Mortgage & Security Agreement

MORTGAGE AND SECURITY AGREEMENT
AND ASSIGNMENT OF LEASES AND RENTS


THIS MORTGAGE AND SECURITY AGREEMENT AND ASSIGNMENT OF LEASES AND RENTS (this "Mortgage") made as of March 2, 2001 by ArQule, Inc., a Delaware corporation, with its principal place of business at 19 Presidential Way, Woburn, MA 01801 (the "Mortgagor") in favor of Fleet National Bank, with an office at 100 Federal Street, Boston, MA 02110 (the "Mortgagee").


WITNESSETH, that for consideration paid, in order to secure (a) the payment of existing indebtedness in the currently outstanding principal balance of Ten Million Seven Hundred Thousand and 00/100 ($10,700,000.00) Dollars, lawful money of the United States and the interest thereon, to be paid in accordance with that certain promissory note dated March 18, 1999, as amended by Allonge to Note of even date herewith (as so amended, the "Facility One Term Note") in the original face principal amount of $15,000,000.00 issued by the Mortgagor and payable to the order of the entity formerly known as "Fleet National Bank" ("Old FNB"), the Mortgagee having succeeded by merger to the interests of Old FNB thereunder; (b) the payment of indebtedness in the sum of Sixteen Million and 00/100 ($16,000,000.00) Dollars, lawful money of the United States and the interest thereon, to be paid in accordance with that certain promissory note in said principal amount of even date herewith (the "Facility Two Term Note") issued by the Mortgagor and payable to the order of the Mortgagee (the Facility One Term Note and the Facility Two Term Note being hereinafter referred to, collectively, as the "Mortgage Notes" and, individually, as a "Mortgage Note"); (c) the payment of all other charges provided for herein and/or in any Mortgage Note and the payment of all other money secured hereby; (d) the performance of all covenants and agreements of the Mortgagor hereinafter contained; and (e) the payment and performance of any and all other liabilities, obligations, covenants and agreements (direct or indirect, absolute or contingent, sole, joint or several, now existing or hereafter arising) of the Mortgagor to the Mortgagee, including, without limitation, those now or hereafter arising under that certain letter agreement dated March 18, 1999, originally made between the Mortgagor and Old FNB, the Mortgagee having succeeded by merger to the rights and obligations of Old FNB thereunder, as amended by that certain Loan Modification Agreement of even date herewith between the Mortgagor and the Mortgagee (as so amended, the "Loan Agreement") and all amendments, restatements, renewals, extensions and substitutions of, for or to any of the foregoing, the Mortgagor does hereby grant, bargain, sell, convey, assign, transfer, grant a security interest in and mortgage to the Mortgagee and to its successors and assigns, WITH MORTGAGE COVENANTS:


ALL those certain lots, pieces or parcels of land with the buildings and improvements now or hereafter located thereon, situate, lying and being in the City of Woburn, County of Middlesex, Commonwealth of Massachusetts, commonly known and numbered as 19 Presidential Way (sometimes also known as 195 and 215 Presidential Way), Woburn, Massachusetts, which lots, pieces or parcels of land are more particularly bounded and described as set forth on Exhibit A attached hereto and made a part hereof.


2


TOGETHER with all and singular the tenements, hereditaments and appurtenances thereunto belonging or in anywise appertaining, and the reversion or reversions, remainder and remainders, rents, issues and profits thereof; and also all the estate, right, title, interest, property, claim and demand whatsoever of the Mortgagor of, in and to the same and of, in and to every part and parcel thereof;


TOGETHER with all right, title and interest of the Mortgagor, if any, in and to the land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the above-described real estate to the centerline thereof;


TOGETHER with all machinery, apparatus, equipment, appliances, fittings, fixtures, building materials and articles of personal property of the Mortgagor of every kind and nature whatsoever, now or hereafter located at the above-described real estate and used or to be used in the construction, operation or maintenance of the buildings or improvements now or hereafter located thereon, all whether now owned or hereafter acquired, whether affixed or moveable, and all replacements of, substitutions for and accessions to any of same and all products and proceeds (including, without limitation, insurance proceeds) of any of foregoing (all of the foregoing being collectively referred to herein as the "Building Equipment");


TOGETHER with any and all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the above-described property as a result of (a) the exercise of the right of eminent domain, (b) the alteration of the grade of any street, or (c) any other injury to or decrease in the value of said property, to the extent of all amounts which may be secured by this Mortgage at the date of receipt of any such award or payment by the Mortgagee, and of the reasonable counsel fees, costs and disbursements incurred by the Mortgagee in connection with the collection of such award or payment. The Mortgagor agrees to execute and deliver, from time to time, such further instruments as may be requested by the Mortgagee to confirm such assignment to the Mortgagee of any such award or payment;


TOGETHER with all rights of the Mortgagor under all leases, tenancies, occupancy agreements, licenses, construction contracts, architect's contracts, development agreements, management agreements and other agreements now or hereafter entered into by the Mortgagor with respect to the construction of any improvements on the above-described property and/or the occupancy or operation of any such improvements;


TOGETHER with all rents, receipts, issues, profits, accounts, revenues, security deposits, income and other moneys received or receivable by or on behalf of the Mortgagor from any source in connection with the ownership or the operation of all or any part of the above-described real estate, buildings and improvements, and all rights to receive the same whether in the form of accounts receivable, contract rights, chattel paper, instruments or general intangibles, and the proceeds thereof; all of the foregoing, whether now existing or hereafter coming into existence and whether now owned or held or hereafter acquired by the Mortgagor;


TOGETHER with all products and proceeds (including, without limitation, insurance proceeds) of any of the foregoing;


-2- 3


TOGETHER with all books and records relating to any of the foregoing.


TO HAVE AND TO HOLD all of the above granted and described real estate, Building Equipment, property, rights and interests (collectively, the "Mortgaged Premises") unto the Mortgagee, its successors and assigns, forever.


PROVIDED ALWAYS, and these presents are upon this express condition, that if (A) the Mortgagor shall well and truly pay unto the Mortgagee, its successors or assigns, the principal sum of each Mortgage Note and the interest thereon at the times and in the manner provided for in such Mortgage Note and shall pay all other sums secured hereby and shall well and truly abide by and comply with each and every covenant and condition secured hereby or set forth herein and (B) all other moneys now owing or hereafter coming due under the Loan Agreement shall have been duly paid in full and discharged, then these presents and the estate hereby granted shall cease and determine.


AND the Mortgagor covenants with the Mortgagee as follows:


1. The Mortgagor will pay all sums of money required to be paid pursuant to each Mortgage Note and all interest thereon, at the times and in the manner provided for in each respective Mortgage Note.


2. The Mortgagor will keep the buildings on the Mortgaged Premises and the Building Equipment insured for the benefit of the Mortgagee against loss or damage by fire, lightning, windstorm, hail, explosion, vandalism, malicious mischief and all extended coverage and special extended coverage perils, all in amounts approved by the Mortgagee not less than 100% of full replacement value of the Mortgaged Premises (exclusive of foundations), with agreed amount endorsement, and, when and to the extent required by the Mortgagee, against any other risk typically insured against by persons operating like properties in the locality of the Mortgaged Premises. The Mortgagor shall also obtain and maintain (to the extent available at commercially reasonable rates) boiler and machinery coverage (direct damage and use and occupancy) on a replacement cost basis where deemed advisable by the Mortgagee. At the request of the Mortgagee, the Mortgagor shall also obtain, to the extent available at commercially reasonable rates, insurance with respect to loss from earthquake. In addition, the Mortgagor shall obtain and maintain commercial general liability insurance protecting the Mortgagor and the Mortgaged Premises against liability for injuries to persons in the minimum amount of $2,000,000 per person and $5,000,000 for each occurrence in the aggregate. During any construction, the Mortgagor will also carry or cause to be carried builders' risk-all risk insurance satisfactory to the Mortgagee. All insurance herein provided for shall be in such form and written by such companies as may be reasonably approved by the Mortgagee. All policies of insurance which insure against any loss or damage to the Mortgaged Premises shall provide for loss to be payable to the Mortgagee pursuant to the standard mortgagee clause. A duplicate original copy or certificate of each policy of insurance shall be furnished to the Mortgagee. All policies of insurance shall contain a provision forbidding cancellation of such insurance either by the carrier or by the insured until at least 30 days after written notice of the proposed cancellation


-3- 4


is given by registered mail, return receipt requested, to the Mortgagee; and whenever any insurance is to expire for any reason, the Mortgagor will deliver to the Mortgagee, at least 30 days prior to such expiration, a renewal or replacement policy or certificate thereof, complying with all of the conditions of this Section, marked "premium paid" or accompanied by other evidence of payment satisfactory to the Mortgagee. If the Mortgagor defaults in so insuring the Mortgaged Premises or in so delivering the policies, the Mortgagee may, at its option, effect such insurance and pay the premiums therefor, and the Mortgagor will reimburse the Mortgagee on demand for any premiums so paid, with interest from the time of payment by the Mortgagee, all as provided in Section 4 below, and the same shall be secured by this Mortgage. In the event of damage to or destruction of all or any part of the Mortgaged Premises, the Mortgagor shall proceed forthwith to repair, restore and replace the Mortgaged Premises to substantially their condition immediately prior to such event or to a condition of at least equivalent value (and in any event to such condition and within such time period as shall be required in order to avoid any default under any leases, agreements or other restrictions affecting the Mortgaged Premises), regardless of whether or not the proceeds of any or all policies of insurance covering such damage or destruction shall be available or sufficient to pay the cost thereof.


Following any damage to or destruction of the Mortgaged Premises, the parties shall cooperate in order to recover any applicable proceeds of insurance under this Section 2, with the Mortgagor to have primary responsibility to recover the proceeds. Such proceeds shall be paid to the Mortgagee pursuant to the loss payee clause of the relevant policy. From such proceeds, if any, as are actually received by the Mortgagee, the Mortgagee shall provide for the payment or reimbursement of its reasonable expenses of obtaining the recovery as reasonably determined by the Mortgagee. The Mortgagee shall then give notice to the Mortgagor of such expenses and of the amount of the remaining proceeds actually held by the Mortgagee (the "Net Proceeds"). If the Mortgagor desires to use any or all of the Net Proceeds for repair, restoration or replacement of the Mortgaged Premises, the Mortgagor shall request same from the Mortgagee within 20 days after receipt of the aforesaid notice of the amount of the Net Proceeds. Provided that all of the below-described Readvancement Conditions shall have been satisfied as at the time of each release of all or any portion of the Net Proceeds, the Mortgagee, subject to the other requirements described below, will permit the use of the Net Proceeds, to the extent required, for such repair, restoration and replacement. As used herein, the term "Readvancement Conditions" means each of the following: (1) no Event of Default, nor any event or circumstance which with the passage of time or giving of notice or both could become an Event of Default, shall have occurred and be then continuing, and (2) the Net Proceeds, in the reasonable opinion of the Mortgagee, shall be sufficient for the purpose of the required repair, restoration and replacement (or, if insufficient, the Mortgagor shall have deposited with the Mortgagee, for application as provided in this Section, additional funds in the amount of such insufficiency). Any disbursement of such Net Proceeds and such additional funds, if any, will be made subject to the reasonable requirements of the Mortgagee, including, without limitation, requirements as to certification by an architect, approval of plans, obtaining waivers of liens, and the receipt of requisitions, title endorsements, affidavits and opinions in form and substance satisfactory to the Mortgagee. If for any reason the Mortgaged Premises are not promptly so repaired, restored and replaced (or if there shall be any of such Net Proceeds or additional funds remaining after such repair, restoration and replacement have been fully completed), following written notice to the Mortgagor the Net Proceeds and


-4- 5


additional funds, if any (or the balance thereof so remaining) are to be applied against payment of the debt and obligations secured hereby or (at the option of the Mortgagee) held as further security for such debt and obligations. If any of the Readvancement Conditions shall not have been satisfied at any time when any Net Proceeds remain in the control of the Mortgagee, the Mortgagee may, in its sole discretion, after written notice to the Mortgagee, either apply the Net Proceeds and additional funds, if any, within its control to the outstanding debt and obligations secured hereby and/or hold same as further security for such debt and obligations and/or use any or all of such Net Proceeds and additional funds, if any, for the repair, restoration or replacement of the Mortgaged Premises. The Mortgagor hereby grants to the Mortgagee full power and authority, as attorney-in-fact irrevocable of the Mortgagor, to act after the occurrence of an Event of Default in order to cancel or transfer the insurance described in this Section 2, to collect and endorse any checks issued in the name of the Mortgagor and to retain any premium or proceeds and to apply the same to the debt secured hereby. Upon default by the Mortgagor hereunder and exercise by the Mortgagee of any of its rights or remedies hereunder, each such insurance policy, including the right to unearned premiums, shall become property of the Mortgagee.


3. No building or other property now or hereafter covered by the lien of this Mortgage shall be removed, demolished or materially altered or enlarged, nor shall any new building be constructed without the prior written consent of the Mortgagee (such consent not to be unreasonably withheld as to alterations or enlargements), except that the Mortgagor shall have the right, without such consent, to remove and dispose of, free from the lien of this Mortgage, such Building Equipment as from time to time may become worn out or obsolete, provided that simultaneously with or prior to such removal such Building Equipment shall be replaced, to the extent needed for the operation of the improvements on the Mortgaged Premises, with other Building Equipment, and the replacement Building Equipment will be subject to the lien of this Mortgage.


4. In the event of any default in the performance of any of the Mortgagor's covenants or agreements herein, whether or not an Event of Default shall have occurred, the Mortgagee may, at the option of the Mortgagee, upon such prior notice to the Mortgagor as is reasonable under the circumstances, perform the same, and the Mortgagee may also take all such actions as it deems desirable to prevent or cure any situation or circumstance which might, with the passage of time or giving of notice or both, become an Event of Default. The costs of any and all performance and actions taken under this Section 4 shall be paid by the Mortgagor to the Mortgagee on demand, with interest at a rate per annum equal to 4% plus the Prime Rate (hereinafter defined), as from time to time in effect, such interest to accrue from the date such cost is incurred by the Mortgagee through the date of payment by the Mortgagor, and all such costs and such interest shall be secured by this Mortgage. As used herein, "Prime Rate" shall mean that variable rate of interest per annum designated by Fleet National Bank from time to time as 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.


5. The Mortgagor will pay, not later than the date when due without interest or penalty, all taxes, excises, assessments, water rates, sewer rents and other charges and any lien now or hereafter assessed or levied against the Mortgaged Premises or any part thereof, or with


-5- 6


respect to or relating in any way to the Mortgagor's interest therein or use and occupancy thereof, or the debt, obligations or performance secured by this Mortgage; provided that the Mortgagor shall not be required to pay any such tax, excise, assessment, water rate, sewer rent or other charge or lien which is being contested in good faith and by proper proceedings which serve as a matter of law to stay the enforcement of any remedy of the taxing authority or claimant and as to which the Mortgagor shall have set aside on its books adequate reserves. The Mortgagor shall pay in a timely manner all of the costs and expenses of operation, maintenance and upkeep of the Mortgaged Premises, including all charges for electricity, water, gas, sewer rents and charges, telephone, heat, air conditioning, if any, and all other utility services used or consumed in or upon the Mortgaged Premises; provided that the Mortgagor shall not be required to pay any such cost, expense or charge which is being contested in good faith and by proper proceedings, as to which no lien has been asserted and as to which the Mortgagor shall have set aside on its books adequate reserves. Upon request of the Mortgagee, the Mortgagor will exhibit to the Mortgagee receipts for the payment of all items specified in this Section on or prior to the date when payment of same shall be required hereunder.


6. The Mortgagor upon request shall certify, by a writing duly acknowledged, to the Mortgagee or to any proposed assignee of this Mortgage, the amount of principal and interest then owing with respect to each Mortgage Note and whether any offsets or defenses exist against any of the obligations secured or purported to be secured hereby.


7. The Mortgagor warrants the title to the Mortgaged Premises, subject only to the exceptions (if any) contained in Schedule B of the lender's title policy delivered to the Mortgagee and accepted by the Mortgagee in connection with this Mortgage.


8. In case of any sale under this Mortgage, by virtue of judicial proceedings or otherwise, the Mortgaged Premises may be sold in one parcel and as an entirety or in such parcels, manner or order as the Mortgagee in its sole discretion may elect. To the extent that any of the Mortgaged Premises shall be deemed collateral subject to Article 9 of the Massachusetts Uniform Commercial Code (the "UCC"), this Mortgage shall also be deemed the grant of a security interest in such collateral, which may be foreclosed in accordance with applicable law.


This instrument is a security agreement filed as a financing statement in order to perfect a fixture filing pursuant to the UCC. The secured party is the Mortgagee, having an address as set forth in the first paragraph of this Mortgage and the debtor is the Mortgagor, having an address at 19 Presidential Way, Woburn, MA 01801. The principal place of business and chief executive offices of the Mortgagor are (and at all times while this Mortgage is in effect will remain) located at said address. As to any of the Mortgaged Premises which may now or hereafter constitute fixtures, the real estate concerned is that described in Exhibit A hereto. The Mortgagor is the record owner of such real estate.


9. In the event of the passage after the date of this Mortgage of any law of The Commonwealth of Massachusetts deducting from the value of real property for the purposes of taxation any lien thereon or changing in any way the laws for the taxation of mortgages or debts secured by a mortgage for state or local purposes or the manner of the collection of any such


-6- 7


taxes, and imposing a tax, either directly or indirectly, on this Mortgage or any of the obligations secured hereby, the Mortgagee shall have the right to declare an Event of Default to exist under this Mortgage as of a date to be specified by not less than 90 days' written notice to be given to the Mortgagor by the Mortgagee; provided, however, that such declaration shall be ineffective if the Mortgagor is permitted by law to pay the whole of such tax in addition to all other payments required hereunder and if the Mortgagor, prior to such specified date, does pay such tax and agrees to pay any such tax when thereafter levied or assessed against the Mortgaged Premises, and such agreement shall constitute a modification of this Mortgage. If at any time any law or court decree prohibits the performance of any obligation undertaken in this Mortgage by the Mortgagor, or provides that any amount to be paid hereunder by the Mortgagor (other than under Section 1 of this Mortgage) must be credited against the Mortgagor's obligations under any Mortgage Note, the Mortgagee shall have the right, upon not less than 90 days' prior written notice to the Mortgagor, to declare an Event of D ...