<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1999 Commission File No. 000-21429
ARQULE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-3221586
(State of Incorporation) (I.R.S. Employer Identification Number)
200 BOSTON AVENUE, MEDFORD, MASSACHUSETTS 02155
(Address of Principal Executive Offices)
(781) 395-4100
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES________X___________ NO_____________________
Number of shares outstanding of the registrant's Common Stock as of May 3, 1999:
Common Stock, par value $.01 12,519,596 shares outstanding
<PAGE> 2
ARQULE, INC.
QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
Item 1 - Unaudited Consolidated Financial Statements
Consolidated Balance Sheet (Unaudited)
March 31, 1999 and December 31, 1998 ........................... 2
Consolidated Statement of Operations (Unaudited)
Three months ended March 31, 1999 and 1998...................... 3
Consolidated Statement of Cash Flows (Unaudited)
Three months ended March 31, 1999 and 1998...................... 4
Notes to Unaudited Consolidated Financial Statements................... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7
PART II - OTHER INFORMATION..................................................... 12
Item 2 - Use of Proceeds........................................................ 12
Signatures ................................................................ 13
</TABLE>
<PAGE> 3
ARQULE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,317 $ 5,780
Marketable securities 30,124 28,090
Accounts receivable 836 3,028
Accounts receivable related party 1,800 2,680
Inventory 513 526
Prepaid expenses and other current assets 697 869
Notes receivable from related parties 18 30
-------- --------
Total current assets 37,305 41,003
Property and equipment, net 19,536 17,821
Other assets 1,656 1,656
-------- --------
$ 58,497 $ 60,480
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 789 $ 907
Accounts payable and accrued expenses 4,425 2,094
Deferred revenue 1,479 1,656
Deferred revenue related party 324 800
-------- --------
Total current liabilities 7,017 5,457
-------- --------
Capital lease obligations 168 306
-------- --------
Deferred revenue 450 450
-------- --------
Shareholders' Equity:
Commonstock, $0.01 par value; 30,000,000
shares authorized; 12,519,596 and
12,171,335 shares issued and outstanding
at March 31, 1999 and December 31,
1998, respectively 125 122
Additional paid-in capital 72,010 71,432
Accumulated deficit (21,071) (17,105)
-------- --------
51,064 54,449
Deferred compensation (202) (182)
-------- --------
Total stockholders' equity 50,862 54,267
-------- --------
$ 58,497 $ 60,480
======== ========
</TABLE>
-2-
<PAGE> 4
ARQULE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenue:
Compound development revenue $ 1,804 $ 2,928
Compound development revenue - related party 2,208 2,758
-------- --------
Total revenue 4,012 5,686
-------- --------
Costs and expenses:
Cost of revenue 1,652 1,690
Cost of revenue - related party 2,022 1,593
Research and development 3,347 1,689
Marketing, general and administrative 1,243 1,290
-------- --------
Total costs and expenses 8,264 6,262
-------- --------
Loss from operations (4,252) (576)
Interest income 424 702
Interest expense (138) (55)
-------- --------
Net income (loss) $ (3,966) $ 71
======== ========
Basic net income (loss) per share $ (0.32) $ 0.01
======== ========
Weighted average common shares outstanding 12,317 11,884
======== ========
Diluted net income (loss) per share $ (0.32) $ 0.01
======== ========
Weighted average common shares and equivalents
outstanding 12,317 13,091
======== ========
</TABLE>
-3-
<PAGE> 5
ARQULE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ (3,966) $ 71
Adjustment to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,395 889
Amortization of deferred compensation 78 192
Decrease in accounts receivable 3,072 1,685
Decrease in inventory 13 111
Decrease (increase) in prepaid expenses and other current
assets 172 (162)
Decrease in notes receivable from related party 12 8
Increase (decrease) in accounts payable and accrued expenses 2,331 (1,991)
Decrease in deferred revenue (653) (922)
-------- --------
Net cash provided by (used in) operating activities 2,454 (119)
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (13,942) (13,128)
Proceeds from sale or maturity of marketable securities 11,908 13,900
Additions to property and equipment (3,110) (2,904)
-------- --------
Net cash used in investing activities (5,144) (2,132)
-------- --------
Cash flows from financing activities:
Principal payments of capital lease obligation (256) (319)
Proceeds from issuance of common stock 483 695
-------- --------
Net cash provided by financing activities 227 376
-------- --------
Net decrease in cash and cash equivalents (2,463) (1,875)
Cash and cash equivalents, beginning of period 5,780 15,137
-------- --------
Cash and cash equivalents, end of period $ 3,317 $ 13,262
======== ========
</TABLE>
-4-
<PAGE> 6
ARQULE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
the Company without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's audited financial statements and related footnotes for the year
ended December 31, 1998 thereto included in the Company's Form 10-K filed
with the Securities and Exchange Commission on March 29, 1999. The
unaudited consolidated financial statements include, in the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1999, and the results of its operations for the
three month periods ended March 31, 1999 and 1998. The results of
operations for such interim periods are not necessarily indicative of the
results to be achieved for the full year.
2. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of cash equivalents held by the Company at
March 31, 1999 and December 31, 1998 which are carried at amortized cost
approximating fair market value: (In thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- ------------
<S> <C> <C>
U.S. Government Obligations $ 1,953 $ 2,022
Corporate Notes 28,171 26,088
------- -------
$30,124 $28,090
======= =======
</TABLE>
All of the Company's marketable securities are classified as current at
March 31, 1999 and December 31, 1998 as these funds are highly liquid and
are available to meet working capital needs and to fund current
operations.
-5-
<PAGE> 7
ARQULE, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTIES
In January 1998, the Company elected an individual to its Board of
Directors who is also an employee of Wyeth-Ayerst (a subsidiary of
American Home Products). Solvay Duphar BV remains a related party.
4. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 is
effective for all fiscal quarters of all fiscal years beginning after
June 15, 1999 (January 1, 2000 for the Company). To date, the Company has
not held derivative instruments and does not anticipate the adoption of
SFAS No. 133 will have any effect on the Company's results of operations
or its financial position.
5. FLEET TERM LOAN
In March 1999, the Company executed a term loan agreement (the
"Agreement") with Fleet National Bank. Under the Agreement, the Company
may borrow up to $15.0 million to support capital expenditures.
-6-
<PAGE> 8
ARQULE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW
ArQule, Inc. is engaged in the discovery and development of novel
chemical compounds with commercial potential in the pharmaceutical,
biotechnology, bioseparations and agrochemical industries. ArQule
manufactures and delivers two types of arrays of synthesized compounds to
its pharmaceutical, biotechnology and agrochemical partners: (i) Mapping
Array(TM) compound sets, which are arrays of novel, diverse small
molecule compounds used for generating leads and (ii) Directed Array(TM)
compound 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 primarily through compound
development from collaborative agreements, which provide for the
development and delivery of Mapping Array(TM) and Directed Array(TM)
sets. The Company's revenues to date are primarily attributable to eight
major corporate collaborations. The Company recognizes revenue under its
corporate collaborations as related work is performed or as arrays are
delivered. Payments received from corporate partners prior to the
completion of the related work or before array delivery are recorded as
deferred revenue. Technology access fees are recognized over the length
of the research and development agreements. The Company is also entitled
to receive milestone and royalty payments if products generated under the
collaborations are developed. To date, the Company has received one
milestone payment and no royalty payments. The Company has additionally
entered into joint discovery agreements with a number of biotechnology
companies to which it has provided Mapping Array(TM) and Directed
Array(TM) sets in exchange for joint ownership interests in any resulting
drug candidates. These arrangements have not yet yielded any significant
revenue for the Company.
Quarterly variations in financial performance may be expected as levels
of revenue are dependent on expanding or continuing existing
collaborations, additional corporate collaborations, and future milestone
payments, which are inconsistent and difficult to anticipate. In
addition, the Company will continue to aggressively invest in new
technologies to expand its drug discovery capabilities. The Company also
expects that strategic opportunities will arise to broaden the Company's
participation in drug discovery and to extend the Company's proprietary
technology platform to industry segments beyond pharmaceutical and
agrochemical product discovery. Strategic investments of this nature have
the potential for enhancing longer term equity value but may result in
near term earnings fluctuations or impact the magnitude of profitability
or loss.
The Company has incurred a cumulative net loss of $21.1 million through
March 31, 1999. Losses have resulted principally from costs incurred in
research and
-7-
<PAGE> 9
development activities related to the Company's efforts to develop its
technologies and from the associated administrative costs required to
support those efforts. The Company's ability to achieve profitability is
dependent on its ability to market increasing levels of functionality of
its chemistry service; specifically its Mapping Array(TM) and Directed
Array(TM) programs to pharmaceutical, biotechnology, bioseparations and
agrochemical companies and the joint development and commercialization of
products in which it has an economic interest.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements reflecting
management's current expectations regarding the Company's future
financial performance. Such expectations are based on certain assumptions
regarding the progress of product development efforts under collaborative
agreements, the execution of new collaborative agreements and other
factors relating to the Company's growth. Such expectations may not
materialize if product development efforts are delayed or suspended, if
negotiations with potential collaborators are delayed or unsuccessful or
if other assumptions prove incorrect. See also "Important Factors
Regarding Forward-Looking Statements" described more fully in Exhibit
99.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
-8-
<PAGE> 10
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUE. The Company's revenue for the three months ended March 31, 1999
decreased $1.7 million to $4.0 million from $5.7 million for the same
period in 1998. This decrease is primarily due to completion of certain
programs and reduced compound development revenue from work performed on
and the delivery of Mapping Array(TM) and Directed Array(TM) sets under
the Company's collaborative agreements.
COST OF REVENUE. The Company's cost of revenue for the three months ended
March 31, 1999 increased $0.4 million to $3.7 million from $3.3 million
for the same period in 1998. This increase is primarily attributable to
the costs of additional facilities and scientific personnel and the
necessary supplies and overhead expenses related to the performance of
the work and the delivery of the Mapping Array(TM) and Directed Array(TM)
sets and other services provided pursuant to the Company's collaborative
agreements. The Company anticipates that the aggregate cost of revenue
will increase over the next several years as its business expands.
RESEARCH AND DEVELOPMENT EXPENSES. The Company's research and development
expenses for the three months ended March 31, 1999 increased $1.6 million
to $3.3 million from $1.7 million for the same period in 1998. This
increase is the result of the Company's expansion of its chemistry
capabilities and continuing development of related proprietary
technologies. The Company expects research and development spending to
increase over the next several years as the Company further expands its
chemistries, drug discovery and other developmental technology programs.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's marketing,
general and administrative expenses for the three months ended March 31,
1999 decreased slightly to $1.2 million from $1.3 million for the same
period in 1998. These expenses will likely increase in the aggregate in
future periods to support the projected growth of the Company.
NET INTEREST INCOME. The Company's net interest income for the three
months ended March 31, 1999 was $0.3 million, compared to $0.6 million
for the same period in 1998. Reduced interest income in 1999 resulted
primarily from the Company utilizing its cash and marketable securities
to finance its chemistries, drug discovery and technology expansion.
-9-
<PAGE> 11
NET INCOME (LOSS). The Company's net loss for the three months ended
March 31, 1999 was $4.0 million as compared to net income of $0.1 million
for the same period in 1998. The first quarter net loss for 1999 is
primarily attributable to a decrease in revenues and increased research
and development expenditures incurred in 1999 as the Company continues to
aggressively invest in new technologies to expand its drug discovery
capabilities.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company held cash and cash equivalents and
marketable securities with a value of $33.4 million. The Company's
working capital at March 31, 1999 was $30.3 million. The Company has
funded operations through March 31, 1998 with sales of common stock,
payments from corporate collaborators, and the utilization of capital
equipment lease financing. The Company has maintained a master lease
agreement since February 1994. Under the terms of this agreement, the
Company has funded certain capital expenditures through leases with terms
of 42 months in duration. As of March 31, 1999, the Company had utilized
$4.5 million of the available $8.5 million financing facility. In March
1999, the Company consummated a term loan facility with Fleet National
Bank under which up to $15.0 million will be available to support capital
expenditures.
The Company expects that its available cash and marketable securities,
together with operating revenues, investment income, lease and term loan
financing arrangements, will be sufficient to finance its working capital
and capital requirements for the foreseeable future. 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, acquisitions 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. The Company may have to seek additional
financing from public or private sales of its securities, including
equity securities. There can be no assurance that additional funding will
be available when needed or on acceptable terms.
YEAR 2000 COMPLIANCE
Many currently installed systems are not capable of distinguishing 21st
century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies in a very wide
variety of applications may experience operating difficulties unless they
are modified or upgraded to adequately process information involving,
related to or dependent upon the century change. Significant uncertainty
exists concerning the scope and magnitude of problems associated with the
century change.
The Company has established a project team to address Year 2000 risks. The
-10-
<PAGE> 12
Company has also initiated various Information Technology enhancement
projects intended to improve the access and dissemination of scientific and
business information throughout the enterprise to enhance development and
operational efficiencies. As part of this initiative the Company acquired an
Enterprise Resource Financial System in late 1997 and has implemented the
major relevant components of that system. The Company's internal financial
system is currently Y2K compliant. As the costs associated with these
initiatives are part of the Company's continuing improvement process, they
were recognized as incurred.
The Company completed its data-gathering phase with regard to non-financial
software, imbedded chip technology, and its non-financial systems such as
automated production equipment, security equipment, etc. In addition to data
gathered to date by the project team, the Company has acquired compliance
certificates and commitments from IT vendors that Y2K upgrades will be
available with Year 2000 compliance scheduled for the Spring 1999. The
Company does not, at this time, have any indications that substantial Y2K
compliance with respect to these systems will not be achieved or that the
remaining costs of achieving Year 2000 compliance for its non-financial
systems will be material.
The Company is continuing the process of contacting its critical suppliers,
service providers and contractors to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure
to remedy their own Year 2000 issues. To the extent that responses to Year
2000 readiness are unsatisfactory, the Company intends to change suppliers,
service providers or contractors to those who have demonstrated Year 2000
readiness but the Company cannot be assured that it will be successful in
finding such alternative suppliers, service providers and contractors. The
Company does not currently have any formal information concerning the Year
2000 compliance status of its customers but has received indications that
most of its customers are working on being Year 2000 compliant. In the event
that any of the Company's significant customers and suppliers do not
successfully and timely achieve Year 2000 compliance, and the Company is
unable to replace them with new customers or alternate suppliers, the
Company's business or operations could be adversely affected.
-11-
<PAGE> 13
ARQULE, INC.
PART II - OTHER INFORMATION
Item 1 - None
Item 2 - Use of Proceeds from Registered Securities
A Registration Statement on Form S-1 (File No. 333-11105) registering
2,875,000 shares of the Company"s Common Stock, filed in connection
with the Company's Initial Public Offering (the "IPO") was declared
effective by the Securities and Exchange Commission on October 16,
1996. Exercise of the over-allotment option was initiated on November
13, 1996 and was closed on November 18, 1996.
The Company and its selling shareholders sold, in aggregate, all
2,875,000 shares registered in the IPO, with an aggregate offering
price to the public of $34.5 million. The managing underwriters of the
IPO were Hambrecht & Quist LLC, Oppenheimer & Co., Inc. and Vector
Securities International Inc.
In connection with the IPO, the Company incurred total expenses of $3.0
million, including underwriting discounts and commissions of $2.4
million and other expenses of $0.6 million. After such expenses, the
Company's net proceeds from the IPO were $31.5 million. The amount of
net offering proceeds used by the Company as of March 31, 1999 was as
follows: approximately $22.5 million for the fixed asset additions and
approximately $2.9 million for capital lease obligations.
Items 3-5 - None
Item 6(a) - Exhibits:
EXHIBITS DESCRIPTION
10.1 Employment agreement between Dr. Stephen A. Hill
and the Company dated as of December 8, 1998, as
amended. Filed herewith.
10.2 Term loan agreement between Fleet National Bank and
the Company dated as of March 18, 1999. Filed
herewith.
11.1 Statement Re Computation of Unaudited Net Income
(Loss) Per Share
27 Financial Data Schedule
Item 6(b) - Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
-12-
<PAGE> 14
ARQULE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ArQule, Inc.
Date: May 11, 1999 /s/ James R. Fitzgerald, Jr.
----------------------------------------
James R. Fitzgerald, Jr.
(Vice President, Chief Financial Officer
and Treasurer)
-13-
<PAGE> 15
ARQULE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1 Employment agreement between Dr. Stephen A. Hill
and the Company dated as of December 8, 1998, as
amended. Filed herewith.
10.2 Term loan agreement between Fleet National Bank and
the Company dated as of March 18, 1999. Filed
herewith.
11.1 Statement Re Computation of Unaudited Net Income
(Loss) Per Share
27 Financial Data Schedule
</TABLE>
-14-
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of December 8, 1998 (the "Execution
Date") by and between ArQule, Inc., a Delaware corporation (the "Company") with
its principal offices at 200 Boston Avenue, Medford, Massachusetts 02155, and
Stephen A. Hill, M.D. ("Executive") whose current principal residential address
is Quellenweg 8, 4144 Arleshein, Basel Land CH, Switzerland.
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 on a mutually acceptable date (the "Effective Date") and continuing
until terminated in accordance with the provisions of Section 5 (the "Employment
Term").
2. TITLE; DUTIES. During the Employment Term, Executive shall
serve as the President and Chief Executive Officer of the Company. In such
position, Executive shall have such duties and authority as shall be designated
from time to time by the Board of Directors of the Company (the "Board") or its
designee and shall, if elected, serve as a director of the Company. The Employee
hereby agrees to undertake the duties and responsibilities inherent in such
position and such other duties and responsibilities as the Board or its designee
shall from time to time reasonably assign to him.
3. NO CONFLICT. During the Employment Term, Executive shall
devote substantially all of his business time and best efforts to the
performance of his duties hereunder and shall not, directly or indirectly,
engage in any other business, profession or occupation for compensation or
otherwise which would conflict with the rendition of such duties without the
prior written consent of the Board, which consent shall not unreasonably be
withheld, delayed or conditioned. Executive represents and warrants that
SCHEDULE A attached hereto states all current business relationships, including,
but not limited to, consulting agreements, confidentiality agreements and
non-competition agreements that Executive is currently a party to.
1
<PAGE> 2
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 $300,000, 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.
4.2. ADDITIONAL COMPENSATION.
4.2.1. STOCK OPTION. As further compensation for
his services hereunder, the Company shall grant to Executive, on or after the
Effective Date, a stock option (the "Stock Option") to purchase 320,000 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
"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 method of determining the exercise price of such Stock
Option is set forth in EXHIBIT B. Notwithstanding the foregoing, in the event of
a Change of Control of the Company (as defined herein), the Stock Option shall
become immediately exercisable as to fifty percent of any option shares not yet
vested, in addition to any option shares already vested, without regard to the
vesting schedule on the form of Option Certificate. In the event that
Executive's employment hereunder is subsequently terminated by the Company
without Cause (as defined in Section 5.2) within one year of a Change of Control
of the Company, the Stock Option shall become immediately exercisable as to all
option shares without regard to the vesting schedule set forth on the form of
Option Certificate.
For purposes of this Section 4.2.1, any one of the following events
shall be considered a Change of Control:
(i) the acquisition by any "person" (as such
term is defined in Section 3(a)(9) of the Securities Exchange Act of
1934) of any amount of the Company's Common Stock so that it holds or
controls fifty percent (50%) or more of the Company's Common Stock;
(ii) a merger or consolidation after which fifty
percent (50%) or more of the voting stock of the surviving corporation
is held by persons who were not stockholders of the Company immediately
prior to such merger or combination; or
(iii) the election by the stockholders of the
Company of twenty percent (20%) or more of the directors of the Company
other than pursuant to nomination by the Company's management.
4.2.2. MILESTONE BONUS. As further compensation for
his services hereunder, the Company shall pay Executive an annual bonus (the
"Bonus") of up to $100,000, upon the achievement of certain milestones, and in
accordance with a vesting schedule, to be determined by the Board within ninety
(90) days from the Execution Date and as set forth on
2
<PAGE> 3
EXHIBIT C attached hereto (as may from time to time be amended by the Board).
Any Bonus due to Executive will be paid to the Executive during the first
quarter of each calendar year.
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, 401(k) plan participation, and life, health,
accident and disability insurance) which the Company may, in its sole and
absolute discretion, make available generally to its senior executives, or for
personnel similarly situated; PROVIDED, HOWEVER, that it is hereby acknowledged
and agreed that any such employee benefit plans may be altered, modified or
terminated by the Company at any time in its sole discretion without recourse by
Executive. In addition, Executive shall be entitled to have up to $200,000 of
life insurance, payable to such beneficiaries as Executive may from time to time
direct, paid for by the Company.
4.4. VACATION. Executive shall be entitled to three weeks
(15 working days) of paid vacation per annum during the Employment Term, to be
taken at such time or times as shall be mutually convenient for the Company and
Executive. Unused vacation time will be allocated pursuant to the Company's
existing policies and practices.
4.5. EXPENSES.
4.5.1. RELOCATION. The Company shall reimburse
Executive for (i) reasonable relocation expenses incurred by Executive in
connection with his acceptance of employment hereunder, including moving
expenses and travel expenses incurred by Executive in travelling to his new
location of employment, up to a maximum of $75,000 in the aggregate and (ii) any
taxes payable by Executive (including any tax on the gross-up) as a result of
the reimbursement by the Company of Executive's relocation expenses under this
Section 4.5.1. The Company shall undertake to assist and pay for any legal and
other costs associated with any immigration matters connected to Executive's
relocation to the United States.
4.5.2. 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.
4.5.3 ROCHE BONUS AND WARRANT FULFILLMENT. The
Company acknowledges that Executive is entitled to a bonus from his current
employer, Roche________ ("Roche"), of 100,000 Swiss Francs to be paid in March
1999. The Company also acknowledges that Executive is entitled to warrants of
the value of 100,000 Swiss francs to be granted in March 1999. If Executive is
denied any amount of such bonus or warrants solely due to his execution of this
Agreement, the Company shall pay Executive the entire amount of such bonus and
fair market value of warrants on April 5, 1999, less any amount of bonus
actually paid and excluding any warrants actually granted by Roche; provided,
however, such payment shall not exceed
3
<PAGE> 4
$100,000. This payment shall be made in currency of the United States at the
applicable conversion rate in effect at the time of such payment.
5. TERMINATION.
5.1. WITHOUT CAUSE BY THE COMPANY. The Executive's
employment hereunder may be terminated by the Company at any time without Cause
upon not less than sixty (60) days prior written notice from the Company to
Executive. If Executive's employment is terminated by the Company without Cause,
including without limitation by reason of Executive's failure to achieve stated
goals or milestones, the Company shall pay Executive a lump sum amount equal to
the Base Salary plus any benefits to which Executive is entitled under Section
4.3 of this Agreement (to the extent permitted by the then-current terms of the
applicable benefit plans and subject to any employee contribution requirements
applicable to Executive on the date of termination) through the conclusion of a
period of one year from the date of such termination. 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. FOR CAUSE BY THE COMPANY. Notwithstanding any other
provision of this Agreement, Executive's employment hereunder may be terminated
by the Company at any time for Cause. For purposes of this Agreement, "Cause"
shall mean (i) Executive's willful failure to perform his duties hereunder
(other than as a result of total or partial incapacity due to physical or mental
illness) for thirty (30) days after a written demand for performance is
delivered to Executive on behalf of the Company which specifically identifies
the manner in which it is alleged that Executive has not substantially performed
his duties, (ii) Executive's dishonesty in the performance of his duties
hereunder, (iii) an act or acts on Executive's part involving moral turpitude or
constituting a felony under the laws of the United States or any state thereof,
or (iv) Executive's material breach of his obligations under Section 6 and 7
hereof, which breach shall remain uncured by Executive for thirty (30) days
following receipt of notice from the Company specifying such breach. If
Executive's employment is terminated by the Company for Cause, the Company shall
pay Executive a lump sum amount equal to the Base Salary through the last day of
his actual employment by the Company. The payment to Executive of any other
benefits following the termination of Executive's employment pursuant to this
Section 5.2 shall be determined by the Board in its sole discretion in
accordance with the policies and practices of the Company.
5.3. 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
4
<PAGE> 5
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
Base Salary plus any benefits to which Executive is entitled under Section 4.3
of this Agreement (to the extent permitted by the then-current terms of the
applicable benefit plans and subject to any employee contribution requirements
applicable to Executive on the date of termination) through the date on which
Executive is first eligible to receive payment of disability benefits in lieu of
Base Salary under the Company's employee benefit plans as then in effect. The
payment to Executive of any other benefits following the termination of
Executive's employment pursuant to this Section 5.3 shall be determined by the
Board in its sole discretion in accordance with the policies and practices of
the Company.
5.4. DEATH. Executive's employment hereunder shall
automatically terminate in the event of the Executive's death. If Executive's
employment is terminated by the death of Executive, the Company shall pay to
Executive's estate or legal representative an amount equal to the Base Salary at
the rate in effect at the time of Executive's death through the last day of the
month in which his death occurs. The payment to Executive of any other benefits
following the termination of Executive's employment pursuant to this Section 5.4
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 Base Salary through the last
day of his actual employment by the Company.
5.6. NOTICE OF TERMINATION. Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 9
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
5.7. SURVIVAL. The provisions of Sections 6 and 7 shall
survive the termination of this Agreement.
6. NON-COMPETITION. Executive acknowledges and recognizes the
highly competitive nature of the businesses of the Company and accordingly
agrees that during the Employment Term and for a period of one (1) year after
expiration or termination of Executive's employment hereunder:
6.1. Executive will not engage in any activity which is
competitive with any business which is now, or is at any time during the
Employment Term, conducted by the Company, including without limitation becoming
an employee, investor (except for passive investments of not more than one
percent (1%) of the outstanding shares of, or any other equity
5
<PAGE> 6
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.
6.2. Executive will not directly or indirectly assist
others in engaging in any of the activities in which Executive is prohibited to
engage by clause 6.1 above.
6.3. Executive will not directly or indirectly (a) induce
any employee of the Company to engage in any activity in which Executive is
prohibited from engaging by clause 6.1 above or to terminate his or her
employment with the Company, or (b) employ or offer employment to any person who
was employed by the Company unless such person shall have ceased to be employed
by the Company for a period of at least one (1) year.
6.4. It is expressly understood and agreed that (a)
although Executive and the Company consider the restrictions contained in this
Section 6 to be reasonable, if a final judicial determination is made by a court
of competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is unenforceable, this Agreement shall not be
rendered void but shall be deemed to be enforceable to such maximum extent as
such court may judicially determine or indicate to be enforceable and (b) if any
restriction contained in this Agreement is determined to be unenforceable and
such restriction cannot be amended so as to make it enforceable, such finding
shall not affect the enforceability of any of the other restrictions contained
herein.
7. CONFIDENTIALITY. Executive will not at any time (whether
during or after his employment with the Company) disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other organization,
entity or enterprise other than the Company, any Confidential Information. As
used herein, the term "Confidential Information" shall mean, without limitation,
all Proprietary Materials (as defined below), any and all information about
inventions, improvements, modifications, discoveries, costs, profits, markets,
sales, products, key personnel, pricing policies, operational methods, concepts,
technical processes and applications, and other business affairs and methods of
the Company and of its affiliates, collaborators, consultants, suppliers, and
customers, as well as any other information not readily available to the public,
including without limitation any information supplied by third parties to the
Company under an obligation of confidence. As used in this Agreement
"Proprietary Materials" shall include, without limitation, the following
materials: any and all reagents, substances, chemical compounds, subcellular
constituents, cells or cell lines, organisms and progeny, and mutants, as well
as any and all derivatives or replications derived from or relating to such
materials. Confidential Information may be contained in various media, including
without limitation patent applications,
6
<PAGE> 7
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 labeled 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.
8. SPECIFIC PERFORMANCE. Executive acknowledges and agrees that
the Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 6 or Section 7 would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened
breach, in addition to any remedies at law, the Company, without posting any
bond, shall be entitled to obtain equitable relief in the form of specific
performance, temporary restraining orders, temporary or permanent injunctions or
any other equitable remedy which may then be available.
9. NOTICES. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, telex, telecopy or registered
mail, return receipt requested, addressed, if to the Company, to the attention
of Chairman of the Board at the Company's executive offices or to such other
address as the Company may designate in writing at any time or from time to time
to the Executive, and if to the Executive, to his most recent address on file
with the Company. Notice shall be deemed given, if by personal delivery, on the
date of such delivery or, if by telex or telecopy, on the business day following
receipt of answer back or telecopy information or, if by registered mail, on the
date shown on the applicable return receipt.
10. ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party. The Company shall require
any persons, firm or corporation succeeding to all or substantially all of the
business or assets of the Company whether by purchase, merger or consolidation
to expressly assume and agree to perform this Agreement.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the Company and Executive with respect to the subject matter thereof and
there have been no oral or other agreements of any kind whatsoever as a
condition precedent or inducement to the signing of this Agreement or otherwise
concerning this Agreement or the subject matter hereof.
12. EXPENSES. Each party shall pay its own expenses incident to
the performance or enforcement of this Agreement, including all fees and
expenses of its counsel for all activities of such counsel undertaken pursuant
to this Agreement, except as otherwise herein specifically provided. If any
action at law or equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reimbursement of reasonable
attorney's fees and other costs incurred by such party in connection with such
action, in addition to any other relief to which such party is entitled.
7
<PAGE> 8
13. ARBITRATION. In the event any dispute shall arise between the
Company and the Executive with respect to any of the terms and conditions of
this Agreement, then such dispute shall be submitted and finally settled by
arbitration in Boston, Massachusetts under the rules of the American Arbitration
Association. The award rendered by the arbitrator shall be final and binding
upon the parties hereto, and judgment upon the award rendered may be entered by
either party in any court that would ordinarily have jurisdiction over the
parties or the subject matter of the controversy or claim. Each party shall pay
its own expenses incident to such arbitration, including attorneys' fees. The
parties agree not to institute any litigation or proceedings against each other
in connection with this Agreement except as provided in this Section 13.
14. WAIVERS AND FURTHER AGREEMENTS. Any waiver of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof; provided, however, that no such written wavier,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
15. AMENDMENTS. This Agreement may not be amended, nor shall any
waiver, change, modification, consent or discharge be effected except by an
instrument in writing executed by or on behalf of the party against whom
enforcement of any waiver, change, modification, consent or discharge is sought.
16. SEVERABILITY. If any provision of this Agreement shall be held
or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one of such counterparts.
8
<PAGE> 9
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.
9
<PAGE> 10
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/ Allan Ferguson
-------------------------------
Name: Allan Ferguson
Title: Director
STEPHEN A. HILL
/s/ Stephen A. Hill
-----------------------------------
10
<PAGE> 11
SCHEDULE A
BUSINESS RELATIONSHIPS
11
<PAGE> 12
EXHIBIT A
OPTION CERTIFICATE
12
<PAGE> 13
EXHIBIT B
DETERMINATION OF OPTION PRICE
Executive shall have the choice of having either one of the following exercise
prices:
(1) The Fair Market Value of ArQule's Common Stock (as defined below) as of the
Execution Date, in which case the stock options granted to the Executive may not
qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); or
(2) The Fair Market Value of ArQule's Common Stock (as defined below) as of the
date the Board of Directors grants the stock options to the Executive (by
written consent or at a meeting) which is either on or after the Effective Date,
in which case some of the stock options granted to the Executive may qualify as
"Incentive Stock Options" under Section 422 of the Code, as permitted under the
Code.
The Fair Market Value of ArQule's Common Stock shall be the closing price of the
Common Stock as reported by the Nasdaq National Market on the trading day
immediately prior to the appropriate date discussed above.
13
<PAGE> 14
EXHIBIT C
MILESTONE BONUS
14
<PAGE> 15
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (this "Amendment") to a certain Employment
Agreement dated as of December 8, 1998 (the "Employment Agreement") between
ArQule, Inc., a Delaware corporation (the "Company") and Stephen A. Hill, M.D.
("Executive") is made as of January 22, 1999 (the "Execution Date") between the
Company and Executive. The parties wish to amend the Employment Agreement as set
forth herein and, except as amended hereby, the Employment Agreement remains in
full force and effect according to its terms.
In consideration of the mutual covenants herein contained and for other
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree to amend the Employment Agreement as follows:
1. CAPITALIZED TERMS. Capitalized terms used and not otherwise
defined herein shall have the meanings given such terms in the Employment
Agreement.
2. NON-COMPETITION. Executive agrees to be bound by the
obligations relating to non-competition set forth in Section 6 of the Employment
Agreement as of the Execution Date of this Amendment.
3. CONFIDENTIALITY. As of the Execution Date of this Amendment,
Executive agrees to be bound by the obligations relating to confidentiality set
forth in Section 7 of the Employment Agreement with respect to any Confidential
Information received by Executive as of the Execution Date of this Amendment.
4. MISCELLANEOUS.
(a) COUNTERPARTS. This Amendment may be executed in two or
more counterparts, all of which together shall be regarded as one instrument.
(b) ENTIRE AGREEMENT. The terms and conditions contained in
this Amendment and in the Employment Agreement constitute the entire agreement
between the parties and supersede all previous agreements and understandings,
whether oral or written, between the parties hereto with respect to the subject
matter hereof and thereof. No change, modification, termination or waiver of
this Amendment or of the Employment Agreement or any of their respective
provisions shall be valid unless made in writing and signed by a duly authorized
representative of each party.
15
<PAGE> 16
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/ James R. Fitzgerald, Jr.
-------------------------------
Name: James R. Fitzgerald, Jr.
Title: Chief Financial Officer
STEPHEN A. HILL
/s/ Stephen A. Hill
-----------------------------------
16
<PAGE> 1
EXHIBIT 10.2
ARQULE, INC.
200 Boston Avenue
Suite 1000
Medford, MA 02155
March 18, 1999
Fleet National Bank
One Federal Street
Boston, MA 02110
Gentlemen:
This letter agreement will set forth certain understandings between
ArQule, Inc., a Delaware corporation (the "Borrower") and Fleet National Bank
(the "Bank") with respect to Term Loans (hereinafter defined) to be made by the
Bank to the Borrower. In consideration of the mutual promises contained herein
and in the other documents referred to below, and for other good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. REFERENCES TO DOCUMENTS. Reference is made to (i) that certain
$15,000,000 face principal amount promissory note (the "Term Note") of even date
herewith made by the Borrower and payable to the order of the Bank, and (ii)
that certain Security Agreement (Equipment) of even date herewith from the
Borrower to the Bank (the "Security Agreement").
1.2. THE BORROWING; TERM NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make one or more loans (the "Term Loans")
to the Borrower, as the Borrower may request, on any Business Day prior to the
first to occur of (i) June 30, 2000 or (ii) the earlier termination of the
within-described term loan facility pursuant to ss.5.2 or ss.6.5. A Term Loan
shall be made, not more than once per calendar quarter (except that more than
one Term Loan may be made in any calendar quarter provided that each additional
Term Loan in any one calendar quarter is in an amount of at least $500,000), in
order to finance the costs of Qualifying Equipment and Qualifying Leasehold
Improvements at the 128/93 Premises acquired by the Borrower within the 90 days
preceding the request for such Term Loan (except that in the case of the first
Term Loan hereunder the Borrower may finance the costs of Qualifying Equipment
and/or Qualifying Leasehold Improvements acquired at any time after December 31,
1997), each such Term Loan to be in such amount as may be requested by the
Borrower; provided that (i) no Term Loan will be made after June 30, 2000; (ii)
the aggregate original principal amounts of all Term Loans will not exceed
$15,000,000; and (iii) no Term Loan will be in an amount more than 80% of the
invoiced actual costs of the tangible property constituting the items of
Qualifying Equipment and/or Qualifying Leasehold Improvements with respect to
which such Term Loan is made (excluding taxes, shipping, software (except as
expressly provided in the immediately following sentence), installation charges,
training fees and other
1
<PAGE> 2
"soft costs"). Notwithstanding the exclusions contained in clause (iii) of the
immediately preceding sentence, the Borrower may include within "Qualifying
Equipment", for the purpose of any Term Loan, software (not including
off-the-shelf "shrink-wrapped" software) to be used in connection with the
tangible items of property purchased by the Borrower with the proceeds of such
Term Loan; provided that the aggregate invoiced costs for all software included
in "Qualifying Equipment" shall in no event exceed $750,000. Prior to the making
of each Term Loan, and as a precondition thereto, the Borrower will provide the
Bank with: (i) invoices supporting the costs of the relevant Qualifying
Equipment and/or relevant Qualifying Leasehold Improvements; (ii) such evidence
as the Bank may reasonably require showing that (A) all Qualifying Equipment has
been delivered to the 128/93 Premises, has been paid for by the Borrower and is
owned by the Borrower free of all liens and interests of any other Person (other
than the security interest of the Bank pursuant to the Security Agreement), and
(B) all Qualifying Leasehold Improvements have been built into or installed at
the 128/93 Premises, have been paid for by the Borrower and are owned by the
Borrower free of all liens and interests of any other Person (other than the
security interest of the Bank pursuant to the Security Agreement and except that
items so built into the relevant premises as to become an integral part of the
real estate may become the property of the owner of such premises); (iii)
landlord's waivers (if not previously furnished) and Uniform Commercial Code
financing statements, if needed, reflecting the items of Qualifying Equipment
and Qualifying Leasehold Improvements (unless such Qualifying Leasehold
Improvements are so built into the relevant premises that same have become an
integral part of the real estate) with respect to which such Term Loan is being
made (all in form and substance reasonably satisfactory to the Bank); and (iv)
evidence satisfactory to the Bank that the Qualifying Equipment and Qualifying
Leasehold Improvements (other than any such Qualifying Leasehold Improvements
that are so built into the relevant premises that same have become an integral
part of the real estate) are fully insured against casualty loss, with insurance
naming the Bank as secured party and first loss payee. The Term Loans will be
evidenced by the Term Note. The Borrower hereby irrevocably authorizes the Bank
to make or cause to be made, on a schedule attached to the Term Note or on the
books of the Bank, at or following the time of making each Term Loan and of
receiving any payment of principal, an appropriate notation reflecting such
transaction and the then aggregate unpaid principal balance of the Term Loans.
The amount so noted shall constitute presumptive evidence as to the amount owed
by the Borrower with respect to principal of the Term Loans. Failure of the Bank
to make any such notation shall not, however, affect any obligation of the
Borrower or any right of the Bank hereunder or under the Term Note.
1.3. PRINCIPAL REPAYMENT OF TERM LOANS. Term Loans made at any time
from the date of this letter agreement through and including June 30, 1999 are
hereinafter referred to as the "Tranche A Term Loans". The Borrower shall repay
principal of the Tranche A Term Loans in 16 equal consecutive quarterly
installments, commencing on September 30, 1999 and continuing on the last
Business Day of each calendar quarter thereafter. Each such quarterly
installment of principal of the Tranche A Term Loans shall be in an amount equal
to 1/16th of the aggregate principal amount of the Term Loans outstanding at the
close of business on June 30, 1999. In any event, the then outstanding principal
balance of all Tranche A Term Loans and all interest then accrued but unpaid
thereon shall be due and payable in full on June 30, 2003. Term Loans made at
any time on or after July 1, 1999 are hereinafter referred to as the "Tranche B
Term Loans". As provided in ss.1.2 above, Tranche B Term Loans will not be made
after the close of business on June 30, 2000. The Borrower shall repay principal
of the Tranche B Term Loans in
2
<PAGE> 3
16 equal consecutive quarterly installments, commencing on September 29, 2000
and continuing on the last Business Day of each calendar quarter thereafter.
Each such quarterly installment of principal of the Tranche B Term Loans shall
be in an amount equal to 1/16th of the aggregate principal amount of the Tranche
B Term Loans outstanding at the close of business on June 30, 2000. In any
event, the then outstanding principal balance of all Term Loans and all interest
then accrued but unpaid thereon shall be due and payable in full on June 30,
2004. The Borrower may prepay, at any time or from time to time, without premium
or penalty, the whole or any portion of the Term Loans to the extent that same
are Floating Rate Loans; provided that each such principal prepayment shall be
accompanied by payment of all interest under the Term Note accrued but unpaid to
the date of payment. The Borrower may prepay the whole or any portion of any
Fixed Rate Loan; provided that (i) the Borrower gives the Bank not less than two
(2) Business Days' prior written notice of its intent so to prepay, (ii) the
Borrower pays all interest on each Fixed Rate Loan (or portion thereof) so
prepaid accrued to the date of such prepayment, (iii) any voluntary prepayment
with respect to a Fixed Rate Loan must be in a principal amount of $500,000 or
an integral multiple of $100,000 in excess of $500,000 and (iv) if the Borrower
for any reason makes any prepayment of a LIBOR Loan prior to the last day of the
Interest Period applicable thereto or makes any prepayment of any installment of
principal of any COF Loan prior to the regularly scheduled due date thereof, the
Borrower shall forthwith pay all amounts owing to the Bank pursuant to the
provisions of ss.1.7 with respect to such Fixed Rate Loan. Any partial
prepayment of principal of the Term Loans will be applied first to any
installments of the Term Loans which are regularly scheduled to become due
within the 12-month period following the date of prepayment; and the balance, if
any, of such prepayment (after such application as aforesaid) will then be
applied to installments of principal of the Term Loans thereafter coming due in
inverse order of normal maturity. Amounts repaid or prepaid with respect to the
Term Loans are not available for reborrowing.
1.4. INTEREST RATE. Except as otherwise provided below in this
ss.1.4, interest on the Term Loans will be payable at a fluctuating rate per
annum (the "Floating Rate") which shall at all times be equal to the Prime Rate
as in effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law), with a change in such rate of interest to
become effective on each day when a change in the Prime Rate becomes effective.
Subject to the conditions set forth herein, the Borrower may elect that all or
any portion of any Term Loan to be made under ss.1.2 be made as a LIBOR Loan
bearing interest at the LIBOR Interest Rate with an Interest Period of three
months, six months or twelve months (as the Borrower may select), that all or
any portion of any Floating Rate Loan (but not all or any portion of the COF
Loan, if any) will be converted to a LIBOR Loan with an Interest Period of three
months, six months or twelve months (as the Borrower may select) and/or that any
LIBOR Loan will be continued at the expiration of the Interest Period applicable
thereto as a new LIBOR Loan with an Interest Period of three months, six months
or twelve months (as the Borrower may select). Such election shall be made by
the Borrower giving to the Bank a written or telephonic notice received by the
Bank within the time period and containing the information described in the next
following sentence (a "LIBOR Borrowing Notice"). The LIBOR Borrowing Notice must
be received by the Bank no later than 10:00 a.m. (Boston time) on that day which
is two Business Days prior to the date of the proposed borrowing, conversion or
continuation, as the case may be, and must specify the amount of the LIBOR Loan
requested (which shall be $500,000 or an integral multiple of $100,000 in excess
of $500,000), must identify the particular Term Loan or Loans so to be made,
converted or continued, as the case may be, and must specify the proposed
3
<PAGE> 4
commencement date of the relevant Interest Period and the duration (three
months, six months or twelve months) of such relevant Interest Period.
Notwithstanding anything provided elsewhere in this letter agreement, the
Borrower may not elect to have any installment of a Term Loan included in a
LIBOR Loan if the Interest Period applicable thereto would continue after the
due date of such installment. Any LIBOR Borrowing Notice shall, upon receipt by
the Bank, become irrevocable and binding on the Borrower, and the Borrower
shall, upon demand and receipt of a Bank Certificate with respect thereto,
forthwith indemnify the Bank against any loss or expense incurred by the Bank as
a result of any failure by the Borrower to borrow any requested LIBOR Loan,
including, without limitation, any loss or expense incurred by reason of the
liquidation or redeployment of deposits or other funds acquired by the Bank to
fund or maintain such LIBOR Loan. At the expiration of each Interest Period
applicable to a LIBOR Loan, the principal amount of such LIBOR Loan may be
continued as a new LIBOR Loan to the extent and on the terms and conditions
contained in this letter agreement by delivery to the Bank of a new LIBOR
Borrowing Notice conforming to the requirements set forth above in this ss.1.4
(and any LIBOR Loan not repaid and not so continued as a new LIBOR Loan will be
deemed (subject to the provisions of the next following paragraph) to have been
converted into a Floating Rate Loan). Notwithstanding any other provision of
this letter agreement, the Bank need not make any LIBOR Loan or allow any
conversion of a Floating Rate Loan to a LIBOR Loan at any time when there exists
any Default or Event of Default.
On June 30, 1999, the Borrower may convert to a COF Loan all (but not
less than all) of the Tranche A Term Loans then outstanding; and on June 30,
2000, the Borrower may convert to a COF Loan all (but not less than all) of the
Tranche B Term Loans then outstanding. If the Borrower desires any such
conversion to a COF Loan, it will notify the Bank of same not less than two
Business Days prior to the proposed conversion and will request that the Bank
offer with respect to the Tranche A Term Loans or the Tranche B Term Loans, as
the case may be, a rate of interest which shall be fixed (subject to adjustment
as provided in this letter agreement) for the period commencing on the date of
such conversion and ending on the final maturity date applicable to such Tranche
A Term Loans or Tranche B Term Loans, as the case may be (in each case, a "Fixed
Rate Period"). Following such request for a fixed rate, the Bank will endeavor
to offer a proposed COF Interest Rate at a rate determined as provided below and
under conditions determined by the Bank in its sole discretion. The Borrower may
elect to accept such offer in the manner and within the time period specified in
such offer. Any such election shall be irrevocable on the part of the Borrower.
Upon such election, the interest rate payable with respect to the outstanding
Tranche A Term Loans or Tranche B Term Loans (as the case may be) shall be fixed
(subject to adjustment as provided in this letter agreement) for the relevant
Fixed Rate Period and at the rate communicated by the Bank as its proposed COF
Interest Rate. Any proposed COF Interest Rate offered under this Section will be
a rate per annum equal to the sum of (i) the Applicable Rate Increment
(hereinafter defined) PLUS (ii) the COF Rate for the applicable Fixed Rate
Period (expressed as a per annum rate); provided, however, that the COF Interest
Rate shall in no event exceed the maximum rate permitted by applicable law (with
the COF Interest Rate applicable to the Tranche A Term Loans or Tranche B Term
Loans, as the case may be, to change on each day when the Applicable Rate
Increment changes). The source or sources of funding utilized for the
computation of any COF Rate shall be selected by the Bank at its sole discretion
for offering to the Borrower, and the Borrower shall not have any claim against
the Bank with respect to computation of any proposed COF Interest Rate. If the
Borrower is dissatisfied with any proposed COF Interest Rate, the Borrower's
sole remedy with
4
<PAGE> 5
respect thereto shall be not to accept such proposed COF Interest Rate within
the applicable time period, and thus to cause interest on the Term Loans to be
payable at the Floating Rate (subject to the Borrower's ability set forth
elsewhere herein to obtain LIBOR Loans). Notwithstanding the foregoing
provisions hereof, the Bank need not offer a proposed COF Interest Rate for any
period of time with respect to which the Bank, in its sole discretion,
determines that there are no recognized sources of funding available to it for
such time period or principal amount or that the cost of funds with respect
thereto would be unreasonably high or if there then exists any Default or Event
of Default. Further, the Borrower may not convert into a COF Loan any LIBOR Loan
prior to the end of the Interest Period applicable to such LIBOR Loan.
If the Borrower does not elect a COF Interest Rate for all of the Term
Loans, the Borrower may request and the Bank may issue caps, collars, swaps and
other rate protection products, using the Bank's then customary documentation
for such transactions. Such caps, collars, swaps and other rate protection
products will be issued for such fees and upon such other terms and conditions
as may be agreed upon by the Bank and the Borrower at the time of issuance
thereof.
Any request for a Fixed Rate Loan and any election to convert all or
any portion of the Term Loans to a Fixed Rate Loan may be made on behalf of the
Borrower only by a duly authorized officer; provided, however, that the Bank may
conclusively rely upon any written or facsimile communication received from any
individual whom the Bank believes in good faith to be such a duly authorized
officer.
1.5. INTEREST PAYMENTS. The Borrower will pay interest on the
principal amount of the Term Loans outstanding from time to time, from the date
hereof until payment of the Term Loans and the Term Note in full and the
termination of this letter agreement. Interest on Floating Rate Loans and any
COF Loan will be payable monthly in arrears on the first day of each month.
Interest on each LIBOR Loan will be payable in arrears on each applicable
Interest Payment Date. In any event, interest shall also be payable on the date
of payment of the Term Loans in full. Interest on Floating Rate Loans shall be
payable at the Floating Rate. The rate of interest payable on any LIBOR Loan
will be the LIBOR Interest Rate applicable thereto. Interest on any COF Loan
will be payable at the applicable COF Interest Rate. In any event, overdue
principal of any Term Loan and, to the extent permitted by law, overdue interest
on any Term Loan shall bear interest at a rate per annum which at all times
shall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the Prime
Rate in effect from time to time, compounded monthly and payable on demand. All
interest payable hereunder and/or under the Term Note will be calculated on the
basis of a 360-day year for the actual number of days elapsed.
1.6. RATE DETERMINATION PROTECTION. In the event that:
(i) the Bank shall determine that, by reason of
circumstances affecting the London interbank market or
otherwise, adequate and reasonable methods do not exist for
ascertaining the LIBOR Interest Rate which would otherwise be
applicable during any Interest Period, or
(ii) the Bank shall determine that:
5
<PAGE> 6
(A) the making or continuation of any LIBOR Loan
has been made impracticable or unlawful by (1) the
occurrence of any contingency that materially and
adversely affects the London interbank market or (2)
compliance by the Bank with any applicable law or
governmental regulation, guideline or order or
interpretation or change thereof by any governmental
authority charged with the interpretation or
administration thereof or with any request or
directive of any such governmental authority (whether
or not having the force of law); or
(B) LIBOR will not, in the reasonable
determination of the Bank, adequately and fairly
reflect the cost to the Bank of funding the LIBOR
Loans for such Interest Period
then the Bank shall forthwith give notice of such
determination (which shall be conclusive and binding on the
Borrower) to the Borrower. In such event the obligations of
the Bank to make LIBOR Loans shall be suspended until the Bank
determines that the circumstances giving rise to such
suspension no longer exist, whereupon the Bank shall notify
the Borrower.
1.7. PREPAYMENT OF FIXED RATE LOANS. The following provisions of
this ss.1.7 shall be effective only with respect to Fixed Rate Loans: If, due to
acceleration of the Term Note or due to voluntary prepayment or mandatory
repayment or prepayment or due to any other reason, the Bank receives payment of
any principal of a LIBOR Loan on any date prior to the last day of the relevant
Interest Period or if for any reason any LIBOR Loan is converted to a Floating
Rate Loan prior to the expiration of the relevant Interest Period or if for any
reason all or any portion of any installment of principal of any COF Loan is
received by the Bank prior to the regularly scheduled due date thereof, the
Borrower shall, upon demand and receipt of a Bank Certificate from the Bank with
respect thereto, pay forthwith to the Bank a yield maintenance fee in an amount
computed as follows: The current rate for United States Treasury securities
(bills on a discounted basis shall be converted to a bond equivalent) with a
maturity date closest to the last day of the Interest Period applicable to the
affected LIBOR Loan or to the regularly scheduled due date of any installment of
a COF Loan (as the case may be) shall be subtracted from the "cost of funds"
component (i.e., reserve-adjusted LIBOR in the case of LIBOR Loans or the COF
Rate in the case of COF Loans) of the fixed rate in effect at the date of such
prepayment or conversion. If the result is zero or a negative number, there
shall be no yield maintenance fee. If the result is a positive number, then the
resulting percentage shall be multiplied by the amount of the principal balance
being prepaid. The resulting amount shall be divided by 360 and multiplied by
the number of days remaining in the relevant Interest Period (or remaining to
the regularly scheduled due date of the prepaid installment of a COF Loan, as
the case may be). Said amount shall be reduced to present value calculated by
using the number of days remaining in the relevant Interest Period (or remaining
to the regularly scheduled due date of the prepaid installment of a COF Loan, as
the case may be) and by using the above-referenced United States Treasury
securities rate as the discount rate. The resulting amount shall be the yield
maintenance fee due to the Bank upon prepayment or conversion of the applicable
Fixed Rate Loan. Any acceleration of a Fixed Rate Loan due to an Event of
Default will give rise to a yield maintenance fee calculated with the respect to
such Fixed Rate Loan on the date of such
6
<PAGE> 7
acceleration in the same manner as though the Borrower had exercised a right of
prepayment at that date, such yield maintenance fee being due and payable at
that date.
1.8. INCREASED COSTS; CAPITAL ADEQUACY.
(i) If the adoption, effectiveness or phase-in, after the
date hereof, of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any
request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency:
(A) shall subject the Bank to any Imposition or
other charge with respect to any Fixed Rate Loan, the
Term Note or the Bank's agreement to make Fixed Rate
Loans, or shall change the basis of taxation of
payments to the Bank of the principal of or interest
on any Fixed Rate Loan or any other amounts due under
this letter agreement in respect of the Fixed Rate
Loans or the Bank's agreement to make Fixed Rate
Loans (except for changes in the rate of tax on the
over-all net income of the Bank); or
(B) shall impose, modify or deem applicable any
reserve, special deposit, deposit insurance or
similar requirement (including, without limitation,
any such requirement imposed by the Board of
Governors of the Federal Reserve System, but
excluding, with respect to any LIBOR Loan, any such
requirement already included in the applicable
Reserve Rate and excluding, with respect to any COF
Loan, any such requirement already included in the
applicable COF Rate) against assets of, deposits with
or for the account of, or credit extended by, the
Bank or shall impose on the Bank or on the London
interbank market any other condition affecting any
Fixed Rate Loans, the Term Note or the Bank's
agreement to make Fixed Rate Loans
and the result of any of the foregoing is to increase the cost
to the Bank of making or maintaining any Fixed Rate Loan or to
reduce the amount of any sum received or receivable by the
Bank under this letter agreement or under the Term Note with
respect to any Fixed Rate Loan by an amount deemed by the Bank
to be material, then, upon demand by the Bank and receipt of a
Bank Certificate from the Bank with respect thereto, the
Borrower shall pay to the Bank such additional amount or
amounts as the Bank certifies to be necessary to compensate
the Bank for such increased cost or reduction in amount
received or receivable.
(ii) If the Bank shall have determined that the adoption,
effectiveness or phase-in after the date hereof of any
applicable law, rule or regulation regarding capital
requirements for banks or bank holding companies, or any
change therein after the date hereof, or any change after the
date hereof in the interpretation or administration thereof by
any governmental authority, central bank or comparable
7
<PAGE> 8
agency charged with the interpretation or administration
thereof, or compliance by the Bank with any request or
directive of such entity regarding capital adequacy (whether
or not having the force of law) has or would have the effect
of reducing the return on the Bank's capital with respect to
its agreement hereunder to make Term Loans or with respect to
any Term Loan (whether or not then subject to any LIBOR
Interest Rate or COF Interest Rate) to a level below that
which the Bank could have achieved (taking into consideration
the Bank's policies with respect to capital adequacy
immediately before such adoption, effectiveness, phase-in,
change or compliance and assuming that the Bank's capital was
then fully utilized) by any amount deemed by the Bank to be
material: (A) the Bank shall promptly after its determination
of such occurrence deliver a Bank Certificate with respect
thereto to the Borrower; and (B) the Borrower shall pay to the
Bank as an additional fee from time to time on demand such
amount as the Bank certifies to be the amount that will
compensate it for such reduction.
(iii) A Bank Certificate of the Bank claiming compensation
under this ss.1.8 shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of
the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to the Bank hereunder
and the method by which such amounts are determined. In
determining any such amount, the Bank may use any reasonable
averaging and attribution methods.
(iv) No failure on the part of the Bank to demand
compensation on any one occasion shall constitute a waiver of
its right to demand such compensation on any other occasion
and no failure on the part of the Bank to deliver any Bank
Certificate in a timely manner shall in any way reduce any
obligation of the Borrower to the Bank under this ss.1.8.
1.9. ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any other
provision of this letter agreement, if the introduction of or any change in or
in the interpretation or administration of any law or regulation applicable to
the Bank or the Bank's activities in the London interbank market shall make it
unlawful, or any central bank or other governmental authority having
jurisdiction over the Bank or the Bank's activities in the London interbank
market shall assert that it is unlawful, or otherwise make it impossible, for
the Bank to perform its obligations hereunder to make LIBOR Loans or to continue
to fund or maintain LIBOR Loans, then on notice thereof and demand therefor by
the Bank to the Borrower, (i) the obligation of the Bank to fund LIBOR Loans
shall terminate and (ii) all affected LIBOR Loans shall be deemed to have been
converted into Floating Rate Loans (with the Borrower to be responsible for any
amount payable under ss.1.7 as a consequence of such conversion) at the last day
on which such LIBOR Loans may legally remain outstanding. Except as expressly
provided in the immediately preceding sentence, no LIBOR Loan may be converted
into a Floating Rate Loan prior to the end of the Interest Period applicable to
such LIBOR Loan.
1.10. ADVANCES AND PAYMENTS. The proceeds of all Term Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Term Loan will be used by the Borrower
solely to pay or reimburse acquisition costs of Qualifying Equipment and
Qualifying Leasehold Improvements.
8
<PAGE> 9
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums due,
from time to time, under this letter agreement and/or the Term Note; and will
thereafter notify the Borrower of the amount so charged. The failure of the Bank
so to charge any account or to give any such notice shall not affect the
obligation of the Borrower to pay interest, principal or other sums as provided
herein or in the Term Note.
Whenever any payment to be made to the Bank hereunder or under the Term
Note shall be stated to be due on a day which is not a Business Day, such
payment may be made on the next succeeding Business Day, and interest payable on
each such date shall include the amount thereof which shall accrue during the
period of such extension of time. All payments by the Borrower hereunder and/or
in respect of the Term Note shall be made net of any Impositions or taxes and
without deduction, set-off or counterclaim, notwithstanding any claim which the
Borrower may now or at any time hereafter have against the Bank. All payments of
interest, principal and any other sum payable hereunder and/or under the Term
Note shall be made to the Bank, in lawful currency of the United States in
immediately available funds, at its office at One Federal Street, Boston, MA
02110 or to such other address as the Bank may from time to time direct. All
payments received by the Bank after 2:00 p.m. on any day shall be deemed
received as of the next succeeding Business Day. All monies received by the Bank
shall be applied first to fees, charges, costs and expenses payable to the Bank
under this letter agreement, the Term Note and/or any of the other Loan
Documents, next to interest then accrued on account of any Term Loans and only
thereafter to principal of the Term Loans.
1.11. CONDITIONS TO ADVANCE. Prior to the making of the initial Term
Loan, the Borrower shall deliver to the Bank duly executed copies of this letter
agreement, the Security Agreement, the Term Note and the documents and other
items listed on the Closing Agenda delivered herewith by the Bank to the
Borrower, all of which, as well as all legal matters incident to the
transactions contemplated hereby, shall be satisfactory in form and substance to
the Bank and its counsel.
Without limiting the foregoing, any Term Loan (including the initial
Term Loan) is subject to the further conditions precedent that on the date on
which such Term Loan is made (and after giving effect thereto):
(a) All statements, representations and warranties of the Borrower
made in this letter agreement and/or in the Security Agreement (other than those
statements, representations and warranties which are expressly stated to apply
only as of a specific date and those statements, representations and warranties
relating to facts which this letter agreement contemplates may change from time
to time without violation of the terms of this letter agreement) shall continue
to be correct in all material respects as of the date of such Term Loan.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Term Loan.
(c) No event which constitutes, or which with notice or lapse of
time or both could constitute, an Event of Default shall have occurred and be
continuing.
9
<PAGE> 10
(d) No other material adverse change shall have occurred in the
financial condition of the Borrower from that disclosed in the financial
statements then most recently furnished to the Bank.
Each request by the Borrower for any Term Loan, and each acceptance by
the Borrower of the proceeds of any Term Loan, will be deemed a representation
and warranty by the Borrower that at the date of such Term Loan and after giving
effect thereto all of the conditions set forth in the foregoing clauses (a)-(d)
of this ss.1.11 will be satisfied.
Section 1.12. RATE ADJUSTMENT. This letter agreement contemplates that
the Applicable Rate Increment will be adjusted upon each change in Compliance
Level (hereinafter defined). As used herein, (i) the term "Rate Adjustment Date"
will mean the 45th day after the close of each fiscal quarter of the Borrower,
commencing with May 15, 1999, and (ii) as to each Rate Adjustment Date, the
relevant "Adjustment Measurement Date" will be the fiscal quarter-end
immediately preceding such Rate Adjustment Date. The Compliance Level will be
determined on each Rate Adjustment Date, based on the Borrower's Liquidity
Coverage Ratio determined as at the Adjustment Measurement Date relevant thereto
and (except as otherwise provided below) will remain in effect until (but not
including) the next following Rate Adjustment Date. For the purposes of this
letter agreement, the Borrower will be deemed to be in Level One Compliance as
at any Rate Adjustment Date if and only if the Borrower's Liquidity Ratio as at
the relevant Adjustment Measurement Date is greater than or equal to 2.0 to 1.
The Borrower will be deemed to be in Level Two Compliance as at any Rate
Adjustment Date if the Borrower is not in Level One Compliance as at such Rate
Adjustment Date. The Compliance Level to take effect on each Rate Adjustment
Date (including, without limitation, that Rate Adjustment Date which falls in
the first quarter of each fiscal year of the Borrower) will be determined based
on the unaudited consolidated financial statements of the Borrower as at the
relevant Adjustment Measurement Date furnished pursuant to clause (ii) of
ss.3.6; provided that if the audited annual consolidated financial statements of
the Borrower (when received by the Bank pursuant to clause (i) of ss.3.6)
indicate that as at any Adjustment Measurement Date which is a fiscal year-end
the Borrower's Liquidity Ratio, as evidenced by said audited financial
statements (the "Audited Q4 Liquidity Ratio"), was different from that Liquidity
Ratio (the "Unaudited Q4 Liquidity Ratio") which had been shown on the
management-generated financial statements theretofore delivered to the Bank
pursuant to clause (ii) of ss.3.6 with respect to such Adjustment Measurement
Date and the difference is such that the Audited Q4 Liquidity Ratio would result
in a Compliance Level different from that calculated with reference to the
Unaudited Q4 Liquidity Ratio, then, promptly after the relevant audited
financial statements have been received by the Bank, (i) the Compliance Level
will be adjusted to reflect the Audited Q4 Liquidity Ratio and (ii) as
applicable, either the Borrower will pay to the Bank (in the case of a decrease
in the Liquidity Ratio) an amount which reflects the additional interest which
the Bank would have received for the period beginning on the relevant Rate
Adjustment Date and continuing through the date of such adjustment if the lower
Liquidity Ratio had been in effect, or (in the case of an increase in the
Liquidity Ratio) the Bank will pay to the Borrower (or credit against payments
thereafter coming due under this letter agreement and/or the Term Note) an
amount equal to the excess interest which the Bank actually received for the
period beginning on the relevant Rate Adjustment Date and continuing through the
date of such adjustment, "excess interest" being deemed to mean for the purposes
of this paragraph, the result, if positive, of (x) the interest on the Term Note
actually received by the Bank for such period MINUS (y) the interest on the Term
10
<PAGE> 11
Note which would have been received by the Bank for such period had the
Compliance Level corresponding to the Audited Q4 Liquidity Ratio been in effect
throughout such period. Further, and notwithstanding anything provided above in
this ss.1.12, if the Borrower's financial statements for any fiscal quarter are
for any reason not timely delivered to the Bank, the Borrower will be deemed to
be in Level Two Compliance unless and until such financial statements are so
delivered to the Bank, at which time the Compliance Level will be determined
based on such financial statements and the Applicable Rate Increment will be
adjusted (if the Compliance Level so determined is not Level Two Compliance),
such adjustment to be effective as at the date of delivery of the relevant
financial statements and without retroactive effect. No rate adjustment provided
for herein will be deemed to excuse or waive any default resulting from the
failure by the Borrower to comply with any other provision of this letter
agreement (including, without limitation, ss.3.8 of this letter agreement and,
in the event of any such default, the Bank will have all of its rights and
remedies described in Article V below consequent thereon. In any event, the
Borrower will be deemed to be in Level One Compliance from the date of this
letter agreement to May 15, 1999, at which date the Compliance Level will be
determined on the basis of the Liquidity Ratio as at the then relevant
Adjustment Measurement Date (i.e., March 31, 1999).
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this letter agreement and to make Term Loans hereunder, the Borrower
warrants and represents to the Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted and as
proposed to be conducted, to grant the security interests contemplated by the
Security Agreement and to enter into and perform this letter agreement and the
other Loan Documents. The Borrower is duly qualified to do business and in good
standing in Massachusetts and in each other jurisdiction in which the Borrower
maintains any plant, office, warehouse or other facility and in each other
jurisdiction where the failure so to qualify could (singly or in the aggregate
with all other such failures) have a material adverse effect on the financial
condition, business or prospects of the Borrower, all such jurisdictions being
listed on item 2.1(a) of the attached Disclosure Schedule. At the date hereof,
the Borrower has no Subsidiaries, other than ArQule Catalytics, Inc., a Delaware
corporation. The Borrower is not a member of any partnership or joint venture.
(b) The Borrower owns 80% of the outstanding capital stock of
ArQule Catalytics, Inc. and 100% of the outstanding capital stock of any other
Subsidiary.
(c) The execution, delivery and performance by the Borrower of
this letter agreement and each of the other Loan Documents have been duly
authorized by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require as a
prerequisite to effectiveness any filing (other than filings under the
Uniform Commercial Code), registration, consent or
11
<PAGE> 12
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of
the Borrower, or result in a breach of or constitute a default or
require any waiver or consent under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which the Borrower or any of its
properties may be bound or affected or require any other consent of any
Person; or
(iii) result in, or require, the creation or imposition of
any lien, security interest or other encumbrance (other than in favor
of the Bank), upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has
been duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby or which in any single case or in
the aggregate may result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary is in material
violation of any term of any mortgage, indenture or judgment, decree or order,
or any other material instrument, contract or agreement to which it is a party
or by which any of its property is bound.
(g) The Borrower has filed (and has caused each Subsidiary of the
Borrower to file) all federal, foreign, state and local tax returns, reports and
estimates required to be filed by the Borrower or any such Subsidiary. All such
filed returns, reports and estimates are proper and accurate and the Borrower
(or the Subsidiary concerned, as the case may be) has paid all taxes,
assessments, impositions, fees and other governmental charges required to be
paid in respect of the periods covered by such returns, reports or estimates. No
deficiencies for any tax, assessment or governmental charge have been asserted
or assessed, and the Borrower knows of no material tax liability or basis
therefor.
(h) The Borrower is in compliance (and each Subsidiary of the
Borrower is in compliance with) with all requirements of law, federal, foreign,
state and local, and all requirements of all governmental bodies or agencies
having jurisdiction over it, the conduct of its business, the use of its
properties and assets, and all premises occupied by it, failure to comply with
any of which could (singly or in the aggregate with all other such failures)
have a material adverse effect upon the assets, business, financial condition or
prospects of the Borrower.
12
<PAGE> 13
Without limiting the foregoing, the Borrower has all the material franchises,
licenses, leases, permits, certificates and authorizations needed for the
conduct of its business and the use of its properties and all premises occupied
by it, as now conducted, owned and used and as proposed to be conducted, owned
and used.
(i) The draft consolidated annual financial statements of the
Borrower as at December 31, 1998, heretofore delivered to the Bank, are complete
and accurate and fairly present the financial condition of the Borrower as at
the date thereof and for the period covered thereby, subject to normal year-end
audit and adjustment. The audited consolidated financial statements of the
Borrower for the fiscal year ended December 31, 1998 will (when issued) not be
materially different from said draft annual financial statements. The Borrower
does not have any liability, contingent or otherwise, not disclosed in the
aforesaid financial statements or in any notes thereto that could materially
affect the financial condition of the Borrower. Since December 31, 1998, here
has been no material adverse development in the business, condition or prospects
of the Borrower, and the Borrower has not entered into any material transaction
other than in the ordinary course.
(j) The principal place of business and chief executive offices of
the Borrower are located at the Medford Premises. All of the books and records
of the Borrower are located at the Medford Premises. Except as described on item
2.1(j) of the attached Disclosure Schedule, no assets of the Borrower are
presently located at any address other than the Medford Premises and the Waltham
Premises. Said item 2.1(j) of the attached Disclosure Schedule sets forth the
names and addresses of all record owners of the Medford Premises, the Waltham
Premises and the 128/93 Premises. From and after the 128/93 Move Date, assets of
the Borrower may also be located at the 128/93 Premises.
(k) To the best of the Borrower's knowledge, the Borrower owns or
has a valid right to use all of the patents, licenses, copyrights, trademarks
and trade names now being used or necessary to conduct its business, except
where the failure to have same would not be reasonably likely to have a material
adverse effect on the financial condition, business, prospects or properties of
the Borrower. To the best of the Borrower's knowledge, the conduct of the
Borrower's business as now operated does not conflict with valid patents,
copyrights, trademarks or trade names of others in any manner that could
materially adversely affect the business, prospects, assets or condition,
financial or otherwise, of the Borrower.
(l) None of the executive officers or key employees of the
Borrower is subject to any Employee Restrictive Agreement which could have a
material adverse effect on the financial condition, business or prospects of the
Borrower. As used herein, an "Employee Restrictive Agreement" is any agreement
of such an executive officer or key employee in favor of anyone other than the
Borrower which limits or restricts that person's right to engage in the type of
business activity conducted or proposed to be conducted by the Borrower or which
grants to anyone other than the Borrower any rights in any inventions or other
ideas susceptible to legal protection developed or conceived by any such officer
or key employee.
(m) The Borrower is not a party to any contract or agreement which
now has or, as far as can be foreseen by the Borrower at the date hereof, may
have a material adverse effect on the financial condition, business, prospects
or properties of the Borrower.
13
<PAGE> 14
(n) Borrower has reviewed the software which it uses in its
business for "Year 2000" compliance and has determined that such software will
continue to function in the manner intended without interruption of service or
other material difficulty resulting from the "Year 2000 problem". The Borrower
will, at the request of the Bank, provide such reports and other information as
the Bank may reasonably request in order to evidence such Year 2000 compliance.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business in Massachusetts. The Borrower
will qualify to do business and will remain qualified and in good standing (and
the Borrower will cause each Subsidiary of the Borrower to qualify and remain
qualified and in good standing) in each other jurisdiction where the Borrower or
such Subsidiary, as the case may be, maintains any plant, office, warehouse or
other facility and in each other jurisdiction where the failure so to qualify
could (singly or in the aggregate with all other such failures) have a material
adverse effect on the financial condition, business or prospects of the Borrower
or any such Subsidiary. The Borrower will comply (and will cause each Subsidiary
of the Borrower to comply) with its charter documents and by-laws. The Borrower
will comply with (and will cause each Subsidiary of the Borrower to comply with)
all applicable laws, rules and regulations (including, without limitation, ERISA
and those relating to environmental protection) other than (i) laws, rules or
regulations the validity or applicability of which the Borrower or such
Subsidiary shall be contesting in good faith by proceedings which serve as a
matter of law to stay the enforcement thereof and (ii) those laws, rules and
regulations the failure to comply with any of which could not (singly or in the
aggregate) have a material adverse effect on the financial condition, business
or prospects of the Borrower or any such Subsidiary.
3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain
and preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its material properties and assets in good working order and
condition, making all necessary repairs thereto and replacements thereof. The
Borrower will maintain all such insurance as may be required under the Security
Agreement and will also maintain, with financially sound and reputable insurers,
insurance with respect to its property and business against such liabilities,
casualties and contingencies and of such types and in such amounts as shall be
reasonably satisfactory to the Bank from time to time and in any event all such
insurance as may from time to time be customary for companies conducting a
business similar to that of the Borrower in similar locales.
3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and
discharge (and will cause each Subsidiary of the Borrower to pay and discharge)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its income or property, including, without limitation, taxes, assessments,
charges or levies relating to real and personal property,
14
<PAGE> 15
franchises, income, unemployment, old age benefits, withholding, or sales or
use, prior to the date on which penalties would attach thereto, and all lawful
claims (whether for any of the foregoing or otherwise) which, if unpaid, might
give rise to a lien upon any property of the Borrower or any such Subsidiary,
except any of the foregoing which is being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay the enforcement
thereof and for which the Borrower has established and is maintaining adequate
reserves. The Borrower will pay, and will cause each of its Subsidiaries to pay,
in a timely manner, all material lease obligations, material trade debt,
material purchase money obligations and material equipment lease obligations.
The Borrower will perform and fulfill all material covenants and agreements
under any material leases of real estate, material agreements relating to
purchase money debt, material equipment leases and other material contracts. The
Borrower will maintain in full force and effect, and comply with the terms and
conditions of, all permits, permissions and licenses necessary or desirable for
its business, except where the failure to do so would not be reasonably likely
to have a material adverse effect on the financial condition, business,
prospects or properties of the Borrower.
3.4. ACCOUNTS. The Borrower will maintain its principal depository
and operating accounts with the Bank; provided that the Borrower will have 180
days after the date of this letter agreement to transition its accounts to the
Bank.
3.5. CONDUCT OF BUSINESS. The Borrower is presently engaged in the
business of discovering and developing chemical compounds with commercial
potential in the pharmaceutical, biotechnology and agrochemical industries (the
"Business"). The Borrower and its Subsidiaries will conduct the Business in the
ordinary course. Borrower will not, without the prior written consent of the
Bank, directly or indirectly (itself or through any Subsidiary) enter into any
lines of business, businesses or ventures other than those which are within the
Business or reasonably related thereto.
3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank:
(i) Within 90 days after the end of each fiscal year of
the Borrower, a copy of the Borrower's Annual Report on Form 10-K for
such fiscal year, as filed with the SEC, and (whether or not contained
in such Annual Report on Form 10-K) all of the following: the annual
audit report for such fiscal year for the Borrower, including therein
the consolidated balance sheets of the Borrower and Subsidiaries as at
the end of such fiscal year and related consolidated statements of
income, stockholders' equity and cash flow for the fiscal year then
ended. The annual consolidated financial statements shall be certified
by independent public accountants selected by the Borrower and
reasonably acceptable to the Bank, such certification to be in such
form as is generally recognized as "unqualified". The Borrower will
also deliver to the Bank, within 90 days after the commencement of each
fiscal year, projections of sales, income and expenses of the Borrower
for such fiscal year, prepared by the Borrower's management and
approved by the Borrower's Board of Directors, such projections to be
in such detail as is reasonably satisfactory to the Bank.
(ii) Within 45 days after the end of each fiscal quarter
of the Borrower, a copy of the Borrower's Quarterly Report on Form 10-Q
for such fiscal quarter, as filed
15
<PAGE> 16
with the SEC, and (whether or not contained in such Quarterly Report on
Form 10-Q) all of the following: the consolidated balance sheets of the
Borrower and Subsidiaries and related consolidated statements of income
and cash flow, unaudited but prepared in accordance with generally
accepted accounting principles consistently applied fairly presenting
the financial condition of the Borrower and Subsidiaries as at the
dates thereof and for the periods covered thereby (except that such
quarterly statements need not contain notes to the financial
statements) and certified as complete by the chief financial officer of
the Borrower, such balance sheets to be as at the end of such fiscal
quarter and such statements of income and cash flow to be for such
fiscal quarter and for the fiscal year to date, in each case together
with a comparison to the results for the corresponding fiscal period of
the immediately prior fiscal year.
(iii) At the time of delivery of each annual or quarterly
report or financial statement of the Borrower, a certificate executed
by the chief financial officer of the Borrower stating that he or she
has reviewed this letter agreement and the other Loan Documents and has
no knowledge of any default by the Borrower in the performance or
observance of any of the provisions of this letter agreement or of any
of the other Loan Documents or, if he or she has such knowledge,
specifying each such default and the nature thereof. Each financial
statement given as at the end of any fiscal quarter of the Borrower
will also set forth the calculations necessary to evidence compliance
with secs.3.7-3.9.
(iv) Promptly after receipt, a copy of all audits or
reports submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any "management letter" submitted by such accountants.
(v) As soon as possible and in any event within five days
after the occurrence of any Default or Event of Default, the statement
of the Borrower setting forth details of each such Default or Event of
Default and the action which the Borrower proposes to take with respect
thereto.
(vi) Promptly after the commencement thereof, notice of
all actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, to which the Borrower or any Subsidiary of the
Borrower is a party; provided, however, that the Borrower will not be
deemed required by this clause (vi) to give such notice with respect to
any such action, suit or proceeding in which only monetary damages are
sought and the amount so sought is less than $500,000.
(vii) Promptly upon filing any registration statement or
listing application, a copy of same.
(viii) As long as the Borrower has a class of securities
which is publicly traded, a copy of each periodic or current report of
the Borrower filed with the SEC or any successor agency and each annual
report, proxy statement and other communication sent
16
<PAGE> 17
by the Borrower to shareholders or other securityholders generally,
such copy to be provided to the Bank promptly upon such filing with the
SEC or such communication with shareholders or securityholders, as the
case may be.
(ix) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may reasonably
be expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(x) Promptly upon request, such other information
respecting the financial condition, operations, receivables, inventory,
machinery or equipment of the Borrower or any Subsidiary as the Bank
may from time to time reasonably request.
3.7. CAPITAL BASE. The Borrower will maintain, as at the end of
each fiscal quarter of the Borrower (commencing with its results as at December
31, 1998), a consolidated Capital Base of not less than $40,000,000.
3.8. LIQUIDITY. The Borrower will maintain, as at the end of each
fiscal quarter of Borrower (commencing with its results as at December 31,
1998), a Liquidity Ratio of not less than 1.5 to 1. As used herein, the
"Liquidity Ratio", as determined at any date, means the ratio of (x) Net Quick
Assets to (y) Adjusted Liabilities outstanding at that date.
3.9. DEBT SERVICE COVERAGE. As used herein, "Determination Date"
means the last day of each fiscal quarter of the Borrower. The Borrower will
maintain on a consolidated basis, as at each Determination Date (commencing with
its results as at December 31, 1998), a Debt Service Coverage Ratio of not less
than 1.5 to 1. As used herein, the "Debt Service Coverage Ratio", as determined
as at any Determination Date, means the ratio of (x) EBITDA of the Borrower and
Subsidiaries for the 12-month period ending on such Determination Date to (y)
the total of (1) all interest on any Indebtedness (whether senior or
subordinated, long-term or current), which interest was paid or payable or
accrued by the Borrower or any Subsidiary of the Borrower during such 12-month
period ending on such Determination Date, PLUS (2) the aggregate current
maturities of long-term debt of the Borrower and Subsidiaries outstanding at
such Determination Date, PLUS (3) the total Capital Expenditures incurred by the
Borrower and/or any of its Subsidiaries and not financed by the Borrower as
permitted under this letter agreement (exclusive of Capital Expenditures
relating to the Waltham Facility and the 128/93 Facility incurred in 1998 and
1999) during the 12-month period ending on such Determination Date.
Notwithstanding the foregoing, the Borrower need not comply with the foregoing
provisions of this ss.3.9 as at any Determination Date if the Borrower's
Unencumbered Cash Balance as at such Determination Date is equal to or greater
than the product of (x) 1.5 TIMES (y) the outstanding principal balance of the
Term Loans at such Determination Date.
3.10. BOOKS AND RECORDS. The Borrower will maintain (and will cause
each of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time to
time upon reasonable notice and during normal business hours (and at any time
and without any necessity for notice following the occurrence of an Event of
Default), permit the
17
<PAGE> 18
Bank, and any agents or representatives thereof, to examine and make copies of
and take abstracts from the records and books of account of, and visit the
properties of the Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its officers, directors and/or independent
accountants, all of whom are hereby authorized and directed to cooperate with
the Bank in carrying out the intent of this ss.3.10. Each financial statement of
the Borrower hereafter delivered pursuant to this letter agreement will be
complete and accurate and will fairly present the financial condition of the
Borrower as at the date thereof and for the periods covered thereby.
3.11. LANDLORD'S WAIVER. To the extent required by the Bank, prior
to the making of the first Term Loan, the Borrower will obtain, and will
thereafter maintain in effect at all times, waivers from the owners of all
premises in which any material amount of Collateral is located, such waivers to
be in form and substance satisfactory to the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any other covenants and agreements contained
herein or elsewhere, the Borrower agrees that so long as the financing
arrangements contemplated hereby are in effect or all or any portion of any Term
Loan or any of the other Obligations shall be outstanding:
4.1. INDEBTEDNESS. Without the prior written consent of the Bank,
the Borrower will not create, incur, assume or suffer to exist any Indebtedness
(nor allow any of its Subsidiaries to create, incur, assume or suffer to exist
any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Term Note;
(ii) Indebtedness of the Borrower or any Subsidiary for
taxes, assessments and governmental charges or levies not yet due and
payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money
Indebtedness with respect to fixed assets) incurred upon customary
terms in the ordinary course of business;
(iv) presently existing and subsequently incurred purchase
money Indebtedness (including, without limitation, Indebtedness in
respect of capitalized equipment leases) owed to equipment vendors,
equipment lessors and other Persons providing purchase money financing
to the Borrower for equipment purchased or leased by the Borrower for
use in the Borrower's business, provided that (A) the total
Indebtedness permitted under this clause (iv) will not exceed
$2,500,000 in the aggregate outstanding at any one time and (B) all
such purchase money Indebtedness outstanding at the date hereof is set
forth on item 4.1 of the attached Disclosure Schedule;
(v) any guaranties or other contingent liabilities
expressly permitted pursuant to ss.4.3;
18
<PAGE> 19
(vi) any Indebtedness (other than as described in any of
clauses (i) - (iii) above) existing at the date hereof, but only to the
extent set forth on item 4.1 of the attached Disclosure Schedule; and
(vii) any additional unsecured Indebtedness incurred after
the date hereof for any reason (and not described in any of clauses (i)
- (vi) above); provided that the total Indebtedness permitted pursuant
to this clause (vii) will not exceed $500,000 in the aggregate
outstanding at any one time.
4.2. LIENS. The Borrower will not create, incur, assume or suffer
to exist (nor allow any of its Subsidiaries to create, incur, assume or suffer
to exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges
or levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty or are being contested in good faith and by
appropriate proceedings which serve as a matter of law to stay any
enforcement thereof and as to which adequate reserves are maintained;
(ii) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other similar Liens arising in
the ordinary course of business for sums not yet due or which are being
contested in good faith and by appropriate proceedings which serve as a
matter of law to stay the enforcement thereof and as to which adequate
reserves are maintained;
(iii) pledges or deposits under workmen's compensation
laws, unemployment insurance, social security, retirement benefits or
similar legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors, equipment
lessors and other Persons securing purchase money Indebtedness to the
extent permitted by clause (iv) of ss.4.1; provided that no such Lien
will extend to any property of the Borrower other than the specific
items of equipment financed;
(vi) other Liens existing at the date hereof, but only to
the extent and with the relative priorities set forth on item 4.2 of
the attached Disclosure Schedule; or
(vii) rights which may in the future be granted to a Major
Pharma Company with respect to assets of the Borrower located in the
Medford Premises pursuant to the Pharma Development Agreement.
Without limitation of the other representations, warranties, covenants and
agreements of the Borrower set forth elsewhere in this letter agreement, the
Borrower (i) represents and warrants that neither the Borrower nor any of its
Subsidiaries is now a party to any Restrictive Agreement
19
<PAGE> 20
(other than any such Restrictive Agreement now existing in favor of a lessor or
purchase money financier of equipment as described in clause (iv) of ss.4.1
above; provided that any such Restrictive Agreement permitted by this
parenthetical relates only to the particular item or items of equipment so
financed) and (ii) agrees that the Borrower will not enter into (nor permit any
of its Subsidiaries to enter into) any Restrictive Agreement, except that (A)
the Borrower may enter into a Restrictive Agreement with the lessor of any
equipment or with any Person providing purchase money financing permitted by
clause (iv) of ss.4.1 above; provided that such Restrictive Agreement relates
only to the particular item or items of equipment so leased or financed, and (B)
the Pharma Development Agreement may contain provisions constituting a
Restrictive Agreement with respect to assets of the Borrower located at the
Medford Premises. As used herein, a "Restrictive Agreement" is any agreement,
covenant, undertaking or understanding which could have the effect of preventing
the Borrower or any Subsidiary from granting a Lien on any of its assets to the
Bank.
In order to facilitate the purchase money financing described in clause
(v) above, the Bank will, under the circumstances provided for in the Security
Agreement, release from the lien of the Security Agreement any equipment
hereafter leased or purchased by the Borrower with lease financing or purchase
money financing permitted by clause (iv) of ss.4.1 above. In order to facilitate
the Pharma Development Agreement, the Bank will, under the circumstances
provided for in the Security Agreement, release from the lien of the Security
Agreement assets of the Borrower (not including any Qualifying Equipment nor any
Qualifying Leasehold Improvements) located in the Medford Premises and subject
to the Pharma Development Agreement.
4.3. GUARANTIES. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, and (ii) guaranties
existing at the date hereof and described on item 4.3 of the attached Disclosure
Schedule.
4.4. DIVIDENDS. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock.
4.5. LOANS AND ADVANCES. The Borrower will not make (and will not
permit any Subsidiary to make) any loans or advances to any Person, including,
without limitation, the Borrower's directors, officers and employees, except
advances to such directors, officers or employees with respect to expenses
incurred by them in the ordinary course of their duties and advances against
salary, all of which loans and advances will not exceed, in the aggregate,
$500,000 outstanding at any one time.
20
<PAGE> 21
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except: (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof; (ii) other investment grade debt securities and
other Readily-Marketable Securities; (iii) mutual funds, the assets of which are
primarily invested in items of the kind described in the foregoing clauses (i)
and (ii) of this ss.4.6; (iv) deposits with or certificates of deposit issued by
the Bank and any other obligations of the Bank or the Bank's parent; (v)
deposits with or certificates of deposit issued by any other bank organized in
the United States having capital in excess of $100,000,000; (vi) existing
investments described on item 4.6 of the attached Disclosure Schedule; and (vii)
investments in any Subsidiaries now existing or hereafter created by the
Borrower pursuant to ss.4.7 below; provided that in any event the Tangible Net
Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any
debt owed by any Subsidiary to the Borrower) will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries.
4.7. SUBSIDIARIES; ACQUISITIONS. The Borrower will not, without the
prior written consent of the Bank, make any acquisition of all or substantially
all of the stock of any other Person or of all or substantially all of the
assets of any other Person, other than a Permitted Acquisition. The Borrower
will not become a partner in any partnership. The Borrower will promptly inform
the Bank if it forms any Subsidiaries.
4.8. MERGER. The Borrower will not, without the prior written
consent of the Bank, merge or consolidate with any Person, or sell, lease,
transfer or otherwise dispose of (whether in one or more transactions) any
material portion of its assets (including, without limitation, any material
portion of its intellectual property), other than (i) the sale of inventory in
the ordinary course; (ii) licensing of any of its intellectual property to
another Person on commercially reasonable terms; (iii) transfer of any of its
intellectual property for reasonable consideration to a research and development
entity in which the Borrower participates as an equity owner; or (iv) the sale,
lease, license or transfer of assets at the Medford Premises pursuant to the
Pharma Development Agreement.
4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without the
prior written consent of the Bank, enter into any transaction, including,
without limitation, the purchase, sale or exchange of any property or the
rendering of any service, with any affiliate of the Borrower, except in the
ordinary course and pursuant to the reasonable requirements of the Borrower's
business and upon fair and reasonable terms no less favorable to the Borrower
than would be obtained in a comparable arms'-length transaction with any Person
not an affiliate; provided that nothing in this ss.4.9 shall be deemed to
restrict the payment of salary or other similar payments to any officer or
director of the Borrower at a level consistent with the salary and other
payments being paid at the date of this letter agreement and heretofore
disclosed in writing to the Bank, nor to prevent the hiring of additional
officers at a salary level consistent with industry practice, nor to prevent
reasonable periodic increases in salary. For the purposes of this letter
agreement, "affiliate" means any Person which, directly or indirectly, controls
or is controlled by or is under common control with the Borrower; any officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 10% or more of any class of capital stock of the Borrower or 10%
or more of any class of capital stock or other equity interest having voting
21
<PAGE> 22
power (under ordinary circumstances) of any of the other Persons described
above; and any member of the immediate family of any of the foregoing. "Control"
means possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its
corporate name or legal structure, nor will the Borrower change its chief
executive offices or principal place of business from the Medford Premises, nor
will the Borrower keep any Collateral at any location other than at those
premises described in ss.2.1(j) without, in each instance, giving the Bank at
least 30 days' prior written notice and providing all such financing statements,
certificates and other documentation as the Bank may request in order to
maintain the perfection and priority of the security interests granted or
intended to be granted pursuant to the Security Agreement. Without limitation of
the foregoing, on or about the date hereof the Borrower is delivering or will
deliver to the Bank appropriate landlord's waivers and Uniform Commercial Code
financing statements relating to the 128/93 Premises. All Qualifying Equipment
and all Qualifying Leasehold Improvements will be delivered to and installed at,
and will remain at, the 128/93 Premises; in no event will any of the Qualifying
Equipment or Qualifying Leasehold Improvements be moved to the Medford Premises.
The Borrower will not change its fiscal year or materially change its methods of
financial reporting unless, in each instance, prior written notice of such
change is given to the Bank and prior to such change the Borrower enters into
amendments to this letter agreement in form and substance reasonably
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. HAZARDOUS WASTE. Except as provided below, the Borrower will
not dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any potential or known release
or threat of release of any hazardous material or oil at or from any site or
vessel owned, occupied or operated by the Borrower or any Subsidiary of the
Borrower, and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are chemicals, biological materials, solvents, cleaning
agents or other materials used in the ordinary course of the respective business
operations of the Borrower and its Subsidiaries in reasonable quantities, as
long as in any case the Borrower or the Subsidiary concerned (as the case may
be) has obtained and maintains in effect any necessary governmental permits,
licenses and approvals, complies in all material respects with all
22
<PAGE> 23
requirements of applicable federal, state and local law relating to such use,
storage or transportation, follows the protective and safety procedures that a
prudent businessperson conducting a business the same as or similar to that of
the Borrower or such Subsidiary (as the case may be) would follow, and disposes
of such materials (not consumed in the ordinary course) in accordance with
applicable law.
4.12. NO MARGIN STOCK. No proceeds of any Term Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. The Borrower will not directly or
indirectly make any optional or voluntary prepayment or purchase of Subordinated
Debt or modify, alter or add any provisions with respect to payment of
Subordinated Debt. In any event, the Borrower will not make any payment of any
principal of or interest on any Subordinated Debt at any time when there exists,
or if there would result therefrom, any Default or Event of Default hereunder.
V. DEFAULT AND REMEDIES
5.1. EVENTS OF DEFAULT. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Term Note on or before the date when due; or
(b) Any representation or warranty of the Borrower contained
herein shall at any time prove to have been incorrect in any material respect
when made or any representation or warranty made by the Borrower in connection
with any Term Loan shall at any time prove to have been incorrect in any
material respect when made; or
(c) The Borrower shall default in the performance or observance of
any agreement or obligation under any of secs.3.6, 3.7, 3.8 or 3.9 or any
provision of Article IV; or
(d) The Borrower shall default in the performance or observance of
any agreement or obligation under ss.3.1 and/or ss.3.3 and such default shall
continue unremedied for 15 days; or
(e) The Borrower shall default in the performance of any other
term, covenant or agreement contained in this letter agreement and such default
shall continue unremedied for 30 days after written notice thereof shall have
been given to the Borrower; or
(f) Any default on the part of the Borrower or any Subsidiary of
the Borrower shall exist, and shall remain unwaived or uncured beyond the
expiration of any applicable notice and/or grace period, under any other
contract, agreement or undertaking now existing or hereafter entered into with
or for the benefit of the Bank (or any affiliate of the Bank); or
(g) Any default shall exist and remain unwaived or uncured with
respect to any Subordinated Debt of the Borrower or with respect to any
instrument evidencing, guaranteeing, securing or otherwise relating to any such
Subordinated Debt, or any such Subordinated Debt shall not have been paid when
due, whether by acceleration or otherwise, or shall have been declared to be due
and payable prior to its stated maturity, or any event or circumstance shall
23
<PAGE> 24
occur which permits, or with the lapse of time or the giving of notice or both
would permit, the acceleration of the maturity of any Subordinated Debt by the
holder or holders thereof; or
(h) Any default shall exist and remain unwaived or uncured with
respect to any Indebtedness of the Borrower or any Subsidiary of the Borrower in
excess of $250,000 in aggregate principal amount or with respect to any
instrument evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $250,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or the giving of notice or both would permit, the acceleration of
the maturity of any such Indebtedness by the holder or holders thereof; or
(i) The Borrower shall be dissolved, or the Borrower or any
Subsidiary of the Borrower shall become insolvent or bankrupt or shall cease
paying its debts as they mature or shall make an assignment for the benefit of
creditors, or a trustee, receiver or liquidator shall be appointed for the
Borrower or any Subsidiary of the Borrower or for a substantial part of the
property of the Borrower or any such Subsidiary, or bankruptcy, reorganization,
arrangement, insolvency or similar proceedings shall be instituted by or against
the Borrower or any such Subsidiary under the laws of any jurisdiction (except
for an involuntary proceeding filed against the Borrower or any Subsidiary of
the Borrower which is dismissed within 60 days following the institution
thereof); or
(j) Any attachment, execution or similar process shall be issued
or levied against any property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 30 days after its issue or levy; or
(k) Any final uninsured judgment in excess of $500,000 shall be
entered against the Borrower or any Subsidiary of the Borrower by any court of
competent jurisdiction and shall not be paid or stayed within 30 days after
entry thereof; or
(l) The Borrower or any Subsidiary of the Borrower shall fail to
meet its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which,
in each case, in the reasonable opinion of the Bank may have a material adverse
effect upon the financial condition of the Borrower or any such Subsidiary; or
(m) The Security Agreement or any other Loan Document shall for
any reason (other than due to payment in full of all amounts secured or
evidenced thereby or due to discharge in writing by the Bank) not remain in full
force and effect; or
(n) The security interest and liens of the Bank in and on any of
the Collateral covered or intended to be covered by the Security Agreement shall
for any reason (other than written release by the Bank) not be fully perfected
liens and security interests; or
24
<PAGE> 25
(o) If, at any time, more than 50% of any class of voting stock of
the Borrower shall be held, of record and/or beneficially, by any Person or by
any "group" (as defined in the Securities Exchange Act of 1934, as amended, and
the regulations thereunder).
5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any
Event of Default, in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Term Note
then outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice (other
than such notices as are specifically provided for in this letter agreement) of
any kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the arrangements for Term Loans provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Security
Agreement, under the Term Note and under each and any other agreement with the
Bank; and exercise all other rights and remedies which the Bank may have under
applicable law.
5.3. SET-OFF. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice (other
than such notices as are specifically provided for in this letter agreement) of
any kind to the Borrower or to any other Person, all of which are hereby
expressly waived, to set off and to appropriate and apply any and all deposits
and any other Indebtedness at any time held or owing by the Bank or any
affiliate thereof to or for the credit or the account of the Borrower against
and on account of the obligations and liabilities of the Borrower to the Bank
under this letter agreement or otherwise, irrespective of whether or not the
Bank shall have made any demand hereunder and although said obligations,
liabilities or claims, or any of them, may then be contingent or unmatured and
without regard for the availability or adequacy of other collateral. As further
security for the Obligations, the Borrower also grants to the Bank a security
interest with respect to all its deposits and all securities or other property
in the possession of the Bank or any affiliate of the Bank from time to time,
and, upon the occurrence of any Event of Default, the Bank may exercise all
rights and remedies of a secured party under the Uniform Commercial Code. ANY
AND ALL RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH
RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO
THE EXERCISE BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay, on demand, all
reasonable costs and expenses (including, without limitation, reasonable legal
fees) of the Bank in
25
<PAGE> 26
connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Term Note and all other instruments and
documents to be delivered in connection with any Term Loan and any amendments or
modifications of any of the foregoing, as well as the reasonable costs and
expenses (including, without limitation, the reasonable fees and expenses of
legal counsel) incurred by the Bank in connection with preserving, enforcing or
exercising, upon default, any rights or remedies under this letter agreement,
the Security Agreement, the Term Note and all other instruments and documents
delivered or to be delivered hereunder or in connection herewith, all whether or
not legal action is instituted. In addition, the Borrower shall be obligated to
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this letter agreement, the
Security Agreement, the Term Note and all other instruments and documents to be
delivered in connection with any Obligation. Any fees, expenses or other charges
which the Bank is entitled to receive from the Borrower under this Section shall
bear interest from the date of any demand therefor until the date when paid at a
rate per annum equal to the sum of (i) four (4%) percent per annum PLUS (ii) the
highest per annum rate otherwise payable under the Term Note (but in no event in
excess of the maximum rate permitted by then applicable law).
6.2. FACILITY FEE. With respect to the Term Loans, the Borrower
shall pay to the Bank, at the date of execution and delivery of this letter
agreement, a non-refundable facility fee in such amount as is set forth in a
letter of even date from the Borrower to the Bank. The fee described in this
Section is in addition to any balances and fees required by the Bank or any of
its affiliates in connection with any other services now or hereafter made
available to the Borrower.
6.3. OTHER AGREEMENTS. The provisions of this letter agreement are
not in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.4. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
ArQule, Inc.
200 Boston Avenue, Suite 1000
Medford, MA 02155
Attention: James R. Fitzgerald, Jr., Chief Financial Officer
If to the Bank:
Fleet National Bank
26
<PAGE> 27
High Technology Division
Mail Code: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Kimberly A. Martone, Senior Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.
6.5. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participations in this letter agreement, the Term Loans and/or the Term Note.
Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of
its rights under the Loan Documents (including any portion of the Term
Note) to any of the 12 Federal Reserve Banks organized under Section 4
of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or
the enforcement thereof shall release the Bank from its obligations
under any of the Loan Documents.
(ii) The Bank shall have the unrestricted right at any
time and from time to time, and without the consent of or notice to the
Borrower, to grant to one or more banks or other financial institutions
(each, a "Participant") participating interests in the Bank's
obligation to lend hereunder and/or any or all of the Term Loans held
by the Bank hereunder. In the event of any such grant by the Bank of a
participating interest to a Participant, whether or not upon notice to
the Borrower, the Bank shall remain responsible for the performance of
its obligations hereunder and the Borrower shall continue to deal
solely and directly with the Bank in connection with the Bank's rights
and obligations hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time to time to
prospective assignees and Participants; provided that the Bank shall
require any such prospective assignee or Participant to agree in
writing to maintain the confidentiality of such information to the same
extent as the Bank would be required to maintain such confidentiality.
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank; provided that no such termination will release or waive any of the Bank's
rights or remedies or any of the Borrower's obligations under this letter
agreement or any of the other Loan Documents unless and until the Borrower has
paid in full the Term Loans and all interest thereon and all fees and charges
payable in connection therewith.
27
<PAGE> 28
6.6. CONSENT TO JURISDICTION. The Borrower irrevocably submits to
the non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the Term
Note. The Borrower irrevocably waives, to the fullest extent permitted by law,
any objection which it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding has been brought in an inconvenient forum. The
Borrower agrees that final judgment in any such suit, action or proceeding
brought in such a court shall be enforced in any court of proper jurisdiction by
a suit upon such judgment, provided that service of process in such action, suit
or proceeding shall have been effected upon the Borrower in one of the manners
specified in the following paragraph of this ss.6.6 or as otherwise permitted by
law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this ss.6.6 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in ss.6.4 (as such address may be changed from time to time pursuant to said
ss.6.4) or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.4 (as such address may be changed from time to time pursuant to said
ss.6.4).
6.7. SEVERABILITY. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.8. GOVERNING LAW. This letter agreement and the Term Note shall
be governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.9. REPLACEMENT NOTE. Upon receipt of a customary affidavit and an
unsecured agreement of indemnity executed by an officer of the Bank as to the
loss, theft, destruction or mutilation of the Term Note or of any other Loan
Document which is not of public record and, in the case of any such mutilation,
upon surrender and cancellation of the Term Note or other Loan Document, the
Borrower will issue, in lieu thereof, a replacement Term Note or other Loan
Document in the same principal amount (as to the Term Note) and in any event of
like tenor.
6.10. USURY. All agreements between the Borrower and the Bank are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the Term Note or otherwise, shall the
amount paid or agreed to be paid to the Bank for the use or the forbearance of
the Indebtedness represented by the Term Note exceed the maximum permissible
under applicable law. In this regard, it is expressly agreed that it is the
intent of the Borrower and the Bank, in the execution, delivery and acceptance
of the Term Note, to contract in strict compliance with the laws of The
Commonwealth of Massachusetts. If, under any circumstances whatsoever,
performance or fulfillment of any provision of the Term Note or any of the other
Loan Documents at the time such provision is to be performed or fulfilled shall
involve exceeding the limit of validity prescribed by applicable law, then the
obligation so to be
28
<PAGE> 29
performed or fulfilled shall be reduced automatically to the limits of such
validity, and if under any circumstances whatsoever the Bank should ever receive
as interest an amount which would exceed the highest lawful rate, such amount
which would be excessive interest shall be applied to the reduction of the
principal balance evidenced by the Term Note and not to the payment of interest.
The provisions of this ss.6.10 shall control every other provision of this
letter agreement and of the Term Note.
6.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY
JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, THE TERM NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT
OF ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT
FOR THE BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE TERM LOANS AS
CONTEMPLATED HEREIN.
VII. DEFINED TERMS
7.1. DEFINITIONS. In addition to terms defined elsewhere in this
letter agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Adjusted Liabilities" - All of the Total Liabilities of the Borrower
and/or any of its Subsidiaries (taken on a consolidated basis), other than any
such Total Liabilities which constitute Deferred Revenue.
"Applicable Rate Increment" - At any time while the Borrower is in
Level One Compliance - 1.75% per annum; and at any time while the Borrower is in
Level Two Compliance - 2.25% per annum.
"Bank Certificate" - A certificate signed by an officer of the Bank
setting forth any additional amount required to be paid by the Borrower to the
Bank pursuant to ss.1.4, ss.1.7 or ss.1.8 of this letter agreement, which
certificate shall be submitted by the Bank to the Borrower in connection with
each demand made at any time by the Bank upon the Borrower with respect to any
such additional amount, and each such certificate shall, save for manifest
error, constitute presumptive evidence of the additional amount required to be
paid by the Borrower to the Bank upon each demand. A claim by the Bank for all
or any part of any additional amount required to be paid by the Borrower may be
made before and/or after the end of the Interest Period to which such claim
relates or during which such claim has arisen and before and/or after any
payment hereunder to which such claim relates. Each Bank Certificate shall set
forth in reasonable detail the basis for and the calculation of the claim to
which it relates.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national banking association or
other day on which banks in Boston, Massachusetts are authorized or directed to
close; provided however that if the applicable provision relates to a LIBOR
Loan, then the term "Business Day" shall not include any day on
29
<PAGE> 30
which dealings are not carried on in the London interbank market or on which
banks are not open for business in London.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible
Net Worth of the Borrower and Subsidiaries then existing, PLUS (ii) the
principal amount of Subordinated Debt of the Borrower then outstanding (nothing
contained herein being deemed to authorize the incurrence of any such
Subordinated Debt).
"Capital Expenditures" - All acquisitions of machinery, equipment,
land, leaseholds, buildings, leasehold improvements and all other expenditures
for purposes which are considered to be fixed assets under generally accepted
accounting principles consistently applied. When a fixed asset is acquired by a
lease which is required to be capitalized pursuant to generally accepted
accounting principles, the amount required to be capitalized pursuant thereto
shall be considered to be a Capital Expenditure in the year such asset is first
leased.
"Cash-Equivalents" - Each of the following: (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof and entitled to the full faith and credit of the
United States of America, (ii) demand deposits with the Bank or with any other
commercial bank chartered by the United States or by any state and having
undivided capital and surplus of not less than $1,000,000,000, or (iii)
interests in mutual funds, substantially all of the assets of which shall be
governmental obligations of the type described in clause (i) of this sentence.
"COF Interest Rate" - As to any COF Loan for any period of time, that
per annum rate of interest which is determined by the Bank to represent the sum
of (i) the COF Rate applicable to the relevant period of time for the relevant
principal amount as amortized over such period of time PLUS (ii) the Applicable
Rate Increment in effect from time to time.
"COF Loan" - All Term Loans which bear interest at a particular COF
Interest Rate commencing at a particular date.
"COF Rate" - As to any principal amount and for any period of time,
that per annum rate of interest which the Bank is required to pay, or is
offering to pay, for wholesale liabilities of a similar principal amount and for
a similar period of time (taking into account amortization of the relevant COF
Loan), adjusted for reserve requirements and for such other requirements as may
from time to time be imposed by federal, state or local governmental and/or
regulatory agencies, all as determined from time to time in its sole discretion
by the Bank's treasury group.
"Collateral" - All property now or hereafter owned by the Borrower or
in which the Borrower now or hereafter has any interest which is now or
hereafter described as "Collateral" in the Security Agreement.
"Compliance Level" - Level One Compliance and Level Two Compliance, as
the case may be.
"Debt Service Coverage Ratio" - As defined in ss.3.9.
30
<PAGE> 31
"Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default.
"Deferred Revenue" - Any liabilities of the Borrower which represent
sums actually received by the Borrower under subscription contracts and which
are properly shown as "deferred revenue" on a balance sheet of the Borrower
prepared in accordance with generally accepted accounting principles applied
consistently with the Borrower's balance sheet as at December 31, 1997.
"EBITDA" - The consolidated Net Income (or, if relevant, the
consolidated Net Loss, expressed as a negative number) of the Borrower and
Subsidiaries for any period, PLUS, without duplication of any item, (i) all
federal and state income taxes (but not taxes in the nature of an AD VALOREM
property tax or a sales or excise tax) paid or accrued with respect to such
period, (ii) all interest on any Indebtedness (whether senior debt or
subordinated debt) paid or accrued by the Borrower and/or any of its
Subsidiaries for such period and actually deducted on the consolidated books of
the Borrower for the purposes of computation of its consolidated Net Income (or
consolidated Net Loss, as the case may be) for the period involved, and (iii)
the amount of the provision for depreciation and/or amortization actually
deducted on the consolidated books of the Borrower for the purposes of
computation of its consolidated Net Income (or consolidated Net Loss, as the
case may be) for the period involved.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Eurocurrency Liabilities" - Has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor), as in effect from time to time, or in any successor regulation
relating to the liabilities described in said Regulation D.
"Event of Default" - As defined in ss.5.1.
"Fixed Interest Rate" - As to any LIBOR Loan, the applicable LIBOR
Interest Rate; and as to any COF Loan, the applicable COF Interest Rate.
"Fixed Rate Loan" - All or any portion of any Term Loan which bears
interest at a Fixed Interest Rate.
"Floating Rate" - As defined in ss.1.4.
"Floating Rate Loan" - All or any portion of any Term Loan which bears
interest at a rate calculated with reference to the Prime Rate.
"Impositions" - All present and future taxes, levies, duties,
impositions, deductions, charges and withholdings applicable to the Bank with
respect to any Fixed Rate Loan, excluding, however, any taxes imposed directly
on the Bank's income and any franchise taxes imposed on it by the jurisdiction
under the laws of which the Bank is organized or any political subdivision
thereof.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be
31
<PAGE> 32
included as liabilities upon such Person's balance sheet at the date as of which
Indebtedness, is to be determined, and shall also include guaranties,
endorsements (other than for collection in the ordinary course of business) or
other arrangements whereby responsibility is assumed for the obligations of
others, whether by agreement to purchase or otherwise acquire the obligations of
others, including any agreement, contingent or otherwise, to furnish funds
through the purchase of goods, supplies or services for the purpose of payment
of the obligations of others.
"Interest Payment Date(s)" - As to each LIBOR Loan, the last day of
Interest Period applicable to such LIBOR Loan; provided, however, that if such
Interest Period is more than three months, then there shall be multiple Interest
Payment Dates for such Interest Period -- the first of which shall be three
months from the commencement of such Interest Period, with subsequent Interest
Payment Dates occurring thereafter at three-month intervals.
"Interest Period" - As to each LIBOR Loan, the period commencing with
the date of the making of such LIBOR Loan and ending three months, six months or
twelve months thereafter (as the Borrower may select); provided that (A) any
such Interest Period which would otherwise end on a day which is not a Business
Day shall be extended to the next succeeding Business Day unless such Business
Day occurs in a new calendar month, in which case such Interest Period shall end
on the immediately preceding Business Day, (B) any such Interest Period which
begins on a day for which there is no numerically corresponding day in the
calendar month during which such Interest Period is to end shall end on the last
Business Day of such calendar month, and (C) no Interest Period may be selected
as to any principal amount of any Term Loan if such Interest Period would end
after the regularly-scheduled due date of such principal amount.
"Level One Compliance" and "Level Two Compliance" are each defined in
ss.1.12.
"LIBOR" - With respect to each Interest Period for a LIBOR Loan, that
rate per annum (rounded upward, if necessary, to the nearest 1/32nd of one
percent) which represents the offered rate for deposits in U.S. Dollars, for a
period of time comparable to such Interest Period, which appears on the Telerate
page 3750 as of 11:00 a.m. (London time) on that day that is two (2) London
Banking Days preceding the first day of such Interest Period; provided, however,
that if the rate described above does not appear on the Telerate System on any
applicable interest determination date, LIBOR for such Interest Period shall be
the rate (rounded upwards as described above, if necessary) for deposits in
dollars for a period substantially equal to such Interest Period shown on the
Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that
service for the purpose of displaying such rates), as of 11:00 a.m. (London
Time), on that day that is two (2) London Banking Days prior to the beginning of
such Interest Period. "London Banking Day" shall mean any date on which
commercial banks are open for business in London. If both the Telerate and
Reuters systems are unavailable, then LIBOR for any Interest Period will be
determined on the basis of the offered rates for deposits in U.S. Dollars for a
period of time comparable to such Interest Period which are offered by four
major banks in the London interbank market at approximately 11:00 a.m., London
time, on that day that is two (2) London Banking Days preceding the first day of
such Interest Period, as selected by the Bank. The principal London office of
each of four major London banks will be requested to provide a quotation of its
U.S. Dollar deposit offered rate. If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations. If fewer
than two quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted
32
<PAGE> 33
for loans in U.S. Dollars to leading European banks for a period of time
comparable to such Interest Period offered by major banks in New York City at
approximately 11:00 a.m., New York City time, on that day that is two London
Banking Days preceding the first day of such Interest Period. In the event that
the Bank is unable to obtain any such quotation as provided above, it will be
deemed that LIBOR for the proposed Interest Period cannot be determined. The
Bank shall give prompt notice to the Borrower of LIBOR as determined for each
LIBOR Loan and such notice shall be deemed presumptively correct, absent
manifest error.
"LIBOR Interest Rate" - For any Interest Period, an interest rate per
annum, expressed as a percentage, determined by the Bank pursuant to the
following formula:
* LIR = LIBOR + ARI
-----------
[1.00 - RR]
Where LIR = LIBOR Interest Rate
LIBOR = See definition of LIBOR
RR = Reserve Rate
ARI = The then Applicable Rate Increment
*LIR to be rounded upwards to the next higher 1/32 of 1%.
The LIBOR Interest Rate will be adjusted during any Interest Period to reflect
any effective change in the Applicable Rate Increment during such Interest
Period and/or any change in the Reserve Rate during such Interest Period.
"LIBOR Loan" - All or any portion of a Term Loan which bears interest
at a LIBOR Interest Rate.
"Liquidity Ratio" - As defined in ss.3.8.
"Loan Documents" - Each of this letter agreement, the Term Note, the
Security Agreement and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Term Loans, all
whether now existing or hereafter arising or entered into.
"London" - The City of London in England.
"Major Pharma Company" - A corporation generally recognized as a major
participant in the pharmaceutical and/or biotechnology industries.
"Medford Premises" - Premises leased by the Borrower at 200 Boston
Avenue, Medford, MA 02155.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
33
<PAGE> 34
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, Cash-Equivalents, Readily-Marketable Securities and Receivables (net of
appropriate reserves), but excluding any of the foregoing which are subject to
any pledge, lien, encumbrance or other restriction.
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"128/93 Move Date" - That date on which the Borrower first moves any
assets into the 128/93 Premises.
"128/93 Premises" - Premises leased by Borrower at MetroNorth Corporate
Center, Off Presidential Way, Woburn, Massachusetts.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Permitted Acquisition" - Any acquisition which meets all of the
following criteria: (1) at the time of such acquisition, and after giving effect
thereto, there is no Default or Event of Default under this letter agreement;
(2) after giving effect to such acquisition, the Borrower is in PRO FORMA
compliance with each of secs.3.7, 3.8 and 3.9, with compliance with each of
such Sections being determined oN A PRO Forma basis as at the date of such
acquisition, even if not a fiscal quarter-end, and is projected to remain in
such compliance through the scheduled final maturity date of the Term Loans;
and, prior to any acquisition, the Borrower will furnish to the Bank (in such
detail as the Bank may reasonably require) PRO FORMA calculations and
projections which shall evidence to the Bank's satisfaction that, after giving
effect to such acquisition, there will not then be nor will there occur (during
any period to which such projections relate) any violation of any of secs.3.7,
3.8 and/or 3.9; (3) such acquisition relates to a Person primarily engaged in
(or assets primarily used in) the Business (as defined in ss.3.5); (4) such
acquisition is approved by the Board of Directors of that company, the stock or
assets of which are being acquired; and (5) the total cash consideration paid or
to be paid (including any earn-out payment) will not exceed $5,000,000 with
respect to any one such acquisition or series of related acquisitions.
"Person" - An individual, corporation, partnership, limited liability
company, joint venture, trust or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Pharma Development Agreement" - An agreement to be entered into by the
Borrower with a Major Pharma Company pursuant to which the Borrower will
participate with the Major Pharma Company in development and production of
pharmaceutical products, it being acknowledged that laboratory equipment, other
equipment and/or leasehold improvements of the Borrower located at the Medford
Premises may be sold or transferred to the Major Pharma Company (at one time or
in installments over a period of time) and/or the Major Pharma Company may
acquire rights to use such laboratory equipment, other equipment and/or
leasehold improvements located at the Medford Premises; provided that, in each
such case, the agreement
34
<PAGE> 35
for same is on commercially reasonable terms and provides for reasonable
consideration for the Borrower.
"Prime Rate" - That variable rate of interest per annum designated by
the Bank, from time to time, as being its prime rate, it being understood that
such rate is merely a reference rate and does not necessarily represent the
lowest or best rate being charged to any customer.
"Qualifying Equipment" - Equipment (not including software, except as
provided in the next following sentence) purchased by the Borrower within 90
days prior to date of the Term Loan financing same (except that, for the initial
Term Loan, equipment purchased at any time after December 31, 1997 may be
included) for use in the Borrower's business which meets all of the following
criteria: (i) such equipment consists of one or more of the items shown on the
equipment list heretofore delivered by the Borrower to the Bank or has otherwise
been approved by the Bank for use in supporting a Term Loan, (ii) each item of
such equipment has been delivered to and installed at the 128/93 Premises, and
(iii) the Borrower has paid in full for each item of such equipment and holds
title to same, free of all interests and claims of any other Person (other than
the security interest of the Bank). Software (not including prepackaged
"shrink-wrapped" software) with an aggregate invoice value up to $750,000 which
meets all of the criteria of clauses (i) - (iii) of the immediately preceding
sentence may be included by the Borrower in "Qualifying Equipment".
"Qualifying Leasehold Improvements" - Fixtures and leasehold
improvements purchased by the Borrower within 90 days prior to date of the Term
Loan financing same (except that, for the initial Term Loan, fixtures and
leasehold improvements purchased at any time after December 31, 1997 may be
included) which meet all of the following criteria: (i) such fixtures and
leasehold improvements consist of one or more of the items shown on the
equipment list heretofore delivered by the Borrower to the Bank or have
otherwise been approved by the Bank for use in supporting a Term Loan, (ii) each
item of such fixtures and leasehold improvements has been built into or
installed at the Borrower's 128/93 Premises, and (iii) the Borrower has paid in
full for each item of such equipment and holds title to same, free of all liens
and interests of any other Person (other than the security interest of the Bank
pursuant to the Security Agreement and except that items so built into the
relevant premises as to become an integral part of the real estate may become
the property of the owner of such premises).
"Readily-Marketable Securities" - Such securities as are publicly
traded on the New York Stock Exchange, on the American Stock Exchange or on the
NASDAQ National Market System.
"Receivables" - As to any Person, all of such Person's present and
future accounts receivable for goods sold or for services rendered.
"Reserve Rate" - The aggregate rate, expressed as a decimal, at which
the Bank would be required to maintain reserves under Regulation D of the Board
of Governors of the Federal Reserve System (or any successor or similar
regulation relating to such reserve requirements) against Eurocurrency
Liabilities, as well as any other reserve required of the Bank with respect to
the LIBOR Loans. The LIBOR Interest Rate shall be adjusted automatically on and
as of the effective date of any change in the Reserve Rate.
35
<PAGE> 36
"SEC" - The Securities and Exchange Commission or any successor
thereto.
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person, (ii) any
minority interests in Subsidiaries and (iii) any assets representing amounts due
from any officer or employee of such Person or from any Subsidiary of such
Person) minus the total liabilities of such Person. Total intangible assets
shall be deemed to include, but shall not be limited to, the excess of cost over
book value of acquired businesses accounted for by the purchase method,
formulae, trademarks, trade names, patents, patent rights and deferred expenses
(including, but not limited to, unamortized debt discount and expense,
organizational expense and experimental and development expenses). Total
intangible assets of a Person do not include such software costs as are embedded
in the cost of equipment and not stated separately on the books of such Person.
"Total Liabilities" - All Indebtedness of the Borrower and/or any
Subsidiary of the Borrower (secured or unsecured, senior or subordinated) which
would properly be included in liabilities shown on a balance sheet of the
Borrower prepared in accordance with generally accepted accounting principles.
"Unencumbered Cash Balance" - At any time, the total of all cash,
Cash-Equivalents and Readily-Marketable Securities of the Borrower which are not
subject to any pledge, lien, encumbrance or other restriction.
"Waltham Premises" - Premises leased by the Borrower at 303 Bear Hill
Road, Waltham, MA.
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
36
<PAGE> 37
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
ARQULE, INC.
By /s/ James R. Fitzgerald
--------------------------------
Name: James R. Fitzgerald, Jr.
Title: Chief Financial Officer
Accepted and agreed:
FLEET NATIONAL BANK
By Kymberly Martone
-------------------------------
Its Senior Vice President
37
<PAGE> 38
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified
Item 2.1(e) Litigation schedule
Item 2.1(j) Collateral locations; record owner of each location
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 4.6 Existing Investments
38
<PAGE> 39
DISCLOSURE SCHEDULE
to Letter Agreement dated as of March 18, 1999 between
ArQule, Inc. and Fleet National Bank
Item 2.1(a) JURISDICTIONS IN WHICH BORROWER IS QUALIFIED
Delaware and Massachusetts
Item 2.1(e) LITIGATION
None
Item 2.1(j) COLLATERAL LOCATIONS; RECORD OWNER OF EACH LOCATION
<TABLE>
<S> <C>
200 Boston Avenue Record Owner: Cummings Property Management, Inc.,
Medford, MA 02155 as Agent for WRB, Inc. and Beautyrest Properties, Inc.
303 Bear Hill Road Record Owner: David Neelon, Trustee of Hickory Drive
Properties Realty Trust.
Waltham, MA The premises are subleased from GelTex
Pharmaceuticals, Inc.
MetroNorth Corporate Center Record Owner: MetroNorth Corporate Center LLC
Off Presidential Way
Woburn, MA
</TABLE>
Item 4.1 EXISTING INDEBTEDNESS
The Borrower is indebted to BancBoston Leasing Inc. with
respect to certain capital leases of machinery and equipment.
As of December 31, 1998, the aggregate principal amount of the
Borrower's obligations to BancBoston Leasing Inc. totaled
$1,213,000.
Item 4.2 EXISTING LIENS
Certain machinery and equipment used by the Borrower is leased
from BancBoston Leasing Inc. Attached hereto is a schedule
identifying such leased property.
Cummings Properties Management, Inc. holds a lien on all
office and other equipment, furniture and inventory of the
Borrower located at 200 Boston Avenue, Medford, MA.
Cummings Properties Management, Inc. holds a $114,500 cash
security deposit with respect to the leased premises at 200
Boston Avenue, Medford, MA.
MetroNorth Corporate Center LLC holds a $1,500,000 cash
security deposit as security for the Borrower's rental
obligations in respect of the Borrower's new leased premises
to be located at MetroNorth Corporate Center, Off Presidential
Way, Woburn, MA.
Page 1 of 2
<PAGE> 40
DISCLOSURE SCHEDULE
to Letter Agreement dated as of March 18, 1999 between
ArQule, Inc. and Fleet National Bank
Item 4.3 EXISTING GUARANTIES
None
Item 4.6 EXISTING INVESTMENTS
The Borrower holds approximately $28,000,000 of
Readily-Marketable Securities.
The Borrower owns 80% of the outstanding capital stock of
ArQule Catalytics, Inc.
Page 2 of 2
<PAGE> 1
Exhibit 11.1
ArQule, Inc.
Statement Re Computation of Unaudited Net Income (Loss) Per Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Unaudited)
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $ (3,966) $ 71
======== ========
Weighted average shares outstanding:
Common Stock 12,317 11,884
Weighted average common shares outstanding 12,317 11,884
======== ========
Basic net income (loss) per share $ (0.32) $ 0.01
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
(Unaudited)
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $ (3,966) $ 71
============= =============
Weighted average shares outstanding:
Common Stock 12,317 11,884
Stock option common stock equivalents -- 1,198
Unvested restricted common stock equivalents -- 9
------------- -------------
Weighted average common shares and
Equivalents outstanding 12,317 13,091
============= =============
Diluted net income (loss) per share $ (0.32) $ 0.01
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,317
<SECURITIES> 30,124
<RECEIVABLES> 2,636
<ALLOWANCES> 0
<INVENTORY> 513
<CURRENT-ASSETS> 37,305
<PP&E> 29,999
<DEPRECIATION> 10,463
<TOTAL-ASSETS> 58,497
<CURRENT-LIABILITIES> 7,017
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 50,737
<TOTAL-LIABILITY-AND-EQUITY> 58,497
<SALES> 4,012
<TOTAL-REVENUES> 4,012
<CGS> 3,674
<TOTAL-COSTS> 8,264
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> (3,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,966)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
