<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996
REGISTRATION NO. 333-11105
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
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. / /
------------------------
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 OCTOBER 15, 1996
PROSPECTUS
- ----------
2,000,000 SHARES
ARQULE, INC.
[ARQULE 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 Common Stock has been approved for quotation 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>
=================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------
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.
October , 1996
<PAGE> 3
[FOUR COLOR WORK]
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(TM), Directed Array(TM) and Mapping Array(TM) are trademarks of the
Company for which there are pending applications for registration in the U.S.
Patent and Trademark Office.
<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, Inc. (the "Company" or "ArQule") has created a new technology
platform for the discovery and production of novel chemical compounds with
commercial potential. The Company's initial focus is on providing these novel
compounds to the pharmaceutical and biotechnology industries. The Company has
developed a proprietary technology for the identification and optimization of
drug development candidates. This technology uses a modular building block
approach to the development of compounds, together with structure-guided drug
design, high speed parallel chemical synthesis and information technology, to
rapidly develop large, diverse collections of compounds that have the potential
to be biologically active. To date, the Company has entered into collaborative
arrangements with Roche Bioscience, 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 molecular components, ArQule produces significant quantities of pure
small organic compounds in logically structured spatially addressable arrays.
Unlike most current approaches to compound development, ArQule's compound arrays
are created by using structure-guided and rational drug design tools to
systematically assemble molecular components 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 compounds that are closely related, often referred to as "analogs"
of a particular lead compound. 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 its 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 Roche Bioscience, 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 from ArQule compounds. In exchange
for providing the arrays to the Company's biotechnology partners, the Company
receives joint ownership of any potential drugs identified by the biotechnology
partner.
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
- --------------------------------------------------------------------------------
<TABLE>
THE OFFERING
<CAPTION>
<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>
<TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
PERIOD FROM INCEPTION SIX MONTHS
(MAY 6, 1993) THROUGH YEAR ENDED 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)........................ 6,853 7,443
</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
<FN>
- ------------------------------
(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 and the
issuance of 234,992 shares of Common Stock upon the cashless exercise of
outstanding warrants immediately prior to the effectiveness of the
registration statement of which this Prospectus is a part. See Notes 8 and
10 of Notes to Financial Statements.
(4) As adjusted to give effect to the sale of 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."
</TABLE>
------------------------
Except as otherwise noted, all information in this Prospectus assumes (i) a
one-for-two reverse stock split of the Common Stock effected on October 4, 1996,
(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 immediately
prior to the effectiveness of the registration statement of which this
Prospectus is a part and (iv) no exercise of the Underwriters' over-allotment
option. 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 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 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
acceptance by potential customers of the Company's approach to 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, 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."
Limited Sales and Marketing Experience; Expansion of Sales Activities. To
date, the Company has sold its products to its collaborative partners primarily
through the efforts of its senior management. The Company's senior management
has limited experience in marketing products similar to those of the Company. In
order to achieve significant long-term growth in revenues and its overall
strategic goals, the Company intends to hire at least one or two dedicated sales
and marketing personnel. There can be no assurance that the Company will be able
to achieve anticipated expansion of its business, attract a significant number
of new collaborative partners as customers or build an efficient and effective
sales and marketing organization. In the event the Company is unable to achieve
any one or more of the foregoing goals, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition to the risks inherent in the Company's efforts to market its own
products, the Company's revenues from royalties and milestone payments from its
collaborative partners is substantially dependent upon the marketing efforts of
such collaborative partners as discussed below under "Risk Factors--Dependence
on Third Parties."
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. 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 the 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
6
<PAGE> 8
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 requirements 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--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 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. 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 believes its
success will depend in large part on
7
<PAGE> 9
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. In the absence of such patents, the Company may be unable to prevent
others from utilizing the Company's technology and may need to rely upon
expertise developed during pre-commercial implementation of the technology,
which may not provide the same level of competitive advantages. 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 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 or abroad 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. 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 any other 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
collaborators, 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."
8
<PAGE> 10
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."
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. Although the manufacture, transportation and
storage of the Company's products are subject to the laws and regulations
regarding hazardous materials discussed in the preceding risk factor, the sale
of the Company's products is not subject to significant government regulations.
However, the Company's future profitability is dependent on the sales of
pharmaceuticals and other products developed from the Company's compounds by its
customers and collaborators. Regulation by governmental entities in the United
States and other countries will be a significant
9
<PAGE> 11
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 commercialization. In particular,
human pharmaceutical 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 statutes 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 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, 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. Of the 6,976,487 remaining shares, approximately 151,972
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. Stockholders of the
Company, holding in the aggregate 6,824,515 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 (the "lock-up period") without the prior
written consent of the representatives of the Underwriters of this offering. At
the end of such lock-up period, an additional 5,916,781 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
10
<PAGE> 12
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 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," "Shares
Eligible for Future Sale" and "Underwriting."
Broad Management Discretion in Use of Proceeds. The Company's management
will have broad discretion to allocate 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. See "Use of
Proceeds."
Immediate and Substantial Dilution. Purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution
estimated at $9.01 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.
11
<PAGE> 13
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. The Company is a subsidiary of ArQule
Partners, L.P. (the "Partnership"), which owns 61.57% of the shares of Common
Stock of the Company before this offering and will own 47.85% of the shares of
Common Stock after this offering.
The partners of the Partnership have agreed to dissolve the Partnership and
distribute the shares held by it 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 direct significant stockholders of the Company
(collectively, the "Venture Fund Investors"), Legomer Investors, Inc. ("LII"),
Legomer Technologies, Inc. ("LTI"), Dr. Joseph C. Hogan, Jr., Chairman of the
Board, Senior Vice President of Research and Development and Chief Scientific
Officer of the Company, and certain other individuals are partners of the
Partnership and will receive shares of Common Stock of the Company upon such
Partnership distribution. The Venture Fund Investors hold all of the outstanding
shares of LII. Dr. Hogan holds 50% of the outstanding stock of LTI. See
"Principal Stockholders."
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 to 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 Company is not in any negotiations
with respect to any such acquisitions. 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.
12
<PAGE> 14
CAPITALIZATION
<TABLE>
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 (a) the conversion of all issued and outstanding
preferred stock into 6,219,948 shares of Common Stock and (b) the issuance of
234,992 shares of Common Stock upon the cashless exercise of outstanding
warrants, 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,
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 (b) 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.
<CAPTION>
JUNE 30, 1996
-------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(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, 6,977,987 shares issued and
outstanding pro forma, 8,977,987 shares issued and
outstanding as adjusted(1)........................ 5 70 90
Additional paid-in capital........................... 4,435 13,896 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
======= ======= =======
<FN>
- ------------------------------
(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.
</TABLE>
13
<PAGE> 15
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 immediately prior to the effectiveness
of the registration statement of which this Prospectus is a part. 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>
<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 immediately prior to the effectiveness of the registration
statement of which this Prospectus is a part), 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):
<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.
14
<PAGE> 16
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
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.
<CAPTION>
PERIOD FROM INCEPTION SIX MONTHS
(MAY 6, 1993) THROUGH YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
--------------------- ------------------- ------------------
1993 1994 1995 1995 1996
--------------------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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)............................................... 6,853 7,443
======= ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
-------------------------- -----------------------
1993 1994 1995 ACTUAL AS ADJUSTED(2)
------ ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
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
<FN>
- ------------------------------
(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 and the
issuance of 234,992 shares of Common Stock upon the cashless exercise of
outstanding warrants immediately prior to the effectiveness of the
registration statement of which this Prospectus is a part. See Notes 8 and
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 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."
</TABLE>
15
<PAGE> 17
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 with an initial focus on the pharmaceutical
and biotechnology industries. ArQule manufacturers and delivers two types of
arrays of synthesized compounds to its pharmaceutical and biotechnology
partners: (i) Mapping Array compound sets, which are arrays of novel, diverse
small molecule compounds used for screening and (ii) Directed Array 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 ($1.0
million for license option fees; $8.3 million for compound development), of
which $6.2 million has been recognized as revenue ($1.0 million for license
option fees; $5.2 million for compound development). 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.
16
<PAGE> 18
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.
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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
1994. 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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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 drug 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
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.
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BUSINESS
OVERVIEW
ArQule has created a new technology platform for the discovery and
production of novel chemical compounds with commercial potential. The Company's
initial focus is on providing these novel compounds to the pharmaceutical and
biotechnology industries. The Company has developed a proprietary technology for
the identification and optimization of drug development candidates. This
technology uses a modular building block approach to the development of
compounds, together with structure-guided drug design, high speed parallel
chemical synthesis and information technology, to rapidly develop large, diverse
collections of compounds that have the potential to be biologically active. To
date, the Company has entered into collaborative arrangements with Roche
Bioscience, 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>
TRADITIONAL DRUG DISCOVERY PROCESS
<CAPTION>
<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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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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- 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
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. 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. 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> 24
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.
Graphical representation displaying the integration of ArQules Combinational
Drug Design and Development Platform
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 ("Informatics"). ArQule has
developed a proprietary information system which incorporates (i) databases of
the molecular structures of building blocks and the compounds in its 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.
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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, 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/or lead compound. As a result, the Company believes the success rate
for drugs developed 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 that 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.
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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. 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 in the
array. 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 Array program 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.
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- 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.
ARQULE'S DRUG DISCOVERY PROGRAMS
Pharmaceutical Company Collaborations. To date, the Company has entered
into the following major collaborations with pharmaceutical companies:
Roche Bioscience. In September 1996, the Company entered into a
collaborative agreement with Roche Bioscience ("Roche Bioscience"), a division
of Syntex (U.S.A.) Inc. and indirect subsidiary of Roche Holding Ltd., pursuant
to which the Company will synthesize Directed Array sets from compounds provided
to the Company by Roche Bioscience, developed by the Company internally and/or
developed by the Company as a part of the collaboration (the "Roche Bioscience
Agreement"). Absent early termination, Roche Bioscience will pay the Company
approximately $12.1 million over three years. The parties may jointly agree to
increase the number of Directed Array sets to be provided by the Company under
the Roche Bioscience Agreement, which may result in increased payments to the
Company. Roche Bioscience 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 Roche Bioscience Agreement expires in
September 1999 and is terminable by Roche Bioscience on or after September 1998
on six months' advance notice. Assuming such termination occurs on September 30,
1998, the Company will have received payments of approximately $8.4 million from
Roche Bioscience and no further payments, other than milestone payments and
royalties, will be due to the Company. To date, Roche Bioscience has paid the
Company an aggregate of $2.0 million under the Roche Bioscience Agreement.
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 Solvay with 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. Solvay has the right to terminate the Mapping Array program on
twelve months' written notice at any time subject to its payment of a
termination fee of approximately $1.0 million. Solvay may also terminate the
delivery of Directed Array sets on six months' written notice at any time
subject to its payment of a termination fee equal to a certain percentage of the
aggregate research payments made by Solvay in the year in which notice is given.
If Solvay gave notice to terminate both programs on the date of this Prospectus,
as of the effective termination dates, Solvay would have paid the Company $3.5
million, not including the termination fees. No further payments would be due
from Solvay other than milestone or royalty payments. 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
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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. If Abbott fails to exercise
its right to extend the Abbott Agreement beyond the initial term, Abbott would
have paid the Company $4.4 million and no further payments would be due from
Abbott other than 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.
<TABLE>
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:
<CAPTION>
COMPANY AREA OF FOCUS
------------------------------------------ -----------------------------
<S> <C>
Aurora Biosciences, Inc. Mammalian Cell-Based Assays
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 associated with 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.
27
<PAGE> 29
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 can 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.
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.
To date, the Company has sold its products to its collaborative partners
primarily through the efforts of its senior management. The Company's senior
management has limited experience in marketing products similar to those of the
Company. In order to achieve significant long-term growth in revenues and its
overall strategic goals, the Company intends to hire at least one or two
dedicated sales and marketing personnel. There can be no assurance that the
Company will be able to achieve anticipated expansion of its business, attract a
significant number of new collaborative partners as customers or build an
efficient and effective sales and marketing organization. In the event the
Company is unable to achieve any one or more of the foregoing goals, the
Company's business, financial condition and results of operations could be
materially adversely affected. In addition to the risks inherent in the
Company's efforts to market its own products, the Company's revenues from
royalties and milestone payments from its collaborative partners is
substantially dependent upon the marketing efforts of such collaborative
partners.
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 increase the diversity and improve other
characteristics of compounds offered. 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.
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
28
<PAGE> 30
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, 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 have a material adverse effect on its
business.
COMPETITION
Many organizations are actively attempting to identify and optimize
compounds for potential pharmaceutical development. The Company's services and
products face competition based on a number of factors, including size,
diversity and ease of use of libraries of compounds, speed and costs of
identifying and optimizing potential lead compounds and patent position. ArQule
competes with the research departments of pharmaceutical companies,
biotechnology companies, 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.
29
<PAGE> 31
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
Although the manufacture, transportation and storage of the Company's
products are subject to certain laws and regulations discussed in the last
paragraph of this Section, the sale of the Company's products is not subject to
significant government regulations. However, the Company's future profitability
is dependent on the sales of pharmaceuticals and other products developed from
the Company's compounds by its customers and collaborators. 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 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.
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 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.
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
30
<PAGE> 32
Company will not be required to incur significant costs to comply with
environmental laws and regulations in the future.
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
Two individuals have asserted that they are entitled to compensation from
certain of the Company's stockholders and/or the Company equal to approximately
five percent of the equity interests in the Company for services in connection
with the initial financing of the Partnership in 1993. The Company intends to
vigorously defend any claim brought by such individuals and believes that it has
meritorious defenses to such claims. However, no assurance can be given that
such individuals will not be successful in any litigation relating to such
claims.
Except as stated above, ArQule is not a party to any other legal
proceedings.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
<TABLE>
The following table sets forth certain information regarding the executive
officers, key employees and directors of the Company as of August 15, 1996:
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Eric B. Gordon................... 49 President, Chief Executive Officer and Director
Joseph C. Hogan, Jr., Ph.D. ..... 55 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
<FN>
- ------------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</TABLE>
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. From 1990 until he founded the Company, Dr. Hogan was
the founder and president of Applied Modular Chemistries, Inc., a chemistry
company. 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, most
recently as Vice President of Molecular Sciences. 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, most recently as Vice
President and General Manager. Dr. Sorvillo attended the Massachusetts Institute
of Technology
32
<PAGE> 34
Program for Senior Executives. He received his Ph.D. in Immunology from the 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 Senior Associate Scientist of
Theoretical Chemistry from 1993 to 1994 and Associate Scientist of Theoretical
Chemistry from 1992 to 1993. From 1989 to 1992, he was 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.
33
<PAGE> 35
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. The Scientific Advisory Board has met
collectively and in smaller groups, and its members have also 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. In the future,
Scientific Advisory Board members also may receive options to purchase 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 his work in the 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 his work in the
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 to the use of 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 Distinguished 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.
34
<PAGE> 36
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 director or directors, as
applicable, are 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 $11.00, 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
<TABLE>
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
<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
Joseph C. Hogan, Jr., Ph.D. .......................... $150,000 -- --
Chairman of the Board, Senior Vice President of
Research and Development and Chief Scientific
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
<FN>
- ------------------------------
(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.
(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.
</TABLE>
35
<PAGE> 37
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. 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
to acquire 387,434 shares of Common Stock at $0.80 per share, which vest over
four years, 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 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
36
<PAGE> 38
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."
37
<PAGE> 39
CERTAIN TRANSACTIONS
In December 1993, in exchange for the transfer to the Company of
substantially all of the assets and liabilities of ArQule Partners, L.P., a
Delaware limited partnership (the "Partnership"), 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, in November
1994 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.
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 principal and
accrued interest 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 was 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
Dr. Hogan. 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 principal and
accrued interest is currently outstanding.
In April 1996, all accrued interest outstanding on the Bridge Loans through
November 1995 in the aggregate amount of $142,000 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 under
the Company's Amended and Restated Certificate of Incorporation and its right of
first refusal with respect to such shares of Series A Preferred Stock, the
Company issued to Physica B.V. 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, the President, Chief Executive Officer and a director 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
principal and accrued interest is currently outstanding.
38
<PAGE> 40
PRINCIPAL STOCKHOLDERS
<TABLE>
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:
<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.(5)...................................... 907,734 13.01% 10.11%
C.J. van Houtenlaan, 36
1381 CD Weiss
The Netherlands
Sevin Rosen Fund IV L.P.(6).......................... 2,362,833 33.87% 26.32%
13455 Noel Road, Suite 1670
Dallas, TX 75240
Adrian de Jonge, Ph.D.(7)............................ 907,734 13.01% 10.11%
Stephen M. Dow(8).................................... 2,362,833 33.87% 26.32%
Allan R. Ferguson(9)................................. 1,355,738 19.43% 15.10%
Eric B. Gordon(10)................................... 38,743 * *
Seth L. Harrison, M.D.(11)........................... 128,689 1.84% 1.43%
Joseph C. Hogan, Jr., Ph.D.(12)...................... 1,208,194 17.32% 13.46%
All current executive officers and directors as a
group (6 persons)(13).............................. 5,873,242 83.72% 65.15%
<FN>
- ------------------------------
* Indicates less than 1%.
(1) Reflects the conversion, prior to or 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 Partners, L.P., which holds 4,295,500 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. The general partners have, pursuant and
subject to the Second Amended and Restated Agreement of the Limited
Partnership, as amended, delegated to an Investment Committee voting and
investment discretion over the shares held by the Partnership. Messrs. Dow,
Ferguson, Joseph C. Hogan, III and Dr. Hogan are members of the Investment
Committee of the Partnership. Each of Messrs. Dow, Ferguson,
</TABLE>
39
<PAGE> 41
Joseph C. Hogan, III and Dr. Hogan disclaims beneficial ownership of the
shares held by the Partnership, except to the extent of his proportionate
pecuniary interest in the Partnership. See "The Company" and footnotes (4),
(6) and (12).
(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 by the
Partnership to Atlas Venture Fund II, L.P., and (iv) 285,906 shares
estimated to be distributed by the Partnership to Atlas Venture Europe Fund
B.V. The voting and investment discretion over the shares owned by Atlas
Venture Fund II, L.P. is exercised by the general partners of Atlas Venture
Associates II, L.P., its general partner. The general partners of Atlas
Venture Associates II, L.P. are Allan R. Ferguson, Barry J. Fidelman,
Jean-Francois Formela and Christopher J. Spray. Because of this
relationship, Allan R. Ferguson, a director of the Company, shares voting
and investment discretion over such shares. Atlas Venture Europe Fund B.V.
is a corporation wholly-owned by Atlas InvesteringsGroep N.V. ("AIG"). The
voting and investment discretion over the shares owned by Atlas Venture
Europe Fund B.V. is exercised by the managing directors of AIG, Michiel A.
de Haan and Evert H. Smid. Three officers of AIG, Gerard H. Montanus, Hans
Bosman and Jaap van Hellemond, share voting and investment discretion with
these two managing directors over the shares held by Atlas Venture Europe
Fund B.V. The numbers of shares of Common Stock attributed to Atlas Venture
in clauses (iii) and (iv) are estimates of the number of shares that will
be distributed to Atlas Venture upon the 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, a general partner of the Partnership,
to its stockholders (which include Atlas Venture) of the ArQule shares
distributed to it by the Partnership. See "The Company." 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) The voting and investment discretion over the shares owned by Physica B.V.
is exercised by the sole director of Physica B.V., J.W.F. van Ingen.
(6) Consists of (i) 810,174 shares owned by Sevin Rosen Fund IV L.P. ("Sevin
Rosen") and (ii) 1,552,659 shares estimated to be distributed by the
Partnership to Sevin Rosen. The voting and investment discretion over the
shares owned by Sevin Rosen is exercised by the general partner of SRB
Associates IV L.P., its general partner. The general partners of SRB
Associates L.P. are Stephen M. Dow, Jon W. Bayless, Charles H. Phipps,
Dennis J. Gorman, and John V. Jaggers. Because of this relationship,
Stephen M. Dow, a director of the Company, shares voting and investment
discretion over such shares. The number of shares of Common Stock
attributed to Sevin Rosen is an estimate of the number of shares that will
be distributed to Sevin Rosen upon the 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
"The Company." 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.
(7) 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.
(8) 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 the 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 (6).
(9) 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 the 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).
40
<PAGE> 42
(10) Represents shares of Common Stock subject to options that become
exercisable upon the closing of this offering.
(11) Includes 41,189 shares estimated to be distributed by the Partnership to
Dr. Harrison. The number of shares attributed to Dr. Harrison is an
estimate of the number of shares that will be distributed to him upon the
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 "The Company." 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) Consists of 1,208,194 shares estimated to be distributed by the Partnership
to Dr. Hogan. The number of shares attributed to Dr. Hogan is an estimate
of the number of shares that 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 the 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 LTI, a general partner of the
Partnership, to its stockholders (which include Mr. Hogan) of the ArQule
shares distributed to it by the Partnership. See "The Company." 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.
(13) Includes 38,743 shares of Common Stock subject to options that are either
presently exercisable or will become exercisable within 60 days after
August 15, 1996. See footnotes (7), (8), (9), (10) and (12).
41
<PAGE> 43
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 provisions classifying the Board of
Directors into three classes with staggered three-year terms and 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 "business combination"
(which includes a merger or sale of more than 10% of the corporation's assets)
42
<PAGE> 44
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.
43
<PAGE> 45
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. 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. Of these remaining shares, approximately
151,972 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. Stockholders
of the Company, holding in the aggregate 6,824,515 shares of Common Stock, have
agreed to enter into the 180-day lock-up agreements described below. At the end
of such 180-day period, an additional 5,916,781 shares of Common Stock will be
eligible for sale under Rules 144 and 701. 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 would become eligible for sale by
existing stockholders to the public after the expiration of the 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 will
be eligible for immediate resale upon exercise, subject, in the case of
affiliates, to the volume, manner of sale 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."
44
<PAGE> 46
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 with respect to such Registrable Shares. 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.
45
<PAGE> 47
UNDERWRITING
<TABLE>
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:
<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 6,824,515 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
46
<PAGE> 48
Common Stock or securities exchangeable for or convertible into shares of Common
Stock during the 180-day period following the date of this Prospectus.
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).
47
<PAGE> 49
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> 50
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of ArQule, Inc.
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
October 4, 1996
F-2
<PAGE> 51
ARQULE, INC.
<TABLE>
BALANCE SHEET
<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, 1996,
respectively; 6,977,987 shares outstanding
pro forma.................................... 6,000 5,000 5,000 70,000
Additional paid-in capital..................... 4,376,000 4,435,000 4,435,000 13,896,000
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 and contingency (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> 52
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....... 6,853,000 7,443,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 53
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 COMMON
STOCK STOCK STOCK
---------------------- ----------------------- ----------
SHARES AMOUNT SHARES AMOUNT SHARES
--------- ---------- ---------- ---------- ----------
<S> <C> <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................. 1,500
----------
BALANCE AT DECEMBER 31, 1993............................. 1,500
Capital contribution from ArQule Partners, L.P.
(Note 1)...............................................
3,333.33 for 1 stock split effected in the form of a
stock dividend......................................... 4,998,500
Cancellation of common stock............................. (140,528)
Issuance of Series A convertible preferred stock in
exchange for common stock.............................. 8,591,000 $ 86,000 (4,295,500)
Cancellation of unvested portion of restricted stock upon
employee termination................................... (9,375)
Issuance of common stock purchase warrants under bridge
financing..............................................
Net loss.................................................
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994............................. 8,591,000 86,000 554,597
Employee restricted stock purchases...................... 68,200
Issuance of common stock purchase warrants under bridge
financing..............................................
Cancellation of unvested portion of restricted stock upon
employee termination................................... (100,000)
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 2,486,000 522,797
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)....................... (375)
Employee option exercise (unaudited)..................... 625
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 $2,628,000 523,047
========= ========== ========== ========== ==========
<CAPTION> STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------------
COMMON
STOCK ADDITIONAL TOTAL
--------- PAID-IN ACCUMULATED STOCKHOLDERS'
PAR VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
---------- ---------- ----------- ----------------
<S> <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................. $ -- --
-------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993............................. -- 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......................................... 50,000 (50,000) --
Cancellation of common stock............................. (1,000) 1,000 --
Issuance of Series A convertible preferred stock in
exchange for common stock.............................. (43,000) (43,000) --
Cancellation of unvested portion of restricted stock upon
employee termination................................... -- --
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............................. 6,000 4,376,000 (5,671,000) (1,203,000)
Employee restricted stock purchases...................... -- 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................................... (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............................. 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)....................... -- --
Employee option exercise (unaudited)..................... -- --
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)..................... $ 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> 54
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> 55
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. Such funding totaled $2,236,000 and $2,100,000 of
cash for the years ended December 31, 1993 and 1994, respectively, and was
comprised of aggregate investments in general partnership interests of $43,000
and limited partnership interests of $4,293,000.
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,
F-7
<PAGE> 56
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
restricted cash, notes receivable from related party, accounts payable and
accrued expenses and 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 relates to the delivery of compounds and to
compound development work and is recognized using the percentage of completion
method. The application of this revenue recognition method is dependent on the
contractual arrangement of either compound delivery or development. Accordingly,
revenue is recognized on the proportional achievement of deliveries against a
compound delivery schedule or as development labor is expended against a total
research and development labor plan. 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 shares 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
F-8
<PAGE> 57
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
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.
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
F-9
<PAGE> 58
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
On September 13, 1996, the Company entered into a Research and License
Agreement with Roche Bioscience, a division of Syntex (U.S.A.) Inc. and an
indirect subsidiary of Roche Holding Ltd., pursuant to which the Company will
synthesize a certain number of Directed Array sets from compounds provided to
the Company by Roche Bioscience or developed by the Company. Roche Bioscience
has the right to enter into an exclusive, worldwide license for any Active
Compounds identified. Pursuant to the agreement, the Company will receive
research payments, milestone payments during drug development, and royalty
payments based on sales of the product. The initial term of the agreement is
three years. Roche Bioscience will make payments of approximately $12.1 million
over the initial term for development of and access to Directed Array sets, as
determined jointly by the Company and Roche Bioscience. However, the agreement
is subject to an early termination provision such that it may be terminated at
the end of the second year, in which case the Company will receive payments of
approximately $8.4 million. Roche Bioscience 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.
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> 59
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following:
<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
<TABLE>
Accounts payable and accrued expenses include the following:
<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> 60
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 and of
the then-current market interest rate of 12%. 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> 61
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Activity for the period from inception of the Equity Incentive Plan through
June 30, 1996 was as follows:
<TABLE>
<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 (the "1996 Director 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. All options granted pursuant the 1996 Director Plan have terms of ten
years with exercise prices 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> 62
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> 63
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. In
addition, 234,992 shares of common stock will be issued upon the cashless
exercise of the outstanding warrants (Note 8), based on an assumed initial
public offering price of $12.00 per share, which will occur immediately prior to
the effectiveness of the initial public offering. Such conversion and exercise
have been reflected in the unaudited pro forma balance sheet as of June 30,
1996.
11. COMMON STOCK
Pursuant to shareholder approval of a 1 for 2 reverse stock split on the
common stock of the Company, an amendment to the Company's Certificate of
Incorporation effecting such split was filed on October 4, 1996. 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 year period, either monthly or annually. At December 31, 1995,
the aggregate number of unvested common shares is 219,356.
F-15
<PAGE> 64
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
<TABLE>
The Company's deferred tax assets consist of the following:
<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.
<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.
F-16
<PAGE> 65
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<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 AND CONTINGENCY
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
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).
F-17
<PAGE> 66
ARQULE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
CONTINGENCY
In October 1996, the Company received a letter from two individuals who
have asserted that they are entitled to compensation from certain of the
Company's stockholders and/or the Company equal to approximately five percent of
the equity interest in the Company. The Company believes that there are
meritorious defenses against such claims and intends to contest them vigorously;
however, they are currently unable to estimate the outcome of this matter,
including the range of potential loss, if any.
F-18
<PAGE> 67
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<PAGE> 68
[GRAPH]
A three-dimensional structure of ArQule's HIV-1 Protease
Inhibitor, bound in the enzyme active site, and developed utilizing
ArQule's Combinatorial Drug Design and Development Platform.
<PAGE> 69
================================================================================
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
PAGE
----
Prospectus Summary......................... 3
Risk Factors............................... 5
The Company................................ 12
Use of Proceeds............................ 12
Dividend Policy............................ 12
Capitalization............................. 13
Dilution................................... 14
Selected Financial Data.................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 16
Business................................... 20
Management................................. 32
Certain Transactions....................... 38
Principal Stockholders..................... 39
Description of Capital Stock............... 42
Shares Eligible for Future Sale............ 44
Underwriting............................... 46
Legal Matters.............................. 47
Experts.................................... 47
Additional Information..................... 47
Index to Financial Statements.............. F-1
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.
[ARQULE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
HAMBRECHT & QUIST
OPPENHEIMER & CO., INC.
VECTOR SECURITIES INTERNATIONAL,
INC.
OCTOBER , 1996
================================================================================
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
The expenses to be borne by the Company in connection with this offering
are as follows:
<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> 71
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 to the Company of
substantially all of the assets and liabilities of the Partnership, 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 had
been 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, the
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 under the Company's Amended and
Restated Certificate of Incorporation and its right of first refusal with
respect to such shares of Series A Preferred Stock.
II-2
<PAGE> 72
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.
3.2 Intentionally omitted.
3.3++ Form of Amended and Restated Certificate of Incorporation as proposed to be filed
concurrently with the closing of this offering.
3.4++ By-laws of ArQule, Inc.
3.5++ Form of Amended and Restated By-laws as proposed to be adopted concurrently with
the closing of this offering.
4.1++ Specimen Common Stock Certificate.
4.2++ Specimen Common Stock Purchase Warrant.
5.1++ Opinion of Palmer & Dodge LLP as to the legality of the shares being registered.
10.1*++ Amended and Restated 1994 Equity Incentive Plan, as amended through October 17,
1994.
10.2*++ 1996 Employee Stock Purchase Plan.
10.3*++ 1996 Director Stock Option Plan.
10.4++ Form of Indemnification Agreement between ArQule and its directors. 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.
10.6++ Lease Agreement dated September 29, 1993 between ArQule and Beautyrest Property,
Inc. and WRB, Inc.
10.7++ Lease Agreement, dated July 27, 1995, between ArQule and Cummings Properties
Management, Inc., as amended.
10.8*++ Employment Agreement effective as of January 2, 1996, between ArQule and Eric B.
Gordon.
10.9* Employment Agreement effective as of July 9, 1996, between ArQule and James R.
Fitzgerald, Jr. Filed herewith.
10.10*++ Promissory Note dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and
ArQule.
10.11* Pledge Agreement dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and
ArQule. Filed herewith.
10.12*++ Promissory Note and Pledge Agreement dated July 9, 1996 between Eric B. Gordon
and ArQule.
10.13*++ Promissory Note dated November 4, 1993 between Dr. Joseph C. Hogan, Jr. and
ArQule.
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.
10.18*++ Adoption Agreement for Fidelity Management and Research Company (ArQule's 401(k)
plan).
10.19+++ Research and License Agreement between ArQule and Roche Bioscience dated
September 13, 1996.
</TABLE>
II-3
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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.
24.1++ Power of attorney.
27.1++ Financial Data Schedule.
</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.
++ Previously filed.
(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> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Amendment to be signed on its behalf by
the undersigned, thereunto duly authorized, in the Town of Medford, Commonwealth
of Massachusetts, on October 11, 1996.
ARQULE, INC.
By: *
-------------------------------------
Eric B. Gordon
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive Officer October 11, 1996
- ------------------------------ and Director (Principal Executive
Eric B. Gordon Officer, Principal Financial Officer
and Principal Accounting Officer)
* Director October 11, 1996
- ------------------------------
Stephen M. Dow
* Director October 11, 1996
- ------------------------------
Joseph C. Hogan, Jr.
* Director October 11, 1996
- ------------------------------
Adrian de Jonge
* Director October 11, 1996
- ------------------------------
Allan R. Ferguson
<FN>
*By: /s/ LYNNETTE C. FALLON
-------------------------
Lynnette C. Fallon
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 75
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> 76
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 Intentionally omitted.
3.3++ Form of Amended and Restated Certificate of Incorporation as proposed to be amended
concurrently with the closing of this offering.
3.4++ By-laws of ArQule, Inc.
3.5++ Form of Amended and Restated By-laws as proposed to be amended concurrently with the
closing of this offering.
4.1++ Specimen Common Stock Certificate.
4.2++ Specimen Common Stock Purchase Warrant.
5.1++ Opinion of Palmer & Dodge LLP as to the legality of the shares being registered.
10.1*++ Amended and Restated 1994 Equity Incentive Plan, as amended through October 17, 1994.
10.2*++ 1996 Employee Stock Purchase Plan.
10.3*++ 1996 Director Stock Option Plan.
10.4++ Form of Indemnification Agreement between ArQule and its directors. 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.
10.6++ Lease Agreement dated September 29, 1993 between ArQule and Beautyrest Property, Inc.
and WRB, Inc.
10.7++ Lease Agreement, dated July 27, 1995, between ArQule and Cummings Properties
Management, Inc. as amended.
10.8*++ Employment Agreement effective as of January 2, 1996, between ArQule and Eric B.
Gordon.
10.9* Employment Agreement effective as of July 9, 1996, between ArQule and James R.
Fitzgerald, Jr. Filed herewith.
10.10*++ Promissory Note dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and ArQule.
10.11* Pledge Agreement dated November 2, 1995 between Dr. Joseph C. Hogan, Jr. and ArQule.
Filed herewith.
10.12*++ Promissory Note and Pledge Agreement dated July 9, 1996 between Eric B. Gordon and
ArQule.
10.13*++ Promissory Note dated November 4, 1993 between Dr. Joseph C. Hogan, Jr. and ArQule.
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> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<C> <S> <C>
10.18*++ Adoption Agreement for Fidelity Management and Research Company (ArQule's 401(k)
plan).
10.19++ Research and License Agreement between ArQule and Roche Bioscience dated September
13, 1996.
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.
24.1++ Power of attorney. Included on the signature page hereto.
27.1++ Financial Data Schedule.
</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.
++ Previously filed.
<PAGE> 1
ARQULE, INC.
2,000,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
October __, 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 2,000,000 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 300,000 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. 333-11105), 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 300,000 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 each of 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 accepted 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 authorized and
outstanding shares of capital stock of the Company will be as set forth in
the Prospectus under the caption "Description of Capital Stock" provided that
the outstanding shares shall have increased by the number of shares as have
been issued after June 30, 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 Employee 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. Except for rights terminating
upon the consummation of the offering of the Stock, 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.
<PAGE> 5
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(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.
(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
2,000,000 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
<PAGE> 6
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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 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 300,000. 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
-7-
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, the first paragraph on the inside front cover 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 wire transfer or certified or official bank check or
checks in same day funds. 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) to the extent necessary, 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 a signed copy 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
-9-
(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, documents or statements
furnished to stockholders of the Company or 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.
(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
<PAGE> 10
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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 photocopying 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 prohibition in clause (i) of the foregoing sentence shall not apply to (A)
the sale of Stock to be sold to the Underwriters pursuant to this Agreement, (B)
the issuance of shares of Common Stock by the Company upon the exercise of
Employee Options and any other options granted under the stock option plans of
the Company and (C) the grant of options to purchase Common Stock 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 reasonable
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, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
<PAGE> 11
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(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 a single counsel for all indemnified
parties) 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 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
<PAGE> 12
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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 a single counsel for all indemnified parties) 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 they
may have to the indemnified party for contribution or otherwise than on account
of such
<PAGE> 13
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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 (it being agreed that Palmer & Dodge LLP is
satisfactory), 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
-14-
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
investigating, 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
<PAGE> 15
-15-
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in 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
-16-
(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 five 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 December 31 , 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 accepted 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 reasonably 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
<TABLE>
SCHEDULE I
UNDERWRITERS
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITTEN STOCK
UNDERWRITERS TO BE PURCHASED
------------ ------------------
<S> <C>
Hambrecht & Quist LLC....................................
Oppenheimer & Co., Inc...................................
Vector Securities International, Inc.....................
---------
Total.................................................... 2,000,000
</TABLE>
<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. The Company's authorized capitalization consists of 30,000,000 shares
of Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $0.01 par value per share. 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 promulgated by the
Commission.
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, but without inquiry into the dockets of any court,
commission, regulatory body, administrative agency or other government body, 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.
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.
<PAGE> 23
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 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.
<PAGE> 24
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 accepted 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 patents, trademarks or federal or state regulation of
healthcare products. Copies of any opinions so relied upon shall be delivered to
the Representatives and to counsel for the Underwriters and the 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> 25
ANNEX B
Matters to be Covered in the Opinion of
Patent Counsel for the Company
1. With respect to the U.S. patent and each of the U.S. patent
applications referred to in the Registration Statement which are listed in
Schedules ____, nothing has come to our attention which would cause us to
believe that the sections of the Registration Statement entitled "Risk Factors -
Dependence on Patents and Proprietary Rights"; and "Business - Patents and
Proprietary Rights", at the time the Registration Statement became effective,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
not misleading.
2. With respect to the US. patent and each of the U.S. patent
applications referred to in the Prospectus which are listed in Schedules ____,
nothing has come to our attention which would cause us to believe that the
sections of the Prospectus entitled "Risk Factors - Dependence on Patents and
Proprietary Rights"; and "Business - Patents and Proprietary Rights", as of its
date and as of the Closing Date, contain any untrue statement of material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
3. To the best of our knowledge, except as described in the Prospectus,
and with the exception of proceedings before the U.S. Patent and Trademark
Office, there are no pending, or threatened, legal or governmental proceedings
relating to the U.S. patent or any of the U.S. patent applications listed in
Schedules ____.
4. To the best of our knowledge, except as described in the Prospectus,
the Company owns [the U.S. patent and each of the U.S. patent applications
referred to in the Prospectus that are listed in Schedules ____].
5. To the best of our knowledge, the Company has not received any notice
challenging the validity or enforceability of the U.S. patent listed in Schedule
____.
6. While there can be no guarantee that any particular patent
application will issue as a patent, each of the U.S. patent applications
referred to in the Prospectus which is listed in Schedules ____ was properly
filed, and is being properly and diligently prosecuted, in the U.S. Patent and
Trademark Office.
7. To the best of our knowledge, for each U.S. patent application listed
in Schedules ____, all information known to Pennie & Edmonds, to date, to be
"material to patentability", as defined in 37 C.F.R. [section] 1.56(b), has
been disclosed, or will be disclosed pursuant to 37 C.F.R. [section] 1.97, to
the U.S. Patent and Trademark Office.
8. To the best of our knowledge, no claim, action, suit or proceeding is
presently pending or threatened against the Company relating to the potential
infringement of, or conflict
<PAGE> 26
with, any patents of others. We have no knowledge of any facts which would form
a basis for the belief that there is any infringement by others of the Company's
U.S. patent.
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<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
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<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
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<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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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 14
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> 20
CERTIFICATE OF AMENDMENT
OF
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 Restated Certificate of
Incorporation be amended by adding the following new paragraph after
the first paragraph of Article FOURTH:
"Upon the effectiveness of this Restated Certificate of Incorporation, each
two (2) issued and outstanding shares of Common Stock of the Company shall
thereby combined into one (1) validly issued, fully paid, and nonassessable
shares of Common Stock 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 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 4th day of October, 1996.
ArQule, Inc.
/s/ Eric B. Gordon
-----------------------------
By: Eric B. Gordon
Title: President and Chief Executive Officer
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT dated as of July 9, 1996 by and between ArQule, Inc.,
a Delaware corporation (the "Company"), and James R. Fitzgerald, Jr.
("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
July 9, 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
Chief Financial Officer and Treasurer and a Vice President of Company. In such
positions, Executive shall have such duties and authority as shall be designated
from time to time by the Chief Executive Officer or the Board of Directors of
the Company (the "Board"). Executive hereby agrees to undertake the duties and
responsibilities inherent in such position and such other duties and
responsibilities as the Chief Executive Officer or the Board 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 $150,000 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, on the date hereof, grant to Executive an
incentive stock option (the "Incentive Stock Option") to purchase 100,000 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
"Equity Incentive 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 Incentive Stock 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. OPTIONS UNDER SHORT-TERM STOCK INCENTIVE PLAN. In addition to
the Incentive Stock Option granted under Section 4.2.1 above, the Company shall
grant to Executive additional incentive stock options (the "Short-Term Plan
Stock Options") to purchase shares of the Company's Common Stock, pursuant to
the Company's Short-Term Stock Incentive Plan (the "Short-Term Plan"), upon the
achievement by Executive of certain individual performance goals and/or the
achievement by the Company of certain performance goals as set forth in the
Short- Term Plan. In accordance with the terms and conditions set forth in the
Short-Term Plan, the Compensation Committee of the Board will determine (i) the
performance goals to be achieved by Executive and by the Company in connection
with the granting of the Short-Term Plan Stock Options, (ii) the number of
Short-Term Plan Stock Options granted to Executive and (iii) the number of
shares to be purchased by Executive under the Short-Term Plan Stock Options
granted. The Short-Term Plan Stock Options granted to Executive under this
Section 4.2.2 will be treated as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended and otherwise according to the
terms of the form of Option Certificate attached hereto as EXHIBIT A.
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 with reasonable compensation made to the Executive as determined by
the Board of Directors in good faith.
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.
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<PAGE> 3
4.5. 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 and resulting in a conviction under the laws of the United States or any
state thereof, (iv) any other act or omission which is materially injurious to
the financial condition or business reputation of the Company or any of its
affiliates, or (v) 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 portion of the Base Salary accrued
and payable 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 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 portion of
the Base Salary accrued and payable 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 entitled to receive payment of disability
benefits in lieu of the portion of Base Salary accrued and payable under the
Company's employee benefit plans as then
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<PAGE> 4
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 portion of the Base Salary
accrued and payable 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 at any time up
through the first anniversary of the Effective Date, including without
limitation by reason of Executive's failure to achieve stated goals or
milestones, (a) the Company shall pay Executive a lump sum amount equal to the
portion of the Base Salary accrued and payable 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 (i) the conclusion of a period of six (6) months from the
date of such termination or (ii) the date Executive commences other employment
and (b) any Incentive Stock Options or Short-Term Plan 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. If Executive's employment is terminated by the
Company without Cause at any time after the first anniversary of the Effective
Date, 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 portion of the Base Salary accrued and payable 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 5.4 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. 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, the Company shall pay
Executive an amount equal to the portion of the Base Salary accrued and payable
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
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<PAGE> 5
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.
6.1. RESTRICTIONS. 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:
6.1.1. 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 or its affiliates, 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 obligations to make payments to Executive under
this Agreement.
6.1.2. 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.
6.1.3. Executive will not directly or indirectly (a) induce any
employee of the Company or its affiliates to engage in any activity in which
Executive is prohibited from engaging by clause 6.1.1 above or to terminate his
or her employment with the Company or its affiliates, or (b) employ or offer
employment to any person who was employed by the Company or its affiliates in a
directly competitive field unless such person shall have ceased to be employed
by the Company or its affiliates for a period of at least one (1) year.
6.2. INTERPRETATION. 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
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<PAGE> 6
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 AND OTHER AGREEMENTS.
7.1. 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 and any of its affiliates, 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 or its affiliates.
7.2. OTHER AGREEMENTS. Executive hereby represents that he is not
bound by the terms of any agreement with any previous employer or other party to
refrain from using or disclosing any trade secret or confidential or proprietary
information, which information would reasonably be anticipated to relate to the
business of the Company, in the course of his employment with the Company or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party. Executive further represents that his
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust prior
to his employment with the Company.
-6-
<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, at its expense, without
posting any bond, shall be entitled to seek 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 the
President 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 Executive,
and if to 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,
-7-
<PAGE> 8
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.
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.
- 8 -
<PAGE> 9
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.
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/ ERIC GORDON
----------------------------
Name: ERIC GORDON
Title: PRESIDENT
JAMES R. FITZGERALD, JR.
-9-
<PAGE> 10
/s/ James R. Fitzgerald
-------------------------------
- 10 -
<PAGE> 11
EXHIBIT A
Form of Incentive Stock Option
- 11 -
<PAGE> 1
STOCK PLEDGE AGREEMENT
AGREEMENT, made as of the 2nd day of November, 1995, between by and
between Joseph C. Hogan, Jr. (the "Pledgor") and ArQule, Inc., a Delaware
corporation with a principal place of business at 200 Boston Avenue, Medford,
Massachusetts 02166 (the "Pledgee").
WHEREAS, the Pledgor has requested that the Pledgee advance the Pledgor
the principal sum of $120,000 (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 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 "Stock" as used herein means that number of
shares of Common Stock, $0.01 par value (the "Common Stock"), of the Pledgee
that will be distributed to the Pledgor upon the dissolution of ArQule Partners,
L.P. (the "Partnership"), whose "fair market value" is equal to the principal
sum of the Loan on the Distribution Date (as defined in Section 3). For purposes
of this definition, the "fair market value" shall equal the last reported
closing price of the Common Stock quoted on the Nasdaq National Market, or any
exchange on which the Common Stock is listed, as published in the Wall Street
Journal, or such lesser number as shall be subject to this Agreement following
any partial release as provided in Section 14 hereof.
(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 original principal amount of $120,000
payable to the order of Pledgee, as from time to time amended, revised or
assigned.
(c) The term "Collateral" as used herein means the 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> 2
(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 upon distribution to the Pledgor of the Stock by
the Partnership (the "Distribution Date"), the Pledgor shall promptly deliver
certificates representing such Stock to the Pledgee and such 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 (other than as provided in that certain Co-Sale Agreement
dated as of the date hereof by and among the Pledgor, the Pledgee and
the stockholders of the Pledgee listed therein) that:
(i) upon the distribution and receipt of the Stock, he
will own and have good title to the Stock, free of
all encumbrances and liens;
(ii) upon delivery of the certificates representing the
Stock in accordance with Section 3, the Pledgee shall
have a valid, perfected and first priority security
interest in the Collateral in accordance with the
terms hereof;
(iii) 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;
(iv) 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
(v) 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
- 2 -
<PAGE> 3
pledge the Collateral and will likewise defend the Pledgee's rights and
security interests therein.
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
Stock and to give consents, waivers and ratifications in respect of the 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 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 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;
- 3 -
<PAGE> 4
(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 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 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 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 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 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.
- 4 -
<PAGE> 5
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 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,
- 5 -
<PAGE> 6
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).
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:
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 02166
Attn: Eric B. Gordon
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; Partial Release. 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,
- 6 -
<PAGE> 7
together with any moneys and other property at the time held by the Pledgee
hereunder. Notwithstanding the foregoing, if at any time during the term of this
Agreement, the fair market value of the Stock exceeds the remaining aggregate
principal amount of the Pledgor's Secured Note on any Stock Valuation Date (as
defined below), the Pledgee shall release from this Pledge Agreement and deliver
to the Pledgor that number of shares of Stock (rounded down to the nearest whole
number) as shall equal the amount of such excess value divided by the fair
market value of the Stock on such Stock Valuation Date. As used herein, the term
"Stock Valuation Date" shall mean November 30 of each year during the term of
this Pledge Agreement and the term "fair market value" shall mean the average of
the last reported closing price of the Common Stock quoted on the Nasdaq
National Market or on any exchange on which the Stock is listed, whichever is
applicable, as published in The Wall Street Journal for the five (5) trading
days prior to the Stock Valuation Date.
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.
(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.
- 7 -
<PAGE> 8
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/
-------------------------
Joseph C. Hogan, Jr.
Address:
50 Oak Avenue
Belmont, MA 02128
Pledgee:
ARQULE, INC.
By:/s/
-------------------------
Name: Eric B. Gordon
Title: President
- 8 -
<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
- 7 -
<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
- 8 -
<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
- 9 -
<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. ArQule hereby grants to Solvay Duphar an exclusive
right of first negotiation to purchase such business (the "Negotiation Right").
Solvay Duphar may exercise this Negotiation Right upon written notice to ArQule
within thirty (30) days from the date upon which ArQule notified Solvay Duphar
of its intention to sell. In the event that Solvay Duphar elects to exercise
the Negotiation Right, the parties shall attempt to negotiate in good faith
the terms and conditions of an asset purchase agreement. If the parties are
unable to reach agreement within one hundred and twenty (120) days after the
date upon which Solvay Duphar exercised the Negotiation Right, then ArQule
will be free to sell such portion of its business to any third party, provided
that, during the longer of the term of this Agreement or one (1) year from the
expiration of said one hundred twenty (120)-day period, the terms of such sale
are no more favorable, in the aggregate, to such third party than those last
offered to Solvay Duphar.
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<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
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<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
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<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
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<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
________________________ _______________________
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<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
- 9 -
<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.
- 10 -
<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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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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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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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 Three Million Dollars ($3,000,000) 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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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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(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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<PAGE> 23
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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<PAGE> 26
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
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<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
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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
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<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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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
- 34 -
<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,
- 35 -
<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.
- 36 -
<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.
- 38 -
<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
Three Million Dollars ($3,000,000) 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:
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Tel:
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Fax:
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ACCEPTED AND AGREED:
ArQule, Inc.
Signature:
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Name:
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Title:
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Date:
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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:
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Name:
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Title:
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Date:
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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
bioseparations, synthesis of certain biomolecules, and cell culture.
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
<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.
- 11 -
<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.
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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> 24
Dr. Joseph C. Hogan, PhD
CEO, Senior VP Research and Development
ArQule Inc.
200 Boston Avenue
Suite 3600
Medford, MA 02155
USA
August 15, 1996
Dear Dr. Hogan,
This letter confirms that Pharmacia Biotech AB elects to extend its option
Period for Subfield I by entering into a Subsequent Research Period for 6
months, in accordance with the Option Agreement and the Research & Development
Agreement between ArQule Inc. and Pharmacia Biotech AB, dated March 10, 1995,
respectively.
With reference to our discussion in Boston, August 26 in Uppsala, we suggest
that we amend the Research Plan, to provide for a description of the new
research project including overall goals, priorities, time schedules, a
description of the necessary resources that each party will commit to the new
project. Furthermore, we feel that the initial Research Plan could serve as a
good frame work for the new plan.
Best Regards.
PHARMACIA BIOTECH AB
Research & Development
Ingvar Wiberger
Executive Vice President
Copy to: Arne Forsell Michael Lytton
Pharmacia Biotech AB Palmer & Dodge
One Beacon Street
Johan von Heijne Boston Massachusetts
Pharmacia Biotech AB USA
Fax: (617) 227-4420
<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 bioseparations, synthesis of certain biomolecules, and cell
culture;
WHEREAS, Pharmacia has established itself as a leading manufacturer of
products in the areas of bioseparations, synthesis of certain biomolecules,
and cell culture;
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.
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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
*
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requested for marked portions
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<PAGE> 4
1.22. "SUBFIELD IV" shall mean
*
1.23. "SYNTHESIS APPLICATIONS" shall mean
*
The parties understand that from time to time during their collaboration, ArQule
may elect, in its sole discretion, to grant to Pharmacia a license for certain
mutually agreed Synthetic Applications under the terms of the License Agreement.
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.
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<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.
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<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
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<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> 21
Dr. Joseph C. Hogan, PhD
CEO, Senior VP Research and Development
ArQule Inc.
200 Boston Avenue
Suite 3600
Medford, MA 02155
USA
August 15, 1996
Dear Dr. Hogan,
This letter confirms that Pharmacia Biotech AB elects to extend its option
Period for Subfield I by entering into a Subsequent Research Period for 6
months, in accordance with the Option Agreement and the Research & Development
Agreement between ArQule Inc. and Pharmacia Biotech AB, dated March 10, 1995,
respectively.
With reference to our discussion in Boston, August 26 in Uppsala, we suggest
that we amend the Research Plan, to provide for a description of the new
research project including overall goals, priorities, time schedules, a
description of the necessary resources that each party will commit to the new
project. Furthermore, we feel that the initial Research Plan could serve as a
good frame work for the new plan.
Best Regards.
PHARMACIA BIOTECH AB
Research & Development
Ingvar Wiberger
Executive Vice President
Copy to: Arne Forsell Michael Lytton
Pharmacia Biotech AB Palmer & Dodge
One Beacon Street
Johan von Heijne Boston Massachusetts
Pharmacia Biotech AB USA
Fax: (617) 227-4420
<PAGE> 1
EXHIBIT 23.1
CONSENT OF 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 October 4, 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
October 11, 1996
