Document:

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                                                                   Exhibit 10.27

               PRELIMINARY UNSUPPORTED SOFTWARE LICENSE AGREEMENT

         This Agreement is made as of August 7th, 2000 between Fujitsu Siemens
Computers GmbH, a German company with offices at Otto Hahn Ring 6 81730 Munich,
Germany (hereinafter called "FSC") and Unisphere Solutions Inc., a Delaware
corporation having offices at One Executive Drive, Chelmsford,MA 01824
(hereinafter called "USI").

         WHEREAS, USI wishes to have access to the source code ("Source Code")
for the RTP Software as described in technical specifications document entitled
"Source List RTP Version 1.0C" (the "Software") for the purpose specified in
Section 1.a.

         NOW, THEREFORE, FSC and USI agree as follows:

1.   LICENSE

          a.   FSC hereby grants USI a preliminary, fully paid and royalty free,
               nonexclusive, nontransferable license, without right to
               sublicense, to use, process, and reproduce copies of the Source
               Code solely for the limited purpose of permitting USI to evaluate
               the Software for an eventual development of certain hardware and
               software products.

          b.   USI is not licensed to redistribute copies of the Source Code to
               any third party.

          c.   The Source Code is provided as is and USI has full responsibility
               for its installation, support and maintenance. FSC provides no
               support or maintenance of this Source Code. USI will provide FSC
               with information regarding any problems which occur during USI's
               use, without expecting a response or correction of the problem
               from FSC.

          d.   FSC will not be obligated in any way to provide updates to the
               Source Code or any documentation or information regarding this
               item.

          e.   FSC MAY, BUT IS NOT OBLIGATED TO, PROVIDE NEW VERSIONS OF THE
               SOURCE CODE AD HOC WITHOUT ANY OBLIGATION WHATSOEVER TO PROVIDE
               ADDITIONAL OR REGULAR UPDATES OR TO PROVIDE SUPPORT OF ANY KIND
               FOR THE NEW VERSION, CONSISTENT WITH THE TERMS OF THIS AGREEMENT.

2.   PROTECTION OF PROPRIETARY RIGHTS

          a.   USI recognizes that the Source Code (i) is considered by FSC to
               be a trade secret, (ii) is furnished by FSC to USI in confidence,
               and (iii) contains proprietary and
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               confidential information. Title to, ownership of, and all
               proprietary rights in the Source Code and all copies thereof are
               reserved to and will at all times remain with FSC.

          b.   USI will hold the Source Code in confidence at least to the same
               extent that it protects its own similar confidential information
               and will take all reasonable precautions consistent with
               generally accepted standards in the data processing industry to
               safeguard the confidentiality of the Source Code. USI agrees to
               limit the number of copies of the Source Code to the minimum
               number of copies required by USI to perform its evaluation
               activities in accordance with this Agreement. USI will properly
               reproduce on each such copy all notices of FSC's or its
               supplier's patent, copyright, trademark or trade secret rights in
               such portion or Releases. USI agrees that it will under no
               circumstances distribute or disseminate any information contained
               in or disclosed by the Source Code, including but not limited to
               any technical information, design concepts, processes,
               procedures, formulae, or algorithms contrary to the express
               provisions of this Agreement.

          c.   USI will not disclose, furnish, transfer or otherwise make
               available any portion of the Source Code to any person except to
               those of its employees, agents or contractors whose access is
               necessary for USI's use as set forth above. USI will take
               appropriate action by instruction or agreement with such
               employees, agents or contractors to inform them of the trade
               secret, proprietary and confidential nature of the Source Code
               and to obtain their compliance with the terms of this Section 2.
               USI will be liable for noncompliance by agents and contractors to
               the same extent as it would be liable for noncompliance by its
               employees.

          d.   Notwithstanding anything in this Section 2 to the contrary, USI
               will have no obligation of confidentiality with respect to any
               portion of the Source Code which (i) was known to USI prior to
               its receipt from FSC unless covered by a separate Nondisclosure
               Agreement, (ii) is lawfully obtained by USI from a third party
               under no obligation of confidentiality, (iii) is or becomes
               publicly available other than as a result of any act or failure
               to act of USI, or (iv) is independently developed by USI without
               use of the Source Code.

          e.   USI agrees to notify FSC promptly in the event of any breach of
               its security under conditions in which it would appear that the
               trade secrets represented by the Source Code and the ideas
               expressed therein were prejudiced or exposed to loss. USI shall,
               upon request from FSC, take all other reasonable steps necessary
               to recover any compromised trade secrets disclosed to or placed
               in the possession of USI by virtue of this Agreement. The cost of
               taking such steps shall be borne solely by USI.

          f.   USI's obligations under this Section 2 will survive the
               termination of the license granted hereunder.

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          g.   USI acknowledges and agrees that the Source Code and all the
               information in whatever medium provided to USI in connection
               therewith pursuant to the confidentiality provisions of this
               Agreement are unique and commercially valuable, and that any
               breach by USI of the terms of this Agreement with respect to the
               disclosure, distribution of the Source Code or such information
               would result in an irreparable and continuing injury to FSC for
               which money damages would be inadequate. In the event of such a
               breach or anticipated breach by USI, FSC shall be entitled to
               seek immediate injunctive relief and to specifically enforce the
               terms of this Agreement, in addition to any other remedy to which
               FSC may be entitled at law or in equity.

3.  USI USE OF SOURCE CODE

          a.   USI may use the Source Code only as necessary for the purpose
               specified in Section 1.a.

          b.   USI agrees not to use the Source Code for any other purpose
               without the prior express written permission of FSC.

4.   WARRANTY

          a.   FSC warrants that it has the right to grant a license to use the
               Source Code as contemplated hereunder. FSC makes no warranty with
               respect to the Source Code.

          b.   EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 4, FSC MAKES NO
               WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO THE SOURCE CODE.
               WITHOUT LIMITING THE FOREGOING, FSC MAKES NO WARRANTY OF
               MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WARRANTY
               THAT THE SOURCE CODE IS ERROR-FREE OR THAT ITS USE WILL BE
               UNINTERRUPTED OR THAT THIRD PARTY RIGHTS ARE NOT INFRINGED.

5.   TERM AND TERMINATION

          a.   This Agreement is determined to be a preliminary license
               agreement subject to both parties efforts to conclude a final
               License Agreement for the RTP Software until November 30, 2000
               at the latest. Therefore this Agreement shall terminate
               automatically on September 30th, whether or not such a final
               License Agreement has been concluded by the parties. In case no
               final License Agreement has been concluded at this time, USI
               shall immediately stop using the RTP Software in any way, return
               the Source Code of the RTP Software to FSC, destroy all copies or
               modifications made from such Source Code and confirm such
               destruction by a written document to be signed by the CEO of USI.
               The provisions of this Agreement shall survive such termination.

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          b.   In the event USI is in breach of this Agreement and does not cure
               the breach within thirty (30) days of receipt of written notice
               of such breach from FSC, FSC shall have the right to terminate
               this Agreement for cause. Upon the termination of this Agreement
               for cause by FSC:

               i.   All licenses granted pursuant to Section 1 hereof will cease
                    and USI will immediately return the Source Code and all
                    portions thereto, to FSC together with all back-up copies
                    and modifications thereof. Section 5 a sentences 3 and 4
                    shall apply accordingly.

               ii.  USI will purge all copies of the Source Code from all
                    computer processors or storage media on which USI has
                    installed or permitted others to install such Source Code.

6.   NO ASSIGNMENT

         This Agreement may not be assigned by USI without the prior written
consent of FSC.

7.   ENTIRE UNDERSTANDING

         This Agreement sets forth the entire understanding between the parties
         with respect to the matters set forth herein and supersedes all prior
         representations, understandings or agreements, whether written or oral,
         express or implied, with respect to this transaction.

8.  GOVERNING LAW

         This Agreement is governed by the laws of the Federal Republic of
         Germany, excluding its conflict of laws rules.

9. DISPUTE RESOLUTION

         Except as otherwise provided herein, any controversy between the
         parties hereto involving the construction or application of any terms,
         covenants or conditions of this or any claims arising out of or
         relating to this Agreement or the breach thereof shall be settled by
         the following procedure:

                    1.   Representatives of each party directly responsible for
                         the matters underlying the controversy shall meet as
                         reasonably requested by the other party to resolve the
                         controversy.

                    2.   If the controversy is not resolved by the
                         representatives by mutual agreement within twenty
                         business days after their initial meeting to discuss
                         the controversy, either party may at any time
                         thereafter provide the other party written notice
                         specifying the terms of such controversy in reasonable
                         detail. Upon receipt of such notice, the appropriate
                         senior

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                         executives shall meet at a mutually agreed upon
                         time and place within twenty business days of receipt
                         of such notice. They shall discuss the controversy and
                         negotiate for a period of up to twenty business days in
                         an effort to resolve the controversy.

                    3.   If a dispute cannot be settled by the procedure of
                         Subsection 2 above, then such dispute shall be
                         determined by arbitration in accordance with the
                         Arbitration Rules of the International Chamber of
                         Commerce, Paris France. The number of arbitrators shall
                         be three; the place of arbitration shall be Munich,
                         Germany; and the language of arbitration shall be
                         English.

                    4.   Nothing in this Agreement shall prevent any party from
                         seeking immediate injunctive relief in a court of
                         appropriate jurisdiction in order to protect its
                         interests under this Agreement.

USI                                     FSC

By:  Dr. Georg Haubs                    By: /s/ Dr. Barth Kellerer
   --------------------------------        ------------------------------------

Name: /s/ Dr. Georg Haubs               Name: B. Kellerer
     ------------------------------          ----------------------------------

Title: VP Business Develop.             Title: Director
      -----------------------------           ---------------------------------

                                       5<PAGE>   1
                                                                    EXHIBIT 10.1

                   COMPOUND DISCOVERY COLLABORATION AGREEMENT

         This Compound Discovery Collaboration Agreement (this "Agreement") is
entered into as of October 17, 2000 (the "Effective Date") by and between
ArQule, Inc. ("ArQule"), a Delaware corporation, and Genome Therapeutics
Corporation ("GTC"), a Delaware corporation.

                                 R E C I T A L S

         WHEREAS, ArQule and GTC previously entered into a Research
Collaboration and License Agreement dated as of May 19, 1998 (the "1998
Agreement") pursuant to which the Parties agreed to collaborate regarding
research, development and commercialization of certain compounds selected by the
Parties based on the screening of compounds proprietary to ArQule against
certain targets proprietary to GTC;

         WHEREAS, the Parties desire to terminate the 1998 Agreement and
restructure the nature and scope of their collaboration as more fully set forth
below; and

         WHEREAS, the Parties desire to continue to engage in joint research
activities and to pursue further development of selected compounds discovered
hereunder in accordance with the terms hereof.

         NOW, THEREFORE, ArQule and GTC hereby agree as follows:

1. Definitions. For the purposes of this Agreement, the capitalized terms set
forth below shall have the following meanings:

         1.1. "Active Compound" means any ArQule Compound, GTC Compound, Other
Compound, or Analog Compound which exhibits confirmed significant functional
activity against a GTC Target in a primary screen, as determined by the Research
Committee in accordance with Subsections 3.4.3. or 3.4.4.

         1.2. "Affiliate" means any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by a Party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.

         1.3. "Analog Compound" means a chemical compound that (i) exhibits
significant structural similarity to an initially identified Collaboration
Compound, (ii) was discovered or developed using information obtained by
screening one or more Collaboration Compounds, or (iii) was structurally derived
in one or more steps from a parent Collaboration Compound by a process of
modification or partial substitution of at least one component wherein at least
one structural feature is retained at each process step.

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         1.4. "ArQule Compound" means a small organic chemical molecule in a
Mapping Array Set, Compass Array Set, or Biased Array Set (as described in the
Collaboration Plan) and provided by ArQule to GTC as directed by the Research
Committee under this Agreement or previously provided to GTC under the 1998
Agreement.

         1.5. "Available Compound" means an ArQule Compound, GTC Compound,
Analog Compound, or Other Compound (i) the rights to which are not licensed or
otherwise committed by ArQule or GTC to a Third Party for use in the Field or
(ii) that has not been committed to an internal ArQule or GTC program in the
Field. "Available Active Compound" means an Active Compound that is also an
Available Compound.

         1.6. "Available Target" means a GTC Target (i) the rights to which are
not licensed or otherwise committed by GTC or ArQule to a Third Party for use in
the Field or (ii) that has not been committed to an internal GTC or ArQule
program in the Field.

         1.7 "Collaboration" means the joint research and development effort
undertaken by the Parties pursuant this Agreement, all as more specifically
contemplated in the Collaboration Plan

         1.8. "Collaboration Compound" means (i) any Available Active Compound
designated by the Research Committee as a Collaboration Compound pursuant to
Subsection 3.4.5. and (ii) any Analog Compound developed by the Parties in the
Collaboration as described in Section 3.6., provided that such Analog Compound
is an Available Compound as required under Section 3.6.

         1.9. "Collaboration Compound Set" means a set of Collaboration
Compounds that share substantial chemical or structural homology, and which
exhibit significant functional activity for the same Collaboration Target, as
determined by the Research Committee.

         1.10. "Collaboration Plan" means the overall plan for research and
development activities for typical projects in the Collaboration, as set forth
in Exhibit A as the same may be modified from time to time by the Steering
Committee.

         1.11. "Collaboration Product" means any product containing as one of
its constituents any Collaboration Compound or Analog Compound.

         1.12. "Collaboration Target" means any Available Target designated by
the Research Committee as a Collaboration Target pursuant to Subsection 3.4.5.

         1.13. "Collaboration Work Product" means, individually or collectively,
any Collaboration Compound, Collaboration Compound Set, GLP Toxicology
Candidate, or IND Candidate and its corresponding Collaboration Target, as well
as all related Technology.

         1.14. "Commercialization Plan" means a plan developed and approved by
the Steering Committee for the sale, license, or other transfer of commercial
rights in Collaboration Work Product to a Third Party, as described in Section
3.9.

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

         1.16. "Field" means *****.

         1.17. "GLP Toxicology Candidate" means a Collaboration Compound that
meets or exceeds the criteria established by the Research Committee for a
compound that is ready for submission to IND enabling toxicology studies, as
documented in the Research Plan.

         1.18. "Gross Revenues" means *****.

         1.18. "GTC Compound" means a small organic chemical molecule in a
screening library that GTC includes for screening against GTC Targets in the
Collaboration, as directed by the Research Committee.

         1.19. "GTC Target" means each molecular target selected by the Research
Committee for use in the Collaboration, as further described in Subsection
3.4.1. below.

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

         1.21. "IND Candidate" means a Collaboration Compound that meets or
exceeds the criteria established by the Research Committee for a compound that
is ready for human clinical trials, including data sufficient to support the
filing of an IND, as documented in the Research Plan.

         1.22. "Other Compound" means a small organic chemical molecule that the
Parties have jointly acquired from a Third Party for use in the Collaboration.

         1.23. "Patent Rights" means any rights in United States patent
application and any divisional, continuation, or continuation-in-part of such
patent application (to the extent the claims are directed to subject matter
specifically described therein), as well as any patent issued thereon and any
reissue or reexamination of such patent, and any foreign counterparts to such
patents and patent applications. "ArQule Patent Rights" means Patent Rights that
are either (i) assigned solely to ArQule, (ii) assigned jointly to ArQule and an
Affiliate of ArQule or a Third Party, or (iii) licensed to ArQule, in each case
to the extent that ArQule has the ability to license or sublicense all rights
reasonably required in connection therewith in order to engage in any

*   Confidential Treatment has been requested for the marked portion.

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activities contemplated under this Agreement without payment of valuable
consideration to any other Third Party. "GTC Patent Rights" means Patent Rights
that are either (i) assigned solely to GTC, (ii) assigned jointly to GTC and an
Affiliate of GTC or a Third Party, or (iii) licensed to GTC, in each case to the
extent that GTC has the ability to license or sublicense all rights reasonably
required in connection therewith in order to engage in any activities
contemplated under this Agreement without payment of valuable consideration to
any other Third Party. "Joint Patent Rights" means Patent Rights (i) in
Collaboration Compounds and their use against Collaboration Targets or (ii) that
are assigned to both ArQule and GTC as joint owners or are otherwise jointly
invented by one or more employees or consultants of GTC and one or more
employees or consultants of ArQule in connection with the Collaboration.

         1.24. "Research Committee" means the Research Committee described in
Section 2.1.

         1.25. "Research Materials" means any tangible research materials,
whether biological, chemical, physical, or otherwise. "Proprietary Research
Materials" means any Research Materials proprietary to a Party and which such
Party designates as confidential. For the purposes hereof, the Parties
acknowledge and agree that all ArQule Compounds, GTC Compounds and GTC Targets
shall constitute Proprietary Research Materials.

         1.26. "Research Plan" means the specific, detailed plan for research
and development activities in the Collaboration that is developed by the
Research Committee and approved by the Steering Committee, as revised from time
to time by the Steering Committee based on recommendations from the Research
Committee. The Parties anticipate that they will update the Research Plan on at
least a quarterly basis.

         1.27. "Steering Committee" means the Steering Committee described in
Section 2.2. of this Agreement.

         1.28. "Party" means either GTC or ArQule.

         1.29. "Parties" mean GTC and ArQule, collectively.

         1.30 "Third Party(ies)" means an entity(ies) which is not a Party or an
Affiliate.

         1.31. "Technology" means any proprietary development, idea, design,
concept, technique, process, invention (whether a composition of matter or
otherwise), Research Material, discovery, trade secret, copyright, or
improvement, whether or not patentable or copyrightable. "ArQule Technology"
means Technology that is either (i) assigned solely to ArQule, (ii) assigned
jointly to ArQule and an Affiliate of ArQule or a Third Party other than GTC, or
(iii) licensed to ArQule, in each case to the extent that ArQule has the ability
to license or sublicense all rights reasonably required in connection therewith
in order to engage in any activities contemplated under this
Agreement without payment of valuable consideration to any Third Party. "GTC
Technology" means Technology that is either (i) assigned solely to GTC, (ii)
assigned jointly to GTC and an Affiliate of GTC or a Third Party, or (iii)
licensed to GTC, in each case to the extent that GTC has the ability to license
or sublicense all rights reasonably required in connection therewith in order to
engage in any activities contemplated under this

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Agreement without payment of valuable consideration to any Third Party.
"Collaboration Technology" means (i) all Collaboration Compounds and their use
against Collaboration Targets, and (ii) any Technology that is developed,
invented, or discovered jointly by one or more employees or consultants of GTC
and one or more employees or consultants of ArQule in connection with the
Collaboration.

2. Management of Collaboration.

         2.1. Research Committee.

                  2.1.1. Creation of Research Committee. The Parties hereby
create a Research Committee with at least four (4) members, with equal
representation from each Party. Subject to the approval of the Steering
Committee, the Research Committee will manage all research and development
activities with respect to the Collaboration. The members initially designated
by GTC are ***** and the members initially designated by ArQule are ***** .
Either Party may change its representatives on the Research Committee at any
time upon written notice to the other Party. The chairperson of the Research
Committee shall be designated annually on an alternating basis between the
Parties. ArQule shall designate the initial chairperson. The Party not
designating the chairperson shall designate one of its representatives as
secretary to the Research Committee for such year.

                  2.1.2. Meetings of the Research Committee. Meetings of the
Research Committee shall be held not less frequently than once per calendar
quarter. Such Meetings shall be held not more than forty-five (45) days after
the end of each calendar quarter, or at such other times as the Parties may deem
appropriate, at such times and places as the members of the Research Committee
shall from time to time agree. Special meetings of the Research Committee may be
called by either Party on ten (10) days prior written notice to the other Party
unless notice is waived by the Parties; provided, however, that special meetings
shall not be called more frequently than once a calendar quarter unless
otherwise agreed to by both Parties. All meetings shall alternate between the
offices of the Parties unless the Parties otherwise agree. The chairperson shall
be responsible for sending notice of meetings to all members. In the event a
Research Committee member is unable to attend a meeting of the Research
Committee, such Research Committee member may designate an alternate member who
will serve solely for that Research Committee meeting.

                  2.1.3. Decisions of Research Committee. A quorum of the
Research Committee shall be present at any meeting of the Research Committee if
at least one representative of each Party is present at such meeting in person
or by telephone. If a quorum exists at any meeting, the unanimous consent of all
members of the Research Committee present at such meeting is required to take
any action on behalf of the Research Committee.

                  2.1.4. Responsibilities of Research Committee. The Research
Committee shall be responsible for the day-to-day conduct and progress of the
Collaboration, including without limitation:

*Confidential Treatment has been requested for the marked portion.

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         (i) preparing, the Research Plan and the Collaboration's annual budget
for approval by the Steering Committee, and recommending changes, up-dates and
revisions thereto to the Steering Committee;

         (ii) managing all technical aspects of the Collaboration, including all
research and development activities;

         (iii) providing a forum for the exchange of scientific information
among the scientists participating in the Collaboration;

         (iv) resolving matters involving scientific questions;

         (v) determining the criteria of significant functional activity
necessary for an ArQule Compound, GTC Compound, Other Compound, or Analog
Compound to qualify as an Active Compound, and confirming that such ArQule
Compound, GTC Compound, Other Compound, or Analog Compound qualifies as an
Active Compound;

         (vi) designating Available Active Compounds as Collaboration Compounds,
establishing Collaboration Compound Sets, and adding and removing compounds from
Collaboration Compound Sets;

         (vii) designating Available Targets as Collaboration Targets;

         (viii) maintaining an up to date formal written list of all Available
Compounds and Available Targets that are reserved compounds and targets,
respectively, as contemplated in Sections 3.4.3 and 3.4.4, as well as any
Collaboration Compounds, Collaboration Compound Sets and Collaboration Targets
so designated;

         (ix) recommending compounds or other Technology from Third Parties for
possible use in the Collaboration; and

         (x) such other matters as are expressly reserved for the Research
Committee hereunder or referred to the Research Committee from time to time by
the Steering Committee.

                  2.1.5. Research Committee Reports. Within ten (10) days
following each meeting of the Research Committee held pursuant to Subsection
2.1.2., the secretary of the Research Committee shall prepare and send to each
Party a written report of actions taken at the meeting in such form and
containing such detail as shall be determined by the Research Committee.

                  2.1.6. Deadlock. In the event that the Research Committee
cannot reach agreement with respect to any matter that is subject to its
decision-making authority, then the matter shall be referred to the Steering
Committee for resolution.

         2.2. Steering Committee.

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                  2.2.1. Creation of Steering Committee. The Parties hereby also
create a Steering Committee with at least six (6) members, with equal
representation from each Party. At least one member of the Steering Committee
from each Party shall also be a member of the Research Committee. The Steering
Committee will have overall authority to direct the Collaboration and exclusive
approval authority over financial decisions. The members initially designated by
GTC are *****. The members initially designated by ArQule are ***** .
Either Party may change its representatives on the Steering Committee at any
time upon written notice to the other Party. The chairperson of the Steering
Committee shall be designated annually on an alternating basis between the
Parties. GTC shall designate the initial chairperson. The Party not designating
the chairperson shall designate one of its representatives as secretary of the
Steering Committee for such year.

                  2.2.2. Meetings of the Steering Committee. Meetings of the
Steering Committee shall be held not less frequently than annually. Such
meetings shall be held not more than forty-five (45) days after the end of each
calendar year, or at such other times as the Parties may deem appropriate, at
such times and places as the members of the Steering Committee shall from time
to time agree. Special meetings of the Steering Committee may be called by
either Party on ten (10) days prior written notice to the other Party unless
notice is waived by the Parties; provided however, that special meetings shall
not be called more frequently than once every six months unless otherwise
expressly agreed to by both Parties. All meetings shall alternate between the
offices of the Parties unless the Parties otherwise agree. In the event a
Steering Committee member is unable to attend a meeting of the Steering
Committee, such Steering Committee member may designate an alternate member who
will serve solely for that Steering Committee meeting.

                  2.2.3. Decisions of the Steering Committee. Unless otherwise
specifically designated as a responsibility of the Research Committee pursuant
to Subsection 2.1.4., all decisions regarding the contractual and financial
relationship created by this Agreement shall be made by the Steering Committee
acting in accordance with this Agreement or by agents duly authorized in writing
by the Steering Committee. A quorum of the Steering Committee shall be present
at any meeting of the Steering Committee if at least one representative of each
Party is present at such meeting in person or by telephone. If a quorum exists
at any meeting, the unanimous consent of all members of the Steering Committee
present at such meeting is required to take any action on behalf of the Steering
Committee.

                  2.2.4. Responsibility of Steering Committee. The Steering
Committee shall be responsible for approving long-term objectives for, and
evaluating the progress of, the Collaboration, including without limitation:

         (i) approving or disapproving the Research Plan and any recommended
changes, updates, and revisions to the Research Plan as the same are proposed by
the Research Committee from time to time and, acting at its own initiative or on
the recommendation of the Research Committee, making changes to the
Collaboration Plan;

         (ii) approving the annual budget for the Collaboration and any changes
thereto;

 *Confidential Treatment has been requested for the marked portion.

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         (iii) reviewing and approving involvement of Third Parties in the
Collaboration;

         (iv) developing Commercialization Plans and managing commercialization
of Collaboration Work Product;

         (v) resolving deadlocks of the Research Committee;

         (vi) determining the number of members for both the Research Committee
and Steering Committee, beyond the minimum of four and six members,
respectively; and

         (vii) such other matters as are expressly reserved to the Steering
Committee hereunder.

The Steering Committee may modify the Collaboration Plan as needed to advance
the goals of the Collaboration.

                  2.2.5. Steering Committee Reports. Within ten (10) days
following each meeting of the Steering Committee held pursuant to Subsection
2.2.2., the secretary of the Steering Committee shall prepare and send to the
members of the Steering Committee a detailed written report of actions taken at
the meeting in such form and containing such detail as shall be determined by
the Steering Committee. The members of the Steering Committee shall thereafter
promptly confer via telephone to approve the report. If the members of the
Steering Committee do not unanimously approve the report, the members of the
Steering Committee shall continue to informally confer in good faith until such
time as the members of the Steering Committee unanimously agree; provided,
however, that if the members are unable to unanimously agree within sixty (60)
days of the relevant meeting, such failure to agree shall be deemed a deadlock
subject to the provisions of Section 2.2.6 below.

                  2.2.6. Deadlock. In the event that the Steering Committee
declares a deadlock with respect to, or fails to reach agreement within sixty
(60) days as to, any matter relating only to specific activities under the
Collaboration (such as designation of Active Available Compounds as
Collaboration Compounds; designation of GTC Targets as Collaboration Targets;
the initiation or conduct of lead optimization or preclinical development
activities; approval of the annual budget; approval of the Research Plan;
approval of a Commercialization Plan; or approval of meeting reports) the matter
shall not be subject to dispute resolution under Article 10, but shall be
referred to the Chief Executive Officers of each Party for resolution within
sixty (60) days after the date the deadlock is reached, subject to extension by
mutual agreement. If the Chief Executive Officers fail to resolve the matter
within the sixty-day period, or such other period that the Parties mutually
establish, the Agreement will terminate pursuant to Section 9.6. Any other
unresolved disagreements within the Steering Committee and relating to this
Agreement shall be referred to dispute resolution in accordance with the
procedures set forth in Article 10.

3. Conduct of Collaboration

                                       8
<PAGE>   9
         3.1. Scope of Collaboration. The overall objective of the Collaboration
is to discover and develop compounds that demonstrate potential as *****, and to
sell, license or otherwise transfer commercial rights to those compounds to
Third Parties. During the Collaboration, the Parties will (i) perform lead
generation activities using ArQule Compounds, GTC Compounds, Other Compounds,
and Analog Compounds against multiple GTC Targets to identify Active Compounds
and then to designate Collaboration Compounds and Collaboration Targets, (ii)
perform lead qualification activities on Collaboration Targets and Collaboration
Compounds to prioritize the various combinations of targets and compounds for
lead optimization efforts, (iii) perform lead optimization activities on
Collaboration Compound Sets to develop one or more GLP Toxicology Candidates,
(iv) if appropriate, conduct work on one or more GLP Toxicology Candidates to
develop IND Candidates, and (v) if appropriate, conduct clinical development
activities with one or more IND Candidates, in each case as further described
below.

         3.2. External Technology.  *****

         3.3. General Responsibilities of Each Party. In general, the Parties
intend that GTC will be responsible for biology-related tasks relating to the
GTC Targets and ArQule will be responsible for chemistry-related tasks relating
to the optimization of Collaboration Compounds, but only until identification of
a GLP Toxicology Candidate. If the Parties decide to develop a GLP Toxicology
Candidate into an IND Candidate, they will share responsibility for the
necessary preclinical activities through the Research Committee and Steering
Committee. This allocation of responsibilities reflects the expected
contributions from each Party. However, the Research Committee has discretion to
allocate specific research and development tasks on a case-by-case basis to the
Party that has the best current capability and capacity to complete the task and
advance the project. The actual responsibilities of each Party will be
determined by the Steering Committee in light of the recommendations of the
Research Committee, and described in the Collaboration Plan, as the case may be,
or the Research Plan.

         3.4. Lead Generation.

                  3.4.1. Target Selection. The Research Committee will select
which GTC Targets to screen in the Collaboration from among those nominated by
GTC and accepted by ArQule. GTC will only nominate Available Targets for GTC.
ArQule will decline to accept any GTC Targets that are not Available Targets for
ArQule. The initial GTC Targets selected by the Research Committee are set forth
in the initial Research Plan. The Parties may also screen compounds in assays
for which the specific GTC Target is unknown ***** . In this event, the
Parties will determine whether the specific GTC Target is an Available Target
after the specific GTC Target is identified. In the unlikely case that the
specific GTC Target, once identified, is not an Available Target for a Party,
the Parties will work together in good faith through the Research Committee and
Steering Committee to negotiate a resolution to the conflict. After the Research
Committee selects a GTC Target, either Party may, at its sole discretion at any
time prior to the date activity is initially determined in respect of an
Available Compound and that GTC Target in accordance with Section 3.4.3 below,
take action that would cause such GTC Target to no longer constitute an
Available Target so long as such Party notifies the Research

 *Confidential Treatment has been requested for the marked portion.

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<PAGE>   10
Committee as soon as possible before taking such action. So long as a Party has
taken action causing a particular GTC Target to no longer constitute an
Available Target prior to the date activity is initially determined in respect
of an Available Compound and the corresponding GTC Target, such GTC Target shall
no longer constitute an Available Target and shall, subject to the rights of the
Parties as set forth below in Article 5, be deemed to have been removed from the
scope of the Collaboration.

                  3.4.2. Compound Selection. The Research Committee will decide
which libraries of ArQule Compounds (e.g., Compass Array Sets, Biased Array
Sets, or Mapping Array Sets, as described in the Collaboration Plan), GTC
Compounds, or Other Compounds to screen in the Collaboration. The Research
Committee may also decide to screen Collaboration Compounds that are Analog
Compounds for a different Collaboration Target.

                  3.4.3. Procedures for ArQule Compounds. The Parties will
screen ArQule Compounds as directed by the Research Committee and described in
the Collaboration Plan or, as the case may be, the Research Plan. Initially,
ArQule will not disclose the structures of individual ArQule Compounds. However,
in the case of Compass Array Sets and Mapping Array Libraries, ArQule will
disclose the Markush structure of each Compass Array Set and Mapping Array
Library as described in the Collaboration Plan. ArQule will disclose to GTC the
structures of Active Compounds that are Available Compounds for ArQule. GTC will
then determine whether those Active Compounds are Available Compounds for GTC.
If an Active Compound is an Available Compound for both Parties, each Party will
reserve the availability of the Active Compound. So long as neither Party has
notified the other Party that it has withdrawn the GTC Target (if known) as an
Available Target before the Active Compound was detected, each Party will
reserve the availability of the corresponding GTC Target (if known). The Parties
will then proceed to confirm activity as described in the Collaboration Plan.
The Parties shall maintain this reservation on the Available Compound and
Available Target (if known) for a period of ***** , subject to extension by
the Steering Committee (the "Reservation Period"). In contrast, if a Party
determines that an Active Compound is not an Available Compound for such Party,
the Parties shall immediately cease all information disclosure and activities
under this Agreement with respect to that Active Compound.

                  3.4.4. Procedures for GTC Compounds, Other Compounds, and
Analog Compounds. During the Collaboration, the Research Committee may decide to
screen GTC Compounds, Other Compounds, or Analog Compounds. Such actions shall
be documented in the Research Plan. Each Party will have access to the chemical
structures of these GTC Compounds, Other Compounds, and Analog Compounds. When
the Parties identify an Active Compound from among the GTC Compounds, Other
Compounds or, as the case may be, Analog Compounds, each Party will determine
whether the Active Compound is an Available Compound for such Party. The parties
acknowledge that unless an Analog Compound has reverted to a party in accordance
with Section 3.6. or Section 9.5.2, the Analog Compound should be an Available
Compound as required under Section 3.6. If an Active Compound is an Available
Compound for both Parties, each Party will reserve the availability of the
Active Compound. So long as neither Party has notified the other Party that it
has withdrawn the GTC

* Confidential Treatment has been requested for the marked portion.

                                       10
<PAGE>   11
Target (if known) as an Available Target before the Active Compound was
detected, each Party will reserve the availability of the corresponding GTC
Target (if known). The Parties will then proceed to confirm activity as
described in the Collaboration Plan. The Parties shall maintain this reservation
on the Available Compound and Available Target (if known) for the Reservation
Period. In contrast, if a Party determines that an Active Compound is not an
Available Compound for such Party, the Parties shall immediately cease all
information disclosure and activities under this Agreement with respect to that
Active Compound.

                  3.4.5. Designation of Collaboration Compounds and
Collaboration Targets. The Research Committee will review and consider the
pertinent data and, after consideration, shall designate those confirmed Active
Available Compounds as the Research Committee determines appropriate
"Collaboration Compounds" and designate each corresponding GTC Target (if known)
as a "Collaboration Target"; provided, however, that if the Reservation Period
has expired for such Active Compounds and GTC Target, the Parties will determine
whether the Active Compounds and GTC Target are still Available Compounds and an
Available Target before making such determination. If a GTC Target is not known
at the time that the Active Compounds are designated as Collaboration Compounds,
the Research Committee shall designate the GTC Target as a Collaboration Target
promptly after the GTC Target is identified, provided that the GTC Target is an
Available Target for both Parties at that time. The Collaboration Compounds and
Collaboration Targets will be exclusive to the Collaboration, which means that
except as otherwise expressly provided in this Agreement:

         (i) ArQule shall not engage in any research and development activities
in the Field on Collaboration Compounds outside of the Collaboration;

         (ii) ArQule shall not knowingly engage in any research and development
activities in the Field on Collaboration Targets outside of the Collaboration
except to the extent that a Third Party requires ArQule to perform such
activities under a binding contract (which ArQule will disclose in advance to
GTC);

         (iii) GTC shall not knowingly engage in any research and development
activities in the Field on Collaboration Targets outside of the Collaboration;
and

         (iv) GTC shall not knowingly engage in any research and development
activities on Collaboration Compounds outside of the Collaboration except to the
extent that a Third Party requires GTC to perform such activities under a
binding contract (which GTC will disclose in advance to ArQule).

In the event that a Party engages in research and development activities with a
Third Party with respect to Collaboration Compounds or Collaboration Targets
under the limited circumstances permitted under this Subsection, such Party
shall establish and observe strict procedures to maintain confidentiality and
prevent the exchange of information between such research and development
activity with the Third Party and the Collaboration. Such procedures shall be
disclosed to, and subject to review and approval by, the Research Committee, and
neither Party will commence such research and development activities with a
Third Party until the relevant procedures for protecting the confidentiality of,
and preventing the exchange of, information have

                                       11
<PAGE>   12
been approved by the Research Committee. The other Party shall have the right to
audit the other Party's compliance with such procedures upon reasonable prior
written notice. All Collaboration Compounds and Collaboration Targets shall
remain exclusive to the Collaboration as described above until the Collaboration
terminates or the Steering Committee releases a particular Collaboration
Compound, Collaboration Compound Set, or Collaboration Target.

         3.5. Lead Qualification. The Parties expect to generate multiple
Collaboration Compound Sets with activity for multiple Collaboration Targets
(or, if the GTC Target is unknown, the anti-infective activity identified in the
relevant assay) in the course of the Collaboration. The Parties further expect
that the Research Committee will further qualify and prioritize the various
opportunities presented by the combinations of Collaboration Compound Sets and
Collaboration Targets (or, if the GTC Target is unknown, the anti-infective
activity identified in the relevant assay) as described in the Collaboration
Plan (e.g. evaluating their in vitro ADMET characteristics) and the Research
Plan.

         3.6. Lead Optimization. The Research Committee will update the Research
Plan to provide for the accelerated lead optimization of qualified Collaboration
Compound Sets or Collaboration Compounds and the corresponding Collaboration
Targets (or, if the GTC Target is unknown, the anti-infective activity
identified in the relevant assay), subject to Steering Committee approval. The
Research Plan will set project priorities and define success criteria for a GLP
Toxicology Candidate. As described in the Collaboration Plan, in a typical
project the Parties will iteratively develop and test Analog Compounds based on
Collaboration Compounds. The Parties will determine whether a proposed Analog
Compound is an Available Compound before synthesis, and only Available Compounds
will proceed to synthesis and testing in the Collaboration. Analog Compounds
developed by the Parties shall automatically become Collaboration Compounds and,
therefore, the Collaboration Compound Set for the Collaboration Target will
likely expand as a result of the lead optimization efforts. At the discretion of
the Research Committee, the Parties may also use such Analog Compounds in
primary screens against other GTC Targets or assays, as described in Section
3.4. The Research Committee may release from the scope of the Collaboration any
Collaboration Compounds, Collaboration Compound Sets, and Collaboration Targets
that are no longer of interest to the Collaboration, subject to Steering
Committee approval; provided, however that the same shall continue to be subject
to the rights of the Parties as set forth in Section 9.5. below. Lead
optimization activities will continue in a project until the Research Committee
recommends that further efforts be stopped and the Steering Committee accepts
such recommendation. The Parties anticipate that lead optimization activities
will continue in a project until the Parties (i) develop an acceptable GLP
Toxicology Candidate, (ii) determine that they are unlikely to develop an
acceptable GLP Toxicology Candidate and cease development activities with
respect thereto, or (iii) decide to seek commercialization of the Collaboration
Work Product as described in Section 3.9 herein.

         3.7. Preclinical Development. In the event the Collaboration produces
an acceptable GLP Toxicology Candidate, at the discretion of the Steering
Committee, the Parties may decide to initiate preclinical development of such
GLP Toxicology Candidate and conduct the necessary preclinical development
activities to advance it to the status of an IND Candidate, as described in the
Collaboration Plan. In such event, the Research Committee will update the
Research Plan to provide for such activities, subject to approval of the
Steering Committee. These preclinical

                                       12
<PAGE>   13
development activities will continue with respect to a GLP Toxicology Candidate
until the Research Committee recommends that further efforts be stopped and the
Steering Committee accepts such recommendation. The Parties anticipate that
these preclinical development activities will continue with respect to a GLP
Toxicology Candidate until the Parties (i) develop an acceptable IND Candidate,
(ii) determine that they are unlikely to develop an acceptable IND Candidate and
cease development activities with respect thereto, or (iii) decide to seek
commercialization of the Collaboration Work Product as described in Section 3.9
herein.

         3.8. Clinical Development. In the event the Collaboration produces an
acceptable IND Candidate, the Parties may agree to jointly bring such IND
Candidate into clinical development. In such event, the Parties will establish
mutually acceptable terms under which to proceed into clinical development with
the IND Candidate. Alternatively, the Parties may jointly seek Third Parties to
provide clinical development support.

         3.9. Commercialization. At any time during the Collaboration, the
Steering Committee may decide to sell, license, or otherwise transfer commercial
rights in any Collaboration Work Product to a Third Party. In such event, the
Steering Committee will develop and approve a Commercialization Plan for each
such Collaboration Work Product. Unless otherwise determined by the Steering
Committee, the Commercialization Plan will (i) describe the expectations of the
Parties regarding the commercial value of the Collaboration Work Product and
potential Collaboration Products based on that Collaboration Work Product, (ii)
set forth a marketing plan for the Collaboration Work Product (e.g., best
potential customers), (iii) state the respective responsibilities of each Party
for commercialization of the Collaboration Work Product (e.g., lead negotiator),
and (iv) establish a budget for the commercialization activities. The Steering
Committee will manage the commercialization process. The Parties anticipate that
such commercialization process with respect to any Collaboration Work Product
will result in an agreement which provides for the sale, license, or other
transfer of commercial rights in that Collaboration Work Product to a Third
Party.

         3.10. Early Exit. If a Party desires to cease its involvement with the
development of any particular Collaboration Work Product after a period of
*****  has elapsed since the date upon which the relevant Collaboration
Compounds and Collaboration Target was designated as such by the Research
Committee, but not the Collaboration as a whole, then the Parties will dispose
of that particular Collaboration Work Product in accordance with the procedures
set forth in Section 9.5.

         3.11. Reports and Records. Each Party agrees to promptly and regularly
communicate to the other Party all research results from the Collaboration,
including quarterly reports to the Research Committee detailing all tests
conducted and results obtained by such Party in connection with the
Collaboration. Each Party shall prepare and maintain adequate records, including
bound laboratory notebooks maintained in accordance with standard scientific
procedures, containing all appropriate data reflecting all research results from
the Collaboration. In addition, each Party shall retain under appropriate
conditions any necessary or desirable samples of Research Materials that are
developed or used in the Collaboration.

 *Confidential Treatment has been requested for the marked portion.

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<PAGE>   14
4. Allocation of Expenses and Revenues.

         4.1. Expenses. The Research Committee shall establish an annual budget
for all activities in the Research Plan, subject to Steering Committee approval.
Each Party shall bear the cost of its own overhead and related internal expenses
incurred in connection with the conduct of its respective activities under the
Research Plan (the "Internal Resources"). The Parties will share equally any
reimburseable expenses payable (i) to Third Party service providers, (ii) to
in-license or purchase Other Compounds or any other intellectual property rights
the Parties may require in order to continue work as contemplated in the
Research Plan or the Collaboration Plan, or (iii) in connection with preclinical
development activities under Section 3.7. above (collectively, the "External
Expenses"), provided such External Expenses are approved in advance by the
Steering Committee and included in the annual budget. The Research Committee and
Steering Committee shall use their best reasonable efforts to ensure that the
cost of Internal Resources expended by each Party are approximately equal on an
annual basis. If the Steering Committee finds a significant imbalance in the
utilization of Internal Resources (whether personnel, financial or otherwise)
between the Parties in any year in furtherance of the Collaboration, the
Steering Committee shall in good faith determine the fair market monetary value
of such imbalance within thirty (30) days after each anniversary of the
Effective Date or such other time period as established by the Steering
Committee, and the Party found to be dedicating fewer Internal Resources may
elect to either (i) reimburse to the other Party the monetary value of the
allocated imbalance as determined by the Steering Committee in quarterly
installments until such imbalance is rectified, or (ii) accept a lower share of
Gross Revenues (as contemplated in Section 4.2 below) until such imbalance is
rectified. A Party may not reimburse the other Party on a lump-sum basis to
regain its share of Gross Revenues unless the other Party consents. Any
significant deviations from the annual budget must receive Steering Committee
approval. With respect to the External Expenses, representatives of the Parties
shall, not later than thirty (30) days after the end of each anniversary of the
Effective Date or such other period as established by the Steering Committee,
confer to reconcile their accounts of their respective External Expenses and, to
the extent they agree, the Party to whose benefit there stands a credit as a
result of such reconciliation, shall, not later than thirty (30) days after such
reconciliation is completed, repay to the other Party any imbalance in such
External Expenses so that each Party has incurred a like amount in connection
with External Expenses. To the extent the representatives of the Parties are
unable to agree on any External Expenses included in the scope or the
reconcileable accounts by either Party, such disagreement shall be referred to
the Steering Committee for resolution. Each Party shall also pay fifty percent
(50%) of all direct expenses (e.g., legal fees, travel, room and board) incurred
by it in connection with commercialization activities approved in advance by the
Steering Committee under a budget as part of the Commercialization Plan pursuant
to Section 3.9. Each Party shall bear its own expenses incurred in connection
with meetings of the Research Committee and Steering Committee. Nothing herein
is intended to authorize, nor shall it be construed to authorize, either Party
to bind the other to agreements with Third Parties, or to otherwise incur
financial, contractual or other obligations on behalf of the other, without the
express prior written approval of the other Party.

         4.2. Revenues. Each Party shall receive fifty percent (50%) of all
Gross Revenues, provided that each Party contributes approximately equal
Internal Resources to the Collaboration

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<PAGE>   15
as contemplated under Section 4.1. In the event that one Party expends greater
Internal Resources than the other Party in the Collaboration as provided for in
Section 4.1 above, then so long as such excess resource expenditure was approved
by the Steering Committee as part of the annual budget in accordance with
Section 4.1. above, the allocation of Gross Revenues payable to each Party in
respect of any Collaboration Work Product shall be determined as follows: *****.

         4.3. Records. Each Party shall establish separate and distinct
accounting records (but not necessarily separate general ledgers) such that the
expenditures for the Collaboration are separately accounted for and easily
ascertainable. As a guideline, each Party should have separate project records,
supported by time records and records of direct expenses, attributable to the
Collaboration and, where practicable, particular Collaboration Work Product or
other discrete aspect of the Collaboration. The Parties shall in good faith
confer to coordinate the organization of their record and timekeeping procedures
to the extent reasonably possible in light of their different business
operations. Each Party shall maintain these records for a period of *****
after the conclusion of the applicable calendar year. Each Party shall have the
right, at its own expense, to cause an independent certified public accountant
reasonably acceptable to the other Party to inspect such records during normal
business hours for the sole purpose of verifying the expenditures reported under
this Agreement. The accountant shall conduct the audit at a date and time
reasonably acceptable to the audited Party but not later than fifteen (15)
business days after the audited Party is notified of the audit. Such accountant
shall not disclose to the requesting Party any information other than
information relating to accuracy of expenditures reported under this Agreement
and shall provide the audited Party with a copy of any report given to the
requesting Party. In the event of any discrepancy, the Parties shall promptly
reconcile the discrepancy to achieve the results set forth in Sections 4.1. and
4.2. Each Party may exercise its audit right not more than once a year.

         4.4. Valuation of Securities. Unless otherwise expressly agreed to by
the Steering Committee, the Parties shall not accept securities or other
non-monetary consideration in return for the grant of rights to any
Collaboration Product or Collaboration Work Product to which a revenue share, as
contemplated in Section 4.2 above, would be applicable. Where the Parties desire
to accept securities or other non-monetary consideration, such acceptance shall
be subject to a written agreement, by the Parties, as to the allocation,
valuation, disposition and control of, and any other relevant aspects arising in
connection with, the delivery of such non-monetary consideration to the Parties.

5. Intellectual Property Rights.

         5.1. License Grants.

                  5.1.1. Cross-Licenses and Cross-Assignments.

         (i) ArQule hereby grants GTC a worldwide, royalty-free, non-exclusive
license in the Field under the ArQule Patent Rights and other rights in ArQule
Technology to conduct research

* Confidential Treatment has been requested for the marked portion.

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<PAGE>   16
and development activities within the Collaboration pursuant to the
Collaboration Plan and Research Plan as approved by the Research Committee and
Steering Committee.

         (ii) GTC hereby grants ArQule a worldwide, royalty-free, non-exclusive
license in the Field under the GTC Patent Rights and other rights in GTC
Technology to conduct research and development activities within the
Collaboration pursuant to the Collaboration Plan and Research Plan as approved
by the Research Committee and Steering Committee.

         (iii) To the extent that any Patent Rights in Collaboration Compounds
or their use against Collaboration Targets are not assigned to both ArQule and
GTC as joint owners or are not otherwise jointly invented by one or more
employees or consultants of GTC and one or more employees or consultants of
ArQule in connection with the Collaboration, then the Party to whom such rights
are assigned shall assign, transfer, and convey to the other Party an undivided
joint right and interest in such Patent Rights so that such Patent Rights become
Joint Patent Rights under this Agreement. Nothing herein shall be construed to
obligate either Party to assign, convey, or otherwise transfer to the other
Party any rights that a Party is not lawfully entitled to assign, convey, or
otherwise transfer.

                  5.1.2. Commercialization Licenses. In the event that the
Parties sell, license, or otherwise transfer commercial rights in Collaboration
Work Product to a Third Party pursuant to Section 3.8. above, each Party hereby
covenants and agrees to grant to such Third Party any rights and licenses to
their respective rights in Patent Rights and Technology as reasonably necessary
for such Third Party to exploit the Collaboration Work Product in the Field,
and, to the extent true and correct, to provide reasonable warranties of title,
reasonable further assurances, and similar reasonable provisions in connection
with such grant of rights or licenses so long as the same are consistent with
ordinary industry practices in the relevant business. The Parties shall
periodically meet to anticipate potential intellectual property conflicts that
may arise as a result of the obligations set forth in this Section.

         5.2. Intellectual Property Developed Outside of the Collaboration.
Except as expressly set forth in this Agreement, neither Party shall have any
rights in Patent Rights and Technology that is developed or discovered by the
other Party prior to the Effective Date or outside of the scope of the
Collaboration. ArQule shall have no rights in GTC Targets or GTC Compounds other
than as expressly provided in the Agreement, and GTC shall have no rights in
ArQule Compounds other than as expressly provided in the Agreement. Each Party
shall have sole responsibility for, and control over, Patent Rights claiming any
of its Technology that was developed or discovered prior to the Effective Date
or outside of the scope of the Collaboration. Neither Party shall have any right
to review and comment on any patent applications, office actions, responses to
office actions, or other materials filed in connection with such Patent Rights
of the other Party.

         5.3. Intellectual Property Arising from the Collaboration.

                  5.3.1. Right to Use. Except as otherwise expressly provided in
this Agreement, each Party shall have the following rights and restrictions for
the use of Patent Rights and Technology arising from the Collaboration:

                                       16
<PAGE>   17
         (i) ArQule shall not have any right or license under GTC Patent Rights
or other rights in GTC Technology arising from the Collaboration.

         (ii) GTC shall not have any right or license under ArQule Patent Rights
or other rights in ArQule Technology arising from the Collaboration.

         (iii) As set forth in Subsection 3.4.5, during the Collaboration each
Party may only use Collaboration Compounds and Collaboration Targets in the
Field as part of the Collaboration, unless a party receives the prior written
consent of the other Party.

                  (iv) Except as otherwise provided in this Agreement, each
Party shall have the right to use Joint Patent Rights and Collaboration
Technology consistent with the provisions of Article 7 without accounting to the
other Party.

                  5.3.2. Ownership. Ownership of Patent Rights and Technology
arising from the Collaboration shall be allocated in the following manner:

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

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

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

Each Party shall ensure that its employees, consultants, agents, and
representatives are contractually required to disclose and to assign to such
Party all Patent Rights and other rights in Technology arising from the
Collaboration.

                  5.3.3. Notice. Each Party shall provide prompt written notice
to the Research Committee of the internal disclosure of any Patent Rights or
significant Technology developed by its personnel in connection with the
Collaboration.

                  5.3.4. Responsibility for Patent Rights. ArQule shall be
responsible for and shall control, at its sole cost and expense, the
preparation, filing, prosecution, grant, and maintenance of any Patent Rights
claiming only ArQule Technology arising from the Collaboration and shall consult
with GTC on, and give GTC a reasonable opportunity to review, all such filings
to the extent they directly relate to the Collaboration. GTC shall be
responsible for and shall control, at its sole cost and expense, the
preparation, filing, prosecution, grant, and maintenance of all Patent Rights
claiming only GTC Technology arising from the Collaboration and shall consult
with ArQule on, and give ArQule a reasonable opportunity to review, all such
filings to the extent they relate directly to the Collaboration. In the case of
Collaboration Technology, the Research Committee will decide whether to seek
Joint Patent Rights claiming that Technology or to maintain that Technology as a
trade secret, subject to approval of the Steering Committee.

                                       17
<PAGE>   18
The Research Committee will also decide whether to seek Patent Rights claiming
both ArQule Technology and GTC Technology in one filing (which shall also
constitute a Joint Patent Right), subject to approval of the Steering Committee.
If the Parties decide to seek any Joint Patent Rights, the Parties shall retain
counsel reasonably acceptable to both parties to prepare and prosecute patent
applications relating to such Patent Rights and shall otherwise cooperate in
good faith to jointly prepare, file, prosecute, and maintain such Patent Rights,
and all related expenses shall be borne equally by the Parties. Notwithstanding
the foregoing, neither Party shall file any Joint Patent Rights claiming the
composition or use of any Active Compound until the Research Committee has
properly designated that Active Compound as a Collaboration Compound in
accordance with Subsection 3.4.5.

                  5.3.5. Assumption of Rights by Other Party. In the event that
a Party desires to decline responsibility for obtaining or maintaining Patent
Rights in any country for any of its Technology that arises from the
Collaboration, such Party will notify the other Party reasonably in advance of
taking such action so that no uncurable deadlines are imminent and, upon
request, will allow the other Party to assume responsibility for, and all
expenses relating to, the relevant Patent Rights in those countries; provided,
however, that neither Party shall have the right to seek patent protection for
any Technology that a Party has decided, in its sole discretion, to maintain as
a trade secret, nor shall it have a right to assume responsibility for Patent
Rights in any country where the reason the other Party has elected not to pursue
such rights has a bona fide business purpose (e.g., electing not to pursue
Patent Rights in a particular county because of limited commercial advantages as
compared to potential risks of prejudicing validity or enforceability in other
jurisdictions or prosecution costs) as determined in the sole discretion of the
other Party. In the event that a Party desires to cease further payment of
patent-related expenses for a Joint Patent Right in any country, such Party may
assign to the other Party all rights in that Joint Patent Right in such country
and thereafter have no further obligation to pay such expenses.

                  5.3.6. Cooperation. Each Party agrees to in good faith
cooperate fully in the preparation, filing, prosecution, and maintenance of all
Patent Rights claiming Technology arising from the Collaboration. Such
cooperation includes, without limitation, (i) promptly executing all papers and
instruments, or requiring its employees, consultants, and agents to execute such
papers and instruments, as reasonable and appropriate so as to enable one or
both Parties to file, prosecute, and maintain such Patent Rights in any country;
(ii) promptly informing the other Party of matters that may affect the
preparation, filing, prosecution, or maintenance of any such Patent Rights; and
(iii) undertaking no actions that are potentially deleterious to the
preparation, filing, or prosecution of any such Patent Rights.

6. Research Materials.

         6.1. Ownership of Research Materials. In the course of this
Collaboration, one Party (the "Provider"") may transfer to the other Party (the
"Recipient") certain of its Research Materials. The Recipient acknowledges and
agrees that such Research Materials are and shall be owned by the Provider. The
Recipient agrees to execute and deliver any documents of assignment or
conveyance to effectuate the ownership rights of the Provider in such Research
Materials. Specifically, GTC acknowledges and agrees that all ArQule Compounds
provided to GTC in the

                                       18
<PAGE>   19
Collaboration are proprietary to and owned by ArQule and are or may be covered
by claims of ArQule Patent Rights, and ArQule acknowledges and agrees that all
GTC Compounds and expressed proteins for GTC Targets provided by GTC in the
Collaboration are proprietary to and owned by GTC and are or may be covered by
claims of GTC Patent Rights.

         6.2. Use and Transfer of Research Materials. Except as otherwise agreed
by the Research Committee, the Recipient agrees to use Research Materials
provided by the Provider solely for purposes set forth in this Agreement and
shall not distribute such Research Materials to any Third Party other than its
employees and consultants who are working on the Collaboration.

         6.3. Additional Restrictions for Proprietary Research Materials. In the
case of Proprietary Research Materials furnished by a Provider, Recipient agrees
(i) not to transfer such Proprietary Research Materials to any Third Party
without the prior written consent of the Provider, (ii) to permit access to the
Proprietary Research Materials only to its employees and consultants requiring
such access in furtherance of their job responsibilities and the purposes of
this Agreement, (iii) to inform such employees and consultants of the
proprietary nature of the Proprietary Research Materials, and (iv) to take
reasonable precautions, at least as stringent as those observed by Recipient to
protect its own proprietary materials, to ensure that such employees and
consultants observe the obligations of Recipient under this Section.

         6.4. Disposition of Unused Research Materials. At the request of
Provider, Recipient will return or destroy any unused Research Materials
furnished by Provider.

         6.5. Compliance with Law. Recipient agrees to comply with all federal,
state, and local laws and regulations applicable to the use, storage, disposal,
and transfer of Research Materials furnished by Provider, including without
limitation the Toxic Substances Control Act (15 USC 2601 et seq.) and
implementing regulations (in particular, 40 CFR 720.36 [Research and Development
Exemption]), the Food, Drug, and Cosmetic Act (21 USC 301 et seq.) and
implementing regulations, and all Export Administration Regulations of the
Department of Commerce. Recipient assumes sole responsibility for any violation
of such laws or regulations by Recipient or any of its Affiliates or
Sublicensees.

         6.6. Limitation of Liability. Any Research Materials delivered pursuant
to this Agreement are understood to be experimental in nature and may have
hazardous properties. Recipient should assume that the compounds are dangerous
and should use appropriate precautions. PROVIDER MAKES NO REPRESENTATIONS, AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE RESEARCH MATERIALS FURNISHED TO RECIPIENT. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE RESEARCH MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL
PROPERTY RIGHTS OF A THIRD PARTY.

7. Confidential Information.

                                       19
<PAGE>   20
         7.1. Designation of Confidential Information. Confidential Information
that is disclosed in writing or electronically shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within thirty (30) days of
the date of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.

         7.2. Obligations of Receiving Party. The Receiving Party agrees that it
shall:

         (i) maintain all Confidential Information in strict confidence, except
that the Receiving Party may disclose or permit the disclosure of any
Confidential Information to its directors, officers, employees, consultants, and
advisors who are obligated to maintain the confidential nature of such
Confidential Information on terms not less restrictive than those set forth
herein and who need to know such Confidential Information for the purposes set
forth in this Agreement;

         (ii) use all Confidential Information solely for the purposes of this
Agreement and the permitted uses set forth in Subsection 7.5.;

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

         (iv) use diligent, commercially reasonable best efforts to enforce the
obligations of confidentiality imposed upon its directors, officers, employees,
consultants and advisors hereunder, and to immediately inform the other Party of
any known or imminent unauthorized disclosure in order to afford the other Party
an opportunity to take such measures as it is lawfully entitled to take in order
to protect the confidentiality of, or remedy the unauthorized disclosure of, any
Confidential Information.

         7.3. Exceptions. The obligations of the Receiving Party under
Subsection 7.2. above shall not apply to the extent that the Receiving Party can
demonstrate by clear and convincing evidence that certain Confidential
Information:

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

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

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

         (iv) is or was disclosed to the Receiving Party at any time, whether
prior to or after the time of its disclosure under this Agreement, by a Third
Party having no fiduciary relationship

                                       20
<PAGE>   21
with the Disclosing Party and owing no obligation of confidentiality or non-use
to the Disclosing Party with respect to such Confidential Information; or

         (v) is required to be disclosed to comply with applicable laws or
regulations (such as disclosure to the FDA or the United States Patent and
Trademark Office or to their foreign equivalents), or to comply with a court or
administrative order, provided that the Disclosing Party receives prior written
notice of such disclosure and that the Receiving Party takes all reasonable and
lawful actions to obtain confidential treatment for such disclosure and, to the
extent possible, to minimize the extent of such disclosure, and further provided
that the Receiving Party shall cooperate in good faith with Disclosing Party's
efforts, if any, to protect, limit or otherwise alter the terms of any compelled
disclosure of Confidential Information.

         7.4. Return of Confidential Information. Upon the termination of this
Agreement, or earlier at the request of the Disclosing Party, the Receiving
Party shall return to the Disclosing Party all originals, copies, and summaries
of documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.

         7.5. Permitted Use of Information. GTC and ArQule may use the general
knowledge and expertise obtained from conduct of the primary screens with the
ArQule Compounds, GTC Compounds, Other Compounds, and Analog Compounds for
internal research other than for purposes of developing pharmaceutical products
that are Analog Compounds of such ArQule Compounds, GTC Compounds, Other
Compounds, and Analog Compounds.

         7.6. Survival of Obligations. The obligations set forth in this Article
shall remain in effect, for any particular item of Confidential Information, for
a period of ten (10) years after the date upon which a Receiving Party first
received that Confidential Information, except that the obligation of the
Receiving Party to return Confidential Information to the Disclosing Party shall
survive until fulfilled.

8. Indemnification and Insurance.

         8.1. General Indemnification. Each Party (the "Indemnifying Party")
shall indemnify and hold harmless the other Party, its Affiliates, and their
respective directors, officers, employees and agents (collectively, the
"Indemnitees ") from and against all claims, expenses or liability of whatever
nature owed or alleged to be owed to any Third Parties (including, without
limitation, governmental agencies) and arising from any default, act, omission,
or negligence of the Indemnifying Party, its agents or employees, or others
exercising rights by, through, or under the Indemnifying Party, or the failure
of the Indemnifying Party or such persons to comply with any applicable laws,
rules, regulations, codes, ordinances or directives of governmental authorities,
in each case to the extent the same are related, directly or indirectly, to the
Collaboration described herein; provided, however, that in no event shall the
Indemnifying Party be obligated under this section to indemnify the Indemnitees
where such claim, expense or liability results solely from any omission, fault,
negligence, or other misconduct of any of the Indemnitees.

                                       21
<PAGE>   22
         8.2. Product Liability Indemnification. Each Party (the "Indemnifying
Party") agrees to defend, indemnify, and hold the other Party, its Affiliates,
and their respective directors, officers, employees, and agents (collectively,
the "Indemnitees") harmless from all costs, judgments, liabilities, and damages
assessed by a court of competent jurisdiction arising from claims asserted by a
Third Party against the Indemnitees as a result of (i) actual or asserted
violations of any applicable law or regulation by the Indemnifying Party, its
Affiliates, sublicensees, or Third Party manufacturers by virtue of which the
Collaboration Products manufactured, distributed, or sold shall be alleged or
determined to be adulterated, misbranded, mislabeled, or otherwise not in
compliance with such applicable law or regulation; (ii) claims for bodily
injury, death, or property damage attributable to the manufacture, distribution,
sale, or use of the Collaboration Products by the Indemnifying Party, its
Affiliates, sublicensees, or Third Party manufacturers; or (iii) a recall
ordered by a governmental agency, or required by a confirmed failure, as
reasonably determined by the Parties, of Collaboration Products manufactured,
distributed, or sold by the Indemnifying Party, its Affiliates, and its
sublicensees; provided, however, that in no event shall the Indemnifying Party
be obligated under this section to indemnify the Indemnitees where such claim,
expense or liability results solely from any omission, fault, negligence, or
other misconduct of any of the Indemnitees.

         8.3. Procedure. The Indemnitees agree to provide the Indemnifying Party
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. If an Indemnitee fails to
provide such notice within a reasonable time, and if such failure prejudicially
affects the ability of the Indemnifying Party to defend such action, the
Indemnifying Party shall be relieved of its liability to such Indemnitee under
this Article 8. The Indemnifying Party agrees, at its own expense, to provide
attorneys reasonably acceptable to the Indemnitees to defend against any such
claim. The Indemnitees shall cooperate fully with the Indemnifying Party in such
defense and will permit the Indemnifying Party to conduct and control such
defense and the disposition of such claim, suit, or action (including all
decisions relative to litigation, appeal, and settlement); provided, however,
that any Indemnitee shall have the right to retain its own counsel, at the
expense of the Indemnifying Party, if representation of such Indemnitee by the
counsel retained by the Indemnifying Party would be inappropriate because of
actual or potential differences in the interests of such Indemnitee and any
other Party represented by such counsel. The Indemnifying Party agrees to keep
the other Party informed of the progress in the defense and disposition of such
claim and to consult with such Party with regard to any proposed settlement.

         8.4. Insurance. Each Party shall maintain, and shall require its
Affiliates and sublicensees to maintain, adequate general commercial liability
insurance, including, to the extent appropriate, product liability and clinical
trials liability insurance, or self insurance (in a form and with reserves
reasonably acceptable to the other Party) with respect to such Party's business
and, in particular, the development, manufacture, and sale of Collaboration
Products by such Party in such amount as that Party customarily maintains with
respect to the development and sale of its other products and services, and in
no event less than a reasonable amount. Each Party shall maintain, and shall
require its Affiliates and sublicensees to maintain, such insurance for so long
as that Party continues to manufacture or sell the Collaboration Products, and
thereafter for so long as that Party maintains insurance for itself covering
such manufacture or sale. Nothing

                                       22
<PAGE>   23
herein shall be construed to obligate either party to maintain insurance
covering risks that do not, in the ordinary course of such party's business,
arise.

9. Term and Termination.

         9.1. Term. This Agreement shall commence on the Effective Date and
shall continue for a period of five (5) years from the Effective Date unless
earlier terminated pursuant to this Article 9. Such term may be extended upon
mutual agreement by the Parties.

         9.2. Early Termination. The Steering Committee may terminate this
Agreement at any time by mutual agreement of the Parties. In addition, after the
***** of the Effective Date, either Party may terminate this Agreement at any
time upon ninety (90) days written notice to the other Party.

         9.3. Termination for Default. In the event that either Party commits a
material breach of its obligations under this Agreement and fails to cure that
breach within sixty (60) days after receiving written notice thereof, the other
Party may terminate this Agreement effective immediately upon written notice to
the Party in breach.

         9.4. Force Majeure. Neither Party will be responsible for delays in
performance of obligations hereunder resulting from acts beyond the control of
such Party, provided that the nonperforming Party uses commercially reasonable
efforts to avoid or remove such causes of nonperformance and continues
performance hereunder with reasonable dispatch whenever such causes are removed.

         9.5. Disposition of Collaboration Work Product. Except as otherwise
agreed to by the Parties, the following provisions shall apply upon the
expiration or termination of this Agreement.

         9.5.1. Commercial Products. If any Collaboration Work Product has been
successfully commercialized pursuant to Subsection 3.9., the Parties shall share
Gross Revenues attributable to that Collaboration Work Product as set forth in
Article 4 in perpetuity.

         9.5.2. No Residual Value. If the Parties agree that any Collaboration
Work Product which has not been successfully commercialized pursuant to Section
3.9. has no significant residual value, then with respect to that Collaboration
Work Product:

         (i) the Collaboration Compounds that are GTC Compounds or Analog
Compounds based solely on GTC Compounds shall revert to GTC and ArQule shall
assign to GTC all right, title, and interest in any such Collaboration
Compounds, ArQule shall have no rights under this Agreement with respect to such
Collaboration Compounds, and GTC shall have the right to license or otherwise
commit such GTC Compounds to a Third Party or an internal program subject to the
restrictions on Confidential Information set forth in Article 7;

         (ii) except as otherwise provided in clause (i) above, the
Collaboration Compounds shall revert to ArQule and GTC shall assign to ArQule
all right, title, and interest in

                                       23
<PAGE>   24
any such Collaboration Compounds, GTC shall have no rights under this Agreement
with respect to such Collaboration Compounds, and ArQule shall have the right to
license or otherwise commit such Collaboration Compound to a Third Party or an
internal program subject to the restrictions on Confidential Information set
forth in Article 7;

         (iii) the Collaboration Targets shall revert to GTC and ArQule shall
assign to GTC all right, title, and interest in any such Collaboration Targets,
ArQule shall have no rights under this Agreement with respect to such
Collaboration Targets, and GTC shall have the right to license or otherwise
commit such Collaboration Targets to a Third Party or an internal program
subject to the restrictions on Confidential Information set forth in Article 7;
and

         (iv) notwithstanding the foregoing, for a period of ***** after the
Collaboration terminates (the "Standstill Period"), neither Party will use,
develop, or otherwise commercially exploit in the Field the relevant
Collaboration Work Product; provided that, if a Party later determines that the
Collaboration Work Product may have significant residual value, then the
provisions of Subsection 9.5.3. shall apply effective upon written notice to the
other Party.

         9.5.3. Residual Value. If the Parties fail to agree that any
Collaboration Work Product which has not been successfully commercialized
pursuant to Section 3.9. has no significant residual value, then the Parties
will pursue the following alternatives in the order presented:

         (i) one Party may buy out the relevant Collaboration Work Product from
the other Party on negotiated terms;

         (ii) the Parties may agree to commercialize the relevant Collaboration
Work Product pursuant to Section 3.8.; or

         (iii) the Parties may apportion and distribute the rights in the
relevant Collaboration Work Product based on its value in accordance with their
respective share of Gross Revenues (determined under Section 4.2.).

         9.5.4 Limited Arbitration. In the event the Parties are unable to agree
upon the disposition of any Collaboration Work Product in accordance with
section 9.5.3 above, then the matter shall be resolved by arbitration in
accordance with this Section 9.5.4, and the Parties shall, upon the written
demand of either party, promptly (but in no event more than ten (10) days after
receipt of such demand by the receiving Party) confer to appoint a single
arbitrator knowledgeable in the Field and the commercialization of products
useful in the Field. If the parties are unable to agree on the appointment of a
single arbitrator, the Parties shall each appoint an arbitrator not later than
ten (10) days after the Parties first confer, and the two so appointed shall
promptly confer to appoint a third arbitrator to act as chairman of the
arbitration. The arbitration shall be conducted in a confidential manner so that
all information submitted to the arbitrator(s) shall be deemed to constitute
Confidential Information hereunder, and the

* Confidential Treatment has been requested for the marked portion.

                                       24
<PAGE>   25
arbitrator(s) shall be treated as advisors in accordance with Section 7.2. The
place of arbitration shall be Boston, Massachusetts. Not later than thirty (30)
days after the date of the appointment of the arbitrator(s), the Parties shall
each submit to the arbitrator(s) a written proposal (the "Offer to Buy") setting
forth the best terms on which such Party would purchase or license from the
other all of its right, title and interest in and to the relevant Collaboration
Work Product (the Offers to Buy are hereafter collectively referred to as the
"Offers"). The Offers may each be accompanied by a memorandum, of not more than
five (5) single spaced typewritten pages, in support of the relevant Offer. The
arbitrator(s) shall select from between the Offers the one that, in such
arbitrator(s) sole judgment, best represents the fair market value, based on an
arms-length transaction, of the relevant Collaboration Work Product, and the
Parties shall thereafter be bound to enter into a definitive agreement on the
terms of such Offer to Buy. The definitive agreement shall include a limited,
non-exclusive right to use any Patent Rights or other Technology of the grantor
Party that the grantor Party is lawfully entitled to grant and that are
reasonably necessary in order to develop, use, and sell products or processes
covered by such Collaboration Work Product. If the parties are thereafter unable
to agree upon the final, definitive, documentation to effectuate such Offer to
Buy, the Arbitrator(s) shall be competent to resolve any disputes relating to
such documentation, which disputes may be referred to the Arbitrator(s) at any
time by either Party subject to ten (10) days' prior notice to the other Party.
The Parties shall share equally in the cost of the Arbitrator(s). Otherwise, the
Parties shall each be responsible for their own costs incurred in connection
with arbitration hereunder. Except as expressly set forth above, the
arbitrator(s) shall not be competent to award any actual, punitive,
consequential or other damages or otherwise bind the Parties to any obligations
other than those expressly authorized pursuant to this Section 9.5.4. All
proceedings hereunder shall be conducted by telephone unless otherwise expressly
agreed to by both Parties. Except for the Offers and supporting memoranda, no
other written or oral presentations regarding the substance of the dispute shall
be made to the arbitrator(s).

         9.6. Deadlock. As described in Subsection 2.2.6., this Agreement shall
automatically terminate sixty (60) days (or such longer period as the Parties
mutually agree) after the Steering Committee deadlocks on any matter relating
only to specific activities under the Collaboration, unless the matter is
resolved by the respective Chief Executive Officers and Presidents of each Party
during such time period.

         9.7. Survival. The following provisions shall survive the expiration or
termination of this Agreement: Articles 4, 6, 7, 8, and 10; Sections 5.1.1,
clause (iii), 5.3., 9.5., 9.7., 11.1., 11.5., 11.7., 11.9., and 11.10.

10. Dispute Resolution.

         10.1. Procedures Mandatory. Except as otherwise provided in Subsection
2.2.6., the Parties agree that any dispute arising out of or relating to this
Agreement shall be resolved solely by means of the procedures set forth in this
Article, and that such procedures constitute legally binding obligations that
are an essential provision of this Agreement; provided, however, that all
procedures and deadlines specified in this Article may be modified by written
agreement of the Parties. If either Party fails to observe the procedures of
this Article, as modified by their written

                                       25
<PAGE>   26
agreement, the other Party may bring an action for specific performance in any
court of competent jurisdiction.

         10.2. Dispute Resolution Procedures.

                  10.2.1. Negotiation. Except as otherwise provided in
Subsection 2.2.6., in the event of any dispute arising out of or relating to
this Agreement, the affected Party shall notify the other Party, and the
Steering Committee shall attempt in good faith to resolve the matter within ten
(10) days after the date such notice is received by the other Party (the "Notice
Date"). Any disputes not resolved by good faith discussions within the Steering
Committee shall be referred to senior executives of each Party, who shall meet
at a mutually acceptable time and location within thirty (30) days after the
Notice Date and attempt to negotiate a settlement.

                  10.2.2. Mediation. If the matter remains unresolved within
sixty (60) days after the Notice Date, or if the senior executives fail to meet
within thirty (30) days after the Notice Date, either Party may initiate
mediation upon written notice to the other Party, whereupon both Parties shall
be obligated to engage in a mediation proceeding under the then current Center
for Public Resources ("CPR") Model Procedure for Mediation of Business Disputes,
except that specific provisions of this Section shall override inconsistent
provisions of the CPR Model Procedure. The mediator will be selected from the
CPR Panels of Neutrals. If the Parties cannot agree upon the selection of a
mediator within ninety (90) days after the Notice Date, then upon the request of
either Party, the CPR shall appoint the mediator. The Parties shall attempt to
resolve the dispute through mediation until one of the following occurs: (i) the
Parties reach a written settlement; (ii) the mediator notifies the Parties in
writing that they have reached an impasse; (iii) the Parties agree in writing
that they have reached an impasse; or (iv) the Parties have not reached a
settlement within one hundred and twenty (120) days after the Notice Date.

                  10.2.3. Trial without Jury. If the Parties fail to resolve the
dispute through mediation, or if neither Party elects to initiate mediation,
each Party shall have the right to pursue any other remedies legally available
to resolve the dispute, provided, however, that the Parties expressly waive any
right to a jury trial in any legal proceeding under this Section.

         10.3. Preservation of Rights Pending Resolution.

                  10.3.1. Performance to Continue. Each Party shall continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement; provided, however, that a
Party may suspend performance of its obligations during any period in which the
other Party fails or refuses to perform its obligations.

                  10.3.2. Provisional Remedies. Although the procedures
specified in this Article are the sole and exclusive procedures for the
resolution of disputes arising out of or relating to this Agreement, either
Party may seek a preliminary injunction or other provisional equitable relief
if, in its reasonable judgment, such action is necessary to avoid irreparable
harm to itself or to preserve its rights under this Agreement. In particular,
the dispute resolution provisions hereunder shall not limit either Party's right
to seek legal protection in respect of the wrongful disclosure of Confidential
Information.

                                       26
<PAGE>   27
         10.3.3. Statute of Limitations. The Parties agree that all applicable
statutes of limitation and time-based defenses (such as estoppel and laches)
shall be tolled while the procedures set forth in Subsections 10.2.1. and
10.2.2. are pending. The Parties shall take any actions necessary to effectuate
this result.

11. Miscellaneous.

         11.1. Publicity. No press release, advertising, promotional sales
literature, or other promotional oral or written statements to the public in
connection with or alluding to work performed under this Agreement or the
relationship between the Parties created by it, having or containing any
reference to ArQule or GTC, shall be made by either Party without the prior
written approval of the other Party, except for restatements of
previously-approved statements and disclosures required by applicable law or
regulation or the rules of any stock exchange or over the counter market on
which a Party's securities are traded.

         11.2. Relationship of Parties. For the purposes of this Agreement, each
Party is an independent contractor and not an agent or employee of the other
Party. Neither Party shall have authority to make any statements,
representations, or commitments of any kind, or to take any action which shall
be binding on the other Party, except as may be explicitly provided for herein
or authorized in writing. In particular, (i) neither Party shall represent to
creditors or vendors that such Party has any authority to obligate or bind the
other Party, and shall affirmatively correct any misconception to that effect
and (ii) neither Party shall use the name of the other Party in connection with
such transactions without the prior written consent of the other Party, which
consent may be withheld in its sole discretion.

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

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

         11.5. Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the Parties and their respective lawful successors and assigns.

         11.6. Assignment. This Agreement may not be assigned by either Party
without the prior written consent of the other Party, except that either of the
Parties may, upon written notice to the other (which notice shall identify the
assignee with specificity), assign this Agreement and the rights hereunder to a
successor in connection with the merger, consolidation, or sale of all or
substantially all of its assets or that portion of its business pertaining to
the subject matter of this Agreement provided such successor also assumes any
surviving duties and obligations hereunder of the assigning Party.

         11.7. Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have

                                       27
<PAGE>   28
been duly given upon the date of receipt if delivered by hand, recognized
national overnight courier, confirmed facsimile transmission, or registered or
certified mail, return receipt requested, postage prepaid, to the following
addresses or facsimile numbers:

         If to GTC:
                                    Genome Therapeutics Corporation
                                    100 Beaver Street.
                                    Waltham MA 02154
                                    Attn: President
                                    Tel: (781) 398-2300
                                    Fax: (781) 893-8277

         with a copy (which shall not constitute notice) to:

                                    Pryor Cashman Sherman & Flynn LLP
                                    410 Park Avenue
                                    New York, NY 10022
                                    Attn: Jeffrey C. Johnson
                                    Tel: (212) 326-0118
                                    Fax: (212) 326-0806

         If to ArQule:
                                    ArQule, Inc.
                                    19 Presidential Way
                                    Woburn, MA  01801
                                    Attn:  President
                                    Tel: (781) 994-0300
                                    Fax: (781) 503-0009

         with a copy (which shall not constitute notice) to:

                                    ArQule, Inc.
                                    19 Presidential Way
                                    Woburn, MA  01801
                                    Attn:  Legal Department
                                    Tel: (781) 994-0300
                                    Fax: (781) 994-0676

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

         11.8. Amendment and Waiver. This Agreement may be amended,
supplemented, or otherwise modified at any time, but only by means of a written
instrument signed by both Parties. Any waiver of any rights or failure to act in
a specific instance shall relate only to such instance and shall not be
construed as an agreement to waive any rights or fail to act in any other
instance, whether or not similar.

                                       28
<PAGE>   29

         11.9. Governing Law. This Agreement and the legal relations among the
Parties shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts irrespective of any conflict of laws principles.

         11.10. Severability. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.

         11.11. Entire Agreement. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter hereof and
supersedes any and all prior or contemporaneous oral and prior written
agreements and understandings including, without limitation, the 1998 Agreement.
Each of the Parties hereby waives its respective rights to notice provided in
Section 9.2 of the 1998 Agreement and agrees to terminate the 1998 Agreement
effective immediately. Termination of the 1998 Agreement shall eliminate the
respective rights of the Parties and relieve them of their respective
obligations accruing under the 1998 Agreement except those rights and
obligations which, pursuant to Section 9.6 thereof, are expressly intended to
survive termination.

                                       29
<PAGE>   30
         IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as a sealed instrument as of the Effective Date.

GENOME THERAPEUTICS CORPORATION

By: /s/ Robert J. Hennessey
   ---------------------------------------
Name:Robert J. Hennessey
Title:Chairman and Chief Executive Officer

ARQULE, INC.

By: /s/ Stephen A. Hill
   -----------------------------------------
Name:Stephen A. Hill, M.D.
Title: President and Chief Executive Officer

                                    EXHIBIT A

                               COLLABORATION PLAN

This Collaboration Plan sets forth the general intentions of each Party
regarding the overall conduct of the Collaboration. The Steering Committee may
revise the Collaboration Plan in its discretion as necessary to achieve the
objectives of the Collaboration. In addition, in the event of any conflict
between the Collaboration Plan and a Research Plan duly approved by the Steering
Committee, the provisions of the Research Plan shall prevail.

I. LEAD GENERATION

ARQULE COMPOUNDS

ArQule will make available to the Collaboration its Compass Array(TM) Sets and
Mapping Array(TM) Sets for lead generation. A "Mapping Array Set" is an array of
ArQule Compounds that ArQule generally makes available to its collaborators for
screening on a non-exclusive basis under its Mapping Array Program. The term
"Mapping Array" is a trademark owned by ArQule. Certain contractual restrictions
on the Mapping Array Sets preclude ArQule from disclosing the structures of
individual compounds until biological activity is detected. However, ArQule may
disclose the generic structure of compounds in each Mapping Array Set in Markush
format. A "Compass Array Set" is a library of ArQule Compounds that is a diverse
subset of the Mapping Array Sets that are available in the ArQule repository.
Each Compass Array Set uses at least

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approximately ***** of the total ArQule Compounds in each Mapping Array Set to
represent the chemical diversity present in all of the available Mapping Array
Sets. ArQule may also make available to the Collaboration, in it discretion,
Biased Array(TM) Sets for lead generation. A "Biased Array Set" is a library of
ArQule Compounds selected and consolidated from the Mapping Array repository
based on a set of rules, such as a pharmacophore model, which enriches the
library for the properties of interest.

Both GTC and ArQule will screen ArQule Compounds in accordance with the Research
Plan.

ArQule will supply GTC with ArQule Compounds in the standard ArQule format of
***** in 96 well microtiter plates. Unless ArQule otherwise notifies the
Research Committee, ArQule will provide each ArQule Compound in a *****, with a
quantity of approximately (i) ***** (ii) *****. Although ArQule does not
currently determine purity for every ArQule Compound, each Mapping Array Set has
an average purity of at least ***** based on LC/MS/ELSD analysis of a *****
quality control pattern.

The Research Committee may decide to screen with Compass Array Sets, Biased
Array Sets (if available), Mapping Array Sets, or a combination of them.
Ideally, the Parties will initially screen the Compass Array Sets and Biased
Array Sets (if available) before screening Mapping Array Sets. Based on these
initial results, the Research Committee will decide which Mapping Array Sets to
screen to identify additional Active Compounds and develop initial SAR and the
Party that performed the initial screen will screen the selected Mapping Array
Sets to identify additional Active Compounds. However, the Research Committee
may decide to screen the Mapping Array Sets in any assay without use of the
Compass Array Sets or available Biased Array Sets. In such event, the Party that
is responsible for performing that assay will screen the full Mapping Array
Sets.

When GTC performs a screen against a GTC Target, if GTC detects Active
Compounds, GTC will report the spatial coordinates of those Active Compounds to
ArQule and ArQule will determine availability as provided in Subsection 3.4.3.
When ArQule performs a screen against a GTC Target, ArQule will determine
availability of the Active Compounds as provided in Subsection 3.4.3. In either
case, if the Active Compounds are Available Compounds for ArQule, ArQule will
disclose the structures to GTC and GTC will determine availability as provided
in Subsection 3.4.3. If the Active Compounds are Available Compounds for GTC,
ArQule will disclose any ADMET data that ArQule may have obtained for the Active
Compounds and, if GTC has performed the screen, GTC will disclose all associated
screening data. The date on which availability of Active Compounds is confirmed
will initiate a ninety-day reservation period for the Available Active Compounds
and the corresponding GTC Target (if known), during which period each Party must
preserve the availability of the Available Active Compounds and the GTC Target.
The Steering Committee may extend the ninety-day reservation period. During the
reservation period, ArQule will resynthesize a number of Available Active
Compounds selected by the Research Committee to represent the full set of
Available Active Compounds, and the Parties will confirm activity of the
selected resynthesized Available Active Compounds in primary and secondary
screens and disclose all screening data to the Research Committee.

* Confidential Treatment has been requested for the marked portion.

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After activity is confirmed, the Research Committee will designate the Active
Compounds as Collaboration Compounds and will designate the corresponding GTC
Target (if known) as a Collaboration Target, all pursuant to Subsection 3.4.5.
In addition, at the request of the Research Committee, ArQule will disclose the
structures but not the locations of inactive ArQule Compounds in Mapping Array
Sets from which Collaboration Compounds are selected. Unless otherwise
determined by the Steering Committee, the Parties shall not designate
Collaboration Compounds or Collaboration Targets from any Compass Array Set or a
Biased Array Set without first screening the corresponding Mapping Array Sets to
discover the best Active Compounds in that chemical series.

GTC COMPOUNDS

Both GTC and ArQule will screen ArQule Compounds in accordance with the Research
Plan. Both GTC and ArQule will have access to the compound structures for GTC
Compounds. If GTC detects an Active Compound, GTC will determine availability
for GTC as provided in Subsection 3.4.4. If the Active Compounds are Available
Compounds for GTC, GTC will disclose the structures to ArQule and ArQule will
determine availability as provided in Subsection 3.4.4. If ArQule detects an
Active Compound, ArQule will determine availability for ArQule as provided in
Subsection 3.4.4. If the Active Compounds are Available Compounds for ArQule,
ArQule will disclose the structures to GTC and GTC will determine availability
as provided in Subsection 3.4.4. If the Active Compounds are Available Compounds
for both Parties, the Party that performed the assay will disclose all
associated screening data to the other Party.

The date on which availability of Active Compounds is confirmed will initiate a
ninety-day reservation period for the Available Active Compounds and the
corresponding GTC Target (if known), during which period each Party must
preserve the availability of the Available Active Compounds and the GTC Target.
The Steering Committee may extend the ***** reservation period. During the
reservation period, ArQule or a Third Party will resynthesize and send to the
Party that will perform the confirmatory assays a number of Available Active
Compounds selected by the Research Committee to represent the full set of
Available Active Compounds, and such Party will confirm activity of the selected
resynthesized Available Active Compounds in primary and secondary screens and
disclose all screening data to the Research Committee.

After activity is confirmed, the Research Committee will designate the Active
Compounds as Collaboration Compounds and will designate the corresponding GTC
Target (if known) as a Collaboration Target, all pursuant to Subsection 3.4.5.

OTHER COMPOUNDS

In addition to finding leads from the ArQule Compound libraries and GTC Compound
library, the Parties may license or purchase libraries of Other Compounds from
Third Parties, as directed by the Research Committee and approved by the
Steering Committee. In such event, the Parties will equally share expenses as
provided in Section 4.1. Both GTC and ArQule will screen

* Confidential Treatment has been requested for the marked portion.

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ArQule Compounds in accordance with the Research Plan. Both GTC and ArQule will
have access to the compound structures for Other Compounds (if available from
the supplier). If a Party detects an Active Compound, such Party will disclose
to the other Party the registration number or other identifier for the compound,
and both Parties will determine whether the Active Compound is an Available
Compound for such Party, as described in Subsection 3.4.4. If the Active
Compounds are Available Compounds for both Parties, the Party that performed the
assay will disclose to the other Party the identity of the GTC Target and all
associated screening data.

The date on which availability of Active Compounds is confirmed will initiate a
ninety-day reservation period for the Available Active Compounds and the
corresponding GTC Target (if known), during which period each Party must
preserve the availability of the Available Active Compounds and the GTC Target.
The Steering Committee may extend the ninety-day reservation period. During the
reservation period, ArQule or a Third Party (e.g., the compound provider) will
resynthesize and send to the Party that will perform the confirmatory assays a
number of Available Active Compounds selected by the Research Committee to
represent the full set of Available Active Compounds, and such Party will
confirm activity of the selected resynthesized Available Active Compounds in
primary and secondary screens and disclose all screening data to the Research
Committee.

After activity is confirmed, the Research Committee will designate the Active
Compounds as Collaboration Compounds and will designate the corresponding GTC
Target (if known) as a Collaboration Target, all pursuant to Subsection 3.4.5.

ANALOG COMPOUNDS

In addition to screening ArQule Compounds and Other Compounds, the Parties will
develop Analog Compounds of Collaboration Compounds in lead optimization, and
the Research Committee may desire to screen these Analog Compounds against other
GTC Targets or in anti-infective assays in which the molecular target is
unknown. In this case, GTC will have complete knowledge of the compound
structures and ArQule will have complete knowledge of the biological relevance
of the compounds.

Both GTC and ArQule will screen ArQule Compounds in accordance with the Research
Plan. The Party that performs the assays will disclose all screening data to the
other Party. If Active Compounds are detected, ArQule will resynthesize a number
of Active Compounds selected by the Research Committee to represent the full set
of Active Compounds, and the Parties will confirm activity of the selected
resynthesized Active Compounds in primary and secondary screens and disclose all
screening data to the Research Committee.

After activity is confirmed, the Research Committee will designate the
corresponding GTC Target (if known) as a Collaboration Target, all pursuant to
Subsection 3.4.5. Analog Compounds are, by definition, Collaboration Compounds.

II. LEAD QUALIFICATION

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The Parties will seek to qualify Collaboration Compounds through additional
biological assays, including functional assays, in vitro ADMET assays, bacterial
inhibition assays, and other assays identified by the Research Committee. The
biological assays for each project will be determined by the Research Committee
and set forth in the Research Plan. The combination of initial SAR, in vitro
activity evaluation, and in vitro ADMET profiling will enable the identification
of qualified hits amenable to additional lead optimization efforts.

III. LEAD OPTIMIZATION

Lead optimization activities will consist of the iterative synthesis and testing
of Collaboration Compounds (including Analog Compounds within a Collaboration
Compound Set) to identify one or more lead compounds that exhibit acceptable
activity and selectivity for a Collaboration Target or other anti-infective
activity if the molecular target is unknown, as well as exhibiting inhibition of
bacterial growth or bactericidal activity, favorable ADMET characteristics
(including minimal toxicity and oral bioavailability and an acceptable
pharmacokinetic profile), and in vivo efficacy with an acceptable therapeutic
index in an appropriate *****. The Parties hope that one or more of the
Collaboration Compound Sets will progress through lead optimization to identify
at least one GLP Toxicology Candidate. During this phase of the program, several
iterations of analog synthesis and optimization will be executed in parallel
with in vitro ADMET profiling, biological assays for potency and selectivity,
and in vivo testing in animal models as appropriate.

IV. PRECLINICAL DEVELOPMENT

Preclinical development activities will consist of the performance of
formulation, stability, in vivo efficacy *****, GLP toxicology studies, PK/PD
studies, and other preclinical development activities that are required by the
United States Food and Drug Administration (or its foreign equivalent) prior to
beginning *****. The Parties will share the expenses of preclinical development
on an equal basis.

If the Parties decide to conduct preclinical development of one or more GLP
Toxicology Candidates to develop an IND Candidate, the Research Committee will
update the Research Plan with a preclinical development plan specifying
responsibilities of each Party and a proposed timetable for accomplishment of
objectives. The Parties may perform the formal studies that are required to
support the filing of an IND (or its foreign equivalent) or outsource them to a
Third Party. The Parties may also file the IND.

*Confidential Treatment has been requested for the marked portion.

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                                    EXHIBIT B

*****

  *Confidential Treatment has been requested for the marked portion.

                                       35

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