Document:

Exhibit 10.16

 

VIST Financial Corp.

1240 Broadcasting Road

Wyomissing, Pennsylvania  19610

 

December 19, 2008

 

VIA HAND DELIVERY

 

[Name of Senior Executive Officer]

c/o VIST Financial Corp.

1240 Broadcasting Road

Wyomissing, Pennsylvania  19610

 

Dear                   :

 

VIST Financial Corp. (the “Company”)
anticipates entering into a Securities Purchase Agreement (the “Participation Agreement”), with the United
States Department of the Treasury (“Treasury”)
that provides for the Company’s participation in the Treasury’s TARP Capital
Purchase Program (the “CPP”).  If the Company does not participate or ceases
at any time to participate in the CPP, this letter shall be of no further force
and effect.

 

For the Company to participate in the CPP and as a condition to the
closing of the investment contemplated by the Participation Agreement, the
Company is required to establish specified standards for incentive compensation
to its senior executive officers and to make changes to its compensation
arrangements.  To comply with these
requirements, and in consideration of the benefits that you will receive as a
result of the Company’s participation in the CPP, you agree as follows:

 

(1)   No Golden Parachute Payments.  The Company is prohibiting any golden
parachute payment to you during any “CPP Covered Period”.  A “CPP
Covered Period” is any period during which (A) you are a senior
executive officer and (B) Treasury holds an equity or debt position
acquired from the Company in the CPP.

 

(2)   Recovery of Bonus and Incentive Compensation.  Any bonus and incentive compensation paid to
you during a CPP Covered Period is subject to recovery or “clawback” by the
Company if the payments were based on materially inaccurate financial
statements or any other materially inaccurate performance metric criteria.

 

(3)   Compensation Program Amendments.  Each of the Company’s compensation, bonus,
incentive and other benefit plans, arrangements and agreements (including
golden parachute, severance and employment agreements) (collectively, “Benefit Plans”) with respect to you is
hereby amended to the extent necessary to give 

 

1

 

effect to provisions (1) and (2).  For reference, certain affected Benefit Plans
are set forth in Appendix A to this letter.

 

In addition, the Company is required to review its Benefit Plans to
ensure that they do not encourage senior executive officers to take unnecessary
and excessive risks that threaten the value of the Company.  To the extent any such review requires revisions
to any Benefit Plan with respect to you, you and the Company agree to negotiate
such changes promptly and in good faith.

 

(4)   Definitions and Interpretation.  This letter shall be interpreted as follows:

 

·      “Senior
executive officer” means the Company’s “senior executive officers”
as defined in subsection 111(b)(3) of EESA.

 

·      “Golden
parachute payment” is used with same meaning as in Section 111(b)(2)(C) of
EESA.

 

·      The term “Company” includes any entities treated as a single employer
with the Company under 31 C.F.R. § 30.1(b) (as in effect on the Closing
Date).  You are also delivering a waiver
pursuant to the Participation Agreement, and, as between the Company and you,
the term “employer” in that waiver will be deemed
to mean the Company as used in this letter.

 

·      The term “CPP Covered Period” shall be limited by, and interpreted in
a manner consistent with, 31 C.F.R. § 30.11 (as in effect on the Closing Date).

 

·      Provisions (1) and (2) of
this letter are intended to, and will be interpreted, administered and construed
to, comply with Section 111 of EESA (and, to the maximum extent consistent
with the preceding, to permit operation of the Benefit Plans in accordance with
their terms before giving effect to this letter).

 

(5)   Miscellaneous.  Capitalized terms used but not defined herein
have the meaning ascribed to them in the Participation Agreement.  To the extent not subject to federal law,
this letter will be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania.  This
letter may be executed in two or more counterparts, each of which will be
deemed to be an original.  A signature
transmitted by facsimile will be deemed an original signature.

 

2

 

The Board appreciates the concessions you are making and looks forward
to your continued leadership during these financially turbulent times

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  VIST FINANCIAL CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

Intending to be legally bound, I agree

with and accept the foregoing terms

on the date set forth below.

 

	
   

  	
   

  

 

3

 

Appendix A

 

Certain Affected Benefit Plans

 

·      Employment
or Change in Control Agreement, dated                   

 

·      VIST 1998
Employee Stock Incentive Plan

 

·      VIST 2007
Equity Incentive Plan

 

·      VIST Annual
Incentive Compensation/Bonus Program

 

4Exhibit 10.22

 

COLLABORATIVE RESEARCH, DEVELOPMENT

 

AND LICENSE AGREEMENT

 

between

 

ARQULE, INC.

 

and

 

DAIICHI SANKYO CO., LTD

 

November 7, 2008

 

[*] = CERTAIN INFORMATION IN
THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.  OMITTED TEXT IS INDICATED BY AN “*”.

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  ADMINISTRATION OF
  THE COLLABORATION

  	
  23

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Joint Executive
  Committee

  	
  23

  
	
  2.2

  	
  Joint Research
  Committee

  	
  26

  
	
  2.3

  	
  US Co-Commercialization Committee

  	
  29

  
	
  2.4

  	
  Alliance Management

  	
  30

  
	
  2.5

  	
  Interests of the
  Parties

  	
  30

  
	
  2.6

  	
  Appointment Not an
  Obligation; No Breach

  	
  30

  
	
   

  	
   

  	
   

  
	
  3.

  	
  RESEARCH PROGRAM

  	
  30

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Objectives of the Research
  Program

  	
  30

  
	
  3.2

  	
  Annual Research
  Plans

  	
  31

  
	
  3.3

  	
  Conduct of Research
  Program

  	
  31

  
	
  3.4

  	
  Records

  	
  33

  
	
  3.5

  	
  Selection of DS
  Targets

  	
  34

  
	
  3.6

  	
  Designation and
  Advancement of Collaboration Compounds

  	
  37

  
	
  3.7

  	
  Supply of
  Collaboration Compounds

  	
  37

  
	
  3.8

  	
  Supply of Proprietary
  Materials

  	
  38

  
	
  3.9

  	
  Determination of
  IC50

  	
  38

  
	
  3.10

  	
  Research
  Collaboration Period

  	
  38

  
	
   

  	
   

  	
   

  
	
  4.

  	
  DEVELOPMENT
  PROGRAM; COMMERCIALIZATION OF LICENSED PRODUCTS

  	
  39

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Objectives of the
  Development Program

  	
  39

  
	
  4.2

  	
  Responsibility for
  Development and Commercialization of Licensed Products

  	
  39

  
	
  4.3

  	
  Development Plans

  	
  39

  
	
  4.4

  	
  Commercial
  Assessment

  	
  40

  
	
  4.5

  	
  Licensed Product
  Commercialization Plans

  	
  40

  
	
  4.6

  	
  Manufacture and
  Supply of Licensed Products

  	
  40

  
	
  4.7

  	
  Development and
  Commercialization Diligence

  	
  41

  
	
  4.8

  	
  Compliance

  	
  41

  
	
  4.9

  	
  Exchange of
  Reports; Information; Updates

  	
  42

  
	
  4.10

  	
  Development and
  Commercialization Rights and Restrictions

  	
  43

  
	
  4.11

  	
  Expansion of the
  Field

  	
  46

  
	
   

  	
   

  	
   

  
	
  5.

  	
  COMPENSATION

  	
  47

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Upfront Fee

  	
  47

  
	
  5.2

  	
  License Fee

  	
  47

  
	
  5.3

  	
  Research Funding

  	
  47

  
	
  5.4

  	
  Milestone and
  Royalty Payments

  	
  48

  

 

i

 

	
  6.

  	
  TREATMENT OF
  CONFIDENTIAL INFORMATION; PUBLICITY; NON-SOLICITATION

  	
  49

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Confidentiality

  	
  49

  
	
  6.2

  	
  Publicity

  	
  50

  
	
  6.3

  	
  Publications and
  Presentations

  	
  51

  
	
  6.4

  	
  AKIP Platform
  Technology

  	
  52

  
	
  6.5

  	
  Prohibition on Solicitation

  	
  52

  
	
   

  	
   

  	
   

  
	
  7.

  	
  LICENSE GRANTS;
  EXCLUSIVITY

  	
  52

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  DS Option

  	
  52

  
	
  7.2

  	
  Research Licenses

  	
  54

  
	
  7.3

  	
  Development
  Licenses

  	
  54

  
	
  7.4

  	
  Commercialization
  License

  	
  55

  
	
  7.5

  	
  Right to Sublicense

  	
  56

  
	
  7.6

  	
  No Other Rights

  	
  56

  
	
  7.7

  	
  Exclusivity

  	
  56

  
	
   

  	
   

  	
   

  
	
  8.

  	
  INTELLECTUAL
  PROPERTY RIGHTS

  	
  57

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  ARQULE Intellectual
  Property Rights

  	
  57

  
	
  8.2

  	
  DS Intellectual
  Property Rights

  	
  57

  
	
  8.3

  	
  Joint Technology
  and Joint Patent Rights

  	
  58

  
	
  8.4

  	
  Patent Coordinators

  	
  58

  
	
  8.5

  	
  Inventorship

  	
  58

  
	
  8.6

  	
  Cooperation

  	
  58

  
	
   

  	
   

  	
   

  
	
  9.

  	
  FILING, PROSECUTION
  AND MAINTENANCE OF PATENT RIGHTS

  	
  59

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Patent Filing,
  Prosecution and Maintenance

  	
  59

  
	
  9.2

  	
  Legal Actions

  	
  62

  
	
  9.3

  	
  Trademark and
  Copyright Prosecution, Defense and Enforcement

  	
  66

  
	
   

  	
   

  	
   

  
	
  10.

  	
  TERM AND
  TERMINATION

  	
  67

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Term

  	
  67

  
	
  10.2

  	
  Termination

  	
  67

  
	
  10.3

  	
  Consequences of
  Termination of Agreement

  	
  68

  
	
  10.4

  	
  Surviving
  Provisions

  	
  72

  
	
   

  	
   

  	
   

  
	
  11.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
  73

  
	
   

  	
   

  	
   

  
	
  11.1

  	
  Mutual
  Representations and Warranties

  	
  73

  
	
  11.2

  	
  ARQULE’s
  Representations and Warranties

  	
  73

  
	
   

  	
   

  	
   

  
	
  12.

  	
  INDEMNIFICATION

  	
  74

  
	
   

  	
   

  	
   

  
	
  12.1

  	
  Indemnification of
  DS by ARQULE

  	
  74

  
	
  12.2

  	
  Indemnification of
  ARQULE by DS

  	
  74

  
	
  12.3

  	
  Conditions to
  Indemnification

  	
  75

  
	
  12.4

  	
  Warranty Disclaimer

  	
  75

  
	
  12.5

  	
  No Warranty of
  Success

  	
  75

  
	
  12.6

  	
  Limited Liability

  	
  76

  

 

ii

 

	
  13.

  	
  MISCELLANEOUS

  	
  76

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Arbitration

  	
  76

  
	
  13.2

  	
  Notices

  	
  78

  
	
  13.3

  	
  Governing Law

  	
  79

  
	
  13.4

  	
  Binding Effect

  	
  79

  
	
  13.5

  	
  Headings

  	
  80

  
	
  13.6

  	
  Counterparts

  	
  80

  
	
  13.7

  	
  Amendment; Waiver

  	
  80

  
	
  13.8

  	
  No Third Party
  Beneficiaries

  	
  80

  
	
  13.9

  	
  Purposes and Scope

  	
  80

  
	
  13.10

  	
  Assignment and
  Successors

  	
  80

  
	
  13.11

  	
  Force Majeure

  	
  81

  
	
  13.12

  	
  Interpretation

  	
  81

  
	
  13.13

  	
  Integration;
  Severability

  	
  81

  
	
  13.14

  	
  Further Assurances

  	
  81

  

 

List of
Schedules

 

Schedule 1                                      Research
Stages/Advancement Criteria

Schedule 2                                      DS
Target List

Schedule 3                                      Milestone
and Royalty Provisions to Be Negotiated pursuant to Section 5.4 and
Included in License Agreements

 

iii

 

COLLABORATIVE RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

 

This
COLLABORATIVE RESEARCH DEVELOPMENT AND LICENSE AGREEMENT (this “Agreement”) is entered into as of November 7, 2008, by and between
ARQULE, Inc., a Delaware corporation with offices at 19 Presidential Way,
Woburn, MA 01801-5140 (“ARQULE”), and
Daiichi Sankyo Co., Ltd, a Japanese
company organized under the laws of Japan with offices at 3-5-1 Nihonbashi
Honcho, Chuo-ku, Tokyo 103-8426, Japan (“DS”).  Each of DS and ARQULE is sometimes referred
to individually herein as a “Party” and
collectively as the “Parties.”

 

WHEREAS,
ARQULE has developed and controls certain proprietary technology and know-how
used for the discovery and development of therapeutics that inhibit kinases;
and

 

WHEREAS, DS
has expertise in pharmaceutical research, development and commercialization;
and

 

WHEREAS, the
Parties desire to enter into a collaboration for the purposes of identifying
kinase inhibitors for research, development and optimization and of developing
and commercializing products containing or derived from such optimized kinase
inhibitors.

 

NOW,
THEREFORE, in consideration of the mutual covenants contained herein, and for
other good and valuable consideration, the Parties hereto, intending to be
legally bound, hereby agree as follows:

 

1.                                      DEFINITIONS

 

Whenever used
in this Agreement with an initial capital letter, the terms defined in this Article 1 shall have the meanings
specified.

 

1.1                                 “AAA” means the American Arbitration
Association.

 

1.2                                 “Abandoned DS Target” means any DS Target
with respect to which DS determines, in its sole discretion, to discontinue
further research as part of the Research Program pursuant to Section 3.5.2(a).

 

1

 

1.3                                 “Advancement” or “Advance” means, with respect to a Collaboration Compound, the
decision by the JRC to advance such Collaboration Compound from one Research
Stage to the next succeeding Research Stage.

 

1.4                                 “Advancement Criteria” means the guideline
criteria to be used by the JRC in order to Advance a Collaboration Compound
through each Research Stage of
the Research Program.  For purposes of
clarity, the Advancement Criteria as of the Effective Date are set forth in Schedule
1 attached hereto, which Schedule 1 may be amended from time to time
by the Parties.

 

1.5                                 “Adverse Event” means any untoward,
undesired or unplanned medical occurrence in a human clinical trial subject or
a patient, which occurrence has a temporal relationship to administration of a
Licensed Product, whether or not considered related to the Licensed Product,
including, without limitation, any undesirable sign (including abnormal
laboratory findings of clinical concern), symptom or disease associated with
the use of such Licensed Product.

 

1.6                                 “Affiliate” means, with respect to any
Person, any other Person that, directly or indirectly through one or more
affiliates, controls, or is controlled by, or is under common control with,
such Person.  For purposes of this
definition, “control” means (a) ownership of fifty percent (50%) or more
of the shares of stock entitled to vote for the election of directors in the
case of a corporation, or fifty percent (50%) or more of the equity interests
in the case of any other type of legal entity, (b) status as a general
partner in any partnership, or (c) any other arrangement whereby a Person
controls or has the right to control the board of directors of a corporation or
equivalent governing body of an entity other than a corporation.

 

1.7                                 “AKIP Platform Technology” means both (a) the
proprietary Technology Controlled by ARQULE and used for the identification and
development of kinase inhibitors and (b) data and information relating to
the structure and mechanism of inhibition of kinase inhibitors that are
identified through the use of such proprietary Technology.

 

1.8                                 “Annual Net Sales” means, with respect to
any Calendar Year, the aggregate amount of the Net Sales for such Calendar
Year.

 

2

 

1.9                                 “Annual Research Plan” means, with respect
to each DS Target, the written plan describing the research activities to be
carried out by each Party for such DS Target during the Research Collaboration
Period in conducting each Research Stage of the Research Program pursuant to
this Agreement, which shall include the objectives of, and the allocation of
resources (including the FTE Funding Commitment) with respect thereto, as such
written plan may be amended, modified or updated, as further described in Section 3.2.

 

1.10                           “Applicable Laws” means Federal, state,
local, national and supra-national laws, statutes, rules and regulations,
including any rules, regulations, guidance, guidelines or requirements of
Regulatory Authorities, national securities exchanges or securities listing
organizations, that are in effect from time to time during the Term and apply
to a particular activity hereunder.

 

1.11                           “ARQULE Background Technology” means any
Technology that is used by ARQULE, or provided by ARQULE for use, in the Research Program that is (a) Controlled
by ARQULE as of the Effective Date or (b) conceived or first
reduced to practice by employees of, or consultants to, ARQULE after the
Effective Date other than in the conduct of ARQULE Research Activities and
without the use in any material respect of any DS Technology, DS Patent Rights
or DS Materials.  For purposes of
clarity, ARQULE Background Technology (a) shall include the AKIP Platform
Technology, and (b) shall not include Collaboration Compounds, ARQULE
Program Technology or ARQULE’s interest in Joint Technology.

 

1.12                           “ARQULE Decision” means a decision with
respect to the following issues:  (a) the
application by ARQULE of the AKIP Platform Technology against *; (b) whether
* is to incur any *; (c) whether * is to incur any * in the performance of
* and (d) the designation of
any *.

 

1.13                           “ARQULE Materials” means any Proprietary
Materials that are Controlled by ARQULE and used by ARQULE, or provided by
ARQULE for use, in the Research Program and/or the Development Program.  For purposes of clarity, ARQULE Materials shall
include all Compounds provided by ARQULE for use in the Research Program.

 

3

 

1.14                           “ARQULE Patent Rights” means any Patent
Rights Controlled by ARQULE that contain one or more claims that cover ARQULE
Technology.

 

1.15                           “ARQULE Program Technology” means (a) any
Program Technology that is conceived or first reduced to practice by employees
of, or consultants to, ARQULE, alone or jointly with any Third Party, without
the use in any material respect of any DS Technology, DS Patent Rights, DS
Materials or Joint Technology; (b) any Program Technology, regardless of
whether conceived or first reduced to practice by employees of, or consultants
to, ARQULE, DS, or both Parties, alone or jointly with any Third Party, that
relates to, or constitutes, AKIP Platform Technology, and (c) all
Collaboration Compounds.

 

1.16                           “ARQULE Research Activities” means all
activities specified to be conducted by ARQULE in any Annual Research Plan (or
amendment thereto) that are (a) approved by the JRC and (b) to the
extent involving matters that are ARQULE Decisions, approved by ARQULE in
accordance with Section 2.1.5.  For
purposes of clarity, unless otherwise set forth in any Annual Research Plan,
ARQULE Research Activities shall include (a) all Feasibility Assessment
Activities and (b) all Assay Development and Hit Generation activities and Hit to Lead activities to be conducted as part of
the Research Program.

 

1.17                           “ARQULE Technology” means, collectively,
ARQULE Background Technology and ARQULE Program Technology.

 

1.18                           “Backup Compound” means, with respect to any
Primary Development Compound, any other Collaboration Compound that is designated by
DS at any time before the expiration of
the DS Option Period for the DS Target of such Primary Development
Compound, that (a) has the same DS
Target as such Primary Development Compound, and (b) satisfies Minimum
Requirement; provided, that, no Collaboration Compound shall, after becoming a
Waived Compound or Terminated Compound, be designated by DS as a Backup
Compound.

 

1.19                           “Blocked Target” means any Target listed on
the Blocked Target List that may not be designated as a DS Target under this
Agreement.  For purposes of clarity, a
Target may only be designated by ARQULE as a Blocked Target if (a) *, (b) *

 

4

 

with respect to a license,
collaboration or similar agreement relating to compounds against such Target,
or (c) *.

 

1.20                           “Business Day” means any day on which
banking institutions in Tokyo are
open for business.

 

1.21                           “Calendar Quarter” means each successive
period of three (3) consecutive calendar months commencing on January 1,
April 1, July 1 or October 1, as the case may be, and ending on March 31,
June 30, September 30 or December 31, respectively; provided,
that, the initial Calendar Quarter shall commence on the Effective Date and end
on December 31, 2008 and the final Calendar Quarter shall end on the
appropriate anniversary of the Effective Date.

 

1.22                           “Calendar Year” means each successive period
of twelve (12) months commencing on January 1 and ending on December 31.

 

1.23                           “Challenge” means any challenge to the
validity or enforceability of any of the Licensed Patent Rights in the absence
of a material breach of this Agreement, including without limitation by (a) filing
a declaratory judgment action in which any of the Licensed Patent Rights is
alleged to be invalid or unenforceable; (b) citing prior art pursuant to
35 U.S.C. §301, filing a request for re-examination of any of the Licensed
Patent Rights pursuant to 35 U.S.C. §302 and/or §311, or provoking an
interference with an application for any of the Licensed Patent Rights pursuant
to 35 U.S.C. §135; or (c) filing or commencing any re-examination,
opposition, cancellation, nullity or similar proceedings against any of the
Licensed Patent Rights in any country.

 

1.24                           “Clinical Trial” means, collectively, a
Phase I Clinical Trial, Phase II Clinical Trial or Phase III Clinical Trial.

 

1.25                           “Co-Commercialize” or “Co-Commercialization Activities” means with
respect to any Co-Commercialized Licensed Product, the joint Detailing of such
Co-Commercialized 

 

5

 

Licensed Product in the
Co-Commercialization Territory using a coordinated sales force consisting of
representatives of both Parties.

 

1.26                           “Co-Commercialization Option Period” means,
with respect to each Licensed Product, the period commencing on the date of
exercise by DS of the DS Option and the grant of the exclusive licenses with
respect to such Licensed Product and continuing until the later of (a) * (*)
days prior to the Initiation of the first Phase III Clinical Trial with respect
to that Licensed Product, or (b) *
(*) days after DS gives ARQULE a
Phase III Notice pursuant to Section4.10.2(a)(i).

 

1.27                           “Co-Commercialization Territory” means the
United States.

 

1.28                           “Collaboration” means the alliance of ARQULE
and DS established pursuant to this Agreement for the purposes of identifying,
researching and Developing Collaboration Compounds and Commercializing Licensed
Products in the Field in the Territory.

 

1.29                           “Collaboration Compound” means any Compound
that is identified or synthesized by either Party in the conduct of the
Research Program.

 

1.30                           “Commercialization” or “Commercialize” means any and all activities
directed to the commercialization of a Licensed Product under the Licensed Product Trademarks selected by DS after Commercialization Regulatory Approval has been
obtained, including marketing, manufacturing for commercial sale, promoting,
detailing, distributing, offering to sell and selling a Licensed Product,
importing a Licensed Product for sale, conducting post-marketing human clinical
studies and interacting with Regulatory Authorities regarding the
foregoing.  When used as a verb, “to
Commercialize” and “Commercializing” means to engage in Commercialization and
“Commercialized” has a corresponding meaning.

 

1.31                           “Commercially Reasonable Efforts” means (a) with
respect to activities of ARQULE in the Research Program and/or in the
Commercialization of any Co-Commercialized Licensed Products, the efforts and
resources comparable to those undertaken by ARQULE in pursuing the research,
discovery or commercialization of proprietary materials and the development of
product candidates, as applicable, that are not subject to the Collaboration
and that are at an equivalent stage of development or commercialization and
have similar market 

 

6

 

potential and are at a similar
stage in their lifecycle; and (b) with respect to activities of DS in the
Research Program, the Development of a particular Licensed Product or the
Commercialization of a particular Licensed Product (including any
Co-Commercialized Licensed Products), the efforts and resources comparable to
those undertaken by DS in pursuing intellectual property protection and
development of product candidates and commercialization of products, as
applicable, that are not subject to the Collaboration and that are at an
equivalent stage of development or commercialization and have similar market
potential and are at a similar stage in their lifecycle.  For purposes of both (a) and (b) above,
all relevant factors as measured by the facts and circumstances at the time
such efforts are due shall be taken into account, including, as applicable and
without limitation, mechanism of action; efficacy and safety; product profile;
actual or anticipated Regulatory Authority approved labeling; and the nature
and extent of market exclusivity (including patent coverage, proprietary position
and regulatory exclusivity; cost, time required for and likelihood of obtaining
Commercialization Regulatory Approval; competitiveness of alternative products
and market conditions; actual or projected profitability and availability of
capacity to manufacture and supply for commercial sale).

 

1.32                           “Commercialization Regulatory Approval”
means, with respect to any Licensed Product, the Regulatory Approval required
by Applicable Laws to sell such Licensed Product for use in the Field in a
country or region in the Territory. 
“Commercialization Regulatory Approval” shall include, without
limitation, the approval of any Drug Approval Application.  For purposes of clarity, “Commercialization
Regulatory Approval” in the United States shall mean final approval of an NDA
for the first Indication or sNDA for an additional Indication permitting
marketing of the applicable Licensed Product in interstate commerce in the
United States, “Commercialization Regulatory Approval” in the European Union
shall mean marketing authorization for the applicable Licensed Product pursuant
to Council Directive 2001/83/EC, as amended, or Council Regulation 2309/93/EEC,
as amended and “Commercialization Regulatory Approval” in Japan shall mean
final approval of an application submitted to the Ministry of Health, Labor and
Welfare and the publication of a New Drug Approval Information Package
permitting marketing of the applicable Licensed Product in Japan, as any of the
foregoing may be amended from time to time.

 

7

 

1.33         “Committee” means, collectively, the JEC,
the JRC, and the USCC.

 

1.34         “Compound”
means any kinase inhibitor having
a molecular weight less than *.

 

1.35         “Confidential Information” means (a) with
respect to ARQULE, all tangible embodiments of ARQULE Technology, (b) with
respect to DS, all tangible embodiments of DS Technology and (c) with
respect to each Party, (i) all tangible embodiments of Joint Technology
and (ii) all information, Technology and Proprietary Materials disclosed
or provided by or on behalf of such Party (the “disclosing Party”) to the other
Party (the “receiving Party”) or to any of the receiving Party’s employees,
consultants, Affiliates or sublicensees (or Sublicensees, as the case may be);
provided, that, none of the foregoing shall be Confidential Information if: (A) as
of the date of disclosure, it is known to the receiving Party or its Affiliates
as demonstrated by contemporaneous credible written documentation, other than
by virtue of a prior confidential disclosure to such receiving Party; (B) as
of the date of disclosure it is in the public domain, or it subsequently enters
the public domain through no fault of the receiving Party; (C) it is
obtained by the receiving Party from a Third Party having a lawful right to
make such disclosure free from any obligation of confidentiality to the
disclosing Party; or (D) it is independently developed by or for the
receiving Party without reference to or use of any Confidential Information of
the disclosing Party as demonstrated by contemporaneous credible written
documentation.  For purposes of clarity,
unless excluded from Confidential Information pursuant to the proviso at the
end of the preceding sentence, any scientific, technical or financial information
of a Party that is disclosed at any meeting of any Committee or disclosed
through an audit report shall constitute Confidential Information of the
disclosing Party.  Subject to the rights
of the Parties to make disclosures as set forth in Article 6, the terms of
this Agreement shall constitute Confidential Information of each Party.

 

1.36         “Contract Year” means (a) the period
beginning on the Effective Date and ending on the first anniversary of the last
day of the calendar month in which the Effective Date falls and (b) each
succeeding twelve (12) month period thereafter.

 

1.37         “Control” or “Controlled” means (a) with respect to Technology or
Patent Rights, the possession by a Party of the right to grant a license or
sublicense to such Technology

 

8

 

or Patent Rights as provided herein without the payment of additional
consideration to, and without violating the terms of any agreement or
arrangement with, any Third Party and without violating any Applicable Laws and
(b) with respect to Proprietary Materials, the possession by a Party of
the right to supply such Proprietary Materials to the other Party as provided
herein without the payment of additional consideration to, and without
violating the terms of, any agreement or arrangement with any Third Party, and
without violating any Applicable Laws.

 

1.38         “CTN” means the notification submitted to
the Japanese Ministry of Health, Labor and Welfare prior to the Initiation of a
clinical trial in Japan.

 

1.39         “Derived” means identified, obtained,
developed, created, synthesized, generated, designed or resulting from, based
upon, containing or incorporating; conjugated to or complexed with (whether
directly or indirectly, or in whole or in part).

 

1.40         “Detail” means, with respect to a Co-Commercialized
Licensed Product, an interactive, live, face-to-face contact of a representative within the
Co-Commercialization Territory with a medical professional with prescribing
authority or other individuals or entities that have a significant impact or
influence on prescribing decisions, in an effort to increase physician
prescribing preferences of such Co-Commercialized Licensed Product for its
approved uses within the Co-Commercialization Territory.  When used as a verb, “Detailing” means
performing Details.  When used as an
adjective, “Detailing” means of or related to performing Details.

 

1.41         “Development” or “Develop” means, with respect to each Primary Development
Compound and/or Backup Compound and Licensed Product (including without
limitation any Co-Commercialized Licensed Product), all non-clinical and
clinical activities performed in order to obtain Regulatory Approval of a
Licensed Product (including without limitation any Co-Commercialized Licensed
Product) in accordance with this Agreement up to and including the obtaining of
Commercialization Regulatory Approval of such Licensed Product.  For purposes of clarity, these activities
include, without limitation, in vivo animal
efficacy testing, preclinical safety testing, test method development and
stability testing, regulatory toxicology studies, formulation, process
development, manufacturing, manufacturing scale-up, development-stage
manufacturing, quality assurance/quality control development, statistical
analysis and report

 

9

 

writing, clinical trial design and operations, conducting Clinical
Trials, preparing and filing Drug Approval Applications, and all regulatory
affairs related to the foregoing.  When
used as a verb, “Developing” means to engage in Development and “Developed” has
a corresponding meaning.

 

1.42         “Development
Program” means the Development activities to be conducted during the
Term with respect to each Primary Development Compound and/or Backup Compound
and Licensed Product (including without limitation Co-Commercialized Licensed
Products), with the objective of
developing such Primary Development Compound and/or Backup Compound and Licensed Product.

 

1.43         “Drug Approval Application” means, with
respect to a Licensed Product in a particular country or region, an application
for Commercialization Regulatory Approval for such Licensed Product in such
country or region, including without limitation: (a) an NDA or sNDA; (b) a
counterpart of an NDA or sNDA in any country or region in the Territory
(including, without limitation, a CTN); and (c) all supplements and
amendments to any of the foregoing.

 

1.44         “DS Background Technology” means any
Technology that is used by DS, or provided by DS for use, in the Research
Program and/or Development Program that is (a) Controlled by DS as of the Effective Date or (b) conceived
or first reduced to practice by employees of, or consultants to, DS after the
Effective Date other than in the conduct of DS Research Activities or DS
Development Activities and without the use in any material respect of any
Collaboration Compounds, ARQULE Technology, ARQULE Patent Rights, or ARQULE
Materials.  For purposes of
clarity, DS Background Technology shall not include DS Program Technology or
DS’s interest in Joint Technology.

 

1.45         “DS Decision” means *.

 

1.46         “DS Development Activities” means all
Development activities (including without limitation all Development activities
conducted with respect to Co-Commercialized Collaboration Compounds) specified
to be conducted by DS.

 

10

 

1.47         “DS Materials” means any Proprietary
Materials that are Controlled by DS and used by DS, or provided by DS for use,
in the Research Program and/or the Development Program.

 

1.48         “DS Option Period” means, with respect to
any Primary Development Compound and the related Backup Compounds, the period
commencing on the date of designation by DS of a Primary Development Compound,
and continuing until * (*) days following the date of receipt by the
JRC of the Toxicology Studies Results with respect to such Primary Development
Compound, or up to * (*)
subsequently evaluated Backup Compounds provided that DS has designated such
Backup Compounds prior to the start of the first Toxicology Study; provided that the DS Option Period shall end
no later than  * (*) months after the end of the Research
Collaboration Period.

 

1.49         “DS Patent Rights” means any Patent Rights
Controlled by DS that contain one or more claims that cover DS Technology.

 

1.50         “DS Program Technology” means any Program
Technology that (a) is not ARQULE Program Technology or Joint Technology
and (b) is conceived or first reduced to practice by employees of, or
consultants to, DS, alone or jointly with any Third Party, without the use in
any material respect of any ARQULE Technology, ARQULE Patent Rights, ARQULE
Materials or Joint Technology.

 

1.51         “DS Research Activities” means all
activities specified to be conducted by DS in any Annual Research Plan (or
amendment thereto) that are approved by the JEC.

 

1.52         “DS Target” means each Target listed on the
DS Target List, as amended from time to time in accordance with Section 3.5.2.

 

1.53         “DS Target List” means the list of Targets
listed on Schedule 2 attached hereto and incorporated herein by
reference.

 

1.54         “DS Technology” means, collectively, DS
Background Technology and DS Program Technology.

 

11

 

1.55         “Effective Date” means the date first set
forth above.

 

1.56         “European Union” or “EU” means the countries of the European
Union, as the European Union is constituted as of the Effective Date and as it
may be expanded from time to time.

 

1.57         “FDA” means the United States Food and Drug
Administration or any successor agency or authority thereto.

 

1.58         “FDCA” means the United States Federal Food,
Drug, and Cosmetic Act, as amended.

 

1.59         “Feasibility Assessment Activities” means
the activities to be conducted by ARQULE with respect to Available Targets in
order to identify those Available Targets that ARQULE reasonably believes would
be amenable to the application of the AKIP Platform Technology.

 

1.60         “Field” means the prevention, treatment,
cure and/or delay of the onset or progression of all human oncology
Indications.

 

1.61         “First Commercial Sale” means, with respect
to a Licensed Product in a country in the Territory, the first sale, transfer
or disposition for value or for an end user of such Licensed Product in such
country.  For purposes of clarity, the use
of any Licensed Product in clinical trials, pre-clinical studies or other
research or development activities, or the disposal or transfer of Licensed
Products for a bona fide charitable purpose or a commercially reasonable
sampling program, shall not be deemed to be a sale, transfer or disposition for
value or for an end user.

 

1.62         “Force Majeure” means any occurrence beyond
the reasonable control of a Party that (a) prevents or substantially
interferes with the performance by such Party of any of its obligations
hereunder and (b) occurs by reason of any act of God, flood, fire,
explosion, earthquake, strike, lockout, labor dispute, casualty or accident, or
war, revolution, civil commotion, act of terrorism, blockage or embargo, or any
injunction, law, order, proclamation, regulation, ordinance, demand or
requirement of any government or of any subdivision, authority or
representative of any such government.

 

12

 

1.63         “FTE” shall mean the efforts of one
full-time employee (or equivalent part-time efforts of more than one employee)
devoted to or in support of the ARQULE Research Activities.

 

1.64         “FTE Funding
Commitment” means (a) with respect to the ARQULE Research
Activities conducted in the first Contract Year during the Research Collaboration Period, the funding of * ARQULE FTEs at the FTE Rate; and (b) with
respect to the ARQULE Research Activities conducted by ARQULE in any subsequent
Contract Year during the Research Collaboration Period, the funding of that
number of FTEs as shall be consistent with the Annual Research Plan for such
subsequent Contract Year and agreed to by the Parties not later than * (*) days
prior to the commencement of such Contract Year; provided, that, (i) DS
shall have the right to reduce the FTE Funding Commitment in any subsequent
Contract Year to the funding at the FTE Rate of a number of FTEs no
fewer than * of FTE Funding Commitment
that is applicable to the previous Contract Year, and (ii) ARQULE’s
consent shall be required to increase the number of FTEs above the number in
the previous year. In the event the Parties cannot agree on the number of FTE’s
in any subsequent year, each Party shall give written notice to the JEC of the
number of  FTEs it believes are needed to
perform the ARQULE Research Activities in such Contract Year and the number of
FTEs shall be decided in accordance with Section 2.1.5.  Until the number of FTEs is decided,  the FTE Funding Commitment for such Contract
Year shall be the funding at the FTE Rate of a number of FTEs equal to one half of the number of FTEs funded
in the previous year.

 

1.65         “FTE Rate” means with respect to the conduct
by ARQULE of ARQULE Research Activities and Feasibility Assessment Activities, * Dollars (US $*) per year.  The FTE
Rate includes all salary, employee benefits, materials and all other expenses
including support staff and overhead for or associated with the scientists of a
Party performing activities but does not include Third Party Costs.

 

1.66         “Hatch-Waxman Act” means the Drug Price
Competition and Patent Term Restoration Act of 1984, as amended.

 

1.67         “IND” means: (a) an Investigational New
Drug Application as defined in the FDCA and regulations promulgated thereunder
or any successor application or procedure 

 

13

 

required to initiate clinical testing of a Licensed Product in humans
in the United States; (b) a counterpart of an Investigational New Drug
Application that is required in any other country or region in the Territory
before beginning clinical testing of a Licensed Product in humans in such
country or region; and (c) all supplements and amendments to any of the
foregoing.

 

1.68         “Indication” means any human indication,
disease or condition which can be treated, prevented, cured or the onset or
progression of which can be delayed.  For
purposes of clarity, distinctions between human indications, diseases or
conditions with respect to a Licensed Product shall be made by reference to the
World Health Organization International Classification of Diseases, version 10
(as revised and updated, “ICD10”).

 

1.69         “Initiation” or “Initiate” means, with respect to a human clinical trial, the
first date that a subject or patient is dosed in such clinical trial.

 

1.70         “Joint Executive Committee” or “JEC” means the committee composed of ARQULE
and DS representatives established pursuant to Section 2.1.1.

 

1.71         “Joint Patent Rights” means Patent Rights
that contain one or more claims that cover Joint Technology.

 

1.72         “Joint Research Committee” or “JRC” means the committee composed of ARQULE
and DS representatives established pursuant to Section 2.2.

 

1.73         “Joint
Technology” means any Program Technology that is (a) jointly
conceived or reduced to practice by both (i) employees of, or consultants
to, DS and (ii) employees of or consultants to ARQULE or (b) conceived
or reduced to practice solely by employees of, or consultants to, a Party with
the use in any material respect of any Technology, Patent Rights or Proprietary
Materials of the other Party.  Notwithstanding anything in this Agreement to
the contrary, any Program Technology that relates to the AKIP Platform
Technology shall not be considered Joint Technology irrespective of which Party
or Parties conceived or reduced to practice such Program Technology and shall
be ARQULE Program Technology.

 

1.74         “Kinase Inhibition Assays”
means the relevant
assays used to determine the IC50 of a Collaboration Compound against a Target,
which shall consist of enzymatic assays or 

 

14

 

biophysical methods and any other assays
agreed by the JRC and set forth in the Annual Research Plan.

 

1.75         “Licensed Patent Rights” means any ARQULE
Patent Rights and ARQULE’s interest in Joint Patent Rights that (a) contain
one or more claims that cover any Collaboration Compound or Licensed Product,
including its manufacture or its formulation or a method of its delivery or of
its use, or (b) are necessary or useful for DS to exercise the licenses
granted to it hereunder.

 

1.76         “Licensed Product” means any pharmaceutical
or medicinal item, substance or formulation that contains, incorporates,
comprises or is Derived from a Primary Development Compound for which DS has exercised the DS Option
under Section 7.1.2 or any
Backup Compound with respect to such
Primary Development Compound ; provided, that, no Primary Development
Compound or Backup Compound shall, after becoming a Waived Compound or
Terminated Compound, be deemed to be a Licensed Product.

 

1.77         “Licensed Product Commercialization Plan”
means, with respect to each Licensed Product (including without limitation any
Co-Commercialized Licensed Product), the written plan for the Commercialization
of such Licensed Product in the Territory, as such plan may be amended or
updated.

 

1.78         “Licensed Product Trademark” means any
trademark or trade name, whether or not registered, or any trademark
application or renewal, extension or modification thereof, in the Territory, or
any trade dress and packaging, in each case that are applied to or used with
any Licensed Product by DS, together with all goodwill associated therewith and
promotional materials relating thereto.

 

1.79         “Licensed Technology” means any ARQULE
Technology and ARQULE’s interest in Joint Technology that (a) relates to
any Collaboration Compound or Licensed Product, including its manufacture or
its formulation or a method of its delivery or of its use; and (b) is
necessary or useful for DS to exercise the licenses granted to it hereunder.

 

1.80         “Minimum
Requirement” for a
Collaboration Compound means (i) an IC50 less than *μM
against a DS Target in the Kinase Inhibition Assays, (ii) an IC50 against
such DS 

 

15

 

Target that is less than *% of the IC50 against any other Target in
the Target Specificity Panel in the Kinase Inhibition Assays, and (iii) satisfaction
of the Advancement Criteria to Advance from Hit to Lead to Lead Optimization.

 

1.81         “NDA” means a New Drug Application, as defined in the FDCA and
regulations promulgated thereunder or any successor application or procedure
required to sell a Licensed Product in the United States.

 

1.82         “Net Sales” means such meaning to be defined in the amendment to
this Agreement or separate agreement as set forth in Section 5.4.

 

1.83         “Patent Rights” means the rights and
interests in and to issued patents and pending patent applications (which, for
purposes of this Agreement, include certificates of invention, applications for
certificates of invention and priority rights) in any country or region, including
all provisional applications, substitutions, continuations,
continuations-in-part, divisions, renewals, all letters patent granted thereon,
and all reissues, re-examinations and extensions thereof, and all foreign
counterparts of any of the foregoing.

 

1.84         “Person” means an individual, sole
proprietorship, partnership, limited partnership, limited liability
partnership, corporation, limited liability company, business trust, joint
stock company, trust, incorporated association, joint venture or similar entity
or organization, including a government or political subdivision, department or
agency of a government.

 

1.85         “Phase I Clinical Trial” means a clinical
trial conducted in healthy humans or patients, which clinical trial is designed
to establish the safety, drug-drug interactions and/or pharmacokinetics of an
investigational drug given its intended use, and to support continued testing
of such drug in Phase II Clinical Trials. 
Any clinical trial in any country that would satisfy the requirements of
21 CFR 312.21(a) shall be a Phase I Clinical Trial.

 

1.86         “Phase II Clinical Trial” means a clinical
trial conducted in patients with a particular disease or condition, which
clinical trial is designed to establish the safety, appropriate dosage and
pharmacological activity of an investigational drug given its intended use, and
to

 

16

 

initially explore its efficacy for such disease or condition and to
support continued testing of such drug in Phase III Clinical Trials.  Any clinical trial in any country that would
satisfy the requirements of 21 CFR 312.21(b) shall be a Phase II Clinical
Trial.

 

1.87         “Phase III Clinical Trial” means a pivotal
clinical trial conducted in patients with a particular disease or condition,
which clinical trial is designed to ascertain efficacy and safety of an
investigational drug for its intended use and to define warnings, precautions
and Adverse Events that are associated with the Licensed Product in the dosage
range intended to be prescribed, with the purpose of preparing and submitting
applications for Regulatory Approval or label expansion to the pertinent
Regulatory Authority in any country.  Any
clinical trial in any country that would satisfy the requirements of 21 CFR
312.21(c) shall be a Phase III Clinical Trial.

 

1.88         “Primary Detail Equivalent” means (i) if
only a Licensed Product is Detailed, one Detail of such Licensed Product or (ii) if
a Licensed Product is Detailed with another product, * percent (*%) of
a Detail if the Licensed Product is Detailed in the first position and * percent (*%) of a Detail if the Licensed Product is Detailed in the
second position or (iii) if a Licensed Product is Detailed other than in
the first or second position, such percentage of a Detail as the Parties shall
agree upon in the Co-Commercialization Agreement.

 

1.89         “Primary Development Compound” means any
Collaboration Compound that the JRC determines has satisfied all applicable
Advancement Criteria to Advance from Lead Optimization to Preclinical Studies and that DS has designated
as a Primary Development Compound; provided, that, no Collaboration
Compound shall, after becoming a Waived Compound or Terminated Compound, be
designated by DS as a Primary
Development Compound.

 

1.90         “Program Patent Rights” means any Patent
Rights that contain one or more claims that cover Program Technology.

 

1.91         “Program Technology” means any Technology
(including, without limitation, any new and useful process, method of
manufacture or composition of matter) or Proprietary Materials that are
conceived or first reduced to practice (actively or constructively) by either 

 

17

 

Party in the conduct of the Research Program and/or the Development
Program, including but not limited to a process for modifying, optimizing,
using, formulating, delivering and/or stabilizing any Collaboration Compound or
Licensed Product.

 

1.92                           “Proprietary Materials” means tangible chemical, biological or
physical materials (a) that are furnished by or on behalf of one Party to
the other Party in connection with this Agreement, whether or not specifically
designated as proprietary by the Transferring Party or (b) that are
otherwise conceived or reduced to practice in the conduct of the Research
Program or the Development Program.

 

1.93                           “Quarterly FTE Payment” means the amount payable by DS to
ARQULE for FTEs for all ARQULE Research Activities to be conducted during each
Calendar Quarter of the Research Collaboration Period, which shall equal * percent (*%) of the FTE Funding Commitment set forth in the Annual
Research Plan for the applicable Calendar Year, provided, that such amount
shall be prorated for the first and last Calendar Quarter based on the number
of days in such first or last Calendar Quarter divided by 365.

 

1.94                           “Regulatory Approval” means, with respect to any country or
region in the Territory, any approval, product and establishment license,
registration or authorization of any Regulatory Authority required for the
manufacture, use, storage, importation, exportation, distribution, transport or
sale of a Licensed Product for use in the Field in such country or region.

 

1.95                           “Regulatory Authority” means the FDA in the United States, the
EMEA in the EU, the Ministry of Health, Labor and Welfare in Japan, or any
counterpart of any of the foregoing in any other jurisdiction, or any other
national, supra-national, regional, state or local regulatory agency,
department, bureau, commission, council or other governmental entity with
authority over the distribution, importation, exportation, manufacture,
production, use, storage, transport, clinical testing or sale of a Licensed
Product.

 

1.96                           “Regulatory Filings” means, collectively: (a) all INDs,
establishment license applications, drug master files, applications for
designation as an “Orphan Product(s)” under the Orphan Drug Act, for “Fast
Track” status under Section 506 of the FDCA (21 U.S.C. § 356) or for a
Special Protocol Assessment under Section 505(b)(4)(B) and (C) of
the FDCA (21 U.S.C. 

 

18

 

§ 355(b)(4)(B)), NDAs and BLAs and all other similar filings (including,
without limitation, counterparts of any of the foregoing) in any country or
region in the Territory; (b) all supplements and amendments to any of the
foregoing; and (c) all data and other information contained in, and
correspondence relating to, any of the foregoing.

 

1.97                           “Research Collaboration Period” means the
period beginning on the Effective Date and ending on the * anniversary thereof, as such period may
be extended by the mutual written agreement of the Parties; provided, that, (a) DS
shall have the right to extend the Research Collaboration Period by * (*)
* (*) * by providing written
notice to ARQULE not less than * (*) * prior to the expiration of the
then-applicable Research Collaboration Period and (b) if this Agreement is
terminated prior to the end of the Research Collaboration Period, the effective
date of such early termination shall become the last day of the Research
Collaboration Period.

 

1.98                           “Research Program” means the research program to be conducted
by the Parties during the Research Collaboration Period pursuant to the Annual
Research Plans which shall involve the identification and preclinical
development of Collaboration Compounds through all Research Stages.  For purposes of clarity, the Research Program
does not include any Development activities performed in the course of the
Development Program.

 

1.99                           “Research Stage” means each stage of the Research Program
described more fully on Schedule 1 attached hereto and incorporated
herein by reference.  For purposes of
clarity, the Research Stages shall consist of (a) Assay Development and
Hit Generation ; (b) Hit to Lead; (c) Lead Optimization and (d) Preclinical
Studies.

 

1.100                     “Royalty
Term” means, on a Licensed Product-by-Licensed Product and
country-by-country basis, the period beginning on the date of First Commercial
Sale of a Licensed Product in a country and ending on the later to occur of (a) expiration
of the last to expire Valid Claim of the Licensed Patent Rights or Joint Patent
Rights in such country that covers such Licensed Product or its identification,
manufacture, use, import, offer for sale or sale or (b) * (*)
years from the date of the First Commercial Sale of such  Licensed Product in such country.

 

19

 

1.101                     “sNDA”
means a Supplemental New Drug Application, as defined in the FDCA and
applicable regulations promulgated thereunder.

 

1.102                     “Sublicensee”
means any Third Party to which DS grants a sublicense under the licenses
granted to it under Section 7.5.

 

1.103                     “Target”
means a kinase.

 

1.104                     “Target
Specificity Panel” means the list of Targets set forth in the most
recent Annual Research Plan for the purpose of testing the specificity of
Collaboration Compounds.

 

1.105                     “Technology”
means, collectively, inventions, discoveries, improvements, trade secrets and
proprietary methods, whether or not patentable, including without limitation: (a) methods
of production or use of, and structural and functional information pertaining
to, chemical compounds; and (b) compositions of matter, data,
formulations, processes, techniques, know-how and results (including, without
limitation, any negative results).

 

1.106                     “Terminated
Compounds” means (a) all Collaboration Compounds upon any
termination of this Agreement by ARQULE pursuant to Section 10.2.2, 10.2.3
or 10.2.4 or by DS pursuant to Section 10.2.1; (b) the relevant
Collaboration Compounds binding to the DS Target for which DS’s license is
terminated by ARQULE pursuant to Section 10.2.2 due to failure of DS to
meet its diligence obligations, as provided in Section 4.7(b); and (c) the
relevant Collaboration Compounds binding to any Abandoned DS Target.

 

1.107                     “Territory”
means all countries and territories of the world.

 

1.108                     “Third
Party” means a Person other than DS and ARQULE and their respective
Affiliates.

 

1.109                     “Third Party Data Provider” means IMS Health
and/or any other Third Party approved by the JEC that performs market analyses
and provides sales data for the biotechnology or pharmaceutical industry.

 

20

 

1.110                     “Toxicology
Study” means the GLP toxicology studies to be conducted as part of
the Preclinical Studies with respect to a
Primary Development Compound or a Backup Compound, as described in the
Annual Research Plan.

 

1.111                     “Unanimous
Decision” means any decision of the JEC that is not designated herein as an ARQULE Decision or a DS
Decision.

 

1.112                     “United States” means the United States of
America and its territories and possessions (including the District of
Columbia, Puerto Rico and the U.S. Virgin Islands).

 

1.113                     “US  Co-Commercialization Committee” or “USCC” means the committee composed of
ARQULE and DS representatives established pursuant to Section 2.3.1.

 

1.114                     “Valid
Claim” means any claim of a pending patent application or an issued
unexpired patent that (a) has not been finally cancelled, withdrawn,
abandoned or rejected by any administrative agency or other body of competent
jurisdiction, (b) has not been permanently revoked, held invalid, or
declared unpatentable or unenforceable in a decision of a court or other body
of competent jurisdiction that is unappealable or unappealed within the time
allowed for appeal, (c) has not been rendered unenforceable through
disclaimer or otherwise, and (d) is not lost through an interference
proceeding.

 

1.115                     “Waived
Compound” means on a Target-by-Target basis, (a) any
Collaboration Compound that does not
satisfy Minimum Requirement, (b) any Collaboration Compound for which DS
does not exercise the DS Option prior to the end of the DS Option Period for the
DS Target of such Collaboration Compound, and (c) any Primary
Development Compound, Backup Compound or Licensed Product the Development or
Commercialization of which is abandoned or discontinued by DS.

 

Additional Definitions.  In addition, each of the following
definitions shall have the respective meanings set forth in the section of this
Agreement indicated below:

 

	
  Definition

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Abandoning Party

  	
   

  	
  9.1.5(b)

  
	
  Additional Indication

  	
   

  	
  4.11

  
	
  Additional Indication Notice

  	
   

  	
  4.11

  

 

21

 

 

	
  Agreement

  	
   

  	
  Recitals

  
	
  Alliance Manager

  	
   

  	
  2.4

  
	
  ARQULE

  	
   

  	
  Recitals

  
	
  ARQULE Indemnitees

  	
   

  	
  12.2

  
	
  ARQULE Program Patent Right

  	
   

  	
  9.2.1(c)(ii)

  
	
  Available Target

  	
   

  	
  3.5.2(c)

  
	
  Available Target Response

  	
   

  	
  3.5.2(c)

  
	
  Blocked Target List

  	
   

  	
  3.5.2(b)

  
	
  Claims

  	
   

  	
  12.1

  
	
  Collaboration Compound Notice

  	
   

  	
  3.6

  
	
  Co-Commercialization Agreement

  	
   

  	
  4.10.2(a)(iii) (A)

  
	
  Co-Commercialization Option

  	
   

  	
  4.10.2(a)(ii)

  
	
  Co-Commercialization Option Notice

  	
   

  	
  4.10.2(a)(ii)

  
	
  Co-Commercialization Plan

  	
   

  	
  4.10.2(b)

  
	
  Co-Commercialized Licensed Product

  	
   

  	
  4.10.2(a)(ii)

  
	
  Designated Senior Officers

  	
   

  	
  2.1.5

  
	
  Desired Target

  	
   

  	
  3.5.2(c)

  
	
  Desired Target Notice

  	
   

  	
  3.5.2(c)

  
	
  Dispute

  	
   

  	
  13.1.1

  
	
  Disputed Matter

  	
   

  	
  2.1.5

  
	
  DS

  	
   

  	
  Recitals

  
	
  DS Backup Compound Notice

  	
   

  	
  7.1.2(b)

  
	
  DS Indemnitees

  	
   

  	
  12.1

  
	
  DS Option

  	
   

  	
  7.1.1

  
	
  DS Option Exercise Notice

  	
   

  	
  7.1.2(a)

  
	
  Expert

  	
   

  	
  13.1.2(a)

  
	
  Filing Party

  	
   

  	
  9.1.4

  
	
  Gatekeeper

  	
   

  	
  3.5.2(b)

  
	
  Generic Licensed Product

  	
   

  	
  Schedule 3

  
	
  Hit

  	
   

  	
  3.6

  
	
  Indemnified Party

  	
   

  	
  12.3

  
	
  Indemnifying Party

  	
   

  	
  12.3

  
	
  Infringement

  	
   

  	
  9.2.1(a)

  
	
  Infringement Notice

  	
   

  	
  9.2.1(a)

  
	
  Initial DS Targets

  	
   

  	
  3.5.1

  
	
  License Agreement

  	
   

  	
  7.1.2(a)

  
	
  License Fee

  	
   

  	
  5.2

  
	
  Losses

  	
   

  	
  12.1

  
	
  Maintaining Party

  	
   

  	
  9.1.5(b)

  
	
  non-Appointing Party

  	
   

  	
  2.6

  
	
  Non-Filing Party

  	
   

  	
  9.1.4

  
	
  Party/Parties

  	
   

  	
  Recitals

  
	
  Patent Coordinator

  	
   

  	
  8.4

  
	
  Recipient Party

  	
   

  	
  3.8

  
	
  Term

  	
   

  	
  10.1

  
	
  Third Party Costs

  	
   

  	
  5.3.2

  

 

22

 

	
  Toxicology Studies Results

  	
   

  	
  3.4.2

  
	
  Transferring Party

  	
   

  	
  3.8

  
	
  Upfront Fee

  	
   

  	
  5.1

  
	
  Validated Target

  	
   

  	
  3.5.2(d)

  
	
  Validated Target Notice

  	
   

  	
  3.5.2(d)

  

 

2.                                      ADMINISTRATION
OF THE COLLABORATION

 

2.1                                 Joint Executive Committee.

 

2.1.1                                 Establishment.  Within fifteen (15) days of the Effective
Date, ARQULE and DS shall establish the Joint Executive Committee.  Unless otherwise agreed by the Parties, the
term of the JEC shall continue until the later of (a) termination of this
Agreement or (b) termination of the last License Agreement to terminate.

 

2.1.2                                 Membership.  Upon establishment of the JEC, each Party
shall designate in writing, in its sole discretion, one (1) person to be
its initial member of the JEC, and upon the first exercise of a DS Option, two (2) additional
persons or such other equal number of persons to be members of the JEC as the
Parties agree to (who shall be members of its management).  Unless otherwise agreed by the Parties, each
Party’s initial member shall be designated as co-chairs of the JEC  and upon appointment of the additional
members, one of DS’s designees and one of ARQULE’s designees shall be
designated as co-chairs of the JEC.  Each
Party shall have the right at any time to substitute individuals, on a
permanent or temporary basis, for any of its previously designated
representatives to the JEC, by giving written notice to the other Party.  Initial designees of the Parties to the JEC
shall be designated by each Party by written notice to the other Party as soon
as is reasonably practicable following the Effective Date.

 

2.1.3                                 Meetings.

 

(a)                                  Schedule of Meetings; Agenda.  The
JEC shall establish a schedule of times for regular meetings, taking into
account the planning needs of the Collaboration and its
responsibilities.  In urgent cases,
special meetings of the JEC may be convened by any member upon thirty (30) days
(or, if such meeting is proposed to be conducted by teleconference, upon ten (10)
days) written notice to the other members; provided, that, (i) notice of
any such special meeting may be waived at any time, either before or after such
meeting, and such waiver shall be 

 

23

 

the equivalent to the giving of a valid notice hereunder, and (ii) attendance
of any member at a special meeting shall constitute a valid waiver of notice
from such member.  In no event shall the
JEC meet less frequently than two (2) times in each Calendar Year.  Regular and special meetings of the JEC may
be held in person or by teleconference or videoconference; provided, that,
meetings held in person shall alternate between the respective offices of the
Parties.  The co-chairs shall prepare and
circulate to each JEC member an agenda for each JEC meeting not later than one (1) week
prior to such meeting.

 

(b)                                 Quorum; Voting;
Decisions.  At each JEC meeting after
the appointment of the additional members, (i) the presence in person of
at least two (2) members designated by each Party shall constitute a
quorum and (ii) all members designated by each Party who are present shall
have one collective vote on all matters before the JEC at such meeting.  All decisions of the JEC shall be made by
unanimous vote.  Alternatively, the JEC
may act by written consent signed by the co-chairs.  Whenever any action by the JEC is called for
hereunder during a time period in which the JEC is not scheduled to meet,
either co-chair shall cause the JEC to meet to take the action in the requested
time period by calling a special meeting or the co-chairs shall act by written
consent.  Representatives of each Party
or of its Affiliates who are not members of the JEC may attend JEC meetings as
non-voting observers with the consent of the other Party, which shall not be
unreasonably withheld, conditioned or delayed.

 

(c)                                  Minutes.  The JEC shall keep minutes of its meetings
that record all decisions and all actions recommended or taken in reasonable
detail.  Drafts of the minutes shall be
prepared and circulated to the members of the JEC within a reasonable time
after the meeting, not to exceed ten (10) business days.  The co-chairs shall have responsibility for
the preparation and circulation of draft minutes.  Each member of the JEC shall have the
opportunity to provide comments on the draft minutes.  The minutes shall be approved, disapproved
and revised as necessary at the next JEC meeting or within thirty (30) days of
the meeting whichever occurs first.  Upon
approval, final minutes of each meeting shall be circulated to the members of
the JEC by the co-chairs.

 

2.1.4                                 Responsibilities.  The JEC shall be responsible for overseeing
the conduct and progress of the Research Program, the Development of Primary
Development 

 

24

 

Compounds and related Backup Compounds and the Commercialization of
Licensed Products.  Without limiting the
generality of the foregoing, the JEC shall have the following responsibilities:

 

(a)                                  approving each Annual
Research Plan, including amendments
thereto;

 

(b)                                 overseeing
the JRC’s and USCC’s performance of its respective responsibilities;

 

(c)                                  reviewing and overseeing Development activities
and serving as a forum for discussing Development of Primary Development
Compounds, Backup Compounds and Licensed Products ;

 

(d)                                 reviewing and overseeing Commercialization of
Licensed Products and serving as a forum for discussing the worldwide plan and
strategy for Commercialization of Licensed Products;

 

(e)                                  resolving all JRC
matters that are in dispute other than those
relate to a DS Decision or ARQULE Decision; and

 

(f)                                    making such other
decisions as may be delegated to the JEC pursuant to this Agreement or by
mutual written agreement of the Parties after the Effective Date.

 

2.1.5                                 Dispute Resolution.  The JEC members shall use reasonable efforts
to reach agreement on any and all matters. 
In the event that, despite such reasonable efforts, agreement on a
particular matter cannot be reached by the JEC within * (*)
days after the JEC first meets to consider such matter (each such matter, a “Disputed Matter”), then, (a) if the
Disputed Matter involves a DS Decision, DS shall have the right to make the
final decision on such Disputed Matter but shall only exercise such right in
good faith after full consideration of the positions of both Parties; (b) if
the Disputed Matter involves an ARQULE Decision, ARQULE shall have the right to
make the final decision on such Disputed Matter but shall only exercise such
right in good faith after full consideration of the positions of both Parties
and (c) if the Disputed Matter involves a Unanimous Decision, (i) the
co-chairs of the JEC shall refer such Disputed Matter to the CEO of ARQULE and
the Head of R&D Division of DS
(the “Designated Senior Officers”),
who shall promptly initiate discussions in good faith to resolve such Disputed
Matter and (ii) if such Disputed Matter is not resolved by the Designated
Senior Officers within * (*) days after the date the Designated
Senior Officers first met to consider such 

 

25

 

Disputed Matter or * (*) days after the date the JEC first met to
consider such Disputed Matter, whichever is later, the Disputed Matter shall be resolved in
accordance with Section 13.1.

 

2.2                                 Joint Research Committee.

 

2.2.1                                 Establishment.  Within fifteen (15) days of the Effective
Date, ARQULE and DS shall establish the Joint Research Committee.  Unless otherwise agreed by the Parties, the
term for the JRC shall commence as of the Effective Date and continue until the later of (i) the last day of
the Research Collaboration Period, or (ii) the
expiration of the last DS Option Period. 
The JRC shall have and perform the responsibilities set forth in Section 2.2.4.

 

2.2.2                                 Membership.  Upon establishment of the JRC, each Party shall
designate in writing, in its sole discretion, three (3) or such other
equal number of members as the Parties agree, to the JRC (which members shall
be employees of such Party or its Affiliates). 
Unless otherwise agreed by the Parties, one of DS’s designees and one of
ARQULE’s designees shall be designated as the co-chairs of the JRC.  Each Party shall have the right at any time
to substitute individuals, on a permanent or temporary basis, for any of its
previously designated representatives to the JRC, by giving written notice to
the other Party.  Initial designees of
the Parties to the JRC shall be designated by each Party by written notice to
the other Party within fifteen (15) days following the Effective Date.

 

2.2.3                                 Meetings.

 

(a)                                  Schedule of Meetings;
Agenda.  The JRC shall establish a
schedule of times for regular meetings, in no event less frequently than once
per Calendar Quarter and at such other times as the Parties agree during the
Research Collaboration Period taking into account, without limitation, the
planning needs of the Research Program and its responsibilities.  In urgent cases special meetings may be
convened by any member upon thirty (30) days (or, if such meeting is proposed
to be conducted by teleconference, upon ten (10) days) written notice to
the other members; provided, that, (i) notice of any such special meeting
may be waived at any time, either before or after such meeting, and such waiver
shall be the equivalent to the giving of a valid notice hereunder, and (ii) attendance
of any member at a special meeting shall constitute a valid waiver of notice
from such member.  Regular and special
meetings of the JRC 

 

26

 

may be held in person or by teleconference or videoconference; provided,
that, meetings held in person shall alternate between the respective offices of
the Parties.  The co-chairs of the JRC
shall prepare and circulate to each JRC member an agenda for each JRC meeting
no later than one (1) week prior to such meeting.  Notwithstanding the foregoing, the JRC shall
meet face-to-face at least twice per Calendar Year, one of which shall be held
in the United States and one of which shall be held in Japan.

 

(b)                                 Quorum; Voting;
Decisions.  At each JRC meeting, (i) the
presence in person of at least two (2) members designated by each Party shall
constitute a quorum and (ii) all members designated by each Party who are
present shall have one collective vote on all matters before the JRC at such
meeting.  All decisions of the JRC shall
be made by unanimous vote. 
Alternatively, the JRC may act by written consent signed by the
co-chairs.  Whenever any action by the
JRC is called for hereunder during a time period in which the JRC is not
scheduled to meet, either co-chair shall cause the JRC to meet to take the
action in the requested time period by calling a special meeting or the
co-chairs shall act by written consent. 
Representatives of each Party or of its Affiliates who are not members
of the JRC (including, without limitation, the Patent Coordinators) may attend
JRC meetings as non-voting observers without the consent of the other Party.

 

(c)                                  Minutes.  The JRC shall keep minutes of its meetings
that record all decisions and all actions recommended or taken in reasonable
detail.  Drafts of the minutes shall be
prepared and circulated to the members of the JRC within a reasonable time
after the meeting, not to exceed ten (10) business days.  The co-chairs of the JRC shall have
responsibility for the preparation and circulation of draft minutes.  Each member of the JRC shall have the
opportunity to provide comments on the draft minutes.  The minutes shall be approved, disapproved
and revised as necessary at the next JRC meeting.  Upon approval, final minutes of each meeting
shall be circulated to the members of the JRC by the co-chairs of the JRC.

 

2.2.4                                 Responsibilities.  The JRC shall be responsible for overseeing
the conduct and progress of the Research Program.  Without limiting the generality of the
foregoing, the JRC shall have the following responsibilities:

 

27

 

(a)                                  establishing the
objectives of and the appropriate allocation of resources (including personnel)
to the Research Program;

 

(b)                                 preparing
or directing the preparation of and submitting
all Annual Research Plans to the JEC for
approval;

 

(c)                                  preparing or
directing the preparation of and submitting
amendments to Annual Research Plans to
the JEC for approval;

 

(d)                                 monitoring the
progress of each Annual Research Plan and of each Party’s activities under each
Annual Research Plan;

 

(e)                                  providing a forum for
consensual decision making with respect to the Research Program;

 

(f)                                    reviewing data,
reports or other information submitted by either Party with respect to work
conducted in the Research Program;

 

(g)                                 preparing for the JEC
on at least a semi-annual basis a progress report for the Research Program in
reasonable detail and providing to the JEC such additional information as it
may request;

 

(h)                                 recommending
amendments to the Advancement Criteria applicable to any Research Stage as it deems appropriate in furtherance
of the objectives of the Research Program, as set forth in the applicable
Annual Research Plan;

 

(i)                                     determining at the
completion of each Research Stage whether or not to Advance any Collaboration
Compounds based on the applicable Advancement Criteria;

 

(j)                                     determining
whether each Collaboration
Compound satisfies the Minimum
Requirement;

 

(k)                                  providing a forum for
the Parties to exchange and review scientific information and data relating to
the Collaboration; and

 

28

 

(l)                                     making any other
decisions as may be delegated to the JRC pursuant to this Agreement or by
mutual written agreement of the Parties after the Effective Date and performing
such activities as may be delegated to the JRC pursuant to this Agreement, or
by mutual written agreement of the Parties after the Effective Date.

 

2.2.5                                 Dispute Resolution.  The JRC members shall use reasonable efforts
to reach agreement on any and all matters. 
In the event that, despite such reasonable efforts, agreement on a
particular matter cannot be reached by the JRC within * (*)
days after the JRC first meets to consider such matter, the matter shall be
referred to the JEC for resolution pursuant to Section 2.1.5.

 

2.3                                 US  Co-Commercialization
Committee.

 

2.3.1                                 Establishment.  As soon as practicable following the exercise
by ARQULE of a Co-Commercialization Option with respect to a Co-Commercialized
Licensed Product in accordance with Section 4.10.2(a)(ii), ARQULE and DS
shall establish the US Co-Commercialization Committee which shall have and perform the
responsibilities set forth in Section 2.3.4.

 

2.3.2                                 Membership.  ARQULE shall be entitled to designate one
(1) representative to the USCC (who shall be an employee of ARQULE or its Affiliates).  Unless otherwise agreed by the Parties, one
of DS’s designees shall be designated by DS as the chair.  Each Party shall have the right at any time
to substitute individuals, on a permanent or temporary basis, for any of its previously
designated representatives to the USCC by giving written notice to the other
Party.  Initial designees of the Parties
to the USCC shall be designated by each Party by written notice to the other
Party as soon as reasonably practicable following the establishment of the
USCC.

 

2.3.3                                 Meetings.

 

(a)                                  Schedule of
Meetings; Agenda.  The USCC shall
establish a schedule of times for meetings. 
If formed, in no event shall the USCC meet less frequently than twice per Calendar Year. 
Meetings of the USCC may be
held in person or by teleconference or 

 

29

 

videoconference.  The chair of the USCC shall prepare and
circulate to each USCC member an agenda for each USCC meeting not later than
one (1) week prior to such meeting.

 

2.3.4                                 Responsibilities.  The primary
role of the USCC shall be to provide a forum to review and monitor the
progress of all Co-Commercialization
Activities with respect to the
Co-Commercialized Licensed Products in the Co-Commercialization Territory.

 

2.4                                 Alliance Management.  Within fifteen (15) days of the Effective
Date, each Party shall appoint a person who shall oversee contact between the
Parties for all matters related to the Collaboration between meetings of the
Committees and shall have such other responsibilities as the Parties may
mutually agree in writing after the Effective Date (each, an “Alliance Manager”).  Each Party may replace its Alliance Manager
at any time by notice in writing to the other Party.

 

2.5                                 Interests of the Parties.  All decisions made and all actions taken by
any Committee or the officers of the Parties pursuant to Section 2.1.5
shall be made or taken with due interest of both Parties considered in good
faith.  This provision shall not be
subject to arbitration or other dispute resolution under this Agreement.

 

2.6                                 Appointment Not an Obligation; No Breach.  The appointment of any members of a Committee
and Alliance Managers is a right of each Party and not an obligation and shall
not be a “deliverable” as defined in EITF Issue No. 00-21.  Each Party shall be free to determine not to
appoint members to any Committee and not to appoint an Alliance Manager.  If a Party (the “non-Appointing Party”) does not appoint members of any
Committee or an Alliance Manager, it shall not be a breach of this Agreement,
nor shall any consideration be required to be returned, and the other Party
shall have the votes and the decision-making power of the non-Appointing Party
unless and until such members are appointed by the non-Appointing Party.

 

3.                                      RESEARCH PROGRAM

 

3.1                                 Objectives of the Research Program.  The objectives of the Research Program shall
be the identification and preclinical development of Collaboration Compounds
that exhibit activity against DS Targets.

 

30

 

3.2                                 Annual Research Plans.  The Annual Research Plan for the first
Contract Year has been agreed upon in writing by the Parties.  An Annual Research Plan for each subsequent
Contract Year for each DS Target shall be prepared by or at the direction of
the JRC, approved by the JEC no
later than the end of the third quarter of the preceding Contract Year and
attached as an exhibit to the minutes of the JEC meeting at which such JEC
approval is obtained.  As soon as
practicable after the designation of any additional DS Target the JRC shall
prepare an update to the Annual Research Plan as provided in Section 3.5.2(d).  Each Annual Research Plan shall: (a) set
forth (i) the research objectives and activities to be performed for each
Research Stage of the Research Program for the Contract Year covered by the
Annual Research Plan with reasonable specificity; (ii) the research plans
and protocols to be employed to complete each such Research Stage, including
without limitation a description of the types of assays (in silico, in vitro or in vivo) to be
developed and used by the Parties; (iii) the Advancement Criteria that the
JRC will utilize to evaluate the results of each Research Stage and to
determine whether to Advance Collaboration Compounds to the next Research Stage;
(iv) the Party that shall be responsible for performing the activities
described for each Research Stage; (v) a timeline for such activities
(including any Third Party Costs to be incurred for outsourced Research
activities managed by ARQULE or DS); and (vi) with respect to ARQULE
Research Activities, the applicable FTE Funding Commitment; and (b) shall
be consistent with the other terms of this Agreement.  Subject to the FTE Funding Commitment, any
Annual Research Plan may be amended from time to time by the JRC and approved by the JEC pursuant to Section 2.1.4.  Each amendment, modification and update to
the Annual Research Plan shall be set forth in a written document prepared by,
or at the direction of, the JEC,
shall specifically state that it is an amendment, modification or update to the
Annual Research Plan and shall be attached to the minutes of the meeting of the
JEC at which such amendment,
modification or update was approved.

 

3.3                                 Conduct of Research Program.

 

3.3.1                                 ARQULE Responsibilities.

 

(a)                                  ARQULE
Research Activities.  During the
Research Collaboration Period, ARQULE shall use Commercially Reasonable Efforts
to conduct the ARQULE Research 

 

31

 

Activities using the number of FTEs set forth in the Annual Research
Plans.  For purposes of clarity, unless
otherwise set forth in any Annual Research Plan, (i) ARQULE shall be
solely responsible for the conduct of (x) all Feasibility Assessment
Activities (y) all Assay Development and Hit Generation activities and (z) all Hit to Lead
activities to be conducted as part of the Research Program; and (ii) subject
to Section 3.3.1(b), ARQULE shall be jointly responsible, together with
DS, for the conduct of all Lead Optimization activities and Preclinical Studies to be conducted as part of the
Research Program.

 

(b)                                 Toxicology Studies.  Without limiting the generality of Section 3.3.1(a),
within * (*) days following the
designation by DS of a Primary Development Compound, DS shall conduct the
Toxicology Studies as set forth in the Annual Research Plan applicable to such
Primary Development Compound.  Toxicology
Studies may only be conducted on a Primary Development Compound or a Backup
Compound.

 

3.3.2                                 DS Responsibilities.  During the Research Collaboration Period, DS
shall: (a) pay ARQULE the applicable Quarterly FTE Payment for all ARQULE
Research Activities in accordance with Section 5.3.1; (b) commit such
resources as are reasonably necessary to conduct the DS Research Activities set
forth in the Annual Research Plan; (c) use Commercially Reasonable Efforts
to conduct the DS Research Activities set forth in the Annual Research Plan;
and (d) bear the cost of all Toxicology Studies.  For purposes of clarity, unless otherwise set
forth in any Annual Research Plan, DS shall be jointly responsible, together
with ARQULE, for the conduct of Lead Optimization activities and Preclinical Studies to be conducted as part of the
Research Program as set forth in the Annual Research Plan.  DS may participate in biological assays for
the purpose of verification of Collaboration Compound activity in the Hit to
Lead Research Stage.

 

3.3.3                                 Compliance and Funding.  Each Party shall perform its obligations
under each Annual Research Plan in compliance in all material respects with all
Applicable Laws.  For purposes of
clarity, with respect to each activity performed under an Annual Research Plan
that will or would reasonably be expected to generate data to be submitted to a
Regulatory Authority in support of a Regulatory Filing or Drug Approval
Application, the Party performing such activity shall comply in all material
respects with the regulations and guidance of the FDA 

 

32

 

that constitute Good Laboratory Practice or Good Manufacturing Practice
(or, if and as appropriate under the circumstances, International Conference on
Harmonization (ICH) guidance or other comparable regulation and guidance of any
Regulatory Authority in any country or region in the Territory).  Each Party shall be solely responsible for
paying the salaries and benefits of its employees.

 

3.3.4                                 Cooperation.  Scientists at ARQULE and DS shall cooperate
in the performance of the Research Program and, subject to the terms of this
Agreement and any confidentiality obligations to Third Parties, shall exchange
such information and materials as are reasonably necessary for the other Party
to perform its obligations under any Annual Research Plan and all data
resulting from performance of the Research Program.

 

3.4                                 Records.

 

3.4.1                                 Record Keeping.

 

(a)                                  Research Program
Records.  Each Party shall maintain
complete and accurate records of its activities in the Research Program in
sufficient detail, in good scientific manner and otherwise in a manner that
reflects all work done and results achieved. 
Subject to Article 6, each Party shall provide the other Party with
access during normal business hours and upon reasonable advance notice to
review such records to the extent reasonably required for such other Party’s
performance of its obligations under this Agreement; provided, that, the
non-reviewing Party may redact information not relevant to the Research Program
prior to such review.

 

(b)                                 Record Keeping
Policies.  Without limiting the
generality of Section 3.4.1(a), each Party agrees to maintain a policy
that requires its employees and consultants to record and maintain all data and
information developed during the Research Program.

 

3.4.2                                 Reports.  Each Party shall keep the JRC regularly
informed of the progress of the Research Program.  Without limiting the generality of the
foregoing, each Party shall, at least once each Calendar Quarter during the
Research Collaboration Period, (a) provide reports to the JRC in
reasonable detail regarding the status of its activities under the Research 

 

33

 

Program, (b) advise the JRC of its identification of Collaboration
Compounds pursuant to Section 3.6 and provide the JRC with any supporting
data applicable to such Collaboration Compounds, (c) provide the JRC with
the results of activities conducted in the Research Program with respect to
each Collaboration Compound so as to enable the JRC to determine whether such
Collaboration Compound meets the Advancement Criteria and should be Advanced by
the JRC to the next Research Stage, (d) provide the JRC with the results
of the Toxicology Studies with respect to each Primary Development Compound or Backup Compound so as to enable DS
to determine whether to exercise the DS Option applicable thereto (such notice,
the “Toxicology Studies Results”), (e) provide the JRC with such additional
information that it has in its possession as may be reasonably requested from
time to time by the JRC, and (f) provide the JRC, on or before * (*)
days from the termination or expiration of the Research Collaboration Period,
with a final report regarding all ARQULE Research Activities and DS Research
Activities conducted by ARQULE and DS, respectively, during the Research
Collaboration Period to the extent not previously included in the reports
described above.

 

3.5                                 Selection of DS Targets.

 

3.5.1                                 Initial DS Targets.  The Parties hereby acknowledge and agree that
* (*) Targets have been designated by the Parties as DS Targets
as of the Effective Date and are included on the DS Target List (the “Initial DS Targets”).

 

3.5.2                                 Substitution of DS Targets.

 

(a)                                  Discontinuation
and Replacement of DS Targets.  If,
at any time during the Research Collaboration Period, DS determines that it
wishes to discontinue further research with respect to a DS Target (i) DS
shall provide written notice of such determination to ARQULE and the JRC, which
notice shall identify the DS Target and state the reason for such
determination; (ii) all activities (including all ARQULE Research Activities)
being conducted with respect to such DS Target under the Research Program shall
promptly cease; and (iii) such DS Target shall be deemed to be an
Abandoned DS Target as of the date of such written notice.

 

(b)                                 Designation of
Blocked Targets.  As soon as
practicable and in any event within * after receipt of notice pursuant to Section 3.5.2(a),
ARQULE shall 

 

34

 

provide to DS a written notice indicating whether or not there are any
Blocked Targets; and if there are any Blocked Targets, ARQULE shall (i) provide
to an independent third party attorney identified by ARQULE and reasonably
acceptable to DS (the “Gatekeeper”)
a written notice identifying all Targets that are Blocked Targets for purposes
of this Agreement (such notice, the “Blocked
Target List”) and (ii) provide DS with written confirmation
that it has provided the Blocked Target List to the Gatekeeper.

 

(c)                                  Designation of
Available Targets.  DS may, at any
time after its receipt from ARQULE of the written confirmation that the Blocked
Target List has been provided to the Gatekeeper, propose up to * (*)
Targets that DS desires to include as DS Targets as part of the Research
Program (each, a “Desired Target”)
by providing written notice to the Gatekeeper which notice shall identify such
Desired Targets (each, a “Desired Target
Notice”).  As soon as
practicable and in any event within *
(*) days of the Gatekeeper’s
receipt of a Desired Target Notice, the Gatekeeper shall provide DS with a
written response (each, an “Available Target
Response”) which shall identify those Desired Targets listed on the
Desired Target Notice that are not Blocked Targets (each such Target, an “Available Target”) and those Desired
Targets listed on the Desired Target Notice that are Blocked Targets.  In the event that the Gatekeeper identifies
one or more Desired Targets as Blocked Targets in the Available Target
Response, DS shall have the right to propose one (1) additional Desired
Target in a Desired Target Notice pursuant to this Section 3.5.2(c) for
each such Desired Target that is identified as a Blocked Target until such time
as an aggregate of * (*) Available Targets have been identified
in the Available Target Responses. 
Notwithstanding the foregoing in the event that ARQULE determines that
there are no Blocked Targets, it shall provide DS with written notice and DS
shall thereafter have the right to provide the Desired Target Notice
contemplated by this Section 3.5.2(c) directly to ARQULE and all
Desired Targets listed on the Desired Target Notice shall be deemed to be
Available Targets for purposes of this Agreement.

 

(d)                                 Feasibility
Assessment Activities and Target Replacement.  As soon as practicable and in any event
within * of the identification by the Gatekeeper (or by DS if ARQULE’s notice
indicates that there are no Blocked Targets) of * (*) Available
Targets pursuant to Section 3.5.2(c), ARQULE shall commence the
Feasibility 

 

35

 

Assessment Activities with respect to such Available Targets.  As soon as practicable following the
completion of such Feasibility Assessment Activities, ARQULE shall provide DS
with written notice which shall identify those Available Targets that ARQULE
reasonably believes would be amenable to the application of the AKIP Platform
Technology (each, a “Validated Target”).  DS shall have the right within * of ARQULE’s
identification of the Validated Targets to replace the Abandoned DS Target with
one of the Validated Targets by providing written notice to ARQULE, which
notice shall identify such Validated Target (each, a “Validated Target Notice”).  As soon as practicable after the receipt of
such Validated Target Notice, (i) such Validated Target shall be added to
the DS Target List and shall be deemed to be a DS Target for purposes of this
Agreement and (ii) the JRC shall prepare an update to the Annual Research
Plan to identify the Advancement Criteria applicable to such DS Target and
describe the ARQULE Research Activities to be conducted with respect to such DS
Target.

 

(e)                                  Limitation on DS
Targets.  Notwithstanding anything to
the contrary set forth in this Agreement, DS shall have the right to designate
an aggregate of up to * (*) DS
Targets pursuant to this Agreement, consisting of (i) the * (*)
Initial Targets designated by the Parties on the Effective Date and (ii) up
to * (*) Validated Targets designated by DS to replace Abandoned DS Targets pursuant to Section 3.5.2(d);
provided, that, in the event that DS designates * (*) DS Targets (i.e., the *
(*) Initial DS Targets and * (*)
Validated Targets selected as replacements) as Abandoned DS Targets pursuant to Section 3.5.2(d) on
or before the first anniversary of the Effective Date, DS shall have the right
to designate an additional * (*) DS Targets, or an aggregate of up to * (*)
DS Targets, pursuant to the procedures set forth in this Section 3.5.2.  For clarity, in no event shall ARQULE be
obligated to conduct ARQULE Research Activities on more than * (*)
DS Targets at any give time.

 

3.5.3                                 Termination of Replacement Right.  Notwithstanding anything to the contrary in
this Agreement, DS’s right to replace DS Targets pursuant to Section 3.5.2
shall terminate on the date of termination or expiration of the Research
Collaboration Period, unless extended by mutual agreement of the Parties.

 

36

 

3.6                                 Designation and Advancement of Collaboration Compounds.
During the Research Collaboration Period, each Party shall provide the other
Party and the JRC with written notice of its identification in the conduct of
the Research Program of (a) any Collaboration Compound that such Party
reasonably believes has an IC50 less than
*μM against a DS Target and satisfies the Advancement
Criteria to Advance to Hit to Lead (a “Hit”), (b) any Collaboration
Compound that such Party reasonably believes should be Advanced, and any
Collaboration Compound that such Party reasonably believes to satisfy the
criteria for a Primary Development Compound which notice shall
(i) identify the Collaboration Compound with its chemical and biological data, and (ii) summarize
briefly the results of the non-clinical studies and assessments on such
Collaboration Compound completed by or on behalf of such Party under the
Research Program (each, a “Collaboration
Compound Notice”). Within *
(*) days after its receipt of each
such Collaboration Compound Notice from a Party pursuant to this
Section 3.6, the JRC shall review the data and information and determine
whether such Collaboration
Compound satisfies the Minimum
Requirement and/or to Advance such Collaboration Compound to the next
Research Stage and/or to designate such Collaboration Compound as satisfying
the criteria for designation as a Primary Development Compound. Once the JRC
has designated such Collaboration Compound as satisfying the criteria for
designation as a Primary Development Compound, DS may designate such
Collaboration Compound as a Primary Development Compound by written notice to
ARQULE.

 

3.7                                 Supply of Collaboration Compounds. Unless
otherwise agreed by the Parties, (a) ARQULE shall be responsible for
manufacturing and providing Collaboration Compounds for use in the Research
Program through the Hit to Lead Research Stage, (b) if (i) the Lead
Optimization activities are DS Research Activities, DS shall be responsible for
manufacturing and providing any Collaboration Compounds discovered or
identified in such Lead Optimization activities for use in the Research Program
in the Lead Optimization Research Stage, and (ii) if the Lead Optimization
activities are ARQULE Research Activities, ARQULE shall be responsible for manufacturing
and providing any Collaboration Compounds discovered or identified in such Lead
Optimization activities for use in the Research Program in the Lead
Optimization Research Stage, and (c) DS shall be responsible for
manufacturing and providing 

 

37

 

Collaboration Compounds for use
in the Research Program in the Preclinical Studies Research Stage and for any
other research, Development or Commercialization activities.

 

3.8                                 Supply of Proprietary Materials. From
time to time during the Research Collaboration Period, either Party (the “Transferring Party”) may supply the other
Party (the “Recipient Party”) with
Proprietary Materials of the Transferring Party for use in the Research Program.
In connection therewith, each Recipient Party hereby agrees that (a) it
shall not use such Proprietary Materials for any purpose other than exercising
its rights or performing its obligations under this Agreement; (b) it
shall use such Proprietary Materials only in compliance with all Applicable
Laws; (c) it shall not transfer any such Proprietary Materials to any
Third Party without the prior written consent of the Transferring Party, except
as expressly permitted by this Agreement; (d) the Recipient Party shall
not acquire any right, title or interest in or to such Proprietary Materials as
a result of such supply by the Transferring Party; and (e) upon the
expiration or termination of the Research Collaboration Period, the Recipient
Party shall, if and as instructed by the Transferring Party, either destroy or
return any such Proprietary Materials that are not the subject of the grant of
a continuing license hereunder.

 

3.9                                 Determination of IC50. Whenever this
Agreement refers to the IC50 of a Compound, such IC50 shall be determined
through the application of the Kinase
Inhibition Assays.

 

3.10                           Research Collaboration Period. The
Research Program shall commence on the Effective Date and continue until the
expiration of the Research Collaboration Period. Notwithstanding the foregoing,
the Research Program may be terminated prior to the expiration of the Research
Collaboration Period (a) by either Party (i) on * (*)
days’ prior written notice to the other Party at any time following the
exercise by DS of * (*) DS Options or (ii) at any time on
or after the first anniversary of the Effective Date, on one-hundred * (*) days’ prior written notice to the
other Party if all DS Targets that are included in the Research Program have
been discontinued by DS; and (b) by DS at any time on or after the first
anniversary of the Effective Date upon not less than one hundred * (*) days’ prior written notice to ARQULE.

 

38

 

4.                                      DEVELOPMENT
PROGRAM; COMMERCIALIZATION

OF LICENSED PRODUCTS

 

4.1                                 Objectives of the Development Program. The
objectives of the Development Program shall be the Development and
Commercialization of Licensed Products in the Field and in the Territory.

 

4.2                                 Responsibility for Development and Commercialization
of Licensed Products. Except for any Development activities that DS and ARQULE mutually
agree should be undertaken by ARQULE (which shall be paid for by DS at the FTE
Rate), DS shall have the sole right and responsibility, including the right to make any decision at its sole discretion,
at its sole expense, for all aspects of the Development of Licensed Products,
and, subject to the ARQULE Co-Commercialization Option, all aspects of the
Commercialization of Licensed Products, in the Field in the Territory,
including, without limitation, the conduct of: (a) all IND-enabling
non-clinical studies that are outside of the Research Program; (b) all
activities related to human clinical trials (including, without limitation,
Phase I Clinical Trials, Phase II Clinical Trials and Phase III Clinical
Trials); (c) all activities relating to the manufacture and supply of
Licensed Products (including all required process development and scale up work
with respect thereto); and (d) all pre-marketing, marketing, promotion,
sales, distribution, import and export activities (including securing
reimbursement, conducting sales and marketing activities and any post-marketing
trials or post-marketing safety surveillance and maintaining databases). Without
limiting the generality of the foregoing, DS shall have the sole right and
responsibility, at its sole expense, (i) to make all Regulatory Filings
for Licensed Products and file all Drug Approval Applications and otherwise
seek all Regulatory Approvals for Licensed Products, as well as to conduct all
correspondence and communications with Regulatory Authorities regarding such
matters, subject in each case to Section 4.10.2, (ii) to report all
Adverse Events to Regulatory Authorities if and to the extent required by
Applicable Laws, and (iii) to cease further Development and/or
Commercialization of Licensed Products and to Develop and Commercialize Backup
Compounds as Licensed Products. All Regulatory Approvals for Licensed Products
shall be owned by DS, subject to Section 10.3.

 

4.3                                 Development Plans. An initial
development plan for each Licensed Product shall be prepared by DS and
submitted to the JEC for its
review within * (*) days of the
date of 

 

39

 

exercise by DS of each DS
Option, and in any event on or prior to the initiation of Development
activities with respect thereto, which shall describe the Development
activities to be conducted. ARQULE may provide input on the development plan and DS will give good faith consideration to such input. Each
amendment or modification of each development plan for each Licensed Product
that is prepared by DS shall be submitted to the JEC members for its review within *
(*) days after it is prepared. ARQULE
may provide input on amendments and modifications to the development plan and
DS will give good faith consideration to such input.

 

4.4                                 Commercial Assessment. Prior to
commencing any Phase II Clinical Trial or Phase III Clinical Trial of any
Licensed Product, DS will perform a commercial assessment of the market opportunities
in various indications for such Licensed Product throughout the Territory
(which may be performed by internal personnel or external consultants) and will
provide a copy thereof to ARQULE within *
(*) days after the completion
thereof.

 

4.5                                 Licensed Product Commercialization Plans.
Within one hundred and eighty (180) days after the Initiation of a Phase III
Clinical Trial with respect to each Licensed Product, DS shall prepare and
provide to the JEC for its review a Licensed Product Commercialization Plan for
each such Licensed Product, and shall inform the JEC with respect to all
significant Commercialization decisions to be made with respect to such
Licensed Product. ARQULE may provide input on the Licensed Product
Commercialization Plan and DS will give good faith consideration to such input.

 

4.6                                 Manufacture and Supply of Licensed Products.
Unless otherwise agreed to by the Parties, DS shall be responsible, at its sole
expense, for manufacturing, either by itself, its Affiliates or by a Third Party
contract manufacturing organization, each Licensed Product that is Developed
and Commercialized under this Agreement. DS shall report regularly to the JEC
on CMC plans and activities, development of manufacturing processes and any
plans for outsourcing (including the identity of any Third Party to which any
part of manufacture of Licensed Products is outsourced.)

 

40

 

4.7                                 Development
and Commercialization Diligence.

 

(a)                                  Diligence
Obligations. DS shall exercise Commercially Reasonable Efforts during the
Term to conduct the DS Development Activities, and to Develop and Commercialize
Licensed Products targeted at each DS Target in the Field and in the Territory.

 

(b)                                 Effect of Breach of
Diligence Obligations. If ARQULE at any time reasonably believes that DS, on a Licensed Product-by-Licensed
Product basis, is not meeting its diligence obligations pursuant to
Section 4.7(a), ARQULE may give written notice to DS in the form of
detailed reasons that would support the proposition that DS is not meeting such diligence obligation and proposed activities that would satisfy the
diligence requirement. In such event, DS shall provide such written
justification and/or proposed plans for
curing the alleged breach to ARQULE responding to the issues raised by ARQULE within * after such notice
is given. If ARQULE agrees that the plan
proposed by DS will completely cure the alleged breach, DS shall have * to begin implementing such plan. In the
event that ARQULE does not receive such justification within such *, does not agree with such
justification, or DS has not begun
implementing its plan to cure the alleged breach within * of receiving agreement from ARQULE, then
ARQULE may submit any unresolved matters
for full arbitration under Section 13.1.1. If the arbitrator resolves any
unresolved matters in favor of ARQULE, ARQULE shall have the right to treat such finding as a breach of Section 4.7(a) and
take action to terminate the license with respect to such DS Target
and/or Licensed Product in accordance with Section 10.2.2 without further
arbitration.

 

4.8                                 Compliance. DS shall perform DS Development Activities (and if DS and
ARQULE agree that ARQULE shall perform any Development activities, ARQULE shall
perform such activities) in good
scientific manner and in compliance in all material respects with all
Applicable Laws. For purposes of clarity, with respect to such Development activities that will or
would reasonably be expected to generate data to be submitted to a Regulatory
Authority in support of a Regulatory Filing or Drug Approval Application, the
Party performing such activity shall comply in all material respects with, if
and as applicable, the regulations and

 

41

 

guidance of the FDA that
constitute Good Laboratory Practice, Good Manufacturing Practice or Good
Clinical Practices (or, if and as appropriate under the circumstances,
International Conference on Harmonization (ICH) guidance or other comparable
regulation and guidance of any Regulatory Authority in any country or region in
the Territory). Each Party shall be solely responsible for paying the salaries
and benefits of its employees conducting its Development activities.

 

4.9                                 Exchange
of Reports; Information; Updates.

 

4.9.1                        Development Program Reports. DS shall
keep the JEC regularly informed of
the progress of its efforts to Develop Licensed Products in the Field and in
the Territory. Without limiting the generality of the foregoing, DS shall, at
least once each six (6) months of each Calendar Year, provide the JEC with reports in reasonable detail
regarding the status of all preclinical IND-enabling studies and activities
(including toxicology and pharmacokinetic studies), clinical trials and other
activities conducted under the Development Program. In addition, DS shall
designate a senior member of its Development organization (who may be the DS
Alliance Manager if the DS Alliance Manager is a senior member of the DS
Development organization) with responsibility for the Development of Licensed
Products to act as a liaison with ARQULE and who shall respond to inquiries
from ARQULE on Development activities and progress.

 

4.9.2                        Commercialization Reports. DS shall
keep the JEC regularly informed of the progress of DS’s efforts to
Commercialize Licensed Products in the Field in the Territory through periodic
updates. Without limiting the generality of the foregoing, DS shall provide the
JEC with annual written updates to each Licensed Product Commercialization
Plan, which shall (a) summarize DS’s efforts to Commercialize Licensed
Products, (b) identify the Regulatory Filings and Drug Approval
Applications with respect to such Licensed Product that DS or any of its
Affiliates or Sublicensees have filed, sought or obtained in the prior twelve
(12) month period or reasonably expect to make, seek or attempt to obtain in
the following twelve (12) month period and (c) summarize all clinical and
other data generated by DS with respect to Licensed Products. In addition, DS
shall provide such additional information that it has in its possession

 

42

 

as may be
reasonably requested by ARQULE regarding the Commercialization of any Licensed
Product, which request shall not be made more than once each Calendar Year.

 

4.9.3                        Review of Regulatory Filings and Correspondence.
Notwithstanding anything to the contrary in this Agreement, ARQULE shall have
the right, upon written notice, to review all Regulatory Filings made by DS and
all correspondence between DS and Regulatory Authorities at ARQULE’s sole
expense.

 

4.10                           Development
and Commercialization Rights and Restrictions.

 

4.10.1                  Development and Commercialization Rights in the Field.
Except as provided in Section 4.10.2, DS shall have the exclusive right
and responsibility, at its sole cost and expense, during the Term to Develop
Licensed Products and Commercialize Licensed Products in the Territory for use
in the Field.

 

4.10.2                  Co-Commercialization Right.

 

(a)                                  Co-Commercialization
Option.

 

(i)                                     Notice of Phase
III Trial. DS shall give ARQULE written notice of its intent to Initiate
the first Phase III Clinical Trial of each Licensed Product at least * (*)
days prior to the anticipated date of such Initiation.

 

(ii)                                  Exercise of
Co-Commercialization Option. ARQULE shall have the option (the “Co-Commercialization Option”), in its sole
discretion, to Co-Commercialize any Licensed Product in the
Co-Commercialization Territory by providing written notice to DS (the “Co-Commercialization Option Notice”) at any
time during the Co-Commercialization Option Period, which notice shall identify
the Licensed Product (each, such Licensed Product, a “Co-Commercialized Licensed Product”). If
ARQULE exercises its Co-Commercialization Option with respect to any Licensed
Product, (A) such Licensed Product will be deemed to be a
Co-Commercialized Licensed Product for purposes of this Agreement, and
(B) the Parties shall (1) negotiate a Co-Commercialization Agreement
for such Co-Commercialized Licensed Product in accordance with
Section 4.10.2(a)(iii) and (2) form, as

 

43

 

soon as practicable thereafter
but in any event within * (*)
days, the US Co-Commercialization Committee in
accordance with Section 2.3.

 

(iii)                               Negotiation of
Co-Commercialization Agreement.

 

(A)                              Preparation,
Negotiation, Execution and Delivery. Within *
(*) days after ARQULE provides a
Co-Commercialization Option Notice, the Parties shall commence the preparation
of a co-commercialization agreement
(the “Co-Commercialization Agreement”) which
shall provide for the terms applicable to such Co-Commercialization and shall
contain the provisions set forth below and such additional provisions as are
usual and customary for inclusion in a co-commercialization agreement between
companies in the pharmaceutical industry of comparable sizes to the respective
Parties. The Parties hereby acknowledge and agree that the Co-Commercialization
Agreement shall provide that (1) the Parties shall share
Co-Commercialization Activities with respect to such Co-Commercialized Licensed
Product in the Co-Commercialization Territory with ARQULE providing, at its
option, up to * percent (*%)
of all required Primary Detail
Equivalents, but in no
event will the total number of sales representatives of ARQULE exceed * (*), unless otherwise set forth in the
Co-Commercialization Agreement, pursuant to the Co-Commercialization Plan; (2) DS shall be responsible for all account management of community, academic
and Veterans hospitals and associated activities, including, but not limited
to, communication with hospital pharmacy and the pharmacy and therapeutics
committee, formulary management and contracting; (3) DS shall
reimburse ARQULE for the fully-burdened cost incurred by ARQULE’s sales representatives
who engaged in conducting such Co-Commercialization Activities at a negotiated
rate comparable to the then prevailing rate, but in no event shall such rate be in excess of the fully burdened cost
to DS of employing or otherwise
engaging its own representatives who detail its oncology products in the
Co-Commercialization Territory (including incentive compensation for the ARQULE
sales personnel on the same basis as the incentive compensation of DS personnel
in the Co-Commercialization Territory);
(4) such ARQULE sales personnel shall engage in Detailing the Co-Commercialized
Licensed Product and any other product
being co-promoted by ARQULE and DS in the first position, but shall not expend
more than * percent (*%)
of the detailing effort on any other products unless the Parties 

 

44

 

agree, and
shall not promote any other product that is directly competitive with the Co-Commercialized Licensed Product or any other product of DS; provided, that in
the event ARQULE’s sales personnel promote any product that is not being
co-promoted by ARQULE and DS, there shall be a reduction in DS’s reimbursement
of ARQULE’s cost that is proportional to the percentage of detailing effort
expended on products that are not being co-promoted by ARQULE and DS;
(5) the Parties shall create a US Co-Commercialization Committee in accordance with Section 2.3;
and (6) the Parties shall
cooperate to allocate Details between them in good faith, taking into account
geography, settings, provider category and Detailing position, as well as
ARQULE’s sales force composition. Disputes shall be decided by the chair of the
USCC. The Parties shall negotiate
the Co-Commercialization Agreement in good faith and with sufficient diligence
as is required to execute and deliver the Co-Commercialization Agreement within
* (*) days after
ARQULE provides the Co-Commercialization Option Notice.

 

(B)                                Dispute Resolution.
In the event the Parties fail to execute and deliver the Co-Commercialization
Agreement within the * (*) day period described in Section 4.10.2(a)(iii), the
Parties shall (1) use reasonable efforts to complete such negotiations and
to execute and deliver the Co-Commercialization Agreement as soon as possible
after such * (*)
day period and (2) without limiting the generality of the foregoing, after
the expiration of such * (*) day period, each produce a list of issues on which they
have failed to reach agreement and submit its list to the JEC to be resolved in
accordance with Section 2.1.5.

 

(b)                                 Co-Commercialization
Plan. As soon as practicable following the exercise by ARQULE of a
Co-Commercialization Option Notice, DS
shall prepare and provide to the USCC
for its review a co-commercialization plan (the “Co-Commercialization Plan”) for each Co-Commercialized
Licensed Product for the Co-Commercialization Territory  DS
shall update the Co-Commercialization Plan to the USCC not less
than annually. Each amendment or modification of each Co-Commercialization Plan
for each Licensed Product that is 
prepared by DS shall be submitted to the USCC for its review within *
(*) days after it is prepared. ARQULE
may provide input on the
Co-Commercialization Plan and any amendment or modification  and DS will give good faith consideration to
such input.

 

45

 

(c)                                  Labeling.  All product labels for Co-Commercialized
Licensed Products shall include, in equal prominence, the names of both DS and
ARQULE.  The USCC shall have the
responsibility of meeting not less frequently than annually and deciding
whether changes in the particular appearance in labeling of packaging and
containers of Co-Commercialized Licensed Products or in the product information
are required.

 

(d)                                 Cooperation;
Additional Information.  In
connection with ARQULE’s consideration of the exercise of a
Co-Commercialization Option with respect to each Licensed Product, DS shall
provide ARQULE with any information Controlled by DS and reasonably requested
by ARQULE that is necessary or useful to ARQULE in determining whether to
exercise such Co-Commercialization Option.

 

4.11                           Expansion of the Field.  If at any time during the Term of this
Agreement, DS desires to add an additional Indication to the Field with respect
to a Licensed Product for purposes of this Agreement (each, an “Additional Indication”), DS shall give
written notice to ARQULE specifying such Licensed Product and such Additional
Indication or Additional Indications (the “Additional
Indication Notice”).  ARQULE
shall, on or before * (*) days from the date of the Additional
Indication Notice, provide DS with a written response as to whether or not it
Controls the Technology and Patent Rights applicable to such Licensed Product
for such Additional Indication.  If
ARQULE Controls the Technology and Patent Rights to such Licensed Product for
such Additional Indication, the Parties shall for a period of * (*)
days from the date DS receives the written notice from ARQULE negotiate in good
faith to complete and execute any amendment to this Agreement that may be
required to add the Additional Indication or Additional Indications to the
definition of Field for purposes of this Agreement, including, without
limitation, the inclusion of any amendments to the applicable Annual Research
Plans, as well as any amendments to the compensation payable by DS pursuant to Article 5,
that may be required to include such Additional Indication in the Field,
provided, if any Additional Indication is added to the Field, the royalties for
such Additional Indication will be the same as for other indications and such
Additional Indication will be included in the determination of achievement of
milestones subject to milestone payments; provided, that, only one (1) full
set of the milestones to be negotiated pursuant to Section 5.4 will be
paid for each Licensed Product.  If the
Parties are unable to agree upon terms and conditions of such amendment on or
before expiration 

 

46

 

of such * (*)
day period despite their respective good faith efforts, then the Parties shall
refer such matter to JEC for resolution; provided that if the JEC is unable to resolve
the matter it will be referred to the Designated Senior Officers.

 

5.                                      COMPENSATION

 

5.1                                 Upfront Fee.  DS shall pay ARQULE a non-refundable,
non-creditable up-front fee (the “Upfront Fee”)
in the aggregate amount of Fifteen Million Dollars (U.S. $15,000,000), payable
by wire transfer of immediately available funds within five (5) Business
Days of the Effective Date in accordance with wire transfer instructions
provided in writing by ARQULE prior to the Effective Date.

 

5.2                                 License Fee.  For each DS Option exercised by DS pursuant
to Section 7.1, DS shall pay ARQULE a license fee (the “License Fee”)
in the amount of * Dollars (US $*), of which * Dollars (US $*)
shall be paid within * (*) days of the execution of the License
Agreement for the Primary Development Compound and related Backup Compounds
that were the subject of such DS Option, and *
Dollars (US $*) shall be paid
within * (*) days of the Initiation of the first
Phase II Clinical Trial of any Licensed Product under such License Agreement.

 

5.3                                 Research Funding.

 

5.3.1                                 Payment of Research Funding.  In consideration of the performance by ARQULE
of the ARQULE Research Activities under the Research Program as described in Section 3.3,
during the Research Program Period, DS will pay ARQULE the applicable Quarterly
FTE Payment at least * (*) days prior to the first day of each
Calendar Quarter, provided that DS
will pay ARQULE the Quarterly FTE Payment covering the period from the Effective Date through the end of the first
full Calendar Quarter of the Research Collaboration Period within * (*)
days after the Effective Date.

 

5.3.2                                 External Costs.  Each of
ARQULE and DS shall be solely responsible for the payment of all Third Party
research activity costs (“Third Party Costs”),
including, without limitation, contract research organizations, contract
personnel and consultant costs it 

 

47

 

incurs to meet its obligations under an Annual Research Plan; provided
that if the external costs incurred by ARQULE for selectivity screening for any
DS Target exceed * Dollars ($*) or the total amount required to be
expended for selectivity screening by ARQULE exceeds * Dollars ($*),
then ARQULE will notify DS and the Parties shall discuss the plan for any
additional selectivity screening; provided that ARQULE shall not be required to
perform any further selectivity screening.

 

5.4                                 Milestone and Royalty Payments.  The Parties hereby agree, as promptly as
possible on and after the Effective Date, to negotiate in good faith and reach
agreement on an amendment to this Agreement or a separate agreement to be
executed by the Parties which shall include (a) the development milestone payments, tiered sales milestones and tiered
royalties on Net Sales customary
for such agreements and to
be paid by DS under the License Agreement(s) for each Licensed Product
that is Developed and Commercialized under this Agreement and/or a License
Agreement, which milestone payments and royalties shall include the milestone
and royalty payments described in Schedule 3 and shall conform in all
material respects with the terms and conditions set forth in Schedule 3,
and (b) such additional provisions relating to royalty reports, payment
mechanisms and dates, audit rights, overdue payments, taxes, currency
conversion rates and other provisions as are usual and customary for inclusion
in provisions relating to milestones and royalties in collaboration and license
agreements between companies in the pharmaceutical industry of comparable sizes
to the respective Parties.  For purposes of clarity, such
additional provisions shall supplement and shall not materially expand, limit
or change the provisions set forth on Schedule 3.  The Parties shall negotiate such amendment to
this Agreement or separate agreement in good faith and with sufficient
diligence as is required to execute and deliver such amendment or separate
agreement within * (*) days of the Effective Date.  In the event the Parties fail to execute and
deliver the amendment to this Agreement or separate agreement within such * (*)
day period, the Parties shall (a) use reasonable efforts to complete such
negotiations and to execute and deliver the amendment to this Agreement or
separate agreement as soon as possible after such * (*) day period
and (b) without limiting the generality of the foregoing, after the
expiration of such * (*) day period, each produce a list of 

 

48

 

issues on which they have failed to reach agreement and submit its list
to the JEC to be resolved as a Unanimous Decision in accordance with Section 2.1.5.

 

6.                                      TREATMENT
OF CONFIDENTIAL INFORMATION;

PUBLICITY; NON-SOLICITATION.

 

6.1                                 Confidentiality.

 

6.1.1                                 Confidentiality Obligations.  ARQULE and DS each recognize that the other
Party’s Confidential Information and Proprietary Materials constitute highly
valuable assets of such other Party. 
ARQULE and DS each agrees that, subject to Section 6.1.2, it will
not disclose, and will cause its Affiliates and sublicensees (or Sublicensees,
as the case may be) not to disclose, any Confidential Information or
Proprietary Materials of the other Party and it will not use, and will cause
its Affiliates and sublicensees (or Sublicensees, as the case may be) not to
use, any Confidential Information or Proprietary Materials of the other Party
except as expressly permitted hereunder. 
Notwithstanding anything to the contrary in this Agreement, the
obligations of each Party under this Section 6.1.1 shall remain in effect
during the Term and for an additional ten (10) years following the
termination or expiration of this Agreement.

 

6.1.2                                 Limited Disclosure.  ARQULE and DS each agrees that disclosure of
its Confidential Information or any transfer of its Proprietary Materials may
be made by the other Party to any employee, consultant or Affiliate of such
other Party to enable such other Party to exercise its rights or to carry out
its responsibilities under this Agreement; provided, that, any such disclosure
or transfer shall only be made to Persons who are bound by the written
obligations described in Section 6.1.3. 
In addition, ARQULE and DS each agrees that the other Party may disclose
its Confidential Information (a) on a need-to-know basis to such other
Party’s legal and financial advisors, (b) to any Third Party as reasonably
necessary in connection with an actual or potential permitted sublicense of
such other Party’s rights hereunder or in connection with an actual or potential
collaboration between such party and a Third Party or any debt or equity
financing of such other Party, subject in each case, to the execution of
written obligations of confidentiality substantially similar to those of such
Party hereunder, and provided that any Confidential Information so provided by
ARQULE in connection with a collaboration will in no event include information
identifying any DS Targets unless such disclosure is subject to a 

 

49

 

mechanism
similar to the Gatekeeper mechanism contained in Section 3.5.2, (c) if
such other Party is ARQULE, to any Third Party that is or may be engaged by
ARQULE to perform services in connection with the Research Program, and (d) for
any other purpose with the other Party’s written consent, which consent shall
not be unreasonably withheld, conditioned or delayed.  In addition, each Party agrees that the other
Party may disclose such Party’s Confidential Information or Proprietary
Materials (A) as reasonably necessary to file, prosecute or maintain
Patent Rights, or to file, prosecute or defend litigation related to Patent
Rights, in accordance with this Agreement; or (B) as required by
Applicable Laws; provided, that, in the case of any disclosure under this clause
(B), the disclosing Party shall (1) if practicable, provide the other
Party with reasonable advance notice of and an opportunity to comment on any
such required disclosure and (2) if requested by the other Party,
cooperate in all reasonable respects with the other Party’s efforts to obtain
confidential treatment or a protective order with respect to any such
disclosure, at the other Party’s expense.

 

6.1.3                                 Employees and Consultants.  ARQULE and DS each hereby represents that all
of its employees and consultants, and all of the employees and consultants of
its Affiliates, who participate in the activities of the Collaboration or have
access to Confidential Information or Proprietary Materials of the other Party
are or will, prior to their participation or access, be bound by written
obligations to maintain such Confidential Information or Proprietary Materials
in confidence and not to use such information except as expressly permitted
hereunder.  Each Party agrees to use, and
to cause its Affiliates to use, reasonable efforts to enforce such obligations.

 

6.2                                 Publicity.  The Parties acknowledge that the terms of
this Agreement constitute Confidential Information of each Party and may not be
disclosed except as permitted by Section 6.1.2 and this Section 6.2.  Notwithstanding the foregoing, the terms of
this Agreement may be disclosed by a Party to investment bankers, analysts,
investors and potential investors, lenders and potential lenders and other
sources and other potential sources of financing, or any acquirer or merger
partner and potential acquirer or merger partner but only to the extent
reasonably necessary.  In addition, a
copy of this Agreement may be filed by either Party with the U.S. Securities and Exchange Commission, or comparable administrative/regulatory body
in other jurisdictions, if such filing is required by law or
regulation.  In connection with any such
filing, 

 

50

 

such Party
shall endeavor to obtain confidential treatment of economic and trade secret
information, and shall provide the other Party with the proposed confidential
treatment request with reasonable time for such other Party to provide
comments, which comments shall be reasonably considered by the filing Party.  Notwithstanding anything to the contrary in Section 6.1,
the Parties, upon the execution of this Agreement, shall agree to a press
release with respect to this Agreement, and either Party may make subsequent
public disclosure of the contents of such press release without further
approval of the other Party.  After
issuance of such press release, except as required by Applicable Laws, neither
Party shall issue a press or news release or make any similar public
announcement (it being understood that publication in scientific journals,
presentation at scientific conferences and meetings and the like are intended
to be covered by Section 6.3 and not subject to this Section 6.2)
related to the Research Program or to any Development Program without the prior
written consent of the other Party; provided, that, notwithstanding the
foregoing, ARQULE shall be expressly permitted to publicly announce the
occurrence of any milestone event and any other event that ARQULE reasonably
believes is material to ARQULE.

 

6.3                                 Publications and Presentations.  The Parties acknowledge that scientific
publications and presentations must be strictly monitored to prevent any
adverse effect from premature publication or dissemination of results of the
activities hereunder.  Each Party agrees
that, except as required by Applicable Laws, it shall not publish or present,
or permit to be published or presented, the results of the Research Program or
the Development Program without the prior review by and written approval of the
other Party.  Each Party shall provide to
the other Party the opportunity to review each of the submitting Party’s
proposed abstracts, manuscripts or presentations (including, without
limitation, information to be presented verbally) that relate to the Research
Program or the Development Program at least *
(*) days prior to its intended
presentation or submission for publication, and such submitting Party agrees,
upon written request from the other Party given within such * (*)
day period, not to submit such abstract or manuscript for publication or to
make such presentation until the other Party is given up to * (*)
days from the date of such written request to seek appropriate patent
protection for any material in such publication or presentation that it
reasonably believes may be patentable. 
Once such abstracts, manuscripts or presentations have been reviewed and
approved by each Party, the 

 

51

 

same
abstracts, manuscripts or presentations do not have to be provided again to the
other Party for review for a later submission for publication.  Each Party also shall have the right to
require that any of its Confidential Information that is disclosed in any such
proposed publication or presentation be deleted prior to such publication or presentation.  In any permitted publication or presentation
by a Party, the other Party’s contribution shall be duly recognized, and
co-authorship shall be determined in accordance with customary standards.  Each Party (a) expressly acknowledges
that the other Party’s business may be substantially dependent on its ability
to publish results in scientific journals, presentation at scientific
conferences and meetings and (b) agrees that it shall not unreasonably
withhold, condition or delay its consent to any request by the other Party to
publish results of the Research Program or any Development Program in
accordance with its internal publication guidelines.

 

6.4                                 AKIP Platform Technology.  Notwithstanding anything to the contrary set
forth herein, including without limitation, the right to disclose Confidential
Information of ARQULE set forth in Section 6.2 and the rights to publish
set forth in Section 6.3, DS shall in no event disclose any Confidential
Information of ARQULE relating to AKIP Platform Technology.

 

6.5                                 Prohibition on Solicitation.  Without the written consent of the other
Party, neither Party nor its Affiliates shall, during the Research
Collaboration Period or for one (1) year thereafter, solicit (directly or
indirectly) any employee of the other Party or its Affiliates who participated
in the Research Program at any time during the Research Collaboration
Period.  This provision shall not
restrict either Party or its Affiliates from advertising employment opportunities
in any manner that does not directly target the other Party or its Affiliates.

 

7.                                      LICENSE
GRANTS; EXCLUSIVITY

 

7.1                                 DS Option.

 

7.1.1                                 Option Grant.  ARQULE hereby grants DS an option (each, a “DS Option”) to obtain an exclusive,
royalty-bearing license under the Licensed Technology and Licensed Patent
Rights for the purpose of Developing and Commercializing Primary Development
Compounds and related Backup Compounds in the Field and in the Territory.  For purposes of clarity, (a) DS Options
shall be available to DS on a DS Target by DS Target basis and (b) a DS
Option shall only be available with respect to Collaboration Compounds that are

 

52

 

designated as
Primary Development Compounds and Backup Compounds for purposes of this
Agreement.

 

7.1.2                                 Option Exercise.

 

(a)                                  Primary
Development Compounds.  DS may
exercise any DS Option at any time during the applicable DS Option Period by
giving written notice of exercise to ARQULE, which notice shall designate the
Primary Development Compound (and related Backup Compounds) (the “DS Option Exercise Notice”); provided,
that, (i) DS hereby agrees if it determines not to exercise a DS Option
prior to expiration of the applicable DS Option Period, it shall in good faith
provide written notice to ARQULE promptly upon such determination and (ii) the
date on which any such notice is given shall constitute the last day of the
applicable DS Option Period for all Collaboration Compounds against the DS
Target against which such Primary Development Compound is directed.  Upon the exercise by DS of each DS Option, (a) the
Primary Development Compound that is the subject of the DS Option (and related
Backup Compounds) shall be deemed to be Licensed Products for purposes of this
Agreement and (b) DS and ARQULE shall negotiate a license agreement (a “License Agreement”) which shall contain the exclusive
licenses with respect to such Licensed Products set forth in Sections 7.3.1 and
7.4 and the substantially similar provisions
as set forth in Sections 7.5, 7.6,
7.7, Article 8, Article 9, Article 10, Article 12 and Article 13 herein; provided, that, such provisions
will be limited to the Primary Development Compound (and related Backup
Compounds) and Licensed Products which are the subject of the License
Agreement.

 

(b)                                 Backup Compounds.  At any time before the expiration of the DS Option Period for the DS Target of
any Primary Development Compound, DS may designate up to * (*)
Backup Compounds to such Primary Development Compound by giving written notice
of designation to ARQULE, which notice shall identify such Backup Compounds
(the “DS Backup Compound Notice”).  No Backup Compound may be designated after
the expiration of the DS Option Period
for the DS Target of the relevant Primary Development Compound.

 

7.1.3                                 Expiration of DS Option.  If DS fails to exercise the DS Option
applicable to a Primary Development Compound (and related Backup Compounds) on
or before the expiration of the applicable DS Option Period, then such Primary
Development Compound 

 

53

 

(and related
Backup Compounds) shall be deemed to be a Waived Compound for purposes of this
Agreement.

 

7.2                                 Research Licenses.

 

7.2.1                                 ARQULE Grant.  Subject to the terms and conditions of this
Agreement, ARQULE hereby grants to DS and its Affiliates a non-exclusive,
royalty-free, worldwide license until
the expiration of the last to expire DS Option Period under Licensed Technology
and Licensed Patent Rights, for the sole purpose of conducting DS Research
Activities in the Research Program.

 

7.2.2                                 DS Grants.  Subject to the terms and conditions of this
Agreement, DS hereby grants to ARQULE and its Affiliates a non-exclusive,
royalty-free, worldwide license until
the expiration of the last to expire DS Option Period under DS Technology and
DS Patent Rights that is necessary
or useful for ARQULE to carry out its obligations under the Annual
Research Plan, and for the
sole purpose of conducting ARQULE
Research Activities in the
Research Program.

 

7.3                                 Development Licenses.

 

7.3.1                                 ARQULE Grant.  In the event of exercise by DS of the DS
Option for a Primary Development Compound and related Backup Compounds, subject
to the terms and conditions of this Agreement, in the License Agreement
negotiated upon the exercise of the DS Option for such Primary Development
Compound (and related Backup Compounds), ARQULE will grant to DS and its
Affiliates, an exclusive, royalty bearing, worldwide license during the Term,
including the right to grant sublicenses to Sublicensees as provided in Sections 7.5, under Licensed
Technology and Licensed Patent Rights, for the sole purpose of Developing such
Primary Development Compound and related Backup Compounds and Licensed Products
with respect thereto in the Field and in the Territory.  Notwithstanding the foregoing, during the
period commencing on the date of expiration or termination of the Research
Collaboration Period and continuing for the remainder of the Term, ARQULE
hereby retains the right to Develop and Commercialize all Waived Compounds and Terminated
Compounds.

 

54

 

7.3.2                                 DS Grant.  Effective upon exercise by DS of the DS
Option for a Primary Development Compound and related Backup Compounds, subject
to the terms and conditions of this Agreement, DS hereby grants to ARQULE and
its Affiliates a non-exclusive, royalty-free, worldwide license during the
Term, without the right to grant sublicenses, under DS Technology and DS Patent
Rights that is necessary or useful
for ARQULE to carry out any development activities which the
Parties agree that ARQULE shall perform, and DS’s interest in Joint
Technology and Joint Patent Rights and under Licensed Technology and Licensed
Patent Rights exclusively licensed to DS under Section 7.3.1, for the sole
purpose of conducting the such
development activities in any Development Program.

 

7.3.3                                 Waived Compound; Terminated Compounds.  Subject to the terms and conditions of this
Agreement, DS hereby grants to ARQULE and its Affiliates an exclusive,
worldwide, royalty-free license, with the right to grant sublicenses, under DS
Program Technology, Patent Rights claiming DS Program Technology and DS’s
interest in Joint Technology and Joint Patent Rights to research, develop, have
developed, make, have made, use, distribute for sale, sell, offer for sale,
import and have imported Waived Compounds and Terminated Compounds for any and
all uses, both within and outside of the Field. 
Subject to Section 9.1.5, DS
shall retain all rights to such DS Program Technology, Patent Rights claiming
DS Program Technology and DS’s interest in Joint Technology and Joint Patent
Rights for all other purposes.

 

7.4                                 Commercialization License.  In the event of exercise by DS of the DS
Option for a Primary Development Compound and related Backup Compounds, subject
to the terms and conditions of this Agreement, the License Agreement negotiated
upon the exercise of the DS Option with respect to such Primary Development
Compound (and related backup Compounds), will grant to DS and its Affiliates an exclusive,
royalty-bearing license during the Term, including the right to grant
sublicenses to Sublicensees as
provided in Section 7.5, under Licensed Technology and Licensed Patent
Rights for the sole purpose of Commercializing Licensed Products with respect
to such Primary Development Compound and related Backup Compounds in the Field
in the Territory.

 

55

 

7.5                                 Right to Sublicense.  DS shall have the right to grant sublicenses
to Sublicensees under the licenses granted to it under the License Agreement
with respect to any Primary Development Compounds (and related Backup
Compounds) and Licensed Products; provided, that, (a) it shall be a
condition of any such sublicense that such Sublicensee agrees to be bound by
all terms of this Agreement and the License Agreement applicable to the
Development or Commercialization, as the case may be, of Licensed Products in
the Field in the Territory (including, without limitation, Article 6); (b) DS
shall provide written notice to ARQULE of any such proposed sublicense at least
thirty (30) days prior to such execution and provide copies to ARQULE of each
such sublicense in the form to be executed at least ten (10) business days
prior to such execution; (c) if DS grants a sublicense to a Sublicensee,
DS shall be deemed to have guaranteed that such Sublicensee will fulfill all of
DS’s obligations under this Agreement applicable to the subject matter of such
sublicense; and (d) DS shall not be relieved of its obligations pursuant
to this Agreement or the License Agreement as a result of such sublicense.  Any sublicenses granted by DS to Sublicensee under Section 7.3.1
and/or Section 7.4 with respect to Licensed Products and Co-Commercialized
Licensed Products shall require ARQULE’s consent, which consent shall not be
unreasonably withheld, delayed or conditioned. 
Sublicenses to Affiliates of DS shall not require ARQULE’s consent.

 

7.6                                 No Other Rights.  DS shall have no rights to use or otherwise
exploit ARQULE Technology, ARQULE Patent Rights, or ARQULE Proprietary
Materials, and ARQULE shall have no rights to use or otherwise exploit DS
Technology, DS Patent Rights or DS Proprietary Materials, in each case, except
as expressly set forth in this Article 7 or a License Agreement.  No right is granted to DS to practice or use
AKIP Platform Technology for any
purpose.

 

7.7                                 Exclusivity.

 

7.7.1                                 ARQULE. 
ARQULE shall not, and shall cause each of its Affiliates to not, conduct
or fund any research, development or commercialization activity, either on its
own, or with, for the benefit of, or sponsored by, any Third Party, that
involves the research, development or commercialization of, or grant any
license or other rights to any Third Party to utilize any Technology or Patent
Rights Controlled by ARQULE or any of its Affiliates for the express purpose of
researching, developing or commercializing (a) any Compound that meets 

 

56

 

clauses (i), (ii) and
(iii) of the Minimum Requirements for a DS Target for which DS has
exercised the DS Option or for which the DS Option Period has not expired, or (b) any
Licensed Product that DS is actively Developing or Commercializing for any use,
whether within or outside of the Field, except hereunder in the Research
Program, or the Development or the Commercialization of Licensed Products under
a License Agreement.  Notwithstanding the
foregoing, during the period commencing on the date of termination or
expiration of the Research Collaboration Period and continuing for the
remainder of the Term, ARQULE shall have the right to research, develop and/or
commercialize, and grant licenses or other rights to any Third Party to utilize
any Proprietary Materials, Technology or Patent Rights Controlled in whole or
in part by ARQULE or any of its Affiliates for the purpose of researching,
developing or commercializing, any and all Waived Compounds and Terminated
Compounds.

 

7.7.2                                 DS. 
DS shall not, and shall cause each of its Affiliates to not, conduct any
research, development or commercialization activity, either on its own, or
with, for the benefit of, or sponsored by, any Third Party, that involves the
research, development or commercialization, or grant any license or other
rights to any Third Party to utilize any Technology or Patent Rights Controlled
by DS or any of its Affiliates for the express purpose of researching,
developing or commercializing (a) any Compound that meets clauses (i) and
(ii) of the Minimum Requirements for a DS Target for which DS has
exercised the DS Option or for which the DS Option Period has not expired or (b) any
Collaboration Compound or Licensed Product for any use, whether within or
outside of the Field, except hereunder in the Research Program, the Development
of Collaboration Compound, the Commercialization of Licensed Products under a
License Agreement and/or as provided in Section 4.11.

 

8.                        INTELLECTUAL
PROPERTY RIGHTS

 

8.1                                 ARQULE Intellectual Property Rights.  ARQULE shall have sole and exclusive
ownership of all right, title and interest on a worldwide basis in and to any
and all ARQULE Technology and ARQULE Patent Rights.

 

8.2                                 DS Intellectual Property Rights.  DS shall have sole and exclusive ownership of
all right, title and interest on a worldwide basis in and to any and all DS
Technology, Licensed Product
Trademarks and DS Patent Rights.

 

57

 

8.3                                 Joint Technology and Joint Patent Rights.  DS and ARQULE shall jointly own all Joint
Technology and Joint Patent Rights.  Notwithstanding anything to the
contrary contained in this Agreement or under Applicable Law, except to the
extent exclusively licensed to one Party under this Agreement, the Parties
hereby agree that either Party may use or license or sublicense to Affiliates
or Third Parties all or any portion of its interest in Joint Technology and/or
Joint Patent Rights or jointly owned Confidential Information or Proprietary
Materials for use outside the Field without the prior written consent of the
other Party, without restriction and without the obligation to provide
compensation to the other Party; provided, that, during the Term of this
Agreement, neither Party may use or license or sublicense to Third Parties all
or any portion of its interest in Joint Technology and/or Joint Patent Rights
or jointly owned Confidential Information or Proprietary Materials for use in
the Field against DS Targets for which DS has exercised the DS Option or for
which the DS Option Period has not expired.

 

8.4                                 Patent Coordinators.  ARQULE and DS shall each appoint a patent
coordinator reasonably acceptable to the other Party (each, a “Patent Coordinator”) to serve as such
Party’s primary liaison with the other Party on matters relating to patent
filing, prosecution, maintenance and enforcement.  Each Party may replace its Patent Coordinator
at any time by notice in writing to the other Party.  The initial Patent
Coordinators shall be:

 

For ARQULE:                      Mark
Ashwell, Ph. D.

 

For DS: Dr. Kazuo
Sato, General Manager, Intellectual Property, DAIICHI SANKYO, CO., LTD.

 

8.5                                 Inventorship.  In case of a dispute between ARQULE and DS over
inventorship and, as a result, whether any particular Program Technology is
ARQULE Technology, DS Technology or Joint Technology, it shall be determined by
applicable United States patent law.

 

8.6                                 Cooperation.  Each Party shall cooperate with the other
Party to effect the intent of this Article 8, including without limitation
by executing documents and making its employees and independent contractors
available to execute documents as necessary to achieve the foregoing allocation
of ownership rights.

 

58

 

9.                                      FILING,
PROSECUTION AND MAINTENANCE OF PATENT RIGHTS

 

9.1                                 Patent Filing, Prosecution and Maintenance.

 

9.1.1                                 DS’s Prosecution Rights.

 

(a)                                  DS Program
Technology.  Subject to Sections
9.1.4 and 9.1.5, DS, acting through patent counsel or agents of its choice,
shall be responsible for the preparation, filing, prosecution and maintenance,
at its sole cost and expense, of Patent Rights covering DS Program
Technology.  At DS’s request, ARQULE
shall cooperate with DS in all reasonable respects in connection with such
preparation, filing, prosecution and maintenance of such Patent Rights,
including but not limited to obtaining assignments to reflect chain of title
consistent with the terms of this Agreement, gaining United States patent term
extensions, supplementary protection certificates and any other extensions that
are now or become available in the future wherever applicable.  For purposes of clarity, notwithstanding anything
to the contrary herein, DS shall have no rights to prepare, file, prosecute
and/or maintain any Patent Rights related to the AKIP Platform Technology.

 

(b)                                 DS Background
Technology.  DS, at its sole expense
and acting through patent counsel or agents of its choice, shall be responsible
for the preparation, filing, prosecution and maintenance of all Patent Rights
covering DS Background Technology.

 

9.1.2                                 ARQULE Prosecution Rights.

 

(a)                                  ARQULE Program
Technology.  Subject to Sections
9.1.4 and 9.1.5, ARQULE, acting through patent counsel or agents of its choice,
shall be responsible for the preparation, filing, prosecution and maintenance,
at its sole cost and expense, of Patent Rights covering ARQULE Program
Technology.  At ARQULE’s request, DS
shall cooperate with and assist ARQULE in all reasonable respects in connection
with such preparation, filing, prosecution and maintenance of such Patent
Rights, including but not limited to obtaining assignments to reflect chain of
title consistent with the terms of this Agreement, gaining United States patent
term extensions, supplementary protection certificates and any other extensions
that are now or become available in the future wherever applicable.

 

59

 

(b)                                 ARQULE Background
Technology.  ARQULE, at its sole
expense and acting through patent counsel or agents of its choice, shall be
responsible for the preparation, filing, prosecution and maintenance of all
Patent Rights covering ARQULE Background Technology.

 

9.1.3                                 Joint Prosecution.  In the case of Joint Patent Rights, the
Parties shall meet through the
Patent Coordinators, or hold a
teleconference or videoconference, to discuss in good faith and agree
upon the content and form of any application for a Joint Patent Right and
hereby agree that only the application in the form as agreed between the
Parties may be filed in respect of the Joint Patent Rights.  Any dispute between the Patent Coordinators
shall be referred to the JEC for resolution pursuant to Section 2.1.5.  The Parties shall share the costs equally in
respect of the preparation of the application, filing, prosecution, grant and
maintenance of any Joint Patent Right jointly filed; and jointly instruct an
appropriately qualified patent attorney to draft, file and prosecute the
application and each Party will have equal control over the prosecution of the
filing such that the patent attorney will only be able to act on unanimous
instructions.  In the event that one
Party (i) is not interested, or (ii) not willing to equally share the
related cost and expense, with respect to any Joint Patent Rights in a given
country, then the other Party shall have the right, at its own cost and
expense, to file for and prosecute such Joint Patent Rights in such country in
both Parties’ names.

 

9.1.4                                 Information and Cooperation.  Each Party that has responsibility for filing
and prosecuting any Patent Rights under this Section 9.1 (a “Filing Party”) shall (a) regularly
provide the other Party (the “Non-Filing
Party”) with copies of all patent applications filed hereunder for
Program Technology and other material submissions and correspondence with the
patent offices, in sufficient time to allow for review and comment by the
Non-Filing Party; and (b) provide the Non-Filing Party and its patent
counsel with an opportunity to consult with the Filing Party and its patent
counsel regarding the filing and contents of any such application, amendment,
submission or response.  The advice and
suggestions of the Non-Filing Party and its patent counsel shall be taken into
consideration in good faith by such Filing Party and its patent counsel in
connection with such filing.  Each Filing
Party shall pursue in good faith all reasonable claims and take such other
reasonable actions, as may be requested by the Non-Filing Party in the
prosecution of any Patent Rights covering any Program Technology under this 

 

60

 

Section 9.1;
provided, however, if the Filing Party incurs any additional expense as a
result of any such request, the Non-Filing Party shall be responsible for the
cost and expenses of pursuing any such additional claim or taking such other
activities.  In addition, DS agrees that
if ARQULE claims any action taken under Section 9.1.1(a) would be
detrimental to Patent Rights covering ARQULE Background Technology (including
without limitation the AKIP Platform Technology), ARQULE shall provide written
notice to DS and the Patent Coordinators shall, as promptly as possible
thereafter, meet to discuss and resolve such matter and, if they are unable to
resolve such matter, the Parties shall refer such matter to a mutually
agreeable outside patent counsel for resolution.

 

9.1.5                                 Abandonment.

 

(a)                                  Patent Rights owned solely by ARQULE or DS.  If a Filing Party decides to abandon or to
allow to lapse any of the Patent Rights covering any Program Technology for
which it has responsibility, it shall inform the Non-Filing Party of such
decision promptly and, in any event, so as to provide the Non-Filing Party a
reasonable amount of time to meet any applicable deadline to establish or
preserve such Patent Rights in such country or region.  The Non-Filing Party shall have the right to
assume responsibility for continuing the prosecution of such Patent Rights in
such country or region and paying any required fees to maintain such Patent
Rights in such country or region or defending such Patent Rights, through
patent counsel or agents of its choice, which shall be at the Non-Filing
Party’s sole expense.  The Non-Filing
Party shall not become an assignee of any such Patent Rights as a result of its
assumption of any such responsibility. 
Upon transfer of such responsibility under this Section 9.1.5(a),
the Filing Party shall promptly deliver to the Non-Filing Party copies of all
necessary files related to the Patent Rights with respect to which
responsibility has been transferred and shall take all actions and execute all
documents reasonably necessary for the Non-Filing Party to assume such
responsibility.

 

(b)                                 Joint Patent Rights.  If one
Party decides to abandon its share of
the Joint Patent Rights in any country or region (an “Abandoning
Party”), it shall inform the other Party (the “Maintaining Party”) of such decision
promptly.  The Maintaining Party shall have the right to assume all responsibility for continuing the
prosecution of such Patent Rights in 

 

61

 

such country
or region and paying any required fees to maintain such Patent Rights in such
country or region or defending such Patent Rights, through patent counsel of
its choice, which shall be at the Maintaining Party’s sole expense. 
Upon abandonment of the Abandoning
 Party’s share of any Joint Patent Rights
under this Section 9.1.5(b), the Abandoning
Party shall take all actions and execute all documents reasonably
necessary for the Maintaining
Party to assume such responsibility.

 

9.2                                 Legal Actions.

 

9.2.1                                 Third Party Infringement.

 

(a)                                  Notice.  In the event either Party becomes aware of (i) any
possible infringement of any Licensed Patent Rights, DS Patent Rights or Joint
Patent Rights through the Development or Commercialization of a Primary
Development Compound, Backup Compound or Licensed Product, or (ii) the
submission by any Third Party of an abbreviated new drug application under the
Hatch-Waxman Act for a product that includes a Licensed Product or Primary
Development Compound or Backup Compound (each, an “Infringement”), that Party shall promptly notify the other
Party and provide it with all details of such Infringement of which it is aware
(each, an “Infringement Notice”).

 

(b)                                 DS Right to Enforce.

 

(i)                                     Enforcement of
DS Patent Rights.  In the event that
any Infringement relates to any DS Patent Rights, then, subject to Section 9.2.1(b)(ii), DS shall have the sole right but not the obligation to enforce
such claim.

 

(ii)                                  Enforcement of
Program Patent Rights.  In the event
that any Infringement relates to any Third Party product that meets clauses (i) and
(ii) of the Minimum Requirements for a DS Target, then, subject to Section 9.2.1(c) and 9.2.1(d), DS shall have the first right (but not the obligation) to
enforce such claim, which may include the institution of legal proceedings or
other action; provided, that, notwithstanding the foregoing, DS shall not admit
the invalidity or unenforceability of any Licensed Patent Rights or Valid Claims therein without ARQULE’s
prior written consent.  DS shall keep
ARQULE reasonably informed on a quarterly basis, in person or by telephone,
prior to and during any such enforcement. 

 

62

 

ARQULE shall
assist DS, upon request, in taking any action to enforce any such Patent Rights
and shall join in any such action if deemed to be a necessary party.  All costs, including without limitation
attorneys’ fees, relating to such legal proceedings or other action shall be
borne by DS.  If DS does not take
commercially reasonable steps to abate the Infringement of such Patent Rights
within * (*) days from any Infringement Notice (or * (*)
days in the case of an Infringement resulting from the submission by any Third
Party of an abbreviated new drug application under the Hatch-Waxman Act), then
ARQULE shall have the right and option to do so at its expense.

 

(c)                                  ARQULE Right to
Enforce.

 

(i)                                     Enforcement of
ARQULE Background Patent Rights.  In
the event that any Infringement relates to any Patent Rights covering ARQULE
Background Technology, ARQULE shall have the sole right but not the obligation
to enforce such claim.

 

(ii)                                  Enforcement of
ARQULE Program Patent Rights.  In the
event that any Infringement relates to any Patent Rights covering ARQULE Program Technology (“ARQULE Program Patent Right”), then, subject to Section 9.2.1(b)(ii), ARQULE shall have the
first right (but not the obligation) to enforce such claim, which may include
the institution of legal proceedings or other action.  ARQULE shall keep DS reasonably informed on a
quarterly basis, in person or by telephone, prior to and during any such
enforcement.  DS shall assist ARQULE,
upon request, in taking any action to enforce any such Patent Rights and shall
join in any such action if deemed to be a necessary party.  ARQULE shall incur no liability to DS as a
consequence of such litigation or any unfavorable decision resulting therefrom,
including any decision holding any such claim invalid, not infringed or
unenforceable.  All costs, including
without limitation attorneys’ fees, relating to such legal proceedings or other
action shall be borne by ARQULE.  If
ARQULE does not take commercially reasonable steps to abate the Infringement of
such Patent Rights within * (*) days from any Infringement Notice (or * (*)
days in the case of an Infringement resulting from the submission by any Third
Party of an abbreviated new drug application under the Hatch-Waxman Act), then
DS shall have the right and option to do so at its expense.  For purposes of clarity, 

 

63

 

notwithstanding
anything to the contrary herein, DS shall have no right to enforce any ARQULE
Patents Rights covering the AKIP Platform Technology.

 

(d)                                 Joint Patent Rights.  In the event of an Infringement of a Joint
Patent Right, then, subject to Section 9.2.1(b)(ii), the Parties shall enter into good faith discussions as
to whether and how to eliminate the Infringement.  Subject to the foregoing, (i) DS shall have the first right and option
to eliminate such Infringement in the Field and ARQULE shall have the first
right and option to eliminate such Infringement outside the Field, in each case
by reasonable steps, which may include the institution of legal proceedings or
other action and (ii) all costs, including without limitation attorneys’
fees, relating to such legal proceedings or other action shall be borne by such Party.  Neither
DS nor ARQULE shall admit the invalidity or unenforceability of any Joint Patent Rights or Valid Claims therein without the other Party’s prior written consent.
 If
DS or ARQULE does not take or
initiate commercially reasonable steps to eliminate the Infringement within * (*)
days from any Infringement Notice (or *
(*) days in the case of an
Infringement resulting from the submission by any Third Party of an abbreviated
new drug application under the Hatch-Waxman Act), then the other Party shall have the right and option to do so at its
expense.

 

(e)                                  Representation of
Either Party.  Each Party shall have
the right to be represented by counsel that it selects in any legal proceedings
or other action instituted under this Section 9.2.1 by the other Party.

 

(f)                                    Cooperation by the
Parties.  In any action, suit or
proceeding instituted under this Section 9.2.1, the Parties shall cooperate with and assist each other in all
reasonable respects.  Upon the reasonable
request of the Party instituting such action, suit or proceeding, the other
Party shall join such action, suit or proceeding and shall be represented using
counsel of its own choice, at the requesting Party’s expense.  If a Party with the right to initiate legal
proceedings under this Section 9.2.1
lacks standing to do so and the other Party has standing to initiate such legal
proceedings, then the Party with standing shall initiate such legal proceedings
at the request and expense of the other Party.

 

(g)                                 Allocation of
Recoveries.  Any amounts recovered by
DS pursuant to actions under Sections 9.2.1(b)(ii) or 9.2.1(d), whether by settlement or
judgment, shall be 

 

64

 

allocated in
the following order: (i) first, to reimburse DS and ARQULE for their
reasonable out-of-pocket expenses in making such recovery (which amounts shall
be allocated pro rata if insufficient to cover the totality of such expenses);
and (ii) second (A) with respect to actual damages, to DS and ARQULE
in the *, and (B) with respect to punitive, special or consequential
damages, * percent (*%) to DS and * percent (*%) to
ARQULE.  Any amounts recovered by ARQULE
pursuant to actions under Section 9.2.1(c)(ii) or 9.2.1(d) shall be allocated in
the following order: (X) first, to reimburse ARQULE and DS for their reasonable
out of pocket expenses in making such recovery (which amounts shall be
allocated pro rata if insufficient to cover the totality of such expenses); and
(Y) then, *% to ARQULE.

 

9.2.2                                 Defense of Claims.

 

(a)                                  Notice.  In the event that a Third Party alleges that
the conduct of the Research Program or the Development or Commercialization of
a Primary Development Compound, Backup Compound or Licensed Product infringes
the Patent Rights of a Third Party, the Party becoming aware of such allegation
shall promptly notify the other Party hereof, in writing, reasonably detailing
the claim.

 

(b)                                 Third Party Suit
Relating Primarily to DS Targets or Licensed Products.  In the event that any action, suit or
proceeding is brought against either Party or any Affiliate or sublicensee of
either Party alleging the infringement of the Patent Rights of a Third Party
relating specifically to the DS Targets or Licensed Products by reason of
activities conducted pursuant to this Agreement, (i) DS shall have the
right and obligation to defend or otherwise resolve such action, suit or
proceeding (e.g., by way of entering into a settlement agreement or consent) at
its sole expense; (ii) ARQULE or any of its Affiliates or sublicensees
shall have the right to separate counsel at its own expense in any such action,
suit or proceeding and, if such action, suit or proceeding has been brought
against ARQULE or any of its Affiliates or sublicensees, ARQULE may elect to
defend itself at its sole expense; and (iii) the Parties shall cooperate
with each other in all reasonable respects in any such action, suit or
proceeding.  Settlement costs, royalties
paid in settlement of any such suit, and the payment of any damages 

 

65

 

to the Third
Party shall be borne solely by DS, provided that DS shall be entitled to credit * percent (*%) of
such payments against milestone payments or royalty payments to be paid by DS
under the License Agreement relating to such Licensed Product.

 

(c)                                  Third Party Suit
Relating Primarily to the use of the AKIP Platform Technology.  In the event that any action, suit or
proceeding is brought against either Party or any Affiliate or sublicensee of
either Party alleging the infringement of the Patent Rights of a Third Party by
reason of the use of the AKIP Platform Technology in the conduct of the
Research Program (i) ARQULE shall have the right and obligation to defend
or otherwise resolve such action, suit or proceeding (e.g., by way of entering
into a settlement agreement or consent) at its sole expense; and (ii) DS
or any of its Affiliates or Sublicensees shall have the right to separate
counsel at its own expense in any such action, suit or proceeding and, if such
action, suit or proceeding has been brought against DS or any of its Affiliates
or Sublicensees, DS or its Affiliate or Sublicensee may elect to defend itself
at its sole expense.  Settlement costs,
royalties paid in settlement of any such suit, and the payment of any damages
to the Third Party shall be borne solely by ARQULE.

 

(d)                                 Cooperation in
Defense.  The Parties shall cooperate
with each other in all reasonable respects in any action, suit or proceeding
under this Section 9.2.2.  Each
Party shall provide the other Party with prompt written notice of the commencement
of any such suit, action or proceeding, or of any evidence or allegation of
infringement of which such Party becomes aware, and shall promptly furnish the
other Party with a copy of each communication relating to the alleged
infringement that is received by such Party. 
The Party that is a party to the action, suit or proceeding shall not
admit the invalidity of any patent within the Licensed Patent Rights, Joint
Patent Rights or DS Patent Rights, nor settle such action, suit or proceeding
in a manner that adversely affects the other Party’s rights under this
Agreement, without the written consent of the other Party, which consent shall
not be unreasonably withheld, delayed or conditioned.

 

9.3                                 Trademark and Copyright Prosecution, Defense and Enforcement.  DS shall be responsible for the filing,
prosecution, maintenance, defense and enforcement of all Licensed 

 

66

 

Product
Trademarks and copyrights created during the Research Program, Development and/or
Commercialization at DS’s expense.

 

10.                               TERM
AND TERMINATION

 

10.1                           Term. 
The term (“Term”) of this
Agreement shall commence on the Effective Date and shall continue in full force
and effect until the later of (i) the
end of the Research Collaboration Period,
or (ii) the expiration of the last to expire DS Option Period and,
if DS is Developing a Licensed Product or Commercializing a Licensed Product
(including any Co-Commercialized Licensed Product), thereafter until (a) such
time as DS is no longer Developing at least one (1) Licensed Product or (b) if,
as of the time DS is no longer Developing at least one (1) Licensed
Product, DS is Commercializing a Licensed Product, such time as all Royalty
Terms for all Licensed Products have ended, whichever is later, unless earlier
terminated in accordance with the provisions of this Article 10.

 

10.2                           Termination.  This Agreement may be terminated at any time
by either Party as follows:

 

10.2.1                           Unilateral Right to Terminate.  DS may terminate this Agreement, effective
upon not less than ninety (90) days written notice to ARQULE, at any time on or
after expiration of the Research Collaboration Period.

 

10.2.2                           Termination for Breach.  Subject to Section 13.1.1(d), either Party may terminate this
Agreement, effective immediately upon written notice to the other Party, for a
material breach by the other Party of any term of this Agreement that remains
uncured for * (*) days *
(*) days in the event that the
breach is a failure of either Party to make any payment required hereunder)
after the non-breaching Party first gives written notice to the other Party of
such breach and its intent to terminate this Agreement if such breach is not
cured; provided, that, in the event DS is in breach of its diligence
obligations with respect to a given DS Target and/or any Licensed Product
against such DS Target, ARQULE shall only have the right to terminate the
license with respect to such DS Target and/or Licensed Product (but leaving
unaffected DS’s rights under this Agreement to any other DS Target and Licensed
Product directed against such other DS Target).

 

67

 

10.2.3                           Termination for Insolvency.  In the event that either Party files for
protection under bankruptcy laws, makes a general assignment for the benefit of
creditors, appoints or suffers appointment of a receiver or trustee over its
business, files a petition under any bankruptcy or insolvency act or has any
such petition filed against it which is not dismissed or stayed within * (*)
days of the filing thereof, the other Party may terminate this Agreement
effective immediately upon written notice to such Party.  In connection therewith, all rights and
licenses granted under this Agreement are, and shall be deemed to be, for
purposes of Section 365(n) of the United States Bankruptcy Code,
licenses of rights to “intellectual property” as defined under Section 101(35A)
of the United States Bankruptcy Code.

 

10.2.4                           Termination for Challenge.  Except to the extent the following is
unenforceable under the law of a particular jurisdiction where a patent
application within the Licensed Patent Rights is pending or a patent within the
Licensed Patent Rights issued, in the event DS, its Affiliates and/or
Sublicensees initiates a Challenge or assists a Third Party in initiating a
Challenge, ARQULE shall have the right to terminate this Agreement, effective
immediately upon written notice to DS.

 

10.3                           Consequences of Termination of Agreement.  In the event of the termination of this
Agreement pursuant to Section 10.2, the following provisions shall apply,
as applicable to this Agreement and shall be included in any License Agreement
executed upon exercise of a DS Option.

 

10.3.1                           Termination Pursuant to Section 10.2.1.  If this Agreement is terminated by DS
pursuant to Section 10.2.1:

 

(a)                                  All licenses granted
to DS under Article 7 to any Licensed Products as of the effective date of
termination, if any, shall immediately terminate and all such Licensed Products
and the Collaboration Compounds therein shall be deemed to be Terminated
Compounds, and ARQULE shall have no further obligations under Section 7.7.1.

 

(b)                                 Each Party shall
promptly return all Confidential Information and Proprietary Materials of the
other Party that are not subject to a continuing license hereunder; provided,
that, each Party may retain one copy of the Confidential Information of the
other Party

 

68

 

in its
archives solely for the purpose of establishing the contents thereof and
ensuring compliance with its obligations hereunder.

 

(c)                                  Upon request of
ARQULE, DS will transfer to ARQULE all of its right, title and interest in
Terminated Compounds to ARQULE.  Without
limiting the foregoing, DS shall:

 

(i)                                     assign , free of charge, to ARQULE the
ownership of all Licensed Product Trademarks applicable to the
Terminated Compounds; provided that after such assignment, ARQULE shall assume
all responsibility for maintaining such Licensed Product Trademarks, and if
ARQULE does not request such assignment, DS may terminate or withdraw from
registration all such Licensed Product Trademarks;

 

(ii)                                  assign to ARQULE, free
of charge, or at DS’s choice,
grant to ARQULE an exclusive, worldwide, royalty-free license, with the
unrestricted right to sublicense, under all DS Patent Rights and DS Technology
specific to the  Primary Development
Compounds and related Backup Compounds and grant to ARQULE a non-exclusive
worldwide, royalty-free license, with the unrestricted right to sublicense,
under all other DS Patent Rights and DS Technology necessary or useful for
ARQULE to Develop and Commercialize the Licensed Products and the Primary
Development Compounds and related Backup Compounds;

 

(iii)                               transfer to ARQULE all
of its right, title and interest in all Regulatory Filings, Drug Approval
Applications and Regulatory Approvals then in its name applicable to the
Terminated Compounds, if any;

 

(iv)                              notify the applicable
Regulatory Authorities and take any other action reasonably necessary to effect
such transfer;

 

(v)                                 provide ARQULE with
copies of all correspondence between DS and such Regulatory Authorities
relating to such Regulatory Filings, Drug Approval Applications and Regulatory
Approvals;

 

(vi)                              unless expressly
prohibited by any Regulatory Authority, transfer control to ARQULE of all
clinical trials of the Terminated Compounds being conducted

 

69

 

as of the
effective date of termination and continue to conduct such trials at its
expense for up to four (4) months to enable such transfer to be completed
without interruption of any such trial, unless ARQULE demonstrates to DS to DS’s
satisfaction that ARQULE shall not be able to assume such clinical trials
within four months, in which case DS shall continue to conduct such trials for
up to two (2) additional months;

 

(vii)                           assign (or cause its
Affiliates to assign) to ARQULE all agreements with any Third Party with
respect to the conduct of clinical trials for the Terminated Compounds
including, without limitation, agreements with contract research organizations,
clinical sites and investigators, unless expressly prohibited by any such
agreement (in which case DS shall cooperate with ARQULE in all reasonable
respects to secure the consent of such Third Party to such assignment);

 

(viii)                        provide ARQULE with all
supplies of the Terminated Compounds in the possession of DS or any Affiliate
or contractor of DS;

 

(ix)                                provide ARQULE with
copies of all reports and data generated or obtained by DS or its Affiliates
pursuant to this Agreement that relate to any Terminated Compounds that have
not previously been provided to ARQULE;

 

(x)                                   reimburse ARQULE for
all internal and out-of-pocket costs incurred by ARQULE in continuing the
research and Development of all the Terminated Compounds for a period of * (*)
days from the date of the termination
notice; and

 

(xi)                                if DS has manufactured,
is manufacturing or having manufactured any Terminated Compounds or any
intermediate thereof: (i) DS shall, if requested by ARQULE, supply ARQULE
with its requirements for all Terminated Compounds and intermediates for up to * (*)
months following such termination at a transfer price equal to DS’s
fully-burdened manufacturing cost for the supply of such Terminated Compounds
or intermediates, plus * percent (*%), (ii) within * (*)
days after ARQULE’s request, DS shall provide to ARQULE or its designee all
information in its possession with respect to the manufacture of each such
Terminated Compound or intermediate.

 

70

 

(d)                                 ARQULE
shall reimburse DS for its actual out-of-pocket costs of complying with Section 10.3.1(c)(i),
(ii), (iii), (iv), (v), (vi), (vii), (viii) and (ix), up to a total of * Dollars (US $*).

 

10.3.2                           Termination by DS Pursuant to Section 10.2.2.  If this Agreement is terminated by DS
pursuant to Section 10.2.2, the license granted by ARQULE to DS pursuant
to Section 7.2.1 shall survive solely as applied to Collaboration
Compounds subject to a DS Option as of the effective date of termination, if
any, in each case subject to DS’s continued payment of all milestone, royalty,
and other payments under and in accordance with this Agreement and any License
Agreement with respect thereto.

 

10.3.3                           Termination by DS Pursuant to Section 10.2.3.  If this Agreement is terminated by DS
pursuant to Section 10.2.3, unless prohibited by Applicable Laws, each
Party shall promptly return all Confidential Information and Proprietary
Materials of the other Party that are not subject to a continuing license
hereunder, or under the United
States Bankruptcy Code; provided, that, each Party may retain one copy of the
Confidential Information of the other Party in its archives solely for the
purpose of establishing the contents thereof and ensuring compliance with its
obligations hereunder.

 

10.3.4                           Termination by ARQULE Pursuant to Section 10.2.2.

 

(a)                                  Diligence
Obligations.  If DS’s rights to a DS
Target and all Licensed Products directed against such DS Target are terminated
by ARQULE pursuant to Section 10.2.2 for breach by DS of its diligence
obligations under Section 4.7, the provisions of Section 10.3.1 shall
apply but only to the DS Target and Collaboration Compounds for which DS’s
rights were terminated.

 

(b)                                 Other Obligations.  If this Agreement is terminated by ARQULE
pursuant to Section 10.2.2 for breach by DS of its obligations under this
Agreement other than its diligence obligations under Section 4.7:

 

(i)                                     the provisions of Section 10.3.1
shall apply; and

 

71

 

(ii)                                  if such termination
is effective prior to the end of the Research Collaboration Period, (A) DS
shall, for a period of * from the effective date of termination, pay ARQULE the
FTE Funding Commitment and (B) the Research Program shall terminate
without any further obligation of ARQULE.

 

10.3.5                           Termination by ARQULE Pursuant to Section 10.2.3.  If this Agreement is terminated by ARQULE
pursuant to Section 10.2.3, unless prohibited by Applicable Laws, the
provisions of Section 10.3.1 shall apply, except that DS shall have no
obligation to continue to conduct any clinical trial.

 

10.3.6                           Termination by ARQULE Pursuant to Section 10.2.4.  If this Agreement is terminated by ARQULE
pursuant to Section 10.2.4:

 

(a)                                  the provisions of Section 10.3.1
shall apply; and

 

(b)                                 if such termination is
effective prior to the end of the Research Collaboration Period, (i) DS
shall, for a period of one hundred twenty (120) days from the effective date of
termination, pay ARQULE the FTE Funding Commitment and (ii) the Research
Program shall terminate without any further obligation of ARQULE.

 

10.4                           Surviving Provisions.  Termination or expiration of this Agreement
for any reason shall be without prejudice to:

 

(a)                                  the rights and
obligations of the Parties provided in Articles 1, 6, 8, 9 (with respect to
Joint Patent Rights and DS Patent Rights licensed to ARQULE pursuant to Section 10.3.1(c)(ii)),
11, 12 and 13 (except Section 13.1.2) and Sections 7.6, 10.3 and 10.4.

 

(b)                                 unless otherwise
provided for in this Agreement, ARQULE’s rights to receive royalties and
milestone payments for the duration of all applicable Royalty Terms, if any;
and

 

(c)                                  any other rights or
remedies provided at law or equity which either Party may otherwise have.

 

72

 

11.                               REPRESENTATIONS
AND WARRANTIES

 

11.1                           Mutual Representations and Warranties.  ARQULE and DS each represents and warrants to
the other, as of the Effective Date, as follows:

 

11.1.1                           Organization.  It is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and has all requisite power and authority, corporate or
otherwise, to execute, deliver and perform this Agreement.

 

11.1.2                           Authorization.  The execution and delivery of this Agreement
and the performance by it of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and will not violate (a) such
Party’s certificate of incorporation or bylaws, (b) any agreement,
instrument or contractual obligation to which such Party is bound in any
material respect, (c) any requirement of any Applicable Laws, or (d) any
order, writ, judgment, injunction, decree, determination or award of any court
or governmental agency presently in effect applicable to such Party.

 

11.1.3                           Binding Agreement.  This Agreement is a legal, valid and binding
obligation of such Party enforceable against it in accordance with its terms
and conditions.

 

11.1.4                           No Inconsistent Obligation.  It is not under any obligation, contractual
or otherwise, to any Person that conflicts with or is inconsistent in any
respect with the terms of this Agreement or that would impede the diligent and
complete fulfillment of its obligations hereunder.

 

11.2                           ARQULE’s Representations and Warranties.  ARQULE represents and warrants to DS as
follows:

 

11.2.1                           All Licensed Technology
existing as of the Effective Date is Controlled by ARQULE.

 

11.2.2                           To the actual knowledge of
the Chief Executive Officer, the President, any Vice President or ARQULE’s
internal patent counsel, ARQULE, as of the Effective Date, except as previously
disclosed to DS, no Third Party has initiated, or threatened in writing to
initiate, any litigation against ARQULE or its Affiliates, including, without
limitation, by

 

73

 

initiating any
declaratory judgment lawsuit, or by sending a cease-and-desist letter, alleging
that the Licensed Patent Rights are invalid or unenforceable or that the use of
the Licensed Patent Rights or Licensed Technology as contemplated by this
Agreement infringes the Patent Rights of such Third Party.

 

12.                               INDEMNIFICATION

 

12.1                           Indemnification of DS by ARQULE.  ARQULE shall indemnify, defend and hold
harmless DS, its Affiliates, their respective directors, officers, employees
and agents, and their respective successors, heirs and assigns (collectively,
the “DS Indemnitees”), against all
liabilities, damages, losses and expenses (including, without limitation,
reasonable attorneys’ fees and expenses of litigation) (collectively, “Losses”) incurred by or imposed upon the DS
Indemnitees, or any one of them, as a direct result of claims, suits, actions,
demands or judgments of Third Parties, including without limitation personal
injury and product liability claims (collectively, “Claims”), arising out of (a) ARQULE’s research and
development activities under this Agreement, (b) the Co-Commercialization
of any Co-Commercialized Licensed Product by ARQULE and (c) the
development, manufacture, use or sale of any Waived Compound or Terminated
Compound by ARQULE or any of its Affiliates, sublicensees, distributors or
agents, except with respect to any Claim or Losses that result from a breach of
this Agreement by, or the gross negligence or willful misconduct of, DS;
provided, that, with respect to any Claim for which ARQULE has an obligation to
any DS Indemnitee pursuant to this Section 12.1 and DS has an obligation
to any ARQULE Indemnitee pursuant to Section 12.2, each Party shall
indemnify each of the other Party’s Indemnitees for its Losses to the extent of
its responsibility, relative to the other Party, for the facts underlying the Claim.

 

12.2                           Indemnification of ARQULE by DS.  DS shall indemnify, defend and hold harmless
ARQULE, its Affiliates, their respective directors, officers, employees and
agents, and their respective successors, heirs and assigns (the “ARQULE Indemnitees”), against any Losses
incurred by or imposed upon the ARQULE Indemnitees, or any one of them, as a
direct result of Claims arising out of (a) DS’s research activities under
this Agreement, (b) the Development of any Licensed Product or the
Commercialization (including, without limitation, the production, manufacture,
promotion, import, sale or use by any Person) of any Licensed Product by DS or
any of its Affiliates, Sublicensees, distributors or agents, and (c) the
Co-Commercialization of

 

74

 

any
Co-Commercialized Licensed Product by DS or any of its Affiliates,
Sublicensees, distributors or agents, except with respect to any Claim that
results from a breach of this Agreement by, or the gross negligence or willful
misconduct of, ARQULE; provided, that, with respect to any Claim for which
ARQULE has an obligation to any DS Indemnitee pursuant to Section 12.1 and
DS has an obligation to any ARQULE Indemnitee pursuant to this Section 12.2,
each Party shall indemnify each of the other Party’s Indemnitees for its Losses
to the extent of its responsibility, relative to the other Party, for the facts
underlying the Claim.

 

12.3                           Conditions to Indemnification.  A Person seeking recovery under this Article 12
(the “Indemnified Party”) in
respect of a Claim shall give prompt notice of such Claim to the Party from
which recovery is sought (the “Indemnifying
Party”) and, provided that the Indemnifying Party is not contesting
its obligation under this Article 12, shall permit the Indemnifying Party
to control any litigation relating to such Claim and the disposition of such
Claim; provided, that, the Indemnifying Party shall (a) act reasonably and
in good faith with respect to all matters relating to the settlement or
disposition of such Claim as the settlement or disposition relates to such
Indemnified Party and (b) not settle or otherwise resolve such claim
without the prior written consent of such Indemnified Party (which consent
shall not be unreasonably withheld, conditioned or delayed).  Each Indemnified Party shall cooperate with
the Indemnifying Party in its defense of any such Claim in all reasonable
respects and shall have the right to be present in person or through counsel at
all legal proceedings with respect to such Claim.

 

12.4                           Warranty Disclaimer.  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
THIS AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY
TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT
AND EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, VALIDITY AND NONINFRINGEMENT.

 

12.5                           No Warranty of Success.  Nothing contained in this Agreement shall be
construed as a warranty on the part of either Party that (a) the Research
Program will yield any

 

75

 

Collaboration
Compound, Hit, Primary Development Compound, Backup Compound or Licensed
Product or otherwise be successful, (b) any Development Program will yield
a Licensed Product or otherwise be successful or (c) the outcome of the
Research Program or any Development Program will be commercially exploitable in
any respect.

 

12.6                           Limited Liability.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN
THIS AGREEMENT, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR (I) ANY SPECIAL, PUNITIVE, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS OR LOST
REVENUES, OR (II) COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY OR
SERVICES, WHETHER UNDER ANY CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR
OTHER LEGAL OR EQUITABLE THEORY.

 

13.                               MISCELLANEOUS

 

13.1                           Arbitration.

 

13.1.1                           Full Arbitration.  Any dispute, controversy or claim arising
between the Parties with respect to this Agreement, including any dispute,
controversy or claim relating to any Unanimous Decision (each, a “Dispute”), shall be resolved by binding
arbitration before a panel of three (3) arbitrators in accordance with the
rules of the AAA in effect at the time the proceeding is initiated;
provided, that, any Dispute as to a
Unanimous Decision shall be resolved pursuant to Section 13.1.2.  In any such arbitration, the following
procedures shall apply:

 

(a)                                  The panel will be
comprised of one arbitrator chosen by DS, one by ARQULE and the third by the
two so chosen.  If either, or both, of DS
or ARQULE fails to choose an arbitrator or arbitrators within thirty (30) days
after receiving notice of commencement of arbitration or if the two arbitrators
fail to choose a third arbitrator within thirty (30) days after their
appointment, then either or both Parties shall immediately request that the ICC
select the remaining number of arbitrators to be selected, which arbitrator(s) shall
have the requisite scientific background, experience and expertise.  The place of arbitration shall be Boston,
Massachusetts.

 

76

 

(b)                                 Either Party may apply
to the arbitrators for interim injunctive relief until the arbitration decision
is rendered or the Dispute is otherwise resolved.  Either Party also may, without waiving any
right or remedy under this Agreement, seek from any court having jurisdiction
any injunctive or provisional relief necessary to protect the rights or
property of that Party pending resolution of the Dispute pursuant to this Section 13.1.1.  The arbitrators shall have no authority to
award punitive or any other type of damages not measured by a Party’s
compensatory damages.  Each Party shall
bear its own costs and expenses and attorneys’ fees in connection with any such
arbitration; provided, that, the non-prevailing Party shall pay the costs and
expenses incurred by the prevailing Party in connection with any such
arbitration, including reasonable attorneys’ fees and costs.  The Parties acknowledge that while Section 13.4
shall apply to any such Dispute, it is the intention of the Parties not to use
the discovery rules of the Commonwealth of Massachusetts in connection
with any such Dispute.

 

(c)                                  Except to the extent
necessary to confirm an award or decision or as may be required by Applicable
Laws, neither Party nor any arbitrator may disclose the existence or results of
any arbitration without the prior written consent of both Parties.  In
no event shall any arbitration be initiated after the date when commencement of
a legal or equitable proceeding based on the Dispute would be barred by the
applicable Massachusetts statute of limitations.

 

(d)                                 In the event of a
Dispute involving the alleged breach of this Agreement (including, without
limitation, whether a Party has satisfied its diligence obligations hereunder),
(i) neither Party may terminate this Agreement under Section 10.2.2
until resolution of the Dispute pursuant to this Section 13.1.1 and (ii) if
the arbitrators render a decision that a breach of this Agreement has occurred,
the arbitrators shall have no authority to modify the right of the
non-breaching Party to terminate this Agreement in accordance with Section 10.2.2.

 

(e)                                  Any disputed
performance or suspended performance pending the resolution of a Dispute that
the arbitrators determine to be required to be performed by a Party shall be
completed within a reasonable time period following the final decision of the arbitrators.

 

(f)                                    The decision of the
arbitrators shall be the sole, exclusive and binding remedy between the Parties
regarding the determination of all Disputes presented.  Any

 

77

 

monetary
payment to be made by a Party pursuant to a decision of the arbitrators shall
be made in United States dollars, free of any tax or other deduction.

 

13.1.2                           Accelerated Arbitration.  To the extent a Dispute submitted to
arbitration by a Party under Section 13.1.1 is claimed, by either Party,
to involve a Unanimous Decision,
the following procedures shall apply:

 

(a)                                  The Parties shall
mutually select a single independent, conflict-free arbitrator (the “Expert”), who shall have sufficient
scientific background and experience to resolve the Dispute.  If the Parties are unable to reach agreement
on the selection of an Expert within fifteen (15) business days after
submission to arbitration, then either or both Parties shall immediately request
that the AAA select an arbitrator with the requisite scientific background,
experience and expertise.  The place of
arbitration shall be Boston, Massachusetts.

 

(b)                                 Each Party shall
prepare and submit a written summary of such Party’s position and any relevant
evidence in support thereof to the Expert within thirty (30) days of the
selection of the Expert.  Upon receipt of
such summaries from each Party, the Expert shall provide copies of the same to
the other Party.  Within thirty (30) days
of the delivery of such summaries by the Expert, each Party shall submit a
written rebuttal of the other Party’s summary and may also amend and re-submit
its original summary.  Oral presentations
shall not be permitted unless otherwise requested by the Expert.  The Expert shall make a final decision with respect
to the Dispute within thirty (30) days following receipt of the last of such
rebuttal statements submitted by the Parties. 
Each Party shall bear its own costs and expenses and attorneys’ fees,
and the Party that does not prevail in the arbitration proceeding shall pay the
Expert’s fees and any administrative fees of arbitration.

 

13.2                           Notices.  All notices and communications shall be in
writing and delivered personally or by courier or mailed via certified mail,
return receipt requested, addressed as follows, or to such other address as may
be designated from time to time:

 

78

 

	
  If to DS:

  	
   

  	
  If to ARQULE:

  
	
   

  	
   

  	
   

  
	
  Daiichi  Sankyo Co., Ltd.

  	
   

  	
  ArQule, Inc.

  
	
  1-2-58, Hiromachi, Shinagawa -ku

  	
   

  	
  19 Presidential Way

  
	
  Tokyo 140-8710,
  Japan

  	
   

  	
  Woburn, MA 01801

  
	
  Tel: +81-3-3492-3131

  	
   

  	
  Tel: (781) 994-0300

  
	
  Fax: +81-3-5436-8561

  	
   

  	
  Fax: (781) 376-6019

  
	
  Attention:   Vice President, 

  	
   

  	
  Attention: General Counsel

  
	
                     R&D
  Planning

  	
   

  	
   

  
	
   

  	
   

  	
  Attention   Vice President, 

  
	
   

  	
   

  	
                    Business
  Development

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With a copy to:

  
	
   

  	
   

  	
  Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

  
	
   

  	
   

  	
  One Financial Center

  
	
   

  	
   

  	
  Boston, Massachusetts 02111

  
	
   

  	
   

  	
  Attention: Jeffrey Wiesen, Esq.

  
	
   

  	
   

  	
  Tel: (617) 542-6000

  
	
   

  	
   

  	
  Fax: (617) 542-2241

  

 

In addition, all notices to the JEC, JRC, or USCC shall be sent to each
Party’s designees at such Party’s address stated above or to such other address
as such Party may designate by written notice given in accordance with this Section 13.2.

 

Except as otherwise expressly provided in this Agreement or mutually
agreed in writing, any notice, communication or document (excluding payment)
required to be given or made shall be deemed given or made and effective upon
actual receipt or, if earlier, (a) three (3) business days after
deposit with an internationally-recognized overnight express courier with
charges prepaid, or (b) five (5) business days after mailed by
certified, registered or regular mail, postage prepaid, in each case addressed
to a Parties at its address stated above or to such other address as such Party
may designate by written notice given in accordance with this Section 13.2.

 

13.3                           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to the application of principles of conflicts of law.

 

13.4                           Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective legal representatives,
successors and permitted assigns.

 

79

 

13.5                           Headings.  Section and subsection headings are
inserted for convenience of reference only and do not form a part of this
Agreement.

 

13.6                           Counterparts.  This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original and both
of which, together, shall constitute a single agreement.

 

13.7                           Amendment; Waiver.  This Agreement may be amended, modified,
superseded or canceled, and any of the terms of this Agreement may be waived,
only by a written instrument executed by each Party or, in the case of waiver,
by the Party or Parties waiving compliance. 
The delay or failure of either Party at any time or times to require
performance of any provisions shall in no manner affect the rights at a later
time to enforce the same.  No waiver by
either Party of any condition or of the breach of any term contained in this
Agreement, whether by conduct, or otherwise, in any one or more instances,
shall be deemed to be, or considered as, a further or continuing waiver of any
such condition or of the breach of such term or any other term of this
Agreement.

 

13.8                           No Third Party Beneficiaries.  Except as set forth in Sections 12.1, 12.2
and 12.3, no Third Party (including, without limitation, employees of either
Party) shall have or acquire any rights by reason of this Agreement.

 

13.9                           Purposes and Scope.  The Parties hereto understand and agree that
this Collaboration is limited to the activities, rights and obligations as set
forth in this Agreement.  Nothing in this Agreement shall be
construed (a) to create or imply a general partnership between the
Parties, (b) to make either Party the agent of the other for any purpose, (c) to
alter, amend, supersede or vitiate any other arrangements between the Parties
with respect to any subject matters not covered hereunder, (d) to give
either Party the right to bind the other, (e) to create any duties or
obligations between the Parties except as expressly set forth herein, or (f) to
grant any direct or implied licenses or any other right other than as expressly
set forth herein.

 

13.10                     Assignment and Successors. 
Neither this Agreement nor any obligation of a Party hereunder may be
assigned by either Party without the consent of the other which shall not be
unreasonably withheld, except that each Party may assign this Agreement and the
rights,

 

80

 

obligations
and interests of such Party, in whole or in part, to any of its Affiliates, to
any purchaser of all or substantially all of its assets or all or substantially
all of its assets to which this Agreement relates or to any successor
corporation resulting from any merger, consolidation, share exchange or other
similar transaction.

 

13.11                     Force Majeure. 
Neither DS nor ARQULE shall be liable for failure of or delay in
performing obligations set forth in this Agreement, and neither shall be deemed
in breach of its obligations, if such failure or delay is due to a Force
Majeure.  In event of such Force Majeure,
the Party affected shall use reasonable efforts to cure or overcome the same
and resume performance of its obligations hereunder.

 

13.12                     Interpretation.  The
Parties hereto acknowledge and agree that: (a) each Party and its counsel
reviewed and negotiated the terms and provisions of this Agreement and have
contributed to its revision; (b) the rule of construction to the
effect that any ambiguities are resolved against the drafting Party shall not
be employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to each Party and not
in a favor of or against either Party, regardless of which Party was generally
responsible for the preparation of this Agreement.

 

13.13                     Integration; Severability. 
This Agreement is the entire agreement with respect to the subject
matter hereof and supersedes all other agreements and understandings between
the Parties with respect to such subject matter.  Notwithstanding the foregoing, this Agreement
shall not supersede the Confidentiality Disclosure
Agreement dated February 24, 2008 (the “Prior CDA”) between ARQULE
and DS, which shall continue to be in full force and effect in accordance with
its terms and conditions.  All
disclosures and information from ARQULE to DS prior to the Effective Date shall
be governed by the prior CDA, and all disclosures and information from ARQULE
to DS after the Effective Date shall be governed by this Agreement.  If any provision of this Agreement is or
becomes invalid or is ruled invalid by any court of competent jurisdiction or
is deemed unenforceable, it is the intention of the Parties that the remainder
of the Agreement shall not be affected.

 

13.14                     Further Assurances. 
Each of ARQULE and DS agrees to duly execute and deliver, or cause to be
duly executed and delivered, such further instruments and do and cause to

 

81

 

be done such
further acts and things, including, without limitation, the filing of such
additional assignments, agreements, documents and instruments, as the other
Party may at any time and from time to time reasonably request in connection
with this Agreement or to carry out more effectively the provisions and
purposes of, or to better assure and confer unto such other Party its rights
and remedies under, this Agreement.

 

[Remainder of page intentionally left
blank.]

 

82

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives.

 

	
   

  	
  ARQULE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paolo Pucci

  
	
   

  	
   

  	
   

  
	
   

  	
  Name: Paolo Pucci

  
	
   

  	
   

  	
   

  
	
   

  	
  Title: Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DAIICHI SANKYO CO., LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kazuhiro
  Hirokawa

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:
  Kazuhiro Hirokawa

  
	
   

  	
   

  	
   

  
	
   

  	
  Title: Executive
  Officer,

  
	
   

  	
            Head of R&D Division

  

 

83

 

SCHEDULE 1

 

RESEARCH STAGES/ADVANCEMENT CRITERIA

 

Research Stage:  *

 

Activities:

 

·                  *

 

·                  *

 

·                  *

 

·                  *

 

Advancement Criteria:

 

·                  *

 

Research Stage:  Hit to Lead Activities

 

Activities:

 

·                  *

 

·                  *

 

·                  *

 

·                  *

 

Advancement Criteria:

 

·                  *

 

·                  *

 

·                  *

 

1-1

 

Research Stage:  Lead Optimization

 

Activities:

 

·                  *

 

·                  *

 

·                  *

 

Advancement Criteria:

 

·                  *

 

·                  *

 

·                  *

 

·                  *

 

·                  *

 

Research Stage:  *

 

Activities:

 

·                  *

 

·                  *

 

Advancement Criteria:

 

·                  *

 

1-2

 

SCHEDULE 2

 

DS TARGET LIST

 

*

 

*

 

2-1

 

SCHEDULE 3

 

MILESTONE AND ROYALTY PROVISIONS TO BE NEGOTIATED PURSUANT TO SECTION 5.4
AND

 

INCLUDED IN LICENSE AGREEMENTS

 

1.                                       Milestones.

 

(a)                                  Clinical
Development & Sales Milestones.  Within * (*) days after the occurrence of the following milestone
events, DS shall make non-refundable, non-creditable (except as provided below)
milestone payments for events and in amounts to be agreed pursuant to Section 5.4
of the Agreement to ARQULE for
each Licensed Product that is Developed and Commercialized under a License
Agreement:

 

	
  Milestone Event

  	
   

  	
  Milestone
  Payment

  
	
   

  	
   

  	
   

  
	
  *

  	
   

  	
  Number of indications and
  corresponding payments to be determined

  
	
   

  	
   

  	
   

  
	
  *

  	
   

  	
  Number of indications and corresponding
  payments to be determined

  
	
   

  	
   

  	
   

  
	
  *

  	
   

  	
  Number of indications and
  corresponding payments to be determined

  
	
   

  	
   

  	
   

  
	
  *

  	
   

  	
  Tiered sales brackets and
  corresponding milestone payments to be determined.

  

 

2.                                       Determination that Milestone Events have Occurred.  DS shall provide ARQULE with written notice
within ten (10) days of each occurrence of a milestone event set forth
above.  In the event that,
notwithstanding the fact that DS has not given such a notice, ARQULE believes
any such milestone event has occurred, it shall so notify DS in writing and
shall provide to DS data, documentation or other information that supports its
belief.  Any dispute under this

 

3-1

 

Section that relates to whether or not a milestone event has
occurred shall be referred to the JEC to be resolved in accordance with Section 2.1.5
of the Agreement.

 

3.                                       Crediting of Milestone Payments for Backup
Compounds.  In the event
that any milestone payment is made for a Licensed Product, the Development
and/or Commercialization of such Licensed Product is subsequently terminated
and a Backup Compound with respect to such Licensed Product is Developed and/or
Commercialized in lieu of such Licensed Product, then all such previously paid
milestone payments paid with respect to such terminated Licensed Product shall
be creditable against the same milestone payments due and payable for such
Backup Compound.

 

4.                                       Payment of Royalties.

 

(a)                                  Royalty
Rates.  DS shall pay ARQULE a royalty
based on Annual Net Sales of each Licensed Product in each Calendar Year (or
partial Calendar Year) commencing with the First Commercial Sale of such
Licensed Product in any country in the Territory and ending upon the last day
of the last Royalty Term for such Licensed Product at royalty rates and for
tiers of Net Sales to be agreed pursuant to Section 5.4 of the Agreement.

 

(b)                                 Royalty
Rate Adjustments.  Notwithstanding
anything to the contrary in Section 4(a) of this Schedule 3, if any Licensed Product is sold in a country and
is only covered by a Valid Claim that is included in the Joint Patent Rights,
then, during the period commencing on the * (*) anniversary of the First Commercial Sale of such Licensed
Product in such country and continuing until the last day of the applicable
Royalty Term with respect to such Licensed Product in such country, the royalty
rates in such country shall be reduced by * percent (*%) of the rates set forth above.  If the royalty rate on a Licensed Product is
reduced in a country under this Section 4(b) and is subsequently
covered by a Valid Claim under the Licensed Patent Rights in such country, the
full royalty rates otherwise applicable shall be reinstated for so long as such
Valid Claim covers the Licensed Product during the remainder of the applicable
Royalty Term.

 

(c)                                  Generic
Licensed Products.  In the event that
one or more Third Parties sell a Generic Licensed Product (as defined below) in
any country in which a Licensed Product is then being sold by DS, then, (i) during
any Calendar Quarter in which sales of the Generic Licensed Product

 

3-2

 

by such Third Parties are equal to or greater than *
percent (*%) but less than *
percent (*%) of aggregate unit sales of Licensed
Products and Generic Licensed Products in such country (as measured by
prescriptions or other similar information available from a Third Party Data
Provider and applicable to such country) the applicable royalties in effect
with respect to such Licensed Product in such country as specified in Section 4(a) of this Schedule 3 shall be reduced by *
percent (*%) and (ii) during any Calendar
Quarter in which sales of the Generic Licensed Products by such Third Parties
are equal to or greater than * percent (*%) of aggregate unit sales of Licensed Products and Generic
Licensed Products in such country (as measured by prescriptions or other
similar information available from a Third Party Data Provider and applicable
to such country) the applicable royalties in effect with respect to such
Licensed Product in such country as specified in Section 4(a) of this Schedule 3 shall be reduced by *
percent (*%). 
Notwithstanding the foregoing, (i) DS’s obligation to pay royalties
at * percent (*%)
of the applicable royalty rates shall be reinstated on the first day of the
Calendar Quarter immediately following the Calendar Quarter in which sales of
such Generic Licensed Products account for less than *
percent (*%) but more than *
percent (*%) of aggregate unit sales of Licensed
Products and Generic Licensed Products in such country and (ii) DS’s
obligation to pay royalties at the full royalty rates shall be reinstated on
the first day of the Calendar Quarter immediately following the Calendar
Quarter in which sales of such Generic Licensed Products account for * percent (*%) or less of
aggregate unit sales of Licensed Products and Generic Licensed Products in such
country.  Notwithstanding the foregoing, the
provisions of this Section 4(c) shall
not apply for any country in which DS has not filed for patent protection for
the applicable Licensed Product or has not otherwise used commercially
reasonable efforts to secure patent protection for such Licensed Product.  For purposes of this Section 4(c), a “Generic Licensed Product”
means a pharmaceutical product that contains the same active ingredient as a
Licensed Product and is bioequivalent to such Licensed Product; provided, that,
any product sold by DS or any Affiliate or licensee of DS shall not be a
Generic Licensed Product for purposes of this Agreement.

 

3-3

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