Research Cooperation Agreement

RESEARCH COOPERATION AGREEMENT


This Research Cooperation Agreement effective as of October 1, 1999 (the "Effective Date") is between Bayer AG ("Bayer"), a German corporation, and ArQule, Inc. ("ArQule"), a Delaware Corporation.


RECITALS


WHEREAS, ArQule has expertise relating to the design and synthesis of libraries of chemical compounds using rapid parallel synthesis methods;


WHEREAS, Bayer desires to obtain chemical compounds on a custom synthesis basis; and


WHEREAS, ArQule is willing to use its expertise to produce such chemical compounds for Bayer under the terms and conditions of this Agreement.


NOW, THEREFORE, in consideration of the mutual covenants set forth in this Agreement, Bayer and ArQule hereby agree as follows:


1. DEFINITIONS.


1.1 "AFFILIATE" means any business entity which directly or indirectly controls, is controlled by, or is under common control with either party to this Agreement. A business entity shall be deemed to control another business entity if it owns, directly or indirectly, at least fifty percent of the outstanding voting securities, capital stock, or other comparable equity or ownership interest of such business entity, or exercises equivalent influence over such entity. If the Laws of the jurisdiction in which such entity operates prohibit ownership by a party of 50% control shall be deemed to exist at the maximum level of ownership allowed by such jurisdiction.


1.2 "CHEMICAL BUILDING BLOCK" means a chemical component used in the synthesis of a compound in a combinatorial library, and specifically refers to the chemical components used to produce Custom Array Compounds under this Agreement.


1.3 "CHEMICAL THEME" means chemical, structural, or other physical characteristics that define a Custom Array Set, as determined by the Research Committee in accordance with Section 3.2. Typically, a Chemical Theme will be defined by a core structure or synthesis pathway.


1.4 "CONFIDENTIAL INFORMATION" means any technical or business information furnished by one party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with this Agreement. Such Confidential Information may include, without limitation, the identity or use of a chemical compound, the identity or use of a biological target, trade secrets, know-how, inventions, technical data or specifications, testing methods, business or financial information, research and development activities, and Research Committee reports.


1.5 "CUSTOM ARRAY COMPOUND" means a chemical compound in the Custom Array Sets provided by ArQule to Bayer under the Custom Array Program.


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1.6 "CUSTOM ARRAY PROGRAM" means a synthesis program under which ArQule produces Custom Array Compounds and delivers the Custom Array Compounds to Bayer, as further described in Article 3 below.


1.7 "CUSTOM ARRAY SET" means a set of Custom Array Compounds consisting of diverse, structurally related small organic chemical compounds with a single Chemical Theme arranged in a spatially addressable format, which are produced by ArQule for Bayer under the Custom Array Program as described in Article 3 below.


1.8 "PATENT RIGHTS" means any United States and foreign patent application and any divisional, continuation, or continuation-in-part of such patent application (to the extent the claims are directed to subject matter specifically described therein), as well as any patent issued thereon and any reissue or reexamination of such patent, and any foreign counterparts to such patents and patent applications. "ARQULE PATENT RIGHTS" means Patent Rights that are either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and a party other than Bayer, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "BAYER PATENT RIGHTS" means Patent Rights that are either (i) assigned solely to Bayer, (ii) assigned jointly to Bayer and a party other than ArQule, or (iii) licensed to or otherwise controlled by Bayer, in each case to the extent that Bayer has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "JOINT PATENT RIGHTS" means Patent Rights assigned to both ArQule and Bayer as joint owners. Joint Patent Rights will include (i) Patent Rights claiming Joint Technology and (ii) Patent Rights claiming both ArQule Technology and Bayer Technology in a single filing.


1.9 "PRODUCTION PLAN" means an initial [*] plan developed by the parties prior to the Effective Date and each successive [*] plan developed by the Research Committee and approved by the Steering Committee for the production of Custom Array Sets by ArQule for Bayer under the Custom Array Program as described in Section 3.3. The Research Committee may periodically modify the Production Plans during the performance of the Custom Array Program, subject to the approval of the Steering Committee in the case of material changes.


1.10 "PROPRIETARY MATERIALS" means any tangible research materials, whether biological, chemical, physical, or otherwise, that one party (the "Provider") furnishes to the other party (the "Recipient") under this Agreement and designates as proprietary or confidential, excluding Custom Array Compounds and compounds within the virtual libraries designated in accordance with the procedures set forth on Exhibit C.


1.11 "RESEARCH COMMITTEE" means the joint Research Committee described in Section 2.1.


1.12 "STEERING COMMITTEE" means the joint Steering Committee described in Section 2.2.


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1.13 "TECHNOLOGY" means any proprietary development, idea, design, concept, technique, process, invention, Proprietary Material, discovery, or improvement, whether or not patentable or copyrightable. "ARQULE TECHNOLOGY" means Technology that is either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and a party other than Bayer, or (iii) licensed to or otherwise controlled by ArQule, in each case to the extent that ArQule has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "BAYER TECHNOLOGY" means Technology that is either (i) assigned solely to Bayer, (ii) assigned jointly to Bayer and a party other than ArQule, or (iii) licensed to or otherwise controlled by Bayer, in each case to the extent that Bayer has the ability to license or sublicense such rights as required under this Agreement without payment to or the consent of a third party. "JOINT TECHNOLOGY" means Technology that is developed or discovered jointly by one or more employees or consultants of Bayer and one or more employees or consultants of ArQule in connection with this Agreement.


1.14 "VALID CLAIM" means either (i) a claim of an issued patent that has not been held unenforceable or invalid by an agency or a court of competent jurisdiction in any unappealable or unappealed decision or (ii) a claim of a patent application that is pending and has not been abandoned or finally rejected without the possibility of appeal or refiling.


2. MANAGEMENT OF CUSTOM ARRAY PROGRAM.


2.1 RESEARCH COMMITTEE


2.1.1 ESTABLISHMENT OF RESEARCH COMMITTEE. The parties hereby establish a Research Committee comprised of six (6) members, with three (3) representatives appointed by each party. The members initially designated by Bayer are [*]. The members initially designated by ArQule are [*]. A party may change any of its representatives to the Research Committee at any time upon written notice to the other party.


2.1.2 DUTIES OF RESEARCH COMMITTEE. The Research Committee shall monitor, manage, and administer the Custom Array Program under this Agreement. In general, the Research Committee will have responsibility for all issues of a scientific or technical nature (e.g., scheduling, quality, and delivery formats). Specifically, the Research Committee will select Chemical Themes for production, develop Production Plans, determine whether to publish research results, and resolve all matters involving scientific questions. The Research Committee may have other responsibilities as expressly set forth in this Agreement. All decisions of the Research Committee are subject to the authority of the Steering Committee.


2.1.3 MEETINGS OF RESEARCH COMMITTEE. Unless otherwise determined by the Research Committee, the Research Committee shall meet at least once each calendar quarter alternately at the location of each party, or at other times, locations, or manner (e.g., telephone conferences) determined by the Research Committee. Each party shall bear its own costs incurred in connection with such meetings. A representative of the Research Committee jointly appointed by its members shall provide each member with live (5) business days notice of the


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time and location of each quarterly meeting, unless such notice is waived by all members. If a designated representative of a party cannot attend a meeting of the Research Committee, such party may designate a different representative for that meeting without notice to the other party, and the substitute member will have full power to vote on behalf of the permanent member. Except as otherwise provided in this Agreement, all actions and decisions of the Research Committee will require [*]. If the Research Committee fails to reach agreement upon any matter, the dispute will be resolved by the Steering Committee. Within ten (10) business days following each quarterly meeting of the Research Committee, a representative of the Research Committee jointly appointed by its members shall prepare and deliver, to both parties, a written report describing the program status and the issues, decisions, conclusions, and other actions taken by the Research Committee. The written minutes will be approved by the Research Committee at its next quarterly meeting.


2.2 STEERING COMMITTEE


2.2.1 ESTABLISHMENT OF THE STEERING COMMITTEE. The parties hereby establish a Steering Committee comprised of six (6) members, with three (3) representatives appointed by each party. The members initially designated by Bayer are [*]. The members initially designated by ArQule are [*]. A party may change any of its representatives to the Steering Committee at any time upon written notice to the other party.


2.2.2 DUTIES OF THE STEERING COMMITTEE. The Steering Committee shall monitor the Custom Array Program, and shall have general approval authority for all matters within the Custom Array Program. Specifically, the Steering Committee shall approve each Production Plan and material changes to the Production Plan, including any variances to the standard criteria in Section 3.5. The Steering Committee may have other responsibilities as expressly set forth in this Agreement. [*].


2.2.3 MEETINGS OF THE STEERING COMMITTEE. Unless otherwise determined by the Steering Committee, the Steering Committee shall meet at least once each calendar quarter alternately at the location of each party, or at other times, locations, or manner (e.g., telephone conferences) determined by the Steering Committee. Each party shall bear its own costs incurred in connection with such meetings. A representative of the Steering Committee jointly appointed by its members shall provide each member with five (5) business days notice of the time and location of each quarterly meeting, unless such notice is waived by all members. If a designated representative of a party cannot attend a meeting of the Steering Committee, such party may designate a different representative for that meeting without notice to the other party, and the substitute member will have full power to vote on behalf of the permanent member. Except as otherwise provided in this Agreement, all actions and decisions of the Steering Committee will require [*]. If the Steering Committee fails to reach agreement upon any matter, the dispute will be resolved in accordance with the procedures set forth in Article 10 below. Within ten (10) business days following each quarterly meeting of the Research Committee, a representative of the Steering Committee jointly appointed by its members shall prepare and


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deliver, to both parties, a written report describing the program status and the issues, decisions, conclusions, and other actions taken by the Steering Committee. The written minutes will be approved by the Steering Committee at its next quarterly meeting.


2.3 COOPERATION. Each party agrees to provide the Research Committee and Steering Committee with information and documentation as reasonably required for the Research Committee and Steering Committee to fulfill their duties under this Agreement. In addition, each party agrees to make available its employees and consultants as reasonably requested by the Research Committee and Steering Committee. The parties anticipate and intend that members of the Research Committee will communicate informally with each other and with employees and consultants of the parties on matters relating to the Custom Array Program.


2.4 PROJECT LEADER. ArQule shall appoint a full-time Project Leader who will manage the day-to-day operations of the Custom Array Program. The Project Leader shall serve on the Research Committee. The initial Project Leader shall be [*]. If the Project Leader becomes unavailable for any reason, ArQule shall promptly appoint a new Project Leader after consulting with Bayer.


3. CONDUCT OF CUSTOM ARRAY PROGRAM.


3.1 DESCRIPTION OF CUSTOM ARRAY PROGRAM. The Custom Array Program under this Agreement consists of the production and delivery by ArQule of Custom Array Sets containing an aggregate of [*] Custom Array Compounds over a [* period, as further described in this Article. As described in Section 3.3., ArQule will produce and deliver the Custom Array Sets in accordance with a Production Plan that is developed and modified by the Research Committee. As described in Section 3.5., each Custom Array Set will [*], subject to modification by the Research Committee. ArQule will use diligent efforts to produce and deliver to Bayer approximately [*] Custom Array Compounds [*] and approximately [*] Custom Array Compounds [*].


3.2 DESIGN OF CUSTOM ARRAY SETS. The parties will design and plan the Custom Array Sets according the following procedures. [*]. Each party shall follow the "Operational Procedures for Library Exclusivity" set forth on Exhibit C for the disclosure, evaluation, and acceptance of each library proposal in the Custom Array Program, which exhibit is hereby incorporated into and made a part of this Agreement. In accordance with the Operational Procedures for Library Exclusivity, ArQule reserves the right to exclude from the Custom Array Program any compound that was previously committed to a third party or an internal ArQule program. In such event, ArQule will notify the Research Committee as soon as possible after the Custom Array Set is designed, but in any event before the Custom Array Set is delivered to Bayer.


3.3 DEVELOPMENT OF PRODUCTION PLAN. At the first Steering Committee meeting, the parties shall approve an initial Production Plan pursuant to which ArQule will use diligent efforts to produce and deliver the Custom Array Sets to Bayer during the first [*] of the Custom Array


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Program, commencing on the Effective Date. Thereafter, the parties shall develop Production Plans at least once every [*]. The Research Committee shall submit each Production Plan to the Steering Committee for approval. Each Production Plan shall become effective only after approval by the Steering Committee. The Research Committee may modify any Production Plan at its discretion, subject to approval of material changes by the Steering Committee. Each Production Plan will include the following: [*]. The Production Plan shall also include an expected production and delivery schedule of Custom Array Sets by ArQule and may include other issues or items that the Research Committee determines would facilitate the Custom Array Program.


3.4 SUPPLY OF CHEMICAL BUILDING BLOCKS. Bayer will supply any Chemical Building Blocks required under each Production Plan that are Bayer Proprietary Materials or are otherwise not readily available to ArQule [*] from the most recent version of the Available Chemicals Directory (ACD) or, in the case of Chemical Blocks that are ArQule Proprietary Materials, within the ArQule inventory. To the extent that Bayer does not supply such Chemical Building Blocks on schedule or within the specifications required by the Production Plan (e.g., quantity and purity), ArQule will be relieved of its obligations under that Production Plan for producing Custom Array Sets that require those Chemical Building Blocks. However, in such event, the Research Committee shall determine whether to substitute different Chemical Building Blocks or postpone production of the library until Bayer supplies the required Chemical Building Blocks.


3.5 PERFORMANCE OF CUSTOM ARRAY PROGRAM. ArQule will use diligent efforts to produce and deliver the Custom Array Sets in accordance with the Production Plan. The parties intend that ArQule will produce and deliver [*] Custom Array Compounds in [*] Custom Array Compounds in [*]; and [*] Custom Array Compounds in [*]. The parties further intend that the Custom Array Sets delivered under the Custom Array Program will, on average, contain approximately [*] Custom Array Compounds per Custom Array Set. The parties will determine whether to proceed with full production of a Custom Array Set based on the "Standard Procedure for the Automated Process Development of Bayer Custom Arrays" set forth on EXHIBIT D, which exhibit is hereby incorporated into and made a part of this Agreement. After ArQule completes each step of this standard procedure, the Research Committee will decide whether to proceed with the next step in the development and production of a proposed Custom Array Set. If the Research Committee decides to proceed. ArQule will use diligent efforts to complete the next step in the development and production of the Custom Array Set; otherwise, the proposed Custom Array Set is eliminated from that Production Plan (but may be incorporated into future Production Plans as circumstances change). Unless otherwise determined by the Research Committee, ArQule will deliver the following of each Custom Array Compound: [*] Upon the shipment of each Custom Array Set. ArQule will provide Bayer with electronic data files containing, among other things, [*]. ArQule will format the data for compatibility with the Bayer chemical registration system.


3.6 EXCLUSIVITY FOR CUSTOM ARRAY COMPOUNDS. For a period [*] after ArQule ships a Custom Array Set to Bayer pursuant to this Agreement. ArQule will not disclose or


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transfer to any third party any Custom Array Compound within that Custom Array Set or any other compound within a virtual library based on that Custom Array Set as defined in accordance with the procedures set forth on EXHIBIT C. At the conclusion of the [*] exclusivity period, the above restriction shall expire except with respect to compounds that are covered by a Valid Claim of a patent or patent application within the Bayer Patent Rights as identified by Bayer in a list provided ...