Document:

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                                                                   Exhibit 10.14

                           THE YANKEE CANDLE CO., INC
                              102 Christian Street
                                Whately, MA 01093

                                                  March 31,2001

Mr. Craig W. Rydin
16 Highland Terrace
Princeton, New Jersey 08540

Dear Craig:

     I am very pleased to confirm our offer for you to join The Yankee Candle
Company, Inc. (the "Company") as Chief Executive Officer and as a member of the
Board of Directors. The details of our employment offer are as follows:

1.   Your base salary will be $360,000 per year. You will devote substantially
     all of your working time and attention to the business of the Company and
     will engage in no other employment during the term of your employment. The
     expenditure of reasonable amounts of time for personal business, charitable
     and professional activities will not be deemed to be a breach of this
     paragraph, nor will the making of passive and personal investments and the
     conduct of private non-competitive business affairs, in each case so long
     as these activities and investments do not interfere with your duties at
     the Company.

2.   You will be included in the Company's executive bonus plan. This plan is
     based on performance and may provide you with additional cash compensation
     of up to 70% of base salary. Your 2001 bonus will be guaranteed at the 70%
     level and will be pro-rated based on your employment start date. The bonus
     payments for any year will be paid out no later than March 31st of the
     following year.

3.   You will receive a one-time signing bonus of $165,000 upon joining the
     Company. If you leave voluntarily or are terminated for Cause (as defined
     in paragraph 9) before two years of employment with the Company, you must
     repay the Company 1/24th of the bonus for each full month of employment
     remaining in the two-year period.

4.   You will receive an additional cash payment of $165,000. This payment will
     be paid out, contingent on your continued employment with the Company,
     based on the following schedule: $75,000 at March 2, 2002; $15,000 at
     August 3, 2002; and $75,000 at October 2, 2002.

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5.   You will be granted 35,000 shares of restricted common stock of the Company
     pursuant to a restricted stock agreement. These shares will vest,
     contingent on your continued employment with the Company, at the following
     rate: 16,000 shares on March 2, 2002; 4,000 shares on August 3, 2002; and
     15,000 shares on October 2, 2002.

6.   Effective as of the date you sign this letter, you will be granted an
     option to purchase 500,000 shares of common stock of the Company pursuant
     to an option agreement. These options will have an exercise price per share
     based on the closing price on the date of grant and will vest, contingent
     on your continued employment with the Company, at a rate of one quarter per
     year, beginning on the first anniversary date of your employment.

7.   Company benefits will be provided to you and your eligible dependents
     including medical plan coverage, disability coverage, dental plan coverage
     and optional 401K investment, subject to satisfying the applicable
     eligibility requirements. As a member of the Executive Committee you will
     also be eligible to participate in the Company's Executive Deferred
     Compensation Plan to the extent the plan is offered to other Executive
     Committee members. This plan allows you to defer up to $30,000 of salary.
     The Company will match 100% of the first $10,000 and 50% of the next
     $20,000 which you choose to defer. As part of your disability coverage,
     during the waiting period prior to the commencement of the payment of
     benefits under the disability policies provided by the Company covering
     you, or if no such policies are so provided, during the first three months
     of your absence from work due to a physical or mental impairment, the
     Company will pay you a benefit equal to the amount of your base salary, at
     the rate in effect as of the date of the commencement of such impairment.
     This benefit will be reduced by any other cash salary or disability
     benefits provided to you by the Company during this period.

     The Company will also provide you with such other benefits as are generally
     provided by the Company for or on behalf of the senior management
     executives of the Company and you will be eligible for four weeks annual
     vacation.

8.   The Company will provide you reasonable relocation and living expenses as
     you transition to a new residence within a reasonable commuting distance
     from the Company. Specifically, the Company agrees to pay: standard real
     estate commissions on the sale of your current home; standard points
     associated with obtaining a mortgage on your new home to ensure a rate no
     less favorable than your existing mortgage; usual and customary fees
     associated with a real estate attorney and home inspection; packing,
     moving, unpacking and insurance of your household goods; reimbursement for
     reasonable costs to store and insure your household goods; and the rental
     of a furnished apartment in the Deerfield area through March 30, 2002. To
     the extent these items are deemed to be taxable income to you, the
     foregoing items will be

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     grossed-up for tax purposes. The Company will work with you to identify and
     coordinate moving and storage companies to assist you in your move and
     reasonable temporary living arrangements. You agree to move to a new
     residence within reasonable commuting distance from the Company no later
     than July 2002.

9.   The "Initial Term" of your employment under this letter shall be for a
     period of two years, beginning on the commencement of your employment,
     unless your employment is sooner terminated in accordance with this Section
     9 or Otherwise by the Company. This letter shall be automatically renewed
     for consecutive one-year terms ("Renewal Terms") unless either party gives
     written notice of non-renewal to the other at least six months prior to the
     expiration of the Initial Term or any Renewal Term, as the case may be.

     In the event the Company terminates your employment in the first two years
     of your employment for any reason other than for Cause, the Company agrees
     to pay you severance pay equal to two year's current base salary, subject
     to your executing a two-year non-compete agreement covering the candle
     industry and a general release in favor of the Company, payable in monthly
     installments over the two-year non-compete period. In addition, you will
     be entitled to continued medical coverage under the Company's group medical
     plan (or a private plan if the Company ceases to provide medical insurance
     coverage for its employees) for the lesser of three years or until you
     become eligible to participate in a medical plan of a successor employer.

     For purposes of this letter agreement, the term "Cause" shall be defined,
     consistent with the Company's 1999 Stock Option and Award Plan, as (i)
     intentional failure to perform reasonably assigned duties, (ii) dishonesty
     or willful misconduct in the performance of duties, (iii) involvement in a
     transaction in connection with the performance of your duties to the
     Company or any of its subsidiaries, which transaction is adverse to the
     interests of the Company or any of its subsidiaries, and which is engaged
     in for personal profit or (iv) willful violation of any law, role or
     regulation in connection with the performance of duties (other than traffic
     violations or similar offenses). However, to the extent curable, as
     determined in the reasonable discretion of the Board of Directors of the
     Company, you will have thirty days to cure any such breach; provided,
     however, that if the cure of such breach is not capable of being completed
     within the cure period set forth herein, you will be deemed to have cured
     such breach if you take all reasonable steps necessary to initiate such
     cure within the applicable cure period, and the cure is completed as soon
     as reasonably possible thereafter but in any event no longer than 30
     additional days.

     In the event that, within twenty-four months following a Change in Control,
     (i) the Company terminates your employment (other than for Cause), or (ii)
     you voluntarily resign from employment with the Company for Good Reason,
     you will be entitled to

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     receive, as severance pay, an amount equal to two year's base salary plus
     one times the average of your annual bonuses paid by the Company over the
     prior two years, subject to your executing a two-year non-compete agreement
     covering the candle industry and a general release in favor of the Company,
     payable in monthly installments over the two-year non-compete period. In
     addition, you will be entitled to continued medical coverage under the
     Company's group medical plan (or a private plan if the Company ceases to
     provide medical insurance coverage for its employees) for the lesser of
     three years or until you become eligible to participate in a medical plan
     of a successor employer.

     The term "Good Reason" will, as defined in the Company's standard public
     Stock Option Agreement, mean (a) a material reduction in base salary or
     cash incentive compensation opportunities that you were receiving
     immediately prior to the Change in Control or (b) a material adverse change
     in your duties and responsibilities (other than reporting responsibilities)
     from those in effect immediately prior to the Change in Control or (c) a
     requirement that you relocate your principal place of business to a
     location that is in excess of fifty miles from your principal place of
     business immediately prior to the Change in Control.

     A Change in Control shall have the meaning set forth in Exhibit A.

10.  Our offer is subject to your signing this letter by March 31, 2001. In
     addition, we expect that you will join the Company on a full-time basis no
     later than Monday, April 23, 2001.

11.  The Company will pay or reimburse the reasonable expenses incurred by you
     in the discharge of your duties to the Company during your employment, in
     accordance with the general practices and policies of the Company. In the
     event that you advance funds for such expenses, the Company will reimburse
     you for the amounts expended on its behalf as billed therefore by you.

12.  As the new CEO and as a member of the Board of Directors, you will receive
     the maximum indemnification permitted by Massachusetts law in accordance
     with the Company's Articles of Organization and By-laws.

13.  Any controversy or claim arising out of or relating to this letter or any
     breach thereof shall be settled by arbitration in accordance with the rules
     of the American Arbitration Association. The exclusive venue for any such
     arbitration shall be in New York County in the State of New York.

14.  This letter will be governed by the laws of the State of New York.

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                                   EXHIBIT 1

As defined in the Company's 1999 Stock Option and Award Plan, a Change in
Control shall mean the occurrence of the following (capitalized terms used below
shall have the meanings as defined in the Plan):

          (a) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person" (as
the term person is used for purposes of Section 13(d) or 14(d) of the Exchange
Act), other than Forstmann Little & Co. Equity Partnership - V, L.P. and
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership -VI, L.P. or any of their Affiliates, immediately after which such
Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of more than fifty percent (50%) of the then outstanding
Shares or the combined voting power of the Company's then outstanding Voting
Securities; provided, however, in determining whether a Change in Control has
occurred pursuant to this paragraph (a), Shares or Voting Securities which are
acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not
constitute an acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by (A) the Company or (B) any
corporation or other Person of which a majority of its voting power or its
voting equity securities or equity interest is owned, directly or indirectly, by
the Company (for purposes of this definition, a "Related Entity"), (ii) the
Company or any Related Entity, or (iii) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);

          (b) The individuals who, as of April 15, 1999 are members of the Board
(the "Incumbent Board"), cease for any reason to constitute at least a majority
of the members of the Board; provided, however, that if the election, or
nomination for election by the Company's common stockholders, of any new
director was approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this paragraph (b), be considered as a
member of the Incumbent Board; provided further, however, that no individual
shall be considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election Contest"
(as described in Rule 14a-11 promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest; or

          (c) The consummation of:

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               (i) A merger, consolidation or reorganization with or into the
Company or in which securities of the Company are issued, unless such a merger,
consolidation or reorganization, is a "Non-Control Transaction." A "Non-Control
Transaction" shall mean a merger, consolidation or reorganization with or into
the Company or in which securities of the Company are issued where:

                    (A) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization,

                    (B) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation, or a corporation
beneficially directly or indirectly owning a majority of the Voting Securities
of the Surviving Corporation, and

                    (C) no Person other than (1) the Company, (2) any Related
Entity, (3) any employee benefit plan (or any trust forming a part thereof)
that, immediately prior to such merger, consolidation or reorganization, was
maintained by the Company or any Related Entity, or (4) any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of more than fifty percent (50%) of the then outstanding Voting
Securities or Shares, has Beneficial Ownership of more than fifty percent (50%)
of the combined voting power of the Surviving Corporation's then outstanding
voting securities or its common stock.

               (ii) A complete liquidation or dissolution of the Company; or

               (iii) The sale or other disposition of all or substantially all
of the assets of the Company to any Person (other than a transfer to a Related
Entity or the distribution to the Company's stockholders of the stock of a
Related Entity or any other assets).

     Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the number of Shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the

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acquisition of Shares or Voting Securities by the Company, and after such share
acquisition by the Company, the Subject Person becomes the Beneficial Owner of
any additional Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.

     If your employment is terminated by the Company without Cause prior to the
date of a Change in Control but you reasonably demonstrate that the termination
(A) was at the request of third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control or (B) otherwise arose
in connection with, or in anticipation of, a Change in Control which has been
threatened or proposed, such termination shall be deemed to have occurred after
a Change in Control provided a Change in Control shall actually have occurred.

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                                                                    EXHIBIT 10.1

  CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
             EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

                              AMENDED AND RESTATED
                   RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

      This Agreement, effective as of January 1, 2001 (the "Effective Date"), is
between ArQule, Inc. ("ArQule"), a Delaware corporation, and Solvay
Pharmaceuticals B.V. ("Solvay"), a Dutch corporation.

                                 R E C I T A L S

      WHEREAS, the parties previously entered into that certain Research,
Development and License Agreement, effective as of November 2, 1995 (the "Prior
Agreement");

      WHEREAS, the Prior Agreement will, by its terms, expire on December 31,
2000; and

      WHEREAS, the parties desire to continue certain activities under the Prior
Agreement and to continue their collaboration by undertaking additional research
and development activities;

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

1.    Definitions.

      1.1.  "Active Compound" shall mean an ArQule Compound that has exhibited
biological activity against a Target and as to which Solvay has provided the
required notice to ArQule under the Prior Agreement or under this Agreement
pursuant to Sections 3.2. and 3.4

      1.2.  "Affiliate" shall mean a corporation or other legal entity that
controls, is controlled by, or is under common control with such party. For
purposes of this definition, control means the ownership, directly or
indirectly, of fifty percent (50%) or more of the outstanding equity securities
of a corporation which are entitled to vote in the election of directors or a
fifty percent (50%) or greater interest in the net assets or profits of an
entity which is not a corporation.

      1.3.  "Agreement" shall mean this Research, Development and License
Agreement, together with Exhibits A and B hereto.

      1.4.  "ArQule Compound" shall mean a chemical compound provided by ArQule
to Solvay pursuant to this Agreement or under the Prior Agreement as part of a
screening library
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including, without limitation, the compounds provided in the Compass Array
Library and Mapping Array Libraries.

      1.5.  "ArQule Derivative Compound" shall mean a Derivative Compound
developed from a Licensed Compound [*****].

      1.6.  "Array" shall mean a set of samples of structurally related chemical
compounds arranged in a format such as a microtiter screening plate.

      1.7.  "Available Compound" shall mean an Active Compound which ArQule has
determined is not (i) licensed or otherwise committed to a third party in the
Field or (ii) committed to an internal ArQule program in the Field and is
reserved to Solvay on an exclusive basis pursuant to Section 3.

      1.8.  "Chemical Theme" shall mean the chemical or structural
characteristics shared by (i) the ArQule Compounds in a Mapping Array Library or
(ii) a group of compounds in a Directed Array Library as determined by the
Research Committee pursuant to Section 2.2.1.

      1.9.  "Compass ArrayO Library" shall mean a collection of ArQule Compounds
that is a diverse representative subset of the Mapping Array Libraries produced
in calendar year 2001 and used for initial screening of those Mapping Array
Libraries. The description of, and the specifications for, the Compass Array
Library are set forth in Exhibit A attached hereto.

      1.10. "Confidential Information" shall have the meaning set forth in
Section 10.1.1.

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      1.11. "Derivative Compound" shall mean a chemical compound that [*****].

      1.12. "Directed Array(R) Library" shall mean an Array comprised of
Derivative Compounds synthesized by ArQule under the Directed Array Program. The
description of, and the specifications for, the Directed Array Libraries are set
forth in Exhibit A attached hereto.

      1.13. "Directed Array(R) Program" or "DA Program" shall mean the Directed
Array Library component of the Research Program conducted by ArQule for Solvay
in general accordance with the Research Plan, as set forth in Section 4.

      1.14. "Field" shall mean applications in [*****].

      1.15. "Full-Time Equivalent" or "FTE" shall mean one (1) or more employees
of ArQule who, collectively, spend time and effort working on a specific project
or task equivalent to the time and effort of one (1) full-time employee working
on such project or task (approx. [*****] hours per year).

      1.16. "Licensed Compound" shall mean (i) any Available Compound that, as
of the Effective Date, has already been designated as a Licensed Compound under
the Prior Agreement or (ii) any Available Compound that the Research Committee
designates as a Licensed Compound in accordance with Section 3.6.

      1.17. "Licensed Compound Set" shall mean a set of one or more Licensed
Compounds from the same Mapping Array Library that have biological activity for
the same Target.

      1.18. "Mapping Array(R) Library" shall mean an Array of ArQule Compounds
which ArQule makes available to its collaborators for screening on a
non-exclusive basis. ArQule previously delivered Mapping Array Libraries to
Solvay under the Prior Agreement. The description of, and the specifications
for, the Mapping Array Libraries that ArQule will deliver to Solvay under
Article 3 of this Agreement are set forth in Exhibit A attached hereto.

      1.19. "Mapping Array(R) Program" or "MA Program" shall mean the component
of the Research Program under which ArQule previously provided to Solvay under
the Prior Agreement with Mapping Array Libraries. Under this Agreement ArQule
will provide Solvay with a portion of the Compass Array Library and with
selected Mapping Array Libraries, as further described in Section 3.

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

      1.21. "Net Sales Price" shall mean the gross amount received on sales by
Solvay, its Affiliates and sublicensees of Royalty-Bearing Products in the
Field, less the following: [*****]. In any transfers of Royalty-Bearing Products
between Solvay and an Affiliate, the Net Sales

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EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

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Price shall be calculated based on the first sale of the Royalty-Bearing Product
to an independent third party. In the event that Solvay receives non-monetary
consideration for any Royalty-Bearing Products, the Net Sales Price shall be
calculated based on the average price charged by Solvay for such Royalty-Bearing
Products during the preceding Royalty Period.

      1.22. "Patent Rights" shall mean all issued patents and reissues,
reexaminations, extensions and supplementary protection certificates thereof and
all patent applications and any divisions, continuations, or
continuations-in-part thereof (to the extent directed to the subject matter of
the parent application) or patents issuing thereon. "ArQule Patent Rights" means
Patent Rights that are either (i) assigned solely to ArQule, (ii) assigned
jointly to ArQule and a party other than Solvay, or (iii) licensed to or
otherwise controlled by ArQule, in each case to the extent that ArQule has the
ability to license or sublicense the rights required under this Agreement
without payment to a third party. "Solvay Patent Rights" means Patent Rights
that are either (i) assigned solely to Solvay, (ii) assigned jointly to Solvay
and a party other than ArQule, or (iii) licensed to or otherwise controlled by
Solvay, in each case to the extent that Solvay has the ability to license or
sublicense the rights required under this Agreement without payment to a third
party. "Joint Patent Rights" means Patent Rights assigned to both ArQule and
Solvay as joint owners in relation to Joint Technology. Explicitly excluded are
rights in the compounds specified in Section 6.1. Joint Patent Rights will
include (i) Patent Rights claiming Joint Technology and (ii) Patent Rights
claiming both ArQule Technology and Solvay Technology in a single filing.

      1.23. "Phase II Clinical Trials" shall mean clinical trials in a small
sample of the intended patient population commencing on the filing of a trial
protocol with the appropriate regulatory authority to assess the efficacy for a
specific indication of a compound proposed to be used as a prophylactic,
therapeutic or diagnostic pharmaceutical product, to determine dose tolerance
and the optimal dose range as well as to gather additional information relating
to safety and potential adverse effects, and meeting the requirements
established by the U. S. Food and Drug Administration for Phase II clinical
trials.

      1.24. "Phase III Clinical Trials" shall mean clinical trials designed to
demonstrate safety and efficacy of a compound proposed to be used as a
prophylactic, therapeutic or diagnostic pharmaceutical product in an expanded
patient population at geographically dispersed study sites, meeting the
requirements established by the U.S. Food and Drug Administration for Phase III
clinical trials.

      1.25. "Priority Substance" shall mean [*****].

      1.26. "Project Declaration" shall mean, with respect to a compound under
this Agreement, [*****].

      1.27. "Proprietary Materials" shall have the meaning set forth in Section
10.2.1.

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EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

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      1.28. "Research Committee" shall mean the Research Committee described in
Section 2.

      1.29. "Research Period" shall mean the period commencing on the Effective
Date and continuing through December 31, 2003.

      1.30. "Research Plan" shall mean a plan of research for the DA Program
covering a six-month period, which shall be updated quarterly pursuant to
Section 2.2 to reflect developments during the previous three (3) months and
extended for the subsequent three (3) months.

      1.31. "Research Program" shall mean, collectively, the Directed Array
Program and the Mapping Array Program.

      1.32. "Royalty-Bearing Product" shall mean a product containing as one of
its constituents [*****].

      1.33. "Royalty Period" shall mean every calendar quarter, or partial
calendar quarter, in which a royalty is payable to ArQule pursuant to Section
9.5. commencing with the first commercial sale of a Royalty-Bearing Product in
any country.

      1.34. "Solvay Compound" shall mean any chemical compound provided by
Solvay or its Affiliates to ArQule under the Prior Agreement or in the Directed
Array Program under this Agreement.

      1.35. "Solvay Derivative Compound" shall mean a Derivative Compound
[*****].

      1.36. "Target" shall mean the biological target against which activity of
an Active Compound was revealed, together with any related biomolecules that (i)
(A) exhibit substantial structural homology with the identified biomolecule, as
measured by the degree of similarity in the primary structure (i.e., amino acid
sequence, nucleotide sequence, monosaccharide linkages) and secondary structure
(i.e., three-dimensional structure), or (B) perform a substantially similar
function as the identified biomolecule, and (ii) have therapeutic relevance.
Biological targets shall not be considered as exhibiting substantial structural
homology nor functional similarity if such biological targets are generally
recognized by the scientific community as being different.

      1.37. "Technology" shall mean any proprietary development, information,
know-how, idea, design, concept, technique, process, invention, compound,
discovery, improvement whether or not patentable or copyrightable. "ArQule
Technology" means Technology that is either (i) assigned solely to ArQule, (ii)
assigned jointly to ArQule and a party other than Solvay, or (iii) licensed to
or otherwise controlled by ArQule, in each case to the extent that ArQule has
the ability to license or sublicense the rights required under this Agreement
without payment to a third party. "Solvay Technology" means Technology that is
either (i) assigned solely to Solvay, (ii) assigned jointly to Solvay and a
party other than ArQule, or (iii) licensed to or otherwise

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controlled by Solvay, in each case to the extent that Solvay has the ability to
license or sublicense the rights required under this Agreement without payment
to a third party. "Joint Technology" means Technology that is developed or
discovered jointly by one or more employees or consultants of Solvay and one or
more employees or consultants of ArQule pursuant to this Agreement, explicitly
excluded are the compounds specified in Section 6.1.

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

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

2.    Management of Research Programs.

      2.1.  Composition of Research Committee. The parties hereby establish a
Research Committee comprised of six (6) members, with three (3) representatives
appointed by each party. A party may change one or more of its representatives
to the Research Committee at any time upon notice to the other party.

      2.2.  Duties of the Research Committee. The Research Committee shall
direct and administer the Research Program in general accordance with the
following provisions:

            2.2.1. DA Program. With respect to the DA Program, the Research
Committee has heretofore determined the general specifications for the Directed
Array Libraries to be delivered to Solvay during the Research Period. ArQule
shall have the right, at the time Solvay seeks to include any compound(s) in the
DA Program, to exclude from the DA Program any compound that ArQule has
determined is (i) licensed or otherwise committed to a third party in the Field
or (ii) committed to an internal ArQule program in the Field. The Solvay
representatives on the Research Committee shall, in consultation with the ArQule
representatives, determine the identity, scope and priority of each Chemical
Theme. The identity and scope of such Chemical Theme will be determined on the
basis of the following criteria: (i) the specific reaction or reaction sequence
used to combine members of two or more discrete chemical units in which each
chemical unit bears the functional group(s) required for the specific
reaction(s) that result in the combination of the chemical units; and (ii) the
extent to which a class of compounds is related by a recurring structural motif
associated with a particular biological activity.

            2.2.2. Other Responsibilities. In addition, the Research Committee
shall (i) revise and extend the Research Plan each calendar quarter for the
subsequent six (6) months based on prior developments, (ii) designate Available
Compounds as Licensed Compounds as described in Section 3.6; (ii) maintain and
update the list of Licensed Compounds and Licensed Compound Sets; (iii)
determine the allocation of the funding and personnel resources to be
contributed by ArQule for the Directed Array Program; and (iv) resolve matters
involving scientific questions and publication disputes that may arise under
Section 10.4.

                                       6
<PAGE>   7
      2.3.  Meetings of the Research Committee. The Research Committee shall
conduct telephone conferences at least once every six (6) weeks and shall
prepare and deliver a brief written report (which may be in the form of
confirmed electronic mail) describing the significant issues and discussions
that take place during such telephone conferences. A representative of the
Research Committee jointly appointed by its members shall provide each member
with five (5) business days notice of the time of telephone conferences, unless
such notice is waived by all members. ArQule will prepare and deliver to the
members of the Research Committee a brief progress report at least one week in
advance of the telephone conference, which report will list the ArQule employees
then working on the Research Program. The Research Committee shall meet at least
twice each year with the location alternating between the ArQule site and the
Solvay site, or at such other times and locations as the Research Committee
determines. A representative of the Research Committee jointly appointed by its
members shall provide each member with five (5) business days notice of the time
and location of meetings, unless such notice is waived by all members. If a
designated representative of a party cannot attend any meeting of the Research
Committee, such party may designate a different representative for that meeting
without notice to the other party, and the substitute member will have full
power to vote on behalf of the permanent member. Except as otherwise provided in
this Section 2, all actions and decisions of the Research Committee will require
the unanimous consent of all of its members. If the Research Committee fails to
reach agreement upon any matter, the dispute will be resolved in accordance with
the procedures set forth in Section 13.5 below. Within fourteen (14) days
following each meeting, the Research Committee shall prepare and deliver, to
both parties, a written report describing the decisions made, conclusions and
actions agreed upon.

      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 Programs.

      2.5.  Visits to Facilities. Members of the Research Committee shall have
reasonable access to the facilities of each party where activities under this
Agreement are in progress, but only during normal business hours and with
reasonable prior notice. Each party shall bear its own expenses in connection
with such site visits.

3.    Mapping Array Program.

      3.1.  Prior Agreement. Solvay acknowledges that ArQule has fully performed
and discharged its obligations under Section 3.1. of the Prior Agreement. ArQule
acknowledges that Solvay has fully satisfied and discharged its obligations
under Section 3.2. of the Prior Agreement. Solvay acknowledges and agrees ArQule
remains eligible to receive milestone and royalty payments on Royalty-Bearing
Products as set forth in this Agreement. Solvay and ArQule expressly acknowledge
and agree that the provisions of this Agreement supersede the provisions of the
Prior Agreement with respect to the Mapping Array Program.

                                       7
<PAGE>   8
      3.2.  Compass Array Library. ArQule will supply Solvay with one (1) copy
of the Compass Array Library corresponding to Mapping Array Libraries produced
in calendar year 2001 in four (4) quarterly portions promptly after such ArQule
Compounds become available, with the last shipment delivered not later than
[*****]. ArQule will not disclose the structures of individual ArQule Compounds
in the Compass Array Library and Solvay will have no obligation to disclose its
Targets. ArQule will disclose to Solvay the Chemical Themes in the Compass Array
Library in Markush format. Solvay will diligently screen the Compass Array
Library against its selected Targets. When Solvay detects and confirms Active
Compounds in the Compass Array Library, Solvay will inform ArQule through the
Research Committee.

      3.3.  Selection of Mapping Array Libraries. During the Research Period,
ArQule will promptly determine whether the Active Compounds identified by Solvay
in the Compass Array Library are Available Compounds, and then notify Solvay of
such determination. If any Active Compound is not an Available Compound, ArQule
shall not disclose the structure and Solvay shall have no rights under this
Agreement with respect to that Active Compound. If an Active Compound is an
Available Compound, ArQule shall reserve such Available Compound to Solvay under
this Agreement. ArQule then shall disclose to Solvay the structure of such
Available Compound correlated to its well location and its Mapping Array
Library. ArQule shall maintain the reserved status of the Available Compound for
a period of up to [*****] weeks after the date upon which the structure was
disclosed to Solvay. All such disclosed structures shall be treated as ArQule
Confidential Information. During the [*****]-week reservation period, Solvay
will confirm its interest in that Available Compound and may request the Mapping
Array Library for that Available Compound (if Solvay does not already have that
Mapping Array Library in its possession) upon written notice to ArQule
(including by electronic mail). If Solvay does not confirm its interest in
writing and does not request the Mapping Array Library for that Available
Compound (if that Mapping Array Library is not already in the possession of
Solvay) during the [*****]-week reservation period, the Available Compound shall
automatically lose its reserved status and Solvay shall have no further rights
to such compound. ArQule will promptly deliver to Solvay the selected Mapping
Array Libraries; provided, however, that ArQule will have no obligation to
deliver more than one (1) copy of each Mapping Array Library pursuant to this
Agreement. In addition, with each shipment of a Mapping Array Library, or upon
confirmation of interest by Solvay in the case of a Mapping Array Library
already in the possession of Solvay, ArQule will furnish Solvay with [*****].
ArQule shall not identify the structures of the individual ArQule Compounds in
the Mapping Array Libraries.

      3.4.  Mapping Array Library. Upon receipt of each Mapping Array Library,
or upon receipt of the relevant information as described in Section 3.3. in the
case of Mapping Array Libraries already in the possession of Solvay, Solvay
shall diligently screen such Mapping Array Library for activity against the
relevant Target(s). ArQule will maintain the reserved status of the Available
Compound(s) identified in the Compass Array Library for a period of

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[*****]months after Solvay receives the relevant Mapping Array Library and
accompanying information or, in the case of Mapping Array Libraries already in
the possession of Solvay, for a period of [*****] months after Solvay receives
the relevant information as described in Section 3.3. In addition, Solvay shall
have the right to screen all Mapping Array Libraries in its possession
irrespective of the Compass Array Library. If Solvay detects and confirms Active
Compounds, Solvay shall inform ArQule through the Research Committee in writing
(including by electronic mail) of the spatial location of Active Compounds in
the Mapping Array Libraries. ArQule will promptly determine whether the Active
Compounds identified by Solvay in the Mapping Array Libraries are Available
Compounds, and then notify Solvay of such determination. If any Active Compound
is not an Available Compound, ArQule shall not disclose the structure and Solvay
shall have no rights under this Agreement with respect to that Active Compound.
If an Active Compound is an Available Compound, ArQule shall reserve such Active
Compound as an Available Compound to Solvay under this Agreement. ArQule then
shall disclose to Solvay the structure of such Available Compound correlated to
its well location, and Solvay shall disclose to ArQule the class of the Target
involved. All such disclosed structures and the target class shall be treated as
Confidential Information. ArQule shall maintain the reserved status of every
Active Compound that is an Available Compound from the same Mapping Array
Library for a period of up to [*****] weeks after the date upon which the last
structure of these Available Compounds is disclosed to Solvay. If Solvay
requests resynthesis of [*****] Available Compounds from the same Mapping Array
Library during the [*****]-week reservation period, the Research Committee will
determine which of these Available Compounds if not all would become a Licensed
Compound Set if the resynthesized compounds are confirmed to be Active
Compounds, and ArQule will continue to reserve this group of Available
Compounds, all as more fully described below. The Research Committee will
resolve any disagreements regarding which Available Compounds constitute the
"group" represented by the compound or compounds resynthesized. If the
[*****]-week reservation period expires for a group of Available Compounds
without any resynthesis request by Solvay or without agreement by the Research
Committee as to which Available Compounds should constitute the group pending
resynthesis and confirmation, the other Available Compounds (i.e., Available
Compounds that are not selected for resynthesis by Solvay) from that Mapping
Array Library shall automatically lose their reserved status and Solvay shall
have no further rights to such compounds.

      3.5.  Resynthesis. During the Research Period, ArQule shall resynthesize
and deliver to Solvay an additional [*****] mg quantity of any Available
Compound requested by Solvay to enable Solvay to conduct confirmatory screening
activities. Solvay shall provide ArQule with written notice of the Available
Compounds that Solvay desires to have resynthesized by ArQule. ArQule shall
resynthesize the requested compounds in accordance with the specifications set
forth in Exhibit A. In each case the actual amount of, and delivery schedule
for, resynthesized Available Compounds will be determined by the Research
Committee. ArQule will maintain the reservation on each group of Available
Compounds (as determined by the Research Committee under Section 3.4.) while
ArQule prepares resynthesis quantities of selected Available Compounds from that
group and will then continue to reserve that group of Available Compound

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<PAGE>   10
for a period of up to [*****]months after Solvay receives the resynthesized
Available Compounds.

      3.6.  Designation of Licensed Compounds. At the request of Solvay, the
Research Committee will review and consider the pertinent confirmatory data with
respect to each group of Available Compounds (as determined by the Research
Committee under Section 3.4.) and, if the activity of the resynthesized compound
or compounds has been confirmed, designate the Available Compounds within the
group as "Licensed Compounds" under this Agreement, whereupon Solvay shall
disclose the Target and level of activity for the Licensed Compounds and, at the
request of Solvay, ArQule shall disclose the structures but not the locations of
the other ArQule Compounds in the same Mapping Array Library as the Licensed
Compounds. Upon the designation of an Available Compound as a Licensed Compound
and the disclosure by Solvay of the Target and level of activity, the licenses
set forth in Section 7.2 shall automatically apply, and ArQule shall confirm
such license in writing. If the Research Committee determines that the activity
of the resynthesized compound or compounds has not been confirmed, then the
Available Compounds within the group shall automatically lose their reserved
status and Solvay shall have no further rights to such compounds.

      3.7.  Changes to Reservation Periods. The Research Committee may extend
the reservation periods described in Sections 3.3., 3.4., and 3.5. if requested
by Solvay and approved in writing by the Chief Scientific Officer of ArQule.

      3.8.  Optimization Rights. During the Research Period, Solvay may submit
any Licensed Compound Set to ArQule for optimization in the Directed Array
Program; however, ArQule has no obligation to increase its commitment to the
Directed Array Program as set forth in Section 4.3. At any time, Solvay may
conduct optimization of any Licensed Compound Set. In the event that Solvay
conducts optimization of a Licensed Compound Set, then at the request of Solvay,
ArQule will provide Solvay with synthetic protocols (in American Chemical
Society experimental format, not automated protocols) to enable Solvay to make
those Licensed Compounds.

      3.9.  Extension Right. If ArQule continues to offer the Mapping Array
Program during the year 2002, Solvay may extend on the same terms the supply of
ArQule Compounds in the form of the Compass Array Library and the Mapping Array
Libraries through December 31, 2002 upon written notice to ArQule which is
received by ArQule not later than October 1, 2001. In addition, ArQule and
Solvay agree to negotiate in good faith an arrangement under which Solvay may
screen the Mapping Array Compounds and have access to the structures of Active
Compounds after the conclusion of the Research Period.

4.    Directed Array Program.

      4.1.  Prior Agreement. Solvay acknowledges that ArQule has fully satisfied
and discharged its obligations under Sections 4.1. and 4.2. of the Prior
Agreement. ArQule

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<PAGE>   11
acknowledges that Solvay has fully satisfied and discharged its obligations
under Section 4.3. of the Prior Agreement. Solvay acknowledges and agrees ArQule
remains eligible to receive milestone and royalty payments on Royalty-Bearing
Products as set forth in this Agreement. Solvay and ArQule expressly acknowledge
and agree that the provisions of this Agreement supersede the provisions of the
Prior Agreement with respect to the Directed Array Program.

      4.2.  Description of Program. Under the direction of the Research
Committee and in accordance with the Research Plan, ArQule will synthesize
multiple Directed Array Libraries of compounds derived from (i) Solvay Compounds
provided to ArQule by Solvay or (ii) Licensed Compounds requested by Solvay to
be included in the DA Program. The parties intend that, during the Research
Period, ArQule will produce such Directed Array Libraries based on approximately
[*****] different Chemical Themes each calendar year, which will result in the
production of up to [*****] Derivative Compounds per Chemical Theme per year;
provided, however, that the number of Chemical Themes actually submitted to the
DA Program and the number of Derivative Compounds actually produced per Chemical
Theme will be determined by the Research Committee. The parties also intend that
ArQule will produce approximately [*****] milligrams of each Derivative Compound
in the Directed Array Libraries, subject to the availability of the original
Solvay Compounds or Licensed Compounds; the amount of each Derivative Compound
that ArQule actually produces, however, will be determined by the Research
Committee. ArQule agrees that any Derivative Compounds provided to Solvay under
the DA Program will not be (i) licensed or otherwise committed to a third party
in the Field or (ii) committed to an internal ArQule program in the Field, and
Solvay agrees that ArQule may exclude from the DA Program any Derivative
Compounds that ArQule has determined are (i) licensed or otherwise committed to
a third party in the Field or (ii) committed to an internal ArQule program in
the Field.

      4.3.  Conduct of Directed Array Program. The DA Program will be conducted
in accordance with the Research Plan. ArQule shall commit a total of [*****]
FTEs per calendar year to the Directed Array Program (including at least [*****]
full-time synthetic organic chemists). ArQule shall furnish Solvay with a
quarterly report describing [*****]. Solvay shall propose projects to the
Research Committee for inclusion as a Directed Array Program. If the Research
Committee approves the inclusion of the proposed project, ArQule shall thereupon
diligently synthesize Directed Array Libraries of ArQule Derivative Compounds or
Solvay Derivative Compounds in accordance with the Research Plan; Solvay shall
provide ArQule with the requisite amount and purity of Solvay Compounds, as
directed by the Research Committee, for any Directed Array Library Programs
based on such Solvay Compounds. Solvay shall, in its discretion, test all
compounds in the Directed Array Libraries. The parties shall perform the
Directed Array Programs under this Agreement during the [*****] years of the
Research Period. ArQule shall have no obligation to expand or extend its
commitments to the Directed Array Program, including without limitation the
commitment of [*****] FTEs per calendar year and the [*****]-year performance
period.

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<PAGE>   12
5.    Ownership of Physical Compounds.

      ArQule acknowledges and agrees that all Solvay Compounds, Solvay
Derivative Compounds, and ArQule Derivative Compounds are Solvay Proprietary
Materials and, as such, are owned by Solvay. Solvay acknowledges and agrees that
all ArQule Compounds are ArQule Proprietary Materials and, as such, are owned by
ArQule.

6.    Intellectual Property Rights.

      6.1.  Rights in Compounds. Solvay shall have the sole right to prepare,
file, prosecute, and maintain Patent Rights that claim the composition or use of
(i) ArQule Derivative Compounds or Solvay Derivative Compounds developed by
either party under this Agreement and (ii) Licensed Compounds that come within
the scope of the claims to ArQule Derivative Compounds under clause (i) above,
provided that such Licensed Compounds are not already covered by a claim in an
ArQule Patent Right. ArQule shall assign to Solvay all right, title, and
interest in any Patent Rights filed by Solvay that claim the composition or use
of such ArQule Derivative Compounds, Solvay Derivative Compounds, or Licensed
Compounds. Therefore, such Patent Rights are considered Solvay Patent Rights
under this Agreement rather than Joint Patent Rights, and Solvay shall be the
sole owner of such Patent Rights. ArQule shall not in any way seek to rely on
any ArQule Patent Right or other intellectual property right in the ArQule
Technology to prevent Solvay from exercising its rights under this Section 6.1.

      6.2   Ownership of Patent Rights and Technology. Other than as expressly
provided herein, neither party shall have any rights in Patent Rights and
Technology that is invented, developed or discovered by the other party prior to
the Effective Date subject to the provisions of the Prior Agreement or outside
the research performed under this Agreement. Ownership of Patent Rights and
Technology arising from the research performed under this Agreement shall be
allocated in the following manner:

      (i)   ArQule shall have sole ownership of all right, title, and interest
            in ArQule Patent Rights and ArQule Technology, subject to the
            licenses granted to Solvay under Section 7.1. and Section 7.2.;

      (ii)  Solvay shall have sole ownership of all right, title, and interest
            in Solvay Patent Rights and Solvay Technology; and

      (iii) ArQule and Solvay shall have joint ownership of all right, title,
            and interest in Joint Patent Rights and Joint Technology.

      6.3.  Management of Patent Rights. Solvay shall have sole responsibility
for, and control over, the management of Solvay Patent Rights and ArQule shall
have sole responsibility for, and control over, the management of ArQule Patent
Rights. Each party will bear its own expenses in connection with such Patent
Rights. In the case of Joint Patent Rights, the parties shall agree on the
allocation of responsibility for, and the expense of, the preparation, filing,
prosecution, and maintenance of any Joint Patent Rights claiming such inventions
as decided by the Research Committee. In the event of any disagreement
concerning any Joint Patent Rights,

                                       12
<PAGE>   13
the matter shall be resolved by the CEO of ArQule and the Vice
President-Research of Solvay. The party controlling a Joint Patent Right shall
consult with the other party as to the preparation, filing, prosecution, and
maintenance of such Joint Patent Right reasonably prior to any deadline or
action with the U.S. Patent & Trademark Office or any foreign patent office, and
shall furnish to the other party copies of all relevant documents reasonably in
advance of such consultation. In the event that the party controlling a Joint
Patent Right desires to abandon such Joint Patent Right, or if the party
assuming control of a Joint Patent Right later declines responsibility for such
Joint Patent Right, the controlling party shall provide reasonable prior written
notice to the other party of such intention to abandon or decline
responsibility, and such other party shall have the right, at its expense, to
prepare, file, prosecute, and maintain such Joint Patent Rights.

      6.4.  Cooperation of the Parties. Each party agrees to cooperate fully in
the preparation, filing, and prosecution of any Patent Rights under this
Agreement and any potential infringement issues relating to ArQule Technology.
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 6.1 above and to enable the
other party to apply for and to prosecute patent applications in any country;

            (b)   promptly informing the other party of any matters coming to a
party's attention that may affect the preparation, filing, or prosecution of any
such patent applications or potential infringement issues relating to the ArQule
Technology; and

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

      6.5   Representation. ArQule represents and warrants to Solvay that, to
the best of ArQule's knowledge and belief, [*****]. In addition, ArQule
covenants that, during the Research Period, ArQule will [*****]. Solvay
acknowledges and agrees that the representations and warranties set forth in
this Section 6.5. have effect only in connection with the activities undertaken
by ArQule under Articles 3 and 4 of this Agreement and have no effect with
respect to the transfer of AMAP Technology under Article 8 of this Agreement.

      6.6.  Infringement.

            6.6.l. Offensive Actions. With respect to infringement of any Solvay
Patent Right or any ArQule Patent Right or Joint Patent Right exclusively
licensed to Solvay claiming the composition or use of a Licensed Compound,
ArQule Derivative Compound, or Royalty-Bearing Product, Solvay shall have the
primary right, but not the obligation, to enforce such Patent Right under its
sole control and at its sole expense. In such event, Solvay shall be exclusively
entitled to all proceeds or recoveries resulting therefrom, but from such
proceeds or

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recoveries Solvay shall pay ArQule a royalty in accordance with Section 9.5. on
sales lost to the infringer after deduction of all costs, including reasonable
attorney fees incurred by Solvay in the action to enforce such Patent Rights. In
the event that Solvay declines to enforce such Patent Right with respect to a
Royalty-Bearing Product where the sales of the alleged infringer are at least
[*****] percent [*****] of the market for said product, then ArQule shall have
the secondary right to enforce such Patent Right under its sole control and at
its sole expense. In such event, ArQule shall be exclusively entitled to all
proceeds or recoveries resulting therefrom.

            6.6.2. Defensive Actions. Solvay will indemnify, defend, and hold
harmless ArQule, its Affiliates, and their respective officers, directors,
employees, and agents from any and all loss, damage, cost, and expense
(including reasonable attorneys fees) and amounts paid in settlement arising
from any actual or alleged infringement claim brought by a third party, in law
or in equity, based on activities undertaken by Solvay or by ArQule at the
direction of Solvay (except for claims based solely on the practice of an ArQule
Patent Right or the use of ArQule Technology) or based on the manufacture or
sale of a Royalty-Bearing Product. In the event that ArQule intends to claim
indemnification under this Subsection, ArQule shall promptly notify Solvay of
the infringement action and Solvay shall assume the defense of the action under
its sole control, including the right to effect a settlement. A failure by
ArQule to deliver notice to Solvay within a reasonable time shall relieve Solvay
of its indemnity obligation under this Section to the extent such failure
prejudices the ability of Solvay to defend such action. ArQule shall cooperate
fully with Solvay and its legal representatives in the investigation and defense
of the action. In the event of a settlement, Solvay shall obtain the consent of
ArQule before agreeing to any settlement that imposes restrictions which are
inconsistent with the rights and obligations of the parties under this
Agreement.

7.    License Grants.

      7.1.  ArQule Screening License. Subject to the terms and conditions of
this Agreement, ArQule hereby grants Solvay and its Affiliates a nonexclusive,
worldwide, royalty-free, license (without the right to grant sublicenses) under
ArQule Patent Rights and ArQule Technology to use the ArQule Compounds during
the Research Period to screen for activity against any biological targets in the
Field.

      7.2.  ArQule Commercial License. Effective upon designation by the
Research Committee of an ArQule Compound as a Licensed Compound and the
disclosure by Solvay of the Target and level of activity pursuant to Section
3.6, ArQule hereby grants to Solvay and its Affiliates with respect to each such
Licensed Compound the following licenses in the Field:

      (i)   an exclusive (even as to ArQule), worldwide license (with the right
            to sublicense) under the ArQule Patent Rights and other rights in
            ArQule Technology to conduct development of Licensed Compounds,
            including the right to develop Derivative Compounds based on
            Licensed Compounds;

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      (ii)  an exclusive (even as to ArQule), worldwide license (with the right
            to sublicense) under the ArQule Patent Rights and other rights in
            ArQule Technology to make, have made, use, have used, sell and have
            sold in the Field Licensed Compounds; and

      (iii) a non-exclusive, worldwide license (with the right to sublicense)
            under the ArQule Patent Rights and other rights in ArQule Technology
            to use chemical synthesis methods within the ArQule Patent Rights
            and ArQule Technology to make Royalty-Bearing Products.

Solvay further acknowledges and agrees that the license grant in clause (iii) of
this Section is subject to the terms, conditions, and limitations of any
agreement under which ArQule has acquired or will acquire rights in a chemical
synthesis method from a third party, which shall be promptly notified by ArQule
to Solvay and, in such event, ArQule may require Solvay to enter into a separate
sublicense agreement before such license grant shall take effect. ArQule
represents and warrants that Solvay will not incur any payment obligation to a
third party as a result of the practice of the license grant set forth in clause
(iii) above for third-party licenses that ArQule has executed prior to the
Effective Date. ArQule covenants that ArQule will seek to obtain such
royalty-free manufacturing licenses as part of its chemistry licenses in the
future. In the event that Solvay decides to sublicense its rights under this
Section to a third party, Solvay shall furnish ArQule with written notice of the
sublicense grant and shall ensure that all sublicense agreements conform to this
Agreement.

      7.3.  Diligence. Solvay agrees to use reasonable commercial efforts to
develop and market Royalty-Bearing Products based on or incorporating any
Licensed Compound, or Derivative Compounds thereof, using a level of effort
consistent with that used for other Solvay products having similar commercial
potential. The parties hereby acknowledge their understanding that Solvay's
obligations under this Section do not apply to each Licensed Compound in itself,
but only to at least one Licensed Compound or Derivative Compound thereof that
is active against the same Target. Subject to Section 7.5, Solvay shall have the
sole and absolute discretion to make all decisions relating to the research,
development, marketing and other commercialization activities with respect to
any Licensed Compound or its Derivative Compounds or any Royalty-Bearing Product
derived therefrom.

      7.4.  Reports of Development Progress. Solvay agrees to keep ArQule
informed of its development progress with respect to each Licensed Compound or
Derivative Compound thereof for which it has obtained a license under Section
7.2 as follows:

            (a)   Initial Research Plan. Within 60 days after obtaining a
license, Solvay will provide ArQule with a time line of its planned research
activities for that Licensed Compound and will keep ArQule periodically informed
of its progress under such schedule.

            (b)   Lead Compound. Solvay will notify ArQule of the designation of
any Licensed Compound or Derivative Compounds thereof as a lead compound that
fulfills Solvay's primary criteria in a particular project (e.g., potency,
selectivity, and bioavailability). Within 60 days of such designation, Solvay
will provide ArQule with a copy of a revised time line of its

                                       15
<PAGE>   16
research activities for that lead compound and will keep ArQule periodically
informed of its progress under such schedule.

            (c)   Priority Substance. Solvay will notify ArQule of the
designation of any Licensed Compound or Derivative Compounds thereof as a
Priority Substance. Within 60 days of such designation, Solvay will provide
ArQule with a copy of a revised time line of its research activities for that
Priority Substance and will keep ArQule periodically informed of its progress
under such schedule.

            (d)   Project Declaration. Solvay will promptly notify ArQule of a
Project Declaration for any Licensed Compound or Derivative Compounds thereof.

            (e)   Discontinuation of Development. Solvay agrees to notify ArQule
if it decides to discontinue development or marketing of any Licensed Compound
or Derivative Compounds thereof.

In addition, throughout the term of this Agreement, Solvay will submit to ArQule
annual written reports and semi-annual verbal reports of the activities of
Solvay and its Affiliates with respect to all such compounds during the
reporting period. These reports will include relevant chemical and biological
data and other information sufficient to allow ArQule to determine whether
Solvay and/or its Affiliates are engaging in significant activity with respect
to each such compound prior to Project Declaration. The information in such
reports shall be considered Confidential Information under Section 10.1. hereof.
During the Research Period, Solvay shall provide such reports on a schedule such
that they can be reviewed at the meetings of the Research Committee. In
addition, Solvay agrees to inform ArQule at least once each calendar year
regarding the status of any Solvay Derivative Compounds that Solvay develops
based on Solvay Derivative Compounds synthesized by ArQule under this Agreement.

      7.5.  Reversion of Rights. In the event that (i) Solvay notifies ArQule
pursuant to Section 7.4(e) above that it has determined to discontinue the
development of any Licensed Compound or Derivative Compounds thereof or (ii)
Solvay and/or its Affiliates fail, prior to Project Declaration with respect
thereto, to engage in significant activities for a continuous period of
[*****]months with respect to any Licensed Compound, or Derivative Compounds
thereof and significant activities are not resumed within [*****] months of
notice thereof, ArQule shall have the right, immediately upon notice, to
terminate the license granted to Solvay under Section 7.2 with respect to such
Licensed Compound, and ArQule will thereafter be free to grant licenses to third
parties under ArQule Patent Rights and ArQule Technology to make, use, sell and
have sold in the Field products incorporating that Licensed Compound. Any
dispute concerning whether Solvay or its Affiliates have engaged in significant
activity within the meaning of clause (ii) above shall be resolved under the
dispute resolution provisions of Section 13.5.

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                                       16
<PAGE>   17
8.    AMAP Technology.

      Solvay acknowledges that ArQule has fully satisfied and discharged all of
its obligations under Section 8 of the Prior Agreement, except for the transfer
of certain technology that was developed prior to December 31, 2000 and which
the Research Committee has agreed to transfer during calendar year 2001, as
described in Exhibit B (the "2000 Technology"). ArQule will transfer the 2000
Technology to the extent, and in the manner, approved by the Research Committee
and documented in Exhibit B. Solvay may substitute the FTE resources in the
Directed Array Program to this technology transfer activity. For any resource
commitments beyond the FTEs that are reallocated from the Directed Array Program
Solvay shall reimburse ArQule for such activities at the rate of [*****]
per FTE per year. In all cases Solvay shall reimburse ArQule for out-of - pocket
expenses (e.g., travel) in relation to these activities.

9.    Payments, Reports, and Records.

      9.1.  Access Fee Payments.

            9.1.1. Compass Array Library. In partial consideration of the
delivery of the Compass Array Library in accordance with Section 3.2, Solvay
shall pay ArQule the amount of [*****], payable in four installments of [*****]
within thirty (30) days after Solvay receives each quarterly segment of such
Compass Array Library.

            9.1.2. Mapping Array Libraries. In partial consideration of the
delivery of up to [*****] Mapping Array Libraries during the Research Period in
accordance with Section 3.3, Solvay shall pay ArQule an annual fee in the amount
of [*****], payable as follows:

            [*****]

Solvay may obtain access to additional available Mapping Array Libraries during
the Research Period at a cost of [*****] per Mapping Array Library which amount
shall be paid to ArQule within thirty (30) days of shipment.

      9.2   Resynthesis Payments. In consideration of the synthesis and delivery
of resynthesis compounds during the Research Period in accordance with Section
3.5, Solvay shall pay ArQule [*****] per compound within thirty (30) days of
receipt ( for requested resynthesis of up to [*****] mg.).

      9.3.  Directed Array Program Payments. In partial consideration of the
performance by ArQule of the DA Program in accordance with Section 4, Solvay
shall pay ArQule at the rate of [*****] per FTE per year for a total of [*****]
per year. Solvay shall make such annual payment in advance in equal quarterly
installments.

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                                       17
<PAGE>   18
      9.4.  Milestone Payments. In partial consideration of the performance of
the Research Program by ArQule and of the rights granted Solvay under this
Agreement, Solvay shall pay ArQule the following amounts within thirty (30) days
after each occurrence of the following milestones:

      (i)   with respect to a Royalty-Bearing Product containing as one of its
            constituents any [*****].

            [*****]           [*****]

            [*****]           [*****]

      (ii)  with respect to a Royalty-Bearing Product containing as one of its
            constituents any [*****]:

            [*****]     [*****]

            [*****]     [*****]

            [*****]     [*****]

If a Royalty-Bearing Product contains a compound discovered or designed by
Solvay [*****], then the higher milestone payments shall apply. Such milestone
payments shall be non-refundable and shall not be credited against royalties
payable to ArQule under this Agreement. Solvay shall promptly notify ArQule of
each occurrence of either of the foregoing milestones.

      9.5.  Royalties. In partial consideration of the performance of the
Research Program by ArQule and the rights granted to Solvay under this
Agreement, Solvay shall pay to ArQule the following royalty on Net Sales of
Royalty-Bearing Products:

      (i)   [*****]

      (ii)  [*****]

If a Royalty-Bearing Product contains a compound discovered or designed by
Solvay [*****], then the higher royalty rate shall apply. Such royalty shall be
payable on a country-by-country basis for as long as a Royalty-Bearing Product
is covered by a Valid Claim of a Patent Right.

      9.6.  Other Milestone and Royalty Payments. The parties shall negotiate in
good faith the commercially reasonable financial terms pertaining to payments
for achievement of development milestones relating to Royalty-Bearing Products
and for a royalty on Royalty-

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                                       18
<PAGE>   19
Bearing Products for uses within the Field other than as a [*****], which terms
shall be set forth in a separate agreement and shall be no higher than those set
forth in Sections 9.4. and 9.5. above. Solvay shall not develop or sell a
Royalty-Bearing Product for uses within the Field other than as a [*****] until
such agreement is executed by both parties.

      9.7.  Reports and Payments. Within thirty (30) days after the conclusion
of each Royalty Period, Solvay shall deliver to ArQule a report containing the
following information:

                  (a)   gross sales of Royalty-Bearing Products by Solvay and
      its Affiliates and sublicensees during the applicable Royalty Period in
      each country of sale;

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

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

All such reports shall be maintained in confidence by ArQule. If no royalties
are due to ArQule for any reporting period, the report shall so state.
Concurrent with this report, Solvay shall remit to ArQule any payment due for
the applicable Royalty Period. The method of payment shall be mutually agreed
to. All amounts payable to ArQule under this Section will first be calculated in
the currency of sale and then converted into U.S. dollars in accordance with
Section 9.8.

      9.8.  Invoices; Payments in U.S. Dollars. With the exception of royalty
payments due under Section 9.5, ArQule shall submit invoices to Solvay for each
payment due ArQule hereunder, and Solvay shall pay such invoices within thirty
(30) days of receipt thereof. All payments due under this Agreement shall,
except as provided in Section 9.9 below, be payable in United States dollars.
Conversion of foreign currency to U.S. dollars shall be made at the conversion
rate existing in the United States (as reported in the Wall Street Journal) on
the last working day of the calendar quarter preceding the applicable calendar
quarter. Such payments shall be without deduction of exchange, collection, or
other charges.

      9.9.  Payments in Other Currencies. If by law, regulation, or fiscal
policy of a particular country, conversion into United States dollars or
transfer of funds of a convertible currency to the United States is restricted
or forbidden, Solvay shall give ArQule prompt written notice of such
restriction, which notice shall satisfy the thirty-day payment deadline
described in Section 9.7. Solvay shall pay any amounts due ArQule through
whatever lawful methods ArQule reasonably designates; provided, however, that if
ArQule fails to designate such payment method within thirty (30) days after
ArQule is notified of the restriction, then Solvay may deposit such payment in
local currency to the credit of ArQule in a recognized banking institution
selected by Solvay and identified by written notice to ArQule, and such deposit
shall fulfill all obligations of Solvay to ArQule with respect to such payment.

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EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

                                       19
<PAGE>   20
      9.10. Records. Solvay and its Affiliates shall maintain complete and
accurate records of Royalty-Bearing Products made, used or sold by them or their
sublicensees under this Agreement, and any amounts payable to ArQule in relation
to such Royalty-Bearing Products, which records shall contain sufficient
information to permit ArQule to confirm the accuracy of any reports delivered to
ArQule in accordance with Section 9.7. The relevant party shall retain such
records relating to a given Royalty Period for at least three (3) years after
the conclusion of that Royalty Period.

      ArQule will maintain complete and accurate records of the activities
engaged in by the ArQule FTEs, which records shall contain sufficient
information to permit Solvay to confirm the compliance of ArQule with Section 4.

      Each party (acting as the "Auditing Party") shall have the right, at its
own expense, to cause an independent, certified public accountant to inspect
such records of the other party (the "Audited Party") during normal business
hours for the sole purpose of verifying any reports and payments delivered under
this Agreement. Such accountant shall not disclose to the Auditing Party any
information other than information relating to accuracy of reports and payments
delivered under this Agreement and shall provide the Audited Party with a copy
of any report given to the Auditing Party. The parties shall reconcile any
underpayment or overpayment within thirty (30) days after the accountant
delivers the results of the audit. In the event that any audit performed under
this Section reveals an underpayment in excess of five percent (5%) in any
Royalty Period, the Audited Party shall bear the full cost of such audit. Each
party may exercise its rights under this Section only once every year and only
with reasonable prior notice to the other party.

      9.11. Late Payments. Any payments by Solvay 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 Federal Reserve Bank
discount rate on the last day of the month the payments are due, calculated
based on the number of days that payment is delinquent.

      9.12. Withholding Taxes. Any tax required to be withheld by Solvay or any
Affiliate or sublicensee under the laws of any foreign country for the account
of ArQule under this Article 9 shall be promptly paid by Solvay or said
Affiliate or sublicensee for and on behalf of ArQule to the appropriate
governmental authority, and Solvay or the Affiliate or sublicensee shall furnish
ArQule with proof of payment of such tax together with official or other
appropriate evidence issued by the appropriate governmental authority sufficient
to enable ArQule to support a claim for income tax credit in respect of any sum
so withheld.

10.   Confidential Information and Proprietary Materials.

      10.1. Confidential Information.

            10.1.1. Definition of Confidential Information. Confidential
Information shall mean any technical or business information furnished by one
party (the "Disclosing Party") to the other party (the "Receiving Party") in
connection with this Agreement and specifically designated as confidential. Such
Confidential Information may include, without limitation, the

                                       20
<PAGE>   21
identity of or other information pertaining to Proprietary Materials, the
identity of a chemical compound, the use of a chemical compound, trade secrets,
know-how, inventions, technical data or specifications, testing methods,
business or financial information, research and development activities, product
and marketing plans, and customer and supplier information. The parties
expressly agree that the structures of Active Compounds and the identity of the
related Target shall be considered Confidential Information until such time as
the parties have mutually agreed to disclose such information in patent filings
pursuant to Section 6.3.

            10.1.2. Designation of Confidential Information. Confidential
Information that is disclosed in writing shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within thirty (30) days of
the date of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.

            10.1.3. Obligations. The Receiving Party agrees that it shall:

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

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

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

            10.1.4. Exceptions. The obligations of the Receiving Party under
Section 10.1.3 above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:

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

                  (b)   entered the public domain after the time of its
      disclosure under this Agreement through means other than an unauthorized
      disclosure resulting from an act or omission by the Receiving Party;

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

                                       21
<PAGE>   22
                  (d)   is or was disclosed to the Receiving Party at any time,
      whether prior to or after the time of its disclosure under this Agreement,
      by a third party having no fiduciary relationship with the Disclosing
      Party and having no obligation of confidentiality to the Disclosing Party
      with respect to such Confidential Information; or

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

      10.2. Proprietary Materials.

            10.2.1. Definition of Proprietary Materials. Proprietary Materials
shall mean any tangible chemical, biological, or physical research materials
that are furnished by one party (the "Transferring Party") to the other party
(the "Receiving Party") in connection with this Agreement regardless of whether
such materials are specifically designated as proprietary to the Transferring
Party. Proprietary Materials shall include, without limitation, all ArQule
Compounds, ArQule Derivative Compounds, Solvay Compounds and Solvay Derivative
Compounds..

            10.2.2. Limited Use. The Receiving Party shall use Proprietary
Materials solely for the purposes set forth in this Agreement. The Receiving
Party shall use the Proprietary Materials only in compliance with all applicable
governmental laws and regulations.

            10.2.3. Limited Disposition. The Receiving Party shall not transfer
or distribute any Proprietary Materials to any third party, except to its
Affiliates, without the prior written consent of the Transferring Party.

            10.2.4. Reverse Engineering. Solvay 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 Solvay by ArQule following
notification by Solvay of the location of an Active Compound pursuant to
Sections 3.3. and 3.4.

      10.3. Return of Confidential Information and Proprietary Materials. Upon
the termination of this Agreement, at the request of the Disclosing Party, the
Receiving Party shall destroy or return to the Disclosing Party all originals,
copies, and summaries of documents, materials, and other tangible manifestations
of Confidential Information in the possession or control of the Receiving Party,
except that the Receiving Party may retain one copy of the Confidential
Information in the possession of its legal counsel (for ArQule) and its Legal
and Trademarks Department (for Solvay) solely for the purpose of monitoring its
obligations under this Agreement. Upon the termination of this Agreement, the
Receiving Party shall at the instruction of the Transferring Party either
destroy or return any unused Proprietary Materials.

                                       22
<PAGE>   23
      10.4. Publications. In the event that either party desires to publicly
disclose (through journals, lectures, or otherwise) any results relating to the
Research Programs, such party (the "Publishing Party") shall furnish the other
party (the "Reviewing Party") with (i) a copy of any written publication at
least sixty (60) days prior to submission or (ii) a summary or abstract of an
oral disclosure at least thirty (30) days prior to the intended disclosure date.
The Reviewing Party shall have the right to (i) consent to the disclosure with
modifications to protect patentable inventions or prevent disclosure of
Confidential Information, (ii) delay the disclosure for a period of ninety (90)
days to enable the preparation and filing of a patent application, or (iii)
refuse to allow the disclosure in order to maintain certain information as a
trade secret, which refusal shall not be unreasonably exercised. Any
disagreements arising under this Section shall be referred to the Research
Committee.

      10.5. Survival of Obligations. The obligations set forth in this Article
shall remain in effect for a period of five (5) years after termination of this
Agreement, except that the obligations of the Receiving Party to return or
destroy Confidential Information to the Disclosing Party and to return or
destroy Proprietary Materials received from the Transferring Party shall survive
until fulfilled.

11.   Indemnification and Insurance.

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

      11.2. Procedures. Any Indemnitee that intends to claim indemnification
under Section 11.1 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 selected by the
Indemnitor (Indemnitor shall consult with Indemnitee with respect to a possible
conflict of interest of such counsel retained by Indemnitor); provided, however,
that an Indemnitee shall have the right to retain its own counsel at its cost;
provided, further, that if representation of such Indemnitee by the counsel
retained by the Indemnitor would be inappropriate due to actual or potential
conflict of interest between such Indemnitee and any other party represented by
such counsel in such proceedings, the Indemnitor and Indemnitee will each pay an
equal share of the costs of the Indemnitee. The indemnity agreement in Section
11.1. shall not apply to amounts paid in settlement of any loss, claim,
liability or action if such settlement is effected without the consent of
Solvay, which consent shall not be withheld unreasonably. The failure to deliver
notice to the Indemnitor within a reasonable time

                                       23
<PAGE>   24
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 11.1. Each party and its Affiliates and their employees
and agents shall cooperate fully with the other party and its legal
representatives in the investigation of any action, claim or liability covered
by this indemnification.

      11.3. Insurance. Each party shall maintain reasonably adequate insurance
or self-insurance coverage for its own potential liabilities to the Indemnitees
as set forth in this Article.

12.   Term and Termination.

      12.1. Term. This Agreement shall commence on the Effective Date and shall
remain in effect until the expiration of the Research Period, unless earlier
terminated as provided in this Article 12.

      12.2. Breach of Payment Obligations. In the event that Solvay fails to
make timely payment of any amounts due to ArQule under this Agreement, ArQule
may terminate this Agreement upon thirty (30) days written notice to Solvay,
unless Solvay (i) pays all past-due amounts within such thirty-day notice period
or (ii) invokes dispute resolution under Section 13.5. within such thirty-day
notice period.

      12.3. Material Breach. In the event that either party commits a material
breach of any of its obligations under this Agreement and such party fails (i)
to remedy that breach within ninety (90) days after receiving written notice
thereof from the other party or (ii) to commence dispute resolution pursuant to
Section 13.5., 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.

      12.4. Effect of Termination. The following provisions shall survive the
expiration or termination of this Agreement: Articles 5, 10, and 11; Sections
3.9, 6.1 through 6.4, 6.6, 7.2 through 7.5, 9.4 through 9.12, 12.4, 13.3, 13.4,
13.5, and 13.10.

13.   Miscellaneous.

      13.1. 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 therein.

      13.2. Publicity. Neither party shall use the name of the other party or
reveal the terms of this Agreement in any publicity or advertising without the
prior written approval of the other party, except that (i) either party may use
the text of a written statement approved in advance by both parties without
further approval, (ii) either party shall have the right to identify the other
party and to disclose the terms of this Agreement as required by applicable
securities laws or other applicable law or regulation, and (iii) either party
may use the name of the other party and reveal the existence of this Agreement.

                                       24
<PAGE>   25
      13.3. Non-Solicitation. During the term of this Agreement and thereafter
for a period of two (2) years, each party agrees not to seek to persuade or
induce any employee of the other party to discontinue his or her employment with
that party in order to become employed by or associated with any business,
enterprise, or effort that is associated with its own business.

      13.4. Governing Law. The License Agreement shall be governed by and
construed in accordance with the laws of England.

      13.5. Dispute Resolution Procedures.

                  (a)   The parties hereby agree that they will attempt in good
      faith to resolve any controversy, claim or dispute ("Dispute") arising out
      of or relating to this Agreement promptly by negotiations. Any such
      Dispute which is not settled by the parties within fifteen (15) days after
      notice of such Dispute is given by one party to the other in writing shall
      be referred to a senior executive of ArQule and the Vice
      President-Research of Solvay who are authorized to settle such Disputes on
      behalf of their respective companies ("Senior Executives"). The Senior
      Executives will meet for negotiations within fifteen (15) days of the end
      of the 15 day negotiation period referred to above, at a time and place
      mutually acceptable to both Senior Executives. If the Dispute has not been
      resolved within thirty (30) days after the end of the 15 day negotiation
      period referred to above (which period may be extended by mutual
      agreement), subject to any rights to injunctive relief and unless
      otherwise specifically provided for herein, any Dispute will be settled
      first by non-binding mediation and thereafter by binding arbitration as
      described in subsections (b) and (c) below.

                  (b)   Any Dispute which is not resolved by the parties within
      the time period described in subsection (a) shall be submitted to an
      alternative dispute resolution process ("ADR"). Within five (5) business
      days after the expiration of the thirty (30) day period set forth in
      subsection (a), each party shall select for itself a representative with
      the authority to bind such party and shall notify the other party in
      writing of the name and title of such representative. Within ten (10)
      business days after the date of delivery of such notice, the
      representatives shall schedule a date for engaging in non-binding ADR with
      a neutral mediator or dispute resolution firm mutually acceptable to both
      representatives. Any such mediation shall be held in London, England.
      Thereafter, the representatives of the parties shall engage in good faith
      in an ADR process under the auspices of such individual or firm. If the
      representatives of the parties have not been able to resolve the Dispute
      within thirty (30) business days after the conclusion of the ADR process,
      or if the representatives of the parties fail to schedule a date for
      engaging in non-binding ADR within the ten (10) day period set forth
      above, the Dispute shall be settled by binding arbitration as set forth in
      subsection (c) below. If the representatives of the parties resolve the
      dispute within the thirty (30) day period set forth above, then such
      resolution shall be binding upon the parties. If either party fails to
      abide by such resolution, the other party can immediately refer the matter
      to arbitration under Section 13.5(c).

                                       25
<PAGE>   26
                  (c)   If the parties have not been able to resolve the Dispute
      as provided in subsections (a) and (b) above, the Dispute shall be finally
      settled by binding arbitration. Any arbitration hereunder shall be
      conducted under the Rules of Arbitration of the International Chamber of
      Commerce. The arbitration shall be conducted in the English language
      before three arbitrators chosen according to the following procedure: each
      of the parties shall appoint one arbitrator and the two so nominated shall
      choose the third. If the arbitrators chosen by the parties cannot agree on
      the choice of the third arbitrator within a period of thirty (30) days
      after their appointment, then the third arbitrator shall be appointed by
      the Court of Arbitration of the International Chamber of Commerce. Any
      such arbitration shall be held in London, England. The arbitrators shall
      have the authority to grant specific performance, and to allocate between
      the parties the costs of arbitration in such equitable manner as they
      determine. The arbitral award (i) shall be final and binding upon the
      parties; and (ii) may be entered in any court of competent jurisdiction in
      accordance with the 1958 Convention on the Recognition and Enforcement of
      Arbitral Awards.

                  (d)   Nothing contained in this Section or any other
      provisions of this Agreement shall be construed to limit or preclude a
      party from bringing any action in any court of competent jurisdiction for
      injunctive or other provisional relief to compel the other party to comply
      with its obligations hereunder before or during the pendency of mediation
      or arbitration proceedings. The parties hereby irrevocably consent to
      submit to the jurisdiction of the courts of England and/or any other court
      having jurisdiction for this purpose.

      13.6. 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.

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

      13.8. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties, their Affiliates, and their respective lawful
successors and assigns.

      13.9. 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, or sale of all or substantially all of its assets or that portion
of its business pertaining to the subject matter of this Agreement.

      13.10. 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:

                                       26
<PAGE>   27
If to Solvay:                             If to ArQule:

Solvay Pharmaceuticals B.V.               ArQule, Inc.
C.J. van Houtenlaan 36                    19 Presidential Way
1381 CP Weesp                             Woburn, MA  01801
The Netherlands                           Attention:  President
Attention:                                Tel: (781) 994-0300
Manager Technology Development            Fax: (781) 503-0009

Tel: +31 294 479696
Fax: +31 294 477148

with a copy to:                           with a copy to:

Same Address                              Same Address
Attention: Head Legal Department          Attention:  General Counsel
Tel: +31 294 477479                       Tel: (781) 994-0300
Fax: +31 294 477126                       Fax: (781) 503-0009

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

      13.11. 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.

      13.12. 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.

      13.13. 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 the Prior Agreement.

      13.14. Hardship. The underlying objective of this Agreement is to realize
in an economical and reasonable way the mutual interests and requirements of the
parties. If at any time this Agreement should no longer meet this objective
because of technical developments, economic developments or political changes
that could not reasonably be foreseen at the time of signing this Agreement thus
causing undue and prolonged hardship, the parties shall meet in order to bring
about a mutually agreeable solution according to the economic and reasonable
objectives of this Agreement.

                                       27
<PAGE>   28
      13.15. Force Majeure. Neither party shall be held liable or responsible to
the other party, nor be deemed to be in breach of this Agreement, for failure or
delay in fulfilling or performing any provisions of this Agreement when such
failure or delay is caused by or results from any cause whatsoever outside the
reasonable control of the party concerned including, but not limited to, fire,
explosion, breakdown of plant, strike, lock-out, labor disputes, casualty or
accident, lack or failure of transportation facilities, flood, lack or failure
of sources of supply or of labor, raw materials or energy, civil commotion,
blockage or embargo, any law, regulation, decision, demand or requirement of any
national or local government or authority. The party claiming relief shall,
without delay, notify the other party by registered airmail or by telefax of the
interruption and cessation thereof and shall use its best efforts to remedy the
effects of such hindrance with all reasonable dispatch. The onus of proving that
any such Force Majeure event exists shall rest upon the party so asserting.
During the period that one party is prevented from performing its obligations
under this Agreement due to a Force Majeure event, the other party may, in its
sole discretion, suspend any obligations that relate thereto. Upon cessation of
such Force Majeure event the parties hereto shall use their best efforts to make
up for any suspended obligations. If such Force Majeure event is anticipated to
continue, or has existed for nine (9) consecutive months or more, this Agreement
may be forthwith terminated by either party by registered airmail or by telefax.
In case of such termination the terminating party will not be required to pay to
the other party any indemnity whatsoever.

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

      SOLVAY PHARMACEUTICALS BV              ARQULE, INC.

      By:___________________________         By:__________________________
            E.A.A.M. Koopmans                      Stephen A. Hill, M.D.
            President, Solvay Pharmaceuticals BV,  President and Chief Executive
              Weesp                                Officer

      By:___________________________
            Prof. S.G. Schaefer
            Vice President Global Research
            Solvay Pharmaceuticals

                                       28
<PAGE>   29
                                    EXHIBIT A

                             Compound Specifications

1.    Compass Array Library.

[*****]

2.    Mapping Array Libraries.

[*****]

3.    Confirmation Samples and Resynthesized Compounds.

[*****]

4.    Directed Array Compounds.

[*****]

--------
 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

                                       29
<PAGE>   30
                                    EXHIBIT B

                            AMAP Technology Transfer

List of 2000 Technology to be transferred and implemented in 2001

                                    [*****]

--------
 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

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