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                                                                    EXHIBIT 10.1

                      ARRAY DELIVERY AND TESTING AGREEMENT

     This Array Delivery and Testing Agreement, dated as of June 20, 2000, is
between ArQule, Inc. ("ArQule"), a Delaware corporation, and G.D. Searle & Co.
("Searle"), a Delaware corporation. For the purposes of this Agreement, the name
"Searle" is used for Searle and its Primary Affiliates (as defined below), and
the name "ArQule" is for ArQule and its Primary Affiliates (as defined below).

                                    RECITALS

     WHEREAS, ArQule has developed certain technology that has applications in
the discovery and development of compounds for use in the Field (as defined
below);

     WHEREAS, Searle desires that ArQule apply its technologies to the research
and development of compounds with applications for Searle in the Field; and

     WHEREAS, in exchange for payment by Searle of research funds, milestone
payments and royalties, ArQule is willing to provide compound arrays for testing
by Searle and to perform certain other compound development activities, subject
to the terms and conditions of this Agreement;

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

1.   DEFINITIONS.

        "ACTIVE HOMOLOG" shall mean (i) any ArQule Compound that exhibits
substantial homology with an Active Compound in the same Mapping Array or (ii)
any Directed Array Compound that exhibits substantial homology with an Active
Compound in the same Directed Array Program, with "substantial homology"
determined by Searle in good faith according to predetermined thresholds set by
Searle in good faith.

        "ACTIVE COMPOUND" shall mean any ArQule Compound or Directed Array
Compound that exhibits significant functional activity as determined by Searle
according to a predetermined threshold set by Searle for each Target consistent
with the manner it treats other compounds resulting from its discovery program.

        "ADVANCED FIELD TRIALS" shall mean advanced testing trials conducted by
or for Searle in a manner representative of actual agricultural or industrial
practices including (i) determining the performance or safety of a
Royalty-Bearing Product or (ii) greenhouse, growth chamber or laboratory testing
including radio-labeled synthesis and associated testing, advanced toxicity,
environmental fate, and toxicity on non-target species including mammals and/or
assembling field information necessary to obtain an EUP.

        "AGREEMENT" shall mean this Array Delivery and Testing Agreement.

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        "AGROCHEMICAL FIELD" means all agricultural and in planta applications.

        "ANIMAL HEALTH FIELD" means animal health applications.

        "ARQULE COMPOUND" shall mean any chemical molecule that is synthesized
by ArQule using its proprietary technology and provided by ArQule to Searle
under the Mapping Array Program, or as part of a Compass Array library, as
described below.

        "ARQULE DERIVATIVE COMPOUND" shall mean a Derivative Compound that is
derived from an ArQule Compound in the course of a development program for the
molecular target or other target (e.g., whole cell screen) against which ArQule
Compound was initially discovered to have biological activity, i.e., a compound
is not an ArQule Derivative Compound if that compound is independently developed
by Searle for a different target.

        "ARQULE INTERNAL DISCOVERY PROGRAM" shall mean any testing or screening
activity performed (i) by ArQule itself or (ii) in a collaboration in which
ArQule retains an ownership interest in an ArQule Compound or ArQule Derivative
Compound, in each case with the primary purpose of determining the functional
activity in the Field of ArQule Compounds or ArQule Derivative Compounds.

        "ARQULE PATENT RIGHTS" shall mean Patent Rights controlled or owned by
ArQule as of the Effective Date or during the Research Period, as set forth in
Section 5.1(b); all to the extent and only to the extent that ArQule now has or
hereafter will have the right to grant licenses, immunities or other rights
thereunder.

        "ARQULE TECHNOLOGY" shall mean all information and data which is owned
by or licensed by third parties to ArQule prior to the Effective Date and during
the Research Period and is necessary or useful to conduct the screening to
discover Active Compounds or to develop, make, use, sell or seek regulatory
approval in any country to market a product containing a Royalty-Bearing
Product; all to the extent and only to the extent that ArQule now has or
hereafter will have the right to grant licenses, immunities or other rights
thereunder.

        "ARRAY" shall mean a set of samples of structurally related chemical
compounds arranged in a format such as a microtiter screening plate or another
format as mutually agreed to by the Parties.

        "AVAILABLE COMPOUND" means an ArQule Compound that is an Active Compound
and that is not (i) then licensed or otherwise committed to a third party in the
Field or (ii) then committed to an Internal ArQule Discovery Program in the
Field. As used in this definition, the term "committed" means a compound that is
subject to a legally binding obligation to a third party that precludes a grant
of an exclusive license to Searle in the Field or a compound for which ArQule
has previously identified biological activity and designated in its internal
compound database as the subject of an Internal ArQule Discovery Program.

        "BASE RATE OF INTEREST" shall mean the base rate of interest charged to
its best commercial customers from time to time by the Bank of Boston or its
successor.

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        "COMPASS ARRAY(TM) LIBRARY" means a collection of ArQule Compounds that
is a diverse subset of the Mapping Arrays produced by ArQule. The Compass Array
Library uses approximately [*] of the total ArQule Compounds to represent the
chemical diversity present in all of the Mapping Arrays.

        "CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 8.1.

        "CONTRACT YEAR" shall mean each twelve (12) month fiscal year of the
Research Period, commencing on January 1 of each year and concluding twelve (12)
months thereafter.

        "DERIVATIVE COMPOUND" shall mean a chemical compound structurally
derived in one or more steps from another by a process of modification or
partial substitution of at least one component wherein at least one structural
feature is retained at each process step. A Derivative Compound may be
synthesized (i) from a parent compound through manipulation of the parent
compound or (ii) from a compound or compounds other than the parent compound if
the Derivative Compound could have been synthesized from the parent compound but
a different synthetic pathway was used. The number of intermediate steps or
compounds is not relevant to the classification of a compound as a Derivative
Compound. A compound need not have structural similarity to another compound in
order to be classified as a Derivative Compound. However, a compound is not a
Derivative Compound merely because the compound is, in theory, a synthetically
accessible compound from a parent compound; rather, a Derivative Compound
results from a series of synthetic steps that are actually undertaken in an
effort to produce a desired end-product in a particular development program.

        "DIRECTED ARRAY(TM)" shall mean an Array of ArQule Derivative Compounds
or Searle Derivative Compounds that was synthesized by ArQule under the Directed
Array Program.

        "DIRECTED ARRAY(TM) COMPOUND" means any ArQule Derivative Compound or
Searle Derivative Compound that was synthesized by ArQule under the Directed
Array Program.

        "DIRECTED ARRAY(TM) PROGRAM" shall mean the Directed Array Program that
was terminated by the Parties under the Prior Agreement.

        "DISCLOSING PARTY" shall mean that Party disclosing Confidential
Information to the other Party under Section 8.

        "EU" shall mean Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain,
Sweden, United Kingdom and such other countries that may be subsequently
admitted to or excluded from the EU.

        "EUP" shall mean an Experimental Use Permit.


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        "EFFECTIVE DATE" shall mean the date of execution of this Agreement by
the Parties hereto, at which time this Agreement shall become effective.

        "EPA" shall mean the Environmental Protection Agency (or its foreign
equivalent responsible for approval of commercial use of Royalty-Bearing
Products as defined in the Field).

        "EXPERIMENTAL USE PERMIT" shall mean a permit for field application
issued by the EPA prior to label approval.

        FDA means the United States Food and Drug Administration (or its foreign
equivalent).

        "FIELD" means, collectively, the Agrochemical Field, the Human
Therapeutics Field, the Nutrition Field, and the Animal Health Field.

        "HUMAN THERAPEUTICS FIELD" means human therapeutic applications.

        "IND" means an investigational new drug application filed with the FDA
prior to beginning clinical trials in humans or any comparable application filed
with the regulatory authorities of a country other than the United States, prior
to beginning clinical trials in humans in that country.

        "JOINT PATENT RIGHTS" shall mean any Patent Rights that are jointly
owned by the Parties as of the Effective Date or during the Research Period, as
set forth in Section 5.1(c).

        "LICENSED COMPOUND" shall mean (i) all Directed Array Compounds, (ii)
any ArQule Compound that the Research Committee designated as a Licensed
Compound under the Prior Agreement, and (iii) any ArQule Compound that the
Research Committee has designated as a Licensed Compound as provided in Section
3.1.2 below.

        "MAPPING ARRAY(TM)" shall mean an Array of ArQule Compounds synthesized
by ArQule under the Mapping Array Program.

        "MAPPING ARRAY(TM) PROGRAM" shall mean the program under which ArQule
provides ArQule Compounds to its collaborators to screen on a non-exclusive
basis, with the right to obtain an exclusive license to Active Compounds in
substantially the manner set forth in Section 3.2.

        "PRIOR AGREEMENT" shall mean the Array Delivery and Testing Agreement
between the Parties dated December 23, 1996, as subsequently amended and
restated on January 11, 2000.

        "SEARLE COMPOUND" shall mean any chemical molecule that was provided by
Searle or its Primary Affiliates to ArQule under the Directed Array Program.

        "SEARLE DERIVATIVE COMPOUND" shall mean a Derivative Compound that was
synthesized by ArQule from a Searle Compound under the Directed Array Program.


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        "SEARLE PATENT RIGHTS" shall mean Patent Rights controlled or owned by
Searle as of the Effective Date or during the Research Period, as set forth in
Section 5.1(a); all to the extent and only to the extent that ArQule now has or
hereafter will have the right to grant licenses, immunities or other rights
thereunder.

        "NDA" means a New Drug Application, as such term is defined by the FDA,
and any equivalent filing in a foreign jurisdiction.

        "NET SALES" shall mean the aggregate Net Sales Price of Royalty-Bearing
Products in any Royalty Period.

        "NET SALES PRICE" shall mean [*]:

   (i)   [*]

   (ii)  [*]

   (iii) [*]

   (iv)  [*]

   (v)   [*]

[*]

        "NUTRITION FIELD" means human nutrition applications.

        "PARTY" means ArQule, Searle, or one of their respective Primary
Affiliates; "Parties" means ArQule, Searle, and their respective Primary
Affiliates.

        "PATENT RIGHTS" shall mean all patent applications and issued and
subsisting patents and reissues, reexaminations, extensions and supplementary
protection certificates thereof and all patent applications and any divisions,
continuations, or continuations-in-part thereof (to the extent directed to the
same subject matter as the parent application).

        "PHASE II CLINICAL TRIALS" means clinical trials in a small sample of
the intended patient population to assess the efficacy for a specific indication
of a compound proposed to be used as a therapeutic pharmaceutical product, to
determine dose tolerance and the optimal dose range as well as to gather
additional information relating to safety and potential adverse effects, and
meeting the requirements established by the FDA for Phase II clinical trials. A
Phase II Clinical Trial is deemed to commence upon acceptance of a trial
protocol with the FDA and concludes with the filing of a final study report with
the FDA, but in any event not later than the commencement of a Phase III
Clinical Trial for that product.


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        "PHASE III CLINICAL TRIALS" means clinical trials designed to
demonstrate safety and efficacy of a compound proposed to be used as a
therapeutic pharmaceutical product in an expanded patient population at
geographically dispersed study sites, meeting the requirements established by
the FDA for Phase III clinical trials. A Phase III Clinical Trial is deemed to
commence upon acceptance of a trial protocol with the FDA and concludes with the
filing of an NDA with the FDA.

        "PRELIMINARY FIELD TRIALS" shall mean, with respect to any
Royalty-Bearing Product, preliminary testing first conducted by or for Searle to
determine efficacy conducted under anticipated use conditions, generally in an
external environment. Preliminary Field Trials does not include primary testing,
which includes greenhouse, growth chamber or laboratory testing including
associated testing for environmental fate, toxicity, and toxicity on non-target
species including mammals.

        "PRIMARY AFFILIATE" of a Party shall mean (i) a corporation or other
legal entity that owns, directly or indirectly, fifty percent (50%) or more of
the outstanding equity securities of a Party which are entitled to vote in the
election of directors or a fifty percent (50%) or greater interest in the net
assets or profits of an entity which is not a corporation or any similar type of
control relationship, (ii) any majority-owned subsidiary of such corporation or
other legal entity, and (iii) any majority-owned subsidiary of a Party.

        "PRODUCT TEAM" shall mean a group of Searle employees formed to
facilitate product development analysis following successful completion of
Advanced Field Trials.

        "RECEIVING PARTY" shall mean that Party receiving Confidential
Information under Section 8.1.

        "RESEARCH COMMITTEE" shall have the meaning set forth in Section 2.1.

        "RESEARCH PERIOD" shall mean the period commencing [*].

        "ROYALTY-BEARING PRODUCT" shall mean a compound under development or a
product sold by Searle or a Sublicensee, which compound is or which product
contains [*].

        "ROYALTY PERIOD" shall mean, with respect to each Royalty-Bearing
Product and on a country-by-country basis, a [*] period commencing with the
first arms-length, commercial sale of the relevant Royalty-Bearing Product in
the relevant country.

        "SUBLICENSEE" shall mean any third party licensed by Searle to make, use
(except where the implied right to use accompanies the sale to the third party
of any Royalty-Bearing Product by Searle or its Sublicensees), sell, import,
export, advertise, promote and otherwise commercialize any Royalty-Bearing
Product.

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        "TARGET" shall mean any target within the Field selected by Searle.

        The above definitions are intended to encompass the defined terms in
both the singular and plural tenses.

2. MANAGEMENT OF MAPPING ARRAY PROGRAM.

   2.1. COMPOSITION OF RESEARCH COMMITTEE.  The Parties shall establish a
Research Committee comprised of four (4) members for the Agrochemical Field and
the Human Therapeutics Field within thirty (30) days after the Effective Date,
with two (2) representatives appointed by each Party for each such Research
Committee, unless otherwise agreed by the Parties. In addition, the Parties
agree to establish Research Committees in the Nutrition Field and Animal Health
Field as appropriate. References to the "Research Committee" throughout this
Agreement shall refer to any particular Research Committee, or all of the
Research Committees, as appropriate from the context of such reference. A Party
may change one or more of its representatives to the Research Committee at any
time upon notice to the other Party. Each Party will designate one of its
representatives as its team leader.

   2.2. DUTIES OF THE RESEARCH COMMITTEE.  The Research Committee shall direct
and administer the research activities under this Agreement. The Research
Committee shall (i) review test reports provided by Searle as to the significant
functional activity derived from testing the ArQule Compounds to confirm that
ArQule Compounds are Active Compounds in accordance with Section 3.2.2, (ii)
confirm whether ArQule Compounds that are Active Compounds and any Active
Homologs selected by Searle are properly designated as a Licensed Compounds in
accordance with the procedures set forth in Section 3.2.2; (iii) maintain and
update the list of Licensed Compounds; and (iv) resolve matters involving
scientific questions and any operational issues that may arise in the research
activities under this Agreement.

   2.3. MEETINGS OF THE RESEARCH COMMITTEE.  The Research Committee shall meet
at least once each quarter at the facilities of ArQule or Searle, or at such
other times and locations as the Research Committee determines. A representative
of the Research Committee jointly appointed by its members shall provide each
member with five (5) business days notice of the time and location of meetings,
unless such notice is waived by all members. If a designated representative of a
Party cannot attend any meeting of the Research Committee, such Party may
designate a different representative for that meeting without notice to the
other Party, and the substitute member will have full power to vote on behalf of
the permanent member. Except as otherwise provided in this Section 2, all
actions and decisions of the Research Committee will require the unanimous
consent of all of its members (it being understood that each Party will cause
its representatives to the Research Committee to act in good faith). If the
Research Committee fails to reach agreement upon any matter, the dispute will be
resolved in accordance with the procedures set forth in Section 12.5 below.
Within ten (10) days following each quarterly meeting of the Research Committee,
the Research Committee shall prepare and deliver, to both Parties, a written
report describing the decisions made, conclusions and actions agreed upon.


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   2.4. COOPERATION.  Each Party agrees to provide the Research Committee with
information and documentation as reasonably required for the Research Committee
to fulfill its duties under this Agreement. In addition, each Party agrees to
make available its employees and consultants as reasonably requested by the
Research Committee. The Parties anticipate that members of the Research
Committee will communicate informally with each other and with employees and
consultants of the Parties on matters relating to the research activities under
this Agreement.

3. ACCESS FEE; DESCRIPTION OF PROGRAMS.

   3.1. MAPPING ARRAY PROGRAM.

        3.1.1. CONDUCT OF MAPPING ARRAY PROGRAM.  As of the Effective Date,
ArQule has delivered to Searle, and Searle has accepted, a total of
approximately [*] ArQule Compounds in quantities of approximately [*] of each
ArQule Compound. After the Effective Date, ArQule will supply Searle with
approximately [*] of not less than [*] ArQule Compounds [*] (less any ArQule
Compounds previously delivered in the year 2000 prior to the Effective Date) and
[*] ArQule Compounds [*]. For the ArQule Compounds delivered [*], ArQule agrees
that (i) each Mapping Array will be, on average, at least [*] pure as measured
by HPLC/UV/ELSD analysis using standard ArQule analytical procedures and (ii)
each year of the Mapping Array Program will include at least [*] new Mapping
Arrays, with each such Mapping Array representing a different chemical core.
ArQule shall also furnish Searle with approximately [*] of each ArQule Compound
that is within the Compass Array libraries representing the Mapping Arrays
produced under the [*] Mapping Array Programs, as follows: (i) for the Compass
Array libraries representing Mapping Arrays produced under the [*] Mapping Array
Programs, ArQule will provide the [*] of the subset ArQule Compounds in addition
to the [*] of each ArQule Compound previously delivered; (ii) for the Compass
Array libraries representing Mapping Arrays produced under the [*] Mapping Array
Programs, ArQule will supply the [*] of the subset ArQule Compounds from the [*]
quantity of each ArQule Compound that ArQule is obligated to supply to Searle
(i.e., Searle will have [*] of these compounds in the Compass Array format and
[*] of these compounds in the Mapping Array format); and (iii) subject to
Section 12.15, for the Compass Array libraries representing Mapping Arrays
produced under the [*] Mapping Array Program, ArQule will supply the [*] of the
subset ArQule Compounds only, but not the Mapping Arrays. ArQule will also
provide Searle with (i) [*] and (ii) [*], provided that Searle agrees [*] and
further provided that Searle agrees that [*].

        3.1.2. IDENTIFICATION OF ACTIVE COMPOUNDS.  Initially, ArQule will not
identify the structures of the individual ArQule Compounds. Searle may screen
the ArQule Compounds against any Targets within the Field during the term of
this Agreement. If Searle detects any Active Compound, Searle shall disclose to
ArQule the location of the Active Compound in the Compass Array Library or
Mapping Array, and ArQule shall determine whether such Active Compound is an
Available Compound as soon as reasonably practicable, but no later than [*]
after such request if the request is for not more than [*] ArQule Compounds
within any period of [*]. During the period in which ArQule determines whether
an ArQule Compound is an Available Compound, ArQule shall tentatively reserve
for Searle on an exclusive basis such ArQule



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Compound pending its determination. If an Active Compound is not an Available
Compound, then ArQule shall not disclose the structure of such Active Compound
and such Active Compound may not be designated as a Licensed Compound under this
Agreement. If an Active Compound is an Available Compound, then subject to
confirmation of significant functional activity by the Research Committee (which
confirmation will occur as soon as reasonably practicable but not more than [*]
after Searle furnishes the confirmatory data to the Research Committee), ArQule
will disclose (i) the full structure of the Active Compound correlated to the
well location, (ii) [*] and (iii) if the Active Compound is identified in a
Mapping Array, the structures, but not the locations in the Mapping Array, of
the inactive ArQule Compounds that Searle has screened from the same Mapping
Array, and ArQule shall reserve to Searle the Active Compound and up to [*]
Active Homologs that are Available Compounds. All such disclosed information
shall be treated as Confidential Information by the Receiving Party. ArQule
shall furnish Searle with up to [*] resynthesized Active Compounds per month in
quantities of not less than [*], as directed by the Research Committee, [*] and
additional resynthesized Active Compounds in quantities of not less than [*], as
directed by the Research Committee, at a cost of [*] per compound. ArQule shall
maintain the compound reservation for a period of [*] after Searle receives the
resynthesized Active Compound. Searle may extend the [*] reservation period for
not more than [*] Active Compounds at the same time, subject to increase by the
Research Committee. Searle may subsequently request that the Research Committee
designate such Active Compound and the [*] Active Homologs thereof as Licensed
Compounds; whereupon the Research Committee shall designate such Active Compound
and such Active Homologs thereof as Licensed Compounds provided that the
Research Committee confirms that the Active Compound meets the predefined
criteria for significant functional activity. For any Active Compounds that are
subject to reservation by Searle or are designated as Licensed Compounds to
Searle as described in this Section, ArQule will deem such Active Compounds as
committed to Searle and no longer available to third parties or to Internal
ArQule Discovery Programs. At the request of Searle, ArQule will make available
to Searle the synthetic protocols for Licensed Compounds in ACS experimental
format.

        3.1.3. ACTIVITY REPORTS.  Within thirty (30) days after the conclusion
of each calendar quarter, and only at the request of ArQule, Searle shall
furnish ArQule with a report that sets forth for each class of Targets the
percentage of Active Compounds, if any, that Searle has identified from the
total ArQule Compounds screened for that class of Targets in that quarter. For
purposes of this Section, the term "class of Targets" shall mean a named family
or subfamily of Targets that includes at least [*] that are not Confidential
Information of Searle.

        3.1.4. TIMING OF DELIVERY.  If ArQule provides Searle with the Compass
Array Libraries together with their corresponding Mapping Arrays in any quarter
during calendar years [*], ArQule agrees to ship the Compass Array Libraries and
the corresponding Mapping Arrays to Searle at the same time as ArQule ships such
ArQule Compounds to its other collaborators in the Field or uses such ArQule
Compounds in an Internal ArQule Discovery Program. In the event that ArQule
provides Searle with the Compass Array Libraries after ArQule ships the
corresponding Mapping Arrays to its other collaborators or uses the
corresponding Mapping Arrays in an Internal


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ArQule Discovery Program in any quarter in calendar years [*], then
notwithstanding the delivery requirements in Section 3.1.2, ArQule shall provide
Searle with [*] of each ArQule Compound in the Mapping Arrays provided to its
other collaborators or used in an Internal ArQule Discovery Program at the same
time as ArQule ships such Mapping Arrays to those collaborators or uses such
Mapping Arrays in an Internal ArQule Discovery Program and then shall provide
Searle with another [*] of each such ArQule Compound (i) in the Compass Array
Library format and (ii) in the Mapping Array format minus the ArQule Compounds
provided in the Compass Array Library format (i.e., ArQule will split the total
[*] of each ArQule Compound into [*] shipments, with the [*] shipment split into
a Compass Array Library and a smaller Mapping Array library that contains the
ArQule Compounds not included in the Compass Array Library) within [*]
thereafter. In the event that ArQule provides a Compass Array Library to another
collaborator or uses a Compass Array Library in an Internal ArQule Discovery
Program in any quarter in calendar years [*], ArQule shall provide that Compass
Array Library to Searle not later than the time that such Compass Array Library
is provided to the other collaborator or used in an Internal ArQule Discovery
Program.

        3.1.5. PAYMENT.  Searle shall pay ArQule a fee in the amount of [*] in
the calendar year [*]. The payments under this Subsection shall be made in [*].

   3.2. LEAD OPTIMIZATION PROGRAM.

        3.2.1. DIRECTED ARRAY PROGRAM.  The parties previously terminated the
Directed Array Program under the Prior Agreement. ArQule represents and warrants
that it has delivered to Searle, or will promptly deliver to Searle, the
structures of all Directed Array Compounds and the synthetic procedures for such
Directed Array Compounds in ACS experimental format. ArQule agrees to provide
Searle with reasonable technical and other support, at the expense of Searle,
for future efforts by Searle to develop and commercialize Royalty-Bearing
Products based on Directed Array Compounds.

        3.2.2. CREDIT FOR LEAD OPTIMIZATION PROGRAM.  ArQule agrees to furnish
Searle with [*] full-time equivalents ("FTEs") of effort (i.e., the equivalent
of [*] person-years of effort) towards a lead optimization program, with details
to be agreed by the parties in good faith. Searle may initiate the lead
optimization program at any time during the Research Period, but may not
initiate the program before the earlier of (i) [*] or (ii) [*]; provided that
the program cannot begin until the Parties have agreed upon the details in good
faith, including without limitation the terms set forth in this Section. In the
event that Searle proceeds with this lead optimization program, (i) Searle will
pay ArQule [*], (ii) ArQule will provide [*], and (iii) [*]. In the event that
Searle initiates the lead optimization program after [*], ArQule shall have the
right to [*]. ArQule agrees that the [*] FTEs of effort includes ordinary
laboratory supplies, consumables, and chemical costs, and Searle agrees that
such effort does not include extraordinary expenses such as custom chemical
monomers that are purchased from a third party or synthesized by ArQule with
effort beyond the [*] FTEs of effort and chemical monomers and reagents that
cost in excess of the amounts typically expended by ArQule in a lead
optimization program of substantially similar scope. The

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Parties acknowledge that the terms of this initial lead optimization program are
not intended to apply to any future lead optimization programs provided by
ArQule to Searle.

4.   LICENSE GRANTS; DILIGENCE.

     4.1. SCREENING LICENSES.  ArQule hereby grants to Searle (a) [*] (b)
[*], and (c) [*].

     4.2. COMMERCIALIZATION LICENSES.  ArQule hereby grants to G. D. Searle &
Co., (i) [*] (ii) [*](iii) [*].

     4.3. TERMINATION OF LICENSES.  The licenses granted to Searle by ArQule
pursuant to Sections 4.1 and 4.2 shall continue in perpetuity except as
otherwise provided in Article 11 or Section 4.4.

     4.4. RETURN OF MATERIALS.  ArQule shall have the right to request
information regarding the development and commercialization efforts with respect
to any Licensed Compounds, in which event Searle shall conduct a reasonable
investigation as to the status of any Royalty-Bearing Products that are based on
or incorporate the relevant Licensed Compounds and report to ArQule within [*]
from the date of request on the status of such Royalty-Bearing Products. ArQule
may request such investigation and status report [*]. In the event that Searle
ceases to use commercially reasonable efforts to develop and commercialize
Royalty-Bearing Products in the Field based on or incorporating an ArQule
Compound that is a Licensed Compound, or if Searle refuses or fails to provide
ArQule with a status report with respect to such Licensed Compound within [*]
after ArQule provides Searle with written notice that Searle has failed to
provide such report within the



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[*] period described above, ArQule shall have the right, upon [*] written notice
to Searle, to terminate all licenses granted to Searle under this Agreement with
respect to such Licensed Compound ( a "Discontinued Product") and, in such
event, Searle shall assign to ArQule the ownership of the Discontinued Product
and all Searle Patent Rights and Joint Patent Rights in the composition of such
Discontinued Product; provided, however, that Searle may elect, upon written
notice to ArQule that is received by ArQule during the [*] period set forth
above, to retain its rights under this Agreement with respect to such Licensed
Compound by [*]. In the event that Searle elects to [*]. Thereafter, for a
period of [*], Searle shall [*].

     4.5. LICENSE REQUIREMENTS.  The Parties recognize and agree that Searle
does not and will not at any time need any license or other permission or
authorization from ArQule for any activities (including by way of example and
not limitation) making, using, offering for sale, selling and importing
concerning or involving any compound or composition or its manufacture or use
unless ArQule owns (to the exclusion of Searle) (i) ArQule Patent Rights, or
(ii) proprietary and confidential ArQule Technology covering such compound or
composition or its manufacture or use.

     4.6. SCREENING OF ARQULE COMPOUNDS.  During the Research Period, and
subject to the screening licenses granted in Section 4.1. above, Searle shall
have the right, either directly or through Searle's Primary Affiliates or third
parties selected by Searle, to perform such testing in the Field as Searle deems
appropriate on ArQule Compounds and ArQule Derivative Compounds, provided that,
prior to delivering any ArQule Compounds or ArQule Derivative Compounds to any
such third party, Searle, ArQule and each such third party enter into a
materials transfer agreement reasonably acceptable to ArQule and including terms
and conditions that are usual and customary for such agreements, and further
provided that Searle shall not identify the compounds provided to any third
party as ArQule Compounds.

     4.7. REVERSE ENGINEERING.  Searle shall not attempt to reverse engineer, or
attempt to determine the structure of, any ArQule Compound until the structure
of such compound has been disclosed to Searle by ArQule pursuant to Section
3.1.2.

5.   INTELLECTUAL PROPERTY RIGHTS.

     5.1. OWNERSHIP OF PATENT RIGHTS.

          (a) SEARLE PATENT RIGHTS.  Searle will solely own any Patent Rights
     covering inventions that are conceived and reduced to practice solely by
     employees of Searle in connection with this Agreement. Searle will solely
     own any Patent Rights covering the composition or any method of making or
     using (i) Searle Compounds and (ii) Searle Derivative Compounds, except,
     and only to the extent that, ArQule can show that any such compounds were
     independently developed by ArQule employees who had no access to Searle
     Confidential Information or any information of ArQule developed or
     furthered as a result of this Agreement.

---------------
*Confidential treatment has been requested for the marked portion.

                                       12

<PAGE>   13


          (b) ARQULE PATENT RIGHTS.  ArQule will solely own any Patent Rights
     covering inventions that are conceived and reduced to practice solely by
     employees of ArQule in connection with this Agreement, except as otherwise
     provided in clause (a) above in the case of rights in Searle Compounds and
     Searle Derivative Compounds.

          (c) JOINT PATENT RIGHTS.  ArQule and Searle will jointly own any
     Patent Rights covering inventions that are conceived and reduced to
     practice jointly by employees of ArQule and Searle in connection with this
     Agreement.

     5.2. MANAGEMENT OF PATENT RIGHTS.  Each party shall have responsibility
for, and control over, the preparation, filing, prosecution, and maintenance of
their respective Patent Rights. In the case of Joint Patent Rights, Searle shall
have all control over and shall bear all responsibility for, and the expense of,
the preparation, filing, prosecution, and maintenance of any Joint Patent Rights
claiming such inventions. Searle shall consult with ArQule as to the
preparation, filing, prosecution, and maintenance of such Joint Patent Right
reasonably prior to any deadline or action with the U.S. Patent & Trademark
Office or its foreign equivalent, and shall furnish to ArQule copies of all
relevant documents reasonably in advance of such consultation. In the event that
Searle desires to abandon such Joint Patent Right, or if Searle later declines
responsibility for such Joint Patent Right, Searle shall provide reasonable
prior written notice to ArQule of such intention to abandon or decline
responsibility, and ArQule shall have the right, at its expense, to prepare,
file, prosecute, and maintain such Joint Patent Rights.

     5.3. COOPERATION OF THE PARTIES.  Each Party agrees to cooperate fully in
the preparation, filing, and prosecution of any Patent Rights under this
Agreement. Such cooperation includes, but is not limited to:

          (a) executing all papers and instruments, or requiring its employees
     or agents, to execute such papers and instruments, so as to effectuate the
     ownership of Patent Rights set forth in Section 5.1 above and to enable the
     other Party to apply for and to prosecute patent applications in any
     country;

          (b) promptly informing the other Party of any matters coming to such
     Party's attention that may affect the preparation, filing, or prosecution
     of any such patent applications; and

          (c) undertaking no actions that are potentially deleterious to the
     preparation, filing, or prosecution of such patent applications.

     5.4. INFRINGEMENT BY THIRD PARTIES.  ArQule and Searle shall each promptly
notify the other in writing of any alleged or threatened infringement by a third
party of any ArQule Patent Right, Searle Patent Right or Joint Patent Right
covering Licensed Compounds of which they become aware. The Parties shall
consult concerning the action(s) to be taken in connection with any such alleged
or threatened infringement.


                                       13


<PAGE>   14


6.   OWNERSHIP OF COMPOUNDS.

     All Searle Compounds and Searle Derivative Compounds shall be owned by
Searle. All ArQule Compounds shall be owned by ArQule. All ArQule Derivative
Compounds shall be owned in the same manner as the Patent Rights to such
compounds are owned as set forth in Article 5.

7.   PAYMENTS, REPORTS, AND RECORDS.

     7.1. MILESTONE PAYMENTS.  In partial consideration of the rights granted
Searle under this Agreement, Searle shall pay ArQule the following amounts
within [*] after each occurrence of the following milestones:

          (a) MILESTONE PAYMENTS IN AGROCHEMICAL FIELD.  Searle shall make the
following milestone payments to ArQule with respect to Royalty-Bearing Products
in the Agrochemical Field:

<TABLE>
<CAPTION>
        Payment                                  Milestone
        -------                                  ---------
        <S>                                      <C>
        [*]                                         [*]
        [*]                                         [*]
        [*]                                         [*]
        [*]                                         [*]
        [*]                                         [*]
        [*]                                         [*]
        [*]                                         [*]
</TABLE>

[*]

          (b) MILESTONE PAYMENTS IN HUMAN THERAPEUTIC FIELD.  Searle shall make
the following milestone payments to ArQule with respect to Royalty-Bearing
Products in the Human Therapeutics Field:

<TABLE>
<CAPTION>
        Payment                                   Milestone
        -------                                   ---------
        <S>                                       <C>
        [*]                                          [*]
        [*]                                          [*]
        [*]                                          [*]
        [*]                                          [*]
        [*]                                          [*]
</TABLE>

---------------
*Confidential treatment has been requested for the marked portion.

                                       14

<PAGE>   15


          (c) MILESTONE PAYMENTS IN NUTRITION AND ANIMAL HEALTH FIELDS.  Searle
shall pay ArQule up to a total of [*] in milestone payments with respect to
Royalty-Bearing Products in each of the Nutrition Field and Animal Health Field.
ArQule and Searle agree to negotiate in good faith the specific events and
milestone payments attributable to each such field. Events and payments
negotiated with respect to the first such Royalty-Bearing Product in each such
field shall apply to all subsequent Royalty-Bearing Products in such field.
Until such milestone terms have been agreed to by the Parties for a particular
field, Searle will not have the right to market or sell Licensed Products in
such field.

          (d) MILESTONE PAYMENTS FOR DIRECTED ARRAY COMPOUNDS.  For the purposes
of Subsections 7.1(b) and Section 7.1(c), the definition of "ArQule Compound"
shall be deemed to include all Directed Array Compounds. Consequently, among
other things, the term "Royalty-Bearing Product" shall include Derivative
Compounds of Directed Array Compounds as if such Derivative Compounds were
ArQule Derivative Compounds and the Directed Array Compounds shall be treated as
if they were part of the Mapping Array Program when screened against targets
outside of the Agrochemical Field.

          (e) Such milestone payments shall be non-refundable and shall not be
credited against royalties payable to ArQule under this Agreement. Searle shall
promptly notify ArQule of each occurrence of any of the foregoing milestones.

    7.2.  ROYALTIES.

          (a) In consideration of the licenses granted to Searle hereunder,
Searle shall pay to ArQule a royalty of [*] of Net Sales of Royalty-Bearing
Products in the Agrochemical Field.

          (b) In consideration of the licenses granted to Searle hereunder,
Searle shall pay to ArQule a royalty based on a percentage of [*] in the Human
Therapeutics Field, Nutrition Field, and Animal Health Field where such royalty
percentage is determined by [*] as follows:

        [*]                             [*]
        ---                             ---
        [*]                             [*]
        [*]                             [*]
        [*]                             [*]

---------------
*Confidential treatment has been requested for the marked portion.

                                       15

<PAGE>   16


               Where the [*]. For the purposes of this Subsection 7.2(a), the
               terms "Parent ArQule Compound" means (i) in the case of a
               Licensed Compound, the Licensed Compound itself, (ii) in the case
               of an ArQule Derivative Compound, an ArQule Compound in the
               Mapping Array from which the final ArQule Derivative Compound was
               derived, or (iii) in the case of any other compound discovered or
               designed by Searle directly as a result of information obtained
               by Searle under the Mapping Array Program from one or more ArQule
               Compounds, which information forms the primary basis for such
               discovery or development and which information was not previously
               known to Searle from sources other than ArQule or an ArQule
               Compound from which such information was obtained. The [*]. The
               Parties agree to periodically review the [*]. For the purposes of
               this paragraph, [*].

          (c) ROYALTY PAYMENTS FOR DIRECTED ARRAY COMPOUNDS.  For the purposes
of Subsection 7.2(b), the definition of "ArQule Compound" shall be deemed to
include all Directed Array Compounds. Consequently, among other things, the term
"Royalty-Bearing Product" shall include Derivative Compounds of Directed Array
Compounds as if such Derivative Compounds were ArQule Derivative Compounds and
the Directed Array Compounds shall be treated as if they were part of the
Mapping Array Program when screened against targets outside of the Agrochemical
Field

          (d) No royalty shall accrue on sales among Searle and Sublicensees.
Royalties shall only accrue on sales by Searle and Sublicensees to parties other
than Searle or its Sublicensees and shall be payable only once for any given
unit of Royalty-Bearing Product sold.

     7.3. REPORTS AND PAYMENTS.  Within sixty (60) days after the conclusion of
each Royalty Period, Searle shall deliver to ArQule one or more reports
containing the following information:

          (a) gross sales of Royalty-Bearing Products by Searle and Sublicensees
     during the applicable Royalty Period in each of the Agrochemical Field,
     Human Therapeutics Field, Animal Health Field, and Nutrition Field in each
     country of sale;

          (b) adjustments and calculation of Net Sales for the applicable
     Royalty Period in each country of sale; and

          (c) total Net Sales in U.S. dollars, together with the exchange rates
     used for conversion.

All such reports shall be maintained in confidence by ArQule. If no royalties
are due to ArQule for any reporting period, the report shall so state.
Concurrent with this report, Searle shall remit to ArQule any payment due for
the applicable Royalty Period using a method of payment mutually


                                       16

<PAGE>   17


agreed to by the Parties. All amounts payable to ArQule under this Section will
first be calculated in the currency of sale and then converted into U.S. dollars
in accordance with Section 7.4, and such amounts shall be paid without
deduction, except as required by law, of any withholding taxes, value-added
taxes, or other charges applicable to such payments.

     7.4. INVOICES; PAYMENTS IN U.S. DOLLARS.  With the exception of milestone
payments due under Section 7.1 and royalty payments due under Section 7.2,
ArQule shall submit invoices to Searle for each payment due ArQule hereunder,
and Searle shall pay such invoices within sixty (60) days of receipt thereof.
All payments due under this Agreement shall, except as provided in Section 7.5
below, be payable in United States dollars. Conversion of foreign currency to
U.S. dollars shall be made at the conversion rate existing in the United States
(as reported in THE WALL STREET JOURNAL) on the last working day of the calendar
quarter preceding the applicable calendar quarter. Such payments shall be
without deduction of exchange, collection, or other charges.

     7.5. PAYMENTS IN OTHER CURRENCIES.  If by law, regulation, or fiscal policy
of a particular country, conversion into United States dollars or transfer of
funds of a convertible currency to the United States is restricted or forbidden,
Searle shall give ArQule prompt written notice of such restriction, which notice
shall satisfy the forty-five day payment deadline described in Section 7.4.
Searle shall pay any amounts due ArQule through whatever lawful methods ArQule
reasonably designates; provided, however, that if ArQule fails to designate such
payment method within forty-five (45) days after ArQule is notified of the
restriction, then Searle may deposit such payment in local currency to the
credit of ArQule in a recognized banking institution selected by Searle and
identified by written notice to ArQule, and such deposit shall fulfill all
obligations of Searle to ArQule with respect to such payment.

     7.7. RECORDS.  Searle shall maintain reasonably complete and accurate
records of Royalty-Bearing Products made, used or sold by them or their
Sublicensees under this Agreement, and any amounts payable to ArQule in relation
to such Royalty-Bearing Products, which records shall contain reasonably
sufficient information to permit ArQule to confirm the accuracy of any reports
delivered to ArQule in accordance with Section 7.3. The relevant Party shall
retain such records relating to a given Royalty Period for at least three (3)
years after the conclusion of that Royalty Period. Each Party (acting as the
"Auditing Party") shall have the right, at its own expense, to cause an
independent certified public accountant to inspect such records of the other
Party (the "Audited Party") during normal business hours for the sole purpose of
verifying any reports and payments delivered under this Agreement. Such
accountant shall not disclose to the Auditing Party any information other than
information relating to accuracy of reports and payments delivered under this
Agreement and shall provide the Audited Party with a copy of any report given to
the Auditing Party. The Parties shall reconcile any underpayment or overpayment
within forty-five (45) days after the accountant delivers the results of the
audit. In the event that any audit performed under this Section reveals an
underpayment in excess of [*] in any Royalty Period, the Audited Party shall
bear the full cost of such audit. Each Party may exercise its rights under this
Section only once every year and only with reasonable prior notice to the other
Party.

---------------
*Confidential treatment has been requested for the marked portion.


                                       17

<PAGE>   18



     7.8. LATE PAYMENTS.  Any payments by Searle that are not paid on or before
the date such payments are due under this Agreement shall bear interest, to the
extent permitted by law, at two percentage points above the Base Rate of
Interest calculated based on the number of days that payment is delinquent.

     7.9 LATE DELIVERIES.  In the event that ArQule makes a late delivery of
Mapping Arrays to Searle pursuant to Section 3.1.1 or delivers a Compass Array
Library after the [*] period described in Section 3.1.1, Searle may deduct from
the next quarterly installment of the delivery fee set forth in Section 3.1.5 an
amount determined by multiplying the amount of such quarterly installment by an
annualized rate equal to [*] above the Base Rate of Interest calculated based on
the number of days that delivery was late.

8.   CONFIDENTIAL INFORMATION.

     8.1. DEFINITION OF CONFIDENTIAL INFORMATION.  Confidential Information
shall mean any technical or business information furnished by the Disclosing
Party to the Receiving Party in connection with this Agreement and specifically
designated as confidential. Such Confidential Information may include, without
limitation, the identity of a chemical compound, the use of a chemical compound,
trade secrets, know-how, inventions, technical data or specifications, testing
methods, business or financial information, research and development activities,
product and marketing plans, and customer and supplier information.

     8.2. OBLIGATIONS.  The Receiving Party agrees that it shall:

          (a) maintain all Confidential Information in strict confidence, except
     that the Receiving Party may disclose or permit the disclosure of any
     Confidential Information to its, and its Primary Affiliates, directors,
     officers, employees, consultants, and advisors who are obligated to
     maintain the confidential nature of such Confidential Information and who
     need to know such Confidential Information for the purposes set forth in
     this Agreement;

          (b) use all Confidential Information solely for the purposes set forth
     in, or as permitted by, this Agreement; and

          (c) allow its Primary Affiliates, directors, officers, employees,
     consultants, and advisors to reproduce the Confidential Information only to
     the extent necessary to effect the purposes set forth in this Agreement,
     with all such reproductions being considered Confidential Information.

     8.3. EXCEPTIONS.  The obligations of the Receiving Party under Section 8.2
above shall not apply to any specific Confidential Information to the extent
that the Receiving Party can demonstrate that such Confidential Information:

---------------
*Confidential treatment has been requested for the marked portion.


                                       18

<PAGE>   19


          (a) was in the public domain prior to the time of its disclosure under
     this Agreement;

          (b) entered the public domain after the time of its disclosure under
     this Agreement through means other than an unauthorized disclosure
     resulting from an act or omission by the Receiving Party, its Primary
     Affiliates, directors, officers, employees, consultants, advisors or
     agents;

          (c) was independently developed or discovered by the Receiving Party
     without use of the Confidential Information;

          (d) is or was disclosed to the Receiving Party at any time, whether
     prior to or after the time of its disclosure under this Agreement, by a
     third party having no fiduciary relationship with the Disclosing Party and
     having no obligation of confidentiality to the Disclosing Party with
     respect to such Confidential Information; or

          (e) is required to be disclosed to comply with applicable laws or
     regulations (such as disclosure to the EPA or the United States Patent and
     Trademark Office or to their foreign equivalents), or to comply with a
     court or administrative order, provided that the Disclosing Party receives
     prior written notice of such disclosure and that the Receiving Party takes
     all reasonable and lawful actions to obtain confidential treatment for such
     disclosure and, if possible, to minimize the extent of such disclosure.

     8.4. PUBLICATIONS.  ArQule shall not publish any information with respect
to Licensed Compounds without the prior written permission of Searle, which may
be withheld in its sole discretion.

9.   REPRESENTATIONS AND WARRANTIES.

     Each Party represents and warrants to the other that it has the legal right
and power to enter into this Agreement, to extend the rights and licenses
granted to the other in this Agreement, and to fully perform its obligations
hereunder, and that the performance of such obligations will not conflict with
its charter documents or any agreements, contracts, or other arrangements to
which it is a party.

10.  INDEMNIFICATION AND INSURANCE.

     10.1. INDEMNIFICATION.  Each Party (the "Indemnitor") shall indemnify,
defend, and hold harmless the other Party and its Primary Affiliates and their
directors, officers, employees, and agents and their respective successors,
heirs and assigns (the "Indemnitees"), against any liability, damage, loss, or
expense (including reasonable attorneys fees and expenses of litigation)
incurred by or imposed upon the Indemnitees or any one of them in connection
with any claims, suits, actions, demands, or judgments arising out of any theory
of product liability (including, but not limited to, actions in the form of
tort, warranty, or strict liability) concerning any product (or any process or
service) that is made, used, or sold by the Indemnitor pursuant to any right or
license granted under this Agreement; provided, however, that such
indemnification right shall not apply

                                       19

<PAGE>   20


to any liability, damage, loss, or expense to the extent directly attributable
to the negligent activities, reckless misconduct, or intentional misconduct of
the Indemnitees.

     10.2. PROCEDURES.  Any Indemnitee that intends to claim indemnification
under Section 10.1 shall promptly notify the appropriate Indemnitor of any claim
in respect of which the Indemnitee intends to claim such indemnification, and
the Indemnitor shall assume the defense thereof with counsel mutually
satisfactory to the Parties; provided, however, that an Indemnitee shall have
the right to retain its own counsel, with the fees and expenses to be paid by
the Indemnitor, if representation of such Indemnitee by the counsel retained by
the Indemnitor would be inappropriate due to actual or potential differing
interests between such Indemnitee and any other party represented by such
counsel in such proceedings. The indemnity agreement in Section 10.1. shall not
apply to amounts paid in settlement of any loss, claim, liability or action if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve the
Indemnitor of any liability to the Indemnitee under Section 10.1. Each party and
its Primary Affiliates and their employees and agents shall cooperate fully with
the other party and its legal representatives in the investigation of any
action, claim or liability covered by this indemnification.

     10.3. INSURANCE.  Each Party shall maintain reasonably adequate insurance
coverage or self-insurance for its own potential liabilities to the Indemnitees
as set forth in this Article 10.

11.  TERM AND TERMINATION.

     11.1. TERM.  This Agreement shall commence on the Effective Date and shall
remain in effect until the expiration of the last to expire of the applicable
Patent Rights covering any Royalty-Bearing Product, unless earlier terminated as
provided in this Article 11.

     11.2. BREACH OF PAYMENT OBLIGATIONS.  In the event that Searle fails to
make timely payment of any amounts due to ArQule under this Agreement, ArQule
may terminate this Agreement upon ninety (90) days written notice to Searle,
unless Searle pays all past-due amounts within such ninety-day notice period.

     11.3. MATERIAL BREACH.  In the event that either party commits a material
breach of any of its obligations under this Agreement (other than as provided in
Section 11.2) and such party fails (i) to remedy that breach within ninety (90)
days after receiving written notice thereof from the other party or (ii) to
commence dispute resolution pursuant to Section 12.5, within ninety (90) days
after receiving written notice of that breach from the other party, the other
party may immediately terminate this Agreement upon written notice to the
breaching party.

     11.4. EFFECT OF TERMINATION.  Termination of this Agreement shall not
relieve the parties of any obligation accruing prior to such termination. The
provisions of Article 4, Article 5, Article 6, Article 7, Article 8, Article 9,
Article 10, and Article 12 shall survive the expiration or termination of this
Agreement. Notwithstanding the foregoing, if ArQule terminates this Agreement
pursuant to Section 11.3, then (i) Searle shall have no further right to screen
ArQule Compounds pursuant to Section 3.1 and 4.1, select Licensed Compounds
pursuant to Section 3.1.


                                       20
<PAGE>   21


or to develop and commercialize ArQule Compounds pursuant to Section 4.2.; (ii)
Searle shall immediately return or destroy (with such destruction certified in
writing by an officer of Searle) all unused ArQule Compounds in a manner
directed by ArQule; and (iii) ArQule shall have the right to effect reversion of
the Licensed Compounds pursuant to Section 4.4. Notwithstanding the foregoing,
if Searle terminates this Agreement pursuant to Section 11.3., then Searle [*].

12.  MISCELLANEOUS.

     12.1. RELATIONSHIP OF PARTIES.  Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the parties. No party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.

     12.2. PUBLICITY.  Except as otherwise expressly provided in this Section
12.2, neither Party shall (i) use the name of the other Party in relation to
this transaction in any public announcement, press release, or other public
document or (ii) originate any written publicity, news release, or other
announcement relating to this Agreement, to performance under this Agreement, or
to the existence of an arrangement between the Parties (collectively, "WRITTEN
DISCLOSURE"), without the prior prompt review and approval of the other Party,
which approval shall not be unreasonably withheld or delayed. Any Party may make
any public Written Disclosure it believes in good faith, based upon the opinion
of its general outside counsel, is required by applicable law or any listing or
trading agreement concerning its publicly traded securities, provided that prior
to making such Written Disclosure, the disclosing Party shall request
confidential treatment of such information pursuant to Rule 406 of the
Securities Act of 1933 or Rule 24b-2 of the Securities Exchange Act of 1934, as
applicable (or any other applicable regulation relating to the confidential
treatment of information) to the extent reasonably practicable and consistent
with any applicable limitations imposed by such regulations. In addition, ArQule
shall provide Searle with the relevant portion of its draft Form 10Q filing for
Q2 2000, together with the draft exhibit to such Form 10Q which sets forth the
Agreement and the redactions for which ArQule intends to seek confidential
treatment. A Party may also make a Written Disclosure (i) to government
agencies, courts, or other governmental bodies where required by law, so long as
the disclosing Party notifies the other Party prior to the disclosure and seeks
to obtain a protective order to maintain the confidentiality of the information
and (ii) to third parties under an agreement of confidentiality, with the prior
written consent of the other Party, which consent shall not be unreasonably
withheld or delayed. Once a "Written Disclosure" is approved, either Party may
reuse the disclosed information in a materially unaltered form without further
consent or approval. Specifically, each Party may state that the other Party has
entered into this Agreement after such information has appeared in an approved
Written Disclosure, without the prior consent or approval of the other Party.

     12.3. NON-SOLICITATION.  During the term of this Agreement and thereafter
for a period of [*], each party agrees not to seek to persuade or induce any
employee of the other party to

---------------
*Confidential treatment has been requested for the marked portion.


                                       21
<PAGE>   22


discontinue his or her employment with that party in order to become employed by
or associated with any business, enterprise, or effort that is associated with
its own business.

     12.4. GOVERNING LAW.  This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.

     12.5. DISPUTE RESOLUTION PROCEDURES.

           12.5.1. NEGOTIATION.  In the event of any dispute or disagreement
between Searle and ArQule as to the interpretation of any provision of this
Agreement or the performance of their obligations hereunder, then upon written
request of either Party, the matter shall be referred to representatives of the
Parties for decision, each party being represented by a senior executive officer
who has no direct operational responsibility for the matters contemplated by
this Agreement (the "REPRESENTATIVES"). The Representatives shall promptly meet
in a good faith effort to resolve the dispute. If the Representatives do not
meet or do not agree upon a decision within thirty (30) calendar days after the
date upon which the written request is received by the other Party, each of
Searle and ArQule shall be free to exercise the remedies available to them under
Section 12.5.2.

           12.5.2. ARBITRATION.  Any controversy, dispute or claim arising out
of or relating in any way to this Agreement or the transactions arising
hereunder that are not resolved by negotiation pursuant to Section 12.5.1 shall
be settled exclusively by arbitration in the New York, New York. Such
arbitration shall be administered by the Center for Public Resources Institute
for Dispute Resolution (the "INSTITUTE") in accordance with its then prevailing
Rules for Non-Administered Arbitration of Business Disputes (except as otherwise
provided herein), by three independent and impartial arbitrators, one of whom
shall be appointed by Searle and one of whom shall be appointed by ArQule,
provided that in the case of a dispute as to decisions of the Research Committee
or whether a product is a Royalty-Bearing Product, each party shall designate
one (1) neutral having the following minimum scientific qualifications: a Ph.D.
degree in chemistry or life sciences or an M.D. degree plus at least ten (10)
years of relevant business or scientific research experience. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq.
The fees and expenses of the Institute and the arbitrators shall be shared
equally by the parties and advanced by them from time to time as required;
provided that at the conclusion of the arbitration, the arbitrators shall award
costs and expenses (including the costs of the arbitration previously advanced
and the fees and expenses of attorneys, accountants and other experts) and
interest to the prevailing party. The arbitrators shall render their award
together with a summary explanation of their decision within ninety (90) days of
the conclusion of the arbitration hearing. The arbitrators shall not be
empowered to award to any party any consequential damages, lost profits, or
punitive damages in connection with any dispute between the parties arising out
of or relating in any way to this Agreement or the transactions arising
hereunder, and each party hereby irrevocably waives any right to recover such
damages. Notwithstanding anything to the contrary provided in this Section and
without prejudice to the above procedures, (i) either party may apply to any
court of competent jurisdiction for temporary injunctive or other provisional
judicial relief if such action is necessary to avoid irreparable damage or to
preserve the status quo until such time as the arbitration panel is convened and
available to hear such party's request for temporary relief and (ii) the parties
agree that all applicable statutes of limitation and time-based defenses (such
as estoppel and laches) shall be

                                       22

<PAGE>   23


tolled while the procedures set forth in this Section and Section 12.5.1 are
pending and the parties further agree to take any actions necessary to
effectuate this result. The award rendered by the arbitrators shall be final and
not subject to judicial review and judgment thereon may be entered in any court
of competent jurisdiction.

     12.6. COUNTERPARTS.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

     12.7. HEADINGS.  All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.

     12.8. BINDING EFFECT.  This Agreement shall inure to the benefit of and be
binding upon the parties, their Primary Affiliates, and their respective lawful
successors and assigns.

     12.9. ASSIGNMENT.  This Agreement may not be assigned by either party
without the prior written consent of the other party, except that either party
may assign this Agreement to a successor in connection with the merger,
consolidation, spin-off or sale of all or substantially all of its assets or
that portion of its business pertaining to the subject matter of this Agreement.
Searle has the right to extend its rights and benefits under this Agreement to
any Primary Affiliate.

     12.10. NOTICES.  All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized international overnight courier, confirmed
facsimile transmission, or registered or certified mail, return receipt
requested, postage prepaid to the following addresses or facsimile numbers:

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<PAGE>   24

If to Searle:                                   If to ArQule:

G.D. Searle & Co.                               ArQule, Inc.
5200 Old Orchard Road                           19 Presidential Way
Skokie, Illinois 60077                          Woburn, MA 01801
Attention: Michael J. DuBois                    Attention: President
           Senior Vice President,               Tel: (781) 994-0300
           Corporate Licensing                  Fax: (781) 994-0676
Tel: (908) 901-8815
Fax: (908) 901-1813

with a copy to:                                 with a copy to:

G.D. Searle & Co.                               ArQule, Inc.
5200 Old Orchard Road                           19 Presidential Way
Skokie, Illinois 60077                          Woburn, MA 01801
Attention: Asst. General Counsel                Attention: Legal Department
Tel: (847) 581-6740                             Tel: (781) 994-0300
Fax: (847) 581-4045                             Fax: (781) 994-0676


Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.

     12.11. AMENDMENT AND WAIVER.  This Agreement may be amended, supplemented,
or otherwise modified only by means of a written instrument signed by both
parties. Any waiver of any rights or failure to act in a specific instance shall
relate only to such instance and shall not be construed as an agreement to waive
any rights or fail to act in any other instance, whether or not similar.

     12.12. SEVERABILITY.  In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and the parties shall negotiate in good faith to modify the Agreement to
preserve (to the extent possible) their original intent.

     12.13. ENTIRE AGREEMENT.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings between the parties relating to the subject
matter hereof, including without limitation Section 7.1, Section 7.2, and all
other provisions of the Prior Agreement.

     12.14. FORCE MAJEURE.  Neither party shall be held liable or responsible to
the other party, nor be deemed to be in breach of this Agreement, for failure or
delay in fulfilling or performing any provisions of this Agreement when such
failure or delay is caused by or results from any cause whatsoever outside the
reasonable control of the party concerned including, but not limited to, fire,
explosion, breakdown of plant, strike, lock-out, labor disputes, casualty or
accident, lack or failure of transportation facilities, flood, lack or failure
of sources of supply or of labor, raw materials or energy, civil commotion,
embargo, any law, regulation, decision, demand or requirement of any


                                       24
<PAGE>   25


national or local government or authority. The party claiming relief shall,
without delay, notify the other party by registered airmail or by telefax of the
interruption and cessation thereof and shall use its best efforts to remedy the
effects of such hindrance with all reasonable dispatch. The onus of proving that
any such Force Majeure event exists shall rest upon the party so asserting.
During the period that one party is prevented from performing its obligations
under this Agreement due to a Force Majeure event, the other party may, in its
sole discretion, suspend any obligations that relate thereto. Upon cessation of
such Force Majeure event the parties hereto shall use their best efforts to make
up for any suspended obligations. If such Force Majeure event is anticipated to
continue, or has existed for nine (9) consecutive months or more, this Agreement
may be forthwith terminated by either party by registered airmail or by telefax.
In case of such termination the terminating party will not be required to pay to
the other party any indemnity whatsoever.

     12.15. CHANGE TO MAPPING ARRAY PROGRAM.  [*]



         [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]











---------------
*Confidential treatment has been requested for the marked portion.


     IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as a sealed instrument effective as of the date first above written.


G.D. SEARLE & CO.                                 ARQULE, INC.


By:   /s/ Allan Heller                            By:   /s/ Stephen A. Hill
   ----------------------------                      ---------------------------
Name:                                             Name: Stephen A. Hill
Title:                                            Title: CEO


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