physica B.V. Dr. de
Jonge is Vice President of Research of Solvay's pharmaceuticals Division,
an affiliate of Physica B.V. Dr. de Jonge disclaims beneficial ownership of
the shares held by Physica B.V.
(7) Consists of 2,362,833 shares owned by or attributed to Sevin Rosen. Mr. Dow
is a general partner of SRB Associates IV L.P. which is a general partner
of Sevin Rosen. Mr. Dow disclaims beneficial ownership of the shares owned
by or attributed to Sevin Rosen, except to the extent of his pecuniary
interest therein. See footnote (5).
(8) Consists of 1,355,738 shares owned by or attributed to Atlas Venture. Mr.
Ferguson is a general partner of Atlas Venture Associates II, L.P., which
is a general partner of Atlas Venture Fund II, L.P. Mr. Ferguson disclaims
beneficial ownership of the shares owned by or attributed to Atlas Venture,
except to the extent of his pecuniary interest therein. See footnote (4).
(9) Represents shares of Common Stock subject to options that become
exercisable upon the closing of this offering.
(10) Includes 41,189 shares estimated to be distributed by the Partnership. The
number of shares attributed to Dr. Harrison is an estimate of the number of
shares which will be distributed to him upon dissolution of the Partnership
assuming the fair market value per share at the time of dissolution is
equal to the assumed initial public offering price of $12.00. See "Certain
Transactions." The actual number of shares received by each partner in the
Partnership will depend on the per share valuation at the time of the
distribution.
(11) Consists of 1,208,194 shares estimated to be distributed by the Partnership
to Dr. Hogan. The above number of shares of Common Stock held by the
Partnership and attributed to Dr. Hogan is an estimate of the number of
shares which will be distributed to Dr. Hogan (187,500 shares) and to a
limited partnership of which certain of Dr. Hogan's family members are
beneficiaries (1,020,835 shares) upon dissolution of the Partnership
assuming (a) the fair market value per share at the time of dissolution is
equal to the assumed initial public offering price of $12.00, and (ii) the
further pro rata distribution by Legomer Technologies, Inc., a general
partner of the Partnership, to its stockholders (which include Mr. Hogan)
of the ArQule shares distributed to it by the Partnership. See "Certain
Transactions." The actual number of shares received by each partner in the
Partnership will depend on the per share valuation at the time of the
distribution.
(12) Includes 38,743 shares of Common Stock subject to options that are either
presently exercisable or will become exercisable within 60 days of August
15, 1996. See footnotes (6), (7), (8), (9) and (11).
39
<PAGE> 41
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 30,000,000 shares of Common Stock, $0.01 par value per
share, and 1,000,000 shares of Preferred Stock, $0.01 par value per share, after
giving effect to the filing of the Company's Restated Certificate. As of the
date of this Prospectus, the Company had 32 shareholders. Upon the closing of
this offering, the Company will have 8,976,487 shares of Common Stock
outstanding.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Restated Certificate, the
form of which is included as an exhibit to the Registration Statement, and by
the provisions of applicable law.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on matters to be
voted upon by the stockholders. There are no cumulative voting rights. Holders
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution or winding up of the Company, holders of Common Stock
share ratably in the assets of the Company available for distribution to its
stockholders, subject to the preferential rights of any then outstanding shares
of Preferred Stock. The Common Stock outstanding upon the effective date of the
Registration Statement, and the shares offered by the Company hereby, upon
issuance and sale, will be fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue up to 1,000,000
shares of Preferred Stock in one or more series and to fix the relative rights,
preferences, privileges, qualifications, limitations and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting or
conversion rights that could adversely affect the voting power of the holders of
Common Stock and the issuance of Preferred Stock could be used, under certain
circumstances, to render more difficult or discourage a hostile takeover of the
Company. No shares of Preferred Stock will be outstanding immediately following
the closing of the offering and the Company has no present plans to issue any
shares of Preferred Stock.
ANTI-TAKEOVER MEASURES
In addition to the Board of Directors' ability to issue shares of Preferred
Stock, the Restated Certificate and the By-laws of the Company contain several
other provisions that are commonly considered to discourage unsolicited takeover
bids. The Restated Certificate includes a provision classifying the Board of
Directors into three classes with staggered three-year terms, and the By-laws
include a provision prohibiting stockholder action by written consent. Under the
Restated Certificate and By-laws, the Board of Directors may enlarge the size of
the Board and fill any vacancies on the Board. The By-laws provide that
nominations for directors may not be made by stockholders at any annual or
special meeting unless the stockholder intending to make a nomination notifies
the Company of its intention a specified period in advance and furnishes certain
information. The By-laws also provide that special meetings of the Company's
stockholders may be called only by the President or the Board of Directors and
require advance notice of business to be brought by a stockholder before the
annual meeting.
In February 1988, a law regulating corporate takeovers (the "Anti-Takeover
Law") took effect in Delaware. In certain circumstances, the Anti-Takeover Law
prevents certain Delaware corporations, including those whose securities are
listed on the Nasdaq National Market, from engaging in a
40
<PAGE> 42
"business combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with an "interested stockholder" (a stockholder who owns
15% or more of the corporation's outstanding voting stock) for three years
following the date on which such stockholder became an "interested stockholder"
subject to certain exceptions, unless the transaction is approved by the board
of directors and the holders of at least 66 2/3% of the outstanding voting stock
of the corporation (excluding shares held by the interested stockholder). The
statutory ban does not apply if, upon consummation of the transaction in which
any person becomes an interested stockholder, the interested stockholder owns at
least 85% of the outstanding voting stock of the corporation (excluding shares
held by persons who are both directors and officers or by certain employee stock
plans). A Delaware corporation subject to the Anti-Takeover Law may "opt out" of
the Anti-Takeover Law with an express provision either in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares; such an amendment is
effective following expiration of twelve months from adoption. The Company is a
Delaware corporation that is subject to the Anti-Takeover Law and has not "opted
out" of its provisions.
The foregoing provisions of Delaware law and the Restated Certificate and
By-laws could have the effect of discouraging others from attempting a hostile
takeover of the Company and, as a consequence, they may also inhibit temporary
fluctuations in the market price of the Common Stock that might result from
actual or rumored hostile takeover attempts. Such provisions may also have the
effect of preventing changes in the management of the Company. It is possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 8,976,487 shares of
Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option or of any other outstanding options, warrants or other
rights to purchase Common Stock. Of these shares, the 2,000,000 shares sold in
this offering will be freely tradable, without restriction or further
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.
The remaining 6,976,487 outstanding shares of Common Stock are owned by
existing stockholders and are deemed "Restricted Shares" under Rule 144. These
may not be resold, except pursuant to an effective registration statement or an
applicable exemption from registration. Approximately 560,288 shares of Common
Stock will be eligible for sale under Rules 144 and 701 on the ninety-first day
after the effectiveness of this offering. At the end of such 180-day period, an
additional 5,508,465 shares of Common Stock will be eligible for sale under
Rules 144 and 701. Stockholders of the Company, holding in the aggregate
6,416,199 shares of Common Stock, have agreed to enter into the 180-day lock-up
agreements described below. The remaining Restricted Shares will become eligible
from time to time thereafter upon the expiration of the minimum two-year holding
period prescribed by Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
Restricted Shares for at least two years from the later of the date such
Restricted Shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading volume
in the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company. All sales of shares of the Company's Common Stock, including Restricted
Shares, held by affiliates of the Company must be sold under Rule 144, subject
to the foregoing volume limitations and other restrictions.
The Commission has proposed an amendment to Rule 144 which would reduce the
holding period required for shares subject to Rule 144 from two years to one
year. If this proposal is adopted, as of the expected closing of this offering,
an additional 907,734 shares of Common Stock will become eligible for sale by
existing Stockholders to the public, after the expiration of a 180-day lock-up
period.
The Company's directors and executive officers and certain of its
stockholders have agreed that they will not, without the prior consent of the
representatives of the Underwriters, offer to sell, sell, contract to sell,
grant any option to sell or otherwise dispose of or require the Company to file
with the Commission a registration statement under the Act to register any
shares of Common Stock or securities convertible or exchangeable for shares of
Common Stock or warrants or other rights to acquire shares of Common Stock
during the 180-day period following the effective date of the Registration
Statement.
The Company plans to file registration statements under the Securities Act
to register 2,600,000, 125,000 and 120,000 shares of Common Stock issuable under
the Equity Plan, the Director Plan and the Stock Purchase Plan, respectively,
180 days after the date of this Prospectus. Upon registration, such shares are
eligible for immediate resale upon exercise, subject, in the case of affiliates,
to the volume and notice requirements of Rule 144.
No prediction can be made as to the effect, if any, that market sales of
additional shares or the availability of such additional shares for sale will
have on the market price of the Common Stock. Nevertheless, sales of substantial
amounts of Common Stock in the public market may have an adverse impact on the
market price for the Common Stock. See "Risk Factors-Dilution."
42
<PAGE> 44
REGISTRATION RIGHTS
The holders of the 6,219,948 shares of Common Stock to be issued on
conversion of the Series A Preferred Stock and Series B Preferred Stock (the
"Registrable Shares") are entitled to certain rights with respect to
registration under the Securities Act of the Registrable Shares. If the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, such holders are
entitled to notice of such registration and are entitled to include such
Registrable Shares in the registration. The rights are subject to certain
conditions and limitations, among them the right of the underwriters of a
registered offering to limit the number of shares included in such registration.
Holders of Registrable Shares benefiting from these rights may also require the
Company to file at its expense a registration statement under the Securities Act
with respect to their shares of Common Stock and, subject to certain conditions
and limitations, the Company is required to use its best efforts to effect such
registration. Furthermore, such holders may, subject to certain conditions and
limitations, require the Company to file additional registration statements on
Form S-3. In connection with this offering, such holders waived their right to
have shares of Common Stock registered under the Securities Act as part of this
offering.
43
<PAGE> 45
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
Oppenheimer & Co., Inc. and Vector Securities International, Inc., have
severally agreed to purchase from the Company the following respective numbers
of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
--------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC..........................................
Oppenheimer & Co., Inc. .......................................
Vector Securities International, Inc. .........................
----------
Total..................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and its
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. The Representatives of the Underwriters have advised the Company that
the Underwriters do not intend to confirm any shares to any accounts over which
they exercise discretionary authority. After the initial public offering of the
shares, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same proportion thereof
which the number of shares of Common Stock to be purchased by it shown in the
above table bears to the total number of shares of Common Stock offered hereby.
The Company will be obligated, pursuant to the option, to sell shares to the
Underwriters to the extent the option is exercised. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain existing stockholders of the Company, including the Company's
executive officers and directors, who will own in the aggregate shares of Common
Stock after the offering, have agreed that they will not, without the prior
written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exchangeable for or convertible into shares of Common Stock
owned by them during the 180-day period following the date of this Prospectus.
The Company has agreed that, subject to limited exceptions, it will not, without
the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common
44
<PAGE> 46
Stock or Securities exchangeable for or convertible into shares of Common Stock
during the 180-day period following to the date hereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors to
be considered in determining the initial public offering price are prevailing
market and economic conditions, revenues and earnings of the Company, market
valuations of other companies engaged in activities similar to those of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management and
other factors deemed relevant. The estimated initial public offering price range
set forth on the cover of this preliminary prospectus is subject to change as a
result of market conditions and other factors.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts. Michael
Lytton, a partner of Palmer & Dodge LLP, is the Secretary of the Company and
Lynnette C. Fallon, also a partner of Palmer & Dodge LLP, is the Assistant
Secretary of the Company. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault, LLP,
Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the two years in the period ended December 31, 1995 and for the period from
inception (May 6, 1993) through December 31, 1993 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules thereto. All statements made in this Prospectus regarding the contents
of any contract, agreement or other document filed as an exhibit to the
Registration Statement are qualified by reference to the copy of such document
filed as an exhibit to the Registration Statement. A copy of the Registration
Statement may be inspected without charge at the offices of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission. Such reports and other information can also be
reviewed through the Commission's Web site (http://www.sec.gov).
45
<PAGE> 47
ARQULE, INC.
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... F-2
Balance Sheet at December 31, 1994 and 1995, and June 30, 1996 (unaudited)........... F-3
Statement of Operations for the period from inception (May 6, 1993) through
December 31, 1993, for the two years ended December 31, 1995 and for the six
months ended June 30, 1995 and 1996 (unaudited).................................... F-4
Statement of Redeemable Preferred Stock and Stockholders' Equity (Deficit) for the
period from inception (May 6, 1993) through December 31, 1995 and for the six
months ended June 30, 1996 (unaudited)............................................. F-5
Statement of Cash Flows for the period from inception (May 6, 1993) through
December 31, 1993, for the two years ended December 31, 1995 and for the six
months ended June 30, 1995 and 1996 (unaudited)................................... F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE> 48
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of ArQule, Inc.
The stock split described in Note 11 to the financial statements has not been
consummated at August 29, 1996. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of redeemable preferred stock and stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of ArQule, Inc. at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the two years in
the period ended December 31, 1995 and for the period from inception (May
6, 1993) through December 31, 1993 in conformity with generally accepted
accounting principles. 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 of
these statements in accordance with generally accepted auditing standards
which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above."
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 29, 1996
F-2
<PAGE> 49
ARQULE, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30,
-------------------------- JUNE 30, 1996
1994 1995 1996 (NOTE 10)
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 425,000 $ 2,989,000 $ 2,567,000 $ 2,567,000
Marketable securities.......................... -- 4,802,000 3,800,000 3,800,000
Restricted cash................................ -- 50,000 50,000 50,000
Prepaid expenses and other current assets...... 29,000 73,000 30,000 30,000
Notes receivable from related party............ -- 93,000 93,000 93,000
----------- ----------- ----------- -----------
Total current assets.................... 454,000 8,007,000 6,540,000 6,540,000
Restricted cash.................................. 288,000 50,000 50,000 50,000
Property and equipment, net...................... 1,502,000 1,994,000 5,134,000 5,134,000
Other assets..................................... 14,000 49,000 49,000 49,000
Notes receivable from related party.............. 63,000 90,000 75,000 75,000
----------- ----------- ----------- -----------
$2,321,000.. $10,190,000 $11,848,000 $11,848,000
=========== =========== =========== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations... $ 341,000 $ 514,000 $ 836,000 $ 836,000
Bridge financing -- related party.............. 1,594,000 -- -- --
Accounts payable and accrued expenses.......... 627,000 769,000 1,177,000 1,177,000
Deferred revenue............................... -- 1,650,000 3,133,000 3,133,000
----------- ----------- ----------- -----------
Total current liabilities............... 2,562,000 2,933,000 5,146,000 5,146,000
----------- ----------- ----------- -----------
Capital lease obligations........................ 962,000 911,000 1,426,000 1,426,000
----------- ----------- ----------- -----------
Deferred revenue................................. -- 458,000 -- --
----------- ----------- ----------- -----------
Series B mandatorily redeemable convertible
preferred stock, 1,800,000 and 1,815,468 shares
issued and outstanding at December 31, 1995 and
June 30, 1996, respectively, stated at net
issuance price plus accretion; no shares
outstanding pro forma.......................... -- 6,888,000 6,898,000 --
----------- ----------- ----------- -----------
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value;
15,000,000 shares authorized
Series A convertible preferred stock,
8,591,000, 10,511,000 and 10,624,429
shares issued and outstanding at
December 31, 1994 and 1995 and June 30,
1996, respectively, stated at issuance
price (liquidation preference
$9,354,790); no shares outstanding pro
forma................................... 86,000 2,486,000 2,628,000 --
Common stock, $0.01 par value; 20,000,000
shares authorized; 554,597, 522,797 and
523,047 shares issued and outstanding at
December 31, 1994 and 1995 and June 30, 1995,
respectively; 6,742,995 shares outstanding
pro forma.................................... 6,000 5,000 5,000 67,000
Additional paid-in capital..................... 4,376,000 4,435,000 4,435,000 13,899,000
Accumulated deficit............................ (5,671,000) (7,926,000) (8,690,000) (8,690,000)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit).... (1,203,000) (1,000,000) (1,622,000) 5,276,000
----------- ----------- ----------- -----------
Commitments (Note 13)............................ -- -- -- --
----------- ----------- ----------- -----------
$ 2,321,000 $10,190,000 $11,848,000 $11,848,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 50
ARQULE, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 6, 1993) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Compound development
revenue.................... $ -- $ 85,000 $ 1,830,000 $ 521,000 $ 1,475,000
Compound development
revenue--related party..... -- -- 500,000 -- 1,500,000
License option fees........... -- -- 1,000,000 1,000,000 --
----------- ----------- ----------- ----------- ----------
-- 85,000 3,330,000 1,521,000 2,975,000
----------- ----------- ----------- ----------- ----------
Costs and expenses:
Cost of revenue............... -- -- 1,367,000 392,000 962,000
Cost of revenue--related
party...................... -- -- 277,000 -- 973,000
Research and development...... 769,000 2,806,000 2,095,000 1,213,000 1,119,000
General and administrative.... 687,000 1,346,000 1,557,000 806,000 828,000
----------- ----------- ----------- ----------- ----------
1,456,000 4,152,000 5,296,000 2,411,000 3,882,000
----------- ----------- ----------- ----------- ----------
Loss from operations....... (1,456,000) (4,067,000) (1,966,000) (890,000) (907,000)
Interest income................. -- -- 133,000 11,000 172,000
Interest expense................ (9,000) (139,000) (419,000) (190,000) (19,000)
----------- ----------- ----------- ----------- ----------
Net loss................... $(1,465,000) $(4,206,000) $(2,252,000) $(1,069,000) $ (754,000)
=========== =========== =========== =========== ==========
Unaudited pro forma net loss per
share assuming conversion of
convertible preferred stock
(Note 10):
Net loss per share......... $ (0.33) $ (0.10)
=========== ==========
Shares used in computing
net loss per share....... 6,851,000 7,441,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
ARQULE, INC.
<TABLE>
STATEMENT OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
STOCKHOLDERS' EQUITY
(DEFICIT)
------------------------
SERIES B
MANDATORILY REDEEMABLE SERIES A
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
STOCK STOCK
---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Capital contributions from ArQule Partners, L.P.
(Note 1)...............................................
Net loss.................................................
Issuance of common stock on December 30, 1993 in exchange
for partnership assets and liabilities.................
BALANCE AT DECEMBER 31, 1993.............................
Capital contribution from ArQule Partners, L.P.
(Note 1)...............................................
3,333.33 for 1 stock split effected in the form of a
stock dividend.........................................
Cancellation of common stock.............................
Issuance of Series A convertible preferred stock in
exchange for common stock.............................. 8,591,000 $ 86,000
Cancellation of unvested portion of restricted stock upon ----------
employee termination...................................
Issuance of common stock purchase warrants under bridge
financing..............................................
Net loss.................................................
---------- ----------
BALANCE AT DECEMBER 31, 1994............................. 8,591,000 86,000
Employee restricted stock purchases......................
Issuance of common stock purchase warrants under bridge
financing..............................................
Cancellation of unvested portion of restricted stock upon
employee termination...................................
Conversion of bridge notes into Series A convertible
preferred stock........................................ 1,920,000 2,400,000
Issuance of Series B mandatorily redeemable convertible
preferred stock, net of issuance costs of $115,000..... 1,800,000 $6,885,000
Accretion of Series B mandatorily redeemable preferred
stock to redemption value.............................. 3,000
Net loss.................................................
--------- --------- ---------- ----------
BALANCE AT DECEMBER 31, 1995............................. 1,800,000 6,888,000 10,511,000 2,486,000
Conversion of interest on bridge notes to Series A
convertible preferred stock (unaudited)................ 113,429 142,000
Issuance of Series B mandatorily redeemable preferred
stock to maintain ownership percentage (Note 10)
(unaudited)............................................ 15,468
Cancellation of unvested portion of restricted stock upon
employee termination (unaudited).......................
Employee option exercise (unaudited).....................
Accretion of Series B mandatorily redeemable preferred
stock to redemption value (unaudited).................. 10,000
Net loss (unaudited).....................................
--------- --------- ---------- ----------
BALANCE AT JUNE 30, 1996 (UNAUDITED)..................... 1,815,468 $6,898,000 10,624,429 $2,628,000
========= ========= ========== ==========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------------
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
---------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Capital contributions from ArQule Partners, L.P.
(Note 1)............................................... $2,236,000 $ 2,236,000
Net loss................................................. $(1,465,000) (1,465,000)
Issuance of common stock on December 30, 1993 in exchange
for partnership assets and liabilities................. 1,500 $ -- --
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993............................. 1,500 -- 2,236,000 (1,465,000) 771,000
Capital contribution from ArQule Partners, L.P.
(Note 1)............................................... 2,100,000 2,100,000
3,333.33 for 1 stock split effected in the form of a
stock dividend......................................... 4,998,500 50,000 (50,000) --
Cancellation of common stock............................. (140,528) (1,000) 1,000 --
Issuance of Series A convertible preferred stock in
exchange for common stock.............................. (4,295,500) (43,000) (43,000) --
Cancellation of unvested portion of restricted stock upon
employee termination................................... (9,375) -- --
Issuance of common stock purchase warrants under bridge
financing.............................................. 132,000 132,000
Net loss................................................. (4,206,000) (4,206,000)
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994............................. 554,597 6,000 4,376,000 (5,671,000) (1,203,000)
Employee restricted stock purchases...................... 68,200 -- 1,000 1,000
Issuance of common stock purchase warrants under bridge
financing.............................................. 57,000 57,000
Cancellation of unvested portion of restricted stock upon
employee termination................................... (100,000) (1,000) 1,000 --
Conversion of bridge notes into Series A convertible
preferred stock........................................ 2,400,000
Issuance of Series B mandatorily redeemable convertible
preferred stock, net of issuance costs of $115,000.....
Accretion of Series B mandatorily redeemable preferred
stock to redemption value.............................. (3,000) (3,000)
Net loss................................................. (2,252,000) (2,252,000)
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995............................. 522,797 5,000 4,435,000 (7,926,000) (1,000,000)
Conversion of interest on bridge notes to Series A
convertible preferred stock (unaudited)................ 142,000
Issuance of Series B mandatorily redeemable preferred
stock to maintain ownership percentage (Note 10)
(unaudited)............................................
Cancellation of unvested portion of restricted stock upon
employee termination (unaudited)....................... (375) -- --
Employee option exercise (unaudited)..................... 625 -- --
Accretion of Series B mandatorily redeemable preferred
stock to redemption value (unaudited).................. (10,000) (10,000)
Net loss (unaudited)..................................... (754,000) (754,000)
---------- ---------- ----------- ----------- -----------
BALANCE AT JUNE 30, 1996 (UNAUDITED)..................... 523,047 $ 5,000 $4,435,000 $(8,690,000) $(1,622,000)
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
ARQULE, INC.
<TABLE>
STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 6, 1993) YEAR ENDED SIX MONTHS ENDED
THROUGH DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------- -------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(1,465,000) $(4,206,000) $(2,252,000) $(1,069,000) $ (754,000)
Adjustment to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................ 19,000 189,000 506,000 224,000 434,000
Amortization of debt discount................ -- 25,000 164,000 137,000 --
(Increase) decrease in prepaid expenses and
other current assets...................... (70,000) 41,000 (44,000) 6,000 43,000
Increase in other assets..................... (14,000) -- (35,000) -- --
Increase in notes receivable from related
party..................................... (63,000) -- (120,000) -- --
Increase in accounts payable and accrued
expenses.................................. 287,000 340,000 141,000 49,000 550,000
Increase in deferred revenue................. -- -- 2,108,000 2,716,000 1,025,000
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities.............................. (1,306,000) (3,611,000) 468,000 2,063,000 1,298,000
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of marketable securities............... -- -- (9,052,000) -- --
Proceeds from sale or maturity of marketable
securities..................................... -- -- 4,250,000 -- 1,002,000
Decrease (increase) in restricted cash........... (100,000) (188,000) 188,000 (14,000) --
Additions to property and equipment.............. (201,000) (168,000) (495,000) (228,000) (2,437,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (301,000) (356,000) (5,109,000) (242,000) (1,435,000)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bridge financing -- related
party.......................................... -- 1,700,000 700,000 700,000 --
Principal payments of capital lease
obligations.................................... (34,000) (110,000) (381,000) (161,000) (285,000)
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net............... -- -- 6,885,000 -- --
Proceeds from issuance of common stock........... -- -- 1,000 -- --
Capital contribution from ArQule Partners,
L.P............................................ 2,236,000 2,100,000 -- -- --
Proceeds from sale-leaseback transactions........ -- 107,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. 2,202,000 3,797,000 7,205,000 539,000 (285,000)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................... 595,000 (170,000) 2,564,000 2,360,000 (422,000)
Cash and cash equivalents, beginning of period... -- 595,000 425,000 425,000 2,989,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period......... $ 595,000 $ 425,000 $ 2,989,000 $ 2,785,000 $ 2,567,000
=========== =========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations of $1,122,000 and $503,000, $935,000 and $512,000
were incurred in six months ended June 30, 1996 and in the years ended December
31, 1995, 1994 and 1993, respectively, when the Company entered into leases for
various machinery and equipment, furniture and fixtures, and leasehold
improvements.
During 1995, the Company converted $2,400,000 of bridge loans into 1,920,000
shares of Series A convertible preferred stock (Note 8). In addition, during
1996, the Company converted $142,000 of interest relating to the bridge loans
into 113,429 shares of Series A convertible preferred stock.
In addition to cash of $595,000, the Company received certain assets,
liabilities and patented technology upon the issuance of its common stock in
connection with the formation of the Company (Note 1).
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During 1995 and 1994, the Company paid approximately $254,000 and $98,000,
respectively, for interest.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 53
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND ORGANIZATION
ArQule, Inc. (the "Company") is engaged in the discovery, development and
production of novel chemical compounds for the pharmaceutical and biotechnology
industries. Its operations are focused on the integration of combinatorial
chemistry and structure-guided rational drug design technologies and their
application for producing such compounds.
In May 1993 and in connection with the formation of ArQule Partners, L.P.
(the "Partnership"), Legomer Technologies, Inc. ("LTI"), formerly Molecular
Recognition Technologies, Inc., a company owned by the two founding limited
partners in the Partnership, contributed to the Partnership all rights and
interests in certain LTI patented technology (the "Technology") in exchange for
a 0.5% general partner ownership position. The Company was legally incorporated
on December 30, 1993 to carry on the operations of the Partnership. Immediately
following the incorporation of the Company, the Partnership transferred
substantially all of its assets, liabilities and patented technology (the
"Operating Assets"), having an aggregate net book value of $771,000, to the
Company in exchange for 1,500 shares of the Company's $0.01 par value common
stock, representing all of the Company's then outstanding common stock. Because
of the related party nature of these transactions, the Operating Assets and the
Technology transfers have been accounted for as transfers of assets between
entities under common control. Accordingly, the accompanying financial
statements include the assets, liabilities and results of operations of the
Company at historical amounts as if the transfers occurred at the inception of
the Partnership. The Company is currently a majority-owned subsidiary of the
Partnership.
Amounts which reflect the funding of the Partnership's operations prior to
the conversion of certain shares of the Company's common stock into Series A
preferred stock (Note 10) are reflected as paid-in capital in the accompanying
balance sheet and as capital contributed by ArQule Partners L.P. in the
statements of changes in redeemable preferred stock and stockholders' equity
(deficit) and of cash flows.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of these
financial statements are as follows:
Cash Equivalents, Marketable Securities and Restricted Cash
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its available cash primarily in money market mutual funds and U.S.
government debt securities which have strong credit ratings. These investments
are subject to minimal credit and market risks. The Company specifically
identifies securities for purposes of determining gains and losses on the sale
of cash equivalents and short-term investments. At December 31, 1995 and 1994,
the Company has classified its investments as available-for-sale as defined in
Statement of Financial Accounting Standards ("SFAS") No. 115.
Restricted cash represents cash equivalents and time deposits held at
financial institutions as collateral on certain lease agreements (Note 13).
Fair Value of Financial Instruments
In 1995, the Company adopted SFAS No. 107, "Disclosures about the Fair
Value of Financial Instruments," which requires the disclosure of the fair value
of financial instruments. At December 31, 1995 the Company's financial
instruments consist of cash, cash equivalents, marketable securities, restricted
cash, notes receivable from related party, accounts payable and accrued expenses
and
F-7
<PAGE> 54
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
mandatorily redeemable convertible preferred stock. The carrying amount of these
instruments approximate their fair values.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Assets under capital
leases and leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the respective leases by use of the
straight-line method. Maintenance and repair costs are expensed as incurred.
Revenue Recognition
Compound development revenue relates to revenue from significant
collaborative agreements (Note 3) and from licensing of compound arrays. Revenue
from collaborative agreements is recognized as work is performed using the
percentage of completion method. Payments received under these arrangements
prior to the completion of the related work are recorded as deferred revenue.
Revenue from licensing of compound arrays with no additional obligations is
recognized upon delivery of the compound array. License option fees represent
payments made to the Company for a right to evaluate and negotiate the terms of
potential licensing arrangement. Payments received for license option fees are
recognized as the options are granted as such fees are nonrefundable and the
Company has no further obligations.
Cost of Revenue
Cost of revenue represents the actual costs incurred in connection with
performance pursuant to collaborative agreements and the costs incurred to
produce compound arrays. These costs consist primarily of payroll and
payroll-related costs, supplies and overhead expenses.
Unaudited Pro Forma Net Loss Per Share
Pro forma net loss per share is determined by dividing the net loss by the
weighted average number of common stock and common stock equivalents outstanding
during the period, assuming the conversion of all convertible preferred stock
which will occur upon the closing of a qualified public offering of the
Company's common stock as described in Note 10.
Common stock equivalents, although anti-dilutive, issued at prices below
the offering price per share during the twelve month period preceding the
initial filing of the Registration Statement have been included in the
calculation of unaudited pro forma net loss per share using the treasury stock
method and an assumed initial public offering price of $12.00 per share as if
outstanding since the beginning of each period presented.
Historical net loss per share has not been presented as the Series A
convertible preferred stock would have been omitted from the weighted average
shares outstanding as it is anti-dilutive and was issued more than twelve months
prior to the anticipated public offering.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
F-8
<PAGE> 55
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim Financial Data (Unaudited)
The interim financial data as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996, included in the accompanying financial statements are
unaudited; however, in the opinion of the Company, the interim financial data
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. The
interim financial data are not necessarily indicative of the results of
operations for a full year.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed Of". In October 1995, the FASB issued SFAS No.
123, "Accounting for Stock-Based Compensation." Both SFAS No. 121 and No. 123
are effective for the Company for the year ending December 31, 1996. The Company
has adopted these standards as required, and has adopted SFAS No. 123 through
disclosure only. The adoption of these statements is not expected to have a
material effect on the Company's financial position, results of operations or
cash flows.
3. SIGNIFICANT AGREEMENTS
In 1995, the Company entered into a Research, Development and License
Agreement (the "Agreement") and a Stock Purchase Agreement (Note 10) with Solvay
Duphar B.V. ("Solvay"). Under the terms of the Agreement, the Company will
provide a certain number of compounds per year, and Solvay has been granted the
right to screen these compounds to identify compounds which exhibit biological
activity against targets (an "Active Compound"). Solvay has the right to enter
into an exclusive, worldwide license for any Active Compound identified. In
exchange, the Company receives milestone payments during drug development and
royalty payments based on sales of the product. Solvay has a right which expires
on December 31, 1997 to license certain of the Company's technologies on a
nonexclusive basis for internal use only. The initial term of the Agreement is
five years, and Solvay will make payments totaling $3.5 million per contract
year for access to the compounds and for the Company's research work of which
$600,000 was paid by December 31, 1995. At December 31, 1995, deferred revenue
related to this agreement totaled $100,000, and $500,000 was included in
compound development revenue--related party for the year ended December 31,
1995.
In 1995, the Company entered into a Research & Development and License
Agreement with Abbott Laboratories ("Abbott"). Under this agreement, the Company
will conduct research and development activities for Abbott for two years (the
"Research Term") with an option to extend the agreement for up to an additional
three years for additional payments. The Company will also provide a certain
number of compounds per year, and Abbott has been granted the right to screen
these compounds or to use them in research activities pursuant to the agreement.
Abbott has the right to enter into an exclusive, worldwide license for a number
of compounds or derivatives developed under the agreement. In exchange, the
Company receives milestone payments during drug development and royalty payments
based on sales of the product. Pursuant to the agreement, Abbott has made
payments totaling $3.2 million for access to the compounds and for the Company's
research work of which $1,192,000 was included in compound development revenue
in 1995 and $2,008,000 was included in deferred revenue at December 31, 1995.
F-9
<PAGE> 56
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company entered into an Option Agreement and a Research and
Development Agreement with Pharmacia Biotech AB ("Pharmacia"), a subsidiary of
Pharmacia & Upjohn, Inc. Under the Option Agreement, a nonrefundable fee of
$1,000,000 was paid by Pharmacia in exchange for a six month option to license
certain technology rights. This amount was included in license option fee
revenue. Upon exercise of an option by Pharmacia, the two parties will enter
into a license agreement which would include initial licensing fees based on the
technology licensed and royalty and milestone payments based on Pharmacia's
related net product sales. Under the Research and Development Agreement,
Pharmacia paid $500,000 for certain research and development activities, which
was included in compound development revenue. Subsequent to December 31, 1995
and pursuant to the terms of the Option Agreement, Pharmacia elected to extend
the option for certain technologies by funding an additional research project
under the Research and Development Agreement.
Under the terms of material transfer agreements with biotechnology
companies (the "collaborators"), the Company has granted the collaborator the
nonexclusive, royalty-free license to test certain compound arrays supplied by
the Company. Upon identification of an active compound, the Company will
negotiate a joint drug development program with the collaborator to develop the
compound, provided the Company has not previously licensed the compound. Under
the collaboration agreements executed in 1996 in connection with these joint
drug development programs, the Company and the collaborator will each bear the
costs and expenses of their respective activities. Proceeds received on sales or
a third party license of the jointly developed compound will first reimburse
development costs incurred by each party on a pro rata basis. After all such
reimbursements have been made, the remaining proceeds will be split evenly
between the parties.
4. CASH EQUIVALENTS AND MARKETABLE SECURITIES
Following is a summary of the fair market value of available-for-sale
securities, by balance sheet classification, as of December 31, 1994 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------ ----------
<S> <C> <C>
Cash equivalents
Money market funds............................................. $9,000 $2,688,000
Marketable securities
U.S. government obligations.................................... -- 4,802,000
------ ----------
$9,000 $7,490,000
====== ==========
</TABLE>
At December 31, 1994 and 1995, marketable securities are carried at fair
market value, which approximates amortized cost. Available-for-sale securities
classified as marketable securities with fair market values of $1,016,000 and
$3,786,000 have contractual maturities of between one and five years and between
five and ten years, respectively. All of the Company's marketable securities are
classified as current at December 31, 1995 as these funds are highly liquid and
are available to meet working capital needs and to fund current operations.
Gross unrealized gains and losses at December 31, 1994 and 1995 and realized
gains and losses on sales of securities for the year ended December 31, 1994 and
1995 were not significant.
F-10
<PAGE> 57
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE -----------------------
(YEARS) 1994 1995
----------- ---------- ----------
<S> <C> <C> <C>
Machinery and equipment............................. 3-7 $1,056,000 $1,839,000
Leasehold improvements.............................. 5 585,000 656,000
Furniture and fixtures.............................. 7 52,000 72,000
Construction-in-progress............................ -- -- 124,000
---------- ----------
1,693,000 2,691,000
Less -- Accumulated depreciation and amortization... 191,000 697,000
---------- ----------
$1,502,000 $1,994,000
========== ==========
</TABLE>
Assets held under capital leases consisted of $935,000 and $1,438,000 of
machinery and equipment at December 31, 1994 and 1995, respectively, and
$485,000 of leasehold improvements at December 31, 1994 and 1995. Accumulated
amortization of these assets totaled $173,000 and $366,000 at December 31, 1994
and 1995, respectively. For the years ended December 31, 1993, 1994 and 1995,
amortization expense related to assets held under capital lease obligations was
$10,000, $163,000 and $193,000, respectively.
6. NOTES RECEIVABLE FROM RELATED PARTY
The Company has a note receivable in the amount of $63,000 from an officer
of the Company at December 31, 1994 and 1995. Under the terms of the note,
interest accrues on the unpaid principal and interest at the lowest applicable
federal rate of interest as published by the Internal Revenue Service (5.9% at
December 31, 1995). Principal and accrued interest are due in full on November
3, 1996. At December 31, 1994 and 1995, interest due on the note was $3,000 and
$5,000, respectively, and is included in prepaid expenses and other current
assets.
The Company also has outstanding at December 31, 1995 a note receivable in
the amount of $120,000 from an officer of the Company which is secured by the
officer's beneficial interest in 96,000 shares of Series A preferred stock of
the Company. Under the terms of the note, interest accrues on the unpaid
principal and interest at the lowest applicable federal rate of interest as
published by the Internal Revenue Service (5.9% at December 31, 1995). Principal
and accrued interest will be paid in four equal installments on November 2 of
each year commencing on November 2, 1996. The amount of the principal due and
payable on any installment date will be forgiven so long as the officer is
employed by the Company on the installment date. At December 31, 1995 interest
receivable relating to this note was $1,000 and is included in prepaid expenses
and other current assets.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Accounts payable............................................... $420,000 $369,000
Accrued professional fees...................................... 123,000 176,000
Accrued interest expense....................................... 16,000 142,000
Other accrued expenses......................................... 68,000 82,000
-------- --------
$627,000 $769,000
======== ========
</TABLE>
F-11
<PAGE> 58
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. BRIDGE FINANCING -- RELATED PARTY
During 1994 and 1995, the Company received $1,700,000 and $700,000,
respectively under bridge financing arrangements with certain stockholders. In
connection with this financing, the Company issued eighteen unsecured promissory
notes at interest rates ranging from 5.86% to 7.43% per annum. On November 2,
1995, the Company and the stockholders agreed to convert the principal of the
notes into 1,920,000 shares of Series A convertible preferred stock. At December
31, 1994 and 1995, interest payable relating to these bridge financings is
$16,000 and $142,000, respectively. In April 1996, the Company and the
stockholders converted the interest payable into an additional 113,429 shares of
Series A convertible preferred stock.
As partial consideration for the promissory notes, the Company issued
warrants to purchase 240,000 shares of the Company's $0.01 par value common
stock. The warrants are exercisable at $0.25 per share (including by means of a
cashless exercise) which was equal to or exceeded the estimated fair value of
the Company's common stock, as determined by the Board of Directors, throughout
the period the warrants were issued. The warrants are currently exercisable and
expire on the earlier of various dates through December 31, 1999 or the
effective date of an initial public offering under the Securities Act of 1933.
The proceeds from the bridge financings were allocated to the notes and to
the warrants based on management's estimate of their relative fair values. This
resulted in $132,000 and $57,000 being ascribed to the warrants in 1994 and
1995, respectively, which was recorded as additional paid-in-capital and as a
discount to the face value of the notes. The discount was amortized over the
period from issuance to conversion into Series A convertible preferred stock.
The amortization of debt discount totaled $25,000 and $164,000 for the years
ended December 31, 1994 and 1995, respectively, and is included in interest
expense.
9. EQUITY INCENTIVE PLAN
During 1994, the Board of Directors approved the 1994 Amended and Restated
Equity Incentive Plan (the "Equity Incentive Plan"). During 1995 and 1996, the
Board of Directors approved amendments to increase the number of shares of
common stock available for awards under the Equity Incentive Plan to 1,104,500
and 2,600,000, respectively. All shares will be awarded at the discretion of a
Committee of the Board of Directors (the "Committee") in a variety of
stock-based forms including stock options and restricted stock. Pursuant to the
Equity Incentive Plan, incentive stock options may not be granted at less than
the fair market value of the Company's common stock at the date of the grant,
and the option term may not exceed ten years. For holders of 10% or more of the
Company's voting stock, options may not be granted at less than 110% of the fair
market value of the common stock at the date of the grant, and the option term
may not exceed five years. Stock appreciation rights granted in tandem with an
option shall have an exercise price not less than the exercise price of the
related option.
Subject to the restrictions above, the Committee is authorized to designate
the options, awards, and purchases under the Equity Incentive Plan, the number
of shares covered by each option, award and purchase, and the related terms,
exercise dates, prices and methods of payment. In addition, for purposes of
determining the recipients' compensation relating to these grants, the fair
value for the awards is determined by the Board of Directors at the date at
which they are granted.
F-12
<PAGE> 59
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
Activity for the period from inception of the Equity Incentive Plan through
June 30, 1996 was as follows:
<CAPTION>
NUMBER OF OPTION PRICE
INCENTIVE STOCK OPTIONS SHARES PER SHARE
----------------------- --------- ------------
<S> <C> <C>
Granted...................................................... 2,500 $0.02
---------
Outstanding at December 31, 1994............................. 2,500 $0.02
Granted...................................................... 298,500 $0.02 - $0.80
---------
Outstanding at December 31, 1995............................. 301,000 $0.02 - $0.80
---------
Granted...................................................... 837,420 $0.80 - $6.00
Exercised.................................................... (625) $0.02
Cancelled.................................................... (1,875) $0.02
---------
Outstanding at June 30, 1996................................. 1,135,920 $0.02 - $6.00
=========
Exercisable at December 31, 1995............................. 625
=========
</TABLE>
At December 31, 1995, restricted common stock purchased pursuant to the
Equity Incentive Plan totaled 522,797 shares (Note 11), and there were 280,703
shares available for future grant under the Equity Incentive Plan.
On August 14, 1996, the Board of Directors approved, subject to stockholder
approval, the 1996 Director Stock Option Plan for non-employee directors. Under
this plan, eligible directors are automatically granted once a year, at the
annual meeting of stockholders of the Company, options to purchase 3,500 shares
of common stock which are exercisable on the date of grant. Upon adoption of the
plan and upon election of an eligible director, options to purchase 7,500 shares
of common stock will be granted which will become exercisable in three equal
annual installments commencing on the date of the Company's next annual
stockholders' meeting held after the date of grant. The options have a term of
ten years with an exercise price equal to fair market value on the date of
grant. A maximum of 125,000 shares of common stock of the Company is reserved
for issuance in accordance with the terms of this plan.
Stock Purchase Plan
On August 14, 1996, the Board of Directors approved, subject to stockholder
approval, the 1996 Employee Stock Purchase Plan (the "Purchase Plan"). This plan
enables eligible employees to exercise rights to purchase the Company's common
stock at 85% of the fair market value of the stock on the date the right was
granted or the date the right is exercised, whichever is lower. Rights to
purchase shares under the Purchase Plan are granted by the Board of Directors.
The rights are exercisable during a period determined by the Board of Directors;
however, in no event will the period be longer than twenty-seven months. The
Purchase Plan is available to substantially all employees, subject to certain
limitations. The Company has reserved 120,000 shares of common stock for
purchases under the Purchase Plan.
10. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE
PREFERRED STOCK
On November 18, 1994, the Partnership (the sole stockholder of the Company
as of that date) exchanged 563,972 shares of common stock of the Company for
Partnership interests held by certain employees and consultants. The Partnership
also contributed 140,528 shares of common stock to the Company for future
issuance pursuant to the Equity Incentive Plan (Note 9). The Company
F-13
<PAGE> 60
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
immediately retired these contributed shares and reserved 140,528 shares of
common stock for issuance pursuant to the Equity Incentive Plan. The
stockholders of the Company approved the issuance of 8,591,000 shares of Series
A convertible preferred stock to the Partnership in exchange for the remaining
4,295,500 shares of common stock held by the Partnership. Upon the exchange of
preferred stock, the Company retired the related shares of common stock.
On November 1, 1995, the stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the number of designated
Series A preferred shares from 10,000,000 to 10,511,000 and to approve the
designation of 1,800,000 shares of Series B preferred stock. In February 1996,
the stockholders approved a further increase in the number of designated Series
A and Series B preferred shares to 10,624,429 and 1,815,468, respectively.
On November 5, 1995, as part of a collaborative agreement (Note 3), the
Company sold to Solvay 1,800,000 shares of Series B preferred stock which
resulted in net proceeds to the Company of $6,885,000. In April 1996, the
Company issued to Solvay an additional 15,468 shares of Series B preferred stock
in connection with the conversion of the bridge financing interest into Series A
preferred stock (Note 8) to maintain the original, agreed-upon ownership
percentage.
Convertible preferred stock has the following characteristics:
Conversion Rights
The preferred stock is convertible, at the option of the holder, into
common stock of the Company based upon a formula which currently would result in
an exchange of one share of common stock for every two shares of preferred stock
converted. The preferred stock will automatically convert into common stock upon
the closing of an initial public offering, for which net proceeds equal or
exceed $10,000,000 at a price per share equal to or greater than the original
purchase price per share of the related preferred stock.
Dividend Rights
When and if declared by the Board of Directors, and prior to any payment of
dividends to common stockholders, the Company shall pay noncumulative, annual
cash dividends of $0.07 and $0.27 per share to the holders of Series A preferred
stock and Series B preferred stock, respectively. In the event of a declaration
and payment of dividends on common stock, dividends on the preferred stock
(determined by the number of common shares into which the preferred shares are
convertible) are payable in an amount equal to or greater than the per share
amount of the dividend to common stockholders.
Voting Rights
Holders of the preferred stock are entitled to vote upon any matter
submitted to the stockholders for a vote. Each share of preferred stock shall
have one vote for each full share of common stock into which the respective
share of preferred stock would be convertible on the record date for the vote.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of the affairs
of the Company, the holders of the Series A preferred shares are entitled to
receive, prior to and in preference to the holders of Series B preferred stock
and the holders of common stock, an amount equal to $0.89 per share, plus any
declared but unpaid dividends. After all such payments have been made, the
holders of the outstanding Series B preferred shares are entitled to receive,
prior to and in preference to the holders of common stock, an amount equal to
$3.89 per share, plus any declared but unpaid dividend.
F-14
<PAGE> 61
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Redemption Rights
Each holder of shares of Series B preferred stock shall have the right to
cause the Company, at any time on or after November 2, 2001, to redeem the
Series B preferred stock at a price equal to $3.89 per share. The difference
between the net issuance price and the redemption price is being accreted by a
charge to accumulated deficit. The Series A preferred stock is not redeemable.
Protection of Series B Preferred Stock
The Company is not allowed to authorize the increase or decrease of the
total number of authorized shares of Series B preferred stock or issue
additional shares of Series B preferred stock without first obtaining the
approval of the majority of the Series B preferred stockholders. In addition,
the Company must first obtain approval of the majority of Series B preferred
stockholders to amend the Articles of Incorporation of the Company if such
amendment would adversely affect any of the rights, preferences or privileges of
shares of Series B preferred stock, or to redeem, purchase or otherwise acquire
shares of Series A preferred stock or common stock, excluding the repurchase of
shares of common stock from employees, officers, directors or consultants.
Unaudited Pro Forma Balance Sheet
Upon the closing date of the Company's initial public offering, all of the
outstanding shares of Series A and Series B preferred stock will automatically
convert into 5,312,214 and 907,734 shares of common stock, respectively. Such
conversion has been reflected in the unaudited pro forma balance sheet as of
June 30, 1996.
11. COMMON STOCK
On August 14, 1996, the Board of Directors approved a 1 for 2 reverse stock
split on the common stock of the Company. The reverse stock split is subject to
stockholder approval and the filing of an amended Certificate of Incorporation
which is expected to occur on or before the effective date of the registration
statement related to the Company's contemplated initial public offering.
Accordingly, all share and per share data have been restated to give retroactive
effect to the stock split for all periods presented.
On October 17, 1994 and November 1, 1995, the stockholders approved
amendments to the Company's Certificate of Incorporation to increase the number
of authorized common shares to 15,000,000 and 20,000,000, respectively. On
October 17, 1994, the Board of Directors also approved a 3,333.33 for 1 stock
split of the Company's common stock.
At December 31, 1995, the Company has 6,977,203 shares of its common stock
reserved for issuance upon conversion of the preferred stock and exercise of
warrants and options.
Stock Restriction Agreements
At December 31, 1995, the Company had outstanding 522,797 shares of common
stock issued pursuant to the Equity Incentive Plan (Note 9) which are subject to
stock restriction agreements whereby the stockholder automatically forfeits to
the Company the unvested portion of shares of common stock in the event of
termination of their employment with the Company. All such forfeited shares
shall immediately be retired by the Company. Shares subject to this agreement
vest over a four
F-15
<PAGE> 62
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
year period, either monthly or annually. At December 31, 1995, the aggregate
number of unvested common shares is 219,356.
Each stock restriction agreement terminates at the election of the Company
on the earlier of (i) the date upon which an initial public offering of shares
of common stock, with a price of at least $5.00 per share and net proceeds to
the Company of at least $10,000,000, becomes effective or (ii) the closing of an
acquisition, consolidation, or merger of the Company or a sale or transfer of
all or substantially all of the Company's assets.
12. INCOME TAXES
<TABLE>
The benefit (provision) for income taxes was as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax benefit:
Federal................................................. $ 1,420,000 $ 794,000
State................................................... 338,000 246,000
----------- -----------
1,758,000 1,040,000
----------- -----------
Deferred tax asset valuation allowance.................... (1,758,000) (1,040,000)
----------- -----------
$ -- $ --
========== ===========
</TABLE>
The Company's deferred tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
---- ----
<S> <C> <C>
Preoperating costs capitalized for tax purposes........... $ 496,000 $ 416,000
Net operating loss carryforwards.......................... 1,667,000 2,590,000
Tax credit carryforwards.................................. 139,000 272,000
Book depreciation in excess of tax........................ 42,000 106,000
----------- -----------
Gross deferred tax assets................................. 2,344,000 3,384,000
Deferred tax asset valuation allowance.................... (2,344,000) (3,384,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
The Company has provided a full valuation allowance for the deferred tax
assets as the realization of these future benefits is not sufficiently assured
as of the end of each related year. If the Company achieves profitability, the
deferred tax assets will be available to offset future income tax liabilities
and expense.
F-16
<PAGE> 63
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
At December 31, 1995, the Company has federal net operating loss
carryforwards and tax credit carryforwards available to reduce future taxable
income and tax liabilities, respectively, which expire as follows:
<CAPTION>
RESEARCH AND
NET DEVELOPMENT
YEAR OF OPERATING LOSS TAX CREDIT
EXPIRATION CARRYFORWARDS CARRYFORWARDS
- ---------- -------------- -------------
<S> <C> <C>
2009......................................................... $4,320,000 $ 84,000
2010......................................................... 2,181,000 52,000
---------- --------
$6,501,000 $ 136,000
========== ========
</TABLE>
Under the Internal Revenue Code, certain substantial changes in the
Company's ownership could result in an annual limitation on the amount of net
operating loss and tax credit carryforwards which can be utilized in future
years.
<TABLE>
A reconciliation between the amounts of reported income tax benefit and the
amount determined by applying the U.S. federal statutory rate of 35% for 1994
and 1995 to pre-tax loss is as follows:
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995
---- ----
<S> <C> <C>
Loss at statutory rate.................................... $ 1,472,000 $ 788,000
State tax benefit, net of federal benefit................. 252,000 135,000
Research and investment tax credit........................ 139,000 133,000
Other..................................................... (105,000) (16,000)
----------- -----------
1,758,000 1,040,000
Increase in valuation allowance........................... (1,758,000) (1,040,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
13. COMMITMENTS
LEASES
<TABLE>
The Company leases office space and equipment under noncancelable operating
and capital leases. The future minimum lease commitments under these leases are
as follows:
<CAPTION>
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
- ------------ ---------- ----------
<S> <C> <C>
1996........................................................ $ 293,000 $ 631,000
1997........................................................ 288,000 620,000
1998........................................................ 289,000 334,000
1999........................................................ 288,000 37,000
2000........................................................ 144,000 --
---------- ----------
Total minimum lease payments................................ $1,302,000 1,622,000
==========
Less -- Amount representing interest........................ 197,000
----------
Present value of minimum lease payments..................... $1,425,000
==========
</TABLE>
The Company has a lease line agreement with an unaffiliated third party
(the "Lessor") for $2,000,000 of which approximately $787,000 was available for
future leases at December 31, 1995. Subsequent to December 31, 1995, the Lessor
approved an increase in the lease line limit to $5,000,000. The term for each
lease under the agreement is forty-two months, commencing on the purchase date
F-17
<PAGE> 64
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
of the asset, and the lease bears interest at a rate determined by the Lessor at
each transaction date. The leasing arrangement was collateralized by cash
equivalents totaling $188,000 at December 31, 1994. This collateral was released
in 1995 by the Lessor. During 1994, the Company sold and leased back
approximately $107,000 in machinery and equipment, furniture and fixtures and
office equipment from the Lessor.
Rent expense under noncancelable operating leases was approximately $91,000
and $163,000 for the years ended December 31, 1994 and 1995, respectively.
LETTER OF CREDIT
In connection with a capital lease obligation for certain leasehold
improvements, the Company is required to maintain a $100,000 letter of credit
with a bank. Under the terms of the lease obligation, the $100,000 letter of
credit is to be available until September 30, 1996, at which point the required
amount will be reduced to $50,000 through September 30, 1998. The letter of
credit is collateralized by a $100,000 certificate of deposit held by the bank
(Note 2).
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with an officer who is
also a member of the board of directors. This agreement provides that if his
employment is terminated without cause, the officer is entitled to receive up to
six months' salary. The Company also entered into an employment agreement with
an officer. This agreement provides that if his employment is terminated without
cause during the first year of the agreement, the officer is entitled to receive
up to six months' salary.
F-18
<PAGE> 65
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
The Company................................ 11
Use of Proceeds............................ 11
Dividend Policy............................ 11
Capitalization............................. 12
Dilution................................... 13
Selected Financial Data.................... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 15
Business................................... 19
Management................................. 30
Certain Transactions....................... 36
Principal Stockholders..................... 38
Description of Capital Stock............... 40
Shares Eligible for Future Sale............ 42
Underwriting............................... 44
Legal Matters.............................. 45
Experts.................................... 45
Additional Information..................... 45
Index to Financial Statements.............. F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
2,000,000 SHARES
ARQULE, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
VECTOR SECURITIES INTERNATIONAL,
INC.
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the Company in connection with this offering
are as follows:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 10,311
Nasdaq listing fee........................................................ 39,942
NASD filing fee........................................................... 3,490
Blue Sky fees and expenses................................................ 15,000
Printing and engraving expenses........................................... 100,000
Accounting fees and expenses.............................................. 150,000
Legal fees and expenses................................................... 350,000
Transfer agent and registrar fees......................................... 100,000
Miscellaneous expenses.................................................... 6,257
--------
Total........................................................... $775,000
========
</TABLE>
All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants the Company the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or in
the right of the Company where the person involved is adjudged to be liable to
the Company except to the extent approved by a court. Article V of the Company's
Amended and Restated By-laws provides that the Company shall, to extent legally
permitted, indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he is or was, or has agreed to become, a director or
officer of the Company, or is or was serving, or has agreed to serve, at the
request of the Company, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise. The indemnification provided for in Article V is expressly not
exclusive of any other rights to which those seeking indemnification may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and shall inure to the benefit of the heirs, executors
and administrators of such persons. Article V also provides that the Company
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company, as a director, officer or trustee of,
or in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against and incurred
by such person in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Laws,
Section 7 of Article FIFTH of the Company's Restated Certificate eliminates a
director's personal liability for monetary damages to the Company and its
stockholders for breaches of fiduciary duty as a director, except in
circumstances involving a breach of a director's duty of loyalty to the Company
or its stockholders,
II-1
<PAGE> 67
acts or omissions not in good faith, intentional misconduct, knowing violations
of the law, self-dealing or the unlawful payment of dividends or repurchase of
stock.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1, 1993, the Company has issued and sold the following
securities, in each case in reliance on an exemption from required registration
pursuant to Section 4(2) of the Securities Act:
In December 1993, in exchange for the transfer of substantially all of the
assets and liabilities of the Partnership, to the Company, the Company issued
1,500 shares of its Common Stock to the Partnership.
Commencing in March 1995, the Company has granted employees and consultants
options under its Amended and Restated 1994 Equity Incentive Plan, which options
have a ten year term and are exercisable at a price equal to fair market value
on the date of grant, as determined in good faith by the Board of Directors. As
of June 30, 1996, options for 1,135,920 shares of the Company's Common Stock
were outstanding. As of such date, an option for 625 shares of Common Stock was
exercised at $0.02 per share.
In addition, from inception through June 1996, the Company made grants of
an aggregate of 523,047 shares of Common Stock to certain employees and
consultants of the Company. Such shares are subject to repurchase rights held by
the Company and were sold at fair market value on the date of grant.
In November 1994, the Company declared and paid a stock dividend of
3,332.33 shares of its Common Stock on each outstanding share of Common Stock
held as of October 17, 1994. Pursuant to a Plan of Recapitalization, Partnership
surrendered an aggregate of 4,295,500 outstanding shares of Common Stock (after
giving effect to such stock dividend) for shares of Series A Convertible
Preferred Stock of the Company which will convert into an equal number of shares
of Common Stock concurrently with this offering.
During the period from August 1994 through February 1995, certain
stockholders of the Company made a series of Bridge Loans to the Company for an
aggregate of $2,400,000 in exchange for promissory notes and warrants to
purchase an aggregate of 240,000 shares of Common Stock, exercisable at $0.25
per share until the earlier of the effective date of an initial public offering
or various dates through December 31, 1999. In November 1995, the Bridge Loans
were converted to shares of Series A Preferred Stock, which will convert into
960,000 shares of Common Stock concurrently with the closing of this offering.
In November 1995, the Company issued 1,800,000 shares of Series B Preferred
Stock to Physica B.V., which will convert into 900,000 shares of Common Stock
concurrently with the closing of this offering, for cash at the purchase price
of $3.89 per share.
In April 1996, all accrued interest outstanding on the Bridge Loans through
November 1995 was converted into shares of Series A Preferred Stock, which will
convert into 56,714 shares of Common Stock concurrently with the closing of this
offering. In April 1996, the Company also issued shares of Series B Preferred
Stock to Physica B.V., which will convert into 7,734 shares of Common Stock
concurrently with the closing of this offering, in consideration of Physica
B.V.'s waiver of its anti-dilution rights to acquire shares of Series A
Preferred Stock.
ITEM 16.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement. Filed herewith.
3.1 Amended and Restated Certificate of Incorporation of ArQule, as amended through
the date hereof. Filed herewith.
</TABLE>
II-2
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
3.2 Form of Certificate of Amendment to the Amended and Restated Certificate of
Incorporation as proposed to be filed upon the effectiveness of this Registration
Statement. Filed herewith.
3.3 Form of Amended and Restated Certificate of Incorporation as proposed to be filed
concurrently with the closing of this offering. Filed herewith.
3.4 By-laws of ArQule, Inc. Filed herewith.
3.5 Form of Amended and Restated By-laws as proposed to be adopted concurrently with
the closing of this offering. Filed herewith.
4.1 Specimen Common Stock Certificate. To be filed by amendment.
4.2 Specimen Common Stock Purchase Warrant. Filed herewith.
5.1 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered.
Filed herewith.
10.1* Amended and Restated 1994 Equity Incentive Plan, as amended through October 17,
1994. Filed herewith.
10.2* 1996 Employee Stock Purchase Plan. Filed herewith.
10.3* 1996 Director Stock Option Plan. Filed herewith.
10.4 Form of Indemnification Agreement between ArQule and its directors. Filed
herewith. Such agreements are materially different only as to the signing
directors and the dates of execution.
10.5 Investors' Rights Agreement among ArQule and certain stockholders of the Company
dated November 2, 1995. Filed herewith.
10.6 Lease Agreement dated September 29, 1993 between ArQule and Beautyrest Property,
Inc. and WRB, Inc. Filed herewith
10.7 Lease Agreement, dated July 27, 1995, between ArQule and Cummings Properties
Management, Inc., as amended. Filed herewith.
10.8* Employment Agreement effective as of January 2, 1996, between ArQule and Eric B.
Gordon. Filed herewith.
10.9 Employment Agreement effective as of July 9, 1996, between ArQule and James R.
Fitzgerald, Jr. To be filed by amendment.
10.10* Promissory Note dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and
ArQule. Filed herewith.
10.11 Pledge Agreement dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and
ArQule. To be filed by amendment.
10.12 Promissory Note and Pledge Agreement dated July 9, 1996 between Eric B. Gordon
and ArQule. Filed herewith.
10.13 Promissory Note dated November 4, 1993 between Dr. Joseph C. Hogan, Jr. and
ArQule. Filed herewith.
10.14+ Research, Development and License Agreement between ArQule and Solvay Duphar B.V.
dated November 2, 1995. Filed herewith.
10.15+ Research & Development and License Agreement between ArQule and Abbott
Laboratories dated June 15, 1995, as amended. Filed herewith.
10.16+ Research & Development Agreement between ArQule and Pharmacia Biotech AB dated
March 10, 1995, as amended. Filed herewith.
10.17+ Option Agreement between ArQule and Pharmacia Biotech AB dated March 10, 1995, as
amended. Filed herewith.
</TABLE>
II-3
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
10.18 Adoption Agreement for Fidelity Management and Research Company (ArQule's 401(k)
plan). To be filed by amendment.
11.1 Statement re computation of unaudited pro forma net loss per share.
23.1 Consent of Price Waterhouse LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5.1
herewith.
24 Power of attorney. Included on the signature page hereto.
</TABLE>
- ---------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
(B) FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
II Valuation and Qualifying Accounts and Reserves................................... S-1
</TABLE>
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under "Item
14--Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-4
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of
Medford, Commonwealth of Massachusetts, on August 29, 1996.
ARQULE, INC.
By: /s/ ERIC B. GORDON
------------------------------------
Eric B. Gordon
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of ArQule, Inc., hereby
severally constitute and appoint Eric B. Gordon, Michael Lytton and Lynnette C.
Fallon, and each of them singly, our true and lawful attorneys-in-fact, with
full power to them in any and all capacities, to sign any amendments to this
Registration Statement, and any related Rule 462(b) registration statement or
amendment thereto, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------------------- ----------------
<S> <C> <C>
/s/ ERIC B. GORDON President, Chief Executive Officer and August 29, 1996
- ------------------------------ Director (Principal Executive Officer,
Eric B. Gordon Principal Financial Officer and Principal
Accounting Officer)
/s/ STEPHEN M. DOW Director August 29, 1996
- ------------------------------
Stephen M. Dow
/s/ JOSEPH C. HOGAN, JR. Director August 29, 1996
- ------------------------------
Joseph C. Hogan, Jr.
/s/ ADRIAN DE JONGE Director August 29, 1996
- ------------------------------
Adrian de Jonge
/s/ ALLAN R. FERGUSON Director August 29, 1996
- ------------------------------
Allan R. Ferguson
</TABLE>
II-5
<PAGE> 71
SCHEDULE II
ARQULE, INC.
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
CHARGED
BALANCE AT TO COSTS CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING OF AND OTHER AND END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- ------------ --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Deferred tax asset valuation allowance
Year ended December 31, 1994.............. $ 586,000(1) 1,758,000 -- -- 2,344,000
Year ended December 31, 1995.............. 2,344,000 1,040,000 -- -- 3,384,000
<FN>
- ---------------
(1) Represents deferred tax asset valuation allowance recorded as of December
30, 1993 upon incorporation of the Company.
</TABLE>
S-1
<PAGE> 72
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement. Filed herewith.
3.1 Amended and Restated Certificate of Incorporation of ArQule, as amended through the
date hereof. Filed herewith.
3.2 Form of Certificate of Amendment to the Amended and Restated Certificate of
Incorporation as proposed to be filed upon the effectiveness of this Registration
Statement. Filed herewith.
3.3 Form of Amended and Restated Certificate of Incorporation as proposed to be amended
concurrently with the closing of this offering. Filed herewith.
3.4 By-laws of ArQule, Inc. Filed herewith.
3.5 Form of Amended and Restated By-laws as proposed to be amended concurrently with the
closing of this offering. Filed herewith.
4.1 Specimen Common Stock Certificate. Filed by amendment.
4.2 Specimen Common Stock Purchase Warrant. Filed herewith.
5.1 Opinion of Palmer & Dodge LLP as to the legality of the shares being registered.
Filed herewith.
10.1* Amended and Restated 1994 Equity Incentive Plan, as amended through October 17, 1994.
Filed herewith.
10.2* 1996 Employee Stock Purchase Plan. Filed herewith.
10.3* 1996 Director Stock Option Plan. Filed herewith.
10.4 Form of Indemnification Agreement between ArQule and its directors. Filed herewith.
Such agreements are materially different only as to the signing directors and the
dates of execution.
10.5 Investors' Rights Agreement among ArQule and certain stockholders of the Company
dated November 2, 1995. Filed herewith.
10.6 Lease Agreement dated September 29, 1993 between ArQule and Beautyrest Property, Inc.
and WRB, Inc. Filed herewith
10.7 Lease Agreement, dated July 27, 1995, between ArQule and Cummings Properties
Management, Inc. as amended. Filed herewith.
10.8* Employment Agreement effective as of January 2, 1996, between ArQule and Eric B.
Gordon. Filed herewith.
10.9 Employment Agreement effective as of July 9, 1996, between ArQule and James R.
Fitzgerald, Jr. Filed by amendment.
10.10* Promissory Note dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and ArQule.
Filed herewith.
10.11 Pledge Agreement dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and ArQule.
Filed by amendment.
10.12 Promissory Note and Pledge Agreement dated July 9, 1996 between Eric B. Gordon and
ArQule. Filed herewith.
10.13 Promissory Note dated November 4, 1993 between Dr. Joseph C. Hogan, Jr. and ArQule.
Filed herewith.
10.14+ Research, Development and License Agreement between ArQule and Solvay Duphar B.V.
dated November 2, 1995. Filed herewith.
10.15+ Research & Development and License Agreement between ArQule and Abbott Laboratories
dated June 15, 1995, as amended. Filed herewith.
10.16+ Research & Development Agreement between ArQule and Pharmacia Biotech AB dated March
10, 1995, as amended. Filed herewith.
10.17+ Option Agreement between ArQule and Pharmacia Biotech AB dated March 10, 1995, as
amended. Filed herewith.
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <C>
10.18 Adoption Agreement for Fidelity Management and Research Company (ArQule's 401(k)
plan). Filed by amendment.
11.1 Statement re computation of unaudited pro forma net loss per share.
23.1 Consent of Price Waterhouse LLP. Filed herewith.
23.2 Consent of Palmer & Dodge LLP. Included in the opinion filed as Exhibit 5.1 herewith.
24 Power of attorney. Included on the signature page hereto.
</TABLE>
- ---------------
* Indicates a management contract or compensatory plan.
+ Certain confidential material contained in the document has been omitted and
filed separately, with the Securities and Exchange Commission pursuant to Rule
406 of the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT 1.1
Draft of August 22, 1996
------------------------
ARQULE, INC.
SHARES[1]
--------------
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
, 1996
---------
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
VECTOR SECURITIES INTERNATIONAL, INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
ArQule, Inc., a Delaware corporation (herein called the Company), proposes
to issue and sell __________ shares of its authorized but unissued Common Stock,
$.01 par value (herein called the Common Stock) (said shares of Common Stock
being herein called the Underwritten Stock). The Company also proposes to grant
to the Underwriters (as hereinafter defined) an option to purchase up to
___________ additional shares of Common Stock (herein called the Option Stock
and with the Underwritten Stock herein collectively called the Stock). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms its agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you
and are identical to the electronically transmitted copies thereof filed with
the Commission
- -------------------
[1] Plus an option to purchase from the Company up to _________ additional
shares to cover over allotments.
<PAGE> 2
-2-
pursuant to the Commission's Electronic Data Gathering, Analysis and Retrieval
System (herein called EDGAR), except to the extent permitted by Regulation S-T.
The term Registration Statement as used in this Agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective. For the
purposes of this Agreement, all references to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement to any of
the foregoing shall be deemed to include the copy filed with the Commission
pursuant to EDGAR.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants as follows:
(a) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus and as being conducted, and is duly qualified
as a foreign corporation and in good standing in all jurisdictions in which
the character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to
be so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company).
<PAGE> 3
-3-
(b) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change, or any development for which the Company has a reasonable
basis to believe may result in a prospective material adverse change, in
the business, properties, financial condition or results of operations of
the Company, whether or not arising from transactions in the ordinary
course of business, other than as set forth in the Registration Statement
and the Prospectus, and since such dates, except in the ordinary course of
business, the Company has not entered into any material transaction not
referred to in the Registration Statement and the Prospectus.
(c) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply as to form, in all
material respects, with the provisions of the Securities Act and the rules
and regulations of the Commission thereunder. On the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; on the Effective Date, the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Prospectus, and any amendments or supplements thereto, delivered to you
for use in connection with the offering of the Stock is identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T;
PROVIDED, HOWEVER, that none of the representations and warranties in this
subparagraph (c) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters expressly for use in the
Registration Statement or the Prospectus.
(d) The Stock is duly and validly authorized, will be, when issued and
sold to the Underwriters as provided herein, duly and validly issued, fully
paid and nonassessable and conforms to the description thereof in the
Prospectus. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and
sale of the Stock as contemplated herein.
(e) The Stock has been duly authorized for listing on The Nasdaq
National Market, subject to official notice of issuance.
(f) The Company owns, or possesses adequate rights to use and
sublicense, all patents, patent rights, inventions, trade secrets,
licenses, know-how, proprietary techniques, including processes,
trademarks, service marks, trade names, copyrights and other intellectual
property described or referred to in the Registration Statement and the
Prospectus as owned or used by it or, except as set forth in the
Prospectus, which are necessary for the conduct of its business as now
conducted and as described in the Registration Statement and the
Prospectus. All such patents, patent rights, licenses, trademarks, service
marks and copyrights are (i) valid and enforceable and (ii) not being
infringed by any third parties which infringement could, whether singly or
in the aggregate, materially and adversely affect the business, properties,
<PAGE> 4
-4-
operations, condition (financial or otherwise), results of operations,
income or business prospects of the Company, as presently being conducted
or as proposed to be conducted in the Prospectus. Except as set forth in
the Prospectus, the Company has no knowledge of, nor has it received any
notice of, infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, inventions, trade secrets, licenses,
know-how, proprietary techniques, including processes and substances,
trademarks, service marks, trade names, copyrights or other intellectual
property which, singly or in the aggregate, is, or is reasonably likely to
be, the subject of an unfavorable decision, ruling or finding that could
have a material adverse effect on the business, properties, financial
condition or results of operations of the Company.
(g) Upon filing of the Amended and Restated Certificate of
Incorporation of the Company (in the form of a copy thereof previously
shown to your counsel) with the Secretary of State of Delaware and upon
consummation of the transactions contemplated hereby, the capitalization of
the Company will be as set forth in the Prospectus under the caption
"Capitalization" plus such additional number of shares as have been issued
after _________, 1996 and prior to the Closing Date pursuant to the
exercise of options granted under the Company's Amended and Restated 1994
Equity Incentive Plan (herein called the Options). The Company has no
subsidiaries. On the Closing Date the capital stock of the Company will
conform to the description thereof in the Registration Statement under the
caption "Description of Capital Stock". There are no outstanding options,
warrants or other rights granted to or by the Company to purchase shares of
Common Stock or other securities of the Company, or any subsidiary, other
than as described in the Prospectus. To the best knowledge of the Company,
no such option, warrant or other right has been granted to any person, the
exercise of which would cause such person to own more than five percent of
the Common Stock outstanding immediately after the offering other than as
described in the Prospectus. No person or entity holds a right to require
or participate in a registration under the Securities Act of shares of
Common Stock of the Company which right has not been waived by the holder
thereof as of the date hereof with respect to the registration of shares
pursuant to the Registration Statement. Except as set forth in the
Prospectus, no person holds a right to require registration under the
Securities Act of shares of Common Stock of the Company at any other time.
No person or entity has a right of first refusal or participation with
respect to the sale of shares of the Stock by the Company.
(h) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present
fairly the financial position, results of operations and cash flows of the
Company at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of results
for such periods have been made. The summary financial and other data
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
(i) Price Waterhouse LLP, which has certified certain of the financial
statements filed with the Commission as part of the Registration Statement,
are independent public accountants as required by the Securities Act and
the Rules and Regulations thereunder.
<PAGE> 5
-5-
(j) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and the
Company further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba after
the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the
Company's business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to
the Department.
(k) The Company is familiar with the Investment Company Act of 1940,
as amended, and has in the past conducted its affairs in such a manner to
ensure that the Company was not and is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(l) Except as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company is a party or to
which any property or assets of the Company is the subject which, if
determined adversely to the Company, might have a material adverse effect
on the business, properties, financial conditions or results of operations
of the Company; and to the best of the Company's knowledge, except as set
forth in the Prospectus, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
___________ shares of the Underwritten Stock to the several Underwriters and
each of the Underwriters agrees to purchase from the Company the respective
aggregate number of shares of Underwritten Stock set forth opposite its name in
Schedule I. The price at which such shares of Underwritten Stock shall be sold
by the Company and purchased by the several Underwriters shall be $________ per
share. In making this Agreement, each Underwriter is contracting severally and
not jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in SCHEDULE I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which
<PAGE> 6
-6-
such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such shares and portion, the number of shares of the Stock which each
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter or Underwriters
agreed to purchase; provided, however, that the non-defaulting Underwriters
shall not be obligated to purchase the shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
shares of the Stock exceeds 10% of the total number of shares of the Stock which
all Underwriters agreed to purchase hereunder. If the total number of shares of
the Stock which the defaulting Underwriter or Underwriters agreed to purchase
shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company shall have the right, within 24 hours next succeeding the
24-hour period above referred to, to make arrangements with other underwriters
or purchasers satisfactory to you for purchase of such shares and portion on the
terms herein set forth. In any such case, either you or the Company shall have
the right to postpone the Closing Date determined as provided in Section 5
hereof for not more than seven business days after the date originally fixed as
the Closing Date pursuant to said Section 5 in order that any necessary changes
in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company shall make arrangements within the 24-hour periods stated above for the
purchase of all the shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
to any non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option Stock
at the same price per share as the Underwriters shall pay for the Underwritten
Stock. The maximum aggregate number of shares of Option Stock to be sold by the
Company is __________. Said option may be exercised only to cover
over-allotments in the sale of the Underwritten Stock by the Underwriters and
may be exercised in whole or in part at any time (but not more than once) on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
shares of the Option Stock as to which the several Underwriters are exercising
the option. Delivery of certificates for the shares of Option Stock, and payment
therefor, shall be made as provided in Section 5 hereof. The number of shares of
the Option Stock to be purchased by each Underwriter shall be the same
percentage of the total number of shares of the Option Stock to be purchased by
the several Underwriters as such Underwriter is purchasing of the Underwritten
Stock, as adjusted by you in such manner as you deem advisable to avoid
fractional shares.
<PAGE> 7
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4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Palmer & Dodge LLP, One Beacon Street, Boston, MA 02108, at 7:00 a.m.,
San Francisco time, on the third business day after the date of this Agreement,
or at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company and
you. The date and hour of such delivery and payment (which may be postponed as
provided in Section 3(b) hereof) are herein called the Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Palmer & Dodge LLP, One Beacon
Street, Boston, MA 02108, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by a certified or official bank check or checks in next day
funds (and the Company agrees not to deposit any such check in the bank on which
drawn until the day following the date of its delivery to the Company). Such
payment shall be made upon delivery of certificates for the Stock to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Stock to be delivered to you shall be registered in
such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the business day
prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New
York time, on the business day preceding the date of purchase.
<PAGE> 8
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It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you four
signed copies of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act. The
Registration Statement, the Prospectus and any amendments or supplements thereto
furnished to you will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
<PAGE> 9
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(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the Stock,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the initial public
offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act). If applicable, any such document furnished
to you will be identical to the electronically transmitted copy thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
<PAGE> 10
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(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its stockholders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
all costs and expenses incident to (i) the preparation, printing and filing with
the Commission and the National Association of Securities Dealers, Inc. ("NASD")
of the Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for fees and related disbursements (including counsel fees and
disbursements and cost of printing memoranda for the Underwriters) paid by or
for the account of the Underwriters or their counsel in qualifying the Stock
under state securities or blue sky laws and in the review of the offering by the
NASD.
(k) The Company hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not, for a
period of 180 days following the date of the Prospectus, (i) sell, offer,
contract to sell, make any short sale, pledge, transfer or otherwise dispose of,
directly or indirectly, any shares of Common Stock (including any stock
appreciation right or similar right with an exercise or conversion privilege at
a price related to, or derived from, the market price of the Common Stock) or
any securities convertible into or exchangeable or exercisable for shares of
Common Stock, (ii) engage in any hedging transaction with respect to any shares
of Common Stock that may have an impact on the market price of the Common Stock,
whether any such transaction is to be settled by delivery of Common Stock or
such other securities, in cash or otherwise, or (iii) file a Registration
Statement on Form S-8 with respect to shares issued pursuant to stock options.
The foregoing sentence shall not apply to (A) the Stock to be sold to the
Underwriters pursuant to this Agreement, (B) shares of Common Stock issued by
the Company upon the exercise of the Options and any other options granted under
the stock option plans of the Company and (C) options to purchase Common Stock
granted under the Option Plans.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement,
<PAGE> 11
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reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(m) The Company will in the future conduct its affairs in such a manner to
ensure that the Company will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the Exchange Act), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of any Underwriter
for use in any Preliminary Prospectus or the Registration Statement or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this
<PAGE> 12
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paragraph (a) and the representations and warranties of the Company contained in
Section 2 hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or
<PAGE> 13
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they may have to the indemnified party for contribution or otherwise than on
account of such indemnity agreement. Any indemnifying party shall be entitled at
its own expense to participate in the defense of any action, suit or proceeding
against, or investigation or inquiry of, an indemnified party. Any indemnifying
party shall be entitled, if it so elects within a reasonable time after receipt
of the Notice by giving written notice (herein called the Notice of Defense) to
the indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the, legal and
other expenses incurred in connection with the conduct of the defense as
referred to in clause (i) of the proviso to the preceding sentence and (B) the
indemnifying party or parties shall bear such other expenses as it or they have
authorized to be incurred by the indemnified party or parties. If, within a
reasonable time after receipt of the Notice, no Notice of Defense has been
given, the indemnifying party or parties shall be responsible for any legal or
other expenses incurred by the indemnified party or parties in connection with
the defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Stock
received by the Company and the total underwriting discount received by the
Underwriters, as
<PAGE> 14
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set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by each indemnifying party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in
<PAGE> 15
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economic or political conditions in the financial markets of the United States
would, in the Underwriters' reasonable judgment, make the offering or delivery
of the Stock impracticable, (iii) suspension of trading in securities generally
or a material adverse decline in value of securities generally on the New York
Stock Exchange, the American Stock Exchange, or The Nasdaq Stock Market or
limitations on prices (other than limitations on hours or numbers of days of
trading) for securities on either such exchange or system, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of, or commencement of any proceeding or investigation
by, any court, legislative body, agency or other governmental authority which in
the Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company to the Underwriters
and no liability of the Underwriters to the Company; PROVIDED, HOWEVER, that in
the event of any such termination the Company agrees to indemnify and hold
harmless the Underwriters from all actual, accountable, out-of-pocket costs and
expenses incident to the performance of the obligations of the Company under
this Agreement, including all actual, accountable, out-of-pocket costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all their respective obligations to be performed
hereunder at or prior to the Closing Date or any later date on which Option
Stock is to be purchased, as the case may be, and to the following further
conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder and the
validity and form of the certificates representing the Stock, all corporate
proceedings and other legal matters incident to the foregoing, and the form of
the Registration Statement and of the Prospectus (except as to the financial
statements contained therein), shall have been approved at or prior to the
Closing Date by Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters.
(c) You shall have received from Palmer & Dodge LLP, counsel for the
Company, an opinion, addressed to the Underwriters and dated the Closing Date,
covering the matters set forth in Annex A hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date in such opinion remain
valid as of such later date.
<PAGE> 16
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(d) You shall have received from Pennie & Edmonds, patent counsel for the
Company, an opinion, addressed to the Underwriters and dated the Closing Date,
to the effect that they serve a patent counsel to the Company with respect to
the issued patents, pending and contemplated patent applications, trade secrets
and the proprietary technology that the Company owns or has rights to, and
covering the matters set forth in Annex B hereto, and if Option Stock is
purchased at any date after the Closing Date, additional opinions from such
counsel, addressed to the Underwriters and dated such later date, confirming
that the statements expressed as of the Closing Date, in such opinion remain
valid as of such later date.
(e) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct in all material respects and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not misleading,
(ii) since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment, (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein,
(iv) the Company has no material contingent obligations which are not disclosed
in the Registration Statement and the Prospectus, (v) there are no pending or
threatened legal proceedings to which the Company is a party or of which
property of the Company is the subject which are material and which are not
disclosed in the Registration Statement and the Prospectus, (vi) there are no
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required,
(vii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Option Stock is to be purchased, as the case may be, and (viii) there has
not been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably foreseeable
that would render it impracticable in your reasonable judgment to make a public
offering of the Stock, or a material adverse change in market levels for
securities in general (or those of companies such as the Company in particular)
or financial or economic conditions which render it inadvisable to proceed.
(f) You shall have received on the Closing Date and on any later date on
which Option Stock is purchased a certificate, dated the Closing Date or such
later date, as the case may be, and signed by the Chief Executive Officer,
President and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (e) of this
Section 9 are true and correct.
<PAGE> 17
-17-
(g) You shall have received from Price Waterhouse LLP a letter or letters,
addressed to the Underwriters and dated the Closing Date and any later date on
which Option Stock is purchased, confirming that they are independent public
accountants with respect to the Company within the meaning of the Securities Act
and the applicable published rules and regulations thereunder and based upon the
procedures described in their letter delivered to you concurrently with the
execution of this Agreement (herein called the Original Letter), but carried out
to a date not more than three business days prior to the Closing Date or such
later date on which Option Stock is purchased (i) confirming, to the extent
true, that the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of the Original Letter or
to reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment makes it
impractical or inadvisable to proceed with the public offering of the Stock or
the purchase of the Option Stock as contemplated by the Prospectus.
(h) You shall have received from Price Waterhouse LLP a letter stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as at _______________, 1996, did not disclose
any weakness in internal controls that they considered to be material
weaknesses.
(i) You shall have been furnished evidence in usual written or telegraphic
form from the appropriate authorities of the several jurisdictions, or other
evidence satisfactory to you, of the qualification referred to in paragraph (f)
of Section 6 hereof.
(j) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by The Nasdaq National
Market upon official notice of issuance.
(k) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of the outstanding capital stock of
the Company, agreements, in form reasonably satisfactory to Hambrecht & Quist
LLC, stating that without the prior written consent of Hambrecht & Quist LLC on
behalf of the Underwriters, such person or entity will not, for a period of 180
days after the date of the Prospectus, (i) sell, offer, contract to sell, make
any short sale, pledge, transfer or otherwise dispose of, directly or
indirectly, any shares of Common Stock (including any stock appreciation right
or similar right with an exercise or conversion privilege at a price related to,
or derived from, the market price of the Common Stock) or any securities
convertible into or exchangeable or exercisable for shares of Common Stock owned
directly by the undersigned or with respect to which the undersigned has the
power of disposition (including, without limitation, shares of Common Stock
which the undersigned may be deemed to beneficially own in accordance with the
rules and regulations promulgated under the Securities and Exchange Act of 1934,
as amended), or (ii) engage in any hedging transaction with respect to any
shares of Common Stock that may have an impact on the market price of the
<PAGE> 18
-18-
Common Stock, whether any such transaction is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Testa, Hurwitz & Thibeault, LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; PROVIDED,
HOWEVER, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all actual, accountable,
out-of-pocket costs and expenses incident to the performance of the obligations
of the Company under this Agreement, including all actual, accountable,
out-of-pocket costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
actual, accountable, out-of-pocket expenses (including reasonable fees and
disbursements of counsel) that shall have been incurred by them in connection
with the transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; PROVIDED,
HOWEVER, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all actual, accountable,
out-of-pocket costs and expenses incident to the performance of the obligations
of the Company under this Agreement including all actual, accountable,
out-of-pocket costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; PROVIDED, HOWEVER, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such
<PAGE> 19
-19-
payments shall promptly refund them and (ii) such persons shall provide to the
Company, upon request, reasonable assurances of their ability to effect any
refund, when and if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company and the several Underwriters and, with respect to the
provisions of Section 7 hereof, the several parties (in addition to the Company
and the several Underwriters) indemnified under the provisions of said Section
7, and their respective personal representatives, successors and assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable remedy or claim under or in
respect of this Agreement or any provision herein contained. The term
"successors and assigns" as herein used shall not include any purchaser, as
such, of any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telecopied or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telecopied or delivered to it at its office, 200 Boston Avenue, Medford, MA
02155, Attention: Chief Executive Officer. All notices given by telecopy shall
be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; PROVIDED, HOWEVER, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(k) and (l) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
<PAGE> 20
-20-
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very Truly Yours,
ARQULE, INC.
By:
-------------------------------------
Eric B. Gordon
President and Chief Executive Officer
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
HAMBRECHT & QUIST LLC
OPPENHEIMER & CO., INC.
VECTOR SECURITIES INTERNATIONAL, INC.
By: Hambrecht & Quist LLC
By:
----------------------------------
Managing Director
Acting on behalf of the several
Underwriters, including themselves,
named in SCHEDULE I hereto.
<PAGE> 21
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES OF
UNDERWRITTEN STOCK
UNDERWRITERS TO BE PURCHASED
------------ ------------------
Hambrecht & Quist LLC....................................
Oppenheimer & Co., Inc...................................
Vector Securities International, Inc.....................
----------
Total....................................................
<PAGE> 22
ANNEX A
Matters to be Covered in the Opinion of
Counsel for the Company
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware and is duly
qualified to do business and is in good standing as a foreign corporation in the
Commonwealth of Massachusetts. The Company has all corporate power and authority
necessary to own or hold its properties and conduct the business in which it is
presently engaged.
2. Upon the filing of its Amended and Restated Certificate of Incorporation
(the "Restated Certificate") with the Delaware Secretary of State, the Company's
authorized capitalization will consist of ______________ shares of Common Stock,
$.01 par value per share. The Restated Certificate has been filed with the
Delaware Secretary of State. All of the issued and outstanding shares of capital
stock of the Company have been, and the shares of the Stock being delivered on
the date hereof, upon issuance and delivery and payment therefor in the manner
described in the Underwriting Agreement, will be, duly and validly authorized
and issued, fully paid and non-assessable with no personal liability attaching
to the ownership thereof. The statements made in the Prospectus under the
caption "Description of Capital Stock," insofar as they purport to constitute
summaries of the terms of the Company's capital stock (including the Stock),
constitute accurate summaries of the terms of such capital stock in all material
respects and fairly present in all material respects the information called for
with respect thereto by Item 202 of Regulation S-K.
3. Upon the consummation of the initial public offering, there will be no
preemptive or other rights to subscribe for or to purchase or rights of first
refusal or participation with respect to any shares of Common Stock pursuant to
the Company's charter or by-laws or any agreement or other instrument known to
us. Except as described in the Prospectus and as provided in the Company charter
and by-laws, there are no restrictions upon the voting or transfer of any shares
of Common Stock pursuant to any agreement or other instrument known to us.
4. To our knowledge, and except as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or to which any property or assets of the Company or any
of its subsidiaries is subject which, if determined adversely to the Company or
any of its subsidiaries, are reasonably likely to have a material adverse effect
on the business or prospects of the Company and its subsidiaries taken as a
whole and, to our knowledge, except as set forth in the Prospectus, no such
proceedings are threatened by governmental authorities or by others.
<PAGE> 23
5. The Registration Statement has been declared effective under the
Securities Act and, to our knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceeding for that purpose
is pending or threatened by the Commission.
6. The Registration Statement and the Prospectus and any further amendments
or supplements thereto made by the Company prior to the date hereof (other than
the financial statements, financial and statistical information, pro forma
financial information and related schedules and notes thereto, as to which we
express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations. In passing
upon the form of such documents, we have not independently verified and are not
passing upon, and have assumed the correctness and completeness of, the
statements made therein.
7. To our knowledge, there are no contracts or other documents that are
required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
that have not been described or filed as exhibits to the Registration Statement.
8. The Company has full right, power, and authority to execute and deliver
the Underwriting Agreement and to perform its obligations thereunder; and all
corporate action required to be taken for the due and proper authorization,
issuance, sale and delivery of the Common Stock to be sold by the Company under
the Underwriting Agreement and the consummation of the transactions contemplated
thereby to be effected by the Company have been duly and validly taken by the
Company.
9. The Underwriting Agreement has been duly authorized, executed, and
delivered by the Company.
10. The issuance and sale of the shares of Stock being delivered on the
date hereof by the Company, the compliance by the Company with all of the
provisions of the Underwriting Agreement and the consummation of the
transactions contemplated thereby will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a default, an
event of default, or an event which, with notice or lapse of time or both, would
constitute a default or event of default under, any indenture, mortgage, deed of
trust, loan agreement, or other agreement or instrument filed as an exhibit to
the Registration Statement, nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any material statute,
order, rule or regulation or, to our knowledge, any judgment, order or decree of
any court or governmental agency or body having jurisdiction over the Company or
any of its properties or assets, except for such conflicts, breaches, violations
and defaults as are not reasonably likely, individually or in the aggregate, to
have (a) a material adverse effect on the business or prospects of the Company;
or (b) any adverse effect on the consummation of the transactions contemplated
by the Underwriting Agreement. Except for the registration of the Stock under
the Securities Act, and such consents, approvals, authorizations, registrations,
or qualifications as may be required under the Exchange Act and applicable state
or foreign securities laws in connection with the purchase and distribution of
the Stock by the underwriters thereof, no consent, approval, authorization or
order of, or filing or registration with, any such court or governmental agency
or
<PAGE> 24
body is required for the issuance and sale of the shares of Stock being
delivered on the date hereof by the Company, the compliance by the Company with
all of the provisions of the Underwriting Agreement or the consummation of the
transactions contemplated thereby.
11. To our knowledge, except as described under the caption "Shares
Eligible for Future Sale -- Registration Rights" in the Preliminary Prospectus
there are no contracts, agreements or understandings in effect on the date
hereof between the Company and any person granting such person the right to
require the Company to file a registration statement under the Securities Act
with respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities in the Registration
Statement or in any other registration statement filed by the Company under the
Securities Act.
12. The Stock issued and sold by the Company will be duly authorized for
listing by The Nasdaq National Market upon official notice of issuance of the
shares by the Company to The Nasdaq National Market.
In connection with the preparation of the Registration Statement and the
Prospectus, we have participated in conferences with officers and
representatives of the Company and the independent accountants of the Company,
at which conferences we have made inquiries of such persons and others and
discussed the contents of the Registration Statement and the Prospectus. While
the limitations inherent in the independent verification of factual matters and
the character of determinations involved in the registration process are such
that we are not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (except as specifically stated
elsewhere in this opinion), nothing has come to our attention that has caused us
to believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading (except that we express no view or opinion with respect
to the financial statements and schedules or other financial and statistical
data included in the Registration Statement), and nothing has come to our
attention that has caused us to believe that the Prospectus, as of its date and
as of the Closing Date, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (except that we express no view or opinion with respect to the
financial statements and schedules or other financial and statistical data
included in the Prospectus).
----------------------------
In rendering the foregoing opinion we may rely as to questions of law not
involving the laws of the United States, the Commonwealth of Massachusetts and
the State of Delaware upon opinions of local counsel satisfactory in form and
scope to counsel for the Underwriters. We are not, however, rendering any
opinion with respect to those matters which are the subject of the legal opinion
being rendered by the Company's patent counsel. Copies of any opinions so relied
upon shall be delivered to the Representatives and to counsel for the
Underwriters and the
<PAGE> 25
foregoing opinion shall also state that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinions of such local counsel.
In addition, we may state that as to various questions of fact material to our
opinion, we have relied upon the representations made in or pursuant to the
Underwriting Agreement and upon certificates of officers of the Company.
<PAGE> 26
ANNEX B
Matters to be Covered in the Opinion of
Patent Counsel for the Company
1. We are unaware of any facts that would preclude the Company from having
clear title to the Company's patents and patent applications referred to or
described in the Prospectus, except as described in the Prospectus. To the best
of our knowledge, we and the Company have complied with the required duty of
candor and good faith in dealing with the Patent and Trademark Office, including
the duty to disclose to the Office all information believed to be material to
the patentability of each issued U.S. patent or pending application. We have no
knowledge of any facts that would form the basis for a belief that the Company
lacks or will be unable to obtain any rights or licenses to use all patents and
know-how necessary to conduct the business now conducted or proposed to be
conducted by the Company as described in the Prospectus, except as described in
the Prospectus. We have no knowledge of any facts that would form a basis for a
belief that any of the patents or applications owned or licensed by the Company
are unenforceable or invalid, or would be unenforceable or invalid if issued as
patents, except as described in the Prospectus. We have no knowledge of any
patent applications of third parties, that, if issued, would limit or prohibit
the business now conducted or proposed to be conducted by the Company as
described in the Prospectus, except as described therein. We know of no pending
or threatened action, suit, proceeding or claim by others that the Company is
infringing any patent that could result in any material adverse effect on the
Company, except as described in the Prospectus.
2. There are no legal or governmental proceedings pending relating to
patent rights, other than review by the Patent and Trademark Office of pending
applications for patents, including appeal and reissue proceedings, and, to the
best of our knowledge, no such proceedings are threatened or contemplated by
governmental authorities or others.
3. To the best of our knowledge, there are no contracts or other documents
material to the Company's patents or proprietary information other than those
described in the Prospectus.
Although we have not verified the accuracy or completeness of the
statements contained in the Prospectus relating to intellectual property,
nothing has come to our attention that causes us to believe that, at the time
the Registration Statement became effective, or at the Closing Date, the
Prospectus, under the captions "Risk Factors -- Dependence on Patents and
Proprietary Rights" and "Business - Patents and Proprietary Rights," contained
any untrue statement of a material fact, or omitted to state any material fact
necessary to make the statements therein not misleading.
In rendering this advice, we have relied as to matters of fact, to the
extent we have deemed proper, upon certificates and representations of the
Company's officers and management.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARQULE, INC.
I, Allan R. Ferguson, Chairman of the Board of ArQule, Inc., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
1. The original Certificate of Incorporation of ArQule, Inc. (the
"Company") was filed in the Office of the Secretary of State of the State of
Delaware on December 21, 1993 under the name "Arqule, Inc." (which Certificate
was corrected by a Certificate of Correction filed on December 30, 1993 under
the name "ArQule, Inc."), and was amended on October 27, 1994.
2. On November 1, 1995, in the manner prescribed by Sections 242 and
245 of the General Corporation Law of the State of Delaware, this Amended and
Restated Certificate of Incorporation was duly adopted by written consent of the
Board of Directors and stockholders, respectively, of the Company pursuant to
Sections 141(f) and 228 of the General Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation of the Company, as
amended and restated herein, is as follows:
FIRST. The name of the corporation is ArQule, Inc. (the "Company").
SECOND. The address of the registered office of the Company in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Company are to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH. The total number of shares of stock that the Company shall have
the authority to issue is (i) twenty million (20,000,000) shares of common
stock, $.01 par value
<PAGE> 2
per share (the "Common Stock"), and (ii) fifteen million (15,000,000) shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), of which ten
million five hundred eleven thousand (10,511,000) shares have been designated
Series A Convertible Preferred Stock (the "Series A Preferred Stock") and one
million eight hundred thousand (1,800,000) shares have been designated Series B
Convertible Preferred Stock (the "Series B Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers, and relative, participating, optional
or other special rights and privileges and the qualifications, limitations and
restrictions of the Series A Preferred Stock, Series B Preferred Stock and
Common Stock are as follows:
A. PREFERRED STOCK
The terms, designations, preferences and privileges of the Preferred
Stock are as follows:
Section 1. Dividends.
1.1. Dividends on Preferred Stock. In each fiscal year of the Company,
the holders of shares of Series A Preferred Stock and Series B Preferred Stock
shall be entitled to receive on a parity basis if, when and as declared by the
Board of Directors of the Company out of the funds legally available for that
purpose and before any cash dividends shall be declared and paid upon or set
aside for the Common Stock in such fiscal year, dividends payable in cash in an
amount per share for such fiscal year equal to $.07 and $.27 per share,
respectively. The right to such dividends shall not be cumulative, and no right
shall accrue to holders of Series A Preferred Stock or Series B Preferred Stock
by reason of the fact that dividends on such shares are not declared or paid in
any prior years. Unless full dividends on the Series A Preferred Stock and the
Series B Preferred Stock for the then current dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set apart, no
dividends (other than a dividend payable solely in shares of Common Stock) shall
be paid or declared, and no distribution shall be made, on any Common Stock.
1.2. Additional Dividends. In addition to the dividends described in
Section 1.1 above, the holders of shares of Series A Preferred Stock and Series
B Preferred Stock shall be entitled to receive a dividend (determined on the
basis of the number of shares of Common Stock into which a share of Series A
Preferred Stock or Series B Preferred Stock is then convertible) equivalent to
any dividend paid on Common Stock.
Section 2. Liquidation Preference.
2.1. Series A Preferred Stock. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the
holders of Series A Preferred
- 2 -
<PAGE> 3
Stock shall be entitled to receive, prior and in preference to any distribution
of the assets of the Company to the holders of Series B Preferred Stock and the
holders of Common Stock by reason of their ownership thereof, an amount equal to
the sum of (i) $.89 for each outstanding share of Series A Preferred Stock (the
"Original Series A Issue Price") and (ii) all declared but unpaid dividends on
each such share to and including the date full payment as provided herein shall
be tendered to such holders of Series A Preferred Stock. If upon the occurrence
of any such event, the assets and funds available for distribution among the
holders of the Series A Preferred Stock shall be insufficient to permit the
payment to such holders of the full amount of the aforesaid preferential
payment, then all of the assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the amount of such stock owned by each such
holder.
2.2. Series B Preferred Stock. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the
holders of Series B Preferred Stock shall be entitled to receive, after the
distributions required by Section 2.1 have been completed, but prior and in
preference to any distribution of any of the assets of the Company to the
holders of Common Stock by reason of their ownership thereof, an amount equal to
the sum of (i) $3.888 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price") and (ii) all declared but unpaid dividends
on each such share to and including the date full payment as provided herein
shall be tendered to such holders of Series B Preferred Stock. If upon the
occurrence of any such event, the assets and funds available for distribution
among the holders of the Series B Preferred Stock shall be insufficient to
permit the payment to such holders of the full amount of aforesaid preferential
payment, then all of the assets and funds of the Company legally available for
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock in proportion to the amount of such stock owned by each such
holder.
2.3. Remaining Assets. After the distributions required by Sections 2.1
and 2.2 have been completed, the remaining assets of the Company available for
distribution to stockholders shall be distributed among the holders of Common
Stock pro rata based on the number of shares of Common Stock held by each.
2.4. Merger, Consolidation, Sale of Assets. For purposes of this
Section 2, a liquidation, dissolution or winding up the Company shall be deemed
to be occasioned by, or to include, (i) the acquisition of the Company by
another entity by means of any transaction or series of related transactions
(including, without limitation, any transfer of more than 50% of the voting
power of the Company, and any reorganization, merger or consolidation but
excluding any merger effected exclusively for the purpose of changing the
domicile of the Company); or (ii) a sale of all or substantially all of the
assets of the Company; unless (i) the holders of at least a majority of the then
outstanding shares of Preferred Stock elect to have such events not deemed to be
a liquidation, dissolution or winding up of the Company by giving written notice
thereof to the Company at least 15 days before the effective date of such event
(in which case, the provisions of Subsection 3.9 below shall apply), or (ii) the
- 3 -
<PAGE> 4
Company's stockholders of record as constituted immediately prior to such
acquisition or sale will, immediately after such acquisition or sale (by virtue
of securities issued as consideration for the Company's acquisition or sale or
otherwise) hold at least 50% of the voting power of the surviving or acquiring
entity. In any of such events, if the consideration received by the Company is
other than cash, its value will be deemed to be its fair market value, as
determined in good faith by the Board of Directors of the Company.
Section 3. Conversion.
The holders of the Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
3.1. Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Original Series Issue Price (as
defined below) by the Conversion Price (as defined below) for such series of
Preferred Stock, determined as hereinafter provided, in effect on the date the
certificate is surrendered for conversion. The term "Original Series Issue
Price" shall mean (i) in the case of the Series A Preferred Stock, the Original
Series A Issue Price and (ii) in the case of the Series B Preferred Stock, the
Original Series B Issue Price. The term "Conversion Price" shall mean, (i) in
the case of the Series A Preferred Stock, $.89 per share and (ii) in the case of
the Series B Preferred Stock, $3.888 per share; provided, however, that the
Conversion Price for each such series shall be subject to adjustment as set
forth below.
3.2. Automatic Conversion. Except as otherwise provided in Section 3.3,
each share of Preferred Stock shall automatically be converted into shares of
Common Stock at the Conversion Price immediately upon the consummation by the
Company of a sale of its Common Stock in a firm commitment underwritten public
offering pursuant to a registration statement under the Securities Act of 1933,
as amended, the public offering price of which is not less than $5.00 per share
of Common Stock (as adjusted to reflect subsequent stock dividends, stock splits
or recapitalizations) and which results in an aggregate price to the public of
not less than $10,000,000.
3.3. Mechanics of Conversion. Any holder of Preferred Stock shall
exercise its right to convert shares of Preferred Stock into shares of Common
Stock, by giving written notice that the holder elects to convert a stated
number of shares of Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted, at the office of
the Company or of any transfer agent for the Preferred Stock, and shall give
written notice to the Company of the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Company shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Preferred Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to
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have been made immediately prior to the close of business on the date of such
surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of the
Preferred Stock shall not be deemed to have converted such Preferred Stock until
immediately prior to the closing of such sale of securities.
3.4. Adjustments to Conversion Price for Diluting Issues.
(a) Special Definitions. For purposes of this Subsection 3.4,
the following definitions shall apply:
(i) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options to acquire shares described in Section
3.4(a)(iv)(C) below.
(ii) "Original Issue Date" shall mean the date on which
a share of Series B Preferred Stock was first issued.
(iii) "Convertible Securities" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 3.4(c) below, deemed
to be issued) by the Company after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(A) upon conversion of shares of Series A
Preferred Stock or Series B Preferred Stock;
(B) as a dividend or distribution on Series A
Preferred Stock and Series B Preferred
Stock;
(C) to employees, consultants or scientific
advisors of the Company or of its
subsidiaries;
(D) in connection with any transaction with any
other entity in which such shares are issued
or issuable,
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in whole or in part, for (1) present or
future rights to the Company's technology
and/or (2) present or future research,
development or exploitation of the Company's
technology;
(E) by reason of a dividend or distribution
covered by Subsection 3.6 hereof, a stock
split or subdivision of shares of Common
Stock covered by Subsection 3.5 hereof, or
by reason of a dividend, stock split,
subdivision or other distribution on shares
of Common Stock excluded from the definition
of Additional Shares of Common Stock by the
foregoing clauses (A), (B), (C) and (D) or
this clause (E); or
(F) upon the exercise of options excluded from
the definition of "Option" in Subsection
3.4(a)(i).
(b) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock is convertible shall be made, by adjustment in the
Conversion Price thereof: (i) unless the consideration per share (determined
pursuant to Subsection 3.4(e)) for an Additional Share of Common Stock issued or
deemed to be issued by the Company is less than the Conversion Price in effect
on the date of, and immediately prior to, the issue of such Additional Shares,
or (ii) if prior to such issuance, the Company receives written notice from the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock, considered separately, as the case
may be, agreeing that no such adjustment in the Conversion Price shall be made
as the result of the issuance of Additional Shares of Common Stock.
(c) Issue of Options and Convertible Securities Deemed Issue
of Additional Shares of Common Stock.
If the Company at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities or Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that Additional Shares of Common Stock shall not be
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<PAGE> 7
deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 3.4(e)) of such Additional Shares of Common Stock would
be less than the Conversion Price in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are deemed to
be issued:
(i) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(ii) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(iii) No readjustment pursuant to clause (ii) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (A) the Conversion Price immediately prior to the adjustment
effected upon the original issue of Options or Convertible Securities (or upon
the occurrence of a record date with respect thereto) pursuant to the provisions
hereof, or (B) the Conversion Price that would have resulted from any issuance
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date;
(iv) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall be readjusted to the Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option never been issued (but including the recalculation of any intervening
adjustments), and the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option shall not be deemed issued for the
purposes of any subsequent adjustment of the Conversion Price; and
(v) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security (prior to such change) been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
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<PAGE> 8
(d) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock.
In the event the Company shall at any time after the Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Subsection 3.4(c), but excluding
shares issued as a dividend or distribution as provided in Subsection 3.6 or
upon a stock split or combination as provided in Subsection 3.5), without
consideration or for a consideration per share less than the Conversion Price in
effect on the date of and immediately prior to such issue, then and in such
event, such Conversion Price shall be reduced, concurrently with such issue, to
a price (calculated to the nearest cent) equal to a fraction, (A) the numerator
of which shall be (1) the Conversion Price in effect immediately prior to such
issue multiplied by the number of shares of Common Stock deemed to be
outstanding immediately prior to such issue plus (2) the average price per share
received by the Company upon such issue multiplied by the number of shares of
Common Stock issued or deemed to have been issued in the subject transaction;
and (B) the denominator of which shall be the number of shares of Common Stock
deemed to be outstanding immediately prior to such issue plus the number of
shares of Common Stock issued or deemed to have been issued in the subject
transaction; provided that, for the purpose of this Subsection 3.4(d), all
shares of Common Stock issuable upon conversion of shares of Series A Preferred
Stock and Series B Preferred Stock outstanding immediately prior to such issue
shall be deemed to be outstanding, and immediately after any Additional Shares
of Common Stock are deemed issued pursuant to Subsection 3.4(c) (other than
shares excluded from the definition of "Additional Shares of Common Stock" by
virtue of clause (E) of Subsection 3.4(a)(iv)), such Additional Shares of Common
Stock shall be deemed to be outstanding.
(e) Determination of Consideration. For purposes of this
Subsection 3.4, the consideration received by the Company for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate of cash received by the Company, excluding amounts paid or payable
for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Company for consideration which covers both, be the proportion of such
consideration so received,
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<PAGE> 9
computed as provided in clauses (A) and (B) above, as determined in good faith
by the Board of Directors.
(ii) Options and Convertible Securities. The consideration
per share received by the Company for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 3.4(c), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Company as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
3.5. Adjustment for Stock Splits and Combinations. If the Company shall
at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Company shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before any such combination shall be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
3.6. Adjustment for Certain Dividends and Distributions. In the event
the Company at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
Common Stock, then and in each such event the Conversion Price then in effect
shall be decreased as of the time of such issuance or, in the event such a
record date shall have been fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction:
(a) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date, and
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<PAGE> 10
(b) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
3.7. Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the holders of Preferred Stock shall
receive upon conversion thereof in addition to the number of shares of Common
Stock receivable thereupon, the amount of securities of the Company that they
would have received had the Preferred Stock been converted into Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period giving application to all
adjustments called for during such period, under this paragraph with respect to
the rights of the holders of the Preferred Stock.
3.8. Adjustment for Reclassification, Exchange, or Substitution. If the
Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification, or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
above, or a reorganization, merger, consolidation, or sale of assets provided
for below), then and in each such event the holder of each such share of
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Preferred Stock might
have been converted immediately prior to such reorganization, reclassification,
or change, all subject to further adjustment as provided herein.
3.9. Adjustment for Merger or Reorganization, etc. Subject to Section
2.4, in case of any consolidation or merger of the Company with or into another
corporation or the sale of all or substantially all of the assets of the Company
to another corporation, each share of Preferred Stock shall thereafter be
convertible into the kind and amount of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Company deliverable upon conversion of such Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in
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<PAGE> 11
good faith by the Board of Directors) shall be made in the application of the
provisions in this Section 3 set forth with respect to the rights and interest
thereafter of the holders of the Preferred Stock, to the end that the provisions
set forth in this Section 3 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred Stock.
3.10. No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
3.11. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 3,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (a) such adjustments and readjustments, (b) the
Conversion Price then in effect, and (c) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Preferred Stock.
3.12. Notice of Record Date. In the event (a) that the Company declares
a dividend (or any other distribution) on its Common Stock payable in Common
Stock or other securities of the Company; (b) that the Company splits,
subdivides or combines its outstanding shares of Common Stock; (c) of any
reclassification of the Common Stock of the Company (other than a stock split,
subdivision or combination of its outstanding shares of Common Stock or a stock
dividend or stock distribution thereon), or of any consolidation or merger of
the Company into or with another corporation, or of the sale of all or
substantially all of the assets of the Company; or (d) of the involuntary or
voluntary dissolution, liquidation or winding up of the Company, then the
Company shall cause to be filed at its principal office or at the office of the
transfer agent of the Preferred Stock, and shall cause to be mailed to the
holders of the Preferred Stock at their last addresses as shown on the records
of the Company or such transfer agent, at least ten days prior to the record
date specified in (i) below or twenty days before the date specified in (ii)
below, a notice stating (i) the record date of such dividend, distribution,
stock split, subdivision or combination, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, stock split, subdivision or combination are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up
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<PAGE> 12
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding up.
3.13. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purposes of effecting the conversion of shares of
Preferred Stock, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of
Preferred Stock.
Section 4. Voting Rights.
Each holder of shares of Preferred Stock shall have the right to the
number of votes equal to the number of shares of the Common Stock into which
such Preferred Stock could then be converted (as adjusted from time to time
pursuant to Section 3 hereof), and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall, except as otherwise required by law, be
entitled, notwithstanding any provision hereof, to notice of any stockholders'
meeting in accordance with the By-Laws of the Company, and shall be entitled to
vote, together with holders of Common Stock, with respect to any question upon
which holders of Common Stock have the right to vote. Fractional votes shall
not, however, be permitted and any fractional voting rights available on an
as-converted basis (after aggregating all shares into which shares of Preferred
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward).
Section 5. Protective Provisions.
5.1. General. So long as any shares of Preferred Stock are outstanding,
the Company shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Preferred Stock, voting as a separate class:
(i) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of;
(ii) authorize, issue, increase or decrease (other than by
redemption or conversion) the total number of authorized shares of Preferred
Stock; or
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<PAGE> 13
(iii) redeem, purchase or otherwise acquire (or pay into or
set aside for a sinking fund for such purpose) any share or shares of Preferred
Stock other than pursuant to the Certificate of Incorporation.
5.2. Rights of the Series B Preferred Stock as to Certain Matters. So
long as any shares of Series B Preferred Stock are outstanding, the Company
shall not, without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least a majority of the then outstanding
shares of Series B Preferred Stock, voting as a separate class:
(i) authorize the increase or decrease (other than by
redemption or conversion) of the total number of authorized shares of Series B
Preferred Stock or issue additional shares of Series B Preferred Stock;
(ii) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any shares of Series A Preferred
Stock or Common Stock; provided, however, that this restriction shall not apply
to the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Company pursuant to
agreements under which the Company has the option to repurchase such shares at
cost or at cost upon the occurrence of certain events, such as the termination
of employment; or
(iii) amend the Certificate of Incorporation of the Company if
such amendment would adversely affect any of the rights, preferences or
privileges provided for herein for the benefit of shares of Series B Preferred
Stock.
Section 6. Redemption.
6.1. Redemption. Each holder of shares of Series B Preferred
Stock shall have the right to cause the Company, at any time on or after
November 2, 2001 (such date being referred to hereinafter as the "Redemption
Date"), to redeem from each holder of shares of Series B Preferred Stock, at a
price equal to $3.88 per share (the "Redemption Price"), one hundred percent
(100%) of the shares of Series B Preferred Stock held by such holder on the
Redemption Date.
6.2. Insufficient Funds. If the funds of the Company legally
available for redemption of shares of Series B Preferred Stock on the Redemption
Date are insufficient to redeem the number of shares of Series B Preferred Stock
required under this Section 6 to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of whole
shares of Series B Preferred Stock ratably among the holders of such shares to
be redeemed based upon their respective holdings of Series B Preferred Stock. At
any time thereafter, when additional funds of the Company become legally
available for the redemption of Series B Preferred Stock, such funds will be
used, at
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the end of the next succeeding fiscal quarter, to redeem the balance of the
shares which the Company was theretofore obligated to redeem, ratably on the
basis set forth in the preceding sentence.
6.3. Redemption Request. On the Redemption Date, each holder
of Series B Preferred Stock shall provide the Company with a written request
setting forth its desire to redeem shares of Series B Preferred Stock. Upon
receipt of any such redemption request, the Company will become obligated to
redeem at the time of redemption specified therein all shares of Series B
Preferred Stock specified therein (other than such shares of Series B Preferred
Stock as are duly converted pursuant to Section 3 prior to the close of business
on the fifth full day preceding the Redemption Date). In case less than all
shares of Series B Preferred Stock represented by any certificate are redeemed
in any redemption pursuant to this Section 6, a new certificate will be issued
representing the unredeemed shares of Series B Preferred Stock without cost to
the holder thereof.
6.4. Status of Redeemed Shares. Unless there shall have been a
default in payment of the Redemption Price, no shares of redeemed Series B
Preferred Stock shall be entitled to any dividends declared after the Redemption
Date, and on such Redemption Date all rights of the holder of such redeemed
shares as a stockholder of the Company by reason of the ownership of such shares
will cease, except the right to receive the Redemption Price of such shares,
without interest, upon presentation and surrender of the certificate
representing such shares, and such redeemed shares will not from and after such
Redemption Date be deemed to be outstanding.
Section 7. Increasing Common Stock.
Except as provided in Section 3.13, the number of authorized shares of
Common Stock may be increased or decreased (but not below the number of shares
of Common Stock then outstanding) by the affirmative vote of the holders of a
majority of the then outstanding shares of capital stock of the Company.
Section 8. Status of Redeemed or Converted Stock.
In the event any shares of Preferred Stock shall be converted pursuant
to Section 3 hereof or redeemed, the shares so converted or redeemed shall be
cancelled and shall not be issuable by the Company. The Certificate of
Incorporation of the Company shall be appropriately amended to effect the
corresponding reduction in the Company's authorized capital stock.
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<PAGE> 15
B. COMMON STOCK
The powers and rights of the Common Stock are as follows:
Section 1. General.
The voting, dividend and liquidation rights of the holders of the
Common Stock are subject to and qualified by the rights of the holders of any
series of Preferred Stock.
Section 2. Voting.
The holders of Common Stock are entitled to one vote for each share
held at all meetings of stockholders (and written action in lieu of meetings).
There shall be no cumulative voting.
Section 3. Dividends.
Dividends may be declared and paid on the Common Stock from funds
lawfully available therefor as and when determined by the Board of Directors and
subject to any preferential dividend rights of any then outstanding Preferred
Stock.
Section 4. Liquidation.
Upon the dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, holders of Common Stock will be entitled to receive
all assets of the Company available for distribution to its stockholders subject
to any preferential rights of any then outstanding Preferred Stock.
FIFTH. The Company is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware:
A. The Board of Directors of the Company is expressly
authorized to adopt, amend or repeal the By-Laws of the Company.
B. Elections of directors need not be by written ballot
unless the By-Laws of the Company shall so provide.
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<PAGE> 16
C. The books of the Company may be kept at such place
within or without the State of Delaware as the By-Laws of the Company may
provide or as may be designated from time to time by the Board of Directors of
the Company.
SEVENTH. The Company eliminates the personal liability of each member
of its Board of Directors to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that, to
the extent provided by applicable law, the foregoing shall not eliminate the
liability of a director (i) for any breach of such director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of Title 8 of the Delaware General Corporation Law or (iv) for any
transaction from which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. Whenever a compromise or arrangement is proposed between this
Company and its creditors or any class of them and/or between this Company and
its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary way of this
Company or of any creditor or stockholder thereof or on the application of any
receiver or receivers appointed for this Company under the provisions of Section
291 of Title 8 of the Delaware General Corporation Law or on the application of
trustees in dissolution or of any receiver or receivers appointed for this
Company under the provisions of Section 279 of Title 8 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Company, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this Company,
as the case may be, agree to any compromise or arrangement and to any
reorganization of this Company as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Company, as the case may be, and
also on this Company.
NINTH. The Company shall, to the fullest extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Company, or is
or was serving, or has agreed to serve, at the request of the Company, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of
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<PAGE> 17
any action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom.
Indemnification may include payment by the Company of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article Ninth, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayment.
The Company shall not indemnify any such person seeking indemnification
in connection with a proceeding (or part thereof) initiated by such person
unless the initiation thereof was approved by the Board of Directors of the
Company.
The indemnification rights provided in this Article Ninth (i) shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any law, agreement or vote of stockholders or disinterested
directors or otherwise, and (ii) shall inure to the benefit of the heirs,
executors and administrators of such persons. The Company may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to other employees or agents of the Company or other persons serving the
Company and such rights may be equivalent to, or greater or less than, those set
forth in this Article Ninth.
[The remainder of this page is intentionally left blank]
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Certificate of Incorporation in the name and on behalf of ArQule, Inc.
on the 1st day of November, 1995 and the statements contained herein are
affirmed as true under penalties of perjury.
ARQULE, INC.
By: /s/ Allan R. Ferguson
--------------------------------
Allan R. Ferguson
Chairman of the Board
ATTEST:
By: /s/ Michael E. Lytton
-----------------------------
Name: Michael E. Lytton
Title: Secretary
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<PAGE> 19
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARQULE, INC.
ArQule, Inc., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies as follows:
1. That the Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by deleting the first paragraph of the existing
Article FOURTH and substituting in its place the following paragraph:
FOURTH. The total number of shares of stock that the Company shall have
the authority to issue is (i) twenty million (20,000,000) shares of common
stock, $.01 par value per share (the "Common Stock"), and (ii) fifteen million
(15,000,000) shares of preferred stock, $.01 par value per share (the "Preferred
Stock"), of which ten million six hundred twenty-four thousand four hundred
twenty-nine (10,624,429) shares have been designated Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and one million eight hundred
fifteen thousand four hundred sixty-eight (1,815,468) shares have been
designated Series B Convertible Preferred Stock (the "Series B Preferred
Stock").
2. The above amendment was duly adopted by the unanimous written
consent of directors of the Corporation in accordance with the applicable
provisions of Sections 141 and 242 of the General Corporation Law of the State
of Delaware.
3. The above amendment was duly approved at the annual meeting of the
stockholders of the Corporation in accordance with the applicable provisions of
Sections 222 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, ArQule, Inc. has caused this Certificate of
Amendment to be signed by its duly authorized officer this 9th day of April,
1996.
ARQULE, INC.
By: /s/ Eric B. Gordon
-------------------------------------
Eric B. Gordon
President and Chief Executive Officer
<PAGE> 1
Exhibit 3.2
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ARQULE, INC.
ArQule, Inc., a company organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Company"), does hereby
certify:
FIRST: That the Board of Directors of said Company, by unanimous vote,
adopted the following amendment to the Restated Certificate of Incorporation:
That Article FOURTH of the Company's Amended and Restated Certificate
of Incorporation be amended by adding the following new paragraph after the
first paragraph of Article FOURTH:
"Upon the effectiveness of this Certificate of Amendment to the Amended and
Restated Certificate of Incorporation, each two (2) issued and outstanding
shares of Common Stock, $0.01 par value, of the Company shall thereby be
combined and reclassified into one (1) validly issued, fully paid, and
nonassessable shares of Common Stock, $0.01 par value, of the Company. No scrip
or fractional shares will be issued, and each fractional share resulting from
such combination shall be redeemed by the Company for cash at a price per share
equal to the price to the public in the Company's initial public offering. There
shall not be any change in the number of shares authorized by reason of such
combination."
SECOND: That the stockholders of said Company duly voted in favor of said
amendment by written consent, with the necessary number of shares as required by
statute and the Amended and Restated Certificate of Incorporation of the Company
being voted in favor of the adoption of said amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the State
of Delaware and written notice of the adoption of this Certificate of Amendment
has been given as provided by Section 228 of the General Corporate Law of the
State of Delaware to every stockholder entitled to such notice.
Signed this ____ day of ____________, 1996.
----------------------------
Title:
Attest:
- -----------------------------
Title:
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARQULE, INC.
I, Eric Gordon, President of ArQule, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, do hereby certify as follows:
A. The original Certificate of Incorporation of ArQule, Inc. (the
"Company") was filed in the Office of the Secretary of State of the State of
Delaware on December 21, 1993 under the name "Arqule, Inc." (which Certificate
was corrected by a Certificate of Correction filed on December 30, 1993 under
the name "ArQule, Inc."), and was amended on October 27, 1994, November 1,
1995, April 9, 1996 and , 1996.
B. In the manner prescribed by Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate
of Incorporation was duly adopted by the Board of Directors and stockholders of
the Company.
C. The text of the Certificate of Incorporation of the Company is further
amended and restated to read in full as follows:
FIRST: The name of the Corporation is ArQule, Inc.
SECOND: The address of the registered office of the Company in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, New Castle County,
Delaware. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The Corporation shall be authorized to issue 31 million
(31,000,000) shares of capital stock, which shall be divided into 30 million
(30,000,000) shares of Common Stock, par value $0.01 per share, and 1 Million
(1,000,000) shares of Preferred Stock, par value $0.01 per share.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Corporation.
<PAGE> 2
PREFERRED STOCK
---------------
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article FOURTH, to provide by resolution for the
issuance of the shares of Preferred Stock in one or more series, and by filing a
certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
The authority of the Board with respect to each series shall include, but
shall not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series;
(h) Any other relative rights, preferences and limitations of that series.
COMMON STOCK
------------
The Common Stock is subject to the rights and preferences of the Preferred
Stock as hereinbefore set forth or authorized.
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<PAGE> 3
Subject to the provisions of any applicable law or of the by-laws of the
Corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided herein or by law or by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall have exclusive voting rights for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
Subject to the rights of any one or more series of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends from time to
time as may be declared by the Board of Directors out of any funds of the
Corporation legally available for the payment of such dividends.
In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock of the full amount to which they are
entitled, the holders of Common Stock shall be entitled to share ratably
according to the number of shares of Common Stock held by them in all remaining
assets of the Corporation available for distribution to its stockholders.
ISSUANCE
- --------
Subject to the provisions of this Certificate of Incorporation and except
as otherwise provided by law, the shares of stock of the Corporation, regardless
of class, may be issued for such consideration and for such corporate purposes
as the Board of Directors may from time to time determine.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation:
1. Any vote or votes authorizing liquidation of the Corporation or
proceedings for its dissolution may provide, subject to the rights of creditors
and the rights expressly provided for particular classes or series of stock, for
the distribution among the stockholders of the Corporation of the assets of the
Corporation as provided herein, wholly or in part or in kind, whether such
assets be in cash or other property, and may authorize the Board of Directors of
the Corporation to determine the valuation of the different assets of the
Corporation for the purpose of such liquidation and may divide or authorize the
Board of Directors to divide such assets or any part thereof among the
stockholders of the Corporation, in such manner that every stockholder will
receive a proportionate amount in value (determined as provided herein) of cash
or property of the Corporation upon such liquidation or dissolution even though
each stockholder may not receive a strictly proportionate part of each such
asset.
2. The directors shall be divided into three classes, as nearly equal in
number as the then total number of directors constituting the entire Board
permits, with the term of office of one class expiring each year. The initial
Class I directors elected by the stockholders of the
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<PAGE> 4
Corporation shall hold office for a term expiring at the 1997 annual meeting of
stockholders; the initial Class II directors elected by the stockholders of the
Corporation shall hold office for a term expiring at the 1998 annual meeting of
stockholders; and the initial Class III directors elected by the stockholders of
the Corporation shall hold office for a term expiring at the 1999 annual meeting
of stockholders. At each such annual meeting of stockholders and at each annual
meeting thereafter, successors to the class of directors whose term expires at
that meeting shall be elected for a term expiring at the third annual meeting
following their election and until their successors shall be elected and
qualified, subject to prior death, resignation, retirement or removal. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, but in no event will a decrease in the number of
directors shorten the term of any incumbent director. Notwithstanding the
foregoing, and except as otherwise required by law, whenever the holders of any
one or more series of Preferred Stock shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the election, terms
of office and other features of such directorships shall be governed by the
terms of the vote establishing such series, and such directors so elected shall
not be divided into classes pursuant to this Article FIFTH unless expressly
provided by such terms. This Section 2 of Article FIFTH may not be amended,
revised or revoked, in whole or in part, except by the affirmative vote of the
holders of 80% of the voting power of the shares of all classes of stock of the
Corporation entitled to vote for the election of directors, considered for the
purposes of this Article FIFTH as one class of stock.
3. Each director chosen to fill a vacancy in the Board of Directors shall
be elected to complete the term of office of the director who is being
succeeded. In the case of any election of a new director to fill a directorship
created by an enlargement of the Board, the Board shall in such election assign
the class of directors to which such additional director is being elected, and
each director so elected shall hold office for the same term as the other
members of the class to which the director is assigned.
4. Except as otherwise determined by the Board of Directors in establishing
a series of Preferred Stock as to directors elected by holders of such series,
at any special meeting of the stockholders called at least in part for the
purpose, any director or directors may, by the affirmative vote of the holders
of at least a majority of the stock entitled to vote for the election of
directors, by removed from office for cause. The provisions of this subsection
shall be the exclusive method for the removal of directors. This Section 4 of
Article FIFTH may not be amended, revised or revoked, in whole or in part,
except by the affirmative vote of the holders of 80% of the voting power of the
shares of all classes of stock of the Corporation entitled to vote for the
election of directors, considered for the purposes of this Article FIFTH as one
class of stock.
5. Elections of directors need not be by ballot.
6. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the by-laws of the Corporation.
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<PAGE> 5
7. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article FIFTH to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended
from time to time.
Any repeal or modification of this Article FIFTH shall not increase the
personal liability of any director of this Corporation for any act or occurrence
taking place before such repeal or modification, nor otherwise adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
8. Meetings of stockholders may be held anywhere within or without the
State of Delaware. The books of the Corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the by-laws of the Corporation.
SIXTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of [Section]291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provision of [Section]279 of Title 8
of the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation, as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
SEVENTH: No action required to be taken or that may be taken at any annual
or special meeting of stockholders of the Corporation may be taken by written
consent without a meeting, and the power of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied.
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<PAGE> 6
This Article SEVENTH may not be amended, revised or revoked, in whole or in
part, except by the affirmative vote of the holders of 80% of the voting power
of the shares of all classes of stock of the Corporation entitled to vote for
the election of directors, considered for the purposes of this Article SEVENTH
as one class of stock.
EIGHTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders are granted subject to this reservation.
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned have duly executed this Amended and
Restated Certificate of Incorporation in the name and on behalf of ArQule, Inc.
on the _____ day of ________________, 1996 and the statements contained herein
are affirmed as true under penalties of perjury.
---------------------------------
Eric Gordon, President
ATTESTED:
- ------------------------------------
Michael Lytton, Secretary
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<PAGE> 1
EXHIBIT 3.4
As adopted 12/30/93
BY-LAWS
OF
ARQULE, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of stockholders
shall be held at the principal office of the corporation or at such other place
as may be named in the notice.
SECTION 2. Annual Meeting. The annual meeting of stockholders
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour and
place as the directors or an officer designated by the directors may determine.
If the annual meeting is not held on the date designated therefor, the directors
shall cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the
stockholders may be called at any time by the President, the Chairman of the
Board, if any, or the Board of Directors, or by the Secretary or any other
officer upon the written request of one or more stockholders holding of record
at least a majority of the outstanding shares of stock of the corporation
entitled to vote at such meeting. Such written request shall state the purpose
or purposes of the proposed meeting. Business transacted at any special meeting
of stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting.
SECTION 4. Notice of Meetings. Except where some other notice
is required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is called,
shall be given by or under the direction of the Secretary, not less than ten nor
more than sixty days before the date fixed for such meeting, to each stockholder
entitled to vote at such meeting of record at the close of business on the day
fixed by the Board of Directors as a record date for the determination of the
stockholders entitled to vote at such meeting or, if no such date has been
fixed, of record at the close of business on the day before the day on which
notice is given. Notice shall be given personally to each stockholder or left at
his or her residence or usual place of business or mailed postage prepaid and
addressed to the stockholder at his or her address as it appears upon the
records of the corporation. In case of the death, absence, incapacity or refusal
of the Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the
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<PAGE> 2
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the stockholders shall not be required.
SECTION 5. Voting List. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
corporation, or to vote at any meeting of stockholders.
SECTION 6. Quorum of Stockholders. At any meeting of the
stockholders, the holders of a majority in interest of all stock issued and
outstanding and entitled to vote upon a question to be considered at the
meeting, present in person or represented by proxy, shall constitute a quorum
for the consideration of such question, but a smaller group may adjourn any
meeting from time to time. When a quorum is present at any meeting, a majority
of the stock represented thereat and entitled to vote shall, except where a
larger vote is required by law, by the certificate of incorporation, or by these
by-laws, decide any question brought before such meeting. Any election by
stockholders shall be determined by a plurality of the vote cast by the
stockholders entitled to vote at the election.
SECTION 7. Proxies and Voting. Unless otherwise provided in
the certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 8. Conduct of Meeting. Meetings of the stockholders
shall be presided over by one of the following officers in the order of
seniority and if present and
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<PAGE> 3
acting: the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, a chairman to be chosen by the stockholders. The
Secretary of the corporation, if present, or an Assistant Secretary, shall act
as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman of the meeting shall appoint a secretary of
the meeting.
SECTION 9. Action Without Meeting. Any action required or
permitted to be taken at any annual or special meeting of stockholders of the
corporation may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders or by proxy for the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote on such action
were present and voted. Prompt notice of the taking of corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
SECTION 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of a Board of Directors,
who may exercise all of the powers of the corporation which are not by law
required to be exercised by the stockholders. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
SECTION 2. Number; Election; Tenure and Qualification. The
initial Board of Directors shall consist of four (4) persons and shall be
elected by the incorporator. Thereafter, the number of directors which shall
constitute the whole Board shall be fixed by the stockholders, but in no event
shall be less than one. Each director shall be elected by the stockholders at
the annual meeting, and all directors shall hold office until the next annual
meeting and until their successors are elected and qualified, or until their
earlier death, resignation or removal. Directors need not be stockholders of the
corporation.
SECTION 3. Enlargement of the Board. The number of the Board
of Directors may be increased at any time, such increase to be effective
immediately, by vote of the stockholders.
SECTION 4. Vacancies. If a vacancy on the Board of Directors
occurs for any reason prior to the annual meeting of stockholder, such vacancy
shall be filled by the stockholders.
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<PAGE> 4
SECTION 5. Resignation. Any director may resign at any time
upon written notice to the corporation. Such resignation shall take effect at
the time specified therein, or if no time is specified, at the time of its
receipt by the President or Secretary.
SECTION 6. Removal. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, at an annual meeting or at a special meeting
called for that purpose, by the holders of a majority of the shares then
entitled to vote at an election of directors. Any director may be removed by the
affirmative vote of a majority of the whole Board of Directors then in office in
the event of such director's conviction or admission of fraud or the finding by
a court of competent jurisdiction, or the admission of such director that an act
or omission of such director constitutes willful misconduct. The vacancy or
vacancies created by any removal may be filled by the stockholders.
SECTION 7. Committees. The Board of Directors may, by
resolution or resolutions passed unanimously by the whole Board of Directors
then in office, designate one or more committees, each committee to consist of
one or more directors of the corporation. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
such absent or disqualified member.
A majority of all the members of any such committee may fix its rules
of procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. The Board of Directors shall have the power to change the
members of any such committee at any time, to fill vacancies therein and to
discharge any such committee, either with or without cause, at any time.
Any such committee, unless otherwise provided in the resolution of the
Board of Directors, or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority denied it by Section 141 of the General Corporation Law
of the State of Delaware.
Each committee shall keep regular minutes of its meetings and make such
reports as the Board of Directors may from time to time request.
SECTION 8. Meetings of the Board of Directors. Regular
meetings of the Board of Directors may be held without call or formal notice at
such places either within or without the State of Delaware and at such times as
the Board may by vote from time to time
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determine. A regular meeting of the Board of Directors may be held without call
or formal notice immediately after and at the same place as the annual meeting
of the stockholders, or any special meeting of the stockholders at which a Board
of Directors is elected.
Special meetings of the Board of Directors may be held at any place
either within or without the State of Delaware at any time when called by the
Chairman of the Board of Directors, the President, Treasurer, Secretary, or two
or more directors. Reasonable notice of the time and place of a special meeting
shall be given to each director unless such notice is waived by attendance or by
written waiver in the manner provided in these by-laws for waiver of notice by
stockholders. Notice may be given by, or by a person designated by, the
Secretary, the person or persons calling the meeting, or the Board of Directors.
No notice of any adjourned meeting of the Board of Directors shall be required.
In any case it shall be deemed sufficient notice to a director to send notice by
mail at least seventy-two hours, or by telegram or facsimile transmission at
least forty-eight hours, before the meeting, addressed to such director at his
or her usual or last known business or home address.
Directors or members of any committee designated by the directors may
participate in a meeting of the Board of Directors or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation by
such means shall constitute presence in person at such meeting.
Until the closing of the corporation's initial public offering of
capital stock pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, the Investor Limited Partners (as defined in
the Second Amended and Restated Agreement of Limited Partnership of ArQule
Partners L.P. dated December 31, 1993 (the "Partnership Agreement")) entitled to
attend Investment Committee meetings as observers in accordance with Section
4.3(d) of the Partnership Agreement shall be entitled to attend as an observer
(but not to vote at) meetings of the Board of Directors and any business
discussions occurring immediately prior to such meetings; provided, however,
that upon a majority vote of the Board of Directors, each such Investor Limited
Partner may be required to execute a Non-Disclosure and Non-Solicitation
Agreement in a form selected by such directors.
SECTION 9. Quorum and Voting. That number of directors which
is one (1) less than the total number of directors then in office shall
constitute a quorum, except that if the total number of directors then in office
is reduced to one, then a single director shall constitute a quorum. A majority
of the directors present, whether or not a quorum is present, may adjourn any
meeting from time to time. The vote of a majority of the directors then in
office shall be the act of the Board of Directors, except where a different vote
is required or permitted by law, by the certificate of incorporation, or by
these by-laws.
SECTION 10. Compensation. The Board of Directors may fix fees
for their services and for their membership on committees, and expenses of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any
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director from serving the corporation in any other capacity as an officer, agent
or otherwise, and receiving compensation therefor.
SECTION 11. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, and without notice, if a
written consent thereto is signed by all members of the Board of Directors, or
of such committee, as the case may be, and such written consent is filed with
the minutes of proceedings of the Board of Directors or such committee.
ARTICLE III
OFFICERS
SECTION 1. Titles. The officers of the corporation shall
consist of a President, a Secretary, a Treasurer, and such other officers with
such other titles as the Board of Directors shall determine, including without
limitation a Chairman of the Board, a Vice-Chairman of the Board, and one or
more Vice-Presidents, Assistant Treasurers, or Assistant Secretaries.
SECTION 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of the stockholders. Each officer shall
hold office until his or her successor is elected and qualified, unless a
different term is specified in the vote electing such officer, or until his or
her earlier death, resignation or removal.
SECTION 3. Qualification. Unless otherwise provided by
resolution of the Board of Directors, no officer, other than the Chairman or
Vice-Chairman of the Board, need be a director. No officer need be a
stockholder. Any number of offices may be held by the same person, as the
directors shall determine.
SECTION 4. Removal. Any officer may be removed, with or
without cause, at any time, by resolution adopted by the Board of Directors.
SECTION 5. Resignation. Any officer may resign by delivering a
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt or at
such later time as may be specified therein.
SECTION 6. Vacancies. The Board of Directors may at any time
fill any vacancy occurring in any office for the unexpired portion of the term
and may leave unfilled for such period as it may determine any office other than
those of President, Treasurer and Secretary.
SECTION 7. Powers and Duties. The officers of the corporation
shall have such powers and perform such duties as are specified herein and as
may be conferred upon or assigned to them by the Board of Directors, and shall
have such additional powers and duties as are incident to their office except to
the extent that resolutions of the Board of Directors are inconsistent
therewith.
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SECTION 8. President and Vice-Presidents. The President shall
be the chief executive officer of the corporation, shall preside at all meetings
of the stockholders and the Board of Directors unless a Chairman or
Vice-Chairman of the Board is elected by the Board, empowered to preside, and
present at such meeting, shall have general and active management of the
business of the corporation and general supervision of its officers, agents and
employees, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
In the absence of the President or in the event of his or her inability or
refusal to act, the Vice-President if any (or in the event there be more than
one Vice-President, the Vice-Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
President. The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors.
SECTION 9. Secretary and Assistant Secretaries. The Secretary
shall attend all meetings of the Board of Directors and of the stockholders and
record all the proceedings of such meetings in a book to be kept for that
purpose, shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, shall maintain a
stock ledger and prepare lists of stockholders and their addresses as required
and shall have custody of the corporate seal which the Secretary or any
Assistant Secretary shall have authority to affix to any instrument requiring it
and attest by any of their signatures. The Board of Directors may give general
authority to any other officer to affix and attest the seal of the corporation.
The Assistant Secretary if any (or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors of if
there be no such determination, then in the order of their election) shall, in
the absence of the Secretary or in the event of the Secretary's inability or
refusal to act, perform the duties and exercise the powers of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers. The Treasurer
shall have the custody of the corporate funds and securities, shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors or the President, taking
proper vouchers for such disbursements, and shall render to the President and
the Board of Directors, at its regular meetings, or whenever they may require
it, an account of all transactions and of the financial condition of the
corporation.
The Assistant Treasurer if any (or if there be more than one, the Assistant
Treasurers in the order determined by the Board of Directors or if there be no
such determination, then in the
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order of their election) shall, in the absence of the Treasurer or in the event
of his or her inability or refusal to act, perform the duties and exercise the
powers of the Treasurer.
SECTION 11. Bonded Officers. The Board of Directors may
require any officer to give the corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors upon such
terms and conditions as the Board of Directors may specify, including without
limitation a bond for the faithful performance of the duties of such officer and
for the restoration to the corporation of all property in his or her possession
or control belonging to the corporation.
SECTION 12. Salaries. Officers of the corporation shall be
entitled to such salaries, compensation or reimbursement as shall be fixed or
allowed from time to time by the Board of Directors.
ARTICLE IV
STOCK
SECTION 1. Certificates of Stock. One or more certificates of
stock, signed by the Chairman or Vice-Chairman of the Board of Directors or by
the President or Vice-President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying, in the aggregate, the number of shares owned by the stockholder in
the corporation. Any or all signatures on any such certificate may be
facsimiles. In case any officer, transfer agent or registrar who shall have
signed or whose facsimile signature shall have been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the certificate of incorporation, the
by-laws, applicable securities laws, or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
SECTION 2. Transfers of Shares of Stock. Subject to the
restrictions, if any, stated or noted on the stock certificates, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require. The
corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment of
dividends and the right to vote with respect to that stock, regardless of any
transfer, pledge or other disposition of that stock, until the shares have been
transferred on the books of the corporation in accordance with the requirements
of these by-laws.
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SECTION 3. Lost Certificates. A new certificate of stock may
be issued in the place of any certificate theretofore issued by the corporation
and alleged to have been lost, stolen, destroyed, or mutilated, upon such terms
in conformity with law as the Board of Directors shall prescribe. The directors
may, in their discretion, require the owner of the lost, stolen, destroyed or
mutilated certificate, or the owner's legal representatives, to give the
corporation a bond, in such sum as they may direct, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss,
theft, destruction or mutilation of any such certificate, or the issuance of any
such new certificate.
SECTION 4. Record Date. The Board of Directors may fix in
advance a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action. Such record date shall not be
more than 60 nor less than 10 days before the date of such meeting, nor more
than 60 days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. Unless otherwise fixed by the
Board of Directors, the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 5. Fractional Share Interests. The corporation may,
but shall not be required to, issue fractions of a share. If the corporation
does not issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered or bearer
form which shall entitle the holder to receive a certificate for a full share
upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for
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which scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof distributed to the holders of scrip or warrants, or subject to
any other conditions which the Board of Directors may impose.
SECTION 6. Dividends. Subject to the provisions of the
certificate of incorporation, the Board of Directors may, out of funds legally
available therefor, at any regular or special meeting, declare dividends upon
the common stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification. The corporation shall, to the
extent permitted by the certificate of incorporation, as amended from time to
time, indemnify each person whom it may indemnify pursuant thereto.
SECTION 2. Insurance. The corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of the General Corporation Law of the State of
Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Fiscal Year. Except as otherwise designated from
time to time by the Board of Directors, the fiscal year of the corporation shall
begin on the first day of January and end on the last day of December.
SECTION 2. Corporate Seal. The corporate seal shall be in such
form as shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal. The Board of Directors may authorize a duplicate seal to
be kept and used by any other officer.
SECTION 3. Certificate of Incorporation. All references in
these by-laws to the certificate of incorporation shall be deemed to refer to
the certificate of incorporation of the corporation, as in effect from time to
time.
SECTION 4. Execution of Instruments. The Chairman and
Vice-Chairman of the Board of Directors, if any, the President, any
Vice-President, and the Treasurer shall have power to execute and deliver on
behalf and in the name of the corporation any instrument requiring the signature
of an officer of the corporation, including deeds, contracts, mortgages, bonds,
notes, debentures, checks, drafts, and other orders for the payment of money. In
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addition, the Board of Directors may expressly delegate such powers to any other
officer or agent of the corporation.
SECTION 5. Voting of Securities. Except as the directors may
otherwise designate, the President or Treasurer may waive notice of, and act as,
or appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization the
securities of which may be held by this corporation.
SECTION 6. Evidence of Authority. A certificate by the
Secretary, or an Assistant Secretary, or a temporary secretary, as to any action
taken by the stockholders, directors, a committee or any officer or
representative of the corporation shall, as to all persons who rely on the
certificate in good faith, be conclusive evidence of that action.
SECTION 7. Transactions with Interested Parties. No contract
or transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for that reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors which authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
SECTION 8. Books and Records. The books and records of the
corporation shall be kept at such places within or without the State of Delaware
as the Board of Directors may from time to time determine.
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ARTICLE VII
AMENDMENTS
SECTION 1. By the Board of Directors. Except as set forth in
Section 3 below, these by-laws may be altered, amended or repealed or new
by-laws may be adopted by the affirmative vote of a majority of the directors
present at any regular or special meeting of the Board of Directors at which a
quorum is present, and except that any alteration, amendment, or repeal of
Article II must be adopted unanimously by whole Board of Directors then in
office.
SECTION 2. By the Stockholders. Except as set forth in Section
3 below, these by-laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to vote
at any regular meeting of stockholders, or at any special meeting of
stockholders provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such special meeting.
SECTION 3. Special Votes. The right of certain Investor
Limited Partners to attend meetings of the Board of Directors pursuant to
Article II, Section 8, may be altered, amended, or repealed only with the prior
written consent of the affected Investor Limited Partners, which consent shall
be filed with the minutes of proceedings of the Board of Directors.
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Exhibit 3.5
AMENDED AND RESTATED
BY-LAWS
OF
ARQULE, INC.
Adopted by the Board of Directors on August 14, 1996
ARTICLE I
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be
held at the principal office of the corporation or at such other place as may be
named in the notice.
SECTION 2. ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and the transaction of such other business as may properly
come before the meeting shall be held on such date and at such hour and place as
the directors or an officer designated by the directors may determine. If the
annual meeting is not held on the date designated therefor, the directors shall
cause the meeting to be held as soon thereafter as convenient.
SECTION 3. Special Meetings. Special meetings of the stockholders may
be called at any time by the President or a majority of the Board of Directors.
SECTION 4. NOTICE OF MEETINGS. Except where some other notice is
required by law, written notice of each meeting of stockholders, stating the
place, date and hour thereof and the purposes for which the meeting is called,
shall be given by the Secretary under the direction of the Board of Directors or
the President, not less than ten nor more than sixty days before the date fixed
for such meeting, to each stockholder of record entitled to vote at such
meeting. Notice shall be given personally to each stockholder or left at his or
her residence or usual place of business or mailed postage prepaid and addressed
to the stockholder at his or her address as it appears upon the records of the
corporation. In case of the death, absence, incapacity or refusal of the
Secretary, such notice may be given by a person designated either by the
Secretary or by the person or persons calling the meeting or by the Board of
Directors. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to such notice. Attendance of a person at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice. Except as required by statute, notice
of any adjourned meeting of the stockholders shall not be required.
<PAGE> 2
SECTION 5. RECORD DATE. The Board of Directors may fix in advance a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action. Such record date shall not be
more than 60 nor less than 10 days before the date of such meeting, nor more
than 60 days before any other action to which such record date relates. If no
record date is fixed, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day before the day on which notice is given, or, if notice is
waived, at the close of business on the day before the day on which the meeting
is held, and the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating to such purpose. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 6. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors at any annual or special meeting of stockholders. Nominations of
persons for election as directors may be made only by or at the direction of the
Board of Directors, or by any stockholder entitled to vote for the election of
directors at the meeting in compliance with the notice procedures set forth in
this Section 6. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Chairman of the Board, if any, the President or the Secretary. To be timely,
a stockholder's notice shall be delivered to or mailed and received at the
principal executive offices of the corporation not less than 45 days before the
meeting; PROVIDED, HOWEVER, that if less than 60 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address and residence address of the person, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of capital stock
of the corporation that are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, or any successor
provision thereto; and (b) as to the stockholder giving the notice, (i) the name
and record address of such stockholder and (ii) the class and number of shares
of capital stock of the corporation that are beneficially owned by such
stockholder.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, he or she shall so
declare to the meeting and the defective nomination shall be disregarded.
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SECTION 7. ADVANCE NOTICE OF BUSINESS AT ANNUAL MEETINGS. At any annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be brought properly before an
annual meeting, business must be either (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the President or the
Board of Directors, (b) otherwise properly brought before the meeting by or at
the direction of the Board of Directors, or (c) properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be brought properly before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Chairman of
the Board, if any, the President or the Secretary. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than 45 days before the meeting; PROVIDED,
HOWEVER, that if less than 60 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be so received not later than the close of business on the
15th day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. A stockholder's notice
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of the corporation that are
beneficially owned by the stockholder and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 7, PROVIDED, HOWEVER, that nothing in this
Section 7 shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the foregoing procedure, and if the chairman should
so determine, he or she shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 8. VOTING LIST. The officer who has charge of the stock ledger
of the corporation shall make or have made, at least 10 days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days before the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only
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evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
SECTION 9. QUORUM OF STOCKHOLDERS. At any meeting of the stockholders,
the holders of a majority in interest of all stock issued and outstanding and
entitled to vote upon a question to be considered at the meeting, present in
person or represented by proxy, shall constitute a quorum for the consideration
of such question, but in the absence of a quorum a smaller group may adjourn any
meeting from time to time. When a quorum is present at any meeting, a majority
of the votes properly cast shall, except where a different vote is required by
law, by the Certificate of Incorporation or by these by-laws, decide any
question brought before such meeting. Any election by stockholders shall be
determined by a plurality of the vote cast by the stockholders entitled to vote
at the election.
SECTION 10. PROXIES AND VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock held of record by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote unless in the transfer by the pledgor on the books of the corporation
the pledgee shall have been expressly empowered to vote thereon, in which case
only the pledgee or the pledgee's proxy may represent said stock and vote
thereon. Shares of the capital stock of the corporation belonging to the
corporation or to another corporation, a majority of whose shares entitled to
vote in the election of directors is owned by the corporation, shall neither be
entitled to vote nor be counted for quorum purposes.
SECTION 11. CONDUCT OF MEETING. Meetings of the stockholders shall be
presided over by one of the following officers in the order specified and if
present and acting: the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice-President (and, in the event there be more
than one person in any such office, in the order of their seniority), or, if
none of the foregoing is in office and present and acting, a chairman designated
by the Board of Directors or, in the absence of such designation, a chairman
chosen by the stockholders at the meeting. The Secretary of the corporation, if
present, or an Assistant Secretary, shall act as secretary of every meeting, but
if neither the Secretary nor an Assistant Secretary is present the chairman of
the meeting shall appoint a secretary of the meeting.
The Board of Directors may adopt such rules, regulations and procedures for
the conduct of the meeting of stockholders as it shall deem appropriate. Except
to the extent inconsistent with such rules and regulations as adopted by the
Board of Directors, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgement of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, (i) the establishment of an agenda or order of
business for the meeting, (ii) rules and procedures
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for maintaining order at the meeting and the safety of those present, (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine, (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof, and
(v) limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
ARTICLE II
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation that are not by law required to be
exercised by the stockholders. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
SECTION 2. NUMBER; ELECTION; TENURE AND QUALIFICATION. Subject to any
restrictions contained in the Certificate of Incorporation, the number of
directors that shall constitute the whole Board shall be fixed by resolution of
the Board of Directors but in no event shall be less than one. The directors
shall be elected in the manner provided in the Certificate of Incorporation, by
such stockholders as have the right to vote thereon. The number of directors may
be increased or decreased by action of the Board of Directors. Directors need
not be stockholders of the corporation.
SECTION 3. ENLARGEMENT OF THE BOARD. Subject to any restrictions
contained in the Certificate of Incorporation, the number of the Board of
Directors may be increased at any time, such increase to be effective
immediately unless otherwise specified in the resolution, by vote of a majority
of the directors then in office.
SECTION 4. VACANCIES. Unless and until filled by the stockholders and
except as otherwise determined by the Board of Directors in establishing a
series of Preferred Stock as to directors elected by the holders of such series,
any vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board and an unfilled vacancy resulting
from the removal of any director, may be filled by vote of a majority of the
directors then in office although less than a quorum, or by the sole remaining
director. Each director so chosen to fill a vacancy shall serve for a term
determined in the manner provided in the Certificate of Incorporation. When one
or more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have the power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective. If at any
time there are no
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directors in office, then an election of directors may be held in accordance
with the General Corporation Law of the State of Delaware.
SECTION 5. RESIGNATION. Any director may resign at any time upon
written notice to the corporation. Such resignation shall take effect at the
time specified therein, or if no time is specified, at the time of its receipt
by the Chairman of the Board, if any, the President or the Secretary.
SECTION 6. REMOVAL. Directors may be removed from office only as
provided in the Certificate of Incorporation. The vacancy or vacancies created
by the removal of a director may be filled by the stockholders at the meeting
held for the purpose of removal or, if not so filled, by the directors in the
manner provided in Section 4 of this Article II.
SECTION 7. COMMITTEES. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more directors of the
corporation. The Board of Directors may designate one or more directors as
alternate members of any committee to replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. The Board of Directors shall have the power to change the members of any
such committee at any time, to fill vacancies therein and to discharge any such
committee, either with or without cause, at any time.
Any such committee, to the extent permitted by law and to the extent
provided in the resolution of the Board of Directors or in these by-laws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers that may require it.
A majority of all the members of any such committee may fix its rules of
procedure, determine its action and fix the time and place, whether within or
without the State of Delaware, of its meetings and specify what notice thereof,
if any, shall be given, unless the Board of Directors shall otherwise by
resolution provide. Each committee shall keep regular minutes of its meetings
and make such reports as the Board of Directors may from time to time request.
SECTION 8. MEETINGS OF THE BOARD OF DIRECTORS. Regular meetings of the
Board of Directors may be held without call or formal notice at such places
either within or without the State of Delaware and at such times as the Board
may by vote from time to time determine. A regular meeting of the Board of
Directors may be held without call or formal notice immediately after and at the
same place as the annual meeting of the stockholders, or any special meeting of
the stockholders at which a Board of Directors is elected.
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Special meetings of the Board of Directors may be held at any place either
within or without the State of Delaware at any time when called by the Chairman
of the Board, if any, the President, the Secretary or two or more directors.
Reasonable notice of the time and place of a special meeting shall be given to
each director unless such notice is waived by attendance or by written waiver in
the manner provided in these by-laws for waiver of notice by stockholders.
Notice may be given by, or by a person designated by, the Secretary, the person
or persons calling the meeting, or the Board of Directors. No notice of any
adjourned meeting of the Board of Directors shall be required. In any case it
shall be deemed sufficient notice to a director to send notice by mail at least
seventy-two hours, or by telegram or fax at least forty-eight hours, before the
meeting, addressed to such director at his or her usual or last known business
or home address.
Directors or members of any committee may participate in a meeting of the
Board of Directors or of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation by such means shall
constitute presence in person at such meeting.
SECTION 9. QUORUM AND VOTING. A majority of the total number of
directors shall constitute a quorum, except that when a vacancy or vacancies
exist in the Board, a majority of the directors then in office (but not less
than one-third of the total number of the directors) shall constitute a quorum.
A majority of the directors present, whether or not a quorum is present, may
adjourn any meeting from time to time. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, except where a different vote is required by law, by the
Certificate of Incorporation or by these by-laws.
SECTION 10. COMPENSATION. The Board of Directors may fix fees for their
services and for their membership on committees, and expenses of attendance may
be allowed for attendance at each meeting. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity, as an officer, agent or otherwise, and receiving compensation
therefor.
SECTION 11. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting and without notice if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as the
case may be, and such written consent is filed with the minutes of proceedings
of the Board of Directors or of such committee.
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ARTICLE III
OFFICERS
SECTION 1. TITLES. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, who may include without
limitation a Chairman of the Board, a Vice-Chairman of the Board and one or more
Vice-Presidents, Assistant Treasurers or Assistant Secretaries.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the corporation
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of the stockholders. Each officer shall hold office
until his or her successor is elected and qualified, unless a different term is
specified in the vote electing such officer, or until his or her earlier death,
resignation or removal.
SECTION 3. QUALIFICATION. Unless otherwise provided by resolution of
the Board of Directors, no officer, other than the Chairman or Vice-Chairman of
the Board, need be a director. No officer need be a stockholder. Any number of
offices may be held by the same person, as the directors shall determine.
SECTION 4. REMOVAL. Any officer may be removed, with or without cause,
at any time, by resolution adopted by the Board of Directors.
SECTION 5. RESIGNATION. Any officer may resign by delivering a written
resignation to the corporation at its principal office or to the Chairman of the
Board, if any, the President or the Secretary. Such resignation shall be
effective upon receipt or at such later time as may be specified therein.
SECTION 6. VACANCIES. The Board of Directors may at any time fill any
vacancy occurring in any office for the unexpired portion of the term and may
leave unfilled for such period as it may determine any office other than those
of President, Treasurer and Secretary.
SECTION 7. POWERS AND DUTIES. The officers of the corporation shall
have such powers and perform such duties as are specified herein and as may be
conferred upon or assigned to them by the Board of Directors and shall have such
additional powers and duties as are incident to their office except to the
extent that resolutions of the Board of Directors are inconsistent therewith.
SECTION 8. PRESIDENT AND VICE-PRESIDENTS. Except to the extent that
such duties are assigned by the Board of Directors to the Chairman of the Board,
or in the absence of the Chairman or in the event of his or her inability or
refusal to act, the President shall be the chief executive officer of the
corporation and shall have general and active management of the business of the
corporation and general supervision of its officers, agents and employees, and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The
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President shall preside at each meeting of the stockholders and the Board of
Directors unless a Chairman or Vice-Chairman of the Board is elected by the
Board and is assigned the duty of presiding at such meeting.
The Board of Directors may assign to any Vice-President the title of
Executive Vice-President, Senior Vice-President or any other title selected by
the Board of Directors. In the absence of the President or in the event of his
or her inability or refusal to act, the duties of the President shall be
performed by the Executive Vice-President, if any, Senior Vice President, if
any, or Vice President, if any, in that order (and, in the event there be more
than one person in any such office, in the order of their seniority), and when
so acting, such officer shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
attend all meetings of the Board of Directors and of the stockholders and record
all the proceedings of such meetings in a book to be kept for that purpose,
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, shall maintain a stock ledger and
prepare lists of stockholders and their addresses as required and shall have
custody of the corporate seal, which the Secretary or any Assistant Secretary
shall have authority to affix to any instrument requiring it and attest by any
of their signatures. The Board of Directors may give general authority to any
other officer to affix and attest the seal of the corporation.
Any Assistant Secretary may, in the absence of the Secretary or in the
event of the Secretary's inability or refusal to act, perform the duties and
exercise the powers of the Secretary.
SECTION 10. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall have
the custody of the corporate funds and securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by or
pursuant to resolution of the Board of Directors. The Treasurer shall disburse
the funds of the corporation as may be ordered by the Board of Directors, the
Chairman of the Board, if any, or the President, taking proper vouchers for such
disbursements, and shall render to the Chairman of the Board, if any, the
President and the Board of Directors, at its regular meetings or whenever they
may require it, an account of all transactions and of the financial condition of
the corporation.
Any Assistant Treasurer may, in the absence of the Treasurer or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the Treasurer.
SECTION 11. BONDED OFFICERS. The Board of Directors may require any
officer to give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors upon such terms and
conditions as the Board of Directors may specify, including without limitation a
bond for the faithful performance of the duties of such officer and
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for the restoration to the corporation of all property in his or her possession
or control belonging to the corporation.
SECTION 12. SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed from
time to time by the Board of Directors or any committee thereof appointed for
the purpose.
ARTICLE IV
STOCK
SECTION 1. CERTIFICATES OF STOCK. One or more stock certificates,
signed by the Chairman or Vice-Chairman of the Board of Directors or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by the stockholder in the corporation. Any
or all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent or registrar who shall have signed or whose facsimile
signature shall have been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Each certificate for shares of stock that are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the by-laws, applicable
securities laws, or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
SECTION 2. TRANSFERS OF SHARES OF STOCK. Subject to the restrictions,
if any, stated or noted on the stock certificates, shares of stock may be
transferred on the books of the corporation by the surrender to the corporation
or its transfer agent of the certificate representing such shares properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, and with such proof of authority or the authenticity of signature as
the corporation or its transfer agent may reasonably require. The corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to that stock, regardless of any transfer, pledge
or other disposition of that stock, until the shares have been transferred on
the books of the corporation in accordance with the requirements of these
by-laws.
SECTION 3. LOST CERTIFICATES. A new stock certificate may be issued in
the place of any certificate theretofore issued by the corporation and alleged
to have been lost, stolen, destroyed or mutilated, upon such terms in conformity
with law as the Board of Directors
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shall prescribe. The directors may, in their discretion, require the owner of
the lost, stolen, destroyed or mutilated certificate, or the owner's legal
representatives, to give the corporation a bond, in such sum as they may direct,
to indemnify the corporation against any claim that may be made against it on
account of the alleged loss, theft, destruction or mutilation of any such
certificate, or the issuance of any such new certificate.
SECTION 4. FRACTIONAL SHARE INTERESTS. The corporation may, but shall
not be required to, issue fractions of a share. If the corporation does not
issue fractions of a share, it shall (i) arrange for the disposition of
fractional interests by those entitled thereto, (ii) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (iii) issue scrip or warrants in registered or
bearer form, which shall entitle the holder to receive a certificate for a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions that the Board of Directors may impose.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient.
ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the extent legally permissible, indemnify each
person who may serve or who has served at any time as a director or officer of
the corporation or of any of its subsidiaries, or who at the request of the
corporation may serve or at any time has served as a director, officer or
trustee of, or in a similar capacity with, another organization or an employee
benefit plan, against all expenses and liabilities (including counsel fees,
judgments, fines, excise taxes, penalties and amounts payable in settlements)
reasonably incurred by or imposed upon such person in connection with any
threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative or investigative, in which he may become
involved by reason of his serving or having served in such capacity (other than
a proceeding voluntarily initiated by such person unless he is successful on the
merits, the proceeding was authorized by the corporation or the proceeding seeks
a declaratory judgment regarding his own conduct); provided that no
indemnification
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shall be provided for any such person with respect to any matter as to which he
shall have been finally adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interests of the
corporation or, to the extent such matter relates to service with respect to any
employee benefit plan, in the best interests of the participants or
beneficiaries of such employee benefit plan; and provided, further, that as to
any matter disposed of by a compromise payment by such person, pursuant to a
consent decree or otherwise, the payment and indemnification thereof have been
approved by the corporation, which approval shall not unreasonably be withheld,
or by a court of competent jurisdiction. Such indemnification shall include
payment by the corporation of expenses incurred in defending a civil or criminal
action or proceeding in advance of the final disposition of such action or
proceeding, upon receipt of an undertaking by the person indemnified to repay
such payment if he shall be adjudicated to be not entitled to indemnification
under this article, which undertaking may be accepted without regard to the
financial ability of such person to make repayment.
A person entitled to indemnification hereunder whose duties include service
or responsibilities as a fiduciary with respect to a subsidiary or other
organization shall be deemed to have acted in good faith in the reasonable
belief that his action was in the best interests of the corporation if he acted
in good faith in the reasonable belief that his action was in the best interests
of such subsidiary or organization or of the participants or beneficiaries of,
or other persons with interests in, such subsidiary or organization to whom he
had a fiduciary duty.
Where indemnification hereunder requires authorization or approval by the
corporation, such authorization or approval shall be conclusively deemed to have
been obtained, and in any case where a director of the corporation approves the
payment of indemnification, such director shall be wholly protected, if:
1. the payment has been approved or ratified (l) by a majority vote of
a quorum of the directors consisting of persons who are not at that time parties
to the proceeding, (2) by a majority vote of a committee of two or more
directors who are not at that time parties to the proceeding and are selected
for this purpose by the full board (in which selection directors who are parties
may participate), or (3) by a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the proceeding; or
2. the action is taken in reliance upon the opinion of independent
legal counsel (who may be counsel to the corporation) appointed for the purpose
by vote of the directors or in the manner specified in clauses (l), (2) or (3)
of subparagraph (i); or
3. the payment is approved by a court of competent jurisdiction; or
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4. the directors have otherwise acted in accordance with the standard
of conduct set forth in the Delaware General Corporation Law.
Any indemnification or advance of expenses under this article shall be paid
promptly, and in any event within 30 days, after the receipt by the corporation
of a written request therefor from the person to be indemnified, unless with
respect to a claim for indemnification the corporation shall have determined
that the person is not entitled to indemnification. If the corporation denies
the request or if payment is not made within such 30 day period, the person
seeking to be indemnified may at any time thereafter seek to enforce his rights
hereunder in a court of competent jurisdiction and, if successful in whole or in
part, he shall be entitled also to indemnification for the expenses of
prosecuting such action. Unless otherwise provided by law, the burden of proving
that the person is not entitled to indemnification shall be on the corporation.
The right of indemnification under this article shall be a contract right
inuring to the benefit of the directors, officers and other persons entitled to
be indemnified hereunder and no amendment or repeal of this article shall
adversely affect any right of such director, officer or other person existing at
the time of such amendment or repeal.
The indemnification provided hereunder shall inure to the benefit of the
heirs, executors and administrators of a director, officer or other person
entitled to indemnification hereunder. The indemnification provided hereunder
may, to the extent authorized by the corporation, apply to the directors,
officers and other persons associated with constituent corporations that have
been merged into or consolidated with the corporation who would have been
entitled to indemnification hereunder had they served in such capacity with or
at the request of the corporation.
The right of indemnification under this article shall be in addition to and
not exclusive of all other rights to which such director or officer or other
persons may be entitled. Nothing contained in this article shall affect any
rights to indemnification to which corporation employees or agents other than
directors and officers and other persons entitled to indemnification hereunder
may be entitled by contract or otherwise under law.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of the General Corporation Law of the State of
Delaware.
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ARTICLE VI
GENERAL PROVISIONS
SECTION 1. FISCAL YEAR. Except as otherwise designated from time to
time by the Board of Directors, the fiscal year of the corporation shall begin
on the first day of January and end on the last day of December.
SECTION 2. CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors. The Secretary shall be the
custodian of the seal, and a duplicate seal may be kept and used by each
Assistant Secretary and by any other officer the Board of Directors may
authorize.
SECTION 3. CERTIFICATE OF INCORPORATION. All references in these
by-laws to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as in effect from time to time.
SECTION 4. EXECUTION OF INSTRUMENTS. The President, the Treasurer and
the Secretary shall have power to execute and deliver on behalf and in the name
of the corporation any instrument requiring the signature of an officer of the
corporation, including deeds, contracts, mortgages, bonds, notes, debentures,
checks, drafts and other orders for the payment of money. In addition, the Board
of Directors, the President, the Treasurer and the Secretary may expressly
delegate such powers to any other officer or agent of the corporation.
SECTION 5. VOTING OF SECURITIES. The President, the Treasurer and the
Secretary, and each other person authorized by the Board of Directors, each
acting singly, may waive notice of, and act as, or appoint any person or persons
to act as, proxy or attorney-in-fact for this corporation (with or without power
of substitution) at any meeting of stockholders or owners of other interests of
any other corporation or organization the securities of which may be held by
this corporation. In addition, the Board of Directors, the President and the
Treasurer may expressly delegate such powers to any other officer or agent of
the corporation.
SECTION 6. EVIDENCE OF AUTHORITY. A certificate by the Secretary, an
Assistant Secretary or a temporary secretary as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of that action.
SECTION 7. TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of the directors or
officers are directors or officers or have a financial interest, shall be void
or voidable solely for that reason or solely because the director or officer is
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present at or participates in the meeting of the Board of Directors or a
committee of the Board of Directors that authorizes the contract or transaction
or solely because the vote of any such director is counted for such purpose, if:
(1) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
such committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or
(3) The contract or transaction is fair to the corporation as of the time
it is authorized, approved or ratified by the Board of Directors, a committee of
the Board of Directors or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee that
authorizes the contract or transaction.
SECTION 8. BOOKS AND RECORDS. The books and records of the corporation
shall be kept at such places within or without the State of Delaware as the
Board of Directors may from time to time determine.
ARTICLE VII
AMENDMENTS
SECTION 1. BY THE BOARD OF DIRECTORS. These by-laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of a
majority of the directors present at any regular or special meeting of the Board
of Directors at which a quorum is present.
SECTION 2. BY THE STOCKHOLDERS. These by-laws may be altered, amended
or repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of votes properly cast at any regular meeting of stockholders, or
at any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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<PAGE> 1
Exhibit 4.2
ARQULE, INC.
WARRANT TO PURCHASE COMMON STOCK
ArQule, Inc. (the "COMPANY"), a Delaware corporation, in consideration of
the receipt of $_____ in cash, hereby certifies that ________________________
(the "Holder"), the registered Holder of this Warrant, is entitled to subscribe
for and purchase at the Exercise Price (as defined below) the number of fully
paid and nonassessable shares of Common Stock of the Company which is determined
by multiplying $_______ by twenty-five percent (25%) and dividing the resulting
product by the Preferred Price (as defined below), subject to the provisions and
upon the terms and conditions hereinafter set forth. The number of shares which
may be purchased under this Warrant are subject to adjustment from time to time
pursuant to the provisions of Section 5.
This Warrant is being issued in contemplation of the next authorization and
sale by the Company to investors in a private placement of shares of Convertible
Preferred Stock in the Company (the "SHARE SALE"). As used herein, the term
"PREFERRED PRICE" shall mean the price per share at which the Convertible
Preferred Stock is sold to the investors in the Share Sale.
As used herein, the term "COMMON SHARES" shall mean the Common Stock of the
Company, $.01 par value per share, that is authorized as of the date of the
Share Sale and any shares into or for which such Common Shares may thereafter be
converted or exchanged.
1. TERM OF WARRANT. The purchase or conversion right represented by this
Warrant is exercisable, in whole or in part, at any time during the period
beginning on January 1, 1995 and ending on the earlier of December 31, 1999 or
the effective date of an initial public offering of the Company's Common Stock
which would cause the automatic conversion of the Company's Convertible
Preferred Stock.
2. EXERCISE PRICE. The initial exercise price of this Warrant shall be
equal to the fair market value of a share of the Company's Common Stock as
determined by the Board of Directors of the Company immediately following the
Share Sale, subject to adjustment from time to time pursuant to the provisions
of Section 5 (the "EXERCISE PRICE").
3. METHOD OF EXERCISE OR CONVERSION; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) EXERCISE. Subject to Section 1 above, the Holder may exercise
this Warrant, in whole or in part, by the surrender of this Warrant (with the
Notice of Exercise form attached hereto as EXHIBIT 1 duly executed) at the
principal office of the Company and by the payment to the Company, by check or
wire transfer, of an amount equal to the then applicable Exercise Price per
share multiplied by the number of shares then being purchased. The Company
agrees that the shares so purchased shall be deemed to be issued to the Holder
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such shares
as set forth above.
<PAGE> 2
In the event of any exercise of this Warrant, certificates for the shares of
stock so purchased shall be delivered to the Holder within fifteen (15) days
thereafter and, unless this Warrant has been fully exercised or expired, a new
Warrant representing the portion of the shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be issued to the
Holder within such fifteen (15) day period.
(b) CASHLESS EXERCISE. Subject to Section 1 hereof, the Holder may
convert this Warrant (the "CONVERSION RIGHT"), in whole or in part, by
surrendering this Warrant (with the notice of exercise form attached hereto as
EXHIBIT 1 duly executed) at the principal office of the Company and specifying
the number of shares subject to this Warrant that the Holder desires to convert
into the number of Common Shares calculated pursuant to the following formula:
X = Y (A - B)
--------
A
where: X = the number of Common Shares to be issued to the Holder;
Y = the number of Common Shares subject to this Warrant for
which the Conversion Right is being exercised;
A = the fair market value of one share of the Common Shares;
B = the Exercise Price
As used herein, the fair market value of a share of the Common Shares shall
mean, with respect to each share of the Common Shares, the closing price per
share of the Company's Common Stock on the principal national securities
exchange on which the Common Stock is then listed or admitted to trading or, if
not then listed or admitted to trading on any such exchange, on the NASDAQ
National Market System, or if not then listed or traded on any such exchange or
system, the average of the bid and offer price per share on NASDAQ, in each case
averaged over the ten (10) trading days consisting of the day as of which the
current fair market value of Common Stock is being determined and the nine (9)
consecutive business days prior to such day. If at any time such quotations are
not available, the current fair market value of a share of the Common Stock
shall be the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for Common Shares sold by the
Company, from authorized but unissued shares, as determined in good faith by the
Board of Directors of the Company, unless (i) the Company shall become subject
to a merger, acquisition or other consolidation pursuant to which the Company is
not the surviving party, in which case the current fair market value of a share
of the Common Shares shall be deemed to be the value received by the Holders of
the Common Shares for each share of the Common Shares pursuant to the Company's
acquisition; or (ii) the Holder shall exercise its Conversion Right to purchase
such shares within fifteen (15) days prior to the closing date of the initial
underwritten public offering of the Company's Common Stock pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"Act"), in which case, the fair market value of a
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<PAGE> 3
share of the Common Shares shall be the price per share of Common Stock at which
all registered shares are sold to the public in such offering.
4. SHARES FULLY PAID; RESERVATION OF SHARES. All Common Shares which may
be issued upon the exercise or conversion of this Warrant will, upon issuance,
be fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
Common Stock to provide for the exercise of the rights represented by this
Warrant.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The kind of
securities purchasable upon the exercise of this Warrant, the Exercise Price and
the number of shares purchasable upon exercise of this Warrant shall be subject
to adjustment from time to time upon the occurrence of certain events as
follows:
(a) RECLASSIFICATION, CONSOLIDATION OR MERGER. In case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any consolidation or merger of the Company with
or into another corporation, other than a merger with another corporation in
which the Company is a continuing corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant, or in case of any sale of all or substantially all of the assets
of the Company, the Company, or such successor or purchasing corporation, as the
case may be, shall execute a new Warrant, providing that the Holder of this
Warrant shall have the right to exercise such new Warrant and procure upon such
exercise, in lieu of each share of Common Shares theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
consolidation, or merger by a Holder of one share of the Common Shares. Such new
Warrant shall provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. No
consolidation or merger of the Company with or into another corporation referred
to in the first sentence of this paragraph (b) shall be consummated unless the
successor or purchasing corporation referred to above shall have agreed to issue
a new Warrant as provided in this Section 5. The provisions of this subsection
(a) shall similarly apply to successive reclassification, changes,
consolidations, mergers and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Shares, the Exercise Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) DIVIDENDS OR DISTRIBUTIONS. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend or make any other
distribution with respect to Common Shares that is payable in Common Shares,
except as provided in paragraphs (a) and (b) above, then the Exercise Price
shall be adjusted, from and after the
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<PAGE> 4
date of determination of shareholders entitled to receive such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Shares
outstanding immediately prior to such dividend or distribution and (ii) the
denominator of which shall be the total number of shares of Common Shares
outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Exercise Price pursuant to any of Sections 5 (a) through (c), the number of
shares of Common Shares purchasable hereunder shall be adjusted, to the nearest
whole share, to the product obtained by multiplying the number of shares
purchasable immediately prior to such adjustment in the Exercise Price by a
fraction, the numerator of which shall be the Exercise Price immediately prior
to such adjustment and the denominator of which shall be the Exercise Price
immediately thereafter.
6. NOTICE OF ADJUSTMENTS. Whenever any Exercise Price shall be adjusted
pursuant to Section 5 above, the Company shall prepare a certificate signed by
its chief financial officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, the Exercise Price after giving effect to such
adjustment and the number of Common Shares then purchasable upon exercise of
this Warrant, and shall cause copies of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder of this Warrant at the address
specified in Section 11(d) hereof, or at such other address as may be provided
to the Company in writing by the Holder of this Warrant.
7. FRACTIONAL SHARES. No fractional shares of Common Shares will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Exercise Price then in effect.
8. COMPLIANCE WITH THE ACT. The Holder agrees that this Warrant and the
Common Shares to be issued upon the exercise hereof are being acquired for
investment for the Holder's own account and not with a view toward distribution
thereof, and that it will not offer, sell or otherwise dispose of this Warrant
or any Common Shares to be issued upon exercise hereof unless this Warrant of
such Common Shares has been registered under the Act and applicable state
securities laws or (i) registration under applicable state securities laws is
not required and (ii) an opinion of counsel satisfactory to the Company is
furnished to the Company to the effect that registration under the Act is not
required.
9. TRANSFER AND EXCHANGE OF WARRANT.
(a) TRANSFER. The rights granted to the Holder may be transferred or
succeeded to only by any other Holder or any general or limited partner, officer
or other affiliate (within the meaning of Rule 144 under the Act) of any Holder;
PROVIDED, HOWEVER, that the Company is given written notice by the transferee at
the time of such transfer stating the name and address of the transferee and
identifying the securities with respect to which such rights are being assigned
and provided that this Warrant is not transferred to more than fifteen (15)
Holders in the aggregate.
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<PAGE> 5
(b) EXCHANGE. Subject to compliance with the terms hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, at the
office of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant properly endorsed. Each taker and Holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable; provided, that the last
Holder of this Warrant as registered on the books of the Company may be treated
by the Company and all persons dealing with this Warrant as the absolute owner
hereof for any purposes and as the person entitled to exercise the rights
represented by this Warrant or to transfer hereof on the books of the Company,
any notice to the contrary notwithstanding, unless and until such Holder seeks
to transfer registered ownership of this Warrant on the books of the Company and
such transfer is effected.
10. COMPANY COVENANT. The Company shall use its best efforts to promptly
effect the Share Sale. If the Share Sale is not completed by December 31, 1994,
then at the request of the Holder made at any time prior to the Share Sale, the
Company and the Holder shall determine in good faith a Preferred Price and
Exercise Price.
11. MISCELLANEOUS.
(a) NO RIGHTS AS SHAREHOLDER. Except as provided in the Agreement, no
Holder of the Warrant or Warrants shall be entitled to vote or receive dividends
or be deemed the Holder of Common Shares or any other securities of the Company
which may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the Holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise, until the
Warrant or Warrants shall have been exercised and the Common Shares purchasable
upon the exercise hereof shall have become deliverable, as provided herein.
(b) REPLACEMENT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity
agreement, or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this Warrant, the
Company, at its expense, will execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor.
(c) NOTICE OF CAPITAL CHANGES. In the event that:
(i) the Company shall declare any dividend or distribution
payable to the holders of its Common Shares;
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<PAGE> 6
(ii) there shall be any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with, or sale of all or substantially all of its assets to,
another corporation or business organization; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the Holder
of this Warrant written notice, in the manner set forth in subparagraph (d)
below, of the date on which a record shall be taken for such dividend or
distribution, or for determining shareholders entitled to vote upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, and of the date when any such transaction shall take
place, as the case may be. Such written notice shall be given at least thirty
(30) days prior to the transaction in question and not less than twenty (20)
days prior to the record date in respect thereof.
(d) NOTICE. Any notice given to either party under this Warrant shall
be in writing and shall be deemed to have been given upon the earlier of
delivery thereof by hand delivery, by courier, or by standard form of
telecommunication or three (3) business days after the mailing thereof if sent
registered mail with postage prepaid, addressed to the Company at its principal
executive offices and to the Holder at its address set forth in the Company's
books and records or at such other address as the Holder may have provided to
the Company in writing.
(e) NO IMPAIRMENT. Subject to Section 11(g) hereof, the Company will
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions in the Warrant.
(f) GOVERNING LAW. This Warrant shall be governed by and construed
under the laws of the State of Delaware.
(g) AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Warrant, any term of this Warrant may be amended and the observance of
any term of this Warrant may be waived (either generally or in a particular
instance and either retroactively or prospectively) with the written consent of
the Company and the Holder. No waivers of or exceptions to any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision. Section 10 of this Warrant may not be amended or waived without
the prior written consent of the Partnership in addition to the written consent
of the parties.
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<PAGE> 7
IN WITNESS WHEREOF, this Warrant is executed by the duly authorized
representative of the Company and shall be effective as of _______ __, 199_.
ARQULE, INC.
By:
________________________________________
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<PAGE> 8
EXHIBIT 1
---------
NOTICE OF EXERCISE
------------------
TO: ARQULE, INC.
1. Check Box that Applies:
| | The undersigned hereby elects to purchase Common Shares pursuant to the
terms of the attached Warrant, and tenders herewith payment of the purchase
price of such shares in full.
| | The undersigned hereby elects to convert the attached warrant into
_________ Common Shares pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing said Common
Shares in the name of the undersigned or in such other name as is specified
below:
_________________________________________
(Name)
_________________________________________
_________________________________________
(Address)
3. The undersigned represents that the aforesaid Common Shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
_______________________________________
Signature
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<PAGE> 1
Exhibit 5.1
PALMER & DODGE LLP
One Beacon Street
Boston, MA 02108
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
August 29, 1996
ArQule, Inc.
200 Boston Avenue
Medford, Massachusetts 02155
We are rendering this opinion in connection with the Registration Statement
on Form S-1 (the "Registration Statement") filed by ArQule, Inc. (the "Company")
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, on or about the date hereof. The Registration Statement relates to up
to 2,300,000 shares of the Company's Common Stock, $0.01 par value (the
"Shares"). We understand that the Shares are to be offered and sold in the
manner described in the Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors on August 14, 1996 in connection with the authorization, issuance and
sale of the Shares (the "Resolutions"). We have examined such other documents as
we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have been
duly authorized and, when issued and delivered by the Company against payment
therefor at the price to be determined pursuant to the Resolutions, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/S/ Palmer & Dodge LLP
<PAGE> 1
Exhibit 10.1
ARQULE, INC.
AMENDED AND RESTATED
1994 EQUITY INCENTIVE PLAN
Section 1. Purpose
-------
This ArQule, Inc. Amended and Restated 1994 Equity Incentive Plan (the
"Plan") amends and restates the ArQule, Inc. 1994 Equity Incentive Plan by
providing for the grant of equity incentives of various forms in the Company
instead of the Partnership. The purpose of the Plan is to attract and retain key
employees and consultants of the Company and its Affiliates, to provide an
incentive for them to achieve long-range performance goals, and to enable them
to participate in the long-term growth of the Company.
Section 2. Definitions
-----------
"Affiliate" means any business entity that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Company. For purposes hereof, "Control" (and with correlative
meanings, the terms "controlled by" and "under common control with") shall mean
the possession of the power to direct or cause the direction of the management
and policies of the Company, whether through the ownership of voting stock, by
contract or otherwise. In the case of a corporation "control" shall mean, among
other things, the direct or indirect ownership of more than fifty percent (50%)
of its outstanding voting stock.
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan
or any Award previously granted under the 1994 Equity Incentive Plan of the
Company.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee of not less than two members of the Board
appointed by the Board to administer the Plan, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor provision, as applicable to the Company at the time ("Rule
16b-3"); provided, however, that until such committee is appointed, "Committee"
means the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
<PAGE> 2
"Company" means ArQule, Inc.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
shall mean the Participant's estate.
"Effective Date" means October 28, 1994.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Partnership Agreement" means the Second Amended and Restated Agreement of
Limited Partnership of ArQule Partners, L.P. dated as of December 31, 1993, as
such may be amended from time to time.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Percentage Ownership Interest" means the percentage set forth on Schedule
I to the Partnership Agreement, as adjusted from time to time. A Percentage
Ownership Interest may also be expressed in Shares of Partnership Interest.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
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<PAGE> 3
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Shares of Partnership Interest" means a manner of expressing in numerical
terms a particular Percentage Ownership Interest. A Percentage Ownership
Interest may be expressed in Shares of Partnership Interest by dividing the
number of Shares of Partnership Interest owned by the aggregate number of Shares
of Partnership Interest issued to all of the partners of the Partnership.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for all such Participants and a
maximum for any one Participant.
Section 4. Eligibility
-----------
All employees and, in the case of Awards other than Incentive Stock
Options, and consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible and other than
members of the Committee during their service as such and for such additional
periods as are required to ensure that they are "disinterested persons" under
Rule 16b-3 with respect to such service, are eligible to be Participants in the
Plan. Incentive Stock Options may be awarded only to persons eligible to receive
such Options under the Code.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 1,409,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited
without the Participant having had the benefits of ownership (other than voting
rights), the shares subject to such Award, to the extent
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<PAGE> 4
of such expiration, termination or forfeiture, shall again be available for
award under the Plan. Common Stock issued through the assumption or substitution
of outstanding grants from an acquired company shall not reduce the shares
available for Awards under the Plan. Shares issued under the Plan may consist in
whole or in part of authorized but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make provision for a cash payment with respect to an outstanding Award,
provided that the number of shares subject to any Award shall always be a whole
number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code or any successor provision and any regulations
thereunder, and no Incentive Stock Option may be granted hereunder more than ten
years after the Effective Date.
(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options. Nonstatutory Stock Options may be granted at such prices as the
Committee may determine.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
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<PAGE> 5
(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs
in tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. SARs granted in
tandem with Options shall have an exercise price not less than the exercise
price of the related Option. SARs granted alone and unrelated to an Option may
be granted at such exercise prices as the Committee may determine.
(b) An SAR related to an Option, which SAR can only be exercised upon or
during limited periods following a change in control of the Company, may entitle
the Participant to receive an amount based upon the highest price paid or
offered for Common Stock in any transaction relating to the change in control or
paid during the thirty-day period immediately preceding the occurrence of the
change in control in any transaction reported in the stock market in which the
Common Stock is normally traded.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
-5-
<PAGE> 6
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares
of Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Stock Units
-----------
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
Section 11. Other Stock-Based Awards
------------------------
(a) Subject to the provisions of the Plan, the Committee may make other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
(b) The Committee may establish performance goals, which may be based on
performance goals related to book value, subsidiary performance or such other
criteria as the Committee may determine, Restricted Periods, Performance Cycles,
conversion prices, maturities and security, if any, for any Other Stock-Based
Award. Other Stock-Based Awards may be sold to Participants at the face value
thereof or any discount therefrom or awarded for no consideration or such
minimum consideration as may be required by applicable law.
Section 12. General Provisions Applicable to Awards
---------------------------------------
(a) Reporting Person Limitations. Notwithstanding any other provision of
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3, Awards made to a
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<PAGE> 7
Reporting Person shall not be transferable by such person other than by will or
the laws of descent and distribution or, if then permitted by Rule 16b-3,
pursuant to a qualified domestic relations order as defined in the Code or Title
I of the Employee Retirement Income Security Act or the rules thereunder.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(d) Settlement. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property. The Committee may permit a Participant to defer all or
any portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(e) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(f) Termination of Employment. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(g) Change in Control. In order to preserve a Participant's rights under
an Award in the event of a change in control of the Company, the Committee in
its discretion may, at the time an Award is made or at any time thereafter, take
one or more of the following actions: (i) provide for the acceleration of any
time period relating to the exercise or realization of the Award, (ii) provide
for the purchase of the Award upon the Participant's request for an amount of
cash or other property that could have been received upon the exercise or
realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
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<PAGE> 8
(h) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with any Award under the Plan, which
loans may be secured by any security, including Common Stock, underlying or
related to such Award (provided that such Loan shall not exceed the Fair Market
Value of the security subject to such Award), and which may be forgiven upon
such terms and conditions as the Committee may establish at the time of such
loan or at any time thereafter.
(i) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(j) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
(k) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 13. Miscellaneous
-------------
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders of the
Company, the Plan shall be effective on the Effective Date. Before such
approval, Awards may be made under the Plan expressly subject to such approval.
-8-
<PAGE> 9
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to any stockholder approval that the
Board determines to be necessary or advisable.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
(f) Transitional Provisions. Any Award of Shares of Partnership Interest
outstanding after the adoption of this amendment and restatement shall continue
to be subject to the 1994 Equity Incentive Plan of the Company in effect prior
to this amendment and restatement. Any shares of Common Stock distributed to a
holder of Shares of Partnership Interest in cancellation and termination of that
Interest shall be subject to substantially the same restrictions on transfer and
vesting and forfeiture provisions, subject to such adjustments as the Board or
Committee may approve to reflect the change in the interest held.
-----------------------------------------
This Plan was approved by the Board of Directors on October 17, 1994.
This Plan was approved by the stockholders on October 17, 1994.
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<PAGE> 1
Exhibit 10.2
ARQULE, INC.
1996 Employee Stock Purchase Plan
---------------------------------
1. Purpose.
-------
The purpose of this 1996 Employee Stock Purchase Plan (the "Plan") is to
provide employees of Arqule, Inc. (the "Company"), and its subsidiaries, who
wish to become shareholders of the Company an opportunity to purchase Common
Stock of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Eligible Employees.
------------------
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. Offering Dates.
--------------
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to employees eligible to participate in the Plan
pursuant to one or more offerings (each of which is an "Offering" on a date or
series of dates (each of which is an "Offering Date") designated for this
purpose by the Board of Directors.
4. Prices.
------
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share on
the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on
the date such right is exercised.
<PAGE> 2
At its discretion, the Board of Directors may determine a higher price for a
grant of rights.
5. Exercise of Rights and Method of Payment.
----------------------------------------
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board of Directors. No interest shall
be paid upon payroll deductions unless specifically provided for by the Board of
Directors.
(c) Any payments received by the Company from a participating employee
and not utilized for the purchase of Shares upon exercise of a right granted
hereunder shall be promptly returned to such employee by the Company after
termination of the right to which the payment relates.
6. Term of Rights.
--------------
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. Shares Subject to the Plan.
--------------------------
No more than two hundred forty thousand (240,000) Shares (one hundred and
twenty thousand (120,000) Shares after giving effect to stock combination
approved by the Board of Directors on August 14, 1996) the may be sold pursuant
to rights granted under the Plan. Appropriate adjustments in the above figure,
in the number of Shares covered by outstanding rights granted hereunder, in the
exercise price of the rights and in the maximum number of Shares which an
employee may purchase (pursuant to Section 9 below) shall be made to give effect
to any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization of the
Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be subject to a right and each right shall be adjusted
downward to the nearest full Share. Any agreement of merger or consolidation
will include provisions for protection of the then existing rights of
participating employees under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Company may be made
subject to rights under the Plan. If for any reason any right under the Plan
terminates in whole or in part, Shares subject to such terminated right may
again be subjected to a right under the Plan.
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<PAGE> 3
8. Limitations on Grants.
---------------------
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Section 423(b)(3) of the Code.
(b) No employee shall be granted a right which permits his right to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) (or such other maximum as may be prescribed from time to time by the
Code) of the fair market value of such Shares (determined at the time such right
is granted) for each calendar year in which such right is outstanding at any
time in accordance with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an Offering,
when aggregated with rights granted under any other Offering still exercisable
by the participating employee, shall cover more shares than may be purchased at
an exercise price equal to fifteen percent (15%) of the employee's annual rate
of compensation on the date the employee elects to participate in the Offering
or such lesser percentage as the Board of Directors may determine.
9. Limit on Participation.
----------------------
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. Cancellation of Election to Participate.
---------------------------------------
An employee who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of any exercise period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee, without interest,
unless otherwise determined by the Board of Directors, upon such cancellation.
11. Termination of Employment.
-------------------------
Upon the termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or
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<PAGE> 4
withheld for the purchase of Shares from the employee's compensation through
payroll deductions shall be paid to the employee or to the employee's estate,
without interest unless otherwise determined by the Board of Directors.
12. Employees' Rights as Shareholders.
---------------------------------
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. Rights Not Transferable.
-----------------------
Rights under the Plan are not assignable or transferable by a participating
employee and are exercisable only by the employee.
14. Amendments to or Discontinuation of the Plan.
--------------------------------------------
The Board of Directors of the Company shall have the right to amend, modify
or terminate the Plan at any time without notice; provided, however, that the
then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan.
15. Effective Date and Approvals.
----------------------------
This Plan became effective on August 14, 1996, the date it was adopted by
the Board of Directors, provided that it is approved by the shareholders of the
Company within twelve (12) months before or after the date of adoption.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel with, all applicable federal and state securities and other
laws.
16. Term of Plan.
------------
No rights shall be granted under the Plan after August 14, 2006.
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<PAGE> 5
17. Administration of the Plan.
--------------------------
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. Nothing contained in this Section
shall be deemed to authorize the Administrator to alter or administer the
provisions of the Plan in a manner inconsistent with the provisions of Section
423 of the Code.
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<PAGE> 1
Exhibit 10.3
ARQULE, INC.
1996 Director Stock Option Plan
-------------------------------
The purpose of this 1996 Director Stock Option Plan (the "Plan") of ArQule,
Inc. (the "Company") is to attract and retain highly qualified non-employee
directors of the Company and to encourage ownership of stock of the Company by
such directors so as to provide additional incentives to promote the success of
the Company.
1. ADMINISTRATION OF THE PLAN.
Grants of stock options under the Plan shall be automatic as provided in
Section 6. However, all questions of interpretation with respect to the Plan and
options granted under it shall be determined by the Board of Directors of the
Company (the "Board") or by a committee consisting of one or more directors
appointed by the Board and such determination shall be final and binding upon
all persons having an interest in the Plan.
2. PERSONS ELIGIBLE TO PARTICIPATE IN THE PLAN.
Each director of the Company who is not an employee of the Company or of
any subsidiary of the Company shall be eligible to participate in the Plan
unless such director irrevocably elects not to participate.
3. SHARES SUBJECT TO THE PLAN.
(a) The aggregate number of shares of the Company's Common Stock which may
be optioned under this Plan is 250,000 shares. Shares issued under the Plan may
consist in whole or in part of authorized but unissued shares or treasury
shares.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum aggregate number and kind of
shares or securities of the Company as to which options may be granted under
this Plan and as to which options then outstanding shall be exercisable, and the
option price of such options shall be appropriately adjusted so that the
proportionate number of shares or other securities as to which options may be
granted and the proportionate interest of holders of outstanding options shall
be maintained as before the occurrence of such event.
(c) In the event of a consolidation or merger of the Company with another
corporation where the Company's stockholders do not own a majority in interest
of the
<PAGE> 2
surviving or resulting corporation, or the sale or exchange of all or
substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, any deferred exercise period shall be automatically
accelerated and each holder of an outstanding option shall be entitled to
receive upon exercise and payment in accordance with the terms of the option the
same shares, securities or property as he would have been entitled to receive
upon the occurrence of such event if he had been, immediately prior to such
event, the holder of the number of shares of Common Stock purchasable under his
or her option; provided, however, that in lieu of the foregoing the Board may
upon written notice to each holder of an outstanding option or right under the
Plan, provide that such option or right shall terminate on a date not less than
20 days after the date of such notice unless theretofore exercised.
(d) Whenever options under this Plan lapse or terminate or otherwise become
unexercisable the shares of Common Stock which were subject to such options may
again be subjected to options under this Plan. The Company shall at all times
while this Plan is in force reserve such number of shares of Common Stock as
will be sufficient to satisfy the requirements of this Plan.
4. NON-STATUTORY STOCK OPTIONS.
All options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
5. FORM OF OPTIONS.
Options granted hereunder shall be in substantially the form of the
attached Exhibit A or in such other form as the Board or any committee appointed
pursuant to Section 1 above may from time to time determine.
6. GRANT OF OPTIONS AND OPTION TERMS.
(a) AUTOMATIC GRANT OF OPTIONS. Upon the adoption of this Plan by the Board
(the "Effective Date"), each eligible director on the Effective Date and any
person who is elected as a member of the Board subsequent to the Effective Date
who is an eligible director shall automatically be granted an option (an
"Initial Option") to purchase 15,000 shares of Common Stock. Upon the election
or re-election of any eligible director at the Company's 1997 annual meeting of
stockholders and upon each election and re-election at any annual meeting
thereafter, each eligible director shall automatically be granted an option
("Annual Option"; the Annual Option together with the Initial Option are
sometimes collectively referred to as "Options") to purchase 7,000 shares of
Common Stock for each year of the term of office for which such director has
been nominated to stand for election at the Company's 1997 annual meeting of
stockholders. At the first annual meeting occurring after the Company's
completion of its initial public offering at which time the Company has a
staggered Board of Directors which are re-elected every three years, Annual
Options shall be
-2-
<PAGE> 3
granted to all eligible directors (whether or not being elected or re-elected at
such annual meeting) so that Class I Directors being elected or re-elected to
three year terms shall be granted Annual Options to purchase 21,000 shares;
Class II Directors, whose terms expire in two years, shall be granted options to
purchase 14,000 shares and Class III Directors, whose terms expire in one year,
shall be granted Annual Options to purchase 7,000 shares. Upon the election or
re-election of any eligible director at each annual meeting of its stockholders
thereafter, each such director shall automatically be granted options to
purchase 7,000 shares of Common Stock for each year of the term of office to
which he or she is elected. In addition, upon the election of a director who is
eligible to receive options to purchase Common Stock under the Plan other than
at an annual meeting of stockholders (whether by the Board or the stockholders
and whether to fill a vacancy or otherwise), in addition to the grant of an
Initial Option, such director shall automatically be granted Annual Options to
purchase 7,000 shares of Common Stock for each year or portion thereof of the
term of office to which he or she is elected. No options shall be granted
hereunder after ten years from the date on which this Plan was initially
approved and adopted by the Board.
(a) DATE OF GRANT. The "Date of Grant" for options granted under this Plan
shall be the date of adoption of the Plan, or the date of election or
re-election as a director, as the case may be.
(c) OPTION PRICE. The option price for each option granted under this Plan
shall be the current fair market value of a share of Common Stock of the Company
as determined by the Board of Directors in good faith, provided that upon the
quotation of the Common Stock on the National Association of Securities
Dealers Automated Quotations National Market ("Nasdaq"), the option price
shall be the closing price for the Company's Common Stock as reported by
Nasdaq on the last trading day prior to Date of Grant.
(d) TERM OF OPTION. The term of each option granted under this Plan shall
be ten years from the Date of Grant.
(e) EXERCISABILITY OF OPTIONS. (1) The Initial Options granted under this
Plan shall become exercisable with respect to 5,000 shares on the date of the
Company's next annual meeting of stockholders from the Date of Grant and each of
the next two annual meetings of stockholders following such annual meeting of
stockholders. (2) The Annual Options granted under this Plan shall become
exercisable with respect to 7,000 shares on the Date of Grant, and if such
Annual Option is for more than 7,000 shares, such Annual Option shall become
exercisable as to 7,000 shares on the next, or each of the next two annual
meetings of stockholders of the Company, as the case may be, (i.e., options to
purchase 21,000 shares of Common Stock granted at the 1997 annual meeting in the
event the Company has completed its initial public offering will become
exercisable with respect to 7,000 shares at each of the Date of Grant, 1998 and
1999 annual meetings of stockholders). Thereafter, Annual Options granted under
this Plan shall become exercisable with respect to 7,000 shares on the Date of
Grant and (if applicable) on each of the first two annual meetings of
stockholders of the Company following the Date of Grant, but in all cases if and
only if the option holder is a member of the Board at the opening of business on
that date.
(f) GENERAL EXERCISE TERMS. Directors holding exercisable Options under
this Plan who cease to serve as members of the Board may, during their lifetime,
exercise the rights
-3-
<PAGE> 4
they had under such Options at the time they ceased being a director for the
full unexpired term of such Option. Any rights that have not yet become
exercisable shall terminate upon cessation of membership on the Board. Upon the
death of a director, those entitled to do so shall have the right, at any time
within twelve months after the date of death, to exercise in whole or in part
any rights which were available to the director at the time of his or her death.
The rights of the Option holder may be exercised by the holder's guardian or
legal representative in the case of disability and by the beneficiary designated
by the holder in writing delivered to the Company or, if none has been
designated, by the holder's estate or his or her transferee on death in
accordance with this Plan, in the case of death. Options granted under the Plan
shall terminate, and no rights thereunder may be exercised, after the expiration
of the applicable exercise period. Notwithstanding the foregoing provisions of
this section, no rights under any Options may be exercised after the expiration
of ten years from their Date of Grant.
(g) METHOD OF EXERCISE AND PAYMENT. Options may be exercised only by
written notice to the Company at its head office accompanied by payment of the
full option price for the shares of Common Stock as to which they are exercised.
The option price shall be paid in cash or by check or in shares of Common Stock
of the Company, or in any combination thereof. Shares of Common Stock
surrendered in payment of the option price shall have been held by the person
exercising the option for at least six months, unless otherwise permitted by the
Board. The value of shares delivered in payment of the option price shall be
their fair market value, as determined in accordance with Section 6(c) above, as
of the date of exercise. Upon receipt of such notice and payment, the Company
shall promptly issue and deliver to the optionee (or other person entitled to
exercise the option) a certificate or certificates for the number of shares as
to which the exercise is made.
(h) NON-TRANSFERABILITY. Options granted under this Plan shall not be
transferable by the holder thereof otherwise than by will or the laws of descent
and distribution or as permitted by Rule 16b-3 (or any successor provision)
under the Securities Exchange Act of 1934, as amended ("Rule 16b-3").
7. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan, nor the granting
of an option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or implied, that the Company will retain an
option holder as a director for any period of time or at any particular rate of
compensation.
(b) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. A director shall have no rights as
a stockholder with respect to the shares covered by options until the date the
director exercises such options and pays the option price to the Company, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such option is exercised and paid for.
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<PAGE> 5
8. AMENDMENT OR TERMINATION.
The Board may amend or terminate this Plan at any time, provided that, to
the extent necessary or desirable to comply with Rule 16b-3, this Plan shall not
be amended more than once every six months, other than to comport with changes
in the Code, ERISA or the rules thereunder.
9. STOCKHOLDER APPROVAL.
This Plan and the automatic grants made upon adoption thereof by the Board
of Directors are subject to approval by the stockholders of the Company by the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company present, or represented and entitled to vote, at a meeting duly held
in accordance with the Company's Certificate of Incorporation and the laws of
the State of Delaware. In the event such approval is not obtained, all options
granted under this Plan shall be void and without effect.
10. GOVERNING LAW.
This Plan shall be governed by and interpreted in accordance with the laws
of the State of Delaware.
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<PAGE> 1
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
[Director]
This Agreement dated __________ __, 199_ is between ArQule, Inc. (the
"Company"), a Delaware corporation, and _______________________________ (the
"Indemnitee"), who is a director of the Company. Its purpose is to provide the
maximum protection for the Indemnitee against personal liability arising out of
his service to the Company so as to encourage the continuation of such service
and the effective exercise of his business judgment in connection herewith.
The parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings hereafter assigned to them:
(a) "Change in Control" shall mean that the following has occurred:
(i) there has been a change in control of the Company, not approved by a
resolution of the Company's Board of Directors, of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor provision thereof, including
in any event the acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) of beneficial ownership,
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, (ii) followed within a period of not more than two years by a
change in the identity of a majority of the members of the Company's Board
of Directors otherwise than through death, disability or retirement in
accordance with the Company's normal retirement policies.
(b) "Claim" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted by
the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
(c) "Expenses" shall include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating
to any Indemnifiable Event.
(d) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that the Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of
the Company as a director, officer, employee, trustee, agent or fiduciary
of another corporation, partnership,
<PAGE> 2
joint venture, employee benefit plan, trust or other enterprise, or by
reason of anything done or not done by the Indemnitee in any such capacity.
(c) "Potential Change in Control" shall mean that any of the following
have occurred: (i) any person publicly announces an intention to take or to
consider taking actions which if consummated might result in a Change in
Control, (ii) any "person" (as such term is used in Section 13(d) and
14(d)(2) of the Exchange Act) acquires beneficial ownership, directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities, or
(iii) the Company's Board of Directors adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control has
occurred.
(f) "Reviewing Party" shall mean the person or body appointed by the
Company's Board of Directors pursuant to Section 2(b) hereof, which shall
not be or include a person who is a party to the particular Claim for which
the Indemnitee is seeking indemnification.
2. Basic Indemnification Arrangement.
(a) In the event that the Indemnitee was or is a party to or witness
or other participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part out of)
an Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company,
against all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in respect of such Expenses, judgments, fines, penalties or amounts
paid in settlement) of such Claim. If so requested by the Indemnitee, the
Company shall advance (within two business days of such request) all
Expenses to the Indemnitee (an "Expense Advance"). Notwithstanding anything
in this Agreement to the contrary, prior to a Change in Control, the
Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to
enforce his rights under this Agreement) unless the Company has consented
to the initiation of such Claim.
(b) In the event of any demand by the Indemnitee for indemnification
hereunder or under the Company's Amended and Restated Certificate of
Incorporation or By-laws, the Board of Directors of the Company shall
designate a Reviewing Party, who shall, if there has been a Change of
Control of the Company, be the special independent counsel referred to in
Section 3 hereof. The obligations of the Company under Section 2(a) shall
be subject to
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<PAGE> 3
the condition that the Reviewing Party shall not have determined (in a
written opinion, in any case in which the special independent counsel
referred to in Section 3 hereof is involved) that the Indemnitee is not
permitted to be indemnified under applicable law, and the obligation of the
Company to make an Expense Advance pursuant to Section 2(a) shall be
subject to the condition that, if, when and to the extent that the
Reviewing Party determines that the Indemnitee is not permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by the Indemnitee (who hereby agrees to reimburse the Company)
for all such amounts theretofore paid. If the Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a
determination that the Indemnitee may be indemnified under applicable law,
any determination made by the Reviewing Party that the Indemnitee is not
permitted to be indemnified under applicable law shall not be binding, and
the Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with respect
hereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that the Indemnitee is not permitted to be
indemnified in whole or in part under applicable law, the Indemnitee shall
have the right to commence litigation in any court in the State of Delaware
having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding.
Any determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and the Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Amended and Restated Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special independent counsel selected by the Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld) who
has not otherwise performed services for the Company within the last ten years
(other than in connection with such matters) or for the Indemnitee. Such counsel
among other things, shall render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee is permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special independent counsel and to indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in Control,
the Company may create a Trust for the benefit of the Indemnitee (either alone
or together with one or more other indemnitees) and from time to time fund such
Trust in such amounts as the Company's Board of Directors may determine to
satisfy Expenses reasonably anticipated to be incurred in connection with
investigating, preparing for and defending any Claim relating to an
Indemnifiable Event, and all judgments, fines, penalties and settlement amounts
of all Claims relating to an Indemnifiable Event from time to time paid or
claimed, reasonably anticipated or proposed to be paid. The terms of any Trust
established pursuant hereto shall provide that upon a Change in Control (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within two business
days of a request by the Indemnitee, all Expenses to the Indemnitee (and the
Indemnitee hereby agrees to reimburse the Trust under the circumstances
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<PAGE> 4
under which the Indemnitee would be required to reimburse the Company under
Section 2(b) of this Agreement), (iii) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
5. Indemnification for Additional Expenses. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within two business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Amended and Restated Certificate of Incorporation now or hereafter in effect
relating to Claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
6. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law.
8. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights the Indemnitee may have under the Company's
Amended and Restated Certificate of Incorporation and By-laws or the Delaware
General Corporation Law or otherwise. To the extent that a change in the
Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Amended and Restated Certificate of
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<PAGE> 5
Incorporation and By-laws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent to the coverage available for any Company
director or officer.
10. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
11. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
12. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Amended and Restated Certificate of
Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. Binding Effect, Etc. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, 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, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
the Indemnitee continues to serve as an officer or director of the Company or of
any other enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of law.
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Indemnification
Agreement as of the date first above written.
ARQULE, INC.
By:_________________________________
Title:
____________________________________
[Director]
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<PAGE> 1
Exhibit 10.5
INVESTORS' RIGHTS AGREEMENT
ARQULE, INC.
NOVEMBER 2, 1995
<PAGE> 2
TABLE OF CONTENTS
-----------------
1. Termination of 1994 Registration Rights Agreement ................. 1
2. Registration Rights ............................................... 1
2.1 Definitions ............................................. 2
2.2 Sale or Transfer of Shares; Legend ...................... 3
2.3 Demand Registration ..................................... 3
2.4 Incidental Registration ................................. 5
2.5 Form S-3 Registration. .................................. 6
2.6 Obligations of the Company .............................. 7
2.7 Furnish Information ..................................... 8
2.8 Expenses of Demand and S-3 Registrations ................ 8
2.9 Expenses of Incidental Registration ..................... 9
2.10 Delay of Registration ................................... 9
2.11 Indemnification ......................................... 9
2.12 Reports Under Securities Exchange Act of 1934 ........... 11
2.13 Assignment of Registration Rights ....................... 12
2.14 Limitations on Subsequent Registration Rights ........... 12
2.15 "Market Stand-Off" Agreement ............................ 12
2.16 Termination of Registration Rights ...................... 13
3. Covenants of the Company .......................................... 13
3.1 Delivery of Financial Statements ........................ 13
3.2 Inspection and Observation .............................. 14
3.3 Limitation on Access to Information. .................... 15
3.4 Termination of Information, Inspection and
Observation Covenants; Assignment ....................... 15
3.5 Right of First Refusal. ................................. 15
4. Additional Covenants of the Company ............................... 17
4.1 Fulfillment of Obligations .............................. 17
4.2 Maintenance of Existence; Conduct of Business ........... 17
4.3 Compliance with Applicable Laws. ........................ 17
4.4 Payment of Taxes, etc. .................................. 17
4.5 Dealings with Related Parties. .......................... 17
4.6 Termination of Certain Covenants. ....................... 17
5. Miscellaneous ..................................................... 18
5.1 Successors and Assigns .................................. 18
5.2 Dispute Resolution ...................................... 18
5.3 Governing Law ........................................... 19
5.4 Counterparts ............................................ 19
5.5 Titles and Subtitles .................................... 19
5.6 Notices ................................................. 19
<PAGE> 3
5.7 Expenses ................................................ 19
5.8 Amendments and Waivers .................................. 19
5.9 Severability ............................................ 20
5.10 Aggregation of Stock .................................... 20
5.11 Entire Agreement ........................................ 20
<PAGE> 4
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of the 2nd
day of November, 1995, by and between ArQule, Inc., a Delaware corporation (the
"Company"), ArQule Partners, L.P., a Delaware limited partnership ("ArQule
Partners"), Sevin Rosen Fund II, L.P. ("Sevin Rosen"), Atlas Venture Fund, L.P.
("Atlas Venture" and, collectively with ArQule Partners and Sevin Rosen, the
"Series A Investors"), and Physica B.V., a corporation organized under the laws
of The Netherlands (the "Series B Investor"; the Series A Investors and the
Series B Investor are sometimes referred to individually herein as an "Investor"
and, collectively as the "Investors"); and, for purposes of Sections 3.5 and 5
of this Agreement, Joseph C. Hogan, Jr. ("Hogan").
RECITALS
--------
WHEREAS, the Series A Investors hold shares of the Company's Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A Stock");
and
WHEREAS, ArQule Partners possesses certain registration and other rights in
connection therewith pursuant to the Registration Rights Agreement dated as of
November 18, 1994 by and among the Company and ArQule Partners (the "1994
Registration Rights Agreement"); and
WHEREAS, the Series B Investor is a party to the Series B Convertible
Preferred Stock Purchase Agreement dated as of the date hereof (the "Series B
Agreement") by and between such Series B Investor and the Company providing,
INTER ALIA, for the purchase by Series B Investor of shares of the Company's
Series B Convertible Preferred Stock, $.01 par value per share (the "Series B
Stock"); and
WHEREAS, among the conditions to the consummation of the transactions
contemplated by the Series B Agreement is the execution and delivery of an
Investors' Rights Agreement providing certain registration rights for the Series
B Investor; and
WHEREAS, each of the parties hereto desires to set forth in a single
document such registration and certain other rights of the Investors.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth and for other good and valuable consideration
the Company and each Investor, severally and not jointly, hereby agree as
follows:
1. TERMINATION OF 1994 REGISTRATION RIGHTS AGREEMENT.
The parties hereto hereby acknowledge and agree that the 1994 Registration
Rights Agreement is hereby terminated and superseded in all respects by this
Agreement.
2. REGISTRATION RIGHTS. The Company and each of the Investors, as
applicable, covenants and agrees as follows:
<PAGE> 5
2.1. DEFINITIONS. For purposes of this Section 2:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) The term "Certificate of Incorporation" shall mean the Company's
Amended and Restated Certificate of Incorporation effective as of the date
hereof.
(d) The term "Common Stock" means shares of Common Stock, $.01 par
value per share, of the Company.
(e) The term "Form S-1" means such form under the Act as in effect
on the date hereof, or any registration form under the Act subsequently adopted
by the SEC which permits the registration of securities under the Act for which
no other form is authorized or prescribed.
(f) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC which permits inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC or relates to
secondary offerings.
(g) The term "Holder" means any Investor and any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 2.13 hereof.
(h) The term "Initiating Holders" shall mean any Holder or Holders
who in the aggregate hold not less than twenty five percent (25%) of the
Registrable Securities.
(i) The term "Material Adverse Effect" shall mean (a) a material
adverse effect on the results of operations, business or financial condition of
the Company, or (b) any material limitation on the ability of the Company to
perform its obligations under, or the legality, validity or enforceability of,
this Agreement.
(j) The term "Preferred Stock" shall mean shares of Series A Stock
and Series B Stock of the Company.
(k) The term "Qualified Public Offering" means the closing of an
effective registration statement covering the Company's first public offering of
Common Stock the public offering price of which is not less than $5.00 per share
(as adjusted) and which results in an aggregate price to the public of at least
$10,000,000.
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<PAGE> 6
(l) The terms "register", "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(m) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Stock or the Series B Stock,
and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
the rights under this Section 2 are not assigned.
(n) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which shares of Common
Stock are, Registrable Securities.
(o) The term "SEC" means the Securities and Exchange Commission.
2.2 SALE OR TRANSFER OF SHARES; LEGEND.
(a) The Preferred Stock and the Registrable Securities shall not be
sold or transferred unless either (i) such shares first shall have been
registered under the Act, or (ii) the Company shall have been first furnished
with an opinion of legal counsel, to the effect that such sale or transfer is
exempt from the registration requirements of the Act.
(b) Each certificate representing the Preferred Stock and the
Registrable Securities shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities law and may not be transferred except (i) pursuant to an
effective registration statement under the Act or (ii) upon first
furnishing to the company an opinion of counsel that such transfer is
not in violation of the registration requirements of the Act or any
state securities law."
The foregoing legend shall be removed from the certificates
representing any Registrable Securities, at the request of the holder thereof,
at such time as they become eligible for resale pursuant to Rule 144(k) under
the Act.
2.3. DEMAND REGISTRATION.
(a) If the Company should receive from Initiating Holders at any
time after the earlier of (i) December 31, 1997 or (ii) 180 days after the
occurrence of a Qualified Public Offering, a written request that the Company
effect a registration statement under the Act with
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<PAGE> 7
respect to all or a part of the Registrable Securities having an aggregate
offering price, net of underwriting discounts and expenses, equal to or
exceeding $10,000,000, then the Company shall:
(A) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(B) as soon as practicable, and in any event within ninety (90)
days of the receipt of such request, use its best efforts to effect such
registration under the Act of all Registrable Securities which the Holders
request to be registered, subject to the limitations of subsection 2.3(b),
within thirty (30) days of the mailing of such notice by the Company in
accordance with Section 5.6.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subsection 2.3(a)
and the Company shall include such information in the written notice referred to
in subsection 2.3(a). The underwriter will be selected by the Company and shall
be reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such underwriting
shall (together with the Company as provided in subsection 2.6(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2.3, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities owned by each Holder; PROVIDED, HOWEVER, that the number
of shares of Registrable Securities to be included in such underwriting shall
not be reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
the Holders requesting registration pursuant to this Section 2.3, a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be detrimental
to the Company and its stockholders for a registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
the Company shall have the right to defer taking action with respect to such
filing for a period of not more than one hundred twenty (120) days after receipt
of the request of the Initiating Holders; PROVIDED, HOWEVER, that the Company
may not utilize this right more than once in any twelve-month period.
(d) The Company shall not be obligated to effect, or to take any
action to effect, any registration pursuant to this Section 2.3 after the
Company has effected two registrations on
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<PAGE> 8
Form S-1 or its then equivalent pursuant to this Section 2.3 and such
registration statement has been declared or ordered effective and the sales of
Registrable Securities under such registration statement have closed; provided,
that, if any Holders shall have any Registrable Securities excluded from any
Registration Statement in accordance with Section 2.3(b), such Holders shall
have the right to an additional demand registration on the foregoing terms and
conditions of this Section 2.3; provided, further, that, the right to such
additional demand registration shall terminate if such Holders are offered the
opportunity to participate, PRO RATA, in a registration initiated by the Company
as provided in Section 2.4 whether or not such Holders decide to participate.
(e) No incidental right under this Section 2.3 shall be construed to
limit any registration required under Section 2.4 or Section 2.5 herein.
2.4 INCIDENTAL REGISTRATION.
(a) If (but without any obligation to do so) the Company shall
determine to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or other
securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a stock plan or a registration on any form
which does not include substantially the same information as would be required
to be included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 5.6, the Company shall, subject to the provisions of
subsection 2.4(b), use its best efforts to include in such registration all of
the Registrable Securities that each such Holder has requested to be registered.
(b) UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 2.4 to include any of the Holders'
Registrable Securities in such underwriting unless such Holders accept the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it (or by other persons entitled to select the underwriters). If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount that the
underwriters determine in their sole reasonable discretion is compatible with
the success of the offering, then the Company shall be required to include in
the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole reasonable discretion
will not jeopardize the success of the offering. If after such shares are
excluded, the underwriters shall determine in their sole reasonable discretion
that the number of securities which remain to be included in the offering
exceeds the amount that the underwriters determine in their sole reasonable
discretion is compatible with the success of the offering, then the Registrable
Securities to be included, if any, shall be apportioned pro rata among the
Company and the Holders providing notice of their desire to participate in the
offering according to the total amount of securities entitled to be included
therein owned by each selling Holder or in such other proportions as shall
mutually be agreed to by such Holders. For purposes of the preceding sentence
concerning apportionment, for any selling Holder which is a
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partnership or corporation, the partners, retired partners and stockholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder", and any pro-rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling Holder," as defined in this sentence.
(c) No incidental right under this Section 2.4 shall be construed to
limit any registration required under Section 2.3 or Section 2.5 herein.
2.5 FORM S-3 REGISTRATION. At any time after the Company becomes eligible
to file a registration statement on Form S-3, a Holder or Holders holding
Registrable Securities may request the Company, in writing, to effect the
registration on Form S-3; PROVIDED, HOWEVER, that such Registrable Securities
are sufficient to result in an anticipated aggregate offering price, net of
underwriting discounts and commissions, of at least $1,000,000. Upon receipt of
any such request, the Company shall:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) use it best efforts to effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 2.5: (i) if
the Company shall furnish to the Holders a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to the Company and
its stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than sixty (60) days after
receipt of the request of the Holder or Holders under this Section 2.5;
PROVIDED, HOWEVER, that the Company shall not utilize this right more than once
in any twelve-month period; or (ii) after the Company has effected two
registrations on Form S-3 or its then equivalent and such registrations have
been declared or ordered effective and the sales of Registrable Securities under
such registration statements have closed.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. Registrations effected pursuant to this Section 2.5 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 2.3 or 2.4, respectively.
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2.6 OBLIGATIONS OF THE COMPANY . Whenever required under this Section 2 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the registration statement has
been completed; PROVIDED, HOWEVER, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and PROVIDED further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (A) includes any prospectus required by Section
10(a)(3) of the Act or (B) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (A) and
(B) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
PROVIDED that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
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(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act as a result of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
2.7 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
2.8 EXPENSES OF DEMAND AND S-3 REGISTRATIONS. All expenses other than
underwriting discounts and commissions, incurred in connection with the
registration, filing or qualification pursuant to Sections 2.3 and 2.5 including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; PROVIDED, HOWEVER, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.3 or 2.5 if the registration request is subsequently withdrawn at
the request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Holders requesting such withdrawal shall bear such
expenses), unless the Holders of a majority of the Registrable Securities agree
to forfeit their right to one demand registration pursuant to Section 2.3 or one
Form S-3 registration pursuant to Section 2.5, as
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<PAGE> 12
the case may be; PROVIDED FURTHER, HOWEVER, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights under Sections 2.3 and 2.5.
2.9 EXPENSES OF INCIDENTAL REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.4 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of one counsel
for the selling Holders selected by them, but excluding underwriting discounts
and commissions relating to the Registrable Securities.
2.10 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify,
defend and hold harmless each Holder, its officers, directors, employees and
representatives, any underwriter (as defined in the Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Act or the 1934 Act (each, a "Company Indemnified Person"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) (the "Company Indemnified Amount") arise out of or are based upon any
of the following (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will pay to each such Company
Indemnified Person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any Company Indemnified
Amount; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 2.11(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such Company
Indemnified Amount as to any Company Indemnified Person to the extent such
liability arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with
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written information furnished expressly for use in connection with such
registration by such Company Indemnified Person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) (the "Holder Indemnified Amount") arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 2.11(b), in connection with investigating or defending any Holder
Indemnified Amount; PROVIDED, HOWEVER, that the indemnity agreement contained in
this subsection 2.11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and PROVIDED, THAT, in no event shall any indemnity under this
subsection 2.11(b) exceed the gross proceeds from the offering received by such
Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.11, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.11, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.11.
(d) If the indemnification provided for in this Section 2.11 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
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<PAGE> 14
indemnifying party on the one hand and of the indemnified party on the other in
connection with the Violation that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
2.11 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
2.12 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the
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most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
2.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least ten
percent (10%) of the Registrable Securities then outstanding (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), provided: (a) the Company is, within a reasonable time after
such transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 2.15 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
2.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of ninety percent (90%) of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registrations filed under Section
2.3, 2.4 or 2.5 hereof, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registrations only on
terms substantially similar to the terms on which the holders of Registrable
Securities may include shares in such registrations or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the date set forth in subsection 2.3(a).
2.15 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that,
during the period of duration (not to exceed one hundred eighty (180) days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Act, such Investor shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) any securities of the Company held by it at any
time during such period except Common Stock included in such registration;
PROVIDED, HOWEVER, that:
(a) such agreement shall be applicable only with respect to a
registration statement referenced in subsection 2.3(a)(ii); and
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
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In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of an
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this Section
2.15 shall not apply to a registration relating solely to employee benefit plans
on Form S-1 or Form S-8 or similar forms which may be promulgated in the future,
or a registration relating solely to SEC Rule 145, or a transaction on Form S-4
or similar forms which may be promulgated in the future.
2.16 TERMINATION OF REGISTRATION RIGHTS.
(a) Except as set forth in subparagraph (b) below, the right of any
Holder to request registration or inclusion in any registration pursuant to
Section 2.3, 2.4 or 2.5 shall terminate on the closing of the first
Company-initiated registered public offering of Common Stock of the Company, if
all shares of Registrable Securities held or entitled to be held upon conversion
by such Holder may immediately be sold under Rule 144 during any 90-day period,
or on such date after the closing of the first Company-initiated registered
public offering of Common Stock of the Company as all shares of Registrable
Securities held or entitled to be held upon conversion by such Holder may
immediately be sold under Rule 144 during any 90-day period.
(b) The provisions of subparagraph (a) above shall not apply to any
Holder who owns more than two percent (2%) of the Company's outstanding stock
until the earlier of (x) such time as such Holder owns less than two percent
(2%) of the outstanding stock of the Company, or (y) the expiration of three
years after the closing of a Qualified Public Offering.
3. COVENANTS OF THE COMPANY.
3.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each
Investor, as long as such Investor holds shares of Series A Stock or Series B
Stock:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement and schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;
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(c) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event forty-five (45) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including balance sheets and sources
and applications of funds statements for such months and, as soon as prepared,
any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 3.1, an instrument executed by the Chief
Financial Officer or Chief Executive Officer of the Company and certifying that
such financials were prepared in accordance with GAAP consistently applied with
prior practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as any Investor or any
assignee of any Investor may from time to time request, PROVIDED, HOWEVER, that
the Company shall not be obligated under this subsection (f) or any other
subsection of Section 3.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
3.2 INSPECTION AND OBSERVATION. (a) The Company shall permit any
Significant Investor (as defined in Section 3.2(b)), at such Significant
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Significant Investor; PROVIDED, HOWEVER, that the Company shall not be
obligated pursuant to this Section 3.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information except under appropriate confidentiality agreements under Section
3.3.
(b) The Company will permit any Significant Investor or any
authorized representative thereof, to attend all meetings of the Board of
Directors of the Company in a nonvoting observer capacity and shall, upon the
written request of such Significant Investor, provide such Significant Investor
with such notice and other information with respect to such meetings as are
delivered to the directors of the Company; PROVIDED, HOWEVER, that it is hereby
acknowledged and agreed that only a single representative of each group
consisting of a Significant Investor and its affiliates will be entitled to
attend any such meeting pursuant to this Section 3.2(b). Upon the written
request of any such Significant Investor, the Company shall notify such
Significant Investor, within ten (10) days thereof, of the taking of any action
by the Board of Directors of the Company in lieu of a meeting thereof. As used
herein, the term "Significant Investor" shall mean any Investor who, together
with its affiliates, holds at least 100,000 shares of Registrable Securities (as
presently constituted and subject to subsequent adjustment for stock splits,
stock dividends, reverse stock splits, recapitalizations and the like).
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3.3 LIMITATION ON ACCESS TO INFORMATION. Notwithstanding anything to the
contrary in Sections 3.1 and 3.2 above, it is acknowledged and agreed by the
parties hereto that no Investor and no Significant Investor shall by reason of
this Agreement have access to any trade secrets or classified information of the
Company. The Company may require as a condition precedent to any Investor's or
Significant Investor's rights under Section 3.1 or 3.2 of this Agreement that
each person to have access to any of the information provided by the Company
pursuant to Section 3.1 or 3.2(a) or proposing to attend any meeting of the
Board of Directors pursuant to Section 3.2(b) shall agree to hold in confidence
and trust and to act in a fiduciary manner with respect to all information so
received during such meetings or otherwise; PROVIDED, that the Company reserves
the right not to provide information and to exclude such Investor or Significant
Investor (or its representative) from any meeting or portion thereof if delivery
of such information or attendance at such meeting by such Investor or
Significant Investor (or its representative) would result in disclosure to such
Investor or Significant Investor or its representative of (i) proprietary or
strategic information relating to the Company's corporate partnering programs or
(ii) the Company's know-how or confidential trade secrets or if the Company
reasonably determines that such Investor or Significant Investor or its
representative is, or is an employee, director, officer or a greater than 10%
holder of, a Competitor of the Company. For purposes of this Section 3.4, a
"Competitor of the Company" shall mean a person or entity who poses a
significant competitive threat to the Company's business.
3.4 TERMINATION OF INFORMATION, INSPECTION AND OBSERVATION COVENANTS;
ASSIGNMENT. The covenants set forth in Section 3.1 and Section 3.2 shall
terminate as to each Investor or Significant Investor and be of no further force
or effect when the Company has consummated a Qualified Public Offering or when
the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur. The
rights to receive and have access to information relating to the Company
pursuant to Sections 3.1 and 3.2 may be assigned (but only with all related
obligations) by an Investor to a transferee or assignee of such securities who,
after such assignment or transfer, holds at least 100,000 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (a) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such information rights are being assigned; and (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement.
3.5 RIGHT OF FIRST REFUSAL. Subject to the terms and conditions specified
in this Section 3.5, the Company hereby grants to each of the Investors a right
of first refusal with respect to future sales by the Company of its Shares (as
hereinafter defined). For purposes of this Section 3.5 and Section 5 only, the
terms "Investor" and "Investors" shall include Hogan. In the event that the
Company proposes to offer any shares, or securities convertible into or
exercisable for any shares, of any class of its capital stock ("Shares"), the
Company shall first make an offering of such Shares to the Investors in
accordance with the following provisions:
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(a) The Company shall deliver a notice by certified mail ("Notice")
to each Investor stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.
(b) Within thirty (30) calendar days after receipt of the Notice,
each Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, some or all of such Investor's pro rata portion of such
Shares. Each Investor's pro rata portion of such Shares shall be equal to a
fraction of such Shares, the numerator of which is the number of shares of
Registrable Securities or Common Stock, as the case may be, then held by such
Investor and the denominator of which shall be equal to the sum of the total
number of shares of Registrable Securities and Common Stock then held by all
Investors. Each Investor shall have a right of overallotment such that if any
Investor fails to exercise its or his right to purchase its or his total pro
rata portion of the Shares, the other Investors who have elected to so purchase
(the "Participants") may purchase such portion, by giving written notice to the
Company five (5) days from the date that the Company provides written notice to
the other Participants of the number of Shares with respect to which such
non-purchasing Investor or Investors has failed to exercise its rights
hereunder.
(c) If the Investors do not elect to purchase all of the Shares
referred to in the Notice, the Company may, during the ninety (90) day period
following the expiration of the period provided in Section 3.5(b) hereof
(including the additional five day period provided for overallotments) offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than, those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the unsubscribed portion of such Shares within such period, or if such
agreement is not consummated within thirty (30) days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to the Investors in accordance herewith;
PROVIDED HOWEVER that if during such ninety (90) day period, the Company offers
such Shares to any person or persons at a price and/or upon terms more favorable
to the offeree than those specified in the Notice, the Company must first
reoffer the Shares to the Investors on such favorable terms and the procedure
set forth above shall be followed, with the exception that the thirty (30) day
period set forth in Section 3.5(b) shall be a fifteen (15) day period.
(d) The right of first refusal in this Section 3.5 shall not be
applicable to the issuance of Shares excluded from the definition of Additional
Shares of Common Stock by clauses (A), (B), (C), (D), (E) or (F) of Section
3.4(a)(iv) of Article Fourth of the Certificate of Incorporation; PROVIDED,
HOWEVER, that notwithstanding anything to the contrary in this Section 3.5, the
right of first refusal in this Section 3.5 shall be applicable to the issuance
of Shares described in this subsection (d) if, after taking into account the
number of Shares to be issued in connection with any such issuance, the Series B
Investor shall hold less than eight percent (8%) of the Company's issued and
outstanding Shares. In addition, the right of first refusal in this Section 3.5
shall not be applicable to Hogan to the extent that the purchase price paid by
Hogan for any Shares otherwise subject to Hogan's right of first refusal in this
Section 3.5 is secured, in whole or in part, by a pledge of the Shares then held
by Hogan.
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<PAGE> 20
(e) The right of first refusal in this Section 3.5 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any wholly-owned subsidiary or parent of, or to any corporation or entity
that is, within the meaning of the Act, controlling, controlled by or under
common control with, any such Holder, and (ii) such right is assignable between
and among any of the Holders.
4. ADDITIONAL COVENANTS OF THE COMPANY.
-----------------------------------
4.1 FULFILLMENT OF OBLIGATIONS. The Company will observe and comply fully
with all of the terms, conditions and covenants of this Agreement, the Series B
Agreement, the provisions of its Certificate of Incorporation, as amended and
any other agreements and instruments to be entered into by the Company pursuant
to this Agreement.
4.2 MAINTENANCE OF EXISTENCE; CONDUCT OF BUSINESS. The Company will
preserve and maintain, and will cause any subsidiary to preserve and maintain,
its corporate existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business. This covenant
shall not be deemed to prevent the Company from effecting intercompany mergers
and reorganizations of its subsidiaries.
4.3 COMPLIANCE WITH APPLICABLE LAWS. The Company will comply, and will
cause any subsidiary to comply, with the requirements of all applicable laws,
rules, regulations and orders of any governmental body or regulatory authority,
a breach of which could have a Material Adverse Effect, except where compliance
is contested in good faith and by proper proceedings, or where failure to so
comply would not have a Material Adverse Effect.
4.4 PAYMENT OF TAXES, ETC. The Company will pay and discharge all taxes,
assessments and governmental charges or liens imposed upon it or upon its income
or property before the same shall become in default, as well as all lawful
claims for labor, materials and supplies that, if not paid when due, might
result in the imposition of a lien or charge upon any of its properties;
PROVIDED, HOWEVER, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
is being contested by the Company in good faith by appropriate proceedings and
an adequate reserve therefor has been established.
4.5 DEALINGS WITH RELATED PARTIES. All transactions by and between the
Company on the one hand and stockholders, directors, officers and employees of
the Company, or entities controlled by or affiliated with such persons, on the
other hand, shall be conducted on an arms-length basis and shall be on terms and
conditions no less favorable to the Company than could be obtained from
unaffiliated persons.
4.6 TERMINATION OF CERTAIN COVENANTS. The covenants of the Company under
this Section 4 shall terminate upon the consummation by the Company of a
Qualified Public Offering.
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<PAGE> 21
5. MISCELLANEOUS.
-------------
5.1 SUCCESSORS AND ASSIGNS . Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. No party hereby may assign its
rights or obligations hereunder without the prior written consent of the other
parties hereto.
5.2 DISPUTE RESOLUTION .
(a) The parties hereby agree that they will attempt in good faith to
resolve any controversy, claim or dispute ("Dispute") arising out of or relating
to this Agreement promptly by negotiations. Any such Dispute which is not
settled by the parties within fifteen (15) days after notice of such Dispute is
given by one party to the others in writing shall be referred to senior
executives of such parties who are authorized to settle such Disputes on behalf
of their respective companies ("Senior Executives"). The Senior Executives will
meet for negotiations within fifteen (15) days after the end of the 15-day
negotiation period referred to above, at a time and place mutually acceptable to
such Senior Executives. If the Dispute has not been resolved within thirty (30)
days after the end of the 15-day negotiation period referred to above (which
period may be extended by mutual agreement), subject to any rights to injunctive
relief and unless otherwise specifically provided for herein, any Dispute will
be settled first by non-binding mediation and thereafter by arbitration as
described in subsections (b) and (c) below.
(b) Any Dispute which is not resolved by the parties within the time
period described in subsection (a) shall be submitted to an alternative dispute
resolution process ("ADR"). Within five (5) business days after the expiration
of the thirty (30) day period set forth in subsection (a), each party shall
select for itself a representative with the authority to bind such party and
shall notify the other party in writing of the name and title of such
representative. Within ten (10) business days after the date of delivery of such
notice, the representatives shall schedule a date for engaging in non-binding
ADR with a neutral mediator or dispute resolution firm mutually acceptable to
such representatives. Any such mediation shall be held in London, England.
Thereafter, the representatives of the parties shall engage in good faith in an
ADR process under the auspices of such individual or firm. If the
representatives of the parties have not been able to resolve the Dispute within
thirty (30) business days after the conclusion of the ADR process, or if the
representatives of the parties fail to schedule a date for engaging in
non-binding ADR within the 10-day period set forth above, the Dispute shall be
settled by binding arbitration as set forth in subsection (c) below. If the
representatives of the parties resolve the dispute within the thirty (30) day
period set forth above, then such resolution shall be binding upon the parties.
If any party fails to abide by such resolution, the other parties can
immediately refer the matter to arbitration under subsection (c) below.
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<PAGE> 22
(c) If the parties have not been able to resolve the Dispute as provided
in subsections (a) and (b) above, the Dispute shall be finally settled by
binding arbitration. Any arbitration hereunder shall be conducted under the
"Rules of Conciliation and Arbitration" of the International Chamber of Commerce
Arbitration Rules. Each such arbitration shall be conducted in the English
language by a panel of one or three arbitrators appointed in accordance with
such rules. Any such arbitration shall be held in London, England. The
arbitrators shall have the authority to grant specific performance, and to
allocate between the parties the costs of arbitration in such equitable manner
as they determine. The arbitral award (i) shall be final and binding upon the
parties and (ii) may be entered in any court of competent jurisdiction in
accordance with the 1958 Convention on the Recognition and Enforcement of
Arbitral Awards.
(d) Nothing contained in this Section 5.2 or any other provisions of this
Agreement shall be construed to limit or preclude a party from bringing any
action in any court of competent jurisdiction for injunctive or other
provisional relief to compel the other party to comply with its obligations
hereunder before or during the pendency of mediation or arbitration proceedings.
5.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware; provided
that this Section 5.3 shall not be construed as submission to the jurisdiction
of the courts of the State of Delaware.
5.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
5.6 NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified sent by electronic
facsimile transmission with a copy sent by the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified or by overnight or international courier at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
5.7 EXPENSES. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
5.8 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company,
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<PAGE> 23
each Investor (so long as such Investor holds Registrable Securities) and any
transferee or assignee of Registrable Securities pursuant to Section 2.13 of
this Agreement who holds not less than ten percent (10%) of the Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and the
Company.
5.9 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
5.10 AGGREGATION OF STOCK. All shares of Registrable Securities held or
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
5.11 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
[The remainder of this page has been intentionally left blank].
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ARQULE, INC.
200 Boston Avenue
Medford, MA 02155
By: /s/ Allan Ferguson
________________________________
Title: Chairman of the Board
_____________________________
INVESTORS:
PHYSICA B.V.
C.J. van Houtenlaan, 36
1381 CP Weesp
The Netherlands
By: /s/ Mr. Jan Van Houtenlaan
________________________________
Title: President
_____________________________
with a copy to:
Solvay America, Inc.
3333 Richmond Avenue
Houston, TX 77098
Attn: General Counsel
Fax No.: (713) 525-7887
ARQULE PARTNERS, L.P.
By: Legomer Investors, Inc.,
general partner
By: /s/ Steve Dow
_________________________________
Title: President
______________________________
c/o ArQule, Inc.
200 Boston Avenue
Medford, Massachusetts 02155
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<PAGE> 25
SEVIN ROSEN FUND IV, L.P.
/s/ Steve Dow
By: ________________________________
Title: ________________________________
Sevin Rosen Fund IV, L.P.
550 Lytton Avenue, Suite 200
Palo Alto, CA 94301
ATLAS VENTURE FUND, L.P.
/s/ Allen Ferguson
By: ________________________________
Title: ________________________________
Atlas Venture
222 Berkeley Street
Boston, MA 02116
FOR THE PURPOSES OF SECTIONS 3.5
AND 5 ONLY
/s/ Joseph C. Hogan, Jr.
____________________________________
Joseph C. Hogan, Jr.
c/o ArQule, Inc.
200 Boston Avenue
Medford, MA 02155
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<PAGE> 1
EXHIBIT 10.6
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
COMMERCIAL LEASE
In consideration of the covenants herein contained. Cummings Properties
Management, Inc., hereinafter called LESSOR, does hereby lease to ArQule
Partners, L.P. (a DE limited partnership), 37 Garland Road, Concord, MA 01742
hereinafter called LESSEE, the following described premises, hereinafter called
the leased premises approximately 11,950 square feet (including 9.6% common
area) at 200 Boston Avenue, Suite 3600, Medford, MA 02155. TO HAVE AND HOLD the
leased premises for a term of five (5) years commencing at noon on October 1,
1996 and ending at noon on September 30, 1998 unless sooner terminated as
herein provided. LESSOR and LESSEE now covenant and agree that the following
terms and conditions shall govern this lease during the term hereof and for such
further time as LESSEE shall hold the leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of eighty three
thousand fifty two (83,052.00) U.S. dollars per year, payable in advance in
monthly installments of $6,921.00 on the first day in each calendar month in
advance except as other-wise provided in the Rider to Lease the first monthly
payment to be made upon LESSEE's execution of this lease, including payment in
advance of appropriate fractions of a monthly payment for any portion of a month
at the commencement or end of said lease term. All payments shall be made to
LESSOR or agent at 200 West Cummings Park, Woburn, Massachusetts 01801, or at
such other place as LESSOR shall from time to time in writing designate if the
"Cost of Living" has increased as shown by the Consumer Price Index (Boston,
Massachusetts, all items, all urban consumers) U.S. Bureau of Labor Statistics,
the amount of base rent due during each calendar year of this lease and any
extensions thereof shall be annually adjusted in proportion to any increase in
the index. All such adjustments shall take place with the rent due on January 1
of each year during the lease term. The base month from which to determine the
amount of each increase in the index shall be January 1993, which figure shall
be compared with the figure for November 1993, and each November thereafter to
determine the percentage increase (if any) in the base rent to be paid during
the following calendar year in the event that the Consumer Price index as
presently computed is discontinued as a measure of "Cost of Living" changes, any
adjustment shall then be made on the basis of a comparable index then in general
use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the amount
of thirteen thousand (13,000.00) dollars (to which LESSEE's previous $2,500.00
deposit shall be applied) upon the execution of this lease by LESSEE, which
shall be held as security for LESSEE's performance as herein provided and
refunded to LESSEE without interest at the end of this lease subject to LESSEE's
satisfactory compliance with the conditions hereof. In the event of any default
or breach of this lease by LESSEE continuing
<PAGE> 2
beyond any applicable notice or grace period, LESSOR shall immediately apply the
security deposit first to any unamortized improvements completed for LESSEE's
occupancy, then to offset any outstanding invoice or other payment due to
LESSOR, with the balance applied to outstanding rent. If all or any portion of
the security deposit is applied to cure a default or breach during the term of
the lease, LESSEE shall be responsible for restoring said deposit forthwith and
failure to do so shall be considered a substantial default under the lease.
LESSEE's failure to remit the full security deposit or any portion thereof when
due shall also constitute a substantial lease default.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the purpose of
executive and administrative offices and research and testing laboratory,
including R-DNA, genetic, biomedical and animal testing.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a
proportionate share (based on square footage leased by LESSEE as compared with
the total leasable square footage of the building of which the leased premises
are a part, whether such increase is caused by an increase in the tax rate, or
the assessment on the property, or a change in the method of determining real
estate taxes. LESSEE shall make payment within thirty (30) days of written
notice from LESSOR that such increased taxes are payable, and any additional
rent shall be prorated should the lease terminate before the end of any tax
year. The base from which to determine the amount of any increase in taxes shall
be the rate and the assessment in effect as of July 1, 1994 in the event that
the building of which the leased premises are a part was not assessed as a
completed building as of the aforementioned date, then the base assessment shall
be as of the first date when the building is assessed as a completed structure.
LESSEE shall pay interest at an annual rate of twelve percent (12%)
from the date due, for any installment of rent or other payment which is not
received by LESSOR within ten days of said due date.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard
specifications to heat the leased premises in season. Equipment will be provided
per LESSOR's building standard specifications to cool all office areas between
May 1 and November 1. LESSEE shall pay all charges to heat (natural gas) and
electricity used on the leased premises as determined by separate meters serving
the leased premises. LESSEE shall pay LESSOR for the cost of all water and sewer
use as determined by a separate water meter serving the leased premises. No
plumbing, construction or electrical work of any type shall be done without
LESSOR's prior written approval and the appropriate municipal permit.
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,or
activity shall be conducted in the leased premises or use made thereof which may
be unlawful, improper, noise or offensive, or contrary to any statute,
regulation, or ordinance in force in the city or town in which the leased
premises are situated. LESSEE shall keep all employees working in the leased
premises covered with Worker's Compensation insurance and shall obtain any
licenses and permits necessary for LESSEE's occupancy except for the certificate
of occupancy which LESSOR shall obtain. LESSEE shall be responsible for
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<PAGE> 3
causing the leased premises and any work conducted therein to be in full
compliance with the Occupational Safety and Health Act of 1970 and any
amendments thereof.
7. FIRE INSURANCE. LESSEE shall not permit any use of the leased premises which
will adversely affect or make voidable any insurance on the property of which
the leased premises are a part, or on the contents of said property, or which
shall be contrary to any law or regulation from time to time established by the
Insurance Services Office (or successor), local Fire Department. LESSOR's
insurer, or any similar body, LESSEE shall no demand reimburse LESSOR, and all
other tenants, all extra insurance premiums caused by LESSEE's use of the leased
premises for some purpose other than as set forth in Section 3 above. LESSEE
shall not vacate the leased premises or permit same to be unoccupied other than
during LESSEE's customary non-business days or hours unless LESSEE continues to
pay rent and comply with all other obligations under this lease.
8. MAINTENANCE OF PREMISES. LESSOR will be responsible for maintenance of the
common areas and all structural maintenance of the leased premises and for the
normal daytime maintenance of all space heating and cooling equipment,
sprinklers, doors, locks, plumbing, and electrical wiring, but specifically
excluding damage caused by the careless, malicious, willful, or negligent acts
of LESSEE or others, chemical, water or corrosion damage from any source, and
maintenance condition as they are at the commencement of the term or as they may
be put in during the term of this lease, normal wear and tear and damage by
fire, other casualty or LESSOR's negligence or misconduct only excepted, and
whenever necessary to replace light bulbs, plate glass and other glass therein,
acknowledging that the lease premises will be in good order and upon delivery by
LESSOR following __, and the light bulbs and glass whole. LESSEE will properly
control or vent all solvents, degreasers, smoke, odors, etc. and shall not cause
the area surrounding the leased premises to be in anything other than a neat and
clean condition, depositing all waste in appropriate receptacles. LESSEE shall
be solely responsible for any damage to plumbing equipment, sanitary lines, or
any other portion of the building which results from the discharge or use of any
acid or corrosive substance by LESSEE. LESSEE shall not permit the leased
premises to be overloaded, damaged, stopped or defaced, nor suffer any waste,
and will not keep animals within the leased premises. If the leased premises
includes any wooden mezzanine type space, the floor capacity of such space is
suitable only for office use, light storage or assembly work. If the leased
premises are carpeted or partially carpeted, LESSEE will protect carpet with
plastic or masonite chair pads under any rolling chairs. Unless heat is provided
at LESSOR's expense, LESSEE shall maintain sufficient heat to prevent freezing
of pipes or other damage. Any increase in air conditioning equipment or
electrical capacity or any installation and/or maintenance of equipment which is
necessitated by some specific aspect of LESSEE's use of the leased premises
shall be at LESSEE's expense. All maintenance provided by LESSOR shall be during
LESSOR's normal business hours.
9. ALTERATIONS. LESSEE shall not make structural alterations or additions of any
kind to the leased premises, but may make nonstructural alterations provided
LESSOR consents thereto in writing. All such allowed alterations shall be at
LESSEE's expense and shall conform with LESSOR's construction specifications. If
LESSOR at LESSOR's request performs any services or maintenance for LESSEE in
connection with such alterations or otherwise, any just invoice will be promptly
paid. LESSEE shall not permit any mechanics'
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<PAGE> 4
liens, or similar liens to remain upon the leased premises in connection with
the work of any character performed or claimed to have been performed at the
direction of LESSEE and shall cause any such lien to be released or removed
forthwith without cost to LESSOR. Any alterations or additions shall become part
of the leased premises and the property of LESSOR, except as otherwise provided
in the Rider to Lease. Any alterations completed by LESSOR shall be LESSOR's
"building standard" unless noted otherwise. LESSOR shall have the right at any
time to change the arrangement of parking areas, stairs, walkways or other
common areas of the building of which the leased premises are a part provided
that any such changes do not reasonably interfere with LESSEE's occupancy of the
leased premises for the permit use and do not materially diminish the parking
areas available for LESSEE's use in common with others.
10. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet or
allow any other firm or individual to occupy the whole or any part of the leased
premises without LESSOR's prior written consent. Notwithstanding such assignment
or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for the
payment of all rent and for the full performances of the covenants and
conditions of this lease. LESSEE shall pay LESSOR promptly to reasonable legal
and reasonable administrative expenses incurred by LESSOR in connection with any
consent requested hereunder by LESSEE.
11. SUBORDINATION. This lease shall be subject and subordinate to any and all
mortgages and other instruments in the nature of a mortgage, now or at any time
hereafter, and LESSEE shall, when requested, promptly execute and deliver such
written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
12. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at reasonable times upon
reasonable prior notice except in the case of emergencies enter to view the
leased premises, may remove any signs not approved and affixed as herein
provided, may make repairs and alterations as LESSOR should elect to do or as
required under the lease and repairs which LESSEE is required but has failed to
do, and may show leased premises to others.***
13. SNOW REMOVAL. The plowing of snow from all roadways, accessways and
unobstructed parking and loading areas shall be at the sole expense of LESSOR.
The control of snow and ice on all steps serving the leased premises and all
other areas not readily accessible to plows shall be the sole responsibility of
LESSOR. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
owner harmless from any and all claims by lessee's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises.
14. ACCESS AND PARKING. LESSEE shall have the right without additional charge to
use parking facilities provided for the leased premises in common with others
entitled to the use thereof and as provided in Section 9. Said parking areas
plus any stairs, walkways, elevators or other common areas shall in all cases be
considered a part of the leased premises to the extent that they are utilized by
LESSEE, or LESSEE's employees, agents, callers or invitees. LESSEE will not
obstruct in any manner any portion of the building or the
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<PAGE> 5
walkways or approached to said building, and will conform to all reasonable
rules now or hereafter made by LESSOR for parking, and for the care, use, or
alteration of the building, its facilities and approaches. LESSEE further
warrants that LESSEE will not permit any employee or visitor to violate this or
any other covenant or obligation of LESSEE. No vehicle shall be stored or left
in any parking area for more than three consecutive nights without LESSOR's
prior written approval. From December 1 through March 30 annually, however, all
unattended parking will be prohibited between 7:00 PM and 7:00 AM except in
those areas specifically designated for assigned overnight parking. Unregistered
or disabled vehicles, or storage trailer of any type, may not be parked
overnight at any time. LESSOR may tow, at LESSEE's sole risk and expense, any
misparked vehicle belonging to LESSEE or LESSEE's agent, employees, invitees or
callers, at any time.
15. LESSEE'S LIABILITY AND INSURANCE. LESSEE shall be solely responsible as
between LESSOR and LESSEE for deaths or personal injuries to all persons
whomsoever occurring in or on the leased premises (including any extension
thereof) from whatever cause arising, and damage to property to whomsoever
belonging arising out of the use, control, condition or occupation of the leased
premises by LESSEE; and LESSEE agrees to indemnify and save harmless LESSOR and
OWNER from any and all liability, including but not limited to expenses, damage,
causes of action, suits, claims or judgments caused by or in any way growing out
of any mattes aforesaid, except for death, personal injuries or property damage
directly resulting from the willful misconduct or omission or negligence of
LESSOR. LESSEE will secure and carry at its own expense a comprehensive general
liability policy insuring LESS, LESSOR and OWNER against any claims based on
bodily injury (including death) or property damage arising out of the condition
of the leased premises or therein used by LESSEE, such policy to insure LESSEE,
LESSOR and OWNER against any claim up to One Million (1,000,000 Dollars) in the
case of any one accident involving bodily injury (including death), and up to
One Million (1,000,000) Dollars against any claim for damage to property. LESSOR
and Owner shall be included in each such policy as additional insureds. LESSEE
will file with LESSOR prior to occupancy certificates showing that such
insurance is in force and thereafter will file renewal certificates prior to the
expiration of any such policies. All such insurance certificates shall provide
that such policies shall not be cancelled without at least ten (10) days prior
written notice to each insured.
16. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the leased
premises, or of the property of which they are a part be substantially damaged
by fire or other casualty, or be taken by eminent domain, LESSOR may elect to
terminate this lease. When such fire, casualty or taking renders the leased
premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made and LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises or (b) LESSOR fails to restore the
leased premises to a condition substantially suitable for their intended use
within ninety (90) days of said fire, casualty or taking. LESSOR reserves all
rights for damages or injury to the leased premises by any taking by eminent
domain except for damage to LESSEE'S property or equipment.
17. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has dealt
with no broker except Roy Hirshland of Spaulding & Slye or third person with
respect to this
-5-
<PAGE> 6
lease and LESSEE agrees to indemnity LESSOR against any brokerage claims arising
by virtue of this lease. LESSOR warrants and represents to LESSEE that LESSOR
has employed no exclusive broker or agent in connection with the letting of the
leased premises.
18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to erect, on
exterior metal letters sign on the front of the leased premises consistent in
style, size, location, etc. with other signs of nearby tenants. LESSOR shall
obtain the written consent of LESSOR before erecting any other sign on the
leased premises, and shall obtain prior written approval as to size, wording,
and location of all authorized signs. LESSOR may remove and dispose of any sign
not approved, erected or displayed in conformance with this provision.
19. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) LESSEE shall
default in the observance of performance of any of LESSEE'S covenants,
agreements or obligations hereunder, other than substantial monetary payments as
provided below, and such default shall not be corrected within thirty (30) days
after written notice thereof: or (b) LESSEE vacates the leased premises without
continuing to pay rent, then LESSOR shall have the right thereafter, while such
default continues and without demand or further notice to reenter and take
possession of the leased premises, to declare the term of this lease ended, and
to remove LESSEE's effects, without being guilty of any manner of trespass, and
without prejudice to any remedies which might be otherwise used for arrears of
rent or other default or breach of the lease. If LESSEE shall default in the
payment of the security deposit, rent, taxes, or any substantial invoice for
goods and/or services or other sum herein specified, and such default shall
continue for ten (10) days after written notice thereof, and because both
parties agree that nonpayment of said sums when due is a substantial breach of
the lease, and because the payment of rent in monthly installments is for the
sole benefit and convenience of LESSEE, then in addition to the foregoing
remedies the entire balance of rent which is due hereunder shall become
immediately due and payable as liquidated damages. LESSOR, without being under
any obligation to do so and without thereby waiving any default, may remedy same
for the account and at the expense of LESSEE. If LESSOR pays or incurs any
obligations for the payment of money in connection therewith, such sums paid or
obligations incurred plus interest and costs, shall be paid to LESSOR by LESSEE
as additional rent. Any sums received by LESSOR from or on behalf of LESSEE at
any time shall be applied first to any unamortized improvements completed for
LESSEE's occupancy, then to offset any outstanding invoice or other payment due
to LESSOR, with the balance applied to outstanding rent. LESSEE agrees to pay
reasonable attorney's fees and/or administrative costs incurred by LESSOR in
enforcing any or all obligations of LESSEE under this lease at any time. LESSEE
shall pay LESSOR interest at the rate of twelve percent (12%) per annum on any
payment from LESSEE to LESSOR which is past due.
20. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises or
to the occupancy thereof shall be deemed duly served when left at the leased
premises addressed to LESSEE, or served by constable, or sent to the leased
premises by certified mail, return receipt requested, postage prepaid, addressed
to LESSEE with a copy to Palmer & Dodge, One Beacon Street, Boston, MA 02108,
ATTN: Michael Lytton, Esq. Any notice from LESSEE to LESSOR relating to the
leased premises or the occupancy thereof shall be deemed duly served when served
by constable, or delivered to LESSOR by certified mail, return receipt
requested, postage prepaid, addressed to LESSOR at 200 West Cummings
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<PAGE> 7
Park, Woburn, MA 01801 or at LESSOR'S last designated address. No oral notice or
representation shall have any force or effect. Time is of the essence in service
of any notice.
21. OCCUPANCY. In the event that LESSEE takes possession of said leased premises
prior to the start of said term, LESSEE will perform and observe all of LESSEE's
covenants from the date upon which LESSEE takes possession except the obligation
for the payment of extra rent for any period of less than one month. LESSEE
shall not remove LESSEE's goods or property from the leased premises other than
in the ordinary and usual course of business, without having first paid and
satisfied LESSOR for all rent which may become due during the entire term of
this lease. In the event that LESSEE continues to occupy or control all or any
part of the leased premises after the agreed termination of this lease without
the written permission of LESSOR, then LESSEE shall be liable to LESSOR for any
and-all loss, damages or expenses incurred by LESSOR, and all other terms of
this lease shall continue to apply except that rent shall be due in fully
monthly installments at a rate of one hundred fifty (150) percent of that which
would otherwise be due under this lease. It being understood between the parties
that such extended occupancy is as a tenant at sufferance and is solely for the
benefit and convenience of LESSEE and as such has greater rental value. LESSEE's
control or occupancy of all or any part of the leased premises beyond noon on
the last day of any monthly rental period shall constitute LESSEE's occupancy
for an entire additional month, and increased rent as provided in this section
shall be due and payable immediately in advance. LESSOR's acceptance of any
payments from LESSEE during such extended occupancy shall not alter LESSEE's
status as a tenant at sufferance.
22. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution against
fire and agrees to provide and maintain approved, labeled fire extinguishers,
emergency lighting equipment, and exit signs and complete any other
modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body.
23. OUTSIDE AREA. No goods, equipment, or things of any type or description
shall be held or stored outside the leased premises at any time without prior
written consent from LESSOR. Any goods, equipment or things left outside the
leased premises without LESSOR's prior written consent shall be deemed abandoned
and may be removed at LESSEE's expense without notice by LESSOR. A single
two-yard capacity dumpster is hereby provided and serviced at its expense by
whichever disposal firm may from time to time be designated by LESSOR. If a
dumpster is provided on a shared cost basis, LESSEE shall pay its proportionate
share of the costs associated with said dumpster.
24. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as not
to interfere in any way with the use and enjoyment of other portions of the same
or neighboring buildings by others by reason of odors, smoke, smells, noise,
pets, accumulation of garbage or trash, vermin or other pests, or otherwise, and
will at its expense employ a professional pest control service if necessary.
LESSEE agrees to maintain efficient and effective devices for preventing damage
to heating equipment from solvents, degreasers, cutting oils, propellants, etc.
which may be present at the leased premises. No hazardous materials or wastes
shall be stored, disposed of, or allowed to remain at the leased premises at any
time except in compliance with all applicable statutes, regulations, ordinances
and the
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<PAGE> 8
like, and LESSEE shall be solely responsible for any and all corrosion or other
damage associated with the use, storage and/or disposal of same by LESSEE.
25. RESPONSIBILITY. Neither LESSOR nor OWNER shall be held liable to anyone for
loss or damage caused in any way by the use, leakage, seepage or escape of water
from any source,or for the cessation of any service rendered customarily to said
premises or buildings, or agreed to by the terms of this lease, due to any
accident, the making of repairs, alterations or improvements, labor
difficulties, weather conditions, mechanical breakdowns, trouble or scarcity in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for said building or any cause beyond LESSOR's
immediate control.
26. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, including but not limited to any offices,
partitions, window blinds, floor coverings (including computer floors), plumbing
and plumbing fixtures, air conditioning equipment and ductwork of any type,
exhaust fans or heaters, water coolers, burglar alarms, telephone wiring, air or
gas distribution piping, compressors overhead cranes, hoists, trolleys or
conveyors, counters, shelving or signs attached to walls or floors, all
electrical work, including but not limited to lighting fixtures of any type,
wiring, conduit, EMT, transformers, distribution panels, bus ducts, raceways,
outlets and disconnects, and furnishings or equipment which have been bolted,
welded, nailed, screwed, glued or otherwise attached to any wall, floor or
ceiling, of which have been directly wired to any portion o the electrical
system os which have been plumbed to the water supply, drainage or venting
systems serving the leased premises, and LESSEE shall deliver the leased
premises sanitized from any chemicals or other contaminants, and broom clean and
in the same condition as they were at the delivery of the premises by LESSOR
following the modifications __ or as they were modified during said term,
reasonable wear and tear and damage by fire, other casualty ** __ is hereby
authorized, without liability to LESSEE for loss or damage thereto, and at the
sole risk of LESSEE, to remove and store any such property at LESSEE's expense,
or to retain same under LESSOR's control, or to sell at public or private sale
(without notice), any or all of the property not so removed and to apply the net
proceeds of such sale to the payment of any sum due hereunder, or to destroy
such abandoned property. In no case shall the leased premises be deemed
surrendered to LESSOR until the termination date provided herein or such other
date as may be specified in a written agreement between the parties,
notwithstanding the delivery of any keys to LESSOR.
27. GENERAL. (a) The invalidity or unenforceability of any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof. (b) The obligations of this lease shall run with the land, and this
lease shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that LESSOR and OWNER shall be
liable only for obligations occurring while lessor, owner, or master lessee of
the premises. (c) Any action or proceeding arising out of the subject matter of
this lease shall be brought by LESSEE within two years after the cause of action
has occurred and only in a court of the Commonwealth of Massachusetts. (d) If
LESSOR or LESSEE is acting under or as agent for any trust, limited partnership
or corporation
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<PAGE> 9
individually. (e) IF LESSOR is not the owner (OWNER) of the leased premises,
LESSOR represents that said owner as identified below has agreed to be bound by
the terms of this lease. (f) This lease is made and delivered in the
commonwealth of Massachusetts, and shall be interpreted, construed, and enforced
in accordance with the laws thereof. (g) This lease was the result of
negotiations between parties of equal bargaining strength, and when executed by
both parties shall constitute the entire agreement between said parties. No
other oral or written representation shall have any effect hereon, and this
agreement may not be altered, extended or amended except by written agreement
attached hereto or as otherwise provided herein. (h) Notwithstanding any other
statements herein, LESSOR makes no warranty, express or implied, concerning the
suitability of the leased premises for LESSEE's intended use except as provided
in the Rider to Lease. (i) LESSEE agrees that if LESSOR does not deliver
possession of the leased premises as herein provided for any reason, LESSOR
shall not be liable for any damages to LESSEE for such failure, but LESSOR
agrees to use due diligence to obtain possession for LESSEE at the earliest
possible date, and a proportionate abatement of rent for such time as LESSEE may
be deprived of possession of said leased premises shall be LESSEE's sole remedy
as provided in the Rider to Lease. (j) Neither the submission of this lease
form, nor the prospective acceptance of the security deposit and/or rent shall
constitute a reservation of or option for the leased premises, or an offer to
lease, it being expressly understood and agreed that this lease shall not bind
either party in any manner whatsoever until it has been executed by both
parties. (k) LESSEE shall not be entitled to exercise any option contained
herein if LESSEE is in default of any terms or conditions hereof continuing
beyond any applicable notice or grace periods. (1) The headings in this lease
are for any convenience only and shall not be considered part of the terms
hereof. (m) No endorsement by LESSEE on any check shall bind LESSOR in any way.
28. SECURITY AGREEMENT. LESSEE hereby grants LESSOR a continuing security
interest in all existing or hereafter acquired personal property, fixtures and
equipment (but not any intellectual property) of LESSEE which is in the leased
premises to secure the payment of rent, the cost of leasehold improvements, and
the performance of any other obligations of LESSEE under this lease. Default in
the payment or performance of any of LESSEE's obligations hereunder is a default
under this Security Agreement, and shall entitle LESSOR to immediately exercise
all of the rights and remedies of a Secured Party under the Uniform Commercial
Code. LESSEE also agrees to execute a UCC-1 Financing Statement and any other
financing agreement required by LESSOR in connection with this security
interest.
29. WAIVERS, ETC. No consent or waiver, express or implied, by either party to
or of any other breach of the same or any other covenant, condition or duty of
the other party shall be construed as a consent or waiver to or of any other
breach of the same or any other covenant, condition or duty. If LESSEE is
several persons, several corporations or a partnership, LESSEE's obligations are
joint or partnership and also several. Unless repugnant to the context, "LESSOR"
and "LESSEE" mean the person or persons, natural or corporate, named above as
LESSOR and as LESSEE respectively, and their respective heirs, executors,
administrators, successors and assigns.
THIS PARAGRAPH DOES NOT APPLY
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<PAGE> 10
30. AUTOMATIC FIVE-YEAR EXTENSIONS. This lease, including all terms, conditions,
escalations, etc. shall be automatically extended for additional successive
periods of five (5) years, etc.
31. ADDITIONAL PROVISIONS. (Continued on attached rider if necessary.)
- See Attached Rider -
IN WITNESS WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this 29th day of September 1993.
LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC.
LESSEE: ARQULE PARTNERS, L.P.
as agent for BEAUTYREST PROPERTY, INC. & WRB, INC.
By: /s/ William S. Cummings By: /s/ Joseph C. Hogan Jr.
----------------------------- -----------------------------
for ArQule Partners, L.P.
-----------------------------
THIS PARAGRAPH DOES NOT APPLY
GUARANTY
IN CONSIDERATION of the making of the above Lease by Cummings Properties
Management, Inc. with ArQule Partner, L.P. at the request of the undersigned and
in reliance on this guaranty, the undersigned (GUARANTOR) hereby personally
guarantees the prompt payment of Rent by LESSEE and the performance by LESSEE of
all the terms, conditions, covenants and agreements of the Lease, any amendments
hereto and any extensions or assignments thereof, and the undersigned promises
to pay all expenses, including reasonable attorney's fees, incurred by LESSOR in
enforcing all obligations of LESSEE under the lease or incurred by LESSOR in
enforcing this guaranty. LESSOR's consent to any assignment(s), successive
assignment(s) and sublease(s) by LESSEE, with or without notice to the
undersigned, or LESSOR's failure to notify the undersigned of any default,
amendment, extension or assignment of the lease by LESSEE, shall not relieve the
undersigned from liability as GUARANTOR.
IN WITNESS WHEREOF, the undersigned GUARANTOR has hereunto set his/her/its hand
and common seal intending to be legally bound hereby this __ day of _________,
19__.
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<PAGE> 11
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
AMENDMENT TO LEASE #1
----
In connection with a lease in effect between the parties at 200 Boston
Avenue, Suite 3600, Medford, Massachusetts, commencing on October 1, 1993
and terminating September 30, 1998 and in consideration of the mutual
benefits to be derived herefrom, Cummings Properties Management, Inc.,
LESSOR, and ArQule Partners, L.P.,LESSEE, hereby agree to amend said lease
as follows:
1. LESSOR, at LESSEE's sole cost and expense, shall complete alterations and
improvements within the leased premises in accordance with the mutually
agreed upon plan and specifications attached hereto ("LESSOR's work"). The
total cost of LESSOR's work shall be $613,285.00. LESSEE shall pay
$100,000.00 of the total cost upon LESSEE's execution of this Amendment
into the Escrow as provided below, and LESSOR shall amortize the
$513,285.00 balance (plus interest) as additional rent as provided below.
If the total agreed cost for LESSOR's work is less than $613,285.00, the
adjusted base rent provided hereinbelow shall be proportionately reduced.
2. LESSOR and LESSEE hereby agree that the aforesaid plan and specifications
shall specify those items of equipment, fixtures and the like which LESSEE
shall be entitled to remove from the leased premises upon the expiration or
earlier termination of the lease, notwithstanding Section 26 of the lease,
provided LESSEE shall repair any damage caused by any such removal prior to
the termination of the lease.
3. If any agreed changes or additions to the scope of work result in increased
cost, LESSEE shall pay ninety-five (95%) percent of the cost of said
changes or additions immediately upon substantial completion of LESSOR's
work and the final five 95%) percent within thirty (30) days thereafter.
4. LESSEE's obligation to reimburse LESSOR for the $513,285.00 advanced by
LESSOR to LESSEE shall survive the termination of the lease for any cause
whatsoever, and shall be in addition to any other remedies available to
LESSOR under the lease or any other damages due LESSOR in the event of any
default by LESSEE under the lease.
5. Notwithstanding any provisions in the lease or in this Amendment to the
contrary, LESSOR and LESSEE hereby agree that upon execution of this
Amendment, LESSEE shall deposit LESSEE's initial $100,000 payment for
LESSOR's work ("Buildout Payment"), the $13,000.00 security deposit
("Security Deposit") and the $83,052.00 of pre-paid base rent ("Pre-paid
Rent") (collectively the "Initial Deposits") with LESSOR's counsel Susan F.
Brand, Esq. (the "Escrow Agent") to be held in escrow
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<PAGE> 12
subject to the provisions of this lease. The Escrow Agent shall disburse
the Initial Deposits to LESSOR in accordance with the following
instructions:
(a) Upon its receipt of a building permit for LESSOR's work, LESSOR shall
certify in writing to the Escrow Agent and LESSEE that LESSOR has
obtained such permit, which certification shall be accompanied by a
copy of the building permit. Upon its receipt of such certification,
the Escrow Agent shall disburse 25% of the Initial Deposits to
LESSOR.
(b) Upon substantial completion of the office portion of the leased
premises as shown on the attached plan, LESSOR shall certify in
writing to the Escrow Agent and LESSEE that said office portion is
substantially complete. Unless LESSEE reasonably objects to LESSOR's
certification by giving both the Escrow Agent and LESSOR written
notice of such objection within three business days after receipt of
such certification, the Escrow Agent shall disburse an additional 25%
of the Initial Deposits to LESSOR.
(c) Upon substantial completion of approximately 50% of the laboratory
portion of the leased premises as shown on the attached plan, LESSOR
shall certify in writing to the Escrow Agent and LESSEE such level of
completion, which certification shall be accompanied by the
certification of LESSOR's licensed contractor, architect or engineer
that confirms such level of completion. Unless LESSEE reasonably
objects to LESSOR's certification by giving the Escrow Agent and
LESSOR written notice of such objection within three business days
after receipt of such certification, the Escrow Agent shall disburse
an additional 25% of the Initial Deposits to LESSOR.
(d) Upon its receipt of a certificate of occupancy for the entire leased
premises, LESSOR shall deliver to the Escrow Agent and LESSEE a copy
of such certificate, accompanied by a certification of substantial
completion by LESSOR's licensed contractor, architect or engineer.
Unless LESSEE reasonably objects to such certificate and certification
by giving the Escrow Agent and LESSOR written notice of such objection
within three business days after receipt of such certification by
giving the Escrow Agent and LESSOR written notice of such objection
within three business days after receipt of such certificate and
certification, the Escrow Agent shall disburse an additional 20% of
the Initial Deposits to LESSOR.
(e) Thirty (30) days after the date on which the Escrow Agent disburses
the aforesaid 20% portion of the Initial Deposits to LESSOR, the
Escrow Agent shall disburse the remaining 5% of the Initial Deposits
to LESSOR, unless prior to the expiration of such 30-day period LESSEE
notifies the Escrow Agent and LESSOR in writing that any substantial
or material punchlist items remain incomplete, in which case the
Escrow Agent shall not make the final 5% disbursement until such time
as the Escrow Agent receives written notice from LESSOR that all such
substantial or material punchlist items have been completed.
(f) Upon LESSOR's receipt of each of the aforesaid disbursement
installments, LESSOR shall apply each such disbursement ratably among
the Buildout Payment, Security Deposit and the Pre-paid Rent, in the
ratio that the original
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<PAGE> 13
amount of each obligation bears to the aggregate sum of the amounts of
both obligations.
(g) In the event LESSEE objects to any certificate or certification,
LESSEE and LESSOR agree to cooperate in order to resolve such
objection promptly and in good faith.
6. In addition to the $13,000.00 cash Security Deposit provide in Section 2 of
the lease, LESSEE shall provide LESSOR with an Irrevocable Letter of Credit
negotiable on sight in the amount of $100,000.00, provided said Letter of
Credit is issued by Silicon Valley Bank, provides for payment to LESSOR
immediately and at sight upon LESSOR's delivery to the bank of a statement
that LESSEE is in default of the lease continuing beyond any applicable
notice or grace periods, and is otherwise in a form reasonably acceptable
to counsel for LESSOR. LESSOR shall be entitled to draw down said Letter of
Credit and hold the proceeds as a cash security deposit in the event LESSOR
has reasonable evidence to feel insecure about the continuing solvency of
the issuing bank; before drawing on the Letter of Credit in such case,
however, LESSOR shall give LESSEE seven (7) days prior written notice and
the opportunity to substitute another letter of credit from a bank
acceptable to LESSOR within said seven (7) day period.
7. Provided that LESSEE is not then in default of any material provisions of
this lease or in arrears of any rent or invoice payments beyond any
applicable notice or grace period, LESSEE may reduce the foregoing Letter
of Credit to $50,000 as of October 1, 1997, and at the end if the initial
lease term (regardless whether LESSEE exercises any extension option),
LESSEE may cancel the Letter of Credit entirely.
8. During the first year of the lease term (only), in addition to the Pre-paid
Rent, LESSEE shall pay to LESSOR $11,967.42 per month as additional rent
for the amortized cost of LESSOR's work as provided herein. The first such
monthly payment shall be due on or before October 1, 1993.
9. LESSOR shall use reasonable efforts to substantially complete the office
portion of the lease premises within four (4) weeks following full
execution of this Amendment, full payment of the Security Deposit and the
Initial Deposits into escrow pursuant to Paragraph 5 above, approval of the
attached plan and specifications, and delivery of the Letter of Credit
provided for in Paragraph 6 above, and the laboratory portion within an
additional sixteen (16) weeks thereafter.
10. If for any reason other than any delay requested or caused by LESSEE (which
shall include additions to the scope of LESSOR's work requested by LESSEE),
LESSOR's work is not substantially completed (except for punchlist items)
within the aforesaid 20-week period, then LESSEE shall be entitled to
receive from LESSOR a rent abatement in an amount equal to one day's base
rent (calculated based upon the rentable square footage of the entire
leased premises) for each day beyond such 20-week period that LESSOR's
substantial completion of the leased premises is delayed.
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<PAGE> 14
11. LESSOR shall complete LESSOR's work in a professional and workmanlike
manner; shall complete any punchlist items with as little disturbance to
LESSEE's business as reasonably possible; and shall repair latent defects,
if any, in said alterations and improvements reasonable promptly upon
written notice from LESSEE thereof.
12. Following completion of LESSOR's work, LESSOR will endeavor to provide
LESSEE with a list of all equipment, systems and other installations at the
leased premises which are LESSEE's responsibility to maintain pursuant to
Section 8 of the lease. LESSOR's failure to include any items on this list
through inadvertence or neglect shall not relieve LESSEE of any maintenance
responsibilities otherwise required under Section.
All other terms, conditions and covenants of the present lease shall continue to
apply except that adjusted base rent* shall be increase by$_______ annually
from a total of $83,052.00 to a new annual total of $226,661.00 , or $18,888.41
per month. Annual base rent for purposes of computing any future** escalations
thereon shall be $83.052.00 This amendment shall be effective upon full
execution and shall continue through the balance of the lease and any extensions
thereof unless further modified by written amendment(s).
*during the initial five-year lease term
**Cost of Living
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and
common seals 29th this day of September, 1993.
LESSOR: CUMMINGS PROPERTIES LESSEE: ARQULE PARTNERS,
MANAGEMENT, INC. L.P.
as agent for: BEAUTYREST
PROPERTY, INC. & WRB, INC. By: /s/ ArQule Partners, L.P.
--------------------------
By: /s/ William S. Cummings By: /s/ Joseph C. Hogan
------------------------- --------------------------
(for AcQule Partners, L.P.)
- 14-
<PAGE> 15
9/24/93
<TABLE>
9/24/93
ARQULE PARTNERS, L.P. SPECIFICATIONS
<CAPTION>
No. Description Qty Unit Cost Sub-total Sub Totals
- --- ----------- --- ---- ---- --------- ----------
Architectural Modification
- --------------------------
<S> <C> <C> <C>
Existing perimeter finish to remain S.F. $ 0
Office
Construct 9' high DW partition 360 L.F. $16,916
Glass window wallplanter at entry N/C $ 0
Sidelight windows 7 ea $ 329
Hollow metal B doors (36') 13 EACH $ 5,531
Ceiling -2x4 A.C.T. w/lights @ 8'-6' 3500 S.F. $11,557
Relocate sprinklers to new ceiling 3500 S.F. $ 4,445
Carpet (26 oz. level loop, grey) 3000 SF $ 5,715
Vinyl Comp. Tile 500 SF $ 952
-File, Copy Modeling Rms.
Kitchen upper cabinets 1 set $ 1,016
Kitchen starter cabinet 2 ea $ 406
Storage closet shelves/bifold doors 1 ea $ 254
Research Area
Construct 10' high DW partition 200 L.F. $10,414
Fire Rated Partitions
Solvent, Waste, Admin./Research Wall 130 L.F. $10,731
Demising wall at hallway N/C
Doors (dark grey finish)
Hollow metal B doors (36') 5 EACH $ 2,127
Hollow metal B doors (42') 3 EACH $ 1,276
Double Hollow Metal Doors 1 EACH $ 571
2 Hour Fire rated door
- Chem Stg., Solvent 2 EACH $ 1,270
Locksets N.I.C NIC
Closers
-Chem Storage, Solvent, Office/Lab, Mech. 5 EACH $ 610
Floor Finish
VCT except as noted) 6000 SF $11,430
Sealed concrete (acrylic sealer) NC SF $ 0
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
Solvent, Waste, Elec., Boiler, Magnet
Sloped floor 700 SF $ 2,667
- Hall, Glass, Solvent, Chem., Stg, Mech)
Medintech floor at Radioisotope 150 SF $ 952
Ceiling
Research areas 6000 SF $19,812
DW ceiling at 8' AFF 300 S.F. $ 2,667
- Chem. storage & solvent waste
Specialties
Dumpster (30 yard roll off) 1 EACH $ 635
Unistrut rack at Equip. 1 matls $ 190
- Labor to install 3 hrs $ 133
Architectural Total $112,510
--------
Office Expansion
Construct 9' high DW partition 35 L.F. $ 1,645
Construct 11' high DW partition 50 L.F. $ 2,349
Glass sidelight window at entry N/C
Sidelight windows 2 ea $ 94
Hollow metal B doors (36') 3 EACH $ 1,276
Ceiling 2x4 A.C.T @ 8'-6' & fluor. lights 600 S.F. $ 1,981
Relocate sprinklers to new ceiling 600 S.F. $ 762
Carpet (26 oz. level loop, grey) 600 SF $ 1,143
$ 9,251
--------
Research Expansion
Construct 11' high DW partition @ Elec. Rm. 20 LF. $ 940
Hollow metal B doors (36') 1 EACH $ 425
Dbl hollow metal doors (72') 1 EACH $ 0
2x4 A.C.T. ceiling @ 9'-6' & Fluor. lighting 2000 S.F. $ 6,604
Relocate sprinklers to new ceiling 2000 S.F. $ 2,540
VCT (except as noted) 2000 SF $ 3,810
$ 14,319
--------
Partition between Research & Research Expansion
- Between R&D, Expansion areaTo 12' 50 L.F. $ 2,603
- Hollow metal door 2 ea $ 851
$ 3,454
</TABLE>
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<PAGE> 18
<TABLE>
<CAPTION>
9/24/93
<S> <C> <C> <C> <C>
Cabinetry
Bio Chemistry
Supply base cabinets 1 quote $18,072
Resin benchtops 72 lf $ 8,230
Reagent shelving 72 s.f. $ 914
2, 6' Airflow supreme fumehoods 1 quote $10,160
Organic Chemistry
Supply base cabinets 1 quote $57,960
- Resin Counter tops
- 8,6' Airflow supreme hoods
- 3 sink assemblies w/pegboard
- Reagent shelving (p-lam)
- 2 cupsinks per island
Radio Isotope
- 5' Airflow Supreme Radioisotope Hood 1 quote $16,560
- 17' bench assy
- Resin counter w/integral sink
Walk-in Hood 1 quote $11,776
- 8' Walk in hood
- 6' bench assy
- Resin benchtop
Glasswash Room 1 quote $ 4,485
- 12' bench assy
- 12' st. steel benchtop w/integral sink
- Pegboard rack
Benchwork setup & installation 1 quote $22,945
Scientist Desks
- 28' x 48', 1 file cab., divider 12 quote $ 6,858
$157,960
--------
Notes:
- - Material is available in std. tan cases w/accent color drawings
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
- Material is available 45 days after approved shop drawings
- Cabinets include a high percentage of 4 drawer bases.
- One kneehole per cabinet run for refrigerator by others.
- Faucets w/aspirator tips are included in each sink.
- No wall cabinets are included
Envelope penetrations
- ---------------------
Roof Cuts - Small
Roof curbs (30' sq) 3 ea $ 675
(EF1 & EF3 fan support, Emerg. Gen)
Roof cones (12') 4 ea $ 200
(Gas, EF1, EF3, Comb Air)
Roof cut/flash charge - curb 3 ea $ 900
Roof cut/flash charge 0 cone 4 ea $ 1800
Roof Cuts - Large
Roof cuts over 30'x30' 3 ea $ 2286
(MUA AC, EF2 duct, Emerg. Gen.)
Roof flashing over 30'x30' 3 ea $ 1238
(MUA cond, EF2 fan, EF1 fan, EF3 fan)
MUA & condenser equip. has integral curbs
Addl. structural 1 allow $ 3810
Concrete floor cores
Plumbing lines (piping in plumbing section) 20 ea $ 1524
Shaft construction
Allowance for 2 hr rated shaft (2 x 10) 800 sf $50-80
Allowance for 2 hr rated shaft 250 sf $ 1587
Conc cuts for shaft supply/exhaust (10' x 2 ea $ 2032
Conc cuts for shaft (gas/water loop) 2' sq 2 ea $ 1016
Engineering evaluation 4 hrs $ 356
$22,504
-------
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
9/24/93
<S> <C> <C> <C>
Plumbing
- -----------------
Gas line extension to unit boilers
Black iron pipe (3') & supports 300 lf $ 3810
Black iron pipe (1') & supports 100 lf $ 635
Boiler loop
Pipe (2') couplings & supports (Installed) 150 lf $ 2019
Pipe (1-1/2') 30 lf $ 314
Pipe (1') 100 lf $ 838
Ball valves (misc) 20 lf $ 635
Gauges 4 ea $ 254
500kbtu boilers 2 ea $ 6896
2 hp circ. pumps 2 ea $ 2776
30 gal. exp. tank 1 ea $ 927
Air scoop, vent, check valves 1 allow $ 254
Glycol for loop 1 allow $ 1270
Chem. feed tank 1 assy $ 159
Gas flue installation (12' dia) 20 lf $ 711
Fibreglas Insulation (Installed) 300 lf $ 1524
Boiler system set up 8 days $ 2845
General Rough Plumbing
Pipe (DWV & condensate) 1 allow $ 3810
Pipe supply 1 allow $ 1270
Labor (rough) 285 hrs $12668
Labor (finish)
- benchwork (sinks, hood, cupsinks) 10 areas $17780
Fixtures
Emergency shower/eyewash stations 2 ea $ 1270
St. steel sinks in Bio Chem 2 ea $ 381
5 Gal. Acid neutralization tanks 10 ea $ 7620
- 2 O.C sinks, glass wash, Bio Chem
75 gph gas water heater, comml 1 ea $ 1397
-blow off, cut off, controls, pan, etc 1 allow $ 254
Backflow preventer 1 ea $ 1270
Water meter 1 ea $ 635
Cupsinks (in benchwork price)
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C>
Supply for Dl water 1 ea $152
Supply for Autoclave 1 ea $152
Supply for glasswasher 1 ea $152
Floor drain for cold room/emerg. shower 1 ea $381
Floor drain for glass wash room 1 ea $381
Floor drain for mech. room 1 ea $381
Floor drain for emergency showers 2 ea $762
$76,585
-------
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
9/24/93
<S> <C> <C> <C> <C>
HVAC Systems
- --------------------------------
Office Area HVAC (not including expansion)
Split system gas-fired/DX cooling HVAC 10 tons $ 12700
Distribution for above 10 tons $ 7620
Research Area HVAC system (NIC Exp 1 quote
Includes air balancing $114798
For condensate, gas line, etc. see plumbing
For hoods see benchwork section
Equipment
- 40 Ton (nom.) air handler w/heating coil
- 40 Ton Rooftop condenser
Hot water coil heating system
- 500 kbtu gas boilers
- VAV boxes w/dampers & reheat coils
- Spiral exhaust ductwork
- Insulated MUA ductwork
- Diffusers, Dampers & Fire dampers
- Combustion air supply duct and fan
- 8000 cfm hood exhaust fan (coated)
Variable speed drive for fan
- Radio isotope hood exhaust fan
- Bag-in/bag-out HEPA filter on RI exhaust
- Rigging of equip. to roof
- All controls, starters & wiring
- On/off switches with indicator lights
General exhaust fan (glass, instrument) 1 ea $ 2540
Solvent, waste exhaust fans 1 ea $ 2540
Addition Biochem Hood Duct, Equip. & MUA 1 allow $ 15240
$155,438
-------------
</TABLE>
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9/24/93
<TABLE>
<S> <C> <C> <C> <C>
Electrical
- ------------------------
Service
400 amp, 480/277 volt, 3 phase
Includes transformer, 480v switch, 480 & 208v panels
Premium charge for upgrade form 200 amp, 4 1 quote $3810
Trane condenser & air handler 1 quote $1768
- Labor 4 days $1422
Hood Ex. fan (8000 cfm) 1 quote $ 292
- Labor 2 days $ 711
Radio Iso Hood Ex. fan (1000 cfm) 1 quote $ 127
- Labor 1 days $ 356
Waste stg & chem. stg. ex fan 1 quote $ 127
- Labor 1 days $ 356
Boiler loop pumps 1 quote $ 230
- Labor 4 days $1422
VAV Boxes 1 quote $ 156
- Labor 4 days $1422
Lab plugmold outlets (200 lf, 12'spc 1 quote $1380
- Labor 8 days $2845
208 volt, 20 amp, dedicated Recept 1 quote $ 480
- Labor 4 days $1422
Fume hood outlets & lights 1 quote $ 268
- Labor 4 days $1422
Addl. load center (panel) 1 quote $ 519
- Labor 1 days $ 356
Emergency Generator
8 KW Generator w/auto. transfer switch 1 ea $5804
Installation, wiring 4 days $1422
Subpanel, disconnect & wiring 1 quote $1270
$29,781
-----------
</TABLE>
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<PAGE> 24
9/24/93
<TABLE>
<S> <C> <C> <C> <C> <C>
Fire Protection
- ------------------------------------
Relocate sprinkler heads 100 ea $12700
Alarm, detection, emerg. lights & wiring 1 allow $ 3556
$ 16,256
--------
As Built Drawings (marked up)
- ------------------------------------
-elec 4 hrs $ 381
-plumbing 4 hrs $ 381
-hvac 4 hrs $ 381
Label all pipes and equipment
- ------------------------------------
Labor 8 hrs $ 508
Material 100 items $ 635
Permit Fees
- ------------------------------------
Building Permit 1 ea $ 3175
Plumbing Permit 1 ea $ 229
Electrical Permit 1 ea $ 229
Design Fees
- ------------------------------------
Ongoing consultation (to date) 20 hrs $ 1905
Const. Administration 40 hrs $ 3810
Quotation Cost
Plumbing 2 hrs $ 75.00 # $ 190
Electrical 2 hrs $ 75.00 # $ 190
General 6 hrs $ 75.00 # $ 571
Engineering (HVAC, loads) 20 hrs $100.00 # $ 2540
$ 15,126
--------
$613,285 $613,285
</TABLE>
Total Cost
- --------------------------------------------
CPMI standard construction unless otherwise noted
Connection of Lessee equipment is not included
Substitution of equivalent materials may be made
Gas, compressed air, vacuum, D1 water systems and associated plumbing is
not included.
Autoclave, Glasswasher, administration desk and counters are not included.
-24-
<PAGE> 25
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
RIDER TO LEASE
The following additional provisions are incorporated into and made a part of the
attached lease.
(a) LESSOR, if requested to do so by LESSEE, and at LESSEE's sole expense,
shall complete up to $613,285.00 in alterations necessitated by LESSEE's
use of the leased premises according to a plan and at a cost to be mutually
agreed upon by both parties. LESSEE shall pay LESSOR $100,000.00 of the
agreed cost under the escrow arrangement described in Amendment to Lease #1
prior to the commencement of said work. At LESSEE's request, the balance of
the cost of said alterations up to the agreed maximum may be incorporated
into the lease by separate amendment to be attached hereto, amortized and
then paid for by LESSEE in the same manner as base rent which shall
otherwise be due.
(b) Notwithstanding the provisions of Section 1 hereinabove, LESSEE shall pay
into said escrow upon LESSEE's execution of this lease the sum of
$83,052.00 as pre-paid rent to be applied in equal monthly installments of
$6,921.00 each to LESSEE's monthly rental payments during the first year of
the lease term. In addition, LESSEE shall pay any "Cost of Living"
adjustment on said rent for the period January 1, 1994 through September
30, 1994 within ten (10) days following notice from LESSOR of any such
adjustment.
(c) LESSOR represents that, to the best of its knowledge and belief, the use of
the leased premises for the purposes set forth in Section 3 hereinabove is
permitted under the Massachusetts General Laws and the Medford Zoning
Ordinance. In the event, however, that LESSOR is unable to obtain a
building permit for the modifications at the leased premises referenced
above, LESSOR shall have the right, at its sole expense, to appeal any such
decision. If LESSOR declines to prosecute said appeal or if any such
decision is upheld after all applicable appeals have been exhausted, then
LESSEE may cancel this lease by serving LESSOR with thirty (30) days prior
written notice to that effect, and neither party shall thereafter have any
further obligation to the other, except that LESSOR shall promptly refund
all deposits, prepaid rent and the Letter of Credit described in Amendment
to Lease #1 to LESSEE. If LESSOR elects to appeal an adverse decision on
its building permit application, the rent commencement date under this
Lease shall be extended, on a day-for-day basis, for each day after October
1, 1993, that LESSOR is delayed in obtaining such building permit. In
addition, if after the issuance of a certificate of occupancy for the
permitted uses, any law, ordinance or regulation prohibits LESSEE from
engaging in substantially all such permitted uses, then LESSEE may, at its
option, but only after using commercially reasonable efforts to appeal any
such prohibition, terminate this lease by serving LESSOR with thirty (30)
days prior written notice to that effect, in any such case, this lease
shall cease as though such termination date were the regularly scheduled
expiration date hereof and LESSOR shall promptly refund all deposits and
the Letter of Credit to LESSEE.
(d) Notwithstanding the commencement date herein, the parties acknowledge that
the leased premises will not be available for LESSEE's occupancy until
after the commencement date. Notwithstanding the delay in delivery of the
leased premises, LESSEE's obligation to pay rent in full accordance with
Section 1 shall commence October 1, 1993.
(e) Until LESSEE takes possession of the leased premises, LESSOR shall provide
LESSEE with use of approximately 1,500 square feet (including 9.6% common
area) of office space at 200 Boston Avenue at a location to be designated
by LESSOR ("the temporary premises"). LESSEE shall be responsible for all
utility charges for the temporary premises during its occupancy by LESSEE,
but otherwise shall have not obligation to pay any rent with respect to the
temporary premises. LESSEE shall vacate the temporary premises within five
(5) days after notice of availability of the leased premises.
(f) Notwithstanding the commencement date herein, LESSEE may occupy the
temporary premises one (1) week following the full execution of this lease
and payment of the full Security Deposit and the pre-paid rent described in
Paragraph B above. All other terms, covenants and conditions of this lease
shall apply during this period.
<PAGE> 26
(g) *With respect to any condition existing prior to the commencement of
LESSEE's occupancy hereunder, LESSOR shall hold LESSEE harmless from any
and all suits, judgments, or liabilities, for any "release", as defined in
Section 101(22) of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), of any "hazardous
substance" as defined in Section 101(14) of CERCLA, or any petroleum
(including crude oil or any fraction thereof) as a result of any activity
on the property of which the leased premises are a part occurring prior to
LESSEE's occupancy and not cause by LESSEE.
(h) *LESSOR represents that, to the best of its knowledge and belief, the
common areas serving the leased premises are in compliance with current
requirements of the Americans with Disabilities Act of 1991 ("ADA") for
LESSEE's use as set forth in Section 3 hereinabove. If LESSEE receives
written notice from any enforcement authority at any time, however, that
any of said common areas are not in compliance with the ADA as now written,
then LESSEE shall serve LESSOR with written notice thereof. LESSOR shall
then have sixty (60) days to correct any non-complying element, and if
LESSOR fails to complete, or to be diligently pursuing completion of, any
necessary corrective action within said sixty (60) day period, then LESSEE
may elect to cancel this lease without penalty by serving LESSOR with
thirty (30) days prior written notice.
(i) *LESSEE shall have access to the leased premises and use, in common with
other tenants, the building's elevator seven (7) days per week, twenty-four
(24) hours per day.
(j) *LESSEE's agreement to subordinate this lease to any and all mortgages
and/or other instruments in the nature of a mortgage, now or at any time
hereafter, is conditional upon the mortgagee's agreement that LESSEE's
possession will not thereafter be disturbed so long as LESSEE is not in
default beyond any applicable grace period in the payment of rent or other
covenants or obligations hereof.
(k) *LESSEE shall reasonably and quietly have, hold and enjoy the premises for
the term hereof without hindrance or molestation from LESSOR, provided
LESSEE is not in arrears beyond any applicable grace period of any rent or
invoice payment and is in full compliance with all terms, conditions and
obligations provided herein.
(1) LESSOR agrees to maintain casualty insurance in a commercially reasonable
amount for the building of which the leased premises are a part, including
all improvements to be constructed at the commencement of the lease term by
LESSOR as provided in this Rider to Lease.
(m) In addition to the uses set forth in Section 3, LESSEE's permitted uses may
include other related research and development activities of the type and
character customarily undertaken by early stage/start up companies engaged
in the biomedical, biochemical genetic and pharmaceutical businesses.
(n) With respect to Section 8, LESSEE may keep research animals on the leased
premises provided that LESSEE complies with all federal, state and local
laws applicable to the care and treatment of research animals.
(o) *Whenever LESSOR's or LESSEE's consent, agreement or approval is required
under this lease, said consent, agreement or approval shall not be
unreasonably withheld or delayed.
(p) With respect to Section 12, LESSOR shall be subject in entering the leased
premises to reasonable security and safety conditions, if any, set forth in
an advance written notice given by LESSEE to LESSOR. LESSOR shall exercise
such right of entry in a manner reasonable under the circumstances to
minimize any disruption to LESSEE's business and shall restore any damage
to the improvements occasioned by such entry.
(q) With respect to Section 25, LESSOR shall use reasonable efforts to restore
any interrupted service or utilities. Notwithstanding any provisions in
this lease to the contrary, if (1) the leased premises or any material
portion thereof are rendered untenantable by reason of the negligence or
misconduct of LESSOR and (2) such untenantability continues for more than
five consecutive business days, then to the extent such untenantability is
not covered by LESSEE's business interruption insurance policy, a fair and
just proportion of the base rent and other charges, according to the nature
and extent of such untenantability, shall abate for the period of such
untenantability.
-26-
<PAGE> 27
(r) In the event that OWNER sells the property of which the leased premises are
a part or said property is foreclosed upon by mortgagee, then LESSOR agrees
to transfer any security deposit to the purchaser or foreclosing mortgagee,
as applicable.
(s) With respect to Section 5, heating and cooling will be available for the
leased premises 24 hours per day, seven days per week during the specified
heating and cooling seasons.
(t) *LESSEE shall have the right to assign this lease or sublet the leased
premises to an affiliated corporation, namely a corporation in which LESSEE
owns at least a forty percent interest in LESSEE, with which LESSEE merges,
or which is formed as a result of a merger or consolidation involving
LESSEE, without further consent from LESSOR, provided LESSEE so notifies
LESSOR in writing to that effect on a timely basis. The provisions of
Section 10 shall govern said assignment in all other respects.
(u) Notwithstanding the provisions of Section 28, LESSOR agrees to subordinate
LESSOR's security interest to that of an institutional or other commercial
lender, a pension fund or a venture capital entity as requested by LESSEE
in writing for the financing of LESSEE's business operations at the leased
premises.
(v) In the event of any conflict between any provision of this lease and an
rule made by LESSOR with respect to the leased premises pursuant to Section
14, the provisions of this lease shall govern.
(w) Beautyrest Property, Inc. and WRB, Inc., owners of the leased premises
referred to in Section 27 above, hereby consent to this lease and agree to
recognize all rights of LESSEE hereunder.
(x) LESSOR agrees to perform its maintenance and repair obligations hereunder
in a professional and workmanlike manner.
(y) LESSOR and LESSEE do hereby mutually release and discharge each other of
and from all liability and responsibility to the other for any loss, damage
or liability covered by insurance carried (or required hereunder to be
carried) by the party suffering such loss, claim or liability if and to the
extent that the written release and discharge does not invalidate or
adversely affect any applicable insurance.
(z) In the event this lease is terminated and LESSOR receives judgment for
accelerated rent in accordance with the provisions of Section 19 herein,
LESSOR agrees to make reasonable efforts to re-let the leased premises and
otherwise mitigate its damages resulting from such termination. LESSOR
shall credit LESSEE for any rents actually received by LESSOR over the
balance of the lease term minus any costs incurred by LESSOR in re-letting
the premises. LESSOR's failure to re-let the leased premises despite
LESSOR's reasonable efforts shall not limit LESSEE's liability hereunder.
(aa) LESSOR hereby represents that as of the date of execution of this lease,
the leased premises are not encumbered by any mortgage or instrument in the
nature of a mortgage.
BB. LESSOR shall list LESSEE on the directory in the lobby of the building at
200 Boston Avenue.
CC. LESSEE shall have the option to extend the lease term for one additional
five (5) year period by giving written notice to LESSOR not more than
twelve (12) months and not less than six (6) months prior to the expiration
of the initial term. If LESSEE exercises such option, the extended term
shall be upon the same terms and conditions as are in effect under this
lease immediately preceding the commencement of such option period, and
LESSEE shall have no further rights or options whatsoever to extend the
term beyond the expiration of such extended term. Time is of the essence.
DD. *Prior to the termination date of this lease, LESSEE may remove laboratory
equipment supplied and installed by LESSEE if LESSEE has satisfactorily
complied with all other conditions of this lease and if LESSEE repairs any
and all damage resulting from such removal on a timely basis prior to the
end of the lease term. Time is of the essence.
-27-
<PAGE> 28
LESSOR: CUMMINGS PROPERTIES LESSEE: ARQULE PARTNERS,L.P.
MANAGEMENT, INC. as agent
for BEAUTYREST PROPERTY, INC.
& WRB., INC.
By: /s/ William S. Cummings By: /s/ Joseph C. Hogan
-------------------------- --------------------------
DATE: September 29, 1993 (for AcQule Partners, L.P.)
------------------------
-28-
<PAGE> 29
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
LEASE EXTENSION
In connection with a lease currently in effect between the parties at 200 Boston
Avenue, Suites 3600 and 201, Medford, Massachusetts, executed on September 29,
1993 and terminating September 30, 1998, and in consideration of the mutual
benefits to be derived herefrom, Cummings Properties Management, Inc., LESSOR,
and ArQule, Inc., LESSEE, hereby agree to amend said lease as follows:
1. This lease is hereby extended for an additional term of twenty-two (22)
months commencing on September 30, 1998 and ending at noon on July 30,
2000.
2. During this extended lease term as herein described, LESSEE shall pay to
LESSOR base rent at the rate of eighty-three thousand five hundred
ninety-four (83,594.00) dollars per year or $6,966.16 per month, together
with any "Cost of Living" adjustments.
3. [THIS PARAGRAPH LINED THROUGH.]
4. [THIS PARAGRAPH LINED THROUGH.]
5. This lease, including all terms, conditions, escalations, etc. shall be
automatically extended for additional successive periods of ____ years each
unless LESSOR or LESSEE shall give written notice, either party to the
other or either party's desire not to so extend the lease. The time for
giving such written notice shall be not less than six (6) months prior to
the expiration of the then current lease period. Time is of the essence.
[THIS PARAGRAPH IS STAMPED OVER WITH "THIS PARAGRAPH DOES NOT APPLY"]
6. To the extent that any inconsistency exists between this Lease Extension
and the lease to which this document forms a part, the conditions contained
herein shall control and supersede any earlier provisions.
7. All other terms, conditions and covenants of the present lease shall
continue to apply except:
8. The base month from which to determine the amount of each annual increase
in the "Cost of Living" shall remain January 1993 and shall continue to be
compared with each November during the remaining lease term to determine
the percentage increase (if any) in the base rent to be paid during the
following calendar year.
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and
common seals this 25 day of August 1995.
LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC. LESSEE: ARQULE, INC.
By: /s/ By: /s/
------------------------- ----------------------
President
<PAGE> 1
Exhibit 10.7
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM 695347-GM-A
COMMERCIAL LEASE
In consideration of the covenants herein contained, Cummings Properties
Management, Inc., hereinafter called LESSOR, does hereby lease to ARQULE, INC.
(A DELAWARE CORPORATION) hereinafter called LESSEE, the following described
premises, hereinafter called the leased premises APPROXIMATELY 22,872 SQUARE
FEET (INCLUDING 9.6% COMMON AREA) AT 200 BOSTON AVENUE, SUITES 3010, 4000, 4200,
4400, 4600 AND 4800, MEDFORD, MA 02155. TO HAVE AND HOLD the leased premises for
a term of FIVE (5) YEARS commencing at noon on AUGUST 1, 1995 and ending at noon
on JULY 30, 2000 unless sooner terminated as herein provided. LESSOR and LESSEE
now covenant and agree that the following terms and conditions shall govern this
lease during the term hereof and for such further time as LESSEE shall hold the
leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of TWO HUNDRED
FOUR THOUSAND SEVEN HUNDRED FOUR (204,704.00) U.S. dollars per year, draw on
U.S. bank, payable in advance in monthly installments of $17,058.70 on the first
day in each calendar month in advance, the first monthly payment to be made upon
LESSEE's execution of the lease, including payment in advance of appropriate
fractions of a monthly payment for any portion of a month at the commencement or
end of said lease term. All payments shall be made to LESSOR or agent at 200
West Cummings Park, Woburn, Massachusetts 01801, or at such other place as
LESSOR shall from time to time in writing designate. If the "Cost of Living" has
increased as shown by the Consumer Price Index (Boston, Massachusetts all items,
all urban consumers), U.S. Bureau of Labor statistics, the amount of base rent
due during each calendar year of this lease and any extensions thereof shall be
annually adjusted in proportion to any increase in the index. All such
adjustments shall take place with the rent due on January 1 or each year during
the lease term. The base month from which to determine the amount of each
increase in the Index shall be January 1995 which figure shall be compared with
the figure for November 1995 and each November thereafter to determine the
percentage increase (if any) in the base rent to be paid during the following
calendar year. In the event that the consumer Price Index as presently computer
to discontinued as a measure of "cost of Living" changes, any adjustment shall
be then be made on the basis of a comparable index then in general use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the
amount of THIRTY FIVE THOUSAND (35,000.00) dollars upon the execution of this
lease by LESSEE, which shall be held as security for LESSEE's performance as
herein provided and refunded to LESSEE without interest at the end of this lease
subject to LESSEE's satisfactory compliance with the conditions hereof. LESSEE
may not apply the security deposit to payment of the last month's rent. In the
event of any default or breach of this lease by LESSEE, continuing beyond any
applicable notice or grace period, LESSOR shall
<PAGE> 2
immediately apply the security deposit first to any unamortized improvements
completed for LESSEE's occupancy, then to offset any outstanding invoice or
other payment due to LESSOR, with the balance applied to outstanding rent. If
all or any portion of the security deposit is applied to cure a default or
breach during the term of the lease, LESSEE shall be responsible for restoring
said deposit forthwith and failure to do so shall be considered a substantial
default under the lease LESSEE's failure to remit the full security deposit of
any portion thereof when due shall also constitute a substantial lease default.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the
purpose of EXECUTIVE AND ADMINISTRATIVE OFFICES AND RESEARCH AND TESTING
LABORATORY, INCLUDING R-DNA, GENETIC, BIOMEDICAL AND ANIMAL ____.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a
proportionate share (based on square footage leased by LESSEE as compared with
the total leasable square footage of the building of which the leased premises
are a part) of any increase in the real estate taxes levied against the land and
building of which the leased premises are a part, whether such increase is
caused by an increase in the tax rate, or the assessment on the property, or a
change in the method of determining real estate taxes. LESSEE shall make payment
within thirty (30) days of written notice from LESSOR that such increased taxes
are payable, and any additional rent shall be prorated should the lease
terminate before the end of any tax year. The base from which to determine the
amount of any increase in taxes shall be the rate and the assessment in effect
as of July 1 1995. In the event that said building was not assessed as a
completed building as of the aforementioned date, then the base assessment shall
be as of the first date when the building is assessed as a completed structure.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building
standard specifications to heat the leased premises in season and to cool all
office areas between May 1 and November 1. LESSEE shall pay all charges to heat,
natural gas, and electricity used on the leased premises as determined by
separate meters serving the leased premises including LESSEE's proportionate
share of any charges to operate the perimeter baseboard heating system serving
the entire fourth floor of the building. LESSEE shall pay LESSOR for all water
and sewer use as determined by LESSOR either by a separate water meter serving
the leased premises, LESSEE shall pay LESSOR a proportionate share of any other
fees and charges relating in any way to water or sewer use at the building. No
plumbing, construction or electrical work of any type shall be done without
LESSOR's prior written approval and the appropriate municipal permit.
6. COMPLIANCE WITH LAWS. LESSEE acknowledges that no trade, occupation,
activity or work shall be conducted in the leased premises or use made thereof
which may be unlawful, improper, noisy, offensive, or contrary to any applicable
statute, regulation, ordinance or bylaw. LESSEE shall keep all employees working
in the leased premises covered with Worker's Compensation insurance and shall
obtain any licenses and permits necessary for LESSEE's occupancy, except for the
certificate of occupancy which LESSOR shall obtain (if any). LESSEE shall be
responsible for causing the leased premises and any
<PAGE> 3
alterations by LESSEE which are allowed hereunder to be in full compliance with
any applicable statute, regulation, ordinance or bylaw.
7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the
leased premises, or of the property of which they are a part, be substantially
damaged by fire or other casualty, or be taken by eminent domain, LESSOR may
elect to terminate this lease. When such fire, casualty, or taking renders the
leased premises substantially unsuitable for their intended use, a just and
proportionate abatement of rent shall be made, and LESSEE may elect to terminate
this lease if: (a) LESSOR fails to give written notice within thirty (30) days
of intention to restore the leased premises, or (b) LESSOR fails to restore the
leased premises to a condition substantially suitable for their intended use
within ninety (90) days of said fire, casualty or taking. LESSOR reserves all
rights for damages or injury to the leased premises for any taking by eminent
domain, except for damage to LESSEE's property or equipment.
8. MAINTENANCE OF PREMISES. LESSOR will be responsible for maintenance of
the common areas and all structural maintenance of the leased premises and for
the normal daytime maintenance of all space heating and cooling equipment,
sprinklers, doors, locks, plumbing, and electrical wiring, but specifically
excluding damage caused by the careless malicious willful or negligent acts of
LESSEE or others, chemical, water or corrosion damage from any source, and
maintenance of any non "building standard" leasehold improvements. LESSEE agrees
to maintain at its expense all other aspects of the leased premises in the same
condition as they are at the commencement of the term or as they may be put in
during the term of this lease, normal wear and tear and damage by fire or other
casualty or LESSOR's negligence or misconduct only excepted, and whenever
necessary, to replace light bulbs, plate glass and other glass therein,
acknowledging that the leased premises are now in good order and the light bulbs
and glass whole. LESSEE will properly control or vent all solvents, degreasers,
smoke, odors, etc. and shall not cause the area surrounding the leased premises
to be in anything other than a neat and clean condition, depositing all waste in
appropriate receptacles. LESSEE shall be solely responsible for any damage to
plumbing equipment, sanitary lines, or any other portion of the building which
results from the discharge or use of any acid or corrosive substance by LESSEE.
LESSEE shall not permit the leased premises to be overloaded, damaged, stripped
or defaced, nor suffer any waste, and will not keep animals within the leased
premises. If the leased premises include any wooden mezzanine type space, the
floor capacity of such space is suitable only for office use, light storage or
assembly work. If the leased premises are carpeted or partially carpeted LESSEE
will protect carpet with plastic or masonite chair pads under any rolling
chairs. Unless heat is provided at Lessor's expense LESSEE shall maintain
sufficient heat to prevent freezing of pipes or other damage. Any increase in
air conditioning equipment or electrical capacity, or any installation and/or
maintenance of equipment which is necessitated by some specific aspect of
LESSEE's use of the leased premises shall be at LESSEE's expense. All
maintenance provided by LESSOR shall be during LESSOR's normal business hours.
<PAGE> 4
9. ALTERATIONS. LESSEE shall not make structural alterations or additions
of any kind to the leased premises, but may make nonstructural alterations
provided LESSOR consents thereto in writing. All such allowed alterations shall
be at LESSEE's expense and shall conform with LESSOR's construction
specifications. If LESSOR provides any services or maintenance for LESSEE in
connection with such alterations or otherwise under this lease, any just invoice
will be promptly paid. LESSEE shall not permit any mechanics' liens, or similar
liens, to remain upon the leased premises in connection with work of any
character performed or claimed to have been performed at the direction of LESSEE
and shall cause any such lien to be released or removed forthwith without cost
to LESSOR. Any alterations or additions shall become part of the leased premises
and the property of LESSOR except as otherwise provided in the Rider to Lease.
Any alterations completed by LESSOR shall be LESSOR's "building standard" unless
noted otherwise. LESSOR shall have the right at any time to change the
arrangement of parking areas stairs, walkways or other common areas of the
building of which the leased premises are a part provided that any such changes
do not unreasonably interfere with LESSEE's occupancy of the leased premises for
the permitted use and do not materially diminish the parking areas available for
LESSEE's use in common with others.
10. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet
or allow any other firm or individual to occupy the whole or any part of the
leased premises without LESSOR's prior written consent. Notwithstanding such
assignment or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for
the payment of all rent and for the full performance of the covenants and
conditions of this lease. LESSEE shall pay LESSOR promptly for reasonable legal
and reasonable administrative expenses incurred by LESSOR in connection with any
consent requested hereunder by LESSEE.
11. SUBORDINATION. This lease shall be subject and subordinate to any and
all mortgages and other instruments in the nature of a mortgage, now or at any
time hereafter, and LESSEE shall, when requested, promptly execute and deliver
such written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
12. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time
upon reasonable prior notice except in the case of emergencies enter to view the
leased premises, to make repairs and alterations as LESSOR should elect to do or
as required under the lease for the leased premises, the common areas or any
other portions of the building of which the leased premises are a part to make
repairs which LESSEE is required but has failed to do and to show the leased
premises to others subject to LESSEE's reasonable confidentiality and security
needs and only if LESSOR is accompanied by a representative of LESSEE.
13. SNOW REMOVAL. The plowing of snow from all roadways, access ways and
unobstructed parking and loading areas shall be at the sole expense of LESSOR.
The control of snow and ice on all steps serving the leased premises and all
other areas not readily accessible to plows shall be the sole responsibility of
LESSOR. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
OWNER harmless from any and all
<PAGE> 5
claims by LESSEE's agents, representatives, employees, callers or invitees for
damage or personal injury resulting in any way from snow or ice on any areas
serving the leased premises.
14. ACCESS AND PARKING. LESSEE shall have the right without additional
charge to use parking facilities provided for the leased premises in common with
others entitled to the use thereof and as provided in Section 9. Said parking
areas plus any stairs, walkways, elevators or other common areas shall in all
cases by considered a part of the leased premises to the extent that they are
utilized by LESSEE, or LESSEE's employees, agents, callers or invitees. LESSEE
will not obstruct in any manner any portion of the building or the walkways or
approaches to said building, and will conform to all rules and regulations now
or hereafter made by LESSOR for parking, and for the care, use or alteration of
the building, its facilities and approaches. LESSEE further warrants that LESSEE
will not permit any employee or visitor to violate this or any other covenant or
obligation of LESSEE. Unattended parking will be permitted between 7:00 PM and
7:00 AM without LESSOR's prior written approval, and from December 1 through
March 31 annually, such parking shall be permitted only in those areas
specifically designated for assigned overnight parking. Unregistered or disabled
vehicles, or storage trailers of any type, may not be parked at any time. LESSOR
may tow, at LESSEE's sole risk and expense, any misparked vehicle belonging to
LESSEE or LESSEE's agents, employees, invitees or callers, at any time. LESSOR
shall not be responsible for providing any security services for the leased
premises.
15. LESSEE'S LIABILITY AND INSURANCE. LESSEE shall be solely responsible as
between LESSOR and LESSEE for deaths or personal injuries to all persons
whomsoever occurring in or on the leased premises (including any extension
thereof) from whatever cause arising, and damage to property to whomsoever
belonging arising out of the use, control, condition or occupation of the leased
premises by LESSEE; and LESSEE agrees to indemnify and save harmless LESSOR and
OWNER from any and all liability, including but not limited to expenses, damage,
causes of action, suits, claims or judgments caused by or in any way growing out
of any matters aforesaid, except for death, personal injuries or property damage
directly resulting from the sole willful misconduct or omission or negligence of
LESSOR. LESSEE will secure and carry at its own expense a comprehensive general
liability policy insuring LESSEE, LESSOR and OWNER against any claims based on
bodily injury (including death) or property damage arising out of the condition
of the leased premises or their use by LESSEE, such policy to insure LESSEE,
LESSOR, and OWNER against any claim up to One Million (1,000,000) Dollars in the
case of any one accident involving bodily injury (including death), and up to
One Million (1,000,000) Dollars against any claim for damage to property. LESSOR
and OWNER shall be included in each such policy as additional insureds. LESSEE
will file with LESSOR prior to occupancy certificates and any applicable riders
or endorsements showing that such insurance is in force, and thereafter will
file renewal certificates prior to the expiration of any such policies. All such
insurance certificates shall provide that such policies shall not be cancelled
without at least ten (10) days prior written notice to each insured. In the
event LESSEE shall fail to provide or maintain such insurance at any time during
the term during the term of this lease, then LESSOR may elect to contract for
such insurance at LESSEE's expense.
<PAGE> 6
16. FIRE INSURANCE. LESSEE shall not permit any use of the leased premises
which will adversely affect or make voidable any insurance on the property of
which the leased premises are a part, or on the contents of said property, or
which shall be contrary to any law or regulation from time to time established
by the Insurance Services Office (or successor), local Fire Department, LESSOR's
insurer, or any similar body. LESSEE shall on demand reimburse LESSOR, and all
other tenants, all extra insurance premiums caused by LESSEE's use of the leased
premises for some purpose other than as set forth in Section 3 above. LESSEE
shall not vacate the leased premises or permit same to be unoccupied other than
during LESSEE's customary non-business days or hours unless LESSEE continues to
pay rent and comply with all other obligations under this lease.
17. BROKERAGE. LESSEE warrants and represent to LESSOR that LESSEE has dealt
with no broker or third person with respect to this lease and LESSEE agrees to
indemnify LESSOR against any broker claims arising by virtue of this lease.
LESSOR warrants an represents to LESSEE that LESSOR has employed no exclusive
broker and agent in connection with the letting of the leased premises.
18. SIGNS LESSOR authorizes, and LESSEE at LESSEE's expense agrees to erect,
signage for the leased premises in accordance with LESSOR's building standards
for style, size, location, etc.. LESSEE shall obtain the prior written consent
of LESSOR before erecting any sign on the leased premises, which consent shall
include approval as to size, wording, design and location. LESSOR may remove and
dispose of any sign not approved, erected or displayed in conformance with this
lease.
19. DEFAULT AND ACCELERATION OF RENT. In the event that (a) LESSEE shall
default in the observance or performance of any of LESSEE's covenants,
agreements, or obligation hereunder, other than substantial monetary payments as
provided below, and such default shall be corrected with thirty (30) days after
written notice thereof; or (b) LESSEE vacates the leased premises, without
continuing to pay rent, then LESSOR shall have the right thereafter, while such
default continues and without demand or further notice, to re-enter and take
possession of the leased premises, to declare the term of this lease ended, and
to remove LESSEE's effects, without being guilty of any manner of trespass, and
without prejudice to any remedies which might be otherwise used for arrears of
rent or other default or breach of the lease. If LESSEE shall default in the
payment of the security deposit, rent, taxes, or any substantial invoice for
goods and/or services or other sum herein specified, and such default shall
continue for me (10) days after written notice thereof, and, because both
parties agree that nonpayment of said sums when due is a substantial breach of
the lease, and, because the payment of rent in monthly installments is for the
sole benefit and convenience of LESSEE < then in addition to the foregoing
remedies the entire balance of rent which is due hereunder shall become
immediately due and payable as liquidated damages. LESSOR, without being under
any obligation to do so and without thereby waiving any default, may remedy same
for the account and at the expense of LESSEE. IF LESSOR pays or incurs any
obligations for the payment of money in connection therewith, such sums paid or
obligations incurred plus interest and costs, shall be paid to LESSOR by LESSEE
as additional rent. Any sums received by LESSOR from or on behalf of the LESSEE
at any time shall be applied first to any unamortized improvements completed or
<PAGE> 7
LESSEE's occupancy, then to offset any outstanding invoice or other payment due
to LESSOR, with the balance applied to outstanding rent. LESSEE agrees to pay
reasonable attorney's fees and/or administrative costs incurred by LESSOR in
enforcing any or all obligations of LESSEE under this lease at any time. LESSEE
shall pay LESSOR interest at the rate of twelve (12) percent per annum on any
payment from LESSEE to LESSOR which is past due.
20. NOTICE Any notice from LESSOR to LESSEE relating to the leased premises
or to the occupancy thereof shall be deemed duly serve when left at the leased
premise, by certified mail, return receipt requested, postage prepaid, address
to LESSEE with a copy to Palmer & Dodge, One Beacon Street, Boston, MA 02108,
Attn: Michael Lytton, Esq. Any notice from LESSEE to LESSOR by certified mail,
return receipt requested, postage prepaid, addressed to LESSOR at 200 West
Cummings Park, Woburn, MA 01810 or at LESSOR's last designated address. No oral
notice or representation shall have any force or effect. Time is of the essence
in service of any notice.
21. OCCUPANCY. In the event that LESSEE takes possession of said leased
premises prior to the start of said term, LESSEE will perform and observe all of
LESSEE's covenants from the date upon which LESSEE takes possession except the
obligation for the payment of extra rent for any period of less than one month.
LESSEE shall not remove LESSEE's goods or property from the leased premises
other than in the ordinary and usual course of business, without having first
paid and satisfied LESSOR for all rent which may become due during the entire
term of this lease. LESSOR shall have the right to relocate LESSEE to another
facility upon prior written notice to LESSEE an on terms comparable to those
herein. In the event that LESSEE continues to occupy or control all or any part
of the leased premises after the agreed termination of this lease without the
written permission of LESSOR, then LESSEE shall be liable to LESSOR for any good
and all loss, damages or expenses incurred by LESSOR, and all other terms of
this lease shall continue to apply except that rent shall be due in full monthly
installments at a rate of one hundred fifty (150) percent of that which would
otherwise be due under the lease, it being understood between the parties that
such extended occupancy is as a tenant at sufferance and is solely for the
benefit and convenience of LESSEE and as such has greater retail value. LESSEE's
occupancy of all or any part of the leased premises beyond noon on the last day
of any monthly rental period shall constitute LESSEE's occupancy for an entire
additional month, and increased rent as provided in the section shall be due and
payable immediately in advance. LESSOR's acceptance of any payments from LESSEE
during such extended occupancy shall not alter LESSEE's status as a tenant at
sufferance.
22. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution
against fire and agrees to provide and maintain approved, labeled fire
extinguishers, emergency lighting equipment, and exit signs and complete any
other modifications within the leased premises as required or recommended by the
Insurance Services Office (or successor organization), OSHA, the local Fire
Department, or any similar body.
23. OUTSIDE AREA. No goods, equipment, or things of any type or description
shall be held or stored outside the leased premises at any time without prior
written consent from
<PAGE> 8
LESSOR. Any goods, equipment or things left outside the leased premises without
LESSOR's prior written consent shall be deemed abandoned and may be removed at
LESSEE's expense without notice by LESSOR. A single two-yard capacity dumpster
is hereby authorized for the disposal of trash, provided that the location of
said receptacle is approved by LESSOR, LESSEE agrees to have said container
provided and serviced at its expense by which ever disposal firm may from time
to time be designated by LESSOR. If a dumpster is provided on a shared cost
basis, LESSEE shall pay its proportionate share of the costs associated with
said dumpster.
24. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as
not to interfere in any way with the use and enjoyment of other portions of the
same or neighboring buildings by others by reason of odors, smoke, smells,
noise, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will at its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devises for
preventing damage to heating equipment from solvents, degreasers, cutting oils,
propellants, etc. which may be present at the leased premises. No hazardous
materials or wastes shall be stored, disposed of, or allowed to remain at the
leased premises at any time except in compliance with all applicable statutes,
regulations, ordinances and the like, and LESSEE shall be solely responsible for
any and all corrosion or other damage associated with the use storage and/or
disposal of same by LESSEE.
25. RESPONSIBILITY. Neither LESSOR not OWNER shall be held liable to anyone
for loss or damage caused in any way by the use, leakage, seepage or escape of
water from any source, or for the cessation of any service rendered customarily
to said premises or buildings, or agreed to by the terms of the lease, due to
any accident, the making of repairs, alterations or improvements, labor
difficulties, weather conditions, mechanical breakdowns, trouble or scarcity in
obtaining fuel, electricity, service or supplies from the sources from which
they are usually obtained for said building, or any cause beyond LESSOR's
immediate control.
26. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR or
others, including but not limited to any offices, partitions, window blinds,
floor coverings (including computer floors), plumbing and plumbing fixtures, air
conditioning equipment and ductwork of any type, exhaust fans or heaters, water
coolers, burglar alarms, telephone wiring, air or gas distribution piping,
compressors, overhead cranes, hoists, trolleys or conveyors, counters, shelving
or signs attached to walls or floors, all electrical work, including but not
limited to lighting fixtures of any type, wiring, conduit, EMT, transformer,
distribution panels, bus ducts, raceways, outlets and disconnects, and
furnishings or equipment which have been bolted, welded, nailed, screwed, glued
or otherwise attached to any wall, floor or ceiling, or which have been directly
wired to any portion of the electrical system or which have been plumbed to the
water supply, drainage or venting systems serving the leased premises. LESSEE
shall deliver the leased premises sanitized from any chemicals or other
contaminants, and broom
<PAGE> 9
clean and in the same condition as they were at the commencement of this lease
or any prior lease between the parties for the leased premises, or as they were
modified during said term with LESSOR's written consent, reasonable wear and
tear and damage by fire, other casualty or LESSOR's negligence or its misconduct
only excepted. In the event of LESSEE's failure to remove any of LESSEE's
property from the leased premises upon termination of the lease, LESSOR is
hereby authorized, without liability to LESSEE for loss or damage thereto, and
at the sole risk of LESSEE, to remove and store any such property at LESSEE's
expense, or to retain same under LESSOR's control, or to sell at public or
private sale (without notice), any or all of the property not so removed and to
apply the net proceeds of such sale to the payment of any sum due hereunder, or
to destroy such abandoned property. In no case shall the leased premises be
deemed surrendered to LESSOR until the termination date provided herein or such
other date as may be specified in a written agreement between the parties,
notwithstanding the delivery of any keys to LESSOR.
27. GENERAL. (a) The invalidity of unenforceability of any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof. (b) The obligations of this lease shall run with the land, and this
lease shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns, except that LESSOR and OWNER shall be
liable only for obligations occurring while lessor, owner or master lessees of
the premises. (c) Any action or proceeding arising out of the subject matter of
this lease shall be brought by LESSEE within two years after the cause of
action has occurred and only in a court of the Commonwealth of Massachusetts.
(d) If LESSOR or LESSEE is acting under or as agent for any trust, limited
partnership or corporation, the obligations of LESSOR or LESSEE shall be binding
upon the trust, limited partnership or corporation but not upon any trustee,
officer, director, shareholder limited partner or beneficiary of the trust,
limited partnership or corporation, individually. (e) If LESSOR is not the owner
(OWNER) of the leased premises, LESSOR represents that said OWNER has agreed to
be bound by the terms of this lease. (f) This lease is made and delivered in the
Commonwealth of Massachusetts, and shall be interpreted, construed, and enforced
in accordance with the laws thereof. (g) This lease was the result of
negotiations between parties of equal bargaining strength, and when executed by
both parties shall constitute the entire agreement between said parties. No
other oral or written representation shall have any effect hereon, and this
agreement may not be altered, extended or amended except by written agreement
attached hereto or as otherwise provided herein. (h) Notwithstanding any other
statements herein, LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, concerning the
suitability of the leased premises for LESSEE's intended use, (i) LESSEE agrees
that if LESSOR does not deliver possession of the leased premises as herein
provided for any reason, LESSOR shall not be liable for any damages to LESSEE
for such failure, but LESSOR agrees to use reasonable efforts to deliver
possession to LESSEE at the earliest possible date, and a proportionate
abatement of rent for such time as LESSEE may be deprived of possession of said
leased premises shall be LESSEE's sole remedy except as provided in the Rider to
Lease. (j) Neither the submission of this lease form, nor the prospective
acceptance of the security deposit and/or rent shall constitute a reservation of
or option for the leased premises, or an offer to lease, it being expressly
understood and agreed that this lease shall not bind either party in any manner
whatsoever until it has been executed by both parties. (k) LESSEE shall not be
entitled to exercise any option contained herein if LESSEE is in default of any
terms
<PAGE> 10
or conditions hereof continuing beyond any applicable notice or grace periods.
(l) The headings in this lease are for convenience only and shall not be
considered part of the terms hereof. (m) No endorsement by LESSEE on any check
shall bind LESSOR in any way.
28. SECURITY AGREEMENT. LESSEE hereby grants LESSOR a continuing security
interest in all existing or hereafter acquired personal property, fixtures and
equipment (but not only intellectual property) of LESSEE which is in the leased
premises to secure the payment of rent, the cost of leasehold improvements, and
the performance of any other obligations of LESSEE under this lease. Default in
the payment of performance of any of LESSEE's obligations hereunder is a default
under this Security Agreement, and shall entitle LESSOR to immediately exercise
all of the rights and remedies of a Secured Party under the Uniform Commercial
Code. LESSEE also agrees to execute a UCC-1 Financing Statement and any other
financing agreement required by LESSOR in connection with this security
interest.
29. WAIVERS, ETC. No consent or waiver, express or implied, by either party,
to or of any breach of any covenant, condition or duty of the other party shall
be construed as a consent or waiver to or of any other breach of the same or any
other covenant, condition or duty, if LESSEE is several persons, several
corporations or a partnership, LESSEE's obligations are joint or partnership and
also several. Unless repugnant to the context, "LESSOR" and "LESSEE" mean the
person or persons natural or corporate, named above as LESSOR and as LESSEE
respectively, and their respective heirs, executors, administrators, successors
and assigns.
30. AUTOMATIC FIVE YEAR EXTENSIONS. This paragraph does not apply.
31. ADDITIONAL PROVISIONS. (Continued on attached rider if necessary)
- See Attached Rider -
IN WITNESSED WHEREOF, LESSOR AND LESSEE have hereunto set their hands and common
seals and intend to be legally bound hereby this 27th day of July, 1995.
LESSOR: CUMMINGS PROPERTIES MANAGEMENT, INC.
By: /s/ agent for Beauty Rest Properties, Inc.
--------------------------------------------
LESSEE: ARQULE, INC.
By: /s/ Joseph C. Hogan, Jr.
--------------------------------------------
<PAGE> 11
RIDER TO LEASE
The following additional provisions are incorporated into and made a part of the
attached lease:
A. *With respect to any condition existing prior to the commencement of this
lease, LESSOR shall hold LESSEE harmless from any and all suits, judgments,
or liabilities, for any "release", as defined in Section 101(22) of the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), of any "hazardous substance" as defined in
section 101(14) of CERCLA, or any petroleum (including crude oil or any
fraction thereof) as a result of any activity on the property of which the
leased premises are a part occurring prior to LESSEE'S occupancy and not
caused by LESSEE.
B. *LESSOR represents that, to the best of its knowledge and belief, the
common areas serving the leased premises are in compliance with current
requirements of the Americans with Disabilities Act of 1991 ("ADA") for
LESSEE's use as set forth in Section 3 hereinabove. If LESSEE receives
written notice from any enforcement authority at any time, however, that
any of said common areas are not in compliance with the ADA as now written,
the LESSEE shall serve LESSOR was written notice thereof. LESSOR shall then
have sixty (60) days to correct any noncomplying element, and if LESSOR
fails to complete, or to be diligently pursuing completion of, any
necessary corrective action within said sixty (60) day period, then LESSEE
may elect to cancel this lease without penalty by serving LESSOR with
thirty (30) days prior written notice.
C. LESSEE shall have access to the leased premises and may use, in common with
other tenants, the building's elevator seven (7) days per week, twenty-four
(24) hours per day.
D. LESSEE's agreement to subordinate this lease to any and all mortgages
and/or other instruments in the nature of a mortgage, now or at any time
hereafter, is conditional upon the mortgagee's agreement that LESSEE's
possession will not thereafter be disturbed so long as LESSEE is not in
default beyond any applicable grace period in the payment of rent or other
covenants or obligations hereof.
E. LESSEE shall reasonably and quietly have, hold and enjoy the premises for
the term hereof without hindrance or molestation from LESSOR, provided
LESSEE is not in arrears beyond any applicable grace period of any rent or
invoice payment and is in full compliance with all terms, conditions and
obligations provided herein.
F. LESSOR agrees to maintain casualty insurance in a commercially reasonable
amount for the building of which the leased premises are a part.
G. In addition to the uses set forth in Section 3, LESSEE's permitted uses may
include other related research and development activities of the type and
character customarily
<PAGE> 12
undertaken by early stage/start-up companies engaged in the biomedical,
biochemical, genetic and pharmaceutical businesses.
H. With respect to Section 8, LESSEE may keep research animals on the leased
premises provided that LESSEE complies with all federal, state and local
laws applicable to the care and treatment of research animals.
I. *Whenever LESSOR's or LESSEE's consent, agreement or approval is required
under this lease, said consent, agreement or approval shall not be
unreasonably withheld or delayed.
J. With respect to Section 12, LESSOR shall be subject in entering the leased
premises to reasonable security and safety conditions, if any, set forth in
advance written notice given by LESSEE to LESSOR. LESSOR shall exercise
such right of entry in a manner reasonable under the circumstances to
minimize any disruption to LESSEE's business and shall restore any damage
to the improvements occasioned by such entry.
K. With respect to Section 25, LESSOR shall use reasonable efforts to restore
any interrupted service or utilities. Notwithstanding any provisions in
this lease to the contrary, if (1) the leased premises or any material
portion thereof are rendered untenantable by reason of the negligence or
misconduct of LESSOR and (2) such untenantability continues for more than
five consecutive business days, then to the extent such untenantability is
not covered by LESSEE's business interruption insurance policy, a fair and
just proportion of the base rent and other charges, according to the nature
and extent of such untenantability, shall abate for the period of such
untenantability.
L. In the event the OWNER sells the property of which the leased premises are
a part or said property is foreclosed upon by mortgagee, then LESSOR agrees
to transfer any security deposit to the purchaser or foreclosing mortgagee,
as applicable.
M. With respect to Section 5, heating and cooling will be available for the
leased premises 24 hours per day, seven days per week during the specified
heating and cooling seasons.
N. LESSEE shall have the right to assign this lease or sublet the leased
premises to an affiliated corporation, namely a corporation in which LESSEE
owns at least a forty percent interest, which owns at least a forty percent
interest in LESSEE, with which LESSEE merges, or which is formed as a
result of a merger or consolidation involving LESS, without further consent
from LESSOR, provided LESSEE so notifies LESSOR in writing to that effect
on a timely basis. The provisions of Section 10 shall govern said
assignment in all other respects.
O. Notwithstanding the provision of Section 28, LESSOR agrees to subordinate
LESSOR's security interest to that of an institutional or other commercial
lender, a pension fund or a venture capital entity as requested by LESSEE
in writing for the financing of LESSEE's business operations at the leased
premises.
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<PAGE> 13
P. In the event of any conflict between any provision of this lease and any
rule made by LESSOR with respect to the leased premises pursuant to Section
14, the provisions of this lease shall govern.
Q. Beautyrest Property, Inc. and WRB, Inc., owners of the leased premises
referred to in Section 27 above, hereby consent to this lease and agree to
recognize all rights of LESSEE hereunder.
R. LESSOR agrees to perform its maintenance and repair obligations hereunder
in a professional and workmanlike manner.
S. LESSOR and LESSEE do hereby mutually release and discharge each other of
and from all liability and responsibility to the other for any loss, damage
or liability covered by insurance carried (or required hereunder to be
carried) by the party suffering such loss, claim or liability if and to the
extent that the written release and discharge do not invalidate or
adversely affect any applicable insurance.
T. In the event this lease is terminated and LESSOR receives judgment for
accelerated rent in accordance with the provisions of Section 19 herein.
LESSOR agrees to make reasonable efforts to re-let the leased premises and
otherwise mitigate its damages resulting from such termination. LESSOR
shall credit LESSEE for any rents actually received by LESSOR over the
balance of the lease term minus any costs incurred by LESSOR in re-letting
the premises. LESSOR's failure to re-let the leased premises despite
LESSOR's reasonable efforts shall not limit LESSEE's liability hereunder.
U. LESSOR hereby represents that as of the date of execution of this lease,
the leased premises are not encumbered by any mortgage or instrument in the
nature of a mortgage.
V. LESSOR shall list LESSEE on the directory in the lobby of the building at
200 Boston Avenue.
W. LESSEE shall have the option to extend the lease term for one additional
five (5) year period by giving written notice to LESSOR not more than
twelve (12) months and not less than six (6) months prior to the expiration
of the initial term. If LESSEE exercises such option, the extended term
shall be upon the same terms, conditions, escalations, etc. as are in
effect under this lease immediately preceding the commencement of such
option period, and LESSEE shall have no further rights or options
whatsoever to extend the term beyond the expiration of such extended term.
Time is of the essence.
X. *Prior to the termination date of this lease, LESSEE may remove laboratory
equipment supplied and installed by LESSEE if LESSEE has satisfactorily
complied with all other conditions of this lease and if LESSEE repairs any
and all damage resulting from such removal on a timely basis prior to the
end of the lease term. Time is of the essence.
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<PAGE> 14
Y. The parties acknowledge and agree that Suites 3010 and 4600 are currently
under lease to a third party. In the event LESSOR fails for any reason to
delivery possession of Suites 3010 and 4600 by August 1, 1995, then the
rent provided in Section 1 of this lease shall be reduced by $6,496.95 per
month until such time as LESSOR delivers possession of Suites 3010 and
4600. In the event LESSOR fails for any reason to deliver possession of
Suites 3010 and 4600 by December 1, 1995, then LESSEE may cancel this lease
effective December 31, 1995 with written notice to LESSOR on or before
December 15, 1995. Time is of the essence. Said cancellation shall be
LESSEE's sole remedy for LESSOR's failure to deliver possession of Suites
3010 and 4600.
Z. LESSEE agrees to accept the leased premises free of trash and debris and
broom clean, but otherwise strictly in "as is" condition as shown on the
attached plan dated June 29, 1995. To the best of LESSOR's knowledge and
belief, all existing building systems providing water, sewer, sprinkler,
electrical, and HVAC services to the premises are in good working order,
condition and repair, and the floor slabs, load-bearing walls and other
structural members located in or serving the premises are free from all
material defects.
FOR: CUMMINGS PROPERTIES MANAGEMENT, INC.
By: /s/ agent for Beauty Rest Properties, Inc.
--------------------------------------------
LESSEE: ARQULE, INC.
By: /s/ Joseph C. Hogan, Jr.
--------------------------------------------
Date: 7/27/95
-------------------
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<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of May 31, 1996 by and between ArQule,
Inc., a Delaware corporation (the "Company"), and Eric B. Gordon ("Executive").
WHEREAS, the Company desires to employ Executive in a senior executive
capacity and to enter into an Agreement embodying the terms of such employment
(the "Agreement"); and
WHEREAS, Executive desires to accept such employment and enter into such an
Agreement;
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ Executive, and
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth in this Agreement, for a period commencing as of
January 1, 1996 (the "Effective Date") and continuing until terminated in
accordance with the provisions of Section 5 (the "Employment Term").
2. TITLE; DUTIES. During the Employment Term, Executive shall serve as the
President and Chief Executive Officer of the Company. In such position,
Executive shall have such duties and authority as shall be designated from time
to time by the Board of Directors of the Company (the "Board") or its designee
and shall, if elected, serve as a director of the Company. The Employee hereby
agrees to undertake the duties and responsibilities inherent in such position
and such other duties and responsibilities as the Board or its designee shall
from time to time reasonably assign to him.
3. NO CONFLICT. During the Employment Term, Executive shall devote
substantially all of his business time and best efforts to the performance of
his duties hereunder and shall not, directly or indirectly, engage in any other
business, profession or occupation for compensation or otherwise which would
conflict with the rendition of such duties without the prior written consent of
the Board, which consent shall not unreasonably be withheld, delayed or
conditioned.
4. COMPENSATION AND BENEFITS.
4.1. BASE SALARY. During the Employment Term, the Company shall pay
Executive for his services hereunder a base salary (the "Base Salary") at the
initial annual rate of $225,000, payable in regular installments in accordance
with the Company's usual payment practices and subject to annual review and
adjustment by the Board in its sole discretion.
<PAGE> 2
4.2. ADDITIONAL COMPENSATION.
4.2.1. INCENTIVE STOCK OPTIONS. As further compensation for his
services hereunder, the Company shall grant to Executive, effective as of
January 23, 1996, an incentive stock option (the "Incentive Stock Option") to
purchase 774,867 shares of the Company's Common Stock, $0.01 par value per share
(the "Common Stock"), pursuant to the Company's Amended and Restated 1994 Equity
Incentive Plan (the "Plan") and in accordance with the terms, and subject to the
vesting schedule and other conditions, set forth in the form of Option
Certificate attached hereto as EXHIBIT A. The options granted to Executive under
this Section 4.2.1 will be treated as "incentive stock options" under Section
422 of the Internal Revenue Code of 1986, as amended.
4.2.2. MILESTONE BONUS. As further compensation for his services
hereunder, the Company shall grant to Executive one or more additional options
(the "Bonus Options") to purchase an aggregate of 154,973 shares of the
Company's Common Stock, upon the achievement of certain milestones, and in
accordance with a vesting schedule, to be determined by the Board within ninety
(90) days from the Effective Date and set forth on EXHIBIT B attached hereto (as
such EXHIBIT B may from time to time be amended by the Board). The Bonus Options
shall be granted pursuant to the Plan and, except as otherwise provided herein
or on EXHIBIT B, shall be subject to the same terms and conditions as the
Incentive Stock Option.
4.3. EXECUTIVE BENEFITS. During the Employment Term and subject to any
contributions therefor generally required of senior executives of the Company,
Executive shall be entitled to receive such employee benefits (including fringe
benefits and pension, profit sharing, and deferred compensation plan
participation, and life, health, accident and disability insurance) which the
Company may, in its sole and absolute discretion, make available generally to
its senior executives, or for personnel similarly situated; PROVIDED, HOWEVER,
that it is hereby acknowledged and agreed that any such employee benefit plans
may be altered, modified or terminated by the Company at any time in its sole
discretion without recourse by Executive. In addition, Executive shall be
entitled to have the following benefits paid by the Company: (i) up to $160,000
of life insurance, payable to such beneficiaries as Executive may from time to
time direct and (ii) reimbursement of all expenses incurred by Executive for
continuing medical coverage under Executive's Connaught Laboratories
Pennsylvania Blue Cross/Blue Shield policy, until such time as Executive has
relocated his permanent residence to the Commonwealth of Massachusetts.
4.4. VACATION. Executive shall be entitled to three weeks (15 working days)
of paid vacation per annum during the Employment Term, to be taken at such time
or times as shall be mutually convenient for the Company and Executive. Unused
vacation time will be allocated pursuant to the Company's existing policies and
practices.
4.5. EXPENSES.
4.5.1. RELOCATION EXPENSES. The Company shall reimburse Executive for
(i) reasonable relocation expenses incurred by Executive in connection with his
acceptance of employment hereunder, including moving expenses, any commissions
payable on the sale of
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<PAGE> 3
Executive's personal residence and travel expenses incurred by Executive in
travelling to his new location of employment, up to a maximum of $75,000 in the
aggregate and (ii) any taxes payable by Executive (including any tax on the
gross-up) as a result of the reimbursement by the Company of Executive's
relocation expenses under this Section 4.5.1. There shall be no time limit
applied to this benefit.
4.5.2. TEMPORARY LIVING EXPENSES. The Company shall reimburse
Executive for (i) reasonable temporary living expenses incurred by Executive at
any time during the period commencing on the Effective Date and continuing until
July 2, 1996, up to a maximum of $1,200 per month or $7,200 in the aggregate and
(ii) any taxes payable by Executive (including any tax on the gross-up) as a
result of the reimbursement by the Company of Executive's temporary living
expenses under this Section 4.5.2.
4.5.3. BUSINESS EXPENSES AND PERQUISITES. Executive shall be entitled
to reimbursement by the Company during the Employment Term for reasonable
travel, entertainment and other business expenses incurred by Executive in the
performance of his duties hereunder in accordance with such policies as the
Company may from time to time have in effect.
5. TERMINATION.
5.1. FOR CAUSE BY THE COMPANY. Notwithstanding any other provision of
this Agreement, Executive's employment hereunder may be terminated by the
Company at any time for Cause. For purposes of this Agreement, "Cause" shall
mean (i) Executive's willful failure to perform his duties hereunder (other than
as a result of total or partial incapacity due to physical or mental illness)
for thirty (30) days after a written demand for performance is delivered to
Executive on behalf of the Company which specifically identifies the manner in
which it is alleged that Executive has not substantially performed his duties,
(ii) Executive's dishonesty in the performance of his duties hereunder, (iii) an
act or acts on Executive's part involving moral turpitude or constituting a
felony under the laws of the United States or any state thereof, or (iv)
Executive's material breach of his obligations under Section 6 and 7 hereof,
which breach shall remain uncured by Executive for thirty (30) days following
receipt of notice from the Company specifying such breach. If Executive's
employment is terminated by the Company for Cause, the Company shall pay
Executive a lump sum amount equal to the Base Salary through the last day of his
actual employment by the Company. The payment to Executive of any other benefits
following the termination of Executive's employment pursuant to this Section 5.1
shall be determined by the Board in its sole discretion in accordance with the
policies and practices of the Company.
5.2. DISABILITY. Executive's employment hereunder may be terminated by
the Company at any time in the event of the Disability of the Executive. For
purposes of this Agreement, "Disability" shall mean the inability of Executive
to perform substantially his duties hereunder due to physical or mental
disablement which continues for a period of six (6) consecutive months during
the Employment Term, as determined by an independent qualified physician
mutually acceptable to the Company and Executive (or his personal
representative) or, if the Company and Executive (or such representative) are
unable to agree on an independent qualified physician, as determined by a panel
of three physicians, one designated by the
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<PAGE> 4
Company, one designated by Executive (or his personal representative) and one
designated by the two physicians so designated. If Executive's employment is
terminated by the Company for Disability, the Company shall pay Executive an
amount equal to the Base Salary plus any benefits to which Executive is entitled
under Section 4.3 of this Agreement (to the extent permitted by the then-current
terms of the applicable benefit plans and subject to any employee contribution
applicable to Executive on the date of termination) through the date on which
Executive is first eligible to receive payment of disability benefits in lieu of
Base Salary under the Company's employee benefit plans as then in effect. The
payment to Executive of any other benefits following the termination of
Executive's employment pursuant to this Section 5.2 shall be determined by the
Board in its sole discretion in accordance with the policies and practices of
the Company.
5.3. DEATH. Executive's employment hereunder shall automatically
terminate in the event of the Executive's death. If Executive's employment is
terminated by the death of Executive, the Company shall pay to Executive's
estate or legal representative an amount equal to the Base Salary at the rate in
effect at the time of Executive's death through the last day of the month in
which his death occurs. The payment to Executive of any other benefits following
the termination of Executive's employment pursuant to this Section 5.3 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company.
5.4. WITHOUT CAUSE BY THE COMPANY. The Executive's employment hereunder
may be terminated by the Company at any time without Cause upon not less than
sixty (60) days prior written notice from the Company to Executive. If
Executive's employment is terminated by the Company without Cause, including
without limitation by reason of Executive's failure to achieve stated goals or
milestones, the Company shall pay Executive a lump sum amount equal to the Base
Salary plus any benefits to which Executive is entitled under Section 4.3 of
this Agreement (to the extent permitted by the then-current terms of the
applicable benefit plans and subject to any employee contribution applicable to
Executive on the date of termination) through the earlier of (a) the conclusion
of a period of six (6) months from the date of such termination or (b) the date
Executive commences other employment. In addition, any Incentive Stock Options
which have been granted to Executive under this Agreement and which would have
otherwise vested within the six (6) month period from the date of such
termination shall become immediately exercisable. The payment to Executive of
any other benefits following the termination of Executive's employment pursuant
to this Section 5.4 shall be determined by the Board in its sole discretion in
accordance with the policies and practices of the Company.
5.5. TERMINATION BY EXECUTIVE.
5.5.1. TERMINATION FOR GOOD REASON. Executive's employment
hereunder may be terminated by Executive at any time for Good Reason upon not
less than sixty (60) days prior written notice from Executive to the Company. As
used herein, the term "Good Reason" shall mean (i) any act or failure to act by
the Board which causes Executive (A) to be removed from the offices of President
and Chief Executive Officer of the Company or (B) not to be nominated for
election as a director of the Company by the stockholders of the Company; (ii)
any material diminution in the powers, responsibilities, and authority of
Executive as described in this Agreement without the consent of Executive; (iii)
the failure of the Company to obtain in writing the assumption of its
obligations under this Agreement by any successor to the
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<PAGE> 5
Company prior to or concurrent with a merger, consolidation, sale or similar
transaction involving the Company; and (iv) any material breach of this
Agreement by the Company which remains uncured by the Company for a period of
sixty (60) days after its receipt of notice from Executive specifying such
breach. If Executive terminates his employment with the Company pursuant to this
Section 5.5.1, the Company shall pay Executive a lump sum amount equal to the
Base Salary plus any benefits to which Executive is entitled under Section 4.3
of this Agreement (to the extent permitted by the then-current terms of the
applicable benefit plans and subject to any employee contribution applicable to
Executive on the date of termination) for a period of six (6) months from the
date of such termination. In addition, any Incentive Stock Options which have
been granted to Executive under this Agreement and which would have otherwise
vested within the six (6) month period from the date of such termination shall
become immediately exercisable.
5.5.2. TERMINATION OTHER THAN FOR GOOD REASON. Executive's
employment hereunder may be terminated by Executive at any time upon not less
than sixty (60) days prior written notice from Executive to the Company. If
Executive terminates his employment with the Company pursuant to this Section
5.5.2, the Company shall pay Executive an amount equal to the Base Salary
through the last day of his actual employment by the Company.
5.6. NOTICE OF TERMINATION. Any purported termination of employment by
the Company or by Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 9 hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
5.7. SURVIVAL. The provisions of Sections 6 and 7 shall survive the
termination of this Agreement.
6. NON-COMPETITION. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and accordingly agrees that
during the Employment Term and for a period of one (1) year after expiration or
termination of Executive's employment hereunder:
6.1. Executive will not engage in any activity which is competitive with
any business which is now, or is at any time during the Employment Term,
conducted by the Company, including without limitation becoming an employee,
investor (except for passive investments of not more than one percent (1%) of
the outstanding shares of, or any other equity interest in, a company or entity
listed or traded on a national securities exchange or in an over-the-counter
securities market), officer, agent, partner or director of, or other participant
in, any firm, person or other entity in any geographic area which is engaged in
any activities in the field of combinatorial chemistry. Notwithstanding any
provision of this Agreement to the contrary, upon the occurrence of any breach
of this Section 6.1, if Executive is employed by the Company, the Company may
immediately terminate the employment of Executive for Cause in accordance with
the notice provisions contained in Sections 5.6 and 9, and, whether or not
Executive is employed by the Company, the Company shall immediately cease to
have any
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<PAGE> 6
obligations to make payments to Executive under this Agreement.
6.2. Executive will not directly or indirectly assist others in engaging
in any of the activities in which Executive is prohibited to engage by clause
6.1 above.
6.3. Executive will not directly or indirectly (a) induce any employee
of the Company to engage in any activity in which Executive is prohibited from
engaging by clause 6.1 above or to terminate his or her employment with the
Company, or (b) employ or offer employment to any person who was employed by the
Company unless such person shall have ceased to be employed by the Company for a
period of at least one (1) year.
6.4. It is expressly understood and agreed that (a) although Executive
and the Company consider the restrictions contained in this Section 6 to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Agreement is unenforceable, this Agreement shall not be rendered void but
shall be deemed to be enforceable to such maximum extent as such court may
judicially determine or indicate to be enforceable and (b) if any restriction
contained in this Agreement is determined to be unenforceable and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of the other restrictions contained herein.
7. CONFIDENTIALITY. Executive will not at any time (whether during or after
his employment with the Company) disclose or use for his own benefit or purposes
or the benefit or purposes of any other person, firm, partnership, joint
venture, association, corporation or other organization, entity or enterprise
other than the Company, any Confidential Information. As used herein, the term
"Confidential Information" shall mean, without limitation, all Proprietary
Materials (as defined below), any and all information about inventions,
improvements, modifications, discoveries, costs, profits, markets, sales,
products, key personnel, pricing policies, operational methods, concepts,
technical processes and applications, and other business affairs and methods of
the Company and of its affiliates, collaborators, consultants, suppliers, and
customers, as well as any other information not readily available to the public,
including without limitation any information supplied by third parties to the
Company under an obligation of confidence. As used in this Agreement
"Proprietary Materials" shall include, without limitation, the following
materials: any and all reagents, substances, chemical compounds, subcellular
constituents, cells or cell lines, organisms and progeny, and mutants, as well
as any and all derivatives or replications derived from or relating to such
materials. Confidential Information may be contained in various media, including
without limitation patent applications, computer programs in object and/or
source code, flow charts and other program documentation, manuals, plans,
drawings, designs, technical specifications, laboratory notebooks, supplier and
customer lists, internal financial data, and other documents and records of the
Company, whether or not in written form and whether or not labelled or
identified as confidential or proprietary. Executive further agrees that (a)
upon termination or expiration of his employment hereunder, Executive will
return immediately to the Company any Proprietary Materials and any materials
containing Confidential Information then in Executive's possession or under
Executive's control and (b) he will not retain or use for his account at any
time any trade name, trademark or other proprietary business designation used or
owned in connection with the business of the Company.
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<PAGE> 7
8. SPECIFIC PERFORMANCE. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 6 or Section 7 would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining orders, temporary or permanent injunctions or
any other equitable remedy which may then be available.
9. NOTICES. Any notice hereunder by either party to the other shall be
given in writing by personal delivery, telex, telecopy or registered mail,
return receipt requested, addressed, if to the Company, to the attention of
Chairman of the Board at the Company's executive offices or to such other
address as the Company may designate in writing at any time or from time to time
to the Executive, and if to the Executive, to his most recent address on file
with the Company. Notice shall be deemed given, if by personal delivery, on the
date of such delivery or, if by telex or telecopy, on the business day following
receipt of answer back or telecopy information or, if by registered mail, on the
date shown on the applicable return receipt.
10. ASSIGNMENT. This Agreement may not be assigned by either party without
the prior written consent of the other party. The Company shall require any
persons, firm or corporation succeeding to all or substantially all of the
business or assets of the Company whether by purchase, merger or consolidation
to expressly assume and agree to perform this Agreement.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the Company and Executive with respect to the subject matter thereof and there
have been no oral or other agreements of any kind whatsoever as a condition
precedent or inducement to the signing of this Agreement or otherwise concerning
this Agreement or the subject matter hereof.
12. EXPENSES. Each party shall pay its own expenses incident to the
performance or enforcement of this Agreement, including all fees and expenses of
its counsel for all activities of such counsel undertaken pursuant to this
Agreement, except as otherwise herein specifically provided. If any action at
law or equity is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reimbursement of reasonable attorney's
fees and other costs incurred by such party in connection with such action, in
addition to any other relief to which such party is entitled.
13. ARBITRATION. In the event any dispute shall arise between the Company
and the Executive with respect to any of the terms and conditions of this
Agreement, then such dispute shall be submitted and finally settled by
arbitration in Boston, Massachusetts under the rules of the American Arbitration
Association. The award rendered by the arbitrator shall be final and binding
upon the parties hereto, and judgment upon the award rendered may be entered by
either party in any court that would ordinarily have jurisdiction over the
parties or the subject matter of the controversy or claim. Each party shall pay
its own expenses incident to such arbitration, including attorneys' fees. The
parties agree not to institute any litigation or proceedings against each other
in connection with this Agreement except as provided in this Section 13.
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<PAGE> 8
14. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or conditions
of this Agreement shall not operate as a waiver of any other breach of such
terms or conditions or any other term or condition, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof; provided, however, that no such written wavier, unless
it, by its own terms, explicitly provides to the contrary, shall be construed to
effect a continuing waiver of the provision being waived and no such waiver in
any instance shall constitute a waiver in any other instance or for any other
purpose or impair the right of the party against whom such waiver is claimed in
all other instances or for all other purposes to require full compliance with
such provision. Each of the parties hereto agrees to execute all such further
instruments and documents and to take all such further action as the other party
may reasonably require in order to effectuate the terms and purposes of this
Agreement.
15. AMENDMENTS. This Agreement may not be amended, nor shall any waiver,
change, modification, consent or discharge be effected except by an instrument
in writing executed by or on behalf of the party against whom enforcement of any
waiver, change, modification, consent or discharge is sought.
16. SEVERABILITY. If any provision of this Agreement shall be held or
deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
18. SECTION HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the law (other than the law governing conflict of
law questions) of the Commonwealth of Massachusetts.
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties have been executed or caused to be executed
this Agreement as of the date first above written.
ARQULE, INC.
By: /s/ Steve Dow
------------------------------
Name:
Title:
ERIC B. GORDON
/s/ Eric B. Gordon
---------------------------------
- 9 -
<PAGE> 10
EXHIBIT A
---------
Form of Incentive Stock Option
- 10 -
<PAGE> 11
EXHIBIT B
---------
Milestones for Bonus Options
Description of Milestone Incentive Stock Option Granted Vesting Schedule
- ------------------------ ------------------------------ ----------------
Completion of initial 77,487 Immediate
public offering having on execution
an aggregate offering price
of not less than $25,000,000
or sale of 50% or more
of the Company for an aggregate
consideration of not less
than $25,000,000
Additional pharmaceutical 38,743 Immediate
company collaboration which on execution
has a collective value to the
Company (whether in the form of
equity issuance, milestone payments, etc.,
but exclusive of royalty payments) of
not less than $25,000,000
Vertical expansion/ 38,743 Immediate
integration either by collaboration on execution
with screening or genomics
company or by corporate
collaboration in non-pharmaceutical
area
- 11 -
<PAGE> 1
Exhibit 10.10
PROMISSORY NOTE
$120,000 November 2, 1995
Medford, Massachusetts
FOR VALUE RECEIVED, the undersigned, Joseph C. Hogan, Jr., an individual
with a place of residence at 50 Oak Avenue, Belmont, Massachusetts 02128
(hereinafter called "MAKER"), by this secured promissory note (hereinafter
called this "NOTE"), promises unconditionally to pay to the order of ArQule,
Inc., a Delaware corporation with a principal place of business at 200 Boston
Avenue, Medford, Massachusetts 02166 (hereinafter called "HOLDER"), on or before
November 2, 1999 (the "MATURITY DATE"), the principal sum of ONE HUNDRED TWENTY
THOUSAND AND 00/100 DOLLARS ($120,000.00), with interest (computed on the basis
of actual days elapsed and a 365-day year) from the date hereof on the principal
amount unpaid at a rate equal to the lowest applicable federal rate of interest
as set forth in Section 1274 of the Internal Revenue Code of 1986, as amended.
Payments of principal and interest hereunder shall be made in accordance with
the payment schedule attached hereto as SCHEDULE I and incorporated herein by
reference.
Maker shall pay to Holder four (4) equal installments of principal in the
amount of $30,000 each, plus accrued interest hereon, on November 2 of each year
commencing on November 2, 1996 and continuing thereafter until the Maturity Date
(each, an "INSTALLMENT DATE"); PROVIDED, HOWEVER, that notwithstanding the
foregoing, Holder agrees that so long as Maker is employed by Holder on any
Installment Date, the amount of principal (but not interest) due and payable on
such Installment Date shall be forgiven.
This Note is secured by, and is entitled to the benefits of, that certain
Stock Pledge Agreement (the "PLEDGE AGREEMENT") of even date hereof between
Maker and Holder which provides certain security for the indebtedness of Maker
under this Note. Neither the foregoing reference to the Pledge Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of Maker to pay the principal of and interest on this Note as herein
provided.
Upon the occurrence of an Event of Default (as defined in the Pledge
Agreement), Holder may declare the entire unpaid and principal balance hereof,
together with interest and other amounts, if any, accrued hereon, immediately
due and payable. In such event Maker shall be obliged to pay such principal,
together with all interest accrued thereon to the date of payment and failure to
do so shall entitle Holder the remedies provided for by the Pledge Agreement.
Maker shall pay principal and other amounts under, and in accordance with
the terms of, this Note, free and clear of and without deduction for any and all
present and future taxes,
<PAGE> 2
levies, imposts, deductions, charges, withholdings, and all liabilities with
respect thereto, excluding income and franchise taxes of the United States of
America or any political subdivision thereof.
Should the indebtedness evidenced by this Note or any part thereof be
collected by action at law, or in bankruptcy, receivership or other court
proceedings, or should this Note be placed in the hands of attorneys for
collection after default, Maker agrees to pay, upon demand by Holder, in
addition to principal and other sums, if any, due and payable hereon, court
costs and reasonable attorneys' fees and other reasonable collection charges,
including the costs of enforcing any judicial award or judgment, unless
prohibited by law.
All payments of principal, interest and other amounts payable on or in
respect of this Note or the indebtedness evidenced hereby shall be made to
Holder at its principal office in Medford, Massachusetts, in lawful money of the
United States of America, in funds immediately available to Holder as it may
from time to time direct. If any payment on this Note becomes due and payable on
a day other than a day (a "BUSINESS DAY") on which banks are open for the
transaction of normal banking business in Boston, Massachusetts, the maturity
thereof shall be extended to the next succeeding business day.
The principal amount of this Note may be prepaid in whole or from time to
time in part without premium or penalty of any type whatsoever.
The undersigned hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note and assents to extensions of the time
of payment, or forbearance or other indulgence without notice.
None of the provisions hereof, and none of Holder's rights or remedies
hereunder on account of any past or future defaults, shall be deemed to have
been waived by Holder's acceptance of any past due amount or by any indulgence
granted by Holder to Maker. This Note shall be the obligation of Maker and shall
be binding upon him or his successors and assigns.
As used herein, the term "HOLDER" shall mean, in addition to the initial
payee hereof, each person from time to time who is an endorsee or assignee of
this Note or the bearer, if this Note is at the time payable to bearer, and the
term "MAKER" shall include, in addition to the initial obligor hereon, each
person from time to time who is a maker, surety, guarantor and endorser hereof.
This Note shall take effect as a sealed instrument and shall be governed by
and interpreted in accordance with the laws of The Commonwealth of
Massachusetts.
WITNESS the execution hereof under seal as of the day and date above first
written.
-2-
<PAGE> 3
/s/ Joseph C. Hogan, Jr.
---------------------------
Joseph C. Hogan, Jr.
-3-
<PAGE> 4
Schedule I
----------
<TABLE>
Payment Schedule
----------------
<CAPTION>
1 2
Date Principal Due Interest Due Total Payment Due Balance
---- ------------- ------------ ------------------ -------
<S> <C> <C> <C> <C>
November 2, 1996 $30,000 $7,080.00 $7,080.00 $90,000
November 2, 1997 30,000 5,310.00 5,310.00 60,000
November 2, 1998 30,000 3,540.00 3,540.00 30,000
November 2, 1999 30,000 1,770.00 1,770.00 -0-
<FN>
- ------------------
1 Based upon the applicable federal rate of interest of 5.90%, as announced
on November 1, 1995. This rate of interest may fluctuate, and the interest
payment due on any Installment Date may change, in accordance with any changes
to the applicable federal rate of interest announced from time to time by the
Internal Revenue Service.
2 The total payment due for each Installment Date assumes that Maker is
employed by Holder on such Installment Date.
</TABLE>
-4-
<PAGE> 1
Exhibit 10.12
PROMISSORY NOTE
$250,000 July 9, 1996
Medford, Massachusetts
FOR VALUE RECEIVED, the undersigned, Eric B. Gordon, an individual with a
place of residence at 30 Old Farmstead Road, Chester, New Jersey 07930
(hereinafter called "MAKER"), by this secured promissory note (hereinafter
called this "NOTE"), promises unconditionally to pay to the order of ArQule,
Inc., a Delaware corporation with a principal place of business at 200 Boston
Avenue, Medford, Massachusetts 02155 (hereinafter called "HOLDER"), on or before
the second anniversary of the Payment Commencement Date (as defined below), the
principal sum of TWO HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS ($250,000.00),
with interest (computed on the basis of actual days elapsed and a 365-day year)
from the date hereof on the principal amount unpaid at a rate equal to the
lowest applicable federal rate of interest as set forth in Section 1274 of the
Internal Revenue Code of 1986, as amended.
The "Payment Commencement Date" shall be the earlier of one year after
either (i) a sale of all or substantially all of the assets of the Holder; (ii)
a change in control of the Holder such that the stockholders of the Holder
immediately prior to such change in control would not immediately after such
change in control beneficially own voting securities representing in the
aggregate more than 50% of the combined voting power of the voting securities of
the surviving entity; or (iii) the initial public offering of the Holder's
Common Stock. Payments of principal and interest hereunder shall be made in
three equal installments in accordance with the payment schedule attached hereto
as SCHEDULE I and incorporated herein by reference.
This Note is secured by, and is entitled to the benefits of, that certain
Stock Pledge Agreement (the "PLEDGE AGREEMENT") of even date hereof between
Maker and Holder which provides certain security for the indebtedness of Maker
under this Note. Neither the foregoing reference to the Pledge Agreement nor any
provision thereof shall affect or impair the absolute and unconditional
obligation of Maker to pay the principal of and interest on this Note as herein
provided.
Upon the occurrence of an Event of Default (as defined in the Pledge
Agreement), Holder may declare the entire unpaid and principal balance hereof,
together with interest and other amounts, if any, accrued hereon, immediately
due and payable. In such event Maker shall be obliged to pay such principal,
together with all interest accrued thereon to the date of payment and failure to
do so shall entitle Holder the remedies provided for by the Pledge Agreement.
Maker shall pay principal and other amounts under, and in accordance with
the terms of, this Note, free and clear of and without deduction for any and all
present and future taxes, levies, imposts, deductions, charges, withholdings,
and all liabilities with respect thereto,
<PAGE> 2
excluding income and franchise taxes of the United States of America or any
political subdivision thereof.
Should the indebtedness evidenced by this Note or any part thereof be
collected by action at law, or in bankruptcy, receivership or other court
proceedings, or should this Note be placed in the hands of attorneys for
collection after default, Maker agrees to pay, upon demand by Holder, in
addition to principal and other sums, if any, due and payable hereon, court
costs and reasonable attorneys' fees and other reasonable collection charges,
including the costs of enforcing any judicial award or judgment, unless
prohibited by law.
All payments of principal, interest and other amounts payable on or in
respect of this Note or the indebtedness evidenced hereby shall be made to
Holder at its principal office in Medford, Massachusetts, in lawful money of the
United States of America, in funds immediately available to Holder as it may
from time to time direct. If any payment on this Note becomes due and payable on
a day other than a day (a "BUSINESS DAY") on which banks are open for the
transaction of normal banking business in Boston, Massachusetts, the maturity
thereof shall be extended to the next succeeding business day.
The principal amount of this Note may be prepaid in whole or from time to
time in part without premium or penalty of any type whatsoever.
The undersigned hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note and assents to extensions of the time
of payment, or forbearance or other indulgence without notice.
None of the provisions hereof, and none of Holder's rights or remedies
hereunder on account of any past or future defaults, shall be deemed to have
been waived by Holder's acceptance of any past due amount or by any indulgence
granted by Holder to Maker. This Note shall be the obligation of Maker and shall
be binding upon him or his successors and assigns.
As used herein, the term "HOLDER" shall mean, in addition to the
initial payee hereof, each person from time to time who is an endorsee or
assignee of this Note or the bearer, if this Note is at the time payable to
bearer, and the term "MAKER" shall include, in addition to the initial obligor
hereon, each person from time to time who is a maker, surety, guarantor and
endorser hereof.
This Note shall take effect as a sealed instrument and shall be governed by
and interpreted in accordance with the laws of The Commonwealth of
Massachusetts.
WITNESS the execution hereof under seal as of the day and date above first
written.
-2-
<PAGE> 3
/s/ Eric B. Gordon
---------------------------
Eric B. Gordon
-3-
<PAGE> 4
Schedule I
----------
<TABLE>
Payment Schedule
----------------
<CAPTION>
1
Date Principal Due Interest Due Total Payment Due Principal Balance
- ---- ------------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Payment
Commencement
Date $83,333 $15,100.00 $98,433.00 $166,667
First Anniversary
of Payment
Commencement
Date $83,333 $10,066.69 $93,399.69 $ 83,333
Second Anniversary
of Payment
Commencement
Date $83,333 $ 5,033.31 $88,366.31 --
<FN>
- -----------------
1 Based upon the applicable federal rate of interest of 6.04%, as announced for the month of July,
1996. This rate of interest may fluctuate, and the interest payment due on any Installment Date may
change, in accordance with any changes to the applicable federal rate of interest announced from time to
time by the Internal Revenue Service.
</TABLE>
-4-
<PAGE> 5
STOCK PLEDGE AGREEMENT
----------------------
AGREEMENT, made as of the 9th day of July, 1996, between by and between
Eric B. Gordon (the "PLEDGOR") and ArQule, Inc., a Delaware corporation with a
principal place of business at 200 Boston Avenue, Medford, Massachusetts 02155
(the "PLEDGEE").
WHEREAS, the Pledgor has requested that the Pledgee advance the Pledgor the
principal sum of $250,000 (the "LOAN"), as evidenced by a promissory note of
even date herewith by the Pledgor in favor of the Pledgee (the "SECURED NOTE");
and
WHEREAS, the Pledgee is unwilling to advance the Loan and accept the
Secured Note without the assurances herein provided.
NOW, THEREFORE, in order to induce the Pledgee to accept the Secured Note
as so amended and in consideration therefor and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
in consideration of the mutual covenants set forth herein, the parties hereto
agree as follows:
1. Certain Definitions.
-------------------
(a) The term "VESTED STOCK" as used herein means that number of the
shares of Common Stock, $.01 par value per share (the "Common Stock"), of the
Pledgee that shall have vested in the Pledgor in accordance with the vesting
schedule (the "Vesting Schedule") set forth in the stock option certificate
number 37 issued in the name of Pledgor, up to a maximum of 25,000 shares of
Common Stock.
(b) The term "OBLIGATIONS" as used herein means all indebtedness,
obligations and liabilities of the Pledgor to the Pledgee, now existing or
hereafter arising, direct or indirect, absolute or contingent, due or to become
due, matured or unmatured, liquidated or unliquidated, arising under Pledgor's
Secured Note in the principal amount of $250,000 payable to the order of
Pledgee, as from time to time amended, revised or assigned.
(c) The term "COLLATERAL" as used herein means the Pledgor's beneficial
interest in the Vested Stock and any other property at any time, whether now or
hereafter, pledged with the Pledgee hereunder (whether described herein or not)
and all income therefrom, increases therein and proceeds thereof.
(d) The term "EVENT OF DEFAULT" shall mean Pledgor's failure to pay any
and all amounts due under the Secured Note, an event of default pursuant to the
terms of any of the documents or instruments evidencing any of the Obligations
or the breach of a covenant or agreement herein contained.
<PAGE> 6
(e) Terms used herein without definition which are defined in the
Uniform Commercial Code of The Commonwealth of Massachusetts have such defined
meanings herein, unless the context otherwise indicates or requires.
2. SECURITY FOR OBLIGATIONS. This Agreement and the pledge of the
Collateral hereunder is made with the Pledgee as security for the Obligations.
3. PLEDGE OF COLLATERAL. For valuable consideration, receipt of which is
hereby acknowledged by the Pledgor, the Pledgor hereby grants a security
interest in and pledges the Collateral to the Pledgee, to be held by the Pledgee
subject to the terms and conditions hereinafter set forth. The Pledgor hereby
acknowledges and agrees that in the event he acquires additional shares of
Vested Stock in accordance with the Vesting Schedule, the Pledgor shall
forthwith pledge such additional shares of Vested Stock under this Agreement and
such additional shares of Vested Stock shall be considered to be Collateral for
purposes of this Agreement, subject to the limitation specified in Section 1(a).
4. Representations, Warranties and Covenants of the Pledgor.
--------------------------------------------------------
(a) WARRANTY OF TITLE, ETC. The Pledgor represents and warrants as of
the date hereof and on the date of any pledge of additional Vested Stock in
accordance with Section 3 that:
(i) upon issuance of the Vested Stock in accordance with the
Vesting Schedule, he will own and have good title to the
Vested Stock, free of all encumbrances and liens;
(ii) he has the full right and power to enter into this Agreement
and to take any actions contemplated or permitted by this
Agreement to be taken by him;
(iii) neither this Agreement, nor the pledge of the Collateral
hereunder, will violate any agreement or commitment to which
the Pledgor is a party or by which Pledgor or any of Pledgor's
property is bound or affected; and
(iv) this Agreement is binding upon the Pledgor, his successors and
assigns.
(b) GENERAL COVENANTS. The Pledgor covenants that he will defend the
Pledgee's rights and security interest hereunder in the Collateral against
the claims and demands of all persons whomsoever, and that the Pledgor will
have the like title to and right to pledge the Collateral and will likewise
defend the Pledgee's rights and security interests therein.
- 2 -
<PAGE> 7
5. DIVIDENDS, LIQUIDATION, RECAPITALIZATION, ETC. In case any distribution
of capital or stock dividend shall be made on or in respect of any of the
Collateral or payment of any dividend in cash or other property shall be made in
respect of the Collateral, or any money or property shall otherwise be
distributed upon or with respect to any of the Collateral, including pursuant to
a recapitalization or reclassification of the capital of the Pledgee or pursuant
to a reorganization or liquidation or dissolution of the Pledgee, capital,
dividend, principal, interest or other money or property so distributed shall be
delivered to the Pledgee to be held by it as part of the Collateral and as
security for the Obligations. All capital, dividends, principal, interest and
other sums of money and property, if any, paid or distributed in respect of the
Collateral, which are received by the Pledgor shall, until paid or delivered to
the Pledgee, be held in trust for the Pledgee as part of the Collateral and as
security for the Obligations.
6. VOTING, ETC., PRIOR TO MATURITY. Unless and until an Event of Default
shall have occurred and be continuing, and until notice of such Event of Default
has been given by the Pledgee, the Pledgor shall be entitled to vote the Vested
Stock and to give consents, waivers and ratifications in respect of the Vested
Stock; PROVIDED, HOWEVER, that no vote shall be cast, or consent, waiver or
ratification given or action taken which would be inconsistent with or violate
any provisions of any of the documents or instruments evidencing any of the
Obligations or of this Agreement. Until the occurrence of an Event of Default,
the Pledgee shall execute and deliver to the Pledgor such proxies or other
documents in writing as may be necessary to enable the Pledgor to exercise the
foregoing rights. All such rights of the Pledgor to vote and give consents,
waivers and ratifications shall cease forthwith in case an Event of Default
shall have occurred and be continuing, without any notice (except as provided in
this section 6) or demand by the Pledgee to the Pledgor.
7. REMEDIES. If an Event of Default shall have occurred and be continuing,
the Pledgee shall thereafter have the following rights and remedies (to the
extent permitted by applicable law) in addition to the rights and remedies of a
secured party under the Uniform Commercial Code of The Commonwealth of
Massachusetts, all such rights and remedies being cumulative, not exclusive, and
enforceable alternatively, successively or concurrently, at such time or times
as the Pledgee deems expedient:
(i) The Pledgee may vote any or all shares of the Vested Stock
(whether or not the same shall have been transferred into its name or the
name of its nominee or nominees) and give all consents, waivers and
ratifications in respect of the Vested Stock and otherwise act with
respect thereto as though it were the outright owner thereof (the Pledgor
hereby irrevocably constituting and appointing the Pledgee the proxy and
attorney in-fact of the Pledgor, with full power of substitution, to do
so);
(ii) The Pledgee may demand, sue for, collect or make any compromise or
settlement the Pledgee deems suitable in respect of any Collateral held by
it hereunder;
(iii) The Pledgee may sell, resell, assign and deliver, or otherwise
dispose of any or all of the Collateral, for cash and/or credit and upon
such terms, at such place
- 3 -
<PAGE> 8
or places and at such time or times and to such persons, firms, companies
or corporations as the Pledgee deems expedient, all without demand for
performance by the Pledgor or any notice or advertisement whatsoever except
such as may be required by law; and
(iv) The Pledgee may cause all or any part of the Vested Stock held by
it to be transferred into its name or the name of its nominee or nominees.
If any of the Collateral is sold by the Pledgee upon credit or for future
delivery, the Pledgee shall not be liable for the failure of the purchaser to
pay for the same and in such event the Pledgee may resell such Collateral.
The Pledgee may buy any part or all of the Collateral at any public sale
and if any part or all of the Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Pledgee may, in its sole discretion, buy at
private sale and may make payments therefor by any means including, without
limitation, cancellation of indebtedness secured thereby.
The Pledgee may, in its sole discretion, apply the cash proceeds actually
received from any sale or other disposition to the reasonable expenses of
retaking, holding, preparing for sale, selling and the like, to reasonable
attorneys' fees, and all legal expenses, travel and other expenses which may be
incurred by the Pledgee in attempting to collect the Obligations or to enforce
this Agreement or any instrument evidencing the Obligations or in the
prosecution or defense of any action or proceeding related to the subject matter
of this Agreement or any instrument evidencing the Obligations, and then to the
Obligations with respect to principal or interest, or both, or other fees and
expenses, in such proportions as the Pledgee, in its sole discretion, shall
determine, and any surplus shall be paid to the Pledgor.
The Pledgor recognizes that the Pledgee may be unable to effect a public
sale of the Vested Stock by reason of certain prohibitions contained in the
United States Securities Act of 1933, as amended, or in other applicable laws,
regulations or agreements to which such Vested Vested Stock may be subject but
may be compelled to resort to one or more private sales thereof to a restricted
group of purchasers. The Pledgor agrees that any such private sales may be at
prices and other terms less favorable to the seller than if sold at public sales
and that such private sales shall be deemed to have been made in a commercially
reasonable manner. The Pledgee shall be under no obligation to delay a sale of
any of the Vested Stock for the period of time necessary to permit the issuer of
such securities to register such securities for public sale under the said
Securities Act or other applicable law, even if the issuer would agree to do so.
8. MARSHALLING. The Pledgee shall not be required to marshal any present or
future security for (including but not limited to this Agreement and the
Collateral pledged hereunder), or guaranties of, the Obligations or any of them,
or to resort to such security or guaranties in any particular order; and all of
the rights hereunder and in respect of such securities and guaranties shall be
cumulative and in addition to all other rights, however existing or arising. To
the
- 4 -
<PAGE> 9
extent that it lawfully may, the Pledgor hereby agrees that it will not invoke
any law relating to the marshalling of collateral which might cause delay in or
impede the enforcement of the Pledgee's rights under this Agreement or under any
other instrument evidencing any of the Obligations or under which any of the
Obligations is outstanding or by which any of the Obligations is secured or
guaranteed, and to the extent that it lawfully may the Pledgor hereby
irrevocably waives the benefits of all such laws.
9. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of the Pledgor
hereunder shall remain in full force and effect without regard to, and shall not
be impaired by (a) any bankruptcy, insolvency, arrangement, readjustment,
composition or the like of the Pledgor; (b) any exercise or non-exercise, or any
waiver, by the Pledgee of any right, remedy, power or privilege under or in
respect of any of the Obligations or any security therefor (including this
Agreement); (c) any amendment to or modification of any of the Obligations; (d)
any amendment to or modification of any instrument (other than this Agreement)
evidencing or securing or guaranteeing any of the Obligations; or (e) the taking
of additional security for, or any guaranty of, any of the Obligations or the
release or discharge or termination of any security or guaranty for any of the
Obligations, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing.
10. FURTHER ASSURANCES. The Pledgor will do all such acts, and will furnish
to the Pledgee all such financing statements, certificates, legal opinions and
other documents and will obtain all such governmental consents and approvals and
will do or cause to be done all such other things, including without limitation
the execution and delivery of further agreements and instruments, as the Pledgee
may reasonably request from time to time in order to give full effect to this
Agreement and to secure the rights of the Pledgee hereunder.
11. PLEDGEE'S EXONERATION. Under no circumstances shall the Pledgee be
deemed to assume any responsibility for or obligation or duty with respect to
any part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at the
Pledgor's sole risk at all times. The Pledgee shall not be required to take any
action of any kind to collect, preserve or protect its or the Pledgor's rights
in the Collateral or against other parties thereto. The Pledgee's prior recourse
to any part or all of the Collateral shall not constitute a condition of any
demand, suit or proceeding for payment or collection of the Obligations.
12. NO WAIVER, ETC. No act, failure or delay by the Pledgee shall
constitute a waiver of its rights and remedies hereunder or otherwise. No single
or partial waiver by the Pledgee of any default or right or remedy which it may
have shall operate a waiver of any other default, right or remedy or of the same
default, right or remedy on a future occasion. The Pledgor hereby waives
presentment, notice of dishonor and protest of all instruments, included in or
evidencing any of the Obligations or the Collateral, and any and all other
notices and demands whatsoever (except as expressly provided herein).
- 5 -
<PAGE> 10
13. NOTICES, ETC. All notices, requests and other communications hereunder
shall be in writing and shall be delivered in hand or by telex or telecopy or
where telex or telecopy communication is not possible, by mail, return receipt
requested, or by a nationally known overnight courier service addressed as
follows:
- 6 -
<PAGE> 11
If to the Pledgor:
To the address set forth at the foot of this
agreement.
with a copy to:
Such person or persons as Pledgor may designate
from time to time.
If to the Pledgee:
ArQule, Inc.
200 Boston Avenue
Medford, MA 02155
Attn: Alan Ferguson
with a copy to:
Palmer & Dodge
One Beacon Street
Boston, Massachusetts 02108
Attn: Michael Lytton, Esq.
or to such other address as the party to receive any such communication or
notice may have designated by written notice to the other party from time to
time.
14. TERMINATION. Upon payment and performance in full of the Obligations in
accordance with their terms and the performance by the Pledgor of all of his
covenants and agreements hereunder, this Agreement shall terminate and the
Pledgor shall be entitled to the return, at the Pledgor's expense, of such of
the Collateral in the possession or control of the Pledgee as has not
theretofore been disposed of pursuant to the provisions hereof, together with
any moneys and other property at the time held by the Pledgee hereunder.
15. MISCELLANEOUS PROVISIONS.
(a) WAIVERS; AMENDMENTS. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated except by a written instrument
expressly referring to this Agreement and to the provisions so modified or
limited, and executed by the party to be charged therewith.
- 7 -
<PAGE> 12
(b) SUCCESSORS AND ASSIGNS. This Agreement and all obligations of the
Pledgor hereunder shall be binding upon the successors and assigns of the
Pledgor, and shall, together with the rights and remedies of the Pledgee
hereunder, inure to the benefit of the Pledgee and the Pledgee's successors and
assigns.
(c) GOVERNING LAW. This Agreement and the obligations of the Pledgor
hereunder shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
(d) SECTION HEADINGS. The descriptive section headings herein have been
inserted for convenience of reference only and do not define or limit the
provisions hereof.
(e) SEVERABILITY. If any terms of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity of all other terms hereof shall
be in no way affected thereby, and this Agreement shall be construed and be
enforceable as if such invalid, illegal or unenforceable term had not been
included herein.
(f) COUNTERPARTS. This Agreement may be executed in more than one
counterpart, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, binding upon all the
parties hereto, notwithstanding that all the parties are not signatories to the
original or the same counterpart. In pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one of such
counterparts.
16. RECEIPT. The Pledgor acknowledges receipt of a copy of this Agreement.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Agreement
to be duly executed, as an instrument under seal, as of the date first above
written.
Pledgor:
-------
/s/ Eric B. Gordon
-----------------------------
Eric B. Gordon
Address:
30 Old Farmstead Road
Chester, NJ 07930
- 8 -
<PAGE> 13
Pledgee:
-------
ARQULE, INC.
By: /s/ Stephen M. Dow
--------------------------
Name: Stephen M. Dow
Title: Director
- 9 -
<PAGE> 1
Exhibit 10.13
PROMISSORY NOTE
$63,000 Medford, Massachusetts
November 4, 1993
FOR VALUE RECEIVED, the undersigned, Joseph C. Hogan, Jr., of Belmont,
Massachusetts (the "Borrower"), hereby promises to pay to the order of ArQule
Partners, L.P., a Delaware limited partnership with its principal place of
business at 200 Boston Avenue, Medford, Massachusetts (the "Payee"), the
principal sum of Sixty Three Thousand Dollars ($63,000), with interest on all
unpaid principal, from the date hereof, at a rate of Three and Sixty Eight One
Hundredths (3.68%) per cent, compounded annually, or the maximum rate of
interest, if lower, permitted by then-applicable state law. Interest shall be
calculated on the basis of a 365 day year and accruing on the unpaid principal
balance for the actual number of days elapsed. As used in this Note, the word
"holder" shall mean the Payee or any endorsee in possession of this Note, or the
bearer if this note becomes payable to bearer.
The principal sum and accrued interest shall be due and payable on November
3, 1996, unless payment becomes due earlier or is extended in accordance with
other provisions of this Note. All payments shall be made at the principal
office of the Payee, or at such other place as the holder may designate.
Payments shall first be applied to unpaid accrued interest, with the remainder
applied to outstanding principal; provided, however, that if the holder has
incurred any expenses of collection in enforcing this Note, as described below,
then any payments shall first be applied to such expenses. This Note may be
prepaid in whole or in part without premium or penalty.
Upon termination of employment of the Borrower with the Payee, the entire
unpaid principal balance and all unpaid accrued interest hereunder shall become
due and payable within thirty (30) days after the effective date of such
termination. Upon the prior written consent of the holder of this Note, the
payment date of November 3, 1996 may be extended by such holder until such date
as the holder shall specify in its written consent.
To the fullest extent permitted by applicable law, the Borrower hereby (a)
waives presentment, demand, notice, protest, and all other demands and notices
in connection with delivery, acceptance, performance, default, or enforcement of
or under this Note, and (b) agrees to pay to the holder, on demand, all costs
and expenses of collection, including without limitation reasonable attorneys
fees and legal expenses, incurred by the holder in enforcing note, whether or
not litigation is commenced.
-1-
<PAGE> 2
No failure by the holder to exercise, nor delay by the holder in
exercising, any right or remedy under this Note shall operate as a waiver
thereof or of any other right of remedy, and no single or partial exercise of
any right or remedy shall preclude any other or further exercise thereof or of
any other right or remedy. Acceptance by the holder of any payment after demand
shall not constitute a waiver of any rights of the holder.
A record of all payments of interest and principal shall be kept on
separate records of the holder and no such record need be made or kept on this
Note.
This Note shall take effect as an instrument under seal and shall be
governed by and construed in accordance with the law of the Commonwealth of
Massachusetts.
/s/ Joseph C. Hogan, Jr.
----------------------------------
Joseph C. Hogan, Jr.
-2-
<PAGE> 1
Exhibit 10.14
-------------
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
between
ARQULE, INC.
and
SOLVAY DUPHAR B.V.
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Definitions................................................- 1 -
1.1. "Active ArQule Compounds".........................- 1 -
1.2. "Affiliate".......................................- 1 -
1.3. "Agreement".......................................- 2 -
1.4. "AMAP"............................................- 2 -
1.5. "AMAP Chemistry"..................................- 2 -
1.6. "AMAP Technology".................................- 2 -
1.7. "AMAP Improvement"................................- 2 -
1.8. "AMAP Installation Date"..........................- 2 -
1.9. "ArQule Compounds"................................- 2 -
1.10. "ArQule Patent Rights"............................- 2 -
1.11. "ArQule Technology"...............................- 2 -
1.12. "Array"...........................................- 2 -
1.13. "Base Rate of Interest"...........................- 2 -
1.14. "Chemical Theme"..................................- 3 -
1.15. "Confidential Information"........................- 3 -
1.16. "Contract Year"...................................- 3 -
1.17. "Derivative"......................................- 3 -
1.18. "Directed Array"..................................- 3 -
1.19. "Directed Array Program" or "DA Program"..........- 3 -
1.20. "Disclosing Party"................................- 3 -
1.21. "Field"...........................................- 3 -
1.22. "Full-Time Equivalent" or "FTE"...................- 3 -
1.23. "Joint Patent Rights".............................- 3 -
1.24. "Lead Compound"...................................- 3 -
1.25. "Net Sales".......................................- 3 -
1.26. "Net Sales Price".................................- 3 -
1.27. "Patent Rights"...................................- 4 -
1.28. "Phase II Clinical Trials"........................- 4 -
1.29. "Phase III Clinical Trials".......................- 4 -
1.30. "Priority Substance"..............................- 4 -
1.31. "Project Declaration".............................- 4 -
1.32. "Proprietary Materials"...........................- 4 -
1.33. "Receiving Party".................................- 4 -
1.34. "Research Committee"..............................- 4 -
1.35. "Research Period".................................- 4 -
1.36. "Research Plan"...................................- 5 -
1.37. "Research Programs"...............................- 5 -
1.38. "Royalty-Bearing Product".........................- 5 -
1.39. "Royalty Period"..................................- 5 -
1.40. "Screening Array".................................- 5 -
1.41. "Screening Array Program" or "SA Program".........- 5 -
(i)
<PAGE> 3
1.42. "Solvay Duphar Compounds"................................- 5 -
1.43. "Solvay Duphar Patent Rights"............................- 5 -
1.44. "Target".................................................- 5 -
1.45. "Third Party Screening Array Partner.....................- 5 -
1.46. "Transferring Party".....................................- 6 -
2. Management of Research Programs...................................- 6 -
2.1. Composition of Research Committee........................- 6 -
2.2. Duties of the Research Committee.........................- 6 -
2.3. Compounds Excluded from the DA Program...................- 7 -
2.4. Meetings of the Research Committee.......................- 7 -
2.5. Cooperation..............................................- 7 -
2.6. Visits to Facilities.....................................- 7 -
3. Screening Array Program...........................................- 8 -
3.1. Description of Program...................................- 8 -
3.1.1. Supply of Screening Arrays......................- 8 -
3.1.2. Identification of Active ArQule Compounds.......- 8 -
3.2. Payment..................................................- 8 -
3.3. Termination of SA Program................................- 9 -
4. Directed Array Program............................................- 9 -
4.1. Description of Program...................................- 9 -
4.2. Conduct of Program......................................- 10 -
4.3. Payments................................................- 10 -
4.4. Termination of DA Program...............................- 11 -
5. Ownership of Compounds...........................................- 11 -
5.1. Solvay Duphar Compounds.................................- 11 -
5.2. ArQule Compounds........................................- 11 -
6. Intellectual Property Rights.....................................- 11 -
6.1. Ownership of Patent Rights..............................- 11 -
6.2. Prosecution of Patent Rights on Active ArQule
Compounds...............................................- 12 -
6.3. Management of Joint Patent Rights.......................- 12 -
6.4. Cooperation of the Parties..............................- 12 -
6.5. Infringement by Third Parties...........................- 13 -
6.5.1. Prosecution by Solvay Duphar...................- 13 -
6.5.2. Prosecution by ArQule..........................- 13 -
6.6. Infringement of Third Party Patent Rights...............- 13 -
6.7. Claims Brought by Third Parties.........................- 14 -
6.8. Cooperation in Infringement Actions.....................- 14 -
7. License Grants...................................................- 14 -
7.1. ArQule Screening License................................- 14 -
7.2. ArQule Commercial License...............................- 14 -
7.3. Limitations on Sublicenses..............................- 15 -
(ii)
<PAGE> 4
7.4. Solvay Duphar License Outside the Field.................- 15 -
7.5. AMAP License............................................- 15 -
7.6. Diligence...............................................- 15 -
7.7. Reports of Development Progress.........................- 15 -
7.8. Reversion of Rights.....................................- 16 -
8. AMAP Technology..................................................- 16 -
8.1. Access to AMAP Technology...............................- 16 -
8.2. AMAP Installation Date..................................- 18 -
8.3. License of AMAP Technology..............................- 18 -
8.4. AMAP Improvements.......................................- 18 -
8.5. Protection of AMAP Technology...........................- 19 -
8.6. Acceleration of Transfer................................- 19 -
9. Payments, Reports, and Records...................................- 19 -
9.1. Milestone Payments......................................- 19 -
9.2. Royalties...............................................- 19 -
9.3. Reports and Payments....................................- 19 -
9.4. Invoices; Payments in U.S. Dollars......................- 20 -
9.5. Payments in Other Currencies............................- 20 -
9.6. Records.................................................- 20 -
9.7. Late Payments...........................................- 21 -
10. Confidential Information and Proprietary Materials...............- 21 -
10.1. Confidential Information................................- 21 -
10.1.1. Definition of Confidential Information....- 21 -
10.1.2. Designation of Confidential Information...- 21 -
10.1.3. Obligations...............................- 21 -
10.1.4. Exceptions................................- 22 -
10.2. Proprietary Materials...................................- 22 -
10.2.1. Definition of Proprietary Materials.......- 22 -
10.2.2. Limited Use...............................- 23 -
10.2.3. Limited Disposition.......................- 23 -
10.2.4. Reverse Engineering.......................- 23 -
10.3. Return of Confidential Information and Proprietary
Materials...............................................- 23 -
10.4. Publications............................................- 23 -
10.5. Survival of Obligations.................................- 23 -
11. Other Rights and Obligations Between the Parties.................- 24 -
11.1. Manufacturing...........................................- 24 -
11.2. ArQule's Right to Acquire Solvay Duphar Products........- 24 -
11.3. Sale of ArQule Pharmaceutical Business..................- 24 -
12. Representations and Warranties...................................- 25 -
12.1. Authorization...........................................- 25 -
12.2. Ownership...............................................- 25 -
12.3. Intellectual Property Rights............................- 25 -
(iii)
<PAGE> 5
12.4. AMAP...............................................- 25 -
13. Indemnification and Insurance...............................- 25 -
13.1. Indemnification....................................- 25 -
13.2. Procedures.........................................- 25 -
13.3. Insurance..........................................- 26 -
14. Term and Termination........................................- 26 -
14.1. Term...............................................- 26 -
14.2. Breach of Payment Obligations......................- 26 -
14.3. Material Breach....................................- 26 -
14.4. Effect of Termination..............................- 26 -
15. Miscellaneous...............................................- 26 -
15.1. Relationship of Parties............................- 26 -
15.2. Publicity..........................................- 27 -
15.3. Non-Solicitation...................................- 27 -
15.4. Governing Law......................................- 27 -
15.5. Dispute Resolution Procedures......................- 27 -
15.6. Counterparts.......................................- 28 -
15.7. Headings...........................................- 28 -
15.8. Binding Effect.....................................- 28 -
15.9. Assignment.........................................- 28 -
15.10. Notices............................................- 29 -
15.11. Amendment and Waiver...............................- 30 -
15.12. Severability.......................................- 30 -
15.13. Entire Agreement...................................- 30 -
15.14. Hardship...........................................- 30 -
15.15. Force Majeure......................................- 30 -
EXHIBIT A ArQule Patent Rights
EXHIBIT B Research Plan
EXHIBIT C Installation Criteria
(iv)
<PAGE> 6
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
This Agreement, effective as of November 2, 1995 (the "Effective
Date"), is between ArQule, Inc. ("ArQule"), a Delaware corporation, and Solvay
Duphar B.V. ("Solvay Duphar"), a Dutch corporation.
R E C I T A L S
WHEREAS, ArQule has developed certain technology that has applications
in the discovery and development of pharmaceutical compounds;
WHEREAS, ArQule intends to produce compound Arrays (as defined below)
containing large numbers of diverse organic compounds, and is willing to provide
such Arrays to outside parties;
WHEREAS, Solvay Duphar desires to obtain access to such Arrays for the
purpose of screening for compounds with potential pharmaceutical activity;
WHEREAS, Solvay Duphar desires that ArQule apply its technologies to
the research and development of pharmaceutical compounds for Solvay Duphar and
that ArQule transfer to Solvay Duphar certain proprietary technology relating to
the automated assembly and synthesis of Arrays; and
WHEREAS, in exchange for payment by Solvay Duphar of research funds,
screening fees, milestone payments, and royalties, as well as a substantial
equity investment, ArQule is willing to perform certain research and development
activities for Solvay Duphar, and to provide Solvay Duphar and its Affiliates
with Arrays and with technology relating to the automated assembly and synthesis
of Arrays, subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set forth in
this Agreement, the parties hereby agree as follows:
1. Definitions.
1.1. "Active ArQule Compounds" shall mean those ArQule Compounds that
have exhibited biological activity against a Target and as to which Solvay
Duphar has notified ArQule pursuant to Section 3.1.2.
1.2. "Affiliate" shall mean a corporation or other legal entity that
controls, is controlled by, or is under common control with such party. For
purposes of this definition, "control" means the ownership, directly or
indirectly, of fifty percent (50%) or more of the
<PAGE> 7
outstanding equity securities of a corporation which are entitled to vote in the
election of directors or a fifty percent (50%) or greater interest in the net
assets or profits of an entity which is not a corporation.
1.3. "Agreement" shall mean this Research, Development and License
Agreement, together with Exhibits A through C hereto.
1.4. "AMAP" shall mean the Automated Molecular Assembly Plant developed
by ArQule, which is an integrated system of automated chemical processing
substations, automation methods, and information management tools used for
combinatorial synthesis, analysis, and purification of organic chemical
compounds.
1.5. "AMAP Chemistry" shall mean the reaction conditions (e.g.,
temperature, type and concentration of reactants, solvents, and reaction times)
or similar methods or processes for the synthesis of Arrays by ArQule in the
AMAP.
1.6. "AMAP Technology" shall mean all Patent Rights, trade secrets, and
know-how relating to the AMAP, excluding the AMAP Chemistry, that are owned or
controlled by ArQule at the time of the AMAP Installation Date.
1.7. "AMAP Improvement" shall mean any modification or improvement to
the AMAP Technology, excluding the AMAP Chemistry, whether or not patentable or
copyrightable, that is owned or controlled by Solvay Duphar during the Research
Period or by ArQule after the AMAP Installation Date but during the Research
Period.
1.8. "AMAP Installation Date" shall have the meaning set forth in
Section 8.2.
1.9. "ArQule Compounds" shall mean chemical compounds provided by
ArQule to Solvay Duphar under the Screening Array Program.
1.10. "ArQule Patent Rights" shall mean Patent Rights owned or
controlled by ArQule as of the Effective Date or during the Research Period, and
for a period of one (1) year thereafter, except for any Patent Rights relating
to AMAP Technology or AMAP Improvements. The ArQule Patent Rights as of the
Effective Date are listed in Exhibit A.
1.11. "ArQule Technology" shall mean all trade secrets, know-how,
Confidential Information, and Proprietary Materials that are owned or controlled
by ArQule as of the Effective Date or acquired during the Research Period,
except for any AMAP Technology or AMAP Improvements.
1.12. "Array" shall mean a set of samples of structurally related
chemical compounds arranged in a format such as a microtiter screening plate.
1.13. "Base Rate of Interest" shall mean the base rate of interest
declared from time to time by the Bank of Boston.
- 2 -
<PAGE> 8
1.14. "Chemical Theme" shall mean the chemical or structural
characteristics shared by a group of compounds as determined by the Research
Committee pursuant to Section 2.2.
1.15. "Confidential Information" shall have the meaning set forth in
Section 10.1.1.
1.16. "Contract Year" shall mean each calendar year of the Research
Period, except that the first Contract Year will commence on the Effective Date
and conclude on December 31, 1996.
1.17. "Derivative" shall mean a chemical compound structurally derived
in one or more steps from another by a process of modification or partial
substitution of at least one component wherein at least one structural feature
is retained at each process step. The number of intermediate steps or compounds
is not relevant to the classification of a compound as a Derivative. A compound
need not have structural similarity to another compound in order to be
classified as a Derivative.
1.18. "Directed Array" shall mean an Array comprised of Derivatives
synthesized by ArQule pursuant to the Directed Array Program.
1.19. "Directed Array Program" or "DA Program" shall mean the Directed
Array component of the Research Programs between ArQule and Solvay Duphar, as
set forth in Article 4.
1.20. "Disclosing Party" shall mean that party disclosing Confidential
Information to the other party under Section 10.1.
1.21. "Field" shall mean applications of a therapeutic drug in human or
animal health.
1.22. "Full-Time Equivalent" or "FTE" shall mean one (1) or more
employees of a party who, collectively, spend time and effort working on a
specific project or task equivalent to the time and effort of one (1) full-time
employee of a party working on such project or task (approx. 2,000 hours per
year). The term "ArQule FTE" shall have the meaning specified in Section 4.2.
1.23. "Joint Patent Rights" shall mean any Patent Rights that are
jointly owned by the parties, as set forth in Section 6.1(b).
1.24. "Lead Compound" shall mean a compound that fulfills Solvay
Duphar's primary criteria (with respect to potency, selectivity and biological
availability) in a project line.
1.25. "Net Sales" shall mean the aggregate Net Sales Price of
Royalty-Bearing Products in any Royalty Period.
1.26. "Net Sales Price" shall mean *
* confidential treatment has been
requested for marked portions
- 3 -
<PAGE> 9
*
1.27. "Patent Rights" shall mean all Valid Claims of all issued patents
and reissues, reexaminations, extensions and supplementary protection
certificates thereof and all patent applications and any divisions,
continuations, or continuations-in-part thereof or patents issuing thereon. For
the purposes of this Section, "Valid Claim" shall mean either (a) a claim of an
issued patent that has not been held unenforceable or invalid by an agency or a
court of competent jurisdiction in any unappealable or unappealed decision or
(b) a claim of a pending patent application that has not been abandoned or
finally rejected without the possibility of appeal or refiling.
1.28. "Phase II Clinical Trials" shall mean clinical trials in a small
sample of the intended patient population to assess the efficacy for a specific
indication of a compound proposed to be used as a therapeutic or diagnostic
pharmaceutical product, to determine dose tolerance and the optimal dose range
as well as to gather additional information relating to safety and potential
adverse effects, and meeting the requirements established by the U. S.
Food and Drug Administration for Phase II clinical trials.
1.29. "Phase III Clinical Trials" shall mean clinical trials designed
to demonstrate safety and efficacy of a compound proposed to be used as a
therapeutic or diagnostic pharmaceutical product in an expanded patient
population at geographically dispersed study sites, meeting the requirements
established by the U.S. Food and Drug Administration for Phase III clinical
trials.
1.30. "Priority Substance" shall mean a compound selected by Solvay
Duphar or an Affiliate of Solvay Duphar to enter into the preclinical research
phase.
1.31. "Project Declaration" shall mean, with respect to a compound, the
decision to commence human clinical trials.
1.32. "Proprietary Materials" shall have the meaning set forth in
Section 10.2.1.
1.33. "Receiving Party" shall mean that party receiving Confidential
Information under Section 10.1, or Proprietary Materials under Section 10.2, as
the case may be.
1.34. "Research Committee" shall have the meaning set forth in Section
2.1.
1.35. "Research Period" shall mean the period during which the DA
Program or the SA Program, or both, remain in effect. The maximum duration of
the Research Period shall be five (5) years, unless extended by the mutual
agreement of the parties.
* confidential treatment has been
requested for marked portions
- 4 -
<PAGE> 10
1.36. "Research Plan" shall mean a plan of research for the DA Program
covering a six-month period, which shall be updated quarterly pursuant to
Section 2.2 to reflect developments during the previous three (3) months and
extended for the subsequent three (3) months. The initial Research Plan is
attached as Exhibit B to this Agreement.
1.37. "Research Programs" shall mean, collectively, the Directed Array
Program and the Screening Array Program.
1.38. "Royalty-Bearing Product" shall mean a product containing as one
of its constituents (a) any Active ArQule Compound, (b) any Solvay Duphar
Compound that ArQule synthesized in the DA Program, including Derivatives
thereof developed by Solvay Duphar; or (c) any other compound discovered or
designed by Solvay Duphar for a Target as a result of information provided by
ArQule to Solvay Duphar under the Research Programs.
1.39. "Royalty Period" shall mean every calendar quarter, or partial
calendar quarter, commencing with the first commercial sale of a Royalty-Bearing
Product in any country. The last Royalty Period for any Royalty-Bearing Product
in any country shall be the quarter during which all Patent Rights covering such
Royalty-Bearing Product expire in such country.
1.40. "Screening Array" shall mean an Array of ArQule Compounds.
1.41. "Screening Array Program" or "SA Program" shall mean the
Screening Array component of the Research Programs between ArQule and Solvay
Duphar, as set forth in Article 3.
1.42. "Solvay Duphar Compounds" shall mean all chemical compounds made
by or for Solvay Duphar under this Agreement, including compounds provided by
Solvay Duphar or its Affiliates to ArQule under the Directed Array Program and
any Derivatives thereof, and Derivatives of Active ArQule Compounds, either
developed by ArQule under the Directed Array Program or by Solvay Duphar alone.
1.43. "Solvay Duphar Patent Rights" shall mean Patent Rights owned or
controlled by Solvay Duphar, except for any Patent Rights relating to AMAP
Improvements.
1.44. "Target" shall mean the biological target against which activity
of an Active ArQule Compound was revealed, together with any related
biomolecules that (a) exhibit substantial structural homology with the
identified biomolecule, as measured by the degree of similarity in the primary
structure (i.e., amino acid sequence, nucleotide sequence, monosaccharide
linkages) and secondary structure (i.e., three-dimensional structure), (b)
perform a substantially similar function as the identified biomolecule, and (c)
have therapeutic relevance. Biological targets shall not be considered as
exhibiting substantial structural homology nor functional similarity if such
biological targets are generally recognized by the scientific community as being
different.
1.45. "Third Party Screening Array Partner" shall mean a third party to
whom ArQule provides Screening Arrays.
* confidential treatment has been
requested for marked portions
- 5 -
<PAGE> 11
1.46. "Transferring Party" shall mean the party furnishing Proprietary
Materials to the other party under Section 10.2.
1.47. The above definitions are intended to encompass the defined terms
in both the singular and plural tenses.
2. Management of Research Programs.
2.1. Composition of Research Committee. The parties hereby establish a
Research Committee comprised of six (6) members, with three (3) representatives
appointed by each party. The initial members of the Research Committee shall be
as follows:
ArQule Representatives Solvay Duphar Representatives
---------------------- -----------------------------
David Coffen Ulf Preuschoff
Joseph Hogan Chris Kruse
Robert Zambias Jan van Randen
A party may change one or more of its representatives to the Research Committee
at any time upon notice to the other party. Each party will designate one of its
representatives as its team leader.
2.2. Duties of the Research Committee. The Research Committee shall
direct and administer the Research Programs. With respect to the Research
Programs, the Solvay Duphar representatives on the Research Committee shall, in
consultation with the ArQule representatives, determine the identity, scope and
priority of each Chemical Theme. The identity and scope of such Chemical Theme
will be determined on the basis of the following criteria: (i) the specific
reaction or reaction sequence used to combine members of two or more discrete
chemical units in which each chemical unit bears the functional group(s)
required for the specific reaction(s) that result in the combination of the
chemical units; and (ii) the extent to which a class of compounds is related by
a recurring structural motif associated with a particular biological activity.
With respect to the SA Program, the Research Committee shall specifically
determine the following: (i) the appropriate number and type of Chemical Themes
represented in the Arrays delivered to Solvay Duphar each Contract Year; (ii)
the appropriate number of compounds for each Chemical Theme in the Arrays
delivered to Solvay Duphar each Contract Year; and (iii) the appropriate amount
of each compound to be provided for a particular Chemical Theme. With respect to
the DA Program, the Research Committee shall specifically determine the
following: (i) the appropriate number and type of Chemical Themes for submission
to the DA Program, subject to ArQule's right to exclude certain compounds as set
forth in Section 2.3 below; (ii) the appropriate number of compounds that ArQule
should generate in a Directed Array for a particular Chemical Theme; and (iii)
the appropriate amount of each compound in a Directed Array that ArQule should
deliver to Solvay Duphar for further research and development. In
* confidential treatment has been
requested for marked portions
- 6 -
<PAGE> 12
addition, the Research Committee shall (i) determine the allocation of the
funding and personnel resources to be contributed by the parties under this
Agreement, (ii) revise and extend the Research Plan each calendar quarter for
the subsequent six (6) months based on prior developments, (iii) resolve matters
involving scientific questions, and (iv) resolve publication disputes that may
arise under Section 10.4.
2.3. Compounds Excluded from the DA Program. ArQule shall have the
right, at the time Solvay Duphar seeks to include any compound(s) in the DA
Program, to exclude from the DA Program any compound(s) that is at that time
either (i) included within a directed array program for a third party or (ii)
included within an existing ArQule internal development program, provided that
the circumstances upon which the exclusion is based have, at the time ArQule
seeks to assert the exclusion, been disclosed to the ArQule Board of Directors.
2.4. Meetings of the Research Committee. The Research Committee shall
conduct monthly telephone conferences and shall prepare and deliver a brief
written report describing the significant issues and discussions that take place
during such telephone conferences. A representative of the Research Committee
jointly appointed by its members shall provide each member with five (5)
business days notice of the time of telephone conferences, unless such notice is
waived by all members. ArQule will prepare and deliver to the members of the
Research Committee a brief progress report at least one week in advance of the
telephone conference, which report will list the ArQule employees then working
on the Research Programs. The Research Committee shall meet at least once each
quarter at the facilities of ArQule, or at such other times and locations as the
Research Committee determines. A representative of the Research Committee
jointly appointed by its members shall provide each member with five (5)
business days notice of the time and location of meetings, unless such notice is
waived by all members. If a designated representative of a party cannot attend
any meeting of the Research Committee, such party may designate a different
representative for that meeting without notice to the other party, and the
substitute member will have full power to vote on behalf of the permanent
member. Except as otherwise provided in this Section 2, all actions and
decisions of the Research Committee will require the unanimous consent of all of
its members. If the Research Committee fails to reach agreement upon any matter,
the dispute will be resolved in accordance with the procedures set forth in
Section 15.5 below. Subsequent to each quarterly meeting, the Research Committee
shall prepare and deliver, to both parties, a written report describing the
decisions made, conclusions and actions agreed upon.
2.5. Cooperation. Each party agrees to provide the Research Committee
with information and documentation as reasonably required for the Research
Committee to fulfill its duties under this Agreement. In addition, each party
agrees to make available its employees and consultants as reasonably requested
by the Research Committee. The parties anticipate that members of the Research
Committee will communicate informally with each other and with employees and
consultants of the parties on matters relating to the Research Programs.
2.6. Visits to Facilities. Members of the Research Committee shall have
reasonable access to the facilities of each party where activities under this
Agreement are in
* confidential treatment has been
requested for marked portions
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<PAGE> 13
progress, but only during normal business hours and with reasonable prior
notice. Each party shall bear its own expenses in connection with such site
visits.
3. Screening Array Program.
3.1. Description of Program.
3.1.1. Supply of Screening Arrays. During each Contract Year,
ArQule will supply Solvay Duphar with Screening Arrays containing approximately
* each of * chemical compounds not included in any other
Screening Array provided to Solvay Duphar by ArQule and based on approximately
* Chemical Themes. The amounts of each compound in each Array and the
number of Chemical Themes per year are non-binding objectives, however, ArQule
shall have a binding obligation, subject to Section 3.2, to furnish Solvay
Duphar with * different compounds, not included in any other Screening
Array provided to Solvay Duphar by ArQule, per year.
3.1.2. Identification of Active ArQule Compounds. Initially,
ArQule will identify the Chemical Theme of each Screening Array but not the
structures of the individual compounds in the Screening Arrays. Solvay Duphar
may screen the Screening Arrays against any biological targets during the SA
Program and thereafter. Initially, Solvay Duphar will not disclose the targets
screened. If Solvay Duphar detects any Active ArQule Compounds in a Screening
Array, ArQule will disclose (i) the structure of each Active ArQule Compound and
(ii) the structures, but not the locations in the Screening Array, of all other
ArQule Compounds in the Screening Array and Solvay Duphar will disclose (a) the
identity of the Target and (b) the level of activity. All such disclosed
information shall be treated as Confidential Information by both parties. Solvay
Duphar agrees to screen ArQule Compounds only against targets that, in its
reasonable business judgement, are therapeutically relevant. Solvay Duphar
agrees to notify ArQule of Active ArQule Compounds only if the level of activity
detected is sufficient, in its reasonable business judgement, to warrant further
development (including the making of Derivatives) of the Active ArQule Compound.
Solvay Duphar may further develop (including the making of Derivatives) Active
ArQule Compounds itself or it may submit Active ArQule Compounds to the Directed
Array Program under Article 4.
3.2. Payment. In consideration of the performance by ArQule of the SA
Program in accordance with this Agreement, during the first Contract Year,
Solvay Duphar shall pay ArQule a screening fee in the amount of *
Dollars * , payable as follows:
* On the Effective Date
* On January 2, 1996.
* On June 1, 1996.
* confidential treatment has been
requested for marked portions
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<PAGE> 14
Thereafter, Solvay Duphar shall pay ArQule an annual screening fee in the amount
of * Dollars * during each Contract Year, payable in
advance in equal quarterly installments; provided, however, that Solvay Duphar
may suspend payment of the screening fee for any Contract Year if ArQule fails
to supply Solvay Duphar with * different compounds in the prior Contract
Year, which suspension shall remain in effect until ArQule remedies the
deficiency. The suspension of payments set forth in the preceding sentence shall
be Solvay Duphar's sole remedy for any ArQule failure to deliver *
different compounds in any Contract Year except that if, upon the expiration of
the second quarter of the final Contract Year of the SA Program, the parties
determine that, based on the number of compounds delivered to date and ArQule's
forecast of the remaining compounds to be delivered during the balance of the
final Contract Year, ArQule will be unable to deliver a total of *
different compounds to Solvay Duphar during the remainder of the final Contract
Year, the parties will appropriately adjust downward the quarterly payments to
be made by Solvay Duphar during the balance of the Contract Year. Any
disagreement concerning the forecast will be resolved pursuant to the dispute
resolution procedures of Section 15.5. Upon completion of the final Contract
Year of the SA Program a final financial reconciliation will be made, either by
Solvay Duphar paying ArQule an additional amount, or by ArQule refunding to
Solvay Duphar a portion of the amounts previously paid it, so that Solvay Duphar
will have paid screening fees to ArQule in the amount of * per compound for
all compounds delivered to Solvay Duphar under the SA Program. ArQule agrees to
use its best efforts to provide Solvay Duphar with compounds as they become
available throughout each Contract Year in order to avoid the delivery of large
numbers of compounds in a short period of time, but in any case, no later than
the date such compounds are provided to any Third Party Screening Array Partner.
3.3. Termination of SA Program. The SA Program shall commence on the
Effective Date and continue for a period of five (5) Contract Years, unless
earlier terminated as provided in this Section or in Article 14 below. Solvay
Duphar may terminate the SA Program at its discretion upon twelve (12) months
written notice to ArQule and payment of the following amounts as final
settlement at the conclusion of the twelve-month notice period:
Notice During First Contract Year: *
Notice After First Contract Year: To be determined by the Research
Committee based upon a downward
sliding scale related to ArQule's
commercial success of the Screening
Array Program, not to exceed
* .
Termination of the SA Program shall have no effect on the continuation of the DA
Program.
4. Directed Array Program.
4.1. Description of Program. Under the direction of the Research
Committee and in accordance with the Research Plan, ArQule will synthesize
Arrays of compounds derived from (i) Solvay Duphar Compounds provided to ArQule
by Solvay Duphar and/or (ii) Active ArQule Compounds provided by ArQule to
Solvay Duphar under the SA Program and then
* confidential treatment has been
requested for marked portions
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<PAGE> 15
requested by Solvay Duphar to be included in the DA Program. The parties intend
that, during the Research Period, ArQule will produce such Directed Arrays based
on approximately * different Chemical Themes per year,
which will result in the production of approximately * Derivatives
per Chemical Theme per year; provided, however, that the number of Chemical
Themes actually submitted to the DA Program and the number of Derivatives
actually produced per Chemical Theme will be determined by the Research
Committee; and further provided that the intentions of the parties set forth
herein and in the Research Plan shall be appropriately adjusted in the event of
early termination of the DA Program. The parties also intend that ArQule will
produce approximately * of each Derivative in the Directed
Arrays, subject to the availability of the original Solvay Duphar Compounds or
Active ArQule Compounds; the amount of each Derivative that ArQule actually
produces, however, will be determined by the Research Committee. ArQule agrees
that any Derivatives of Active ArQule Compounds provided to Solvay Duphar under
the DA Program (i) will not have been provided by ArQule to any third party and
(ii) will not in the future be provided by ArQule to any third party.
4.2. Conduct of Program. The conduct of the DA Program shall be the
primary responsibility of ArQule with participation by Solvay Duphar. ArQule
shall commit * Full-Time Equivalent employees to the DA Program (the
"ArQule FTEs"). The ArQule FTEs will be adequate and have the required skills
for carrying out the DA Program. Solvay Duphar shall propose Chemical Themes to
the Research Committee for inclusion in the DA Program. If the Research
Committee approves the inclusion of the proposed Chemical Theme, Solvay Duphar
shall provide ArQule with the requisite amount and purity of Solvay Duphar
Compounds for that Chemical Theme or, in the case of Active ArQule Compounds,
either ArQule or Solvay Duphar shall produce the requisite amount of the Active
ArQule Compound, as directed by the Research Committee. ArQule shall thereupon
synthesize Directed Arrays of Derivatives of Solvay Duphar Compounds or Active
ArQule Compounds. ArQule shall diligently perform this synthesis work in
accordance with the Research Plan. Solvay Duphar shall, in its discretion, test
all compounds in the Directed Arrays. The DA Program shall be conducted in a
good scientific manner and in compliance with all applicable legal requirements.
4.3. Payments. In consideration of the performance by ArQule of the DA
Program, during the first Contract Year, Solvay Duphar shall pay ArQule research
and development funding in the amount of *
Dollars * , payable as follows:
* On the Effective Date
* On January 2, 1996.
* On June 1, 1996.
Thereafter, Solvay Duphar shall make the following annual payment to ArQule
during each Contract Year, payable in advance in equal quarterly installments:
* confidential treatment has been
requested for marked portions
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<PAGE> 16
Annual Payment = * x (1 + CPI)
Where CPI is a fraction, the numerator of which is the difference
between the Consumer Price Index (CPI-U; U.S. City Average for all
items; 1982-84 = 100) as of the last month of the immediately preceding
Contract Year and the Consumer Price Index as of the month immediately
preceding the Effective Date and the denominator of which is the
Consumer Price Index as of the month immediately preceding the
Effective Date.
ArQule shall use such payments to conduct the DA Program in accordance with this
Agreement.
4.4. Termination of DA Program. The DA Program shall commence on the
Effective Date and continue for a period of five (5) Contract Years, unless
earlier terminated as provided in this Section or in Article 14 below. Solvay
Duphar may terminate the DA Program at its discretion upon six (6) months
written notice to ArQule together with payment, as final settlement, in the
amount of * percent * of the annual research payment for the Contract
Year in which such notice was given, as described in Section 4.3. Termination of
the DA Program shall have no effect on the continuation of the SA Program.
5. Ownership of Compounds.
5.1. Solvay Duphar Compounds. All Solvay Duphar Compounds are owned by
Solvay Duphar or its Affiliates, except, and only to the extent that, with
respect to the DA Program, ArQule can show that any such compound (i) was under
development by ArQule (including programs with academic collaborators or
corporate partners) before such Solvay Duphar Compound was proposed to be
included in the Directed Array Program; (ii) was independently developed by
ArQule employees who had no access to Solvay Duphar Confidential Information
regarding the particular Solvay Duphar Compound; or (iii) was already within a
screening array before such compound was proposed to be included in the Directed
Array Program.
5.2. ArQule Compounds. All ArQule Compounds are owned by ArQule except,
and only to the extent that, Solvay Duphar can show that any such compound was
in the possession of Solvay Duphar before it was provided by ArQule to Solvay
Duphar or its Affiliates.
6. Intellectual Property Rights.
6.1. Ownership of Patent Rights.
(a) ArQule Patent Rights. Any Patent Rights filed by
either party covering only Active ArQule Compounds will be owned solely
by ArQule except as provided in Section 6.1(b)(ii).
* confidential treatment has been
requested for marked portions
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<PAGE> 17
(b) Joint Patent Rights. Any Patent Rights (i) filed
by either party covering both Active ArQule Compounds and Solvay Duphar
Compounds and/or (ii) claiming an Active ArQule Compound and uses
thereof discovered by Solvay Duphar, shall be owned jointly by ArQule
and Solvay Duphar.
(c) Solvay Duphar Patent Rights. Any Patent Rights
filed by either party covering Solvay Duphar Compounds only will be
owned solely by Solvay Duphar.
6.2. Prosecution of Patent Rights on Active ArQule Compounds. ArQule
agrees to cooperate with Solvay Duphar in order to maximize the duration of
patent protection on Active ArQule Compounds, and both parties agree to cause
their patent counsel to consult with each other for such purpose. ArQule agrees
not to file patent applications on Screening Arrays that disclose the specific
compounds in those Screening Arrays. Upon notification of activity and
disclosure of a Target by Solvay Duphar, ArQule will agree to defer filing
patent applications on the Active ArQule Compound(s) until a time reasonably
acceptable to Solvay Duphar, provided that such deferral does not, in the
opinion of patent counsel of both parties, jeopardize the ability to pursue
patent protection on such Active ArQule Compounds. If both patent counsel cannot
agree, the matter will be referred to the Research Committee for resolution. If,
after the expiration of fifteen (15) days from such referral, the Research
Committee has not agreed, the matter will be resolved pursuant to the dispute
resolution procedures set forth in Section 15.5. A Joint Patent application
covering both the use and composition of matter of the Active ArQule Compound
will be filed shortly before any public disclosure necessitated by the
development process (typically commencement of clinical trials).
6.3. Management of Joint Patent Rights. In the case of Joint Patent
Rights, the parties shall agree on the allocation of responsibility for, and the
expense of, the preparation, filing, prosecution, and maintenance of any Joint
Patent Rights claiming such inventions. In the event of any disagreement
concerning any Joint Patent Rights, the matter shall be resolved by the Research
Committee or, in the absence thereof, by the CEO of ArQule and the Vice
President-Research of Solvay Duphar. The party controlling a Joint Patent Right
shall consult with the other party as to the preparation, filing, prosecution,
and maintenance of such Joint Patent Right reasonably prior to any deadline or
action with the U.S. Patent & Trademark Office or any foreign patent office, and
shall furnish to the other party copies of all relevant documents reasonably in
advance of such consultation. In the event that the party controlling a Joint
Patent Right desires to abandon such Joint Patent Right, or if the party
assuming control of a Joint Patent Right later declines responsibility for such
Joint Patent Right, the controlling party shall provide reasonable prior written
notice to the other party of such intention to abandon or decline
responsibility, and such other party shall have the right, at its expense, to
prepare, file, prosecute, and maintain such Joint Patent Rights.
6.4. Cooperation of the Parties. Each party agrees to cooperate fully
in the preparation, filing, and prosecution of any Patent Rights under this
Agreement. Such cooperation includes, but is not limited to:
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<PAGE> 18
(a) executing all papers and instruments, or
requiring its employees or agents, to execute such papers and
instruments, so as to effectuate the ownership of Patent Rights set
forth in Section 6.1 above and to enable the other party to apply for
and to prosecute patent applications in any country;
(b) promptly informing the other party of any matters
coming to a party's attention that may affect the preparation, filing,
or prosecution of any such patent applications; and
(c) undertaking no actions that are potentially
deleterious to the preparation, filing, or prosecution of such patent
applications.
6.5. Infringement by Third Parties. ArQule and Solvay Duphar shall each
promptly notify the other in writing of any alleged or threatened infringement
by a third party of any ArQule Patent Right or Joint Patent Right exclusively
licensed to Solvay Duphar within the Field of which they become aware. The
parties shall consult concerning the action(s) to be taken.
6.5.1. Prosecution by Solvay Duphar. Solvay Duphar shall have
the right, but not the obligation, to prosecute, at its own expense, any such
third party infringement. Any such action shall be under Solvay Duphar's
control, but ArQule shall have the right to join any such suit or action brought
by Solvay Duphar and, in such event, shall pay one-half of the cost of such
action.
Provided that ArQule has joined in the action and shared the costs thereof as
stated in the preceding sentence, no settlement, consent judgment or other
voluntary final disposition of the action may be entered into without the
consent of ArQule, which consent shall not unreasonably be withheld. Any
recovery or damages derived from such action shall first be used to reimburse
Solvay Duphar (and ArQule, if it has joined in the action) for all legal
expenses (including, in the case of any party utilizing in-house legal counsel,
the direct costs of such in-house counsel) relating to the action. Any recovery
or damages still remaining shall, if ArQule has not joined in the action, be
retained by Solvay Duphar or, if ArQule has joined in the action, shall be
shared equally by the parties.
6.5.2. Prosecution by ArQule. If Solvay Duphar notifies ArQule
that it does not intend to prosecute the infringement or if, within three (3)
months after Solvay Duphar first becomes aware of the infringement Solvay Duphar
fails to cause any such infringement to terminate or to bring an action to
compel termination ArQule shall have the right, but not the obligation to bring
such action. ArQule shall retain any recovery or damages derived from such
action.
6.6. Infringement of Third Party Patent Rights. Solvay Duphar shall
promptly notify ArQule if any action is brought against Solvay Duphar alleging
infringement of any third-party patent right as a result of the exercise of
Solvay Duphar's rights under Section 7.2. Solvay Duphar shall have the right,
but not the obligation, to defend, at its own expense, any such action.
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<PAGE> 19
6.7. Claims Brought by Third Parties. In the event that any action or
claim involving or relating to any ArQule Patent Right or Joint Patent Right
shall be brought against Solvay Duphar, Solvay Duphar shall promptly notify
ArQule in writing, and the parties shall consult concerning the action to be
taken. Such third party actions or claims include, without limitation, actions
or claims alleging invalidity, unenforceability or non- infringement of any
ArQule Patent Right or Joint Patent Right and any defense to a claim of
infringement thereof.
In the case of any action or claim involving or relating to ArQule Patent
Rights, ArQule, at its sole option, shall have the right, within thirty (30)
days of commencement of such action, to intervene, take over and duly prosecute
the sole defense of the action at its own expense.
In the case of any action or claim involving or relating to Joint Patent Rights,
Solvay Duphar shall have the right, but not the obligation, to defend, at its
own expense, any such action or claim, but ArQule shall have the right to join
any such defense brought by Solvay Duphar and, in such event, shall pay one-half
of the cost thereof. Provided that ArQule has joined in such defense and shared
the costs thereof as stated in the preceding sentence, no settlement, consent
judgment or other voluntary final disposition of the action may be entered into
without the consent of ArQule, which consent shall not unreasonably be withheld.
If Solvay Duphar does not defend against the action or claim, ArQule shall have
the right, but not the obligation to do so at its own expense.
6.8. Cooperation in Infringement Actions. In any action (i) prosecuted
or defended against by either party involving or relating to the ArQule Patent
Rights or the Joint Patent Rights or (ii) in which either party defends against
any claim of infringement or contributory infringement of third-party patents
due to activities performed under this Agreement, the other party hereto (the
"Cooperating Party") shall, at the request of the party initiating or defending
against such action or claim, cooperate in all reasonable respects and to the
extent reasonably possible shall make available to such party all information
relevant to such action or claim including, without limitation, records,
material, and testimony. The Cooperating Party shall bear its own costs related
to such cooperation under Subsection (i) above, but such cooperation shall be at
the expense of the other party under Subsection (ii) above.
7. License Grants.
7.1. ArQule Screening License. ArQule hereby grants Solvay Duphar and
its Affiliates: (i) a nonexclusive, worldwide, royalty-free, perpetual license
(without the right to grant sublicenses) under ArQule Patent Rights and ArQule
Technology to use the ArQule Compounds to screen against any biological targets
in the Field.
7.2. ArQule Commercial License. Upon notice of Solvay Duphar's
identification of Active ArQule Compounds and disclosure of information to
ArQule, pursuant to Section 3.1.2, and provided that no Third Party Screening
Array Partner has already licensed such Active ArQule Compounds in the Field,
ArQule agrees to grant to Solvay Duphar and its Affiliates an exclusive,
worldwide, royalty-bearing license (with a limited right to sublicense, as set
forth in Section 7.3) in the Field under ArQule Patent Rights, under
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<PAGE> 20
ArQule's interest in any Joint Patent Rights and under ArQule Technology, to
develop, have developed, make, have made, use, have used, sell and have sold in
the Field products incorporating such Active ArQule Compounds.
7.3. Limitations on Sublicenses. Solvay Duphar shall not have the right
to grant to third parties the right to make Derivatives of Active ArQule
Compounds or of their Derivatives, except for those Derivatives that are Solvay
Duphar Compounds.
7.4. Solvay Duphar License Outside the Field. Solvay Duphar hereby
grants to ArQule and its Affiliates a worldwide, royalty-free, exclusive license
(with the right to sublicense) under Solvay Duphar's rights in any Joint Patent
Rights covering Active ArQule Compounds to develop, have developed, make, have
made, use, have used, sell and have sold outside the Field products
incorporating such Active ArQule Compounds.
7.5. AMAP License. ArQule agrees to grant to Solvay Duphar the licenses
to the AMAP Technology, AMAP Chemistry and ArQule Technology set forth in, and
subject to the conditions of, Section 8.3.
7.6. Diligence. Solvay Duphar agrees to use reasonable commercial
efforts to develop and market Royalty-Bearing Products based on or incorporating
any Active ArQule Compound for which it has obtained a license under Section
7.2, or Derivatives thereof, using a level of effort consistent with that used
for other Solvay Duphar products having similar commercial potential. The
parties hereby acknowledge their understanding that Solvay Duphar's obligations
under this Section do not apply to each Active ArQule Compound licensed under
Section 7.2 in itself, but only to at least one compound out of each group of
Active ArQule Compounds and Derivatives thereof that is active against the same
Target. Subject to Sections 7.7 and 7.8, Solvay Duphar shall have the sole and
absolute discretion to make all decisions relating to the research, development,
marketing and other commercialization activities with respect to any Active
ArQule Compound or its Derivatives or any Royalty-Bearing Product derived
therefrom.
7.7. Reports of Development Progress. Solvay Duphar agrees to keep
ArQule informed of its development progress with respect to each Active ArQule
Compound or Derivative thereof for which it has obtained a license under Section
7.2 as follows:
(a) Initial Research Plan. Within 60 days after
obtaining a license, Solvay Duphar will provide ArQule with a
time line of its planned research activities for that Active
ArQule Compound and will keep ArQule periodically informed of
its progress under such schedule.
(b) Lead Compound. Solvay Duphar will notify ArQule
of the designation of any Active ArQule Compound or
Derivatives thereof as a Lead Compound. Within 60 days of such
designation, Solvay Duphar will provide ArQule with a copy of
a revised time line of its research activities for that Lead
Compound and will keep ArQule periodically informed of its
progress under such schedule.
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<PAGE> 21
(c) Priority Substance. Solvay Duphar will notify
ArQule of the designation of any Active ArQule Compound or
Derivatives thereof as a Priority Substance. Within 60 days of
such designation, Solvay Duphar will provide ArQule with a
copy of a revised time line of its research activities for
that Priority Substance and will keep ArQule periodically
informed of its progress under such schedule.
(d) Project Declaration. Solvay Duphar will promptly
notify ArQule of a Project Declaration for any Active ArQule
Compound or Derivatives thereof.
(e) Discontinuation of Development. Solvay Duphar
agrees to notify ArQule if it decides to discontinue
development or marketing of any Active ArQule Compound or
Derivatives thereof.
In addition, throughout the term of this Agreement, Solvay Duphar will submit to
ArQule quarterly reports of the activities of Solvay Duphar and its Affiliates
with respect to all such compounds during the prior three-month period. These
reports will include relevant chemical and biological data and other information
sufficient to allow ArQule to determine whether Solvay Duphar and/or its
Affiliates are engaging in significant activity with respect to each such
compound prior to Project Declaration. The information in such reports shall be
considered Confidential Information under Section 10.1. hereof. During the
Research Period, Solvay Duphar shall provide such reports on a schedule such
that they can be reviewed at the quarterly meetings of the Research Committee.
7.8. Reversion of Rights. In the event that (i) Solvay Duphar notifies
ArQule pursuant to Section 7.7(e) above that it has determined to discontinue
the development of any Active ArQule Compound or Derivatives thereof or (ii)
Solvay Duphar and/or its Affiliates fail, prior to Project Declaration with
respect thereto, to engage in significant activities for a continuous period of
six (6) months with respect to any Active ArQule Compound, or Derivatives
thereof and such failure is not cured within thirty (30) days of notice thereof,
ArQule shall, subject to the provisions set forth below, have the right,
immediately upon notice, to terminate the license granted to Solvay Duphar under
Section 7.2 with respect to such Active ArQule Compound, and ArQule will
thereafter be free to grant licenses to third parties under ArQule Patent Rights
and ArQule Technology to make, use, sell and have sold in the Field products
incorporating that Active ArQule Compound. Any dispute concerning whether Solvay
Duphar or its Affiliates have engaged in significant activity within the meaning
of Section 7.8(ii) above shall be resolved under the dispute resolution
provisions of Section 15.5.
8. AMAP Technology.
8.1. Access to AMAP Technology. Except as set forth in Section 8.6
below, during the Research Period, but not before December 31, 1997, ArQule
hereby agrees to provide the AMAP Technology to Solvay Duphar in accordance with
this Section upon one
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<PAGE> 22
hundred and twenty (120) days prior written notice to ArQule, provided that
Solvay Duphar is not then in default of any of its material obligations under
Sections 3.2 and 4.3.
(a) ArQule will make available to Solvay Duphar
complete copies of any documentation then in its possession relating to
the AMAP Technology, including copies of patents and patent
applications and documentation of know-how and trade secrets.
(b) ArQule will make available to Solvay Duphar a
certain limited AMAP Chemistry sufficient to enable Solvay Duphar to
verify the functionality of the AMAP. In addition, during the term of
the Research Program, ArQule will make available to Solvay Duphar all
AMAP Chemistry and ArQule Technology used by ArQule in connection with
the Directed Array Program.
(c) ArQule will provide Solvay Duphar employees with
technical assistance at ArQule as reasonably necessary for Solvay
Duphar to acquire the AMAP Technology. Such technical assistance will
include (i) reasonable access to the ArQule AMAP equipment and software
and (ii) reasonable instruction by ArQule employees regarding use of
the AMAP equipment and software. Such technical assistance at ArQule
will be provided by the ArQule FTEs, unless the Research Committee
determines that the ArQule FTEs are unavailable for such purposes. The
cost of any such ArQule personnel and resources beyond the ArQule FTEs
shall be borne by Solvay Duphar, at ArQule's then-current standard
rates and charges. At no time shall the number of Solvay Duphar
employees on the premises of ArQule exceed five (5) persons. Solvay
Duphar shall pay all expenses incurred by its employees, including
travel, meals, and lodging.
(d) ArQule will provide Solvay Duphar with technical
assistance at the premises of Solvay Duphar and/or of its Affiliates as
reasonably necessary to enable Solvay Duphar to develop a functional
AMAP. ArQule will provide Solvay Duphar, in addition to the ArQule
FTEs, with one (1) qualified individual for up to four (4) weeks for
such assistance, except that Solvay Duphar shall pay all reasonable
expenses incurred by such employee, including travel, meals, and
lodging.
(e) With the approval of the Research Committee,
Solvay Duphar may redirect the efforts of ArQule FTEs dedicated to the
DA Program in order to facilitate the transfer of AMAP Technology at
ArQule.
(f) Solvay Duphar shall purchase all equipment and
supplies that are required to assemble a functional AMAP at Solvay
Duphar. Solvay Duphar shall have complete discretion regarding its
purchases of equipment and supplies, including decisions as to the type
of equipment, vendor, and price, but shall consult with ArQule prior to
making any purchase. ArQule shall have no obligation to supply any such
equipment or supplies.
(g) ArQule shall provide Solvay Duphar with two (2)
copies of its proprietary AMAP software in source-code and object-code
form, at no additional
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<PAGE> 23
charge, subject to the terms and conditions of a mutually acceptable
software license agreement.
8.2. AMAP Installation Date. ArQule shall have fulfilled its
obligations under Section 8.1 upon the successful installation, as provided for
in this Section 8.2, of a functional AMAP at Solvay Duphar, as determined by the
criteria set forth in Exhibit C (the "Installation Criteria"). Solvay Duphar
shall provide ArQule with written certification that ArQule has satisfied the
Installation Criteria. If the parties disagree on whether ArQule has satisfied
the Installation Criteria, the matter shall be resolved by the Research
Committee. The date upon which ArQule has satisfied the Installation Criteria
shall be referred to as the "AMAP Installation Date." ArQule shall have no
further obligation to Solvay Duphar under Section 8.1 after the AMAP
Installation Date except to the extent set forth in Sections 8.1(b) and 8.4
hereof.
8.3. License of AMAP Technology. In the event that Solvay Duphar elects
to obtain the AMAP Technology as set forth in Section 8.1 above, ArQule agrees
to grant Solvay Duphar and its Affiliates a perpetual, royalty-free,
non-exclusive license (without the right to sublicense) to use the AMAP
Technology, and the ArQule Technology and AMAP Chemistry transferred to Solvay
Duphar pursuant to Section 8.1(b), for its own internal research and development
efforts on products in the Field. Solvay Duphar has no right to provide the AMAP
Technology or the AMAP Chemistry to third parties, nor may it use the AMAP
Technology or the AMAP Chemistry to provide Arrays to third parties.
8.4. AMAP Improvements. In the event that Solvay Duphar elects to
obtain the AMAP Technology as set forth in Section 8.1 above, the parties hereby
agree as follows:
(a) During the Research Period, each party shall
notify the other party promptly after the discovery or development of
any AMAP Improvement. Such notice shall include a brief description of
the invention together with the relevant invention disclosure form.
(b) ArQule will provide Solvay Duphar and its
Affiliates with the AMAP Chemistry, AMAP Technology and any ArQule
Technology used by ArQule in the Directed Array Program.
(c) During the Research Period, each party shall
provide the other party with technical assistance as reasonably
necessary to allow the other party to acquire any AMAP Improvement at
the receiving party's expense.
(d) ArQule hereby grants Solvay Duphar and its
Affiliates a perpetual, royalty-free, non-exclusive license (without
the right to sublicense) to use any AMAP Improvements for its own
internal research and development efforts on products in the Field.
(e) Solvay Duphar hereby grants ArQule and its
Affiliates a perpetual, royalty-free, non-exclusive license (with the
right to sublicense) to use any AMAP Improvements for any purpose.
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<PAGE> 24
8.5. Protection of AMAP Technology. Solvay Duphar acknowledges and
agrees that the AMAP Technology is Confidential Information of ArQule within the
meaning of Section 10.1, and includes trade secrets of ArQule. Solvay Duphar
shall not disclose or transfer any AMAP Technology to any third party, except to
its Affiliates, without the prior written consent of ArQule. Solvay Duphar shall
instruct its employees who have access to the AMAP Technology as to its
confidential status, and shall contractually bind such employees to observe its
obligations under this Section.
8.6. Acceleration of Transfer. During the second Contract Year, Solvay
Duphar may elect to commence transfer of the AMAP Technology pursuant to Section
8.1. at any time, rather than after the second Contract Year, in the event of an
acquisition of ArQule or that portion of its business pertaining to the subject
matter of this Agreement.
9. Payments, Reports, and Records.
9.1. Milestone Payments. In partial consideration of the rights granted
Solvay Duphar under this Agreement, Solvay Duphar shall pay ArQule the following
amounts within thirty (30) days after each occurrence of the following
milestones:
* Commencement by Solvay Duphar, at its own
discretion,
*
* *
Such milestone payments shall be non-refundable and shall not be credited
against royalties payable to ArQule under this Agreement. Solvay Duphar shall
promptly notify ArQule of each occurrence of either of the foregoing milestones.
9.2. Royalties. In partial consideration of the rights granted to
Solvay Duphar under this Agreement, Solvay Duphar shall pay to ArQule a royalty
of * percent * of Net Sales in countries where, and for as long as, the
manufacture or sale of such Royalty- Bearing Products is covered by Patent
Rights.
9.3. Reports and Payments. Within thirty (30) days after the conclusion
of each Royalty Period, Solvay Duphar shall deliver to ArQule a report
containing the following information:
(a) gross sales of Royalty-Bearing Products by Solvay Duphar
and its Affiliates and sublicensees during the applicable Royalty
Period in each country of sale;
* confidential treatment has been
requested for marked portions
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<PAGE> 25
(b) calculation of Net Sales for the applicable Royalty Period
in each country of sale; and
(c) total Net Sales in U.S. dollars, together with the
exchange rates used for conversion.
All such reports shall be maintained in confidence by ArQule. If no royalties
are due to ArQule for any reporting period, the report shall so state.
Concurrent with this report, Solvay Duphar shall remit to ArQule any payment due
for the applicable Royalty Period. The method of payment shall be mutually
agreed to. All amounts payable to ArQule under this Section will first be
calculated in the currency of sale and then converted into U.S. dollars in
accordance with Section 9.5, and such amounts shall be paid without deduction of
any withholding taxes, value-added taxes, or other charges applicable to such
payments.
9.4. Invoices; Payments in U.S. Dollars. With the exception of royalty
payments due under Section 9.2, ArQule shall submit invoices to Solvay Duphar
for each payment due ArQule hereunder, and Solvay Duphar shall pay such invoices
within thirty (30) days of receipt thereof. All payments due under this
Agreement shall, except as provided in Section 9.5 below, be payable in United
States dollars. Conversion of foreign currency to U.S. dollars shall be made at
the conversion rate existing in the United States (as reported in the Wall
Street Journal) on the last working day of the calendar quarter preceding the
applicable calendar quarter. Such payments shall be without deduction of
exchange, collection, or other charges.
9.5. Payments in Other Currencies. If by law, regulation, or fiscal
policy of a particular country, conversion into United States dollars or
transfer of funds of a convertible currency to the United States is restricted
or forbidden, Solvay Duphar shall give ArQule prompt written notice of such
restriction, which notice shall satisfy the thirty-day payment deadline
described in Section 9.4. Solvay Duphar shall pay any amounts due ArQule through
whatever lawful methods ArQule reasonably designates; provided, however, that if
ArQule fails to designate such payment method within thirty (30) days after
ArQule is notified of the restriction, then Solvay Duphar may deposit such
payment in local currency to the credit of ArQule in a recognized banking
institution selected by Solvay Duphar and identified by written notice to
ArQule, and such deposit shall fulfill all obligations of Solvay Duphar to
ArQule with respect to such payment.
9.6. Records. Solvay Duphar and its Affiliates shall maintain complete
and accurate records of Royalty-Bearing Products made, used or sold by them or
their sublicensees under this Agreement, and any amounts payable to ArQule in
relation to such Royalty-Bearing Products, which records shall contain
sufficient information to permit ArQule to confirm the accuracy of any reports
delivered to ArQule in accordance with Section 9.4. The relevant party shall
retain such records relating to a given Royalty Period for at least three (3)
years after the conclusion of that Royalty Period.
ArQule will maintain complete and accurate records of the activities
engaged in by the ArQule FTEs, which records shall contain sufficient
information to permit Solvay Duphar to confirm the compliance of ArQule with
Section 4.2.
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<PAGE> 26
Each party (acting as the "Auditing Party") shall have the right, at
its own expense, to cause an independent, certified public accountant to inspect
such records of the other party (the "Audited Party") during normal business
hours for the sole purpose of verifying any reports and payments delivered under
this Agreement. Such accountant shall not disclose to the Auditing Party any
information other than information relating to accuracy of reports and payments
delivered under this Agreement and shall provide the Audited Party with a copy
of any report given to the Auditing Party. The parties shall reconcile any
underpayment or overpayment within thirty (30) days after the accountant
delivers the results of the audit. In the event that any audit performed under
this Section reveals an underpayment in excess of five percent (5%) in any
Royalty Period, the Audited Party shall bear the full cost of such audit. Each
party may exercise its rights under this Section only once every year and only
with reasonable prior notice to the other party.
9.7. Late Payments. Any payments by Solvay Duphar that are not paid on
or before the date such payments are due under this Agreement shall bear
interest, to the extent permitted by law, at two percentage points above the
Base Rate of Interest calculated based on the number of days that payment is
delinquent.
10. Confidential Information and Proprietary Materials.
10.1. Confidential Information.
10.1.1. Definition of Confidential Information. Confidential
Information shall mean any technical or business information furnished by the
Disclosing Party to the Receiving Party in connection with this Agreement and
specifically designated as confidential. Such Confidential Information may
include, without limitation, the identity of a chemical compound, the use of a
chemical compound, trade secrets, know-how, inventions, technical data or
specifications, testing methods, business or financial information, research and
development activities, product and marketing plans, and customer and supplier
information. The parties expressly agree that the structures of Active ArQule
Compounds and the identity of the related Target shall be considered
Confidential Information until such time as the parties have mutually agreed to
disclose such information in patent filings pursuant to Section 6.2.
10.1.2. Designation of Confidential Information. Confidential
Information that is disclosed in writing shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within thirty (30) days of
the date of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.
10.1.3. Obligations. The Receiving Party agrees that it shall:
(a) maintain all Confidential Information in strict
confidence, except that the Receiving Party may disclose or permit the
disclosure of any Confidential
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<PAGE> 27
Information to its, and its Affiliates', directors, officers,
employees, consultants, and advisors who are obligated to maintain the
confidential nature of such Confidential Information and who need to
know such Confidential Information for the purposes set forth in this
Agreement;
(b) use all Confidential Information solely for the
purposes set forth in, or as permitted by, this Agreement; and
(c) allow its directors, officers, employees,
consultants, and advisors to reproduce the Confidential Information
only to the extent necessary to effect the purposes set forth in this
Agreement, with all such reproductions being considered Confidential
Information.
10.1.4. Exceptions. The obligations of the Receiving Party
under Section 10.1.3 above shall not apply to the extent that the Receiving
Party can demonstrate that certain Confidential Information:
(a) was in the public domain prior to the time of its
disclosure under this Agreement;
(b) entered the public domain after the time of its
disclosure under this Agreement through means other than an
unauthorized disclosure resulting from an act or omission by the
Receiving Party;
(c) was independently developed or discovered by the
Receiving Party without use of the Confidential Information;
(d) is or was disclosed to the Receiving Party at any
time, whether prior to or after the time of its disclosure under this
Agreement, by a third party having no fiduciary relationship with the
Disclosing Party and having no obligation of confidentiality to the
Disclosing Party with respect to such Confidential Information; or
(e) is required to be disclosed to comply with
applicable laws or regulations (such as disclosure to the United States
Food and Drug Administration or the United States Patent and Trademark
Office or to their foreign equivalents), or to comply with a court or
administrative order, provided that the Disclosing Party receives prior
written notice of such disclosure and that the Receiving Party takes
all reasonable and lawful actions to obtain confidential treatment for
such disclosure and, if possible, to minimize the extent of such
disclosure.
10.2. Proprietary Materials.
10.2.1. Definition of Proprietary Materials. "Proprietary
Materials" shall mean any tangible chemical, biological, or physical research
materials that are furnished by the Transferring Party to the Receiving Party in
connection with this Agreement regardless of whether such materials are
specifically designated as proprietary to the
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<PAGE> 28
Transferring Party. Proprietary Materials shall include, without limitation, all
ArQule Compounds and Solvay Duphar Compounds.
10.2.2. Limited Use. The Receiving Party shall use Proprietary
Materials solely for the purposes set forth in this Agreement. The Receiving
Party shall use the Proprietary Materials only in compliance with all applicable
governmental laws and regulations.
10.2.3. Limited Disposition. The Receiving Party shall not
transfer or distribute any Proprietary Materials to any third party, except to
its Affiliates, without the prior written consent of the Transferring Party.
10.2.4. Reverse Engineering. Solvay Duphar shall not attempt
to reverse engineer, or attempt to determine the structure of, any ArQule
Compound in a Screening Array until the structure of such compound has been
disclosed to Solvay Duphar by ArQule following notification by Solvay Duphar of
the location of an Active ArQule Compound and the Target pursuant to Section
3.1.2.
10.3. Return of Confidential Information and Proprietary Materials.
Upon the termination of this Agreement, at the request of the Disclosing Party,
the Receiving Party shall destroy or return to the Disclosing Party all
originals, copies, and summaries of documents, materials, and other tangible
manifestations of Confidential Information in the possession or control of the
Receiving Party, except that the Receiving Party may retain one copy of the
Confidential Information in the possession of its legal counsel (for ArQule) and
its Legal and Trademarks Department (for Solvay Duphar) solely for the purpose
of monitoring its obligations under this Agreement. Upon the termination of this
Agreement, the Receiving Party shall at the instruction of the Transferring
Party either destroy or return any unused Proprietary Materials.
10.4. Publications. In the event that either party desires to publicly
disclose (through journals, lectures, or otherwise) any results relating to the
Research Programs, such party (the "Publishing Party") shall furnish the other
party (the "Reviewing Party") with (i) a copy of any written publication at
least sixty (60) days prior to submission or (ii) a summary or abstract of an
oral disclosure at least thirty (30) days prior to the intended disclosure date.
The Reviewing Party shall have the right to (i) consent to the disclosure with
modifications to protect patentable inventions or prevent disclosure of
Confidential Information, (ii) delay the disclosure for a period of ninety (90)
days to enable the preparation and filing of a patent application, or (iii)
refuse to allow the disclosure in order to maintain certain information as a
trade secret, which refusal shall not be unreasonably exercised. Any
disagreements arising under this Section shall be referred to the Research
Committee.
10.5. Survival of Obligations. The obligations set forth in this
Article shall remain in effect for a period of five (5) years after termination
of this Agreement, except that the obligations of the Receiving Party to return
or destroy Confidential Information to the Disclosing Party and to return or
destroy Proprietary Materials received from the Transferring Party shall survive
until fulfilled.
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<PAGE> 29
11. Other Rights and Obligations Between the Parties.
11.1. Manufacturing. In the event that Solvay Duphar or a Solvay Duphar
Affiliate decides, in its sole discretion, to contract with an outside party for
the manufacture of a Royalty-Bearing Product arising from the DA Program, Solvay
Duphar shall not offer such manufacturing rights to such third party except as
provided in this Section. Solvay Duphar hereby grants ArQule a right of first
offer to obtain such manufacturing rights in the form of a nonexclusive
manufacturing license under any applicable Solvay Duphar Patent Rights and
technical information (the "Offer Right"). ArQule may exercise the Offer Right
upon presentation of a written offer to Solvay Duphar within thirty (30) days
after ArQule receives a written notice from Solvay Duphar which describes the
substance, quantities, and requisite manufacturing specifications. Solvay Duphar
shall respond to the ArQule offer within sixty (60) days. Solvay Duphar shall
have the right to reject the ArQule offer on any grounds including but not
limited to: high cost, lack of time-effectiveness, inability to meet quality
standards, inability to meet government requirements, lack of necessary skills,
or lack of necessary equipment or facilities. If Solvay Duphar rejects the
ArQule offer, Solvay Duphar shall furnish ArQule with a brief explanation of the
reason for its decision, and Solvay Duphar shall be free to offer such
manufacturing rights to any third party; provided, however, that Solvay Duphar
may only grant such rights to a third party on terms that are more favorable, in
the aggregate, than the terms of the ArQule offer based upon the reasons that
Solvay Duphar provided ArQule for rejection of the ArQule offer.
11.2. ArQule's Right to Acquire Solvay Duphar Products. In the event
that Solvay Duphar or an Affiliate decides, in its sole discretion, to terminate
development after completion of a Phase II Clinical Trial (or its foreign
equivalent) of a Royalty-Bearing Product, Solvay Duphar shall promptly notify
ArQule of its decision, and ArQule shall have a period of ninety (90) days to
offer to purchase or license such product from Solvay Duphar. ArQule
acknowledges and agrees that Solvay Duphar may solicit and receive offers from
third parties during this ninety-day period, provided that Solvay Duphar shall
not accept any offer unless and until it has received and reasonably considered
the ArQule offer. Solvay Duphar may reject the ArQule offer for any reason, in
its sole discretion.
11.3. Sale of ArQule Pharmaceutical Business. If ArQule elects to
spin-off or otherwise sell or convey all or any portion of its pharmaceutical
business to a third party, then ArQule shall provide Solvay Duphar with written
notice of such intention. *
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*Confidential treatment has been
requested for marked portions.
<PAGE> 30
12. Representations and Warranties.
12.1. Authorization. Each party represents and warrants to the other
that it has the legal right and power to enter into this Agreement, to extend
the rights and licenses granted to the other in this Agreement, and to fully
perform its obligations hereunder, and that the performance of such obligations
will not conflict with its charter documents or any agreements, contracts, or
other arrangements to which it is a party.
12.2. Ownership. ArQule represents and warrants that, as of the
Effective Date, it possesses the exclusive right, title, and interest in and to
the ArQule Technology and the ArQule Patent Rights and that it has the full
legal right and power to enter into the obligations and grant the rights and
licenses set forth in this Agreement.
12.3. Intellectual Property Rights. This Agreement incorporates by
reference, and ArQule hereby extends to Solvay Duphar, the representations and
warranties made by ArQule in Section 2.10 of the Series B Convertible Preferred
Stock Purchase Agreement entered into by ArQule and Solvay Physica B.V.
concurrently with this Agreement.
12.4. AMAP. ArQule represents and warrants that, if Solvay Duphar
elects to acquire the AMAP Technology pursuant to Section 8.1, the AMAP
Technology transferred to Solvay Duphar will be adequate to operate the AMAP.
13. Indemnification and Insurance.
13.1. Indemnification. Each party (the "Indemnitor") shall indemnify,
defend, and hold harmless the other party and its Affiliates and their
directors, officers, employees, and agents and their respective successors,
heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or
expense (including reasonable attorneys fees and expenses of litigation)
incurred by or imposed upon the Indemnitees or any one of them in connection
with any claims, suits, actions, demands, or judgments arising out of any theory
of product liability (including, but not limited to, actions in the form of
tort, warranty, or strict liability) concerning any product (or any process or
service) that is made, used, or sold by such other party pursuant to any right
or license granted under this Agreement; provided, however, that such
indemnification right shall not apply to any liability, damage, loss, or expense
to the extent directly attributable to the negligent activities, reckless
misconduct, or intentional misconduct of the Indemnitees.
13.2. Procedures. Any Indemnitee that intends to claim indemnification
under Section 13.1 shall promptly notify the appropriate Indemnitor of any claim
in respect of which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an Indemnitee shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the Indemnitor, if representation of such Indemnitee by the counsel retained by
the Indemnitor would be inappropriate due to actual or potential differing
interests between such Indemnitee and any other party represented by such
counsel in such proceedings. The
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<PAGE> 31
indemnity agreement in Section 13.1. shall not apply to amounts paid in
settlement of any loss, claim, liability or action if such settlement is
effected without the consent of Solvay Duphar, which consent shall not be
withheld unreasonably. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve the Indemnitor of any liability to
the Indemnitee under Section 13.1. Each party and its Affiliates and their
employees and agents shall cooperate fully with the other party and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.
13.3. Insurance. Each party shall maintain reasonably adequate
insurance or self-insurance coverage for its own potential liabilities to the
Indemnitees as set forth in this Article.
14. Term and Termination.
14.1. Term. This Agreement shall commence on the Effective Date and
shall remain in effect until the expiration of the last to expire of the
applicable ArQule, Solvay Duphar or Joint Patent Rights, unless earlier
terminated as provided in this Article 14. Thereafter, Solvay Duphar shall have
a non-exclusive, paid-up royalty-free license to ArQule Technology and the
royalty-free non-exclusive licenses to AMAP Chemistry and AMAP Technology set
forth in Section 8.3. and to AMAP Improvements set forth in Section 8.4(d) shall
remain in effect.
14.2. Breach of Payment Obligations. In the event that Solvay Duphar
fails to make timely payment of any amounts due to ArQule under this Agreement,
ArQule may terminate this Agreement upon thirty (30) days written notice to
Solvay Duphar, unless Solvay Duphar pays all past-due amounts within such
thirty-day notice period.
14.3. Material Breach. In the event that either party commits a
material breach of any of its obligations under this Agreement and such party
fails (i) to remedy that breach within ninety (90) days after receiving written
notice thereof from the other party or (ii) to commence dispute resolution
pursuant to Section 15.5., within ninety (90) days after receiving written
notice of that breach from the other party, the other party may immediately
terminate this Agreement upon written notice to the breaching party. The failure
of ArQule to deliver * compounds per year under the Screening Array
Program shall not be considered a material breach of the Agreement.
14.4. Effect of Termination. The following provisions shall survive the
expiration or termination of this Agreement: Articles 1, 5, 6, 9, 10, and 13;
Sections 8.3, 8.4, 8.5, 14.1, 14.4, 15.2, 15.3, and 15.5.
15. Miscellaneous.
15.1. Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship
* confidential treatment has been
requested for marked portions
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<PAGE> 32
between the parties. No party shall incur any debts or make any commitments for
the other, except to the extent, if at all, specifically provided therein.
15.2. Publicity. Neither party shall use the name of the other party or
reveal the terms of this Agreement in any publicity or advertising without the
prior written approval of the other party, except that (i) either party may use
the text of a written statement approved in advance by both parties without
further approval, (ii) either party shall have the right to identify the other
party and to disclose the terms of this Agreement as required by applicable
securities laws or other applicable law or regulation, and (iii) either party
may use the name of the other party and reveal the existence of this Agreement.
15.3. Non-Solicitation. During the term of this Agreement and
thereafter for a period of two (2) years, each party agrees not to seek to
persuade or induce any employee of the other party to discontinue his or her
employment with that party in order to become employed by or associated with any
business, enterprise, or effort that is associated with its own business.
15.4. Governing Law. The License Agreement shall be governed by and
construed in accordance with the laws of England.
15.5. Dispute Resolution Procedures.
(a) The parties hereby agree that they will attempt
in good faith to resolve any controversy, claim or dispute ("Dispute")
arising out of or relating to this Agreement promptly by negotiations.
Any such Dispute which is not settled by the parties within fifteen
(15) days after notice of such Dispute is given by one party to the
other in writing shall be referred to a senior executive of ArQule and
the Vice President-Research of Solvay Duphar who are authorized to
settle such Disputes on behalf of their respective companies ("Senior
Executives"). The Senior Executives will meet for negotiations within
fifteen (15) days of the end of the 15 day negotiation period referred
to above, at a time and place mutually acceptable to both Senior
Executives. If the Dispute has not been resolved within thirty (30)
days after the end of the 15 day negotiation period referred to above
(which period may be extended by mutual agreement), subject to any
rights to injunctive relief and unless otherwise specifically provided
for herein, any Dispute will be settled first by non-binding mediation
and thereafter by arbitration as described in subsections (b) and (c)
below.
(b) Any Dispute which is not resolved by the parties
within the time period described in subsection (a) shall be submitted
to an alternative dispute resolution process ("ADR"). Within five (5)
business days after the expiration of the thirty (30) day period set
forth in subsection (a), each party shall select for itself a
representative with the authority to bind such party and shall notify
the other party in writing of the name and title of such
representative. Within ten (10) business days after the date of
delivery of such notice, the representatives shall schedule a date for
engaging in non-binding ADR with a neutral mediator or dispute
resolution firm mutually acceptable to both representatives. Any such
mediation shall be held in London, England. Thereafter, the
representatives of the parties shall engage in good
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<PAGE> 33
faith in an ADR process under the auspices of such individual or firm.
If the representatives of the parties have not been able to resolve the
Dispute within thirty (30) business days after the conclusion of the
ADR process, or if the representatives of the parties fail to schedule
a date for engaging in non-binding ADR within the ten (10) day period
set forth above, the Dispute shall be settled by binding arbitration as
set forth in subsection (c) below. If the representatives of the
parties resolve the dispute within the thirty (30) day period set forth
above, then such resolution shall be binding upon the parties. If
either party fails to abide by such resolution, the other party can
immediately refer the matter to arbitration under Section 15.5(c).
(c) If the parties have not been able to resolve the
Dispute as provided in subsections (a) and (b) above, the Dispute shall
be finally settled by binding arbitration. Any arbitration hereunder
shall be conducted under the "Rules of Conciliation and Arbitration" of
the International Chamber of Commerce. The arbitration shall be
conducted in the English language before three arbitrators chosen
according to the following procedure: each of the parties shall appoint
one arbitrator and the two so nominated shall choose the third. If the
arbitrators chosen by the parties cannot agree on the choice of the
third arbitrator within a period of thirty (30) days after their
appointment, then the third arbitrator shall be appointed by the Court
of Arbitration of the International Chamber of Commerce. Any such
arbitration shall be held in London, England. The arbitrators shall
have the authority to grant specific performance, and to allocate
between the parties the costs of arbitration in such equitable manner
as they determine. The arbitral award (i) shall be final and binding
upon the parties; and (ii) may be entered in any court of competent
jurisdiction in accordance with the 1958 Convention on the Recognition
and Enforcement of Arbitral Awards.
(d) Nothing contained in this Section or any other
provisions of this Agreement shall be construed to limit or preclude a
party from bringing any action in any court of competent jurisdiction
for injunctive or other provisional relief to compel the other party to
comply with its obligations hereunder before or during the pendency of
mediation or arbitration proceedings. The parties hereby irrevocably
consent to submit to the jurisdiction of the courts of England and/or
any other court having jurisdiction for this purpose.
15.6. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
15.7. Headings. All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.
15.8. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties, their Affiliates, and their respective lawful
successors and assigns.
15.9. Assignment. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that either party
may assign this Agreement
- 28 -
<PAGE> 34
to a successor in connection with the merger, consolidation, or sale of all or
substantially all of its assets or that portion of its business pertaining to
the subject matter of this Agreement. Notwithstanding the foregoing, during the
first Contract Year, ArQule must obtain the written consent of Solvay Duphar
prior to any acquisition of ArQule or that portion of its business pertaining to
the subject matter of this Agreement.
15.10. Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized international overnight courier, confirmed
facsimile transmission, or registered or certified mail, return receipt
requested, postage prepaid to the following addresses or facsimile numbers:
(a) With regard to notices under Sections 3.4, 4.4, 6.5-6.8,
7.8, 9.1, 11.1- 11.3, 14.2, 14.4, 15.5 and 15.9:
If to Solvay Duphar: If to ArQule:
Solvay Duphar B.V. ArQule, Inc.
C.J. van Houtenlaan 36 200 Boston Avenue, Suite 3600
1381 CP Weesp Medford, MA 02155
the Netherlands Attention: President
Attention: Vice President-Research
Dr. A. de Jonge
Tel: (0)2940-79633 Tel: (617) 395-4100
Fax: (0)2940-77109 Fax: (617) 395-1225
and with a copy to:
Solvay Duphar B.V. Palmer & Dodge
C.J. van Houtenlaan 36 One Beacon Street
1381 CP Weesp Boston, MA 02108
the Netherlands Attention: Michael Lytton, Esquire
Attention: Director of Corporate
Technology Acquisition Tel: (617) 573-0327
Dr. J. van Randen Fax: (617) 227-4420
with a copy to:
Legal and Trademarks Department
Tel: (0)2940-77479
Fax: (0)2940-77125
- 29 -
<PAGE> 35
and
(b) With regard to all other communications:
If to Solvay Duphar: If to ArQule:
Solvay Duphar B.V. ArQule, Inc.
C.J. van Houtenlaan 36 200 Boston Avenue, Suite 3600
1381 CP Weesp Medford, MA 02155
the Netherlands Attention: President
Attention: Director of Corporate
Technology Acquisition Tel: (617) 395-4100
Dr. J. van Randen Fax: (617) 395-1225
Tel: (0)2940-79696
Fax: (0)2940-77126
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
15.11. Amendment and Waiver. This Agreement may be amended,
supplemented, or otherwise modified only by means of a written instrument signed
by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.
15.12. Severability. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.
15.13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings between the parties relating
to the subject matter hereof.
15.14. Hardship. The underlying objective of this Agreement is to
realize in an economical and reasonable way the mutual interests and
requirements of the parties. If at any time this Agreement should no longer meet
this objective because of technical developments, economic developments or
political changes that could not reasonably be foreseen at the time of signing
this Agreement thus causing undue and prolonged hardship, the parties shall meet
in order to bring about a mutually agreeable solution according to the economic
and reasonable objectives of this Agreement.
15.15. Force Majeure. Neither party shall be held liable or responsible
to the other party, nor be deemed to be in breach of this Agreement, for failure
or delay in fulfilling or performing any provisions of this Agreement when such
failure or delay is caused by or results from any cause whatsoever outside the
reasonable control of the party
- 30 -
<PAGE> 36
concerned including, but not limited to, fire, explosion, breakdown of plant,
strike, lock-out, labor disputes, casualty or accident, lack or failure of
transportation facilities, flood, lack or failure of sources of supply or of
labor, raw materials or energy, civil commotion, blockage or embargo, any law,
regulation, decision, demand or requirement of any national or local government
or authority. The party claiming relief shall, without delay, notify the other
party by registered airmail or by telefax of the interruption and cessation
thereof and shall use its best efforts to remedy the effects of such hindrance
with all reasonable dispatch. The onus of proving that any such Force Majeure
event exists shall rest upon the party so asserting. During the period that one
party is prevented from performing its obligations under this Agreement due to a
Force Majeure event, the other party may, in its sole discretion, suspend any
obligations that relate thereto. Upon cessation of such Force Majeure event the
parties hereto shall use their best efforts to make up for any suspended
obligations. If such Force Majeure event is anticipated to continue, or has
existed for nine (9) consecutive months or more, this Agreement may be forthwith
terminated by either party by registered airmail or by telefax. In case of such
termination the terminating party will not be required to pay to the other party
any indemnity whatsoever.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as a sealed instrument effective as of the date first above
written.
SOLVAY DUPHAR B.V. ARQULE, INC.
By: /s/ Mr. Jan Van Houtenlaan By: /s/ Allan Ferguson
___________________________ __________________
Name:_________________________ Name:_________________________
Title: President Title: Chairman
________________________ _______________________
-31-
<PAGE> 37
EXHIBIT A
ArQule Patent Rights*
[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
* Confidential treatment has been
requested for marked portions
<PAGE> 38
Exhibit B
---------
Research Plan Solvay - ArQule Collaboration
- -------------------------------------------
For the period October 1995 - June 30, 1996.
1. Main Aim
--------
The collaboration is aimed at accelerating Solvay's search for new innovative
therapeutics by increasing the number and diversity of compounds through the
application of combinatorial parallel synthesis chemistry technology.
2. Research Committee / Meetings / Progress Reports
------------------------------------------------
Composition of the Research Committee.
For ArQule: D.L. Coffen, PhD
J.C. Hogan Jr. PhD (ArQule teamleader)
R.A. Zambias
For Solvay: C.C. Kruse, PhD
U. Prouschofe, PhD
J. van Randen, PhD (Solvay teamleader)
The Research Committee will meet quarterly to adapt and further define the
research plan for the next 6 months and to discuss progress over the past 3
months. Chemical themes to be included in the Directed Array program and
priority within the Research program will be decided upon by Solvay in
consultation with ArQule. ArQule will provide Solvay with all relevant
information to ArQule's best knowledge to enable sound decision making.
Performance objectives, with respect to timing and number of compounds/number of
themes, will be mutually defined by the Research Committee.
Progress will be discussed at least once per month (by video or telephone
conference) on basis of a written monthly progress report. The monthly progress
report will be prepared by ArQule and will be sent to each of the Solvay
Research Committee members in time for receipt at least 7 days prior to the
progress discussion. The monthly progress report will contain any (updated)
listing of the Arqule employees fully or partly involved in the Solvay Research
program. With the extent of involvement indicated, in addition to adequate
information with respect to status and progress of the running activities.
The Research Committee aims for an open and highly interactive collaboration
with the best scientific technical input from both sides. In addition to the
Research Committee members, other ArQule or Solvay employees may be involved in
part of the discussion upon agreement of the Research Committee team leaders.
3. Term
----
<PAGE> 39
The term for the research plan outlined below starts at the effective closure
date of the Research Development and license agreement and ends at June 30,
1996. The first quarter ArQule will have provided the equivalence of 30 months
FTE capacity.
The program outlined below for the first quarter is definitive and will be
executed as agreed. Deviation will need the prior written approval of both the
ArQule and the Solvay teamleaders.
4. Selected Solvay Directed Arrays
-------------------------------
4.1 Description
-----------
The Solvay Directed Arrays selected for the first two quarters of the
collaboration are listed below with corresponding code numbers (SAxxx),
identifying the array, which will be used for reference.
[Confidential information]*
Table 1 Solvay Directed Arrays
- ------------------------------
NOTE: Number of compounds resulting from chemistry 'try-out'. If chemistry
proofs tangible, the final number of compounds for this array might
significantly increased.
More detailed descriptions, including the chemical themes involved, are included
in the annexes which are part of this research program.
4.2 Quality Control
---------------
Quality control will be performed by ArQule. ArQule guarantees that each Solvay
Directed Array complies with the following specifications:
(i) Mass Spectrometry data on MW are in accordance with the array design.
(ii) Amount per compound delivered is no less than *.
(iii) Purity of delivered compounds estimated by HPLC will be no less that
*, unless it has been otherwise decided upon discussion in the Research
Committee.
It is noted here that the purity specification of 80% in combination with the
numbers of compounds to be delivered can only be guaranteed after installation
of the AMPA chromatography substation at the ArQule which is expected by be
operational in *.
4.3 Research Objectives
-------------------
Depending on the array the following research objectives apply:
(i) completed synthesis (and/or delivery by solvay) of core molecules.
(ii) completed development of new chemical reactions, if needed.
(iii) completed synthesis of building blocks.
* Confidential treatment has been
requested for marked portions
<PAGE> 40
(iv) completed delivery of the Solvay Directed Array including all necessary
information and documentation of Solvay.
Necessary information/documentation at delivery includes all chemical structures
of compounds, all data on impurities, the synthetic methodology applied and
information necessary to incorporate the array in Solvay's screening and to
enable adequate chemical data handling.
4.4 Estimated capacity need and time plan
-------------------------------------
*
Time and capacity plan
- ----------------------
Within the first two quarters of the Directed Array program all work to be done
on the arrays SASCI - SO507 can be completed. Furthermore some new arrays, to be
defined at the next quarter. Table 2 shows the timeline of completing the
research objectives defined for each of the arrays.
*
Table 2 Timeline of completion of research objectives
- ------------------------------------------------------
Indicated are the months of completion. Exact dates of completions depend on the
start of the program and thus on closure date of the transaction.
NOTES: Research objectives (i) - (iv) refer to the research objectives defined
above.
Delivery of library (* compounds) resulting from the chemistry
'try-outs' of SA504.
For reasons of efficiency Solvay Directed Arrays will be prepared and delivered
in parts based on common chemical reaction types.
Delivery dates of (parts of) the arrays as well as the number of compounds to
be delivered at those dates are indicated in the appended are descriptions.
Solvary-ArQule Cooperation
Directed Array Program: Definition
of Themes and Library Composition
*
* Confidential treatment has been
requested for marked portions
<PAGE> 41
EXHIBIT C
Installation Criteria
An AMAP is a system containing the following components and capabilities.
1. Informatics Platform
(a) Reagent Inventory and Tracking System
(b) Array Software for Synthesis Design and Implementation
(c) Software for Acquisition, Analysis and Interpretation of
Data
(d) Array and Compound Registration and Tracking
2. Robotics/Hardware/Capabilities
(a) Synthesis Apparatus
(b) Weighing/Dissolution/Solubility Testing
(c) Heating/Cooling/Agitation
(d) Concentration
(e) Isolation, Extraction, Purification and Chromatography
3. Analytical Hardware
(a) LAN/LIM System for Data Acquisition, Interpretation and
Management
(b) Analytical Methodology/Techniques
A chemistry set, pre-tested at ArQule, will be provided by ArQule to Solvay to
validate the installed system. The chemistry is to be run on the new system to
completely test all components of the system. If the chemistry/system performs
in a manner equivalent to the performance of the same chemistry set on ArQule's
own AMAP, the system shall be considered successfully installed.
<PAGE> 1
EXHIBIT 10.15
RESEARCH & DEVELOPMENT AND LICENSE AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into effective as of
the 16th day of June, 1995 ("Effective Date"), by and between ABBOTT
LABORATORIES, an Illinois corporation having a principal place of business at
100 Abbott Park Road, Abbott Park, Illinois 60064 ("Abbott") and ARQULE, INC., a
Delaware corporation having a principal place of business at 200 Boston Avenue,
Suite 3600, Medford, Massachusetts 02155 ("ArQule").
RECITALS
WHEREAS, ArQule has expertise relating to the modification of
pharmaceutical compounds by use of combinatorial chemistry methods utilizing
rapid parallel synthesis;
WHEREAS, Abbott has expertise in the discovery, development, marketing
and sale of pharmaceuticals and other health care products;
WHEREAS, Abbott desires to have ArQule generate large numbers of
ArQule's own compounds as well as compounds derived from specifically targeted
parallel synthesis of Abbott provided compounds;
WHEREAS, Abbott desires to perform screening of ArQule's compounds and
compounds derived by ArQule from Abbott provided compounds for possible further
research and development by Abbott;
WHEREAS, as part of such research and development effort and contingent
upon ArQule performing research and development activities under a mutually
agreed upon research and development plan, Abbott shall provide certain funding
to ArQule for its research and development activities; and
WHEREAS, if Abbott commercially develops any such compounds, Abbott
shall pay ArQule milestone payments on such compounds which achieve certain
commercial milestones as well as royalties on commercial sales of pharmaceutical
products containing such compounds, all on the terms and conditions stated
below;
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants contained herein, Abbott and ArQule hereby agree as follows:
<PAGE> 2
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings set forth below:
1.1 "Abbott Compound" shall mean an Abbott Core Compound (as defined
below) or an Abbott Derivative Compound (as defined below).
1.2 "Abbott Core Compound" shall mean a core chemical compound supplied
to ArQule by Abbott pursuant to Section 2.1.
1.3 "Abbott Derivative Compound" shall mean a chemical compound
generated by ArQule for Abbott by use of chemical modification methods from an
Abbott Core Compound pursuant to Section 2.1.
1.4 "Abbott Field" shall mean *
1.5 "Active ArQule Array" shall mean an ArQule Array (as defined below)
that contains at least one (1) Active ArQule Compound (as defined below).
1.6 "Active ArQule Compound" shall mean *
or such higher concentration level demonstrating significant
biological activity as the parties may mutually agree upon.
1.7 "Affiliate" shall mean, with respect to a party, any other business
entity which directly or indirectly controls, is controlled by, or is under
common control with, such party. A business entity or party shall be regarded as
in control of another business entity if it owns, or directly or indirectly
controls, more than fifty percent (50%) of the voting stock or other ownership
interest of the other business entity. For purposes of this Agreement, Abbott
Affiliates shall also include the following entities: Abbott Laboratories
(India) Ltd. and Abbott Laboratories Nigeria Limited.
1.8 "ArQule Array" shall mean a set of at least *
ArQule Core Compounds (as defined below) provided by ArQule to Abbott for
screening pursuant to Section 5.1.
1.9 "ArQule Compound" shall mean an ArQule Core Compound or an ArQule
Derivative Compound (as defined below).
1.10 "ArQule Core Compound" shall mean a core chemical compound from an
ArQule Array supplied by ArQule to Abbott pursuant to Section 5.1.
* Confidential treatment has been
requested for marked portions
- 2 -
<PAGE> 3
1.11 "ArQule Derivative Compound" shall mean a chemical compound
generated by ArQule for Abbott or by Abbott, its Affiliates or contractors by
use of chemical modification methods from an ArQule Core Compound.
1.12 "ArQule Field" shall mean *
1.13 "Array Screening Period" shall mean a period of three (3) Contract
Years (as defined below) commencing on the Effective Date.
1.14 "Array Transfer Period" shall mean a period of two (2) Contract
Years commencing on the Effective Date.
1.15 "Calendar Quarter" shall mean each of the three (3) month periods
beginning on January 1, April 1, July 1 and October 1 of each year.
1.16 "Combination Product" shall mean a pharmaceutical product
containing a Product (as defined below) and at least one (1) other
therapeutically active ingredient.
1.17 "Composition of Matter Patent" shall mean any national or European
Union patent(s) of either party or their Affiliates issued anywhere in the
Territory (as defined below) which claims an Abbott Derivative Compound or an
ArQule Compound, including any patent(s) issuing from any divisions,
continuations, continuations-in-part, reexaminations, or reissues thereof, and
any additions, renewals, and extensions of such patent(s).
1.18 "Contract Quarter" shall mean the three (3) month period beginning
on the Effective Date and each subsequent three (3) month period during the
Research Term.
1.19 "Contract Year" shall mean the twelve (12) month period beginning
on the Effective Date and each subsequent twelve (12) month period during the
term of this Agreement.
1.20 "FDA" shall mean the United States Food and Drug Administration or
any successor entity thereto.
1.21 "FTE" shall mean one (1) or more employees of a party who,
collectively, spend time and effort working on a specified project or task
equivalent to the time and effort of one (1 ) full-time employee of a party
working on such project or task.
1.23 "Licensed Final Compound" shall mean a specific ArQule Compound
from a Licensed Compound Set that Abbott commercially develops, markets and/or
sells pursuant to Section 5.9.
1.24 "Licensed Compound Set" shall mean a list of specific ArQule
Compounds licensed to Abbott by ArQule, in accordance with the procedures set
forth in Section 5.6, as well as all prodrugs, esters and salt forms of such
ArQule Compounds.
1.25 "Licensed Set Core" shall have the meaning set forth in Section
5.6(a).
* Confidential treatment has been
requested for marked portions
- 3 -
<PAGE> 4
1.26 "License Option Period" shall mean a period of ten (10) Contract
Years commencing on the Effective Date.
1.27 "NDA" shall mean a New Drug Application filed with the FDA with
respect to a Product.
1.28 "Net Sales" shall mean:
(a) With respect to a Product sold alone, the gross
invoiced sales of such Product by Abbott, its
Affiliates and/or sublicensees to unrelated third
parties, less the following deductions:
*
(b) With respect to a Combination Product, the gross
invoiced sales of such Combination Product in a
particular country by Abbott, its Affiliates and/or
sublicensees to unrelated third parties less the
deductions under (i) - (vi) above, multiplied by a
fraction (i) the numerator of which shall be the per
unit current wholesale selling price of the Product
contained in the Combination Product, as sold alone
in such country, and (ii) the denominator of which
shall be the sum of the per unit current wholesale
selling price in such country of each active
ingredient in such Combination Product (including the
Product) as sold alone as a pharmaceutical product.
If there is no established current wholesale selling
price of the Product contained in such Combination
Product or any other active ingredient of such
Combination Product in a particular country, then the
standard, fully-burdened manufacturing cost of the
Product and other active
* Confidential treatment has been
requested for marked portions
- 4 -
<PAGE> 5
ingredient(s) shall be used to determine the above
fraction, with such costs being determined in
accordance with United States generally accepted
accounting principles.
(c) With respect to a Product that is sold in a Premium
Delivery System (as defined below), an amount
calculated by multiplying (i) the total number of
milligrams of the ArQule Compound or Abbott
Derivative Compound, as applicable, in such Product
sold in Premium Delivery Systems in a particular
country by Abbott, its Affiliates and/or sublicensees
to unrelated third parties, by (ii) the average
selling price of one (1 ) milligram of the ArQule
Compound or Abbott Derivative Compound, as
applicable, in such Product sold in such country by
Abbott, its Affiliates and/or sublicensees to
unrelated third parties in the same reporting period,
which Product is not sold in Premium Delivery
Systems. For purposes of the foregoing sentence,
"average selling price" is the total Net Sales of
such Product not sold in Premium Delivery Systems
calculated pursuant to subparagraph (a) above divided
by the aggregate number of milligrams of the ArQule
Compound or Abbott Derivative Compound, as
applicable, contained in all such Products to which
such Net Sales apply. If such Product is only sold in
Premium Delivery Systems during the applicable
reporting period, then the "Net Sales" of the Product
sold in Premium Delivery Systems shall be determined
by multiplying the "Net Sales" of the Premium
Delivery System containing such Product calculated
pursuant to subparagraph (a) above by a fraction (A)
the numerator of which shall be the standard,
fully-burdened manufacturing cost of the Product and
(B) the denominator of which shall be the standard,
fully-burdened manufacturing cost of all of the
ingredients and components of the Premium Delivery
System (including such Product). As used herein,
"Premium Delivery System" means any drug delivery
system product which comprises a drug or drugs along
with a device(s), equipment, instrumentation, or
other components (but not solely containers or
packaging) designed to accomplish or assist in the
non-oral administration of such drug(s) and thereby
enhance the value of such drug(s), including but not
limited to the Abbott ADD-Vantage(R)System.
1.29 "Patent Rights" shall mean (a) all patent applications filed
anywhere in the Territory by either party or their Affiliates having claims
relating to a Product, Abbott Derivative Compound or ArQule Compound, or the
process of manufacture or use thereof, together with any patents issuing
therefrom (including but not limited to Composition of Matter Patents), and (b)
all divisions, continuations, continuations-in-part, reexaminations, reissues,
additions, renewals and extensions of such patent applications and patents.
Patent Rights owned by Abbott shall be referred to as "Abbott Patent Rights",
Patent Rights owned by ArQule shall be referred to as "ArQule Patent Rights",
and Patent Rights owned by ArQule and Abbott jointly shall be referred to as
"Joint Patent Rights", with ownership of Patent Rights to be determined in
accordance with United States patent laws and practice.
- 5 -
<PAGE> 6
1.30 "Phase III Studies" shall mean a program of clinical studies
approved by the FDA or other equivalent national or supranational regulatory
agencies outside of the United States which, if successfully completed to the
satisfaction of the FDA or equivalent agencies outside of the United States, is
intended to enable the sponsor of the studies to file an NDA and/or other
equivalent applications for Regulatory Approval (as defined below).
1.31 "Product" shall mean any product containing an Abbott Derivative
Compound or an ArQule Compound.
1.32 "R & D Committee" shall mean the Research and Development
Committee established by the parties pursuant to Article 3.
1.33 "R & D Plan" shall mean the twelve (12) month rolling plan of
ArQule research and development activities to be developed by the R & D
Committee pursuant to Article 3.
1.34 "R & D Program" shall mean the research and development program
funded by Abbott at ArQule as described in Article 3.
1.35 "Regulatory Approval" shall mean all governmental approvals
required to market and sell a Product in any given country or multinational
region in the Territory (e.g., the European Union), including but not limited
to, product registrations, medical approvals, and price/marketing approvals.
1.36 "Research Term" shall mean the two (2) year program of
collaborative research by Abbott and ArQule hereunder, which may be extended by
Abbott pursuant to Section 2.3 for up to three (3) additional successive one (1)
year periods.
1.37 "Reserved Array(s)" shall mean one (1) or more Active ArQule
Array(s) for which Abbott exercises a Target Reservation (as defined below) in
accordance with the procedures set forth in Section 5.5.
1.38 "Royalty Term" shall mean, with respect to each Product in each
country of the Territory where Abbott's obligation to pay royalties pursuant to
Section 6.3 is in effect, the period of time commencing with the first
commercial sale of such Product by Abbott, its Affiliates and/or sublicensees to
an unrelated third party in such country and continuing until Abbott's
obligation to pay royalties pursuant to Section 6.3 ceases in such country.
1.39 "Target" shall have the meaning set forth in Section 5.5.
1.40 "Target Reservation" shall mean an Abbott's designation of one (1)
or more Active ArQule Arrays as Reserved Arrays for a specified Target pursuant
to Section 5.5.
1.41 "Territory" shall mean the entire world.
1.42 "Valid Claim" shall mean a claim of an issued and unexpired
Composition of Matter Patent which neither has been held unenforceable or
invalid by a decision of a court or
- 6 -
<PAGE> 7
governmental agency of competent jurisdiction, unappealable or unappeased within
the time allowed for appeal, nor has been admitted by the holder of the
Composition of Matter Patent to be invalid or unenforceable through reissue,
reexamination, disclaimer, abandonment or otherwise.
Additional terms used in specific sections of this Agreement shall be
defined in such sections.
ARTICLE 2
R & D PROGRAM
2.1 ArQule Research and Development Activities. Under the direction of
the R & D Committee, during the Research Term ArQule shall synthesize Abbott
Derivative Compounds from Abbott Core Compounds and/or other Abbott Derivative
Compounds supplied to ArQule by Abbott. ArQule shall deliver such Abbott
Derivative Compounds to Abbott in a format suitable for use by Abbott in
accordance with the R & D Plan, together with structure and purity information
and such other information and documentation as Abbott may reasonably request
concerning the structural changes ArQule has made to (a) Abbott Core Compounds
to synthesize Abbott Derivative Compounds and/or (b) Abbott Derivative Compounds
to synthesize further Abbott Derivative Compounds. Except as otherwise agreed by
the parties or the R & D Committee, ArQule shall supply Abbott with all
quantities of Abbott Derivative Compounds synthesized by ArQule. ArQule shall
supply Abbott with mutually agreed upon quantities of each Abbott Derivative
Compound in accordance with the R & D Plan, as determined by the R & D
Committee, provided that Abbott has supplied ArQule with the necessary
quantities of Abbott Core Compounds in accordance with the R & D Plan. ArQule
shall conduct the research and development activities described in this Section
in a good scientific manner and in compliance with all applicable federal, state
and local laws and regulations.
2.2 ArQule FTE Requirements. Unless otherwise agreed in writing by the
R & D Committee or the parties, within thirty (30) days after the Effective Date
and thereafter for the remainder of the Research Term, ArQule shall maintain a
minimum of * FTE scientists to perform research and development activities
for Abbott Derivative Compounds and such other activities as the R & D Committee
may designate in accordance with the R & D Plan. ArQule employees performing
such activities shall be competent, reasonably qualified and adequately trained
for their respective duties, and ArQule shall provide Abbott with such
information and documentation as Abbott may reasonably request concerning the
qualifications and job performance of such ArQule employees, as well as the time
they spend performing such activities. The number of FTEs may be increased or
decreased by mutual written agreement of the parties upon such terms as may be
mutually agreed upon.
2.3 Research Term. The Research Term shall commence on the Effective
Date and continue for a period of two (2) Contract Years thereafter. In
accordance with Section 2.4, Abbott may, at its option, extend the Research Term
for up to three (3) additional Contract Years, exercisable one (1) Contract Year
at a time, upon written notice to ArQule at least six (6) months prior to the
then scheduled expiration of the Research Term.
* Confidential treatment has been
requested for marked portions
- 7 -
<PAGE> 8
2.4 Research Term Payments. In consideration of the research and
development activities to be performed by ArQule pursuant to Section 2.1, Abbott
shall make the following payments to ArQule:
(a) A technology access fee of * Dollars
* for the first two (2) Contract Years,
payable within ten (10) business days of the
Effective Date;
(b) Additional technology access fees of *
Dollars * per Contract Year for each
extension of the Research Term by Abbott pursuant to
Section 2.3, payable on the second, third and fourth
anniversaries of the Effective Date, as applicable;
and
(c) Research and development funding of
* Dollars * per Contract
Year, payable in semi-annual installments of
* Dollars * at the beginning
of the first and third Contract Quarters of each
Contract Year, which funding is calculated at the
rate of * Dollars * per
ArQule FTE per Contract Year. ArQule shall use such
funding to support its research and development
activities hereunder.
ARTICLE 3
R & D COMMITTEE
3.1 Establishment. The parties hereby establish an R & D Committee to
monitor the ArQule research and development activities conducted under this
Agreement.
3.2 R & D Plan. The R & D Committee shall develop an initial R & D Plan
covering the first twelve (12) months of the Research Term within thirty (30)
days of the Effective Date and, thereafter for the remainder of the Research
Term, shall update the R & D Plan to provide for a rolling twelve (12) month R &
D Plan at least once per Contract Quarter. The R & D Plan shall contain
performance goals for ArQule's research and development activities under Section
2.1, including but not limited to minimum numbers of Abbott Derivative Compounds
to be developed from Abbott Core Compounds and supplied to Abbott, a timetable
and budget for key research and development activities, and such other items as
may be agreed upon by the R & D Committee. ArQule shall use commercially
reasonable efforts to achieve the performance goals specified in the R & D Plan
.
3.3 Additional Responsibilities. In addition to developing and updating
the R & D Plan pursuant to Section 3.2, the R & D Committee shall also have the
following responsibilities during the Research Term: (a) monitoring ArQule's
research and development activities in accordance with the R & D Plan, (b)
recommending changes in the number of FTEs and Abbott's level of research and
development funding, if necessary or appropriate to accomplish the objectives of
the R & D Plan, provided that any such changes shall require the prior written
* Confidential treatment has been
requested for marked portions
- 8 -
<PAGE> 9
approval of both parties, and (c) reporting the status of ArQule's research and
development activities hereunder to both parties at least once per Calendar
Quarter.
3.4 Membership. The R & D Committee shall consist of six (6) members,
with three (3) members being appointed by each party. The initial R & D
Committee members are:
Abbott Members ArQule Members
----------------- --------------------
1. Alan Rosenthal 1. Joseph Hogan, Jr.
2. Jake Plattner 2. David Coffen
3. Thomas Sowin 3. Robert Zambias
Each party may remove and replace its R & D Committee members at any time,
without cause, upon written notice to the other party. An alternate member
designated by a party in writing shall be entitled to vote only in the absence
of a permanent member designated by such party. All references to "members" in
this Agreement refer to the permanent members of the R & D Committee and any
alternate member when acting in the place of a permanent member, unless the
context requires otherwise.
3.5 Actions. Any action or decision by the R & D Committee must be
approved by a majority of the members present at a duly convened meeting of the
R & D Committee, including at least one (1) member appointed by each party, or,
pursuant to Section 3.8, approved by written consent of a majority of the
members, including at least one (1) member appointed by each party. If the R & D
Committee cannot agree on a particular matter within the scope of its
responsibilities, the matter shall be submitted for dispute resolution in
accordance with Article 12.
3.6 Meetings. The R & D Committee shall meet within thirty (30) days
after the Effective Date and, thereafter for the remainder of the Research Term,
according to a schedule of regular meetings established by the members of the R
& D Committee. In no event, however, shall the R & D Committee meet less
frequently than once every Contract Quarter during the Research Term. Additional
meetings of the R & D Committee may be called by any two (2) members, one (1) of
which shall have been appointed by each party. Notice of the date, time and
place of each regular or additional meeting and a proposed agenda for the
meeting shall be provided to the members, when practicable, at least fifteen
(15) days prior to the scheduled date of the meeting (unless notice is waived in
writing by a member or party).
3.7 Locations of Meetings. Except as otherwise provided in Section 3.8
or as otherwise mutually agreed by the parties, the regular and additional
meetings of the R & D Committee shall alternate between the principal business
locations of each party.
3.8 Conduct of Meetings. Any regular or additional meeting of the R & D
Committee may be conducted in person or by telephone conference. The R & D
Committee may act without a meeting if prior to such action a written consent to
the action is signed by a majority of the members, including at least one (1)
member appointed by each party. Minutes reflecting actions taken at meetings
shall be maintained at a mutually agreed upon location, together with any other
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<PAGE> 10
books and records of the R & D Committee, and such minutes shall be distributed
to the parties upon request.
3.9 Cooperation of Parties. Each party shall furnish to the R & D
Committee all information and documentation that are reasonably required for
purposes of this Agreement, which disclosures shall be subject to the
confidentiality obligations specified in Section 8.1. In addition, it is
anticipated that the parties will engage in frequent informal communications
regarding the research and development activities conducted under this
Agreement.
3.10 Visits to ArQule Facilities. R & D Committee members shall have
the right to visit the facilities where ArQule's research and development
activities hereunder are being conducted at any time during ArQule regular
business hours upon reasonable prior notice. Other Abbott representatives may
also visit such facilities upon reasonable prior notice with ArQule's prior
written consent, which consent shall not be unreasonably withheld. Abbott shall
bear its own expenses relating to visits to such facilities by its
representatives.
ARTICLE 4
ABBOTT COMPOUND OWNERSHIP AND FURTHER DEVELOPMENT
4.1 Ownership of Abbott Core Compounds. All Abbott Core Compounds
supplied to ArQule hereunder shall be the sole and exclusive property of Abbott,
except to the extent of any rights held by third parties who have licensed or
supplied Abbott Core Compounds to Abbott. ArQule shall not acquire any licenses
or intellectual property rights in or relating to Abbott Core Compounds
hereunder, and ArQule, its Affiliates, employees and agents shall execute such
documents and take such other actions as Abbott deems appropriate to establish
or protect Abbott's proprietary rights in Abbott Core Compounds. With respect to
any Abbott Core Compounds that are not proprietary to Abbott, ArQule's
acceptance of such Abbott Core Compounds and synthesis of Abbott Derivative
Compounds from such Abbott Core Compounds shall not preclude ArQule from: (a)
entering into an agreement with a third party with respect to research,
development and commercialization of such Abbott Core Compounds if they are
lawfully in the possession of such third party or (b) having an internal ArQule
program (including programs with academic collaborators) concerning the
research, development and commercialization of such Abbott Core Compounds,
provided that ArQule does not use any Abbott Confidential Information (as
defined in Section 8.1 ) in connection with such research, development and
commercialization pursuant to (a) or (b) above.
4.2 Ownership of Abbott Derivative Compounds. All Abbott Derivative
Compounds synthesized by ArQule, its Affiliates or contractors hereunder shall
be the sole and exclusive property of Abbott, except to the extent of any rights
held by third parties who have licensed or supplied Abbott Core Compounds to
Abbott. Ownership of intellectual property rights in or relating to Abbott
Derivative Compounds shall be determined in accordance with Article 10. ArQule
hereby grants Abbott a worldwide, royalty-free, irrevocable, exclusive license
(with the right to sublicense) under any ArQule Patent Rights and Joint Patent
Rights in or relating to any Abbott Derivative Compounds to make, have made,
use, import, offer to sell, and sell any product that contains an Abbott
Derivative Compound.
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<PAGE> 11
4.3 Further Research and Development Activities. Abbott may perform
such further research and development activities on Abbott Compounds as Abbott
deems appropriate in its sole discretion. Except for payments of royalties and
milestone payments on Abbott Derivative Compounds pursuant to Article 6, Abbott
shall have no obligations to ArQule with respect to Abbott Compounds hereunder.
ARTICLE 5
ARQULE COMPOUND RESEARCH AND DEVELOPMENT LICENSES
5.1 Delivery of ArQule Arrays. During the Array Transfer Period, ArQule
shall deliver to Abbott * ArQule Arrays per Contract Year. ArQule may,
at its option, also deliver to Abbott additional ArQule Arrays. ArQule shall
select the ArQule Arrays to be delivered to Abbott hereunder and the ArQule Cole
Compounds within each such ArQule Array, provided that each ArQule Core Compound
shall appear only once in any ArQule Array delivered to Abbott hereunder. Except
as otherwise agreed by Abbott, ArQule shall supply Abbott with a minimum
quantity of * of each ArQule Compound in such ArQule Arrays or
* percent ( * ) of the material synthesized by ArQule of each ArQule Compound
in such ArQule Arrays, whichever is less. ArQule acknowledges that it is its
intention to synthesize approximately * of each ArQule Core
Compound, whenever ArQule determines that synthesis of such quantities of ArQule
Core Compounds is chemically feasible and commercially reasonable. ArQule shall
conduct the research and development activities described in this Section in a
good scientific manner and in compliance with all applicable federal, state and
local laws and regulations.
5.2 Screening of ArQule Compounds. During the Array Screening Period,
Abbott shall have the right, either directly or through Abbott's Affiliates or
third party contractors selected by Abbott, to perform such testing and
analytical work as Abbott deems appropriate on ArQule Core Compounds received
hereunder, provided that Abbott shall have the right to perform composition and
structural analysis only after Abbott's receipt of confirmed chemical
composition and structure and purity information pursuant to Section 5.3, and
further provided that Abbott shall not perform significant derivitization work
on ArQule Core Compounds until Abbott makes a Target Reservation for the ArQule
Array containing such ArQule Core Compounds pursuant to Section 5.5. The parties
agree that "significant derivitization work" shall mean any derivitization work
beyond that which is reasonably necessary to allow Abbott to determine whether
an ArQule Core Compound is sufficiently amenable to chemical modification to
warrant the exercise of a Target Reservation by Abbott.
5.3 Identification of ArQule Compounds. Upon Abbott's written request
at any time during the Array Screening Period, ArQule shall provide Abbott with
the confirmed chemical composition and structure and purity information for any
Active ArQule Compound in an ArQule Array upon presentation by Abbott of
reasonably sufficient documentation of the biological activity for which Abbott
is testing. Prior to revealing such documentation to ArQule, Abbott shall remove
any reference to the type of biological activity detected and the assay used,
and Abbott shall not identify in any other manner such biological activity or
assay except in accordance with Section 5.4. Upon Abbott's written request,
ArQule shall also provide Abbott with the confirmed chemical composition and
structure and purity information for additional
* confidential treatment has been
requested for marked portions
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<PAGE> 12
ArQule Compounds in the ArQule Array that contains the Active ArQule Compound,
but only if such ArQule Compounds exhibit biological activity less than or equal
to the Active ArQule Compound.
5.4 Additional Quantities of ArQule Compounds.
(a) ArQule Obligations. During the Array Transfer Period, ArQule
shall provide Abbott with reasonable additional quantities of
Active ArQule Compounds for which Abbott has received
confirmed chemical composition and structure and purity
information under Section 5.3. Such Active ArQule Compounds
shall be synthesized by ArQule in the course of the R & D
Program. Abbott may elect to obtain reasonable additional
quantities of Active ArQule Compounds from ArQule for up to
twelve (12) months after the expiration of the Array Transfer
Period upon written notice to ArQule which is received at
least ninety (90) days prior to such expiration. In this
event, Abbott shall pay ArQule the amount of *
Dollars * per ArQule FTE per year, up to a
maximum of * FTEs in four (4) equal quarterly
installments, with the first installment due upon the
expiration of the Array Transfer Period and each subsequent
installment due every three (3) months thereafter. ArQule
shall provide the Abbott-funded FTE scientists to supply
Abbott with reasonable quantities of Active ArQule Compounds,
as requested by Abbott. Abbott may discontinue this resupply
program upon ninety (90) days prior written notice to ArQule;
provided, however, that any payments previously received by
ArQule under this Section shall be nonrefundable.
(b) Suspension of ArQule Obligations. Notwithstanding anything to
the contrary set forth herein, if ArQule believes Abbott has
failed to pay ArQule all or any portion of research and
development funding payments due under Section 2.4 or FTE
funding payments due under Section 5.4(a), ArQule may, at its
option, provide Abbott with ten (10) business days prior
written notice stating the amount ArQule believes Abbott owes,
which amount shall be calculated using the amounts and per FTE
rates specified in Sections 2.4 or 5.4(a), as applicable
("Disputed Amount"), and (ii) ArQule's intention to suspend
performance of its obligations pursuant to Section 5.4(a)
pending receipt of the Disputed Amount. If Abbott pays ArQule
the Disputed Amount within the ten (10) business day notice
period, ArQule shall not suspend such performance, provided
that such payment by Abbott shall not preclude Abbott from
initiating dispute resolution proceedings pursuant to Article
12 to seek a refund of any portion of the Disputed Amount that
Abbott believes was not owed to ArQule hereunder. If Abbott
does not pay ArQule the Disputed Amount within the ten (10)
business day notice period, ArQule may suspend such
performance pending receipt of the Disputed Amount.
5.5 Target Reservations and Reserved Arrays.
(a) Determination of a Target. In the event that Abbott desires to
make a Target Reservation for one (1) or more Active Arrays,
Abbott shall provide written
* confidential treatment has been
requested for marked portions
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<PAGE> 13
notice to ArQule of the Active Array(s) of interest, the
identity of the Active ArQule Compound(s) therein, the type of
biological activity detected, and the assay in which the
activity was detected.
(i) Specific Target. If the type of activity and the detection
assay reveal a probable interaction of the Active ArQule
Compound(s) with a specific, identified biomolecule (such as a
protein, polynucleotide, carbohydrate, lipid, or any
combination thereof), then the term "Target" shall mean that
specific biomolecule and any related biomolecules that (A)
exhibit substantial structural homology with the identified
biomolecule, as measured by the degree of similarity in the
primary structure (i.e., amino acid sequence, nucleotide
sequence, monosaccharide linkages) and secondary structure
(i.e., three-dimensional structure) and (B) perform a
substantially similar function as the identified biomolecule.
(ii) General Target. In all other cases, the term "Target"
shall mean the narrowest definable element of an observed
biological activity in a non-specific assay (i.e., an in vitro
assay based on use of membranes, whole cells, or specific
animal tissues), as customarily used for lead screening
purposes by Abbott, subject to further reduction in scope
based on the extent to which ArQule would be unreasonably
precluded from (A) granting rights to third parties to use the
Active Array(s) with specific, identified biomolecules and (B)
using the Active Array(s) in an internal ArQule program
(including programs with academic collaborators) with
specific, identified biomolecules. Based on the criteria set
forth in (i) and (ii) above, the parties shall determine in
good faith the exact scope of the Target by mutual written
agreement, subject to modification from time to time during
the License Option Period in the same manner. With respect to
Specific Targets, the parties shall make such modifications as
may be reasonably necessary to provide Abbott with
substantially equivalent biological Target coverage. During
the Research Term, the R & D Committee shal; determine the
scope of the Target. After the expiration or termination of
the Research Term, the parties shall each designate one (1) or
more authorized representatives to meet at least once per
Contract Quarter to review and update the scope(s) of the
Target(s) .
(b) Designation of Reserved Arrays. Subject to availability, as
described below, Abbott may make Target Reservations by
designating any Active Arrays as Reserved Arrays for specified
Targets up to a maximum of six (6) Target Reservations at any
time during the Array Screening Period. All such Target
Reservations shall expire upon expiration of the License
Option Period, unless earlier terminated as provided in this
Agreement. An Active Array shall be available for designation
as a Reserved Array for a Target unless ArQule can reasonably
demonstrate to Abbott that ArQule has previously committed the
Active Array to (i) a bona fide, documented external program
on the same Target or (ii) a bona fide, documented internal
ArQule program (including programs with academic
collaborators) on the same Target. During the Array Screening
Period, Abbott may, upon ten (10) days prior written notice to
ArQule, relinquish its rights in Reserved Arrays for up to
four (4) Target Reservations, in exchange
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<PAGE> 14
for the right to designate Reserved Arrays with respect to one
(1) substituted Target Reservation for each relinquished
Target Reservation. In such event, Abbott shall grant ArQule a
royalty-free, world-wide, irrevocable, exclusive license (with
the right to sublicense) under all then-existing and
subsequently created Abbott Patent Rights claiming ArQule
Compounds derived from ArQule Core Compounds in the
relinquished Reserved Arrays to make, have made, use, import,
sell and offer to sell such ArQule Compounds.
(c) Effect of Target Reservation. For as long as each Target
Reservation is in effect, Abbott shall have the exclusive
right to derivatize ArQule Derivative Compounds from Active
ArQule Compounds in Reserved Arrays and to conduct such
synthesis, testing and analytical work as Abbott deems
appropriate relating to such ArQule Derivative Compounds for
use with the Target, including but not limited to composition
and structural analysis. Such exclusive right shall be in
effect from the date Abbott exercises each Target Reservation
until the end of the License Option Period, but only so long
as the Target Reservation remains in effect. Abbott may elect
to conduct synthesis, testing and analytical work relating to
ArQule Derivative Compounds itself or to have such work
conducted by Abbott Affiliates or contractors or, during the
Array Transfer Period, by ArQule pursuant to the R & D
Program.
(d) Maintenance of Target Reservations. For each Target
Reservation, Abbott shall maintain an active development
program for at least one (1) Active ArQule Compound in any
Reserved Array for the relevant Target. Abbott shall have
maintained such an active program if Abbott commits to the
program at least * FTE synthetic chemists at either
Abbott or ArQule.
(e) Conflicting Target Reservations. If a third party or ArQule
itself, under a bona fide, documented internal ArQule program
(which may or may not involve an academic collaborator)
originated without use of or reference to Abbott Confidential
Information, desires to reserve a Reserved Array subject to an
Abbott General Target Reservation for a third party or ArQule
Specific Target Reservation or more narrowly defined General
Target Reservation and the requested third party or ArQule
Target Reservation, in ArQule's determination, actually or
potentially conflicts with Abbott's General Target
Reservation, then ArQule shall provide Abbott with written
notice of such actual or potential conflict within thirty (30)
days of ArQule's discovery thereof.
(i) ArQule shall include in such notice the proposed Specific
Target or narrower General Target definition desired to be
reserved by such third party (if ArQule is legally permitted
to make such disclosure) or ArQule. Within ten (10) business
days of Abbott's receipt of such notice containing the
proposed Specific Target or narrower General Target
definition, Abbott shall, at its option: (A) accept the
proposed third party or ArQule Target Reservation as Abbott's
new Target Reservation and release the remainder of Abbott's
original General Target Reservation; (B) retain Abbott's
original General Target Reservation excluding the proposed
third party or ArQule Target Reservation; (C) retain Abbott's
* confidential treatment has been
requested for marked portions
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<PAGE> 15
original General Target Reservation on a semi-exclusive basis
with the third party or ArQule with respect to the portion of
Abbott's original General Target Reservation that conflicts
with the proposed third party or ArQule Target Reservation and
on an exclusive basis for the remainder of Abbott's original
General Target Reservation; or (D) negotiate in good faith to
redefine Abbott's General Target Reservation so as to resolve
the area of conflict, provided that if the parties are unable
to agree on a redefined Abbott General Target Reservation
within thirty (30) days, the matter shall be resolved by
Scientific Dispute Resolution ("SDR") proceedings as set forth
in Exhibit B. In any SDR proceedings pursuant to this Section
5.5(e)(i), if the neutrals in such SDR proceedings determine
that an actual conflict exists between Abbott's original
General Target Reservation and the proposed third party or
ArQule Target Reservation, then Abbott shall at a minimum be
allowed to retain semi-exclusive rights to the portion of its
original General Target Reservation that conflicts with the
proposed third party or ArQule Target Reservation .
(ii) If ArQule is not legally permitted to disclose the
proposed Target Reservation definition desired to be reserved
by a third party, ArQule shall arrange for such dispute to be
resolved by SDR proceedings as set forth in Exhibit B. In any
SDR proceedings pursuant to this Section 5.5(e)(ii), if the
neutrals in such SDR proceedings determine that an actual
conflict exists between Abbott's original General Target
Reservation and the proposed third party Target Reservation,
then Abbott shall at a minimum be allowed to retain
semi-exclusive rights to the portion of its original General
Target Reservation that conflicts with the proposed third
party Target Reservation.
5.6 License Rights.
(a) Exercise of Option. Subject to availability, as
described below, Abbott shall have the option to
license a total of * Licensed Compound Sets
under the terms of this Agreement. Abbott may
exercise such license options upon written notice to
ArQule at any time within the License Option Period,
whereupon the parties shall determine the compounds
comprising the Licensed Compound Set, in accordance
with the following procedures:
(i) Abbott shall identify to ArQule a single
ArQule Compound that Abbott has designated a
"PPCC posttoxicity" compound under Abbott's
then standard internal procedures ("Licensed
Set Core"). The Licensed Set Core shall be
identical to or derived from an Active
ArQule Compound in a Reserved Array. The
Licensed Set Core shall be included in the
Licensed Compound Set.
(ii) The other ArQule Compounds comprising
the Licensed Compound Set shall satisfy both
of the following criteria:
* confidential treatment has been
requested for marked portions
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(A) The ArQule Compound shall exhibit at least *
percent * homology with the Licensed Set Core (as
measured by a widely accepted and used software
program, such as Daylight).
(B) The ArQule Compound shall exhibit biological activity
against the Target when the ArQule Compound is
present at a concentration of * or less in
the relevant assay, or such higher concentration
level demonstrating significant biological activity
against the Target as the parties may mutually agree
upon.
(iii) The ArQule Compound shall be available for inclusion in
the Licensed Compound Set unless ArQule can reasonably
demonstrate to Abbott that ArQule has previously committed the
ArQule Compound to (A) a bona fide, documented external
program involving the same ArQule Compound or (B) a bona fide,
documented, internal program (including programs with academic
collaborators) involving the same ArQule Compound.
(b) License Grant. ArQule hereby grants Abbott a worldwide,
royalty-bearing license (with the right to sublicense) under
ArQule Patent Rights to make, have made, use, import, offer to
sell, and sell in the Abbott Field any Products that
incorporate any ArQule Compound in any of the Licensed
Compound Sets. Such license grant shall be exclusive to the
extent that ArQule may legally grant an exclusive license to
Abbott; otherwise, ArQule shall grant Abbott a license with
the greatest degree of exclusivity that ArQule may legally
grant.
(c) Diligence Requirements. Abbott shall maintain an active
clinical development program on at least one (1) ArQule
Compound in each Licensed Compound Set. Abbott shall have
maintained such an active program if Abbott expends at least
* Dollars * per year in direct costs
(including, but not limited to, costs attributable to external
services or material contracts) relating to clinical
development of one (1 ) or more ArQule Compounds within the
Licensed Compound Set during the period commencing on the date
upon which the Licensed Compound Set is determined and ending
on the date upon which Abbott makes a milestone payment to
ArQule pursuant to Section 6.1 (a) for the initiation of Phase
III Studies for an ArQule Compound within the Licensed
Compound Set; provided, however, that this obligation shall be
suspended for a period not to exceed twelve (12) months during
any period that clinical trials are delayed or suspended
because of an unexpected negative result occurring for reasons
beyond the control of Abbott. If clinical trials are delayed
or suspended because of such unexpected negative result for a
period in excess of twelve (12) months, the parties shall in
good faith negotiate appropriate modifications to Abbott's due
diligence obligations under this Section.
* confidential treatment has been
requested for marked portions
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5.7 License from Abbott. Abbott hereby grants ArQule:
(a) a worldwide, royalty-free, non-exclusive license (with the
right to sublicense) under any Composition of Matter Patents
relating to ArQule Compounds that are included within the
Abbott Patent Rights to make, have made, use, import, offer to
sell, and sell any ArQule Compounds in the ArQule Field, and
(b) a worldwide, royalty-free, exclusive license (with the of
right to sublicense) under any Abbott Patent Rights relating
to ArQule Compounds that are not Composition of Matter Patents
to make, have made, use, import, offer to sell, and sell any
ArQule Compounds in the ArQule Field, excluding in each case
Abbott Patent Rights relating to ArQule Compounds in any
Licensed Compound Set that are under active clinical
development by Abbott.
5.8 Synthetic Support. During the Array Screening Period, at no cost to
Abbott, ArQule shall provide Abbott with reasonable technical support relating
to the synthesis of ArQule Derivative Compounds. Such technical support shall be
in the form of consultation and advice only, and shall not include any on-site
instruction or the performance of any chemical synthesis.
5.9 Further Development and Regulatory Approvals. Abbott shall have the
sole discretion to determine which Licensed Final Compounds and Products, if
any, to develop or market, or to continue to develop or market, as well as those
Licensed Final Compounds and Products for which Regulatory Approvals may be
sought, and when, where, how and on what terms and conditions to market such
Licensed Final Compounds and Products in the Territory. All Regulatory Approvals
for Licensed Final Compounds and Products shall be owned solely by Abbott.
5.10 Agreements With Third Parties. The parties acknowledge and agree
that ArQule may make ArQule Arrays available to third parties in addition to
Abbott for screening and analytical work and possible further research and
development work. If ArQule enters into an agreement with any third party and
the general terms of such agreement relating to ArQule Arrays are substantially
similar to the terms of this Agreement relating to ArQule Arrays, except that
the financial terms of such third party agreement relating to ArQule Arrays,
considered in the aggregate, are more favorable than the financial terms
relating to ArQule Arrays under this Agreement, then Abbott may, at its option,
elect to substitute the financial terms of such third party agreement relating
to ArQule Arrays for the financial terms of this Agreement relating to ArQule
Arrays in their entirety.
5.11 Other ArQule Compounds. ArQule acknowledges and agrees that Abbott
shall have the right to commercially develop, market and sell ArQule Derivative
Compounds synthesized by Abbott that are (a) not included in any Licensed
Compound Set and (b) not covered by any ArQule Patent Rights, subject to
Abbott's obligation to pay royalties and milestone payments to ArQule pursuant
to Article 6. Abbott acknowledges and agrees that ArQule makes no warranties
with respect to such ArQule Derivative Compounds.
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ARTICLE 6
MILESTONE AND ROYALTY PAYMENTS
6.1 Milestone Payments. In consideration of ArQule's entering into this
Agreement and the rights and licenses granted by ArQule to Abbott hereunder,
Abbott shall pay ArQule the following milestone payments with respect to each
Abbott Derivative Compound and ArQule Compound commercially developed by Abbott
hereunder:
(a) * Dollars * , payable within thirty (30) days after
* with respect to each
Abbott Derivative Compound and ArQule Compound anywhere in the
Territory;
(b) * Dollars * , payable within thirty (30) days after
FDA acceptance of the initial NDA for each Abbott Derivative Compound
and ArQule Compound filed by Abbott;
(c) * Dollars * , payable within thirty, (30) days
after
*
(d) * Dollars * , payable within thirty (30) days after
* and
(e) * Dollars * , payable within thirty (30) days after
*
6.2 No Multiple Milestone Payments. If Abbott determines, in its
business judgment, to commercially develop and/or seek Regulatory Approval of a
different Abbott Derivative Compound or a different ArQule Compound in
substitution of an Abbott Derivative Compound or ArQule Compound for which
Abbott has paid one (1) or more milestone payments pursuant to Section 6.1, then
Abbott shall not be required to pay the same milestone payment(s) for the
substituted Abbott Derivative Compound or ArQule Compound, as applicable (e.g.,
if Abbott has paid the * milestone payment referenced in Section 6.1
(a) after * with respect to Compound A and then
Abbott subsequently substitutes Compound B for Compound A, Abbott shall have no
obligation to pay a second * milestone payment for *
with respect to Compound B. However, Abbott would still be obligated to
make the milestone payments referenced in Section 6.1 (b)-(e) for Compound B, if
applicable).
* confidential treatment has been
requested for marked portions
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6.3 Royalty Rates and Payments. In further consideration of the rights
and licenses granted to Abbott hereunder, Abbott shall pay ArQule royalties on
Net Sales at the following royalty rates:
(a) For Products for which a Valid Claim is in effect, for as long as a
Valid Claim is in effect on a country-by-country basis, Abbott shall pay
royalties as follows:
(i) For Products containing Abbott Derivative Z Compounds (but not
containing ArQule Compounds), * percent
* of Net Sales during each calendar year; and
(ii) For Products containing ArQule Compounds (or both ArQule
Compounds and Abbott Derivative Compounds), * percent *
of Net Sales during each calendar year.
(b) For Products other than Products referenced in Section 6.3(a) which
contain ArQule Compounds as a therapeutically active ingredient and for which no
Valid Claim held by ArQule is in effect, Abbott shall pay ArQule royalties at
the rate of * percent * of Net Sales during each calendar year for a
period of ten (10) years from the date of the first commercial sale of each such
Product in the United States, or any European Union member country, or Japan;
provided, however, that Abbott shall have no obligation to pay royalties or
milestone payments pursuant to this Article 6 if the ArQule Compound in question
is an ArQule Derivative Compound that was first actually synthesized after the
seventh anniversary of the Effective Date.
6.4 Lump Sum Royalty Payment. In addition to royalty payments pursuant
to Section 6.3, with respect to any Products containing an ArQule Compound as a
therapeutically active ingredient, Abbott shall pay ArQule a lump sum royalty
payment of * Dollars * , payable within sixty (60)
days after the end of the first calendar year during the Royalty Term in which
Net Sales of any such Product are greater than * Dollars
* This lump sum royalty payment shall be payable only once per
Product during the term of this Agreement (i.e., no such payments shall be due
during any subsequent calendar years in which Net Sales of the same Product are
greater than *
6.5 Certain Compounds Previously in Abbott's Possession.
Notwithstanding anything to the contrary set forth herein, Abbott shall have no
obligation to pay ArQule royalties or milestone payments pursuant to this
Article 6 with respect to any ArQule Core Compounds or Abbott Derivative
Compounds that were in Abbott's possession (either by independent development or
acquisition from a third party) prior to receipt thereof from ArQule, as
evidenced by competent written records that Abbott presents to ArQule within
sixty (60) days after Abbott's receipt of the chemical composition and structure
of such ArQule Core Compounds or Abbott Derivative Compounds from ArQule.
6.6 Royalty Reports and Payments. Commencing with the first Calendar
Quarter in which Abbott, its Affiliates or sublicensees make the first
commercial sale of any Product in the Territory, Abbott shall provide ArQule
with a written report of Net Sales for each Product on a Product-by-Product,
country-by-country basis within forty-five (45) days after the last day of
* confidential treatment has been
requested for marked portions
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March, June, September and December for royalties accruing on Net Sales in the
United States during the three (3) preceding calendar months and within
seventy-five (75) days after the last day of February, May, August and November
for royalties accruing on Net Sales in the Territory outside of the United
States during the three (3) preceding calendar months. Concurrently with the
submission of each such written report, Abbott shall pay or cause to be paid to
ArQule the total amount of royalties shown to the due thereon.
6.7 Currency. Abbott shall make all milestone and royalty payments to
ArQule pursuant to this Article 6 in U.S. Dollars. Royalty payments earned shall
be first determined by Abbott in the currency of the country where the Net Sales
were made and then converted by Abbott directly to its equivalent in U.S.
Dollars. The rates of exchange for converting the currencies involved to U.S.
Dollars as quoted by the Statistical Market Letter published by International
Reports, Inc. as Foreign Exchange Rates quoted in New York as market rate (bid)
on the last business day of the quarterly period in which the royalty payments
were earned shall be used by Abbott to determine such conversion rates.
6.8 No Royalties Payable Between Affiliates. No royalties shall be
payable to ArQule on sales between Abbott, its Affiliates or sublicensees, or
between Abbott Affiliates and sublicensees.
6.9 No Multiple Royalties. No multiple royalties shall be payable
because any Product, its manufacture, import, use, offer for sale, or sale is or
shall be covered by multiple patents.
6.10 Sole License Payments; Fully Paid-up License. The parties
acknowledge and agree that the milestone payments under Section 6.1 and the
royalty payments under Sections 6.3 and 6.4 are the sole payments which may
become due and owing by Abbott to ArQule in consideration for the license rights
and other rights granted to Abbott by ArQule under Sections 4.2, 5.5(c), 5.6,
and 5.11. Except as otherwise expressly provided herein, upon expiration of the
Royalty Term for each Product such license rights and other rights shall become
fully paid-up and irrevocable.
ARTICLE 7
PAYMENTS, BOOKS AND RECORDS
7.1 Method of Payment. Payments by Abbott to ArQule under this
Agreement shall be made, at Abbott's option, either by check or by bank wire
transfer to the address or bank account designated by ArQule.
7.2 Books and Records. Each party shall maintain complete and accurate
financial books and records in accordance with United States generally accepted
accounting principles, consistently applied and in sufficient detail to allow
verification of any amounts subject to payment or reimbursement hereunder,
including without limitation the calculation of Net Sales. Each party shall
retain such records at its principal place of business for three (3) years or
such other period as the parties may agree in writing.
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7.3 Audit Rights. Upon the written request of either party (but not
more frequently than once in any calendar year), the requesting party may retain
an independent certified public accountant, subject to approval by the other
party (which approval shall not be unreasonably withheld), to review such
records of the other party to verify the accuracy of the payments made or
payable hereunder. Such accountant shall be required to execute a
confidentiality agreement in a form reasonably acceptable to the audited party
and shall report to the auditing party (with a copy to the audited party) only
the amount of any underpayment or overcharge. Within ten (10) business days
after completion of such review, the parties shall reconcile any underpayment or
overcharge. The auditing party shall pay the cost of any review of records
conducted at its request under this Section, except that the audited party shall
bear such cost if the audit reveals an underpayment of ten percent (10%) or
greater. Such audit rights may be exercised by the parties only with respect to
records of the other party for the current calendar year and the preceding two
(2) calendar years.
ARTICLE 8
CONFIDENTIALITY, PUBLICITY AND PROPRIETARY MATERIALS
8.1 Confidentiality. During the term of this Agreement and for a period
of seven (7) years thereafter, each party (as such, a "Receiving Party") shall
keep in confidence any information and/or documentation received from or on
behalf of the other party (as such, a "Furnishing Party") that is in written or
tangible form and marked or otherwise identified as confidential or proprietary
or, if originally disclosed orally or visually, that is reduced to a written
document marked or otherwise identified as confidential or proprietary within
sixty (60) days of oral or visual disclosure ("Confidential Information"), and
the Receiving Party shall use the Confidential Information only for purposes of
this Agreement. Abbott Confidential Information shall also include, but is not
limited to, any information disclosed to ArQule concerning Abbott Compounds,
Targets and ArQule Arrays that Abbott has reserved or requested to reserve, and
targets for which Abbott is or may be screening Abbott Compounds. ArQule
Confidential Information shall also include, but is not limited to, any
information disclosed to Abbott concerning the identity of ArQule Compounds or
the commitment of any ArQule Compounds or ArQule Arrays to a third party or an
internal ArQule program. Except as expressly provided in this Agreement, the
Receiving Party shall not at any time use or permit others to use any
Confidential Information for any purposes, except as may be necessary for the
Receiving Party to perform its obligations hereunder. The foregoing obligations
shall not apply to, and the definition of "Confidential Information" does not
include:
(a) information that was already in the public domain or subsequent to
disclosure to the Receiving Party becomes part of the public domain other than
through the fault of the Receiving Party;
(b) information that was rightfully known by the Receiving Party (as
evidenced by its written records) prior to the date of disclosure by or on
behalf of the Furnishing Party in connection with this Agreement;
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<PAGE> 22
(c) information that was received by the Receiving Party without
restriction of confidentiality from a third party having a lawful right to
disclose the same to the Receiving Party;
(d) information that the Receiving Party believes in good faith is
required to be disclosed to comply with any applicable law, regulation or order
of a government authority or court of competent jurisdiction (including, but not
limited to, any disclosures required by the FDA or any foreign equivalent
thereof and any securities laws applicable to a Receiving Party), in which event
the Receiving Party shall use commercially reasonable efforts to advise the
Furnishing Party in advance of the need for such disclosure; or
(e) information that is independently developed by or for the Receiving
Party (as evidenced by its written records) by employees, agents or contractors
of the Receiving Party who have not had access to Confidential Information.
Notwithstanding the foregoing, the Receiving Party may disclose
Confidential Information to its employees, agents, and contractors to the extent
reasonably necessary for the performance of this Agreement, provided that such
recipients are subject in writing to obligations of confidentiality and non-use
with respect to such information to substantially the same extent as the
Receiving Party is obligated hereunder. Further, Abbott may disclose relevant
ArQule Confidential Information to appropriate government authorities without
the necessity of obtaining ArQule's approval to the extent Abbott deems it
necessary or appropriate in connection with its applications for Regulatory
Approvals anywhere in the Territory, provided that Abbott shall use commercially
reasonable efforts to consult with ArQule at least thirty (30) days prior to
such disclosure in order to provide ArQule with an opportunity to comment on (i)
the content, form and necessity of such disclosures and (ii) any potential
effect of such disclosures on ArQule Patent Rights and Joint Patent Rights, as
well as to provide ArQule with an opportunity to seek confidential treatment, if
available, of the ArQule Confidential Information to be disclosed.
8.2 Publicity. Neither party shall use the name of the other party or
reveal the terms of this Agreement in any publicity or advertising without the
prior written approval of the other party, except that (a) either party may use
the text of a written statement approved in advance by both parties without
further approval, and (b) either party shall have the right to identify the
other party and to disclose the terms of this Agreement as required by
applicable securities laws or other applicable federal, state or local laws or
regulations, provided that the disclosing party uses commercially reasonable
efforts to notify the other party of such disclosures and to consult with the
other party concerning the form and content of such disclosures prior to such
disclosures.
8.3 Proprietary Materials.
(a) Definition of Proprietary Materials. "Proprietary Materials" shall
mean any tangible chemical, biological, or physical research materials that are
furnished by or on behalf of one party (as such, a "Transferor") to the other
party (as such, a "Recipient") in connection with this Agreement regardless of
whether such materials are specifically designated as proprietary to the
Transferor in the case of biological materials, Proprietary Materials shall also
include other
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materials ordinarily engendered by the original materials, including, for
example, any progeny derived from a cell line (including naturally occurring
mutants), monoclonal antibodies produced by hybridoma cells, DNA or RNA
replicated from isolated DNA or RNA, recombinant proteins produced by a
recombinant cell line, recombinant proteins produced through use of isolated DNA
or RNA, and substances routinely purified from any source material included in
the original materials. Proprietary Materials shall also include, without
limitation, ArQule Compounds and Abbott Compounds exchanged by the parties under
this Agreement. The Transferor shall furnish such Proprietary Materials, to the
Recipient in a mutually acceptable form, including appropriate labelling and
packaging.
(b) Limited Use. The Recipient shall use Proprietary Materials solely
for the purposes set forth in this Agreement. The Recipient shall use the
Proprietary Materials only in compliance with all applicable national, federal,
state and local laws and regulations. The Recipient assumes all liability for
damages that may arise from the use, storage, or disposal of any Proprietary
Materials, except for damages resulting from the Transferor's negligence,
willful misconduct or breach of this Agreement.
(c) Limited Disposition. Except as expressly authorized herein, the
Recipient shall not transfer or distribute any Proprietary Materials to any
third party without the prior written consent of the Transferor.
(d) Survival. The obligations of this Section shall remain in effect
during the term of this Agreement for a period of seven (7) years thereafter.
8.4 Return of Confidential information and Proprietary Materials. Upon
the termination of this Agreement, at the request of the Furnishing Party, the
Receiving Party shall return to the Furnishing Party all originals, copies, and
summaries of documents, materials, and other tangible manifestations of the
Furnishing Party's Confidential Information in the possession or control of the
Receiving Party, except that the Receiving Party may retain one (1) copy of the
Furnishing Party's Confidential Information in the possession of its legal
counsel solely for the purpose of monitoring its obligations under this
Agreement. Upon the termination of this Agreement, the Recipient shall at the
instruction of the Transferor either destroy or return any unused Proprietary
Materials of the Transferor.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
Each party hereby represents and warrants to the other party as follows:
9.1 Corporate Existence and Power. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated, (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to lease the property
and assets it operates under lease, and to carry on its business as it is now
being conducted, and (c) is in compliance with all requirements of applicable
laws and regulations, except to the extent that any noncompliance would not have
a material adverse effect
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<PAGE> 24
on the properties, business, financial or other condition of such party and
would not materially adversely affect such party's ability to perform its
obligations under this Agreement.
9.2 Authorization and Enforcement of Obligations. Such party (a) has
the corporate power and authority and the legal right to enter into this
Agreement and to perform its obligations hereunder, and (b) has taken all
necessary corporate action on its part to authorize the execution and delivery
of this Agreement and the performance of its obligations hereunder. This
Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.
9.3 Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other persons required to be obtained by such
party in connection with the execution, delivery and performance of this
Agreement have been obtained.
9.4 No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations and (b) do not
conflict with, violate or breach or constitute a default or require any consent
under, any contractual obligation of such party.
9.5 Compliance with Laws. Such party shall perform its activities under
this Agreement in compliance with all applicable national, federal, state and
local laws and regulations.
9.6 Patent Rights/Intellectual Property Infringement. To the best of
its knowledge based upon reasonably diligent investigation, the issued patents
included within its respective Patent Rights as of the Effective Date are and
shall be valid and enforceable. Neither party represents or warrants to the
other party that the exercise of the rights granted to the other party under
this Agreement shall not infringe any patent rights of any third party
(including, but not limited to, ArQule licensees).
ARTICLE 10
OWNERSHIP AND PROSECUTION OF PATENT RIGHTS
10.1 Abbott Core Compounds. Abbott may, at its own expense, take such
actions as it deems appropriate with respect to the preparation, filing,
prosecution, issuance, maintenance, extension, enforcement and/or defense of all
Patent Rights in or relating to Abbott Core Compounds (including but not limited
to defending infringement suits and pursuing third party infringers). All Patent
Rights in or relating to Abbott Core Compounds shall be in Abbott's name and
shall be owned solely by Abbott.
10.2 Abbott Derivative Compounds. Abbott shall have sole control, at
its expense, over the preparation, filing, prosecution, issuance, maintenance,
extension, enforcement and/or defense of all Patent Rights in or relating to any
Abbott Derivative Compounds. If any such Patent Rights constitute ArQule Patent
Rights or Joint Patent Rights, Abbott shall use commercially reasonable efforts
to consult with ArQule prior to any deadline or action with the
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<PAGE> 25
United States Patent and Trademark Office ("PTO") or any foreign patent office,
and to furnish ArQule with copies of all relevant documents in advance of such
consultation.
10.3 ArQule Compounds. ArQule shall have sole control, at its expense,
over the preparation, filing, prosecution, issuance, maintenance, extension,
enforcement and/or defense of any ArQule Patent Rights in or relating to ArQule
Compounds; provided that ArQule shall use commercially reasonable efforts to
consult with Abbott prior to any deadline or action with the PTO or any foreign
patent office, and to furnish Abbott with copies of all relevant documents in
advance of such consultation. Abbott shall have sole control, at its expense,
over the preparation, filing, prosecution, issuance, maintenance, extension,
enforcement and/or defense of any Joint Patent Rights in or relating to ArQule
Compounds; provided that Abbott shall use commercially reasonable efforts to
consult with ArQule prior to any deadline or action with the PTO or any foreign
patent office, and to furnish ArQule with copies of all relevant documents in
advance of such consultation. Abbott shall have control, at its expense, over
the preparation, filing, prosecution, issuance, maintenance, extension,
enforcement and/or defense of any Abbott Patent Rights in or relating to ArQule
Compounds.
10.4 Waiver and Abandonment. If a party decides not to seek or maintain
patent protection in any country for an invention for which such party controls
the preparation and filing of a patent application and/or patent, and if such
patent application and/or patent would constitute an ArQule Patent Right or a
Joint Patent Right, the other party, at its expense, may assume responsibility
for and control over such Patent Right in the relevant country. If a party
decides to terminate or abandon an ArQule Patent Right or a Joint Patent Right
with respect to which such party has control, then such party shall notify the
other party at least sixty (60) days prior to such event to enable the other
party, at its expense, to assume responsibility for and control over such Patent
Right in the relevant country.
10.5 Full Cooperation. Each party agrees to cooperate fully in the
preparation, filing, prosecution, issuance, maintenance. extension, enforcement
and/or defense of any Patent Rights in or relating to ArQule Compounds and
Abbott Derivative Compounds. Such cooperation includes, but is not limited to:
(a) executing all papers and instruments, or requiring its
employees or agents, to execute such papers and instruments,
so as to enable the other party to apply for, prosecute or
defend patent applications or to oppose another party's patent
applications or patents in any country;
(b) promptly informing the other party of any matters coming to a
party's attention that may affect the validity,
enforceability, preparation, filing, prosecution, or issuance
of any such patent applications or maintenance of issued
patents; and
(c) undertaking no actions that are potentially deleterious to the
validity, enforceability, preparation, filing, prosecution or
issuance of such patent applications or patents.
10.6 Notification of Infringement. The parties shall promptly inform
each other of any information that comes to their attention involving actual or
possible infringement of Patent
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Rights by any third party anywhere in the Territory or claims of alleged
infringement made by any third party in the Territory against either party or
its Affiliates resulting from the manufacture, import, offer for sale, sale or
use of any Product.
10.7 Prosecution of Infringement Actions. Abbott shall have the right,
under its own control and at its own expense, to pursue any third party
infringer of ArQule Patent Rights or Joint Patent Rights in or relating to
Abbott Derivative Compounds or ArQule Compounds that are in any Licensed
Compound Set. Abbott may prosecute any infringement action in the name of
ArQule, if so required by applicable law. If Abbott fails to initiate an
infringement action within six (6) months after notification or knowledge of the
basis for such action relating to a material infringement, ArQule shall have the
right to prosecute such infringement, under its sole control and at its sole
expense. Neither party shall enter into any settlement, consent judgment, or
other voluntary final disposition of any infringement action without the prior
written consent of the other party, which consent shall not be unreasonably
withheld. Any recovery resulting from an infringement action brought under this
Section shall be distributed in the following manner:
(a) First, the parties shall be reimbursed for any costs and
expenses incurred in prosecuting the action.
(b) Second, ArQule shall receive an amount equal to the royalty
payments lost due to sales of Products by the infringer.
(c) Third, Abbott shall receive an amount equal to the profits
lost due to sale of Products by the infringer.
(d) Fourth, any remaining recovery will be retained by the party
controlling the action at its conclusion.
10.8 Third Party Claims. In the event that any third party initiates a
declaratory judgment action alleging the invalidity or unenforceability of
ArQule Patent Rights or Joint Patent Rights in or relating to Abbott Derivative
Compounds or ArQule Compounds that are in any Licensed Compound Set, or if any
third party brings an infringement action against Abbott or its Affiliates or
sublicensees because of the exercise of the rights granted Abbott under this
Agreement, then Abbott shall have the right to defend such action under its own
control and at its own expense; provided, however, that in the case of a
declaratory judgment action involving ArQule Patent Rights, ArQule shall have
the right to intervene and assume sole control of such defense, at its own
expense. Neither party shall enter into any settlement, consent judgment, or
other voluntary final disposition of any action under this Section without the
consent of the other party, which consent shall not be unreasonably withheld.
Any recovery shall be retained entirely by the party controlling the action at
its conclusion.
10.9 Mutual Cooperation. In the event of any patent infringement
litigation in the Territory involving any Patent Rights and/or any Products, the
non-prosecuting or non-defending party, as applicable, shall render such
reasonable assistance as may be requested by the prosecuting or defending party
in connection with such infringement actions.
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ARTICLE 11
INDEMNIFICATION AND INSURANCE
11.1 General Indemnification. Each party shall defend, indemnify and
hold the other party, its Affiliates, contractors and sublicensees, and the
officers, directors, employees and agents of each, harmless from and against any
and all liabilities, damages, claims, demands, costs, or expenses (including
reasonable attorneys' fees) claimed by any third party for any harm suffered by
such third party to the extent such harm is determined to have been caused by
the negligence or willful misconduct of the indemnifying party or the
indemnifying party's manufacture or sale of any products, except to the extent
caused by the negligence or willful misconduct of the indemnified party or the
indemnified party's breach of this Agreement, and subject to the conditions of
indemnification set forth in Section 11.2.
11.2 Conditions of Indemnification. With respect to any indemnification
obligations of either party to the other party under this Agreement, the
following conditions must be met for such indemnification obligations to become
applicable:
(a) the indemnified party shall notify the indemnifying party
promptly in writing of any claim which may give rise to an
obligation on the part of the indemnifying party hereunder;
(b) the indemnifying party shall be allowed to undertake the sole
control of the defense of any such action and claim, including
all negotiations for the settlement, or compromise of such
claim or action at its sole expense; and
(c) the indemnified party shall render reasonable assistance,
information, co-operation and authority to permit the
indemnifying party to defend such action, provided that any
out-of-pocket expenses or other expenses incurred by the
indemnified party in rendering the same shall be borne or
reimbursed promptly by the indemnifying party.
11.3 Insurance. Each party shall maintain reasonably adequate insurance
or self-insurance coverage for its potential liabilities to the other party in
connection with the performance of this Agreement.
ARTICLE 12
DISPUTE RESOLUTION
Except for actions commenced by or involving third parties and disputes to be
resolved by Scientific Dispute Resolution pursuant to Exhibit B, all disputes
arising out of or in connection with this Agreement shall be resolved as
follows:
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12.1 Attempted Amicable Resolution. The parties shall promptly give
each other written notice of any disputes requiring resolution hereunder, which
written notice shall specify the Section(s) of this Agreement that the other
party is alleged to have breached or that are in dispute, and shall briefly
state the initiating party's claims. Thereafter, the parties shall use
reasonable efforts to resolve any such disputes in an amicable manner.
12.2 Reference to Designated Officers. Any disputes arising in
connection with this Agreement which cannot be resolved pursuant to Section 12.1
shall be referred, not later than thirty (30) days after initiation of dispute
resolution proceedings pursuant to Section 12.1, to the following corporate
officers of the parties for resolution:
For Abbott:
Vice President, Pharmaceutical Products Research and
Development (or his or her designee)
For ArQule:
Chief Executive Officer (or his or her designee)
Such officers (or their designees) shall attempt to resolve the dispute and
shall communicate with each other by facsimile or telephone or in personal
meetings in an effort to resolve the dispute.
12.3 Alternate Dispute Resolution. Any disputes arising in connection
with this Agreement which cannot be resolved pursuant to Sections 12.1 or 12.2
within sixty (60) days after initiation of dispute resolution proceedings under
Section 12.1 shall be finally settled by binding Alternate Dispute Resolution
("ADR") in accordance with the attached Exhibit A. Judgment upon any award
rendered in such ADR proceedings may be issued and enforced by any court having
competent jurisdiction.
12.4 ADR Ruling. The neutral in any ADR proceeding under Section 12.3
shall determine and notify the parties in writing:
(a) Whether either party has committed a breach of any of its
obligations under this Agreement; and
(b) if either party has committed a breach, the appropriate remedy
for any such breach pursuant to Section 12.5.
12.5 ADR Remedies. The neutral in any ADR proceeding under Section 12.3
shall have the authority to award the non-breaching party the following relief:
(a) For any breach other than those specified in Section 12.5(b)
and (c), an award of damages and/or equitable relief;
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(b) For the second material breach and any subsequent material
breach of Abbott's obligations pursuant to Section 5.6(c), an
award of damages and/or equitable relief and/or termination of
Abbott's license rights related to the specific Licensed
Compound Set(s) to which such breach relates (but not any
other license rights of Abbott hereunder); and
(c) For the second material breach and any subsequent material
breach of Abbott's obligations pursuant to Section 5.5(d), an
award of damages and/or equitable relief and/or termination of
Abbott's Target Reservation(s) to which such breach relates
(but not any other Target Reservations by Abbott hereunder).
ARTICLE 13
TERM AND TERMINATION
13.1 Expiration. Unless terminated earlier by mutual written agreement
of the parties or pursuant to Section 13.2, this Agreement shall expire on the
later of: (a) the end of the License Option Period and (b) the date of
expiration of the last Royalty Term for any Product to expire in any country in
the Territory.
13.2 Early Termination. Either party shall have the right, without
prejudice to any other rights or remedies available to it, to terminate this
Agreement for cause by written notice to the other party in any of the following
events: (a) if the other party is adjudged bankrupt, applies for judicial or
extra-judicial settlement with its creditors, makes an assignment for the
benefit of its creditors, voluntarily files for bankruptcy or has a receiver or
trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in
the event an involuntary bankruptcy action is filed against the other party and
not dismissed within sixty (60) days of filing, or if the other party becomes
the subject of liquidation or dissolution proceedings or otherwise discontinues
business, (b) if the other party commits a material breach of this Agreement and
the party alleged to be in breach fails to (i) cure such breach or (ii) commence
dispute resolution proceedings under Article 12 contesting whether a breach has
occurred and/or whether such breach is a material breach within sixty (60) days
after receipt of written notice from the party asserting the breach.
13.3 Escrow Payments. In the event that the alleged breaching party
commences dispute resolution proceedings pursuant to Article 12, and if the
dispute involves non-payment of funds under this Agreement, all payments that
would be due and payable under this Agreement in the absence of any dispute
shall be paid into an interest-bearing escrow account until the matter is
resolved and such escrow funds (plus interest) shall be distributed in
accordance with the decision reached in such dispute resolution proceedings.
13.4 Effect of Termination. Except as otherwise expressly provided
herein, termination or expiration of this Agreement through any means and for
any reason shall not result in the termination of any license rights hereunder,
shall not relieve the parties of any obligations accruing prior thereto, and
shall be without prejudice to the rights and remedies of either party with
respect to any prior breach of any of the provisions of this Agreement. Except
to the extent
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otherwise specified therein, the rights and obligations of the parties under the
following provisions shall survive expiration or termination of this Agreement:
Articles 7, 8 and 11.
ARTICLE 14
MISCELLANEOUS
14.1 Entire Agreement; Amendment. This Agreement contains the entire
understanding of the parties with respect to the subject matter thereof and
supersedes all previous verbal and written agreements, representations and
warranties with respect to such subject matter. This Agreement may be amended
only by a written agreement signed by authorized representatives of both
parties.
14.2 Force Majeure. Failure of either party to perform its obligations
under this Agreement (except the obligation to make payments) shall not subject
such party to any liability or constitute a breach of this Agreement if such
failure is caused by any event or circumstances beyond the reasonable control of
such nonperforming party, including without limitation acts of God, fire,
explosion, flood, drought, war, riot, sabotage, embargo, strikes or other labor
trouble, failure in whole or in part of suppliers to deliver on schedule
materials, equipment or machinery, interruption of or delay in transportation, a
national health emergency or compliance with any order or regulation of any
government entity. A party whose performance is affected by a force majeure
shall take reasonably prompt action to remedy the effects of the force majeure.
If the non-performing party fails to substantially remedy the effects of the
force majeure event within twelve (12) months after the date upon which the
force majeure event first occurred, the parties shall in good faith negotiate
such modifications to this Agreement as the parties deem appropriate to continue
performance of this Agreement notwithstanding such force majeure event. If the
parties are unable to agree upon such modifications within sixty (60) days after
the end of such twelve (12) month period and the non-performing party has still
failed to substantially remedy the effects of the force majeure event, the party
not affected by the force majeure event may terminate this Agreement upon thirty
(30) days prior written notice to the non-performing party, in which case
neither party shall have any liability to the other party with respect to any
failure to perform to the extent caused by the force majeure event.
14.3 Waiver. A failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of such rights nor shall a waiver
by either party in one or more instances by construed as constituting a
continuing waiver or as a waiver in other instances. Any waiver of breach
executed by either party shall affect only the specific breach and shall not
operate as a waiver of any subsequent or preceding breach.
14.4 No Assignment. Except as otherwise expressly provided herein,
neither party may sell, assign, pledge, delegate, subcontract or otherwise
dispose of all or any portion of its rights or obligations under this Agreement
except to an Affiliate or to a successor to all or substantially all of the
party's business to which this Agreement relates. Subject to the foregoing, this
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. In the event ownership or
control of ArQule changes after the
- 30 -
<PAGE> 31
Effective Date as a result of a merger, an acquisition or otherwise, this
Agreement (including, but not limited to, Abbott's licenses and other rights
pursuant to Sections 4.2, 5.5(c), 5.6, and 5.11) shall continue in effect
notwithstanding such change of ownership or control.
14.5 Severability. If any clause or provision of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction, such
provision shall be severed and the remaining provisions of the Agreement shall
continue in full force and effect. The parties shall use all commercially
reasonable efforts to agree upon a valid and enforceable provision as a
substitute for the severed provision, taking into account the intent of this
Agreement.
14.6 Relationship of Parties. The parties shall have the status of
independent contractors under this Agreement and nothing in this Agreement shall
be construed as authorization for either of the parties to act as a joint
venturer with, agent for, or partner of, the other party.
14.7 Notices. Any notice, request or other communication required to be
given pursuant to the provisions of this Agreement shall be in writing and shall
be deemed to be given (a) when delivered in person or by overnight courier, (b)
five (5) days after being deposited in the United States mail, postage prepaid,
certified, return receipt requested, or (c) when received after being sent by
confirmed facsimile transmission to the parties, addressed as follows:
If to Abbott to:
President
Pharmaceutical Products Division
Abbott Laboratories
200 Abbott Park Road
D-309, AP30
Abbott Park, Illinois 60064-3500
Tel: (708) 937-4367
Fax: (708) 938-5383
With a copy to:
General Counsel
Abbott Laboratories
100 Abbott Park Road
D-364, AP6D
Abbott Park, Illinois 60064-3500
Tel: (708) 937-8905
Fax: (708) 938-5277
- 31 -
<PAGE> 32
If to ArQule to:
President
ArQule, Inc.
200 Boston Avenue
Suite 3600
Medford, Massachusetts 02155
Tel: (617) 395-4100
Fax: (617) 395-1225
Either party may change its address or its fax number by giving the other party
written notice, delivered in accordance with this Section 14.7.
14.8 Further Instruments. Each party shall execute and deliver such
further instruments and do such further reasonable acts and things as reasonably
may be required to carry out the intent and purpose of this Agreement.
14.9 Governing Law. The validity, performance, construction, and effect
of this Agreement shall be governed by the laws of the State of Illinois,
without giving effect to conflict of law rules. The parties expressly disclaim
the applicability of the United Nations Convention on the International Sale of
Goods to this Agreement.
14.10 Counterparts. This Agreement shall become binding when any, one
or more counterparts hereof, individually or taken together, bears the signature
of each of the parties. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against the party whose
signature appears thereon, but all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, each party has caused this Agreement to be signed
by its duly authorized representative as of the Effective Date.
ABBOTT LABORATORIES ARQULE,.INC.
By: /s/ Paul N. Clark
________________________________ By: /s/ Eric Gordon
____________________________
Name: Name:
Title: Senior Vice President, Title:
Pharmaceuticals Operations
and President Product
Pharmaceuticals Products
Division
- 32 -
<PAGE> 33
EXHIBIT A
Alternative Dispute Resolution
The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's rights and/or obligations. To have such a dispute resolved by this
Alternative Dispute Resolution ("ADR") provision, a party first must send
written notice of the dispute to the other party for attempted resolution by
good faith negotiations between the parties pursuant to Sections 12.1 and 12.2.
Any negotiations regarding a dispute shall be treated as settlement negotiations
for purposes of the Federal Rules of Evidence and any similar state rules of
evidence. Such negotiations shall not be admissible in any subsequent ADR
hearing.
If the matter has not been resolved within sixty (60) days after initiation of
dispute resolution proceedings pursuant to Section 12.1, either party may
initiate an ADR proceeding as provided herein (all references to todays" in this
ADR provision are to calendar days). The parties shall have the right to be
represented by counsel in such a proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen (14)
days after its receipt of such notice, the other party may, by written
notice to the party initiating the ADR, add additional issues to be
resolved within the same ADR.
2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, the parties shall request the President of the Center for
Public Resources ("CPR"), 366 Madison Avenue, New York, New York 10017
to select a neutral pursuant to the following procedures:
(a) The CPR shall submit to the parties a list of not less
than five (5) candidates within fourteen (14) days after
receipt of the request from the parties, along with a
Curriculum Vitae for each candidate. No candidate shall be an
employee, director, or shareholder of either party or any of
their subsidiaries or affiliates.
(b) Such list shall include a statement of disclosure by each
candidate of any circumstances likely to affect his or her
impartiality.
(c) Each party shall number the Candidates in order of
preference (with the number one (1 ) signifying the greatest
preference) and shall deliver the list to the CPR within seven
(7) days following receipt of the list of candidates. if a
party believes a conflict of interest exists regarding any of
the candidates, that party shall provide a written explanation
of the conflict to the CPR along with its list showing its
order of preference for the candidates. Any party failing to
return a
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<PAGE> 34
list of preferences on time shall be deemed to have no order
of preference.
(d) if the parties collectively have identified fewer than
three (3) candidates deemed to have conflicts, the CPR
immediately shall designate as the neutral the candidate for
whom the parties collectively have indicated the greatest
preference. If a tie should result between two candidates, the
CPR may designate either candidate. If the parties
collectively have identified three (3) or more candidates
deemed to have conflicts, the CPR shall review the
explanations regarding conflicts and, in its sole discretion,
may either (i) immediately designate as the neutral the
candidate for whom the parties collectively have indicated the
greatest preference, or (ii) issue a new list of not less than
five (5) candidates, in which case the procedures set for in
subparagraphs 2(a) - 2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six (56)
days after selection, the neutral shall hold a hearing to resolve each
of the issues identified by the parties. The ADR proceeding shall take
place at a location agreed upon by the parties. If the parties cannot
agree, the neutral shall designate a location other than the principal
place of business of either party or any of their subsidiaries or
affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such party intends to rely
in any oral or written presentation to the neutral;
(b) a list of any witnesses such party intends to call at the
hearing, and a short summary of the anticipated testimony of
each witness;
(c) a proposed ruling on each issue to be resolved, together
with a request for a specific damage award or other remedy for
each issue. The proposed rulings and remedies shall not
contain any recitation of the facts or any legal arguments and
shall not exceed one (1 ) page per issue.
(d) a brief in support of such party's proposed rulings and
remedies, provided that the brief shall not exceed twenty (20)
pages. This page limitation shall apply regardless of the
number of issues raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no discovery shall
be required or permitted by any means, including depositions, interrogatories,
requests for admissions, or production of documents.
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5) hours of hearing
time to present its case. The neutral shall determine whether
each party has had the five (5) hours
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<PAGE> 35
to which it is entitled.
(b) Each party shall be entitled, but not required, to make an
opening statement, to present regular and rebuttal testimony,
documents or other evidence, to cross-examine witnesses, and
to make a closing argument. Cross-examination of witnesses
shall occur immediately after their direct testimony, and
cross-examination time shall be charged against the party
conducting the crossexamination.
(c) The party initiating the ADR shall begin the hearing and,
if it chooses to make an opening statement, shall address not
only issues it raised but also any issues raised by the
responding party. The responding party, if it chooses to make
an opening statement, also shall address all issues raised in
the ADR. Thereafter, the presentation of regular and rebuttal
testimony and documents, other evidence, and closing arguments
shall proceed in the same sequence.
(d) Except when testifying, witnesses shall be excluded from
the hearing until closing arguments.
(e) Settlement negotiations shall not be admissible under any
circumstances. Affidavits prepared for purposes of the ADR,
hearing also shall not be admissible. As to all other matters,
the neutral shall have sole discretion regarding the
admissibility of any evidence.
6. Within seven (7) days following completion of the hearing, each party may
submit to the other party and the neutral a post-hearing brief in support of its
proposed rulings and remedies (subject to the provisions of Sections 12.4 and
12.5 with respect to remedies), provided that such brief shall not contain or
discuss any new evidence and shall not exceed ten (10) pages. This page
limitation shall apply regardless of the number of issues raised in the ADR
proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its entirety the
proposed ruling and remedy (subject to the provisions of Sections 12.4 and 12.5
with respect to remedies) of one of the parties on each disputed issue but may
adopt one party's proposed rulings and remedies on some issues and the other
party's proposed rulings and remedies on other issues. The neutral shall issue a
brief written opinion, not to exceed ten (10) pages, which sets forth the ruling
of the neutrals, the basis of ruling, and the remedy or remedies awarded.
Neither party shall use such written opinion as the basis for any legal action
that attempts to challenge or appeal such ruling or the remedy or remedies
awarded.
8. The neutral shall be paid a reasonable fee plus expenses. These fees and
expenses, along with the reasonable legal fees and expenses of the prevailing
party (including all expert witness fees and expenses), the fees and expenses of
a court reporter, and any expenses for a hearing room, shall be paid as follows:
(a) if the neutral rules in favor of one party on all disputed
issues in the ADR,
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<PAGE> 36
the losing party shall pay 100% of such fees and expenses.
(b) if the neutral rules in favor of one party on some issues
and the other party on other issues, the neutral shall issue
with the rulings a written determination as to how such fees
and expenses shall be allocated between the parties. The
neutral shall allocate fees and expenses in a way that bears a
reasonable relationship to the outcome of the ADR, with the
party prevailing on more issues, or on issues of greater value
or gravity, recovering a relatively larger share of its legal
fees and expenses.
9. The rulings of the neutral and the allocation of fees and expenses shall be
binding, non-reviewable, and non-appealable, and may be entered as a final
judgment in any court having jurisdiction.
10. Except as provided in paragraph 9 or as required by law, the existence of
the dispute, any settlement negotiations, the ADR hearing, any submissions
(including exhibits, testimony, proposed rulings, and briefs), and the rulings
shall be deemed Confidential Information. The neutral shall have the authority
to impose sanctions for unauthorized disclosure of Confidential Information.
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<PAGE> 37
EXHIBIT B
Scientific Dispute Resolution
If the parties are unable to agree on a redefined, non-conflicting Target
pursuant to Section 5.5(e) within thirty (30) days of initiating negotiations,
the parties shall resolve such dispute through a Scientific Dispute Resolution
("SDR") proceeding as provided herein. (all references to "days" in this SDR
proceeding are to calendar days).
1. Within fourteen (14) days after the end of the above-referenced thirty (30)
day negotiation period each party shall designate one (1) neutral having the
following minimum scientific qualifications: a Ph.D. degree in chemistry or life
sciences and/or an M.D. degree plus at least ten (10) years of relevant business
or scientific research experience. These two (2) neutrals shall select a third
neutral having the same minimum scientific qualifications within fourteen (14)
days of the appointment of the first two (2) neutrals. None of the neutrals
shall be an employee, director or shareholder of either party or any of their
subsidiaries or affiliates, or otherwise have a materially conflicting interest
in the outcome of the SDR proceeding.
2. No earlier than fourteen (14) days or later than twenty-eight (28) days after
selection of the third neutral, the neutrals shall hold a hearing to determine a
redefined, non-conflicting Target. The SDR proceeding shall take place at a
location agreed upon by the parties. If the parties cannot agree, the neutrals
shall designate a location other than the principal place of business of either
party or any of their subsidiaries or affiliates.
3. At least seven (7) days prior to the hearing, each party shall submit the
following to the other party and the neutrals:
(a) a proposed redefined, non-conflicting Target; and
(b) a brief in support of such party's proposed redefined,
non-conflicting Target, provided that the brief shall not
exceed ten (10) pages (excluding references to published
scientific literature, not to exceed two (2) pages). No
discovery shall be required or permitted by any means,
including depositions, interrogatories, requests for
admissions, or production of documents.
4. The hearing shall be conducted on one (1) day and shall be governed by the
following rules:
(a) Each party shall be entitled to three (3) hours of hearing
time to present its case. The neutrals shall determine whether
each party has had the three (3) hours to which it is
entitled.
(b) ArQule shall make its presentation first, followed by
Abbott.
- 37 -
<PAGE> 38
5. The neutrals, by majority vote, shall rule on each disputed issue within
seven (7) days following completion of the hearing. Such ruling shall adopt in
its entirety the redefined, non-conflicting Target proposed by one of the
parties. The neutrals shall issue a brief written opinion, not to exceed ten
(10) pages, which sets forth the ruling of the neutrals, the basis of ruling,
and the remedy or remedies awarded. Neither party shall use such written opinion
as the basis for any legal action that attempts to challenge or appeal such
ruling or the remedy or remedies awarded.
6. The neutrals shall be paid reasonable fees plus expenses. These fees and
expenses, the fees and expenses of a court reporter, and any expenses for a
hearing room, shall be shared equally by the parties.
7. The rulings of the neutrals shall be binding, non-reviewable, and
nonappealable.
8. Except as required by law, the existence of the dispute, any settlement
negotiations, the SDR hearing, any submissions of the parties therein, and the
rulings shall be deemed Confidential Information.
9. The parties may, by mutual written agreement, submit additional issues for
dispute resolution under SDR procedures.
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<PAGE> 39
AMENDMENT NO. 1 TO RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
This Amendment No. 1 to Research, Development and License Agreement is
dated as of August 13, 1996 by and between Abbott Laboratories, an Illinois
corporation having a principal place of business at 100 Abbott Park Road, Abbott
Park, Illinois ("Abbott") and ArQule, Inc., a Delaware corporation having a
principal place of business at 200 Boston Avenue, Suite 3600, Medford,
Massachusetts ("ArQule").
RECITALS
WHEREAS, Abbott and ArQule have entered into that certain Research,
Development and License Agreement, dated as of June 16, 1995 (the "License
Agreement"), pursuant to which ArQule agreed, INTER ALIA, to provide Abbott with
certain ArQule Compounds and Abbott Derivative Compounds (these and other
capitalized terms used herein without definition shall have the respective
meanings provided in the License Agreement) for screening in consideration of
the payment by Abbott to ArQule of certain license fees, milestone payments and
research funding payments on the terms and subject to the conditions set forth
in the License Agreement; and
WHEREAS, ArQule and Abbott desire to amend the License Agreement to enable
ArQule to supply Abbott with additional ArQule Compounds and to delete certain
aspects of the License Agreement having to do with reservation of Targets and
the Array Screening Period.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. The License Agreement is hereby amended as follows:
1.1. Definitions.
-----------
(a) The following definitions are hereby deleted from Article
1 of the License Agreement (and the remaining definitions in Article 1 are
renumbered accordingly):
(1) "1.26 License Option Period"
---------------------
(2) "1.37 Reserved Arrays"
---------------
(3) "1.39 Target"
------
(4) "1.40 Target Reservation"
------------------
(5) "1.14 Array Screening Period".
----------------------
(b) The definition of "ArQule Array" originally set forth in
Section 1.8 of the License Agreement (now renumbered as Section 1.10) is hereby
deleted in its entirety and replaced with the following:
<PAGE> 40
"1.10 `ARQULE ARRAY' shall mean a set of structurally related
small organic chemical molecules that are synthesized by ArQule
using its proprietary technology arranged in a format such as a
microtiter screening plate."
(c) The definition of "Licensed Final Compound" originally set
forth in Section 1.23 of the License Agreement (now renumbered as Section 1.25)
is hereby deleted in its entirety and replaced with the following:
"1.25 `LICENSED FINAL COMPOUND' shall mean a specific ArQule
Compound from a Licensed Compound Set that Abbott commercially
develops, markets and/or sells pursuant to Section 5.4."
(d) The definition of "Licensed Compound Set" originally set
forth in Section 1.24 of the License Agreement (now renumbered as Section 1.26)
is hereby deleted in its entirety and replaced with the following:
"1.26 `LICENSED COMPOUND SET' shall mean, with respect to an
Active ArQule Compound, such Active ArQule Compound and any
Active ArQule Homolog thereto which have been licensed to Abbott
by ArQule pursuant to Section 5.4."
(e) The following definitions are hereby added to Article 1 of
the License Agreement (and the remaining definitions in Article 1 are renumbered
accordingly):
"1.7 `ACTIVE ARQULE HOMOLOG' shall mean
*
"1.9 `AMENDMENT DATE' shall mean August 13, 1996."
"1.17 `CHEMICAL THEME' shall mean the chemical or structural
characteristics shared by a group of ArQule Compounds in an
ArQule Array."
"1.22 `EXCLUSIVE DEVELOPMENT PERIOD' shall have the meaning
provided in Section 5.5(a)."
"1.27 `MINIMUM FTE REQUIREMENT' shall have the meaning provided
in Section 5.5(a)."
"1.28 `MUTUAL DISCLOSURE DATE' shall mean the date on which the
information described in Section 5.2 of this Agreement is first
disclosed by
* confidential treatment has been
requested for marked portions
- 2 -
<PAGE> 41
each party to the other with respect to any Active ArQule
Compound and any Active ArQule Homolog thereto."
"1.41 `THIRD PARTY MAPPING ARRAY PARTNER' shall mean any third
party to whom ArQule provides ArQule Arrays."
1.2. The first two sentences of Section 5.1 are hereby deleted in their
entirety and replaced with the following:
"During the Array Transfer Period, ArQule shall deliver to Abbott
ArQule Core Compounds within ArQule Arrays as follows: (i) during the
initial Contract Year, ArQule shall deliver to Abbott at least *
ArQule Core Compounds within ArQule Arrays having not less than *
different Chemical Themes and (ii) during the second Contract
Year, ArQule shall deliver to Abbott at least * ArQule Core
Compounds within ArQule Arrays having not less than * different
Chemical Themes (with a minimum of * ArQule Core Compounds and a
maximum of * ArQule Core Compounds for each Chemical Theme).
Abbott hereby acknowledges that ArQule has delivered to Abbott, as of
the Amendment Date, * ArQule Core Compounds and hereby agrees that
such ArQule Core Compounds shall be, in all respects, subject to this
Agreement, as amended from time to time. ArQule may, at its option,
also deliver to Abbott additional ArQule Arrays. ArQule shall select
the ArQule Arrays to be delivered to Abbott hereunder and the ArQule
Core Compounds within each such ArQule Array; PROVIDED, HOWEVER, that
(i) each ArQule Core Compound shall appear only once in any ArQule
Array shipped to Abbott hereunder and (ii) no more than * percent
* of any shipment of ArQule Core Compounds delivered to Abbott
under this Agreement shall have been previously committed to a Third
Party Mapping Array Partner or a bona fide, documented internal ArQule
program as of the date of such shipment."
1.3. Section 5.2 of the License Agreement is hereby deleted in its entirety
and replaced with the following:
"5.2 SCREENING OF ARQULE COMPOUNDS. ArQule hereby grants to Abbott and
its Affiliates a nonexclusive, worldwide, royalty-free license
(without the right to sublicense or subcontract) during the term of
this Agreement and thereafter to perform such testing and analytical
work as Abbott deems appropriate on ArQule Core Compounds delivered by
ArQule hereunder. Notwithstanding the foregoing, Abbott may, during
the term of this Agreement and thereafter, deliver ArQule Core
Compounds to one or more third parties so as to allow such third
parties to perform testing and analytical work on such ArQule Core
Compounds provided that, prior to delivering any ArQule Core Compounds
to any such third party, Abbott, ArQule and each such third party
enter into a materials transfer agreement substantially in the form of
the attached EXHIBIT B or such other form as may be acceptable to
ArQule. At the time of delivery, ArQule will identify the Chemical
Theme of each ArQule Array delivered to Abbott but not the structures
of the
* confidential treatment has been
requested for marked portions
- 3 -
<PAGE> 42
individual ArQule Core Compounds in such ArQule Arrays. Initially,
Abbott will not disclose the targets against which such ArQule Arrays
are screened. If Abbott detects any Active ArQule Compound in an
ArQule Array, it will promptly notify ArQule. ArQule shall then
determine if such Active ArQule Compound and any Active ArQule Homolog
thereto have been previously committed to a Third Party Mapping Array
Partner or to a bona fide, documented internal ArQule program
(including programs with academic collaborators). ArQule will disclose
to Abbott (a) the structure of such Active ArQule Compound if it has
not been so committed and all Active ArQule Homologs thereto (if any)
that have not been so committed and (b) the structures, but not the
locations in the ArQule Array, of all other ArQule Compounds in such
ArQule Array and Abbott will disclose to ArQule (a) the identity of
the biological target as to which activity was detected and (b) the
level of activity exhibited by such Active ArQule Compound and such
Active ArQule Homolog (the date of such mutual disclosure being
referred to herein as the "Mutual Disclosure Date"). All such
disclosed information shall be treated as Confidential Information by
the receiving party in accordance with Article 8."
1.4. Sections 5.3 and 5.5 of the License Agreement are hereby deleted in
their entirety (and the remaining sections in Article 5 are renumbered
accordingly).
1.5. All references in Section 5.3(a) (as renumbered) of the License
Agreement to "Active ArQule Compounds" are hereby changed to "Active ArQule
Compounds and Active ArQule Homologs"; all references in Section 5.3(a) (as
renumbered) of the License Agreement to "Section 5.3" are hereby changed to
"Section 5.2."; and all references in Section 5.3(b) (as renumbered) of the
License Agreement to "Section 5.4(a)" are hereby changed to "Section 5.3(a)".
1.6. Sections 5.6(a) and (b) (as originally numbered) of the License
Agreement are hereby deleted in their entirety and replaced with the following:
"5.4 LICENSE RIGHTS. On the Mutual Disclosure Date for any Active
ArQule Compound and any Active ArQule Homolog thereto comprising the
Licensed Compound Set, ArQule shall grant to Abbott and its Affiliates
an exclusive, worldwide, royalty-bearing license (with the right to
sublicense), in the Abbott Field under ArQule Patent Rights and under
ArQule's interest in any Joint Patent Rights to develop, have
developed, make, have made, use, import, offer to sell, sell and have
sold in the Abbott Field Products incorporating any ArQule Compounds
within the Licensed Compound Set."
- 4 -
<PAGE> 43
1.7. Section 5.6(c) (as originally numbered) of the License Agreement is
hereby deleted in its entirety and replaced with the following:
"5.5 Diligence Requirements.
----------------------
(a) DILIGENCE REQUIREMENTS DURING EXCLUSIVE DEVELOPMENT PERIOD.
During the one (1) year period commencing on the Mutual
Disclosure Date for any Licensed Compound Set and continuing
until the first anniversary thereof (such period being referred
to herein as the "Exclusive Development Period"), Abbott shall
maintain a minimum of * FTE scientist to perform
research and development activities on * or more ArQule
Compounds within such Licensed Compound Set (the "Minimum FTE
Requirement"). Abbott shall have the option to extend the
Exclusive Development Period for such Licensed Compound Set,
subject to the Minimum FTE Requirement, for up to four (4)
additional one year periods. The Exclusive Development Period
shall be deemed to be automatically extended by Abbott each year
through the end of the fourth additional one year period unless
Abbott gives ArQule written notice of termination no later than
thirty (30) days prior to any anniversary of the Mutual
Disclosure Date for such Licensed Compound Set; PROVIDED, that
Abbott must have complied with the Minimum FTE Requirement for
the immediately preceding year for any such extension to be
effective. Notwithstanding the foregoing, upon Abbott's request
and with ArQule's consent, which consent shall not be
unreasonably withheld, an extension to the Exclusive Development
Period may be made beyond five (5) years if Abbott reasonably
demonstrates to ArQule that Abbott has devoted appropriate
resources toward commercialization of at least *
within the Licensed Compound Set and is reasonably
likely to enter into an active clinical development program with
respect thereto. Upon expiration of the Exclusive Development
Period for any Licensed Compound Set, the license granted to
Abbott under Section 5.4 of this Agreement shall terminate
unless, within thirty (30) days of such date, Abbott commences
the clinical development program described in Section 5.5(b) for
* or more ArQule Compounds within such Licensed Compound
Set.
(b) DILIGENCE REQUIREMENTS AFTER EXCLUSIVE DEVELOPMENT PERIOD.
After the Exclusive Development Period, Abbott shall maintain an
active clinical development program on at least one (1) ArQule
Compound in each Licensed Compound Set. Abbott shall have
maintained such an active program if Abbott expends at least
* Dollars * per year in direct costs
(including, but not limited to, costs attributable to external
services or material contracts) relating to clinical development
of * or more ArQule Compounds within the Licensed Compound
Set during the period commencing at the end of the Exclusive
Development Period and ending on the date upon which Abbott makes
a milestone
* confidential treatment has been
requested for marked portions
- 5 -
<PAGE> 44
payment to ArQule pursuant to Section 6.1 (a) for the initiation
of Phase III Studies for an ArQule Compound within the Licensed
Compound Set; provided, however, that this obligation shall be
suspended for a period not to exceed twelve (12) months during
any period that clinical trials are delayed or suspended because
of an unexpected negative result occurring for reasons beyond the
control of Abbott. If clinical trials are delayed or suspended
because of such unexpected negative result for a period in excess
of twelve (12) months, the parties shall in good faith negotiate
appropriate modifications to Abbott's due diligence obligations
under this Section."
1.8. All references to "Section 5.5(c)" and "Section 5.6" in Sections 6.10
and 14.4 of the License Agreement are hereby replaced by "Section 5.2" and
"Section 5.4", respectively, and all references to "Section 5.6(c)" in Section
12.5 of the License Agreement are hereby replaced by "Section 5.5".
1.9. Section 12.5(c) of the License Agreement is hereby deleted in its
entirety and "and (c)" is hereby deleted from Section 12.5(a) of the License
Agreement.
1.10. Section 13.1 of the License Agreement is hereby deleted in its
entirety and replaced with the following:
"13.1 EXPIRATION. Unless terminated earlier by mutual written
agreement of the parties or pursuant to Section 13.2, this Agreement
shall expire on the date of expiration of the last Royalty Term for
any Product to expire in any country in the Territory, subject to the
provisions of Section 5.2."
1.11. Section 14.7 of the License Agreement is hereby amended by replacing
the telephone and facsimile numbers for Abbott for purposes of notice with the
following:
Tel: (847) 937-4367
Fax: (847) 938-5383
1.12. EXHIBIT B to the License Agreement is hereby deleted in its entirety
and replaced with EXHIBIT B attached hereto.
2. Miscellaneous
-------------
2.1 GOVERNING LAW. This Amendment shall be governed in all respects by the
laws of the State of Illinois without giving effect to principles of conflicts
of law thereunder.
2.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, permitted assigns, heirs, executors and administrators of the
parties hereto.
- 6 -
<PAGE> 45
2.3 LICENSE AGREEMENT. Except as specifically provided herein, the License
Agreement as previously executed shall remain in full force and effect.
2.4 COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
2.5 RESTATED AGREEMENT. Attached hereto as Exhibit C is a copy of the
Agreement, as amended by this Amendment, reflecting the terms of the Agreement,
as amended hereby, in effect as of the Amendment Date.
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the
date first above written.
ABBOTT LABORATORIES
By: /s/ Paul N. Clark
-----------------------
Name:
Title: Senior Vice President,
Pharmaceuticals Operations
and President Product
Pharmaceuticals Products
Division
ARQULE, INC.
By: /s/
-----------------------
Eric B. Gordon
President
- 7 -
<PAGE> 46
EXHIBIT B
---------
FORM OF MATERIALS TRANSFER AGREEMENT
------------------------------------
35
<PAGE> 47
EXHIBIT B
---------
FORM OF MATERIALS TRANSFER AGREEMENT
This Agreement, effective as of the date last written below, is by and among
ArQule, Inc. ("ArQule"), Abbott Laboratories ("Abbott") and
______________________ ("Recipient").
[Set on left column of page]
WHEREAS, Abbott and ArQule have entered into that certain Research, Development
and License Agreement, dated as of June 16, 1995, as amended by Amendment No. 1
to Research, Development and License Agreement, dated as of August __, 1996 (as
so amended, the "License Agreement"), pursuant to which ArQule has agreed, INTER
ALIA, to provide Abbott with certain compounds for screening on the terms and
subject to the conditions set forth in the License Agreement; and
WHEREAS, pursuant to Section 5.2 of the License Agreement, Abbott is
permitted to deliver such compounds to third parties such as Recipient, provided
such parties execute and deliver this Agreement to ArQule.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions contained herein and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. SUPPLY OF MATERIALS: Within _____ days after receiving an original of this
Agreement executed by all parties, Abbott will supply Recipient with the
compounds set forth on EXHIBIT A (the "Materials"). Upon written request, Abbott
may provide the Recipient with additional quantities of such Materials or with
additional compounds, which compounds shall also be considered Materials for the
purposes of this Agreement.
2. USE AND TRANSFER RESTRICTIONS: Recipient acknowledges and agrees that the
Materials are proprietary to and owned by ArQule and are or may be covered by
claims of U.S. and international patents or patent applications of ArQule.
Recipient agrees to use the Materials solely to screen them for potential
pharmacological activity for Abbott using the assay procedure [previously
disclosed to Abbott/set forth on EXHIBIT B]. Recipient agrees (i) not to
transfer such Materials to any third party without the prior written consent of
ArQule and Abbott, (ii) to permit access to the Materials only to its employees
and consultants requiring such access, (iii) to inform such employees and
consultants of the proprietary nature of the Materials, (iv) to take reasonable
precautions, at least as stringent as those observed by Recipient to protect its
own proprietary materials, to ensure that such employees and consultants observe
the obligations of Recipient pursuant to this Section and (v) to execute and
deliver any documents of assignment or conveyance that may be necessary to
effectuate the ownership rights of ArQule in the Materials. Upon the expiration
of this Agreement, Recipient shall, at the instruction of ArQule or Abbott,
either destroy or return any unused Materials.
3. COMPLIANCE WITH LAW: Recipient agrees to comply with all federal, state,
and local laws and regulations applicable to the use, testing, storage,
disposal, and transfer of the Materials, including without limitation the Toxic
Substances Control Act (15 USC 2601 ET SEQ.) and implementing regulations (in
particular, 40 CFR 720.36 [Research and Development Exemption]), the Food, Drug,
and Cosmetic Act (21 USC 301 ET SEQ.) and implementing regulations, and all
Export Administration Regulations of the Department of Commerce. Recipient
assumes sole responsibility for any violation of such laws or regulations by
Recipient or any of its affiliates or sublicensees.
4. TERMINATION: This Agreement shall commence on the date last written below
and continue for a period of ___________ months. Sections 3, 6 and 7 shall
survive termination of this Agreement.
5. NO WARRANTIES: Any Materials delivered pursuant to this Agreement are
understood to be experimental in nature and may have hazardous properties.
Recipient should assume that the Materials are dangerous and should use
appropriate precautions. NEITHER ABBOTT NOR ARQULE MAKES ANY REPRESENTATIONS, OR
EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE COMPOUNDS. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE MATERIALS WILL NOT
INFRINGE ANY PATENT RIGHTS OF OTHERS.
[Set on right column of page]
6. ASSIGNMENT OF INVENTIONS: Recipient agrees promptly to disclose to Abbott
any and all ideas, concepts, discoveries, inventions, developments,
improvements, trade secrets, technical data, know-how or biological materials
that are conceived, devised, invented, developed or reduced to practice or
tangible medium by Recipient, or any of its agents or employees, or under its
direction, during the term of this Agreement and which arise out of its
screening or evaluation of the Materials (hereinafter "Inventions"). Recipient
hereby assigns to Abbott all of its right, title and interest in and to the
Inventions and any and all related patent rights, copyrights and applications
and registrations therefor. During and after the expiration of this Agreement,
Recipient shall cooperate with Abbott, at Abbott's expense, in obtaining
proprietary protection for the Inventions and shall execute all documents which
Abbott shall reasonably request in order to perfect Abbott's rights in the
Inventions.
7. INDEMNIFICATION: Recipient assumes all liability for, and agrees to
indemnify, defend, and hold harmless ArQule and Abbott and their respective
directors, officers, representatives, employees, and agents against, all losses,
expenses (including without limitation any legal expenses), claims, demands,
damages, judgments, suits, or other actions arising from the use, testing,
storage, or disposal of the Materials by Recipient and its agents or employees,
or from any breach of its obligations under Section 2 of this Agreement.
8. MISCELLANEOUS: This Agreement shall not be assigned or otherwise
transferred by Recipient without the prior written consent of ArQule and Abbott.
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts. This Agreement constitutes the entire understanding of the
parties and supersedes all prior agreements, written or oral, with respect to
the subject matter hereof.
Recipient
---------------------------------------
Signature:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Date:
---------------------------------------
Shipping Address:
- -------------------------------------------------
- -------------------------------------------------
- -------------------------------------------------
Tel:
---------------------------------------
Fax:
---------------------------------------
ACCEPTED AND AGREED:
ArQule, Inc.
Signature:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Date:
---------------------------------------
Address:
ArQule, Inc.
200 Boston Avenue, Suite 3600
Medford, MA 02155
Tel: (800) 644-5000
Fax: (617) 395-1225
ACCEPTED AND AGREED:
Abbott Laboratories
Signature:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Date:
---------------------------------------
Address:
Abbott Laboratories
100 Abbott Park Road
Abbott Park, IL 60064
Tel: (847) 937-4367
Fax: (847) 938-5383
<PAGE> 48
EXHIBIT C
---------
See Exhibit 10.15 of the Registrant's Registration Statement.
<PAGE> 1
Exhibit 10.16
RESEARCH & DEVELOPMENT AGREEMENT
This Agreement is entered into effective as of March 10, 1995 (the "Effective
Date") between PHARMACIA BIOTECH AB ("Pharmacia"), a Swedish corporation having
its principal offices at Bjorkgatan 30, S-751 82 Uppsala, Sweden and ARQULE,
INC. ("ArQule"), a Delaware corporation having its principal offices at 200
Boston Avenue, Suite 3600, Medford, MA 02155, USA.
------------------------
BACKGROUND
A. ArQule has developed certain technologies that Pharmacia believes may
be useful in the development of products in the areas of
* .
B. Pharmacia and ArQule have entered into an Option Agreement, dated as of
the Effective Date, which grants to Pharmacia the right to acquire
certain exclusive rights to use the ArQule technologies and
improvements to make, use, and sell products in these business areas.
C. Pharmacia desires to evaluate whether the ArQule technology would
contribute to the development of products in these business areas, and
ArQule desires to give Pharmacia the opportunity to conduct such an
evaluation.
D. ArQule is willing to perform this technology evaluation, with the
assistance and funding of Pharmacia, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the covenants and promises
contained herein, Pharmacia and ArQule agree as follows:
SECTION 1. DEFINITIONS
The following definitions shall control the construction of this Agreement
wherever they appear:
1.1 "AFFILIATE" shall mean any company or other legal entity which controls, is
controlled by, or is under common control with either party. A company or other
legal entity shall be presumed to control another if it owns fifty percent (50%)
or more of the outstanding voting equity or assets of the other company or
entity.
1.2 "ARQULE TECHNOLOGY" shall mean all of the patents and patent applications
listed in Enclosure 1 hereto and all corresponding foreign patents and patent
applications and all
* confidential treatment has been
requested for marked portions
<PAGE> 2
continuations, continuations-in-part, and divisions thereof, as well as all of
the Proprietary Materials and unpatented know-how and trade secrets relating
thereto.
1.3 "BIOMOLECULES" shall mean amino acids, peptides, proteins, nucleic acids
(nucleotides, oligonucleotides, polynucleotides), carbohydrates
(monosaccharides, oligosaccarides, polysaccharides), lipids, phospholipids, or
any combination of such molecules, whether produced by natural means or by
organic synthesis in solution or using solid phase technologies.
1.4 "COMMENCEMENT DATE" shall mean April 1, 1995.
1.5 "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 7.1.
1.6 "CONTRIBUTED TECHNOLOGY" shall mean all patents, patent applications,
Proprietary Materials, know-how, and trade secrets that Pharmacia may legally
provide to ArQule and which relate to or are useful for the development of the
ArQule Technology for applications in the Field of Applications.
1.7 "DERIVATIVES" shall mean any molecules that are chemical derivatives or
analogues of Biomolecules or Natural Products.
1.8 "FIELD OF APPLICATIONS" shall mean
*
1.9 "IMPROVEMENT" shall mean any improvement, change, addition, upgrade, or
modification to the ArQule Technology or Contributed Technology that either
party discovers or develops in the course of any Research Project.
1.10 "NATURAL PRODUCTS" shall mean all molecules (other than Biomolecules) that
are the naturally occurring products of biosynthesis in living cells or are
produced by isolated cellular components outside of living cells, whether by
natural means or by organic synthesis in solution or using solid phase
technologies. This definition is intended to include subcellular components and
viral particles. Examples of Natural Products are vitamins, steroid hormones,
and various cofactors.
1.11 "OPTION AGREEMENT" shall mean a certain Option Agreement between the
parties, dated as of the Effective Date, which is attached to this Agreement as
Enclosure 2.
1.12 "PROJECT LEADER" shall have the meaning set forth in Section 2.3.
1.13 "PROJECT PLAN" shall mean a comprehensive plan of research that the parties
intend to conduct under this Agreement, as amended from time to time by the
Research Committee. The Project Plan will contain a description of current
Research Projects, payments for each
* confidential treatment has been
requested for marked portions
- 2 -
<PAGE> 3
Research Project, and personnel for each Research Project. The initial Project
Plan is attached as Enclosure 3 to this Agreement.
1.14 "PROPRIETARY MATERIALS" shall have the meaning set forth in Section 7.2.
1.15 "RESEARCH COMMITTEE" shall have the meaning set forth in Section 4.1.
1.16 "RESEARCH PERIOD" shall mean the six-month period during which the parties
conduct each Research Project.
1.17 "RESEARCH PROJECT" shall mean the research planned for a particular
Subfield during a Research Period. The initial Research Project, for Subfield I,
is described in the initial Project Plan. Subsequent Research Projects for
Subfield I or any other Subfield will be established by the Research Committee
in accordance with the procedures set forth below.
1.18 "SUBFIELD I" shall mean
*
1.19 "SUBFIELD II" shall mean
*
1.20 "SUBFIELD III" shall mean
*
1.21 "SUBFIELD IV" shall mean
*
* confidential treatment has been
requested for marked portions
- 3 -
<PAGE> 4
*
SECTION 2. RESEARCH ACTIVITIES
2.1 Initial Research Project. The initial Research Project relating to Subfield
I shall be described in the Project Plan attached to this Agreement on the
Effective Date. As further described below, the initial Project Plan shall also
provide for a description of the resources that each party will commit to the
initial Research Project, specifically including personnel.
2.2 Establishment of Subsequent Research Projects. After the completion of the
initial Research Project, Pharmacia may elect to fund subsequent Research
Projects in one or more Subfields during subsequent Research Periods in
accordance with the procedures set forth in the Option Agreement. If Pharmacia
elects to fund one or more additional Research Projects, the Research Committee
shall amend the Research Plan to provide for (i) a description of each Research
Project, including without limitation overall goals, specific goals, priorities,
and time schedules, (ii) payments to ArQule for each Research Project, and (iii)
a description of the resources that each party will commit to each Research
Project. Each amended Research Plan shall be adopted by the Research Committee
during the time periods specified in the Option Agreement, and then attached to
this Agreement as an addition to Enclosure 3.
2.3 Conduct of Research Projects. During the term of this Agreement, ArQule
agrees to use commercially reasonable efforts to conduct all Research Projects
in accordance with the Project Plan and as directed by the Research Committee.
Pharmacia agrees to provide reasonable assistance to ArQule in the conduct of
the Research Projects in accordance with the Project Plan and as directed by the
Research Committee. ArQule and Pharmacia each agree that the ArQule Technology
and the Contributed Technology may be used as reasonably required to perform any
Research Project, and each party further agrees to effect the transfer of such
required technology upon request. ArQule agrees to use the Contributed
Technology only for the purposes set forth in this Agreement. Each party shall
designate a project leader (the "Project Leaders") who shall have primary
responsibility over (i) the performance of the Research Project by such party
and (ii) coordination of efforts with the other party. The Project Leaders shall
report directly to the Research Committee. The Project Leaders for each Research
Project shall be identified in the Project Plan; provided, however, that each
party shall have the right to change its Project Leaders upon thirty (30) days
written notice to the other party. All Project Leaders designated by a party
must be approved by the other party, provided that such approval may not be
unreasonably withheld.
2.4 Personnel. In addition to the Project Leaders, each party agrees to assign
to each Research Project such qualified and competent members of its staff as
may be required to achieve the aims and goals set forth for such Research
Project. All such commitments of personnel shall be listed in the Project Plan,
as amended from time to time. ArQule agrees to commit a total of *
full-time equivalents to the initial Research Project and
* Confidential treatment has been
requested for marked portions
- 4 -
<PAGE> 5
Pharmacia agrees to commit a total of * full-time equivalents to such
Research Project, as further described in the Project Plan. Upon the completion
of each Research Project, ArQule agrees to provide Pharmacia with a written
summary of time committed by ArQule personnel to such Research Project.
2.5 Compliance. In conducting each Research Project, each party shall use
reasonable efforts (i) to ensure that each Research Project will comply with all
technical and other requirements set out in the Project Plan, as adjusted by the
Research Committee, (ii) to generate and maintain adequate documentation
describing in sufficient detail the results of each Research Project, and (iii)
to conduct each Research Project in accordance with all applicable laws and
regulations.
SECTION 3. PAYMENTS
Pharmacia agrees to pay ArQule a total of * Dollars
* on the Effective Date in accordance with the Project Plan for
performance of the initial Research Project. Thereafter, in consideration of the
performance of each Research Project, Pharmacia agrees to pay ArQule the amount
set forth in the Project Plan prior to the commencement of the Research Period
for that Research Project. All such payments shall be nonrefundable.
SECTION 4. MANAGEMENT AND REPORTING
4.1 Composition and Duties of Research Committee. Prior to the Commencement
Date, each party shall designate two (2) of its employees or consultants to
serve as members of a committee that will supervise and direct all Research
Projects, report on results of all Research Projects, and adopt amendments to
the Project Plan (the "Research Committee"). If any Project Leader is not a
member of the Research Committee, such Project Leader shall attend all meetings
of the Research Committee as an observer. Other personnel of either party may
attend meetings of the Research Committee as observers with the consent or
invitation of the Research Committee. The initial members of the Research
Committee from both Pharmacia and ArQule are named in Enclosure 4 hereto. Either
party may change the individuals so named upon thirty (30) days written notice
to the other party.
4.2 Meetings of Research Committee. The Research Committee will meet at least
once each calendar month. Members of the Research Committee may participate
either in person or by telephone. If a designated representative of a party
cannot attend any meeting of the Research Committee, such party may designate a
different representative for that meeting without notice to the other party, and
the substitute member will have full power to vote on behalf of the permanent
member. All decisions of the Research Committee will require the vote of a
majority of its members. If the Research Committee cannot reach agreement on any
matter, the matter will be resolved in accordance with the procedures set forth
in Section 9.9 below.
4.3 Reports. The Research Committee and/or the applicable Project Leaders shall
prepare and submit the following reports to the management of each of the
parties:
* Confidential treatment has been
requested for marked portions
- 5 -
<PAGE> 6
(a) within ten (10) days of the end of every calendar month, a
management report that describes the progress of each of the current
Research Projects, the significant results obtained for such Research
Projects, deviations of the Research Project from the description
provided in the Project Plan, and recommended modifications to the
Research Project for the subsequent one-month period; and
(b) within ten (l0) days of the completion, cessation, or termination
of any Research Project, a final report that describes in full detail
(i) the work completed in the course of the Research Project and (ii)
the significant results obtained for the Research Project.
4.4 Meetings. The Research Committee shall organize bi-monthly meetings for the
purpose of reporting on the progress of each Research Project and planning for
the future conduct of each Research Project. Such meetings shall be held at
alternating locations suitable to both parties or by teleconferences, and shall
be attended by appropriate management individuals from both Pharmacia and
ArQule.
SECTION 5. TERM AND TERMINATION
5.1 Term. This Agreement shall commence on the Effective Date and shall
terminate upon the expiration or termination of the Option Agreement, unless
earlier terminated in accordance with this Section 5.
5.2 Termination for Breach. If either Pharmacia or ArQule breaches any
representation made herein or fails to abide by any of the material terms of
this Agreement, the other party shall have the right to terminate this Agreement
upon sixty (60) days' prior written notice to the defaulting party specifying
the default; provided, however, that if said defaulting party cures the default
within the said sixty (60) day period, this Agreement shall continue in full
force and effect as if no default had occurred.
5.3 Personal Services. In addition to, and independent of, the right of
Pharmacia to terminate this Agreement under Section 5.2, if (i) proceedings in
bankruptcy or insolvency are instituted by or against ArQule, or a receiver is
appointed for ArQule, or if any substantial part of the assets of ArQule is the
object of attachment, sequestration, or other type of comparable proceeding, and
such proceeding is not vacated or terminated within sixty (60) days after its
commencement or institution, and (ii) ArQule defaults under any of the material
terms of this Agreement and fails to cure such default within sixty (60) days
after receiving written of such default from Pharmacia, then Pharmacia shall
also have the right to negotiate with Dr. Joseph C. Hogan, Jr. (the
"Consultant"), an employee and officer of ArQule, for the purpose of entering
into a consulting agreement between the Consultant and Pharmacia (the
"Consulting Agreement"), in order to enable Pharmacia to continue to receive the
services that are provided by the Consultant under this Agreement. ArQule
acknowledges and agrees that the rights provided to Pharmacia under this Section
5.3 (i.e., the right to conduct negotiations with the Consultant and the right
to enter into the Consulting Agreement) do not (a) violate any state laws or the
common law, including without limitation any notions of public policy, or (b)
violate any federal laws, including without limitation the protections afforded
to a debtor in bankruptcy pursuant to the
- 6 -
<PAGE> 7
provisions of section 362 of title 11 of the United States Code, and are in the
nature of security for and/or guaranty of the performance of ArQule under the
terms of this Agreement. By this acknowledgement and agreement, ArQule further
agrees that it shall be estopped to make any argument, pursuant to any of the
laws described in the foregoing sentence, to prevent the exercise by Pharmacia
of any of the rights provided to Pharmacia under this Section 5.3.
5.4 Survival. The termination of this Agreement shall not release either party
from fulfilling any obligations which it may have incurred prior to any such
termination. The following provisions shall survive termination of this
Agreement: Sections 1, 4.3(b), 5.3, 5.4, 6, 7, 9.8, and 9.9.
SECTION 6. INTELLECTUAL PROPERTY
6.1 Ownership. ArQule shall have sole ownership of all Improvements to the
ArQule Technology that are made, developed, or discovered in the course of the
Research Project by employees or consultants of either party. Pharmacia shall
have sole ownership of all Improvements to the Contributed Technology that are
made, developed, or discovered in the course of the Research Project by
employees or consultants of either party. Ownership of all other intellectual
property that is made, developed, or discovered in the course of the Research
Project shall be determined in accordance with (i) the rules of inventorship
under the applicable patent law (in the case of patentable inventions), (ii) the
rules of authorship under the applicable copyright law (in the case of
copyrightable works), or (iii) the mutual agreement of the parties (in all other
cases).
6.2 Legal Protection. Each party shall have sole control, at its expense, over
obtaining any form of legal protection for the intellectual property owed solely
by such party. In the case of intellectual property for which the parties have
joint ownership, the parties shall mutually agree on the division of
responsibility for, and expense of, obtaining appropriate legal protection for
such intellectual property, and any disputes shall be resolved in accordance
with the procedures set forth in Section 9.9.
6.3 Full Cooperation. ArQule and Pharmacia agree to cooperate fully in the
preparation, filing, and prosecution of any patent applications covering
Improvements. Such cooperation includes, but is not limited to,
(a) executing any documents of assignment, or requiring employees or
consultants of each party to execute such documents of assignment, so
as to effect the appropriate ownership of Improvements as set forth
above;
(b) executing all papers and instruments, or requiring employees or
consultants of each party to execute such papers and instruments, so as
to enable the other party to apply for and to prosecute patent
applications in any country; and
(c) undertaking no actions that are potentially deleterious to the
preparation, filing, or prosecution of such patent applications.
- 7 -
<PAGE> 8
6.4 License Agreement. The parties intend that in the event of any conflict
between the provisions of this Article 6 and the terms and conditions of any
License Agreement entered into by the parties as contemplated by the Option
Agreement, the terms of the License Agreement shall prevail.
SECTION 7. CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS
7.1 Confidential Information.
7.1.1 Definition of Confidential Information. Confidential Information
shall mean any technical or business information furnished by one party (the
"Disclosing Party") to the other party (the "Receiving Party") in connection
with this Agreement and specifically designated as confidential. Such
Confidential Information may include, without limitation, the ArQule Technology
and the Contributed Technology, as well as trade secrets, know-how, inventions,
technical data or specifications, testing methods, business or financial
information, research and development activities, product and marketing plans,
and customer and supplier information.
7.1.2 Designation of Confidential Information. Confidential Information
that is disclosed in writing shall be marked with a legend indicating its
confidential status. Confidential Information that is disclosed orally or
visually shall be documented in a written notice prepared by the Disclosing
Party and delivered to the Receiving Party within thirty (30) days of the date
of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.
7.1.3 Obligations. The Receiving Party agrees that it shall:
(a) maintain all Confidential Information in strict
confidence, except that the Receiving Party may disclose or permit the
disclosure of any Confidential Information to its directors, officers,
employees, consultants, and advisors who are obligated to maintain the
confidential nature of such Confidential Information and who need to know such
Confidential Information for the purposes set forth in this Agreement;
(b) use all Confidential Information solely for the purposes
set forth in this Agreement; and
(c) allow its directors, officers, employees, consultants, and
advisors to reproduce the Confidential Information only to the extent necessary
to effect the purposes set forth in this Agreement, with all such reproductions
being considered Confidential Information.
7.1.4 Exceptions. The obligations of the Receiving Party under Section
7.1.3 above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:
(a) was in the public domain prior to the time of its
disclosure under this Agreement;
- 8 -
<PAGE> 9
(b) entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized disclosure
resulting from an act or omission by the Receiving Party;
(c) was independently developed or discovered by the Receiving
Party without use of the Confidential Information;
(d) is or was disclosed to the Receiving Party at any time,
whether prior to or after the time of its disclosure under this Agreement, by a
third party having no fiduciary relationship with the Disclosing Party and
having no obligation of confidentiality with respect to such Confidential
Information; or
(e) is required to be disclosed to comply with applicable laws
or regulations, or with a court or administrative order, provided that the
Disclosing Party receives prior written notice of such disclosure and that the
Receiving Party takes all reasonable and lawful actions to obtain confidential
treatment for such disclosure and, if possible, to minimize the extent of such
disclosure.
7.2 Proprietary Materials.
7.2.1 Definition of Proprietary Materials. "Proprietary Materials"
shall mean any tangible chemical, biological, or physical research materials
that are furnished by one party (the "Transferring Party") to the other party
(the "Receiving Party") in connection with this Agreement regardless of whether
such materials are specifically designated as proprietary to the Transferring
Party. The Transferring Party shall furnish such Proprietary Materials to the
Receiving Party in a mutually acceptable form, including appropriate labelling
and packaging.
7.2.2 Limited Use. The Receiving Party shall use Proprietary Materials
solely for the purposes set forth in this Agreement. The Receiving Party shall
use the Proprietary Materials only in compliance with all applicable
governmental laws and regulations, and not for any in vivo experiments on human
subjects. The Receiving Party assumes all liability for damages that may arise
from the use, storage, or disposal of any Proprietary Materials. The
Transferring Party will not be liable to the Receiving Party for any loss,
claim, or demand made by Receiving Party, or made against the Receiving Party by
any other party, due to or arising from the use, storage, or disposal of any
Proprietary Materials by the Receiving Party, and the Receiving Party agrees, to
the extent allowed under applicable law, to defend, indemnify, and hold the
Transferring Party harmless from and against any such losses, claims, or
demands, except to the extent caused by the gross negligence or willful
misconduct of the Transferring Party.
7.2.3 Limited Disposition. The Receiving Party shall not transfer or
distribute any Proprietary Materials to any third party without the prior
written consent of the Transferring Party.
7.3 Return of Confidential Information and Proprietary Materials. Upon the
termination of this Agreement, at the request of the Disclosing Party, the
Receiving Party shall return to
- 9 -
<PAGE> 10
the Disclosing Party all originals, copies, and summaries of documents,
materials, and other tangible manifestations of Confidential Information in the
possession or control of the Receiving Party, except that the Receiving Party
may retain one copy of the Confidential Information in the possession of its
legal counsel solely for the purpose of monitoring its obligations under this
Agreement. Upon the termination of this Agreement, the Receiving Party shall at
the instruction of the Transferring Party either destroy or return any unused
Proprietary Materials.
7.4 Survival of Obligations. The obligations set forth in this Section 7 shall
remain in effect for a period of five (5) years after termination of this
Agreement, except that the obligations of the Receiving Party to return
Confidential Information to the Disclosing Party and to return or destroy
Proprietary Materials received from the Transferring Party shall survive until
fulfilled.
SECTION 8. REPRESENTATIONS, WARRANTIES, AND DISCLAIMERS
8.1 Entire Agreement. The parties hereto each acknowledge and agree:
(a) that no representation or promise not expressly contained in
this Agreement or the Option Agreement has been made by the
other party hereto or by any of its agents, employees,
representatives or attorney; and
(b) that this Agreement is not being entered into on the basis of,
or in reliance on, any promise or representation, expressed or
implied, covering the subject matter hereof, other than those
which are set forth expressly in this Agreement and the Option
Agreement.
8.2 Authority; No Conflict. The parties hereto each represent and warrant that
they have the authority and legal right to enter into this Agreement, and that
the terms of this Agreement are not inconsistent with any other contractual
arrangements they may have, express or implied.
8.3 Ownership of Technology. ArQule warrants and represents that it is the owner
by assignment of the entire right, title, and interest in and to all the ArQule
Technology. Pharmacia warrants and represents that it owns or is free to license
or sublicense all of the Contributed Technology.
8.4 Disclaimer. NEITHER PARTY MAKES ANY WARRANTIES, EXPRESS OR IMPLIED,
REGARDING THE QUALITY OF ANY RESULTS OR THE ACHIEVEMENT OF ANY GOALS FOR ANY
RESEARCH PROJECT. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR ANY PROPRIETARY MATERIALS OF EITHER
PARTY. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTIES THAT THE USE OF ARQULE TECHNOLOGY, CONTRIBUTED TECHNOLOGY, OR ANY
PROPRIETARY MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL
PROPERTY RIGHTS OF A THIRD PARTY.
- 10 -
<PAGE> 11
SECTION 9. MISCELLANEOUS
9.1 Publicity. Neither party shall use the name of the other party or reveal the
terms of this Agreement in any publicity or advertising without the prior
written approval of the other party, except that (i) either party may use the
text of a written statement approved in advance by both parties without further
approval, (ii) either party shall have the right to identify the other party and
to disclose the terms of this Agreement as required by applicable securities
laws or other applicable law or regulation, and (iii) either party may use the
name of the other party and reveal the existence of this Agreement and the
Option Agreement.
9.2 Assignment. Neither party hereto shall have the right to assign their rights
or obligations under this Agreement without the prior written consent of the
other party, which consent shall not be unreasonably withheld; provided,
however, that either party hereto may assign, upon prior written notice to the
other, its rights and obligations to an Affiliate or to a legal entity acquiring
all or substantially all of such party's assets or business to which this
Agreement relates. Subject to the preceding sentence, this Agreement shall be
binding upon and inure to the benefit of the permitted successors and assigns of
each party.
9.3 Relationship. The status of the parties hereto is that of independent
contractors, and as such the parties shall not be deemed to be partners, joint
venturers, or each other's agents, and neither shall have the right to act for
or on behalf of the other except as expressly provided hereunder or otherwise
expressly agreed to in writing.
9.4 Force Majeure. The parties hereto shall not be liable for failure to perform
as required by any provision of this Agreement where such failure results from a
force majeure beyond such party's control. In the event of any delay
attributable to a force majeure, the time for performance affected thereby shall
be extended for a period equal to the time lost by reason of the delay;
provided, however, that if the delay extends for a period exceeding one hundred
and eighty (180) days, the party capable of performance shall have the right to
terminate this Agreement immediately upon written notice to the affected party.
9.5 Entire Agreement. Except for the Option Agreement, this Agreement
constitutes the entire understanding of the parties with respect to the subject
matter contained herein and may be modified only by a written agreement signed
by both parties.
9.6 Notices. Service of all notices hereunder shall be in writing and shall be
deemed duly given if sent by courier, certified or registered mail, postage
prepaid, or confirmed telecopier transmission to the addresses or telecopier
numbers below.
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<PAGE> 12
If to Pharmacia: If to ArQule:
Pharmacia Biotech AB ArQule, Inc.
S-751 82 Uppsala 200 Boston Avenue
Sweden Suite 3600
Attention: Johan von Heijne Medford, Massachusetts 02155
Attention: President
Tel: 46 1816 5700 Tel: (617) 395-4100
Fax: 46 1816 6409 Fax: (617) 395-1225
With a copy to: With a copy to:
Ulf Lundberg Palmer & Dodge
General Counsel One Beacon Street
Pharmacia Biotech AB Boston, Massachusetts 02108
S-751 82 Uppsala USA
Sweden Attention: Michael Lytton, Esq.
Tel: 46 1816 3000 Tel: (617) 573-0327
Fax: 46 1816 6301 Fax: (617) 227-4420
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
9.7 Severability. In the event that any provision of this Agreement shall, for
any reason, be held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, and
the parties shall negotiate in good faith to modify the Agreement to preserve
(to the extent possible) their original intent.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York irrespective of any conflicts
of law principles.
9.9 Dispute Resolution. Any disputes between the parties that arise under or
relate to this Agreement shall be resolved in accordance with the following
procedures. The parties shall first attempt in good faith to resolve the matter
among themselves. If the matter remains unresolved after a period of thirty (30)
days, the dispute shall be referred to a member of senior management from each
party. If the matter remains unresolved after an additional thirty-day period,
the dispute shall be finally settled by binding arbitration in London, England
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. In case of a dispute which cannot be resolved by good faith
negotiations, ArQule shall also have the right to apply with a court of
competent jurisdiction to enjoin Pharmacia from further use of the ArQule
Technology and Improvements. Notwithstanding any of the foregoing, Pharmacia
does not waive any right to contest such application and to argue that the
requisite criteria that would allow the court to issue an injunction do not
exist.
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<PAGE> 13
IN WITNESS HEREOF, the parties have caused this instrument to be
executed by their duly authorized officers effective as of the day and year
first set forth above.
PHARMACIA BIOTECH AB
By: /s/
---------------------------
Arne Forsell
President
By: /s/
---------------------------
Bengt Belfrage
Executive Vice President
ARQULE, INC.
By: /s/
---------------------------
Seth L. Harrison
President and Chief Executive Officer
- 13 -
<PAGE> 14
ENCLOSURE 1
ARQULE TECHNOLOGY*
* Confidential treatment has been
requested for marked portions
<PAGE> 15
ENCLOSURE 2
OPTION AGREEMENT
See Exhibit 10.17 to the Registrant's Registration Statement.
<PAGE> 16
ENCLOSURE 3
PROJECT PLAN
<PAGE> 17
ENCLOSURE 3 (Project Plan) TO PHARMACIA RESEARCH
RESEARCH PLAN FOR "LIGAND DESIGN" PROJECT
AN ARQULE/PHARMACIA BIOTECH COOPERATION
CONTENTS
1 DESCRIPTION OF THE CURRENT PROJECT
1.1 Objective of the project
1.2 Organization
1.2.1 Project Leaders and Reference Groups
1.2.2 Project Resources
1.3 Project Presentation
1.3.1 Pre-Initiation Phase
1.3.2 Project Phase
2 No # 2
3 PROJECT WORK PLAN
4 PRIORITIES
5 PROJECT TIME LINES
5.1 Pre-Initiation Phase
5.2 Project Phase
<PAGE> 18
1 DESCRIPTION OF THE CURRENT PROJECT
1.1 Objective of the project
The objective of the project is *
1. *
2. *
3. *
These objective were decided upon at the meeting at Pharmacia in
January, 1995
1.2 Organisation
1.2.1 Project Leaders and Reference Groups
At ArQule Joe Hogan (JH) is assigned as Project Leader and contact person.
At Pharmacia Ake Pilotti (AP) is assigned as Project Leader and contact
person.
1.2.2 Project Resources
The following persons from ArQule are assigned to the project:
Joe Hogan, Steve Gallion, David Boulton, Alan Kaplan, Milan Pluhar, and a
PhD with ten years experience from the field who is presently being
employed.
From Pharmacia two person will work at ArQule during the project phase.
One of these will stay for the whole 6 month period, and two others will
spend 3 months each at ArQule. Two PhD's are presently being employed for
this purpose, and the third, Geir Fonnum, who presently works at Pharmacia
Norway is one of the resources that will stay for 3 months.
In addition, AP or someone else from the Swedish Reference Group will be
spending at least one week/month at ArQule during the project phase.
1.3 Project Presentation
The project will be divided into pre-initiation and a project phase.
1.3.1 Pre-Initiation Phase
* Confidential treatment has been
requested for marked portions
<PAGE> 19
The purpose of the pre-initiation phase is to generate sufficient amount
of structure lead information and to develop the appropriate screening
methods.
During the pre-initiation phase two important activities are planned:
A. Literature search
All possible structural leads are being collected from the literature to
make the initial choice of chemical structures to be synthesized as easy
as possible. The results from the literature searches will be exchanged
between the two sites and the extracted publications scrutinized for lead
structures. All progress will be shared via fax or tele-conference.
At the end of the pre-initiation phase a meeting will be held to decide
which molecules we will start to synthesize libraries around.
Chemical syntheses of these structures will be performed mainly at ArQule.
B. Screening methods
Rolf Hjort and Lars Fagerstam will initiate the design of screening
methods. The basic idea is to develop systems that mimick * conditions.
The development of the screening methods will be performed primarily at
Pharmacia.
1.3.2 Project Phase
The Project Phase is described in Sections 3-5 below.
2
3 Project Work Plan:
1. At the end of * one of the selected targets
will be prioritized. The decision will be based on the results
achieved during the first third of the project phase. All resources
will then be used to focus on the synthesis and screening for ligands
suitable for the prioritized target molecule.
2. After *
3. After * we need to know which ligands should
be synthesized in large scale. The large scale sythesis will then be
performed.
* Confidential treatment has been
requested for marked portions
<PAGE> 20
4. After *
5. Report writing will start after *
4 PRIORITIES
The targets chosen are *
All decisions will be taken by the Research Committee. If everything works
perfect we will of course continue with the next target molecule in the
following order of priority:
1. *
2. *
3. *
5 TIME PLAN
5.1 Pre-Initiation Phase (See Appendix 1)
5.2 Project Phase (See Appendix 1)
* Confidential treatment has been
requested for marked portions
<PAGE> 21
ENCLOSURE 4
MEMBERS OF RESEARCH COMMITTEE
ArQule
Joseph Hogan, Jr.
David Boulton
Pharmacia
Ingvar Viberger
Ake Pilotti
<PAGE> 22
February 13, 1996
BY FACSIMILE - 011-46 18 166301
- -------------------------------
Mr. Ulf Lundberg
General Counsel
Pharmacia Biotech AB
Bjorkgatan 30
D-751 82 Uppsala, Sweden
Re: Amendment to Option Agreement and Research Agreement
----------------------------------------------------
Dear Mr. Lundberg:
Reference is hereby made to the Option Agreement (the "Option Agreement")
and the Research and Development Agreement (the "Research Agreement"), both
effective as of March 10, 1995, by and between ArQule, Inc. ("ArQule") and
Pharmacia Biotech AB ("Pharmacia"). In consideration of the mutual covenants and
agreements hereinafter set forth and other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby
acknowledge and agree as follows:
I. In accordance with Section 2.2.1 of the Option Agreement, Pharmacia
hereby confirms to ArQule (i) that it has elected not to extend the Option
Period for its Option Right for Subfields II, III and IV (as such capitalized
terms are defined in the Option Agreement) in accordance with Section 2.2.1(b)
of the Option Agreement and (ii) that it has elected to extend the Option Period
for its Option Rights for Subfield I through August 15, 1996 in accordance with
Section 2.2.1(a) of the Option Agreement.
1. The Project Plan is hereby amended by replacing the initial Research
Project (as such capitalized terms are defined in the Research Agreement)
entitled "Research Plan for Ligand Design Project" attached as Enclosure 3 to
the Research Agreement with the Research Project entitled "Research Plan for the
Second Ligand Design Project", a copy of which is attached hereto (as so
amended, the "Amended Research Project"), for the period commencing on February
15, 1996 and continuing until August 15, 1996. The parties agree that the
Amended Research Project has been approved by the Research Committee, as
required under Section 2.2 of the Research Agreement.
<PAGE> 23
Pharmacia biotech
February 13, 1996
Page 2
2. In consideration of the research to be conducted by ArQule as
provided in the Amended Research Project, Pharmacia hereby agrees to pay ArQule
* payable on or before March 12, 1996.
Except as otherwise expressly amended by this letter agreement, each of the
terms, conditions and provisions of the Option Agreement and the Research
Agreement shall remain in full force and effect. This letter agreement may be
signed in one or more counterparts, each of which when taken together shall
constitute one and the same instrument.
Very truly yours,
ARQULE, INC.
By:/s/
--------------------------------
Eric B. Gordon
President and
Chief Executive Officer
Agreed to and Accepted
this 19th day of February, 1996
PHARMACIA BIOTECH AB
By: /s/ Ulf Lundberg
------------------------------
* Confidential treatment has been
requested for marked portions
<PAGE> 1
EXHIBIT 10.17
-------------
OPTION AGREEMENT
This Agreement, effective as of March 10, 1995 (the "Effective Date"), is
between ArQule, Inc. ("ArQule"), a Delaware corporation, and Pharmacia Biotech
AB ("Pharmacia"), a Swedish corporation.
RECITALS
WHEREAS, ArQule has developed certain technology that has applications in
the areas of *
WHEREAS, Pharmacia has established itself as a leading manufacturer of
products in the areas of *
WHEREAS, Pharmacia desires to evaluate whether the ArQule technology would
contribute to the development of products in these business areas and, if so, to
license the ArQule technology;
WHEREAS, ArQule desires to give Pharmacia the opportunity to evaluate the
ArQule technology and to license such technology;
NOW, THEREFORE, in consideration of the mutual covenants set forth in this
Agreement, the parties hereby agree as follows:
1. Definitions.
-----------
1.1. "ARQULE TECHNOLOGY" shall mean certain technology that is owned or
controlled by ArQule as of the Effective Date, as set forth on EXHIBIT A.
1.2. "BIOMOLECULES" shall mean amino acids, peptides, proteins, nucleic
acids, (nucleotides, oligonucleotides, polynucleotides), carbohydrates
(monosaccharides, oligosaccarides, polysaccharides), lipids, phospholipids, or
any combination of such molecules, whether produced by natural means or by
organic synthesis in solution or using solid phase technologies.
1.3. "CHIRAL APPLICATIONS" shall mean
*
1.4. "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
5.1.1.
1.5. "DERIVATIVES" shall mean any molecules that are chemical derivatives
or analogues of Biomolecules or Natural Products.
* Confidential treatment has been
requested for marked portions
<PAGE> 2
1.6. "FIELD OF APPLICATIONS" shall mean
*
1.7. "FIRST DECISION PERIOD" shall have the meaning set forth in Section
2.2.1.(a).
1.8. "IMPROVEMENT" shall mean any improvement, change, addition, upgrade,
or modification to the ArQule Technology that ArQule discovers or develops in
the course of research funded by Pharmacia.
1.9. "LIBRARY APPLICATIONS" shall mean
*
1.10. "NATURAL PRODUCTS" shall mean all molecules (other than Biomolecules)
that are the naturally occurring products of biosynthesis in living cells or are
produced by isolated cellular components outside of living cells, whether by
natural means or by organic synthesis in solution or using solid phase
technologies. This definition is intended to include sub-cellular components and
viral particles. Examples of Natural Products are vitamins, steroid hormones,
and various cofactors.
1.11. "NEGOTIATION PERIOD" shall mean each thirty-day period in which
Pharmacia may (i) negotiate revisions to the Research and Development Agreement,
(ii) pay the appropriate option maintenance fee to retain the right to acquire a
license for a Subfield, or (iii) negotiate and execute a license agreement for a
Subfield.
1.12. "OPTION PERIOD" shall have the meaning set forth in Section 2.1.
1.13. "OPTION RIGHT" shall have the meaning set forth in Section 2.1.
* Confidential treatment has been
requested for marked portions
- 2 -
<PAGE> 3
1.14. "PRODUCTS" shall mean products that incorporate or are made through
the use of any ArQule Technology or Improvements.
1.15. "PROPRIETARY MATERIALS" shall have the meaning set forth in Section
5.2.1.
1.16. "RESEARCH AND DEVELOPMENT AGREEMENT" shall mean a certain Research
and Development Agreement between the parties, dated as of the Effective Date,
which is attached to this Agreement as EXHIBIT C.
1.17. "RESERVED FIELD" shall mean certain applications in each Subfield for
which ArQule has reserved rights. The following applications are within the
Reserved Field: Chiral Applications, Library Applications, and Synthesis
Applications. The Reserved Field also includes all applications within the Field
of Applications for internal research at ArQule for the development of products
outside the Field of Applications.
1.18. "SECOND DECISION PERIOD" shall have the meaning set forth in Section
2.2.1(b).
1.19. "SUBFIELD I" shall mean
*
1.20. "SUBFIELD II" shall mean
*
1.21. "SUBFIELD III" shall mean
*
* Confidential treatment has been
requested for marked portions
- 3 -
<PAGE> 4
1.22. "SUBFIELD IV" shall mean
*
1.23. "SYNTHESIS APPLICATIONS" shall mean
*
2. Grant of Option Rights.
----------------------
2.1. OPTION RIGHTS. Subject to payment of the option fee set forth in
Section 3.1., ArQule hereby grants Pharmacia a first option to acquire the
following rights in respect of each Subfield (the "Option Rights"):
(i) an exclusive, worldwide, royalty-bearing license (with the right to
sublicense) under the ArQule Technology and Improvements to make, have
made, use, and sell Products in each of Subfields 1 through 4 (as
applicable), excluding the Reserved Field; and
(ii) a worldwide license (without the right to sublicense) to use the
ArQule Technology in the Reserved Field for its own internal research
for the development of Products in each of Subfields 1 through 4 (as
applicable).
At the time Pharmacia exercises its Option Right for Subfield 1, Pharmacia shall
have the right to include under such license for Subfield 1 the right to make,
have made, use, and sell Products not in the Reserved Field that are
*
At the
time Pharmacia exercises its Option Right for Subfield 3, Pharmacia shall have
the right to include under such license for Subfield 3 the right to make, have
made, use, and sell Products not in the Reserved Field that are
*
These Option Rights shall become effective on April 1, 1995 and shall remain in
effect for a period of six (6) months (the "Option Period"), subject to
extension in accordance with Section 2.2 below.
* Confidential treatment has been
requested for marked portions
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<PAGE> 5
2.2. Extension of Option Period.
--------------------------
2.2.1. PHARMACIA ELECTION TO EXTEND. Subject to payment or
waiver of the relevant option maintenance fee in accordance with Section 3.2,
Pharmacia shall have the right to extend the Option Period for the Option Right
applicable to a Subfield for up to three (3) successive six-month periods, as
follows:
(a) Upon the expiration of the initial six-month Option Period,
Pharmacia shall have a thirty-day period ("First Decision Period") to determine
whether to extend the Option Period for Subfield I. Prior to the expiration of
the First Decision Period, Pharmacia may elect to extend the Option Period for
Subfield I upon written notice to ArQule. If Pharmacia elects to extend the
Option Period for Subfield I, ArQule and Pharmacia may negotiate and implement
appropriate revisions to the Research and Development Agreement during the
thirty-day period immediately following the First Decision Period (a
"Negotiation Period"), and the first six-month extension to the Option Period
shall commence immediately upon the expiration of this Negotiation Period.
(b) Upon the expiration of the First Decision Period, Pharmacia
shall have a thirty-day period ("Second Decision Period") to determine whether
to extend the Option Period for each of Subfields 2 through 4. Prior to the
expiration of the Second Decision Period, Pharmacia may elect to extend the
Option Period for each of Subfields 2 through 4 upon written notice to ArQule.
If Pharmacia elects to extend the Option Period for any of Subfields 2 through
4, then Pharmacia shall have a period of thirty (30) days immediately following
the Second Decision Period (a "Negotiation Period") in which to pay the
appropriate option maintenance fee or to negotiate and implement appropriate
revisions to the Research and Development Agreement, and the first six-month
extension to the Option Period for those Subfields shall commence immediately
upon the expiration of this Negotiation Period.
(c) Prior to the expiration of any six-month extension for each
of Subfields 1 through 4, Pharmacia may extend the Option Period for the
relevant Subfield upon written notice to ArQule. If Pharmacia elects to extend
the Option Period for any such Subfield, then Pharmacia shall have a period of
thirty (30) days immediately following the expiration of such six-month
extension (a "Negotiation Period") in which to pay the appropriate option
maintenance fee or to negotiate and implement appropriate revisions to the
Research and Development Agreement, and the next six-month extension to the
Option Period for that Subfield or Subfields shall commence immediately upon the
expiration of this Negotiation Period.
(d) If Pharmacia has not exercised its Option Right for a
Subfield (as described in Section 2.3), and if Pharmacia (i) fails to notify
ArQule within the prescribed time periods that Pharmacia intends to extend the
Option Period for that Subfield or (ii) fails to make any required payments
within the prescribed time period, then the Option Right for such Subfield shall
lapse upon the expiration of the applicable Option Period and the provisions of
Section 2.4 shall apply.
2.2.2. AUTOMATIC EXTENSION. The Option Period for every Subfield shall
be automatically extended during the First Decision Period. The Option Period
for Subfields 2
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<PAGE> 6
through 4 shall be automatically extended during the Second Decision Period. In
addition, the Option Period for each Subfield shall be automatically extended
during any Negotiation Period applicable to that Subfield.
2.3. EXERCISE OF OPTION. Pharmacia may exercise its Option Rights upon
written notice to ArQule received at any time during the First Decision Period
(for Subfield 1), Second Decision Period (for any of Subfields 2 through 4), or
any six-month extension to an Option Period (for the relevant Subfield). If
Pharmacia elects to exercise its Option Right with respect to a Subfield, the
parties agree to negotiate in good faith a license agreement during the
thirty-day period immediately following the date of notification (a "Negotiation
Period"). The license agreement shall contain commercially reasonable terms,
including the terms set forth on EXHIBIT B. If the parties fail to negotiate and
execute the license agreement within the Negotiation Period, then after a period
of sixty (60) days ArQule shall be free to license the ArQule Technology in the
relevant Subfield to any third party on any terms.
2.4. EFFECT OF LAPSE.
2.4.1. LOSS OF RIGHTS. Upon the lapse of an Option Right for any
Subfield (as set forth in Section 2.2.1.(d)), Pharmacia shall have no further
right to acquire or maintain any license rights under the ArQule Technology or
Improvements to make, have made, use, or sell Products in such Subfield.
2.4.2. NON-COMPETITION. If the Option Right for a particular Subfield
lapses for any reason, then ArQule shall be bound by a covenant not to
manufacture, sell, or license a competitive product in such Subfield for a
period of six (6) months from the date upon which such Option Right lapsed.
2.4.3. OWNERSHIP OF INTELLECTUAL PROPERTY. Pharmacia acknowledges and
agrees that ArQule retains ownership of the ArQule Technology and that ArQule
shall own all rights in any Improvements. Pharmacia further acknowledges and
agrees that no license or conveyance of the ArQule Technology or Improvements is
granted or implied under this Agreement. Any license of ArQule Technology or
Improvements shall be expressly granted in a written agreement in accordance
with the procedures set forth in Section 2.3.
2.5. FLOW CHART. Set forth on EXHIBIT D is a graphical presentation of
the time periods and events described in this Article 2. In the event of any
conflict or ambiguity between EXHIBIT D and the text of this Article 2, the
textual provisions shall govern.
3. PAYMENTS FOR OPTION RIGHTS.
3.1. OPTION FEE. In consideration of the Option Rights granted under
Section 2.1, Pharmacia shall pay to ArQule an option fee in the amount of
* in immediately available funds within thirty (30) days after the
Effective Date.
3.2. MAINTENANCE FEES. In consideration of each six-month extension to
the Option Period for a particular Option Right, Pharmacia shall pay to ArQule
option maintenance fees in the
* Confidential treatment has been
requested for marked portions
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<PAGE> 7
following amounts in immediately available funds on or before the expiration
date of the relevant Negotiation Period: Subfield 1 - * ; Subfield 2 -
* ; Subfield 3 - * ; Subfield 4 - * . ArQule agrees to waive
such maintenance fee for a particular Subfield if Pharmacia agrees to pay ArQule
at least * to conduct research for that Subfield under the Research and
Development Agreement.
4. RESEARCH AND DEVELOPMENT.
ArQule and Pharmacia have entered into a separate Research and Development
Agreement, attached on EXHIBIT C, under which ArQule agrees to conduct certain
research into applications of the ArQule Technology and Improvements in Subfield
I in exchange for payment of research and development fees by Pharmacia. The
parties intend to amend the Project Plan attached to the Research and
Development Agreement from time to time in order to add other Subfields to the
research program or to revise an ongoing research program.
5. CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS.
5.1. CONFIDENTIAL INFORMATION.
5.1.1. DEFINITION OF CONFIDENTIAL INFORMATION. Confidential
Information shall mean any technical or business information furnished by one
party (the "Disclosing Party") to the other party (the "Receiving Party") in
connection with this Agreement or the Research and Development Agreement and
specifically designated as confidential. Such Confidential Information may
include, without limitation, trade secrets, know-how, inventions, technical data
or specifications, testing methods, business or financial information, research
and development activities, product and marketing plans, and customer and
supplier information.
5.1.2. DESIGNATION OF CONFIDENTIAL INFORMATION. Confidential
Information that is disclosed in writing shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within thirty (30) days of
the date of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.
5.1.3. OBLIGATIONS. The Receiving Party agrees that it shall:
(a) maintain all Confidential Information in strict confidence,
except that the Receiving Party may disclose or permit the disclosure
of any Confidential Information to its directors, officers, employees,
consultants, and advisors who are obligated to maintain the
confidential nature of such Confidential Information and who need to
know such Confidential Information for the purposes set forth in this
Agreement;
(b) use all Confidential Information solely for the purposes set
forth in this Agreement; and
* Confidential treatment has been
requested for marked portions
-7-
<PAGE> 8
(c) allow its directors, officers, employees, consultants, and
advisors to reproduce the Confidential Information only to the extent
necessary to effect the purposes set forth in this Agreement, with all
such reproductions being considered Confidential Information.
5.1.4. EXCEPTIONS. The obligations of the Receiving Party under
Section 5.1.2. above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:
(a) was in the public domain prior to the time of its disclosure
under this Agreement;
(b) entered the public domain after the time of its disclosure
under this Agreement through means other than an unauthorized
disclosure resulting from an act or omission by the Receiving Party;
(c) was independently developed or discovered by the Receiving
Party without use of the Confidential Information;
(d) is or was disclosed to the Receiving Party at any time,
whether prior to or after the time of its disclosure under this
Agreement, by a third party having no fiduciary relationship with the
Disclosing Party and having no obligation of confidentiality with
respect to such Confidential Information; or
(e) is required to be disclosed to comply with applicable laws or
regulations, or with a court or administrative order, provided that
the Disclosing Party receives prior written notice of such disclosure
and that the Receiving Party takes all reasonable and lawful actions
to obtain confidential treatment for such disclosure and, if possible,
to minimize the extent of such disclosure.
5.2. PROPRIETARY MATERIALS.
5.2.1. DEFINITION OF PROPRIETARY MATERIALS. "Proprietary Materials"
shall mean any tangible chemical, biological, or physical research materials
that are furnished by one party (the "Transferring Party") to the other party
(the "Receiving Party") in connection with this Agreement or the Research and
Development Agreement regardless of whether such materials are specifically
designated as proprietary to the Transferring Party. The Transferring Party
shall furnish such Proprietary Materials to the Receiving Party in a mutually
acceptable form, including appropriate labelling and packaging.
5.2.2. LIMITED USE. The Receiving Party shall use Proprietary
Materials solely for the purposes set forth in this Agreement and the Research
and Development Agreement. The Receiving Party shall use the Proprietary
Materials only in compliance with all applicable governmental laws and
regulations, and not for any IN VIVO experiments on human subjects.
-8-
<PAGE> 9
5.2.3. LIMITED DISPOSITION. The Receiving Party shall not transfer or
distribute any Proprietary Materials to any third party without the prior
written consent of the Transferring Party.
5.3. RETURN OF CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS. Upon the
termination of this Agreement, at the request of the Disclosing Party the
Receiving Party shall return to the Disclosing Party all originals, copies, and
summaries of documents, materials, and other tangible manifestations of
Confidential Information in the possession or control of the Receiving Party,
except that the Receiving Party may retain one copy of the Confidential
Information in the possession of its legal counsel solely for the purpose of
monitoring its obligations under this Agreement. Upon the termination of this
Agreement, the Receiving Party shall at the instruction of the Transferring
Party either destroy or return any unused Proprietary Materials.
5.4. SURVIVAL OF OBLIGATIONS. The obligations set forth in this Article 5
shall remain in effect for a period of five (5) years after termination of this
Agreement, except that the obligations of the Receiving Party to return
Confidential Information to the Disclosing Party and to return or destroy
Proprietary Materials received from the Transferring Party shall survive until
fulfilled.
6. TERMINATION.
This Agreement shall commence on the Effective Date and shall terminate on
the date upon which the all Option Rights have either lapsed or been exercised
as provided in this Agreement. The following provisions shall survive
termination of this Agreement: Articles 1 and 5; Sections 2.3, 7.1, and 7.2.
7. MISCELLANEOUS.
7.1. GOVERNING LAW. The License Agreement shall be governed by and
construed in accordance with the laws of the State of New York irrespective of
any conflicts of law principles.
7.2. DISPUTE RESOLUTION. Any disputes between the parties that arise under
or relate to this Agreement shall be resolved in accordance with the following
procedures. The parties shall first attempt in good faith to resolve the matter
among themselves. If the matter remains unresolved after a period of thirty (30)
days, the dispute shall be referred to a member of senior management from each
party. If the matter remains unresolved after an additional thirty-day period,
the dispute shall be finally settled by binding arbitration in London, England
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. In case of a dispute which cannot be resolved by good faith
negotiations, ArQule shall also have the right to apply with a court of
competent jurisdiction to enjoin Pharmacia from further use of the ArQule
Technology and Improvements. Notwithstanding any of the foregoing, Pharmacia
does not waive any right to contest such application and to argue that the
requisite criteria that would allow the court to issue an injunction do not
exist.
7.3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
-9-
<PAGE> 10
7.4. HEADINGS. All headings in this Agreement are for convenience only and
shall not affect the meaning of any provision hereof.
7.5. BINDING EFFECT. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective lawful successors and assigns.
7.6. ASSIGNMENT. This Agreement may not be assigned by either party without
the prior written consent of the other party, except that ArQule may assign this
Agreement to a successor in connection with the merger, consolidation, or sale
of all or substantially all of its assets or that portion of its business
pertaining to the subject matter of this Agreement.
7.7. NOTICES. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized international overnight courier, confirmed
facsimile transmission, or registered or certified mail, return receipt
requested, postage prepaid to the following addresses or facsimile numbers:
If to Pharmacia: If to ArQule:
Pharmacia Biotech AB ArQule, Inc.
S-751 82 Uppsala 200 Boston Avenue, Suite 3600
Sweden Medford, Massachusetts 02155
Attention: Johan von Heijne Attention: President
Tel: 46 1816 5700 Tel: (617) 395-4100
Fax: 46 1816 6409 Fax: (617) 395-1225
- 10 -
<PAGE> 11
With a copy to: With a copy to:
Ulf Lundberg Palmer & Dodge
General Counsel One Beacon Street
Pharmacia Biotech AB Boston, Massachusetts 02108
S-751 82 Uppsala USA
Sweden Attention: Michael Lytton, Esq.
Tel: 46 1816 3000 Tel: (617) 573-0327
Fax: 46 1816 6301 Fax: (617) 227-4420
Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.
7.8. AMENDMENT AND WAIVER. This Agreement may be amended, supplemented, or
otherwise modified only by means of a written instrument signed by both parties.
Any waiver of any rights or failure to act in a specific instance shall relate
only to such instance and shall not be construed as an agreement to waive any
rights or fail to act in any other instance, whether or not similar.
7.9. SEVERABILITY. In the event that any provision of this Agreement shall,
for any reason, be held to be invalid or unenforceable in any respect, such
invalidity or unenforceability shall not affect any other provision hereof, and
the parties shall negotiate in good faith to modify the Agreement to preserve
(to the extent possible) their original intent.
7.10. ENTIRE AGREEMENT. Except for the Research and Development Agreement,
this Agreement constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes all prior agreements or
understandings between the parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.
ARQULE, INC. PHARMACIA BIOTECH AB
By: /s/ By: /s/
------------------------------------- -------------------------------
Seth L. Harrison Arne Forsell
President and Chief Executive Officer President
By: /s/
-------------------------------
Bengt Belfrage
- 11 -
<PAGE> 12
Executive Vice President
- 12 -
<PAGE> 13
EXHIBIT A
ARQULE TECHNOLOGY*
-----------------
* Confidential treatment has been
requested for marked portions
<PAGE> 14
EXHIBIT B
CERTAIN TERMS OF LICENSE AGREEMENT
----------------------------------
1. Payments.
Under the License Agreement, Pharmacia shall pay to ArQule,
(a) License fee payments for each Subfield in the following amounts:
Subfield 1 - * Subfield 2 - * ; Subfield 3 - *
and Subfield 4 - * with such payments due and payable within
immediately available funds.
(b) Running royalties of * percent * payable on a quarterly basis
and based on Pharmacia's net sales in arm's length transactions (to be
defined in the License Agreement) of Products. If a Product is sold in
combination with, or as a component of, other products not
incorporating the ArQule Technology or Improvements, net sales for
purposes of determining royalties shall be calculated by multiplying
the net sales from the combined product by the fractions A/B, where A
is the most recently available average sales price of the product
incorporating such ArQule Technology or Improvements sold separately,
and B is the most recently available average sales price of the
combined product. If a Product is not sold separately, the net sales
for purposes of calculating royalties shall be reasonably determined
by agreement of ArQule and Pharmacia prior to the sale of such
combined product. The parties further agree that the royalty on
*
Further, the parties agree that from time
to time during the course of the collaboration, applications may be
developed with a truly unusual level of benefit in the Field of
Applications ("Innovative Result(s)"). A collaboration steering
committee formed by the two parties must in good faith determine
unanimously that the result is an Innovative Result. In these cases,
both parties will enter into good faith negotiations to determine the
appropriate royalty level prior to a Product launch incorporating the
Innovative Result. During such negotiations, both parties shall take
into account all factors associated with the development of the
Innovative Result, provided that in no case shall the royalty
negotiated for such Innovative Result be less than * percent *
As a guideline, the following example is offered of a result of the
collaboration which would not likely be an Innovative Result:
* Also, the following example is offered of a result of
the collaboration which could be an Innovative Result:
*
* Confidential treatment has been
requested for marked portions
<PAGE> 15
<TABLE>
(c) Minimum royalties payable in equal quarterly increments based upon the
annual amounts set forth below for Subfields 1 through 4. For a
Subfield, the first quarterly minimum royalty payment shall be due on
or before March 31 of the third calendar year commencing after the end
of the calendar year in which the License Agreement applicable to such
Subfield has been executed and the "R&D Fee" is no longer being paid
by Pharmacia for such Subfield.
<CAPTION>
Year
----
1 2 3 4+
--- --- --- ---
<S> <C> <C> <C> <C>
Subfield 1 *
Subfield 2 *
Subfield 3 *
Subfield 4 *
</TABLE>
(d) Milestone payments related to the level of Pharmacia's sales of
Products shall be payable upon reaching a sales level of
(i)
*
(ii)
*
(iii)
*
2. Accounting and Payment.
Pharmacia shall account for and pay all of the royalties having accrued
within thirty (30) days of each calendar quarter during the term of the
License Agreement; milestone payments shall be paid within thirty (30) days
of the end of each calendar year.
3. Transfer of Know-How.
The License Agreement shall provide for a mechanism for the transfer of
know-how between the parties.
* Confidential treatment has been
requested for marked portions
<PAGE> 16
4. Improvements.
ArQule shall own all improvements made by either party to the ArQule
Technology and Pharmacia shall own all improvements made by either party to
Pharmacia's background technology. Pharmacia shall have the exclusive right
to exploit such improvements within the Subfields for which it has acquired
a License. ArQule shall be permitted to exploit on a non-exclusive basis
improvements to Pharmacia's background technology, including for the
development of and incorporation into systems and other assets which ArQule
may use for the development of internal programs and service businesses
outside the Subfields for which Pharmacia has acquired a License. In the
event that improvements to Pharmacia's background technology are physically
incorporated into a product by ArQule, then ArQule and Pharmacia shall
negotiate in good faith a royalty to be paid to Pharmacia on ArQule's net
sales of such product. Further, Pharmacia shall, subject to reciprocity,
grant to ArQule the right to grant non-exclusive rights to ArQule's other
licensees to use improvements to Pharmacia's background technology.
5. Term and Termination.
The term of the License Agreement shall be until the later of (i) ten years
after the first commercial sale of a product incorporating or produced
through use of a patented ArQule Technology or Improvements or (ii) for the
life of the patents on ArQule Technology or Improvements which may issue
from the patent applications now filed or hereafter to be filed, subject to
earlier termination in the event of breach and other customary events.
6. Law and Disputes
The License Agreement shall be governed and construed in accordance with
the laws of the State of New York and disputes, if any, shall be first
attempted to be settled by members of management of each party and in the
event that such approach is not successful, shall be finally settled by
arbitration in London, England under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce. In case of a dispute
which cannot be resolved by good faith negotiations, ArQule shall also have
the right to apply with a court of competent jurisdiction to enjoin
Pharmacia from further use of the ArQule Technology and Improvements.
Notwithstanding any of the foregoing, Pharmacia does not waive any right to
contest such application and to argue that the requisite criteria that
would allow the court to issue an injunction do not exist.
<PAGE> 17
EXHIBIT C
RESEARCH AND DEVELOPMENT AGREEMENT
----------------------------------
See Exhibit 10.16 of the Registrant's Registration Statement.
<PAGE> 18
EXHIBIT D
FLOW CHART
----------
* Confidential treatment has been
requested for marked portions
<PAGE> 19
February 13, 1996
BY FACSIMILE - 011-46 18 166301
- -------------------------------
Mr. Ulf Lundberg
General Counsel
Pharmacia Biotech AB
Bjorkgatan 30
D-751 82 Uppsala, Sweden
Re: Amendment to Option Agreement and Research Agreement
----------------------------------------------------
Dear Mr. Lundberg:
Reference is hereby made to the Option Agreement (the "Option Agreement")
and the Research and Development Agreement (the "Research Agreement"), both
effective as of March 10, 1995, by and between ArQule, Inc. ("ArQule") and
Pharmacia Biotech AB ("Pharmacia"). In consideration of the mutual covenants and
agreements hereinafter set forth and other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby
acknowledge and agree as follows:
I. In accordance with Section 2.2.1 of the Option Agreement, Pharmacia
hereby confirms to ArQule (i) that it has elected not to extend the Option
Period for its Option Right for Subfields II, III and IV (as such capitalized
terms are defined in the Option Agreement) in accordance with Section 2.2.1(b)
of the Option Agreement and (ii) that it has elected to extend the Option Period
for its Option Rights for Subfield I through August 15, 1996 in accordance with
Section 2.2.1(a) of the Option Agreement.
1. The Project Plan is hereby amended by replacing the initial Research
Project (as such capitalized terms are defined in the Research Agreement)
entitled "Research Plan for Ligand Design Project" attached as Enclosure 3 to
the Research Agreement with the Research Project entitled "Research Plan for the
Second Ligand Design Project", a copy of which is attached hereto (as so
amended, the "Amended Research Project"), for the period commencing on February
15, 1996 and continuing until August 15, 1996. The parties agree that the
Amended Research Project has been approved by the Research Committee, as
required under Section 2.2 of the Research Agreement.
<PAGE> 20
Pharmacia biotech
February 13, 1996
Page 2
2. In consideration of the research to be conducted by ArQule as
provided in the Amended Research Project, Pharmacia hereby agrees to pay ArQule
* payable on or before March 12, 1996.
Except as otherwise expressly amended by this letter agreement, each of the
terms, conditions and provisions of the Option Agreement and the Research
Agreement shall remain in full force and effect. This letter agreement may be
signed in one or more counterparts, each of which when taken together shall
constitute one and the same instrument.
Very truly yours,
ARQULE, INC.
By:/s/
--------------------------------
Eric B. Gordon
President and
Chief Executive Officer
Agreed to and Accepted
this 19th day of February, 1996
PHARMACIA BIOTECH AB
By: /s/ Ulf Lundberg
------------------------------
* Confidential treatment has been
requested for marked portions
<PAGE> 1
EXHIBIT 11.1
ARQULE, INC.
STATEMENT RE COMPUTATION OF UNAUDITED PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
<S> <C> <C>
Net loss........................................................................... $(2,252,000 ) $ (754,000)
============= ===============
Weighted average shares outstanding:
Common stock................................................................... 599,000 523,000
Assumed conversion of preferred stock.......................................... 5,548,000 6,214,000
Shares issuable pursuant to SAB 83 using the treasury stock method............. 704,000 704,000
------------ --------------
Total shares............................................................... 6,851,000 7,441,000
============= ===============
Unaudited pro forma net loss per share............................................. $ (0.33 ) $ (0.10)
============= ===============
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT TO INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 29, 1996 relating
to the financial statements of ArQule, Inc., which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedule for the two years ended December 31, 1995 listed under item 16(b) of
this Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 2,567 2,989
<SECURITIES> 3,800 4,802
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,540 8,007
<PP&E> 6,250 2,691
<DEPRECIATION> 1,116 697
<TOTAL-ASSETS> 11,848 10,190
<CURRENT-LIABILITIES> 5,146 2,933
<BONDS> 0 0
<COMMON> 5 5
6,898 6,888
2,628 2,486
<OTHER-SE> (4,255) (3,491)
<TOTAL-LIABILITY-AND-EQUITY> 11,848 10,190
<SALES> 2,975 3,330
<TOTAL-REVENUES> 2,975 3,330
<CGS> 1,935 1,644
<TOTAL-COSTS> 3,882 5,296
<OTHER-EXPENSES> (153) 286
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19 419
<INCOME-PRETAX> (754) (2,252)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (754) (2,252)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (754) (2,252)
<EPS-PRIMARY> (.10) (.33)
<EPS-DILUTED> (.10) (.33)
</TABLE>
