Document:

<PAGE>

                                                                    Exhibit 10.2

                               FIRST AMENDMENT TO
                      AMENDED AND RESTATED CREDIT AGREEMENT

      This First Amendment to Amended and Restated Credit Agreement (this "FIRST
AMENDMENT") dated as of March 31, 2004, to be effective as set forth in Section
5 hereof, is among Comstock Resources, Inc., a Nevada corporation ("BORROWER"),
the financial institutions party hereto, and Bank of Montreal, as administrative
agent and as letter of credit issuing bank.

                              PRELIMINARY STATEMENT

      A.    The Borrower has entered into a certain Amended and Restated Credit
Agreement dated as of February 25, 2004, among Borrower, the lenders party
thereto (the "EXISTING LENDERS"), Bank of Montreal, as administrative agent (in
such capacity, the "ADMINISTRATIVE AGENT") and as issuing bank (in such
capacity, the "ISSUING BANK"), Bank of America, N.A., as syndication agent, and
Comerica Bank, Fortis Capital Corp., and Union Bank of California, N.A., as
co-documentation agents, (such Amended and Restated Credit Agreement, as
amended, restated or supplemented from time to time until the date hereof, the
"CREDIT AGREEMENT").

      B.    The Borrower has requested that the Credit Agreement be amended and
modified to allow The Bank of Nova Scotia ("SCOTIA"), Bank of Scotland
("SCOTLAND"), Compass Bank ("COMPASS"), Credit Lyonnais New York Branch ("CREDIT
LYONNAIS"), Hibernia National Bank ("HIBERNIA") and Natexis Banques Populaires
("NATEXIS"; and together with Scotia, Scotland, Compass, Credit Lyonnais and
Hibernia, collectively, the "NEW LENDERS") to become "Lenders" party to the
Credit Agreement, as set forth herein.

      C.    Subject to the terms and conditions of this First Amendment, the
Existing Lenders, the New Lenders, the Administrative Agent and the Issuing Bank
have agreed to enter into this First Amendment in order to effectuate such
amendments and modifications.

      NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth herein, the parties agree as follows:

      Section 1. DEFINITIONS. Unless otherwise defined in this First Amendment,
each capitalized term used in this First Amendment (including in the preliminary
statement above) has the meaning assigned to such term in the Credit Agreement.

      Section 2. AMENDMENT OF CREDIT AGREEMENT.

                  (a)   The Credit Agreement is hereby amended by deleting the
            existing Schedule 2.1 to the Credit Agreement and inserting in its
            place the text contained in Attachment 1 attached to this First
            Amendment as the new Schedule 2.1 to the Credit Agreement.

                  (b)   The Credit Agreement is hereby amended by inserting at
            the end of the existing Schedule 10.2 to the Credit Agreement the
            text contained in Attachment 2 attached to this First Amendment.

<PAGE>

      Section 3. SCOTIA, SCOTLAND, COMPASS, CREDIT LYONNAIS, HIBERNIA AND
NATEXIS AS LENDERS.

                  (a)   Upon the effectiveness of this First Amendment and by
            its execution and delivery hereof, each of Scotia, Scotland,
            Compass, Credit Lyonnais, Hibernia and Natexis shall be deemed
            automatically to have become a party to the Credit Agreement, shall
            have all the rights and obligations, severally and not jointly, of a
            "Lender" under the Credit Agreement and the other Loan Documents as
            if each were an original signatory thereto, and shall agree, and
            does hereby agree, severally and not jointly, to be bound by the
            terms and conditions set forth in the Credit Agreement and the other
            Loan Documents to which the Lenders are a party, in each case, as if
            each were an original signatory thereto.

                  (b)   Each of Scotia, Scotland, Compass, Credit Lyonnais,
            Hibernia and Natexis, severally and not jointly, (i) confirms that
            it has received a copy of the Credit Agreement, together with copies
            of the financial statements referred to in Section 5.5 thereof and
            such other documents and information as it has deemed appropriate to
            make its own credit analysis and decision to enter into this First
            Amendment and the Credit Agreement; (ii) agrees that is has
            independently and without reliance upon the Assignor or the
            Administrative Agent and based on such information as it has deemed
            appropriate, made its own credit analysis and decision to enter into
            this First Amendment and the Credit Agreement (and that it will,
            independently and without reliance upon the Administrative Agent,
            the Issuing Bank, the Arranger or any other Lender and based on such
            documents and information as it shall deem appropriate at the time,
            continue to make its own credit decisions in taking or not taking
            action under the Credit Agreement); (iii) represents and warrants
            that (1) its name set forth herein is its legal name, (2) it has the
            full power and authority and the legal right to make, deliver and
            perform, and has taken all necessary action, to authorize the
            execution, delivery and performance of this First Amendment, and any
            and all other documents delivered by it in connection herewith and
            to fulfill its obligations under, and to consummate the transactions
            contemplated by, this First Amendment, the Credit Agreement and the
            Loan Documents, (3) no consent or authorization of, filing with, or
            other act by or in respect of any Governmental Authority, is
            required in connection in connection herewith or therewith, and (4)
            this First Amendment constitutes its legal, valid and binding
            obligation; (iv) appoints and authorizes the Administrative Agent to
            take such action as agent on its behalf and to exercise such powers
            and discretion under the Loan Documents as are delegated to the
            Administrative Agent by the terms thereof, together with such powers
            and discretion as are reasonably incidental thereto; (v) appoints
            and authorizes the Issuing Bank to take such action as letter of
            credit issuing bank on its behalf and to exercise such powers and
            discretion under the Loan Documents as are delegated to the Issuing
            Bank by the terms thereof, together with such powers and discretion
            as are reasonably incidental thereto; (vi) agrees that it will
            perform in accordance with their terms all of the obligations that
            by the terms of the Credit Agreement are required to be performed by
            it as a Lender; and (vii) represents and warrants that under
            applicable Laws no tax will be required to be withheld by the

                                       2
<PAGE>

            Administrative Agent or the Borrower with respect to any payments to
            be made to such New Lender hereunder or under any Loan Document, and
            no tax forms described in Section 3.8 of the Credit Agreement are
            required to be delivered by such New Lender (or if required, such
            tax forms have been delivered to the Administrative Agent as
            required under Section 3.8 of the Credit Agreement).

                  (c)   Each of Scotia, Scotland, Compass, Credit Lyonnais,
            Hibernia and Natexis hereby advises each other party hereto that its
            respective address for notices and its respective Lending Office
            shall be as set forth below its name on Schedule 10.2 to the Credit
            Agreement (as amended hereby).

      Section 4. RATIFICATION. The Borrower hereby ratifies and confirms all of
the Obligations under the Credit Agreement and the other Loan Documents.

      Section 5. EFFECTIVENESS. This First Amendment shall become effective as
of the date first written above upon satisfaction of each of the conditions set
forth in this Section 5:

                  (a)   The Administrative Agent shall have received duly
            executed counterparts of this First Amendment from the Borrower, the
            Issuing Bank and each Lender (including each New Lender), and duly
            acknowledged by each of the Guarantors.

                  (b)   The Borrower shall deliver to the Administrative Agent
            on behalf of each Existing Lender whose Percentage Share is
            decreasing upon the effectiveness of this First Amendment and each
            New Lender a promissory note dated the Closing Date and payable to
            each such Lender in a maximum principal amount equal to such
            Lender's Percentage Share (as shown on Attachment 1 hereto) of
            $400,000,000, which Note shall be a renewal and replacement of, and
            shall be given in substitution and exchange for, but not in payment
            of, those Notes held by the Existing Lenders prior to the
            effectiveness of this First Amendment.

                  (c)   The Borrower shall have confirmed and acknowledged to
            the Administrative Agent, the Issuing Bank and the Lenders, and by
            its execution and delivery of this First Amendment the Borrower does
            hereby confirm and acknowledge to the Administrative Agent, the
            Issuing Bank and the Lenders, that (i) the execution, delivery and
            performance of this First Amendment has been duly authorized by all
            requisite corporate action on the part of the Borrower; (ii) the
            Credit Agreement and each other Loan Document to which it is a party
            constitute valid and legally binding agreements enforceable against
            the Borrower in accordance with their respective terms, except as
            such enforceability may be limited by bankruptcy, insolvency,
            reorganization, moratorium, fraudulent transfer or other similar
            laws relating to or affecting the enforcement of creditors' rights
            generally and by general principles of equity, (iii) the
            representations and warranties by the Borrower contained in the
            Credit Agreement and in the other Loan Documents are true and
            correct on and as of the date hereof in all material respects as
            though made as of the date hereof, and (iv) no Default or Event of
            Default exists under the Credit Agreement or any of the other Loan
            Documents.

                                       3
<PAGE>

                  (d)   The Administrative Agent shall have received a
            certificate of insurance of the Borrower and its Subsidiaries
            evidencing that the Borrower and its Subsidiaries are carrying
            insurance in accordance with Section 6.7 of the Credit Agreement
            naming the Administrative Agent as a loss payee and the
            Administrative Agent and the Lenders (including the New Lenders) as
            additional insureds and that such insurance is in full force and
            effect.

      Section 6. RENEWAL AND CONTINUATION OF EXISTING LOANS. Upon the
effectiveness of this First Amendment:

                  (a)   All of the Obligations outstanding under the Credit
            Agreement as of the date of such effectiveness shall hereby be
            restructured, rearranged, renewed, extended and continued under the
            Credit Agreement (as amended hereby) and all Loans outstanding under
            the Credit Agreement as of the date of such effectiveness shall
            hereby become Loans outstanding under the Credit Agreement (as
            amended hereby).

                  (b)   In connection herewith, the Existing Lenders hereby
            sell, assign, transfer and convey, and each of Scotia, Scotland,
            Compass, Credit Lyonnais, Hibernia and Natexis hereby purchases and
            accepts, so much of the Aggregate Commitments under, Loans
            outstanding under, and participations in Letters of Credit issued
            pursuant to, the Credit Agreement such that the Percentage Share of
            each Lender (including the Existing Lenders and each of Scotia,
            Scotland, Compass, Credit Lyonnais, Hibernia and Natexis) shall be
            as set forth on Schedule 2.1 to the Credit Agreement (as amended
            hereby). The foregoing assignments, transfers and conveyances are
            without recourse to the Existing Lenders and without any warranties
            whatsoever by the Administrative Agent, the Issuing Bank or any
            Existing Lender as to title, enforceability, collectibility,
            documentation or freedom from liens or encumbrances, in whole or in
            part, other than the warranty of each Existing Lender that it has
            not previously sold, transferred, conveyed or encumbered such
            interests.

      Section 7. REPRESENTATIONS OF EXISTING LENDERS. Each Existing Lender
represents and warrants to the Administrative Agent, each other Existing Lender
and each New Lender that (1) it has the power and authority and the legal right
to make, deliver and perform, and has taken all necessary action, to authorize
the execution, delivery and performance of this First Amendment and to fulfill
its obligations under, and to consummate the transactions contemplated by, this
First Amendment, and no consent or authorization of, filing with, or other act
by or in respect of any Governmental Authority, is required in connection in
connection herewith or therewith; and (2) this First Amendment constitutes the
legal, valid and binding obligation of such Existing Lender. None of the
Administrative Agent, the Issuing Bank or any Existing Lender makes any
representation or warranty or assumes any responsibility with respect to the
financial condition of the Borrower or any of its Affiliates or the performance
by the Borrower or any of its Affiliates of their respective obligations under
the Loan Documents, and none of the Administrative Agent, the Issuing Bank or
any Existing Lender assumes any responsibility with respect to any statements,
warranties or representations made under or in

                                       4
<PAGE>

connection with any Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of any Loan Document other
than as expressly set forth above.

      Section 8. GOVERNING LAW. This First Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the principles thereof relating to conflicts of law except section
5-1401 of the New York General Obligations Law).

      Section 9. MISCELLANEOUS. (a) On and after the effectiveness of this First
Amendment, each reference in each Loan Document to "this Agreement", "this
Note", "this Mortgage", "hereunder", "hereof" or words of like import, referring
to such Loan Document, and each reference in each other Loan Document to "the
Credit Agreement", "the Notes", "the Mortgages", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, the Notes, or the
Mortgage or any of them, shall mean and be a reference to such Loan Document,
the Credit Agreement, the Notes, the Mortgage or any of them, as amended or
otherwise modified by this First Amendment; (b) the execution, delivery and
effectiveness of this First Amendment shall not, except as expressly provided
herein, operate as a waiver of any default of the Borrower or any other Loan
Party or any right, power or remedy of the Administrative Agent, the Issuing
Bank and the Lenders under any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents; (c) this First Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement; and (d) delivery of an executed counterpart of a signature page to
this First Amendment by telecopier shall be effective as delivery of a manually
executed counterpart of this First Amendment.

      Section 10. FINAL AGREEMENT. THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.

                                       5
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by its officers thereunto duly authorized as of the date first above
written.

                                            BORROWER:

                                            COMSTOCK RESOURCES, INC.,
                                            a Nevada corporation

                                            By: /s/ ROLAND O. BURNS
                                                -----------------------
                                            Name:  Roland O. Burns
                                            Title: Chief Financial Officer

                                            ADMINISTRATIVE AGENT, ISSUING BANK
                                            AND LENDERS:

                                            BANK OF MONTREAL,
                                            as Administrative Agent, Issuing
                                            Bank and Lender

                                            By: /s/ JAMES V. DUCOTE
                                                -----------------------
                                            Name:  James V. Ducote
                                            Title: Director

                                            BANK OF AMERICA, N.A.,

                                            By: /s/ STEVEN A. MACKENZIE
                                                -------------------------
                                            Name: Steven A. Mackenzie
                                            Title: Vice President

                                            FORTIS CAPITAL CORP.

                                            By: /s/ DAVID MONTGOMERY
                                                ------------------------
                                            Name: David Montgomery
                                            Title: Senior Vice President

                                            By: /s/ DARRELL W. HOLLEY
                                                ------------------------
                                            Name: Darrell W. Holley
                                            Title: Managing Director

                                      S-1
<PAGE>

                                            COMERICA BANK

                                            By: /s/ PETER L. SEFZIK
                                                ------------------------
                                            Name: Peter L. Sefzik
                                            Title: Vice President

                                            UNION BANK OF CALIFORNIA, N.A.

                                            By: /s/ SEAN MURPHY
                                                ------------------------
                                            Name: Sean Murphy
                                            Title: Vice President

                                            THE BANK OF NOVA SCOTIA

                                            By: /s/ NADINE BELL
                                                -------------------------
                                            Name: Nadine Bell
                                            Title: Senior Manager

                                            BANK OF SCOTLAND

                                            By: /s/ JOSEPH FRATUS
                                                -------------------------
                                                Name: Joseph Fratus
                                                Title: First Vice President

`                                           COMPASS BANK

                                            By: /s/ DOROTHY MARCHAND
                                                -------------------------
                                            Name:  Dorothy Marchand
                                            Title: Senior Vice President

                                      S-2
<PAGE>

                                            CREDIT LYONNAIS NEW YORK BRANCH

                                            By: /s/ PHILIPPE SOUSTRA
                                                -------------------------
                                            Name:  Philippe Soustra
                                            Title: Executive Vice President

                                            HIBERNIA NATIONAL BANK

                                            By: /s/ DARIA MAHONEY
                                                -------------------------
                                            Name: Daria Mahoney
                                            Title: Vice President

                                            NATEXIS BANQUES POPULAIRES

                                            By: /s/ DONOVAN C. BROUSSARD
                                                -------------------------
                                            Name: Donovan C. Broussard
                                            Title: Vice President & Manager

                                            By: /s/ LOUIS P. LAVILLE, III
                                                --------------------------
                                            Name:  Louis P. Laville, III
                                            Title: Vice President & Manager

                                      S-3
<PAGE>

                          ACKNOWLEDGMENT BY GUARANTORS

      Each of the undersigned Guarantors hereby (i) consents to the terms and
conditions of that certain First Amendment to Credit Agreement dated as of March
31, 2004 (the "First Amendment"), (ii) acknowledges and agrees that its consent
is not required for the effectiveness of the First Amendment, (iii) ratifies and
acknowledges its respective Obligations under each Loan Document to which it is
a party, and (iv) represents and warrants that (a) no Default or Event of
Default has occurred and is continuing, (b) it is in full compliance with all
covenants and agreements pertaining to it in the Loan Documents, and (c) it has
reviewed a copy of the First Amendment.

                               COMSTOCK OIL & GAS HOLDINGS, INC.
                               COMSTOCK OIL & GAS - LOUISIANA, LLC
                               COMSTOCK OFFSHORE, LLC
                               COMSTOCK OIL & GAS GP, LLC,
                                   By Comstock Resources, Inc., its sole member

                               COMSTOCK OIL & GAS, LP, By
                                   Comstock Oil & Gas GP, LLC,
                                   its general partner,
                                   By Comstock Resources, Inc., its sole member

                               By: /s/ ROLAND O. BURNS
                                   -----------------------
                               Name:  Roland O. Burns
                               Title: Chief Financial Officer

                               COMSTOCK OIL & GAS INVESTMENTS, LLC

                               By: /s/ ROLAND O. BURNS
                                   --------------------
                               Name:  Roland O. Burns
                               Title: Manager

                                      S-4
<PAGE>

                                  ATTACHMENT 1

                                                                    SCHEDULE 2.1

                                   COMMITMENTS
                              AND PERCENTAGE SHARES

<TABLE>
<CAPTION>
LENDER                                  COMMITMENT              PERCENTAGE SHARE
--------------------------------        ---------------         ----------------
<S>                                     <C>                     <C>
Bank of Montreal                        $ 77,333,333.33            19.33333333%
Bank of America, N.A.                     44,000,000.00            11.00000000%
Comerica Bank                             44,000,000.00            11.00000000%
Fortis Capital Corp.                      44,000,000.00            11.00000000%
Union Bank of California, N.A.            44,000,000.00            11.00000000%
Bank of Scotland                        $ 33,333,333.33             8.33333333%
The Bank of Nova Scotia                 $ 26,666,666.67             6.66666667%
Credit Lyonnais, New York Branch        $ 26,666,666.67             6.66666667%
Compass Bank                            $ 20,000,000.00             5.00000000%
Hibernia National Bank                  $ 20,000,000.00             5.00000000%
Natexis Banques Populaires              $ 20,000,000.00             5.00000000%
Total                                   $400,000,000.00           100.00000000%
</TABLE>

                                  Attachment 1

<PAGE>

                                  ATTACHMENT 2

THE BANK OF NOVA SCOTIA
Address for Notices:

The Bank of Nova Scotia
Houston Representative Office
1100 Louisiana, Suite 3000
Houston, TX  77002
Attention: Bobby Roberts
Telephone: (713) 759-3436
Facsimile: (713) 752-2425
Electronic Mail: bobby_roberts@scotiacapital.com

Lending Office:

The Bank of Nova Scotia
Atlanta Agency
Suite 2700, 600 Peachtree St. N.E.
Atlanta, GA  30308

                                Attachment 2 - 1

<PAGE>

BANK OF SCOTLAND

Address for Notices:
Bank of Scotland
565 Fifth Avenue
New York, NY  10017
Attention: Shirley Vargas
           Vice President

Telephone: 212 450-0875
Facsimile: (212) 479-2807
Electronic Mail: shirley_vargas@bankofscotland.com

Lending Office:
Bank of Scotland
565 Fifth Avenue
New York, NY 10017

                                Attachment 2 - 2

<PAGE>

COMPASS BANK

Address for Notices:
Compass Bank
24 Greenway Plaza, Suite 1400A
Houston, TX  77046
Attention: Dorothy Marchand
Telephone: (713) 968-8272
Facsimile: (713) 968-8292
Electronic Mail: dorothy.marchand@compassbnk.com

Lending Office:
Compass Bank
24 Greenway Plaza, Suite 1400A
Houston, TX  77046

                                Attachment 2 - 3

<PAGE>

CREDIT LYONNAIS NEW YORK BRANCH

Address for Notices:
Credit Lyonnais New York Branch
1301 Travis, Suite 2100
Houston, TX  77002
Attention: Richard Kaufman
Telephone: (713) 890-8605
Facsimile: (713) 890-8666
Electronic Mail: Richard.Kaufman@clamericas.com

Lending Office:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019

                                Attachment 2 - 4

<PAGE>

Hibernia National Bank

Address for Notices:
Hibernia National Bank
313 Carondelet St., 10th Floor
New Orleans, LA  70130
Attention: Daria Mahoney
Telephone: (504) 533-2589
Facsimile: (504) 533-5434
Electronic Mail: dmahoney@hibernia.com

Lending Office:
Hibernia National Bank
313 Carondelet St., 10th Floor
New Orleans, LA  70130

                                Attachment 2 - 5

<PAGE>

NATEXIS BANQUES POPULAIRES
Address for Notices:
Natexis Banques Populaires
Natexis Banque
Southwest Representative Office
333 Clay Street, Suite 4340
Houston, TX  77002
Attention: Tanya McAllister
Telephone: (713) 759-9401
Facsimile: (713) 571-6165
Electronic Mail: Tanya.mcallister@nyc.nxbp.com

With a copy to:
Natexis Banque
New York Branch
645 5th Avenue, 20th Floor
New York, NY  10022
Attention: Stacey Caruth
Facsimile: (212) 872-5160

Lending Office:
Natexis Banques Populaires
Natexis Banque
Southwest Representative Office
333 Clay Street, Suite 4340
Houston, TX  77002

                                Attachment 2 - 6<PAGE>

                                                                   EXHIBIT 10.49

                          STRATEGIC ALLIANCE AGREEMENT

         This STRATEGIC ALLIANCE AGREEMENT (the "Agreement"), having a date of
April 1, 2004, is made by and between, on the one hand, F. HOFFMANN-LA ROCHE
LTD, a Swiss corporation, having its principal place of business at
Grenzacherstrasse 124, CH-4070, Basel, Switzerland and HOFFMANN-LA ROCHE INC., a
New Jersey corporation, having its principal place of business at 340 Kingsland
Street, Nutley, New Jersey 07110 (collectively "Roche") and, on the other hand,
ARQULE, INC., a Delaware corporation, having its principal place of business at
19 Presidential Way, Woburn, Massachusetts 01801-5140 ("ArQule").

                                  INTRODUCTION

         1. ArQule has a development program relating to pharmaceutical
compounds for the treatment of oncological diseases based on its E2F1 technology
and associated compounds (the "ArQule Program"), and owns related intellectual
property rights.

         2. Roche has expertise in the research, development, manufacture and
commercialization of pharmaceutical products.

         3. Roche desires to secure rights to further develop and commercialize
products developed and to be developed pursuant to the ArQule Program.

         4. In consideration of the mutual covenants and promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, ArQule and Roche agree as follows:

                             ARTICLE 1 DEFINITIONS

         As used in this Agreement, the following terms, whether used in the
singular or plural, shall have the following meanings:

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

                                     - 1 -
<PAGE>

1.1      "Adjusted Gross Sales" means the amount of gross sales of a Product
         invoiced by Roche, its Affiliates and its sublicensees to independent
         third parties less deductions for returns and return reserves (such
         reserves consistent with International Financial Reporting Standards)
         (including allowances actually given for spoiled, damaged, out-dated,
         rejected or returned Product sold, withdrawals and recalls), rebates to
         the extent consistently and reasonably applied by Roche to its products
         (price reductions, rebates to social and welfare systems, charge backs
         and charge back reserves (such reserves consistent with International
         Financial Reporting Standards), cash sales incentives (but only to the
         extent it is a sales related deduction which is accounted for within
         Roche on a product-by-product basis)), government mandated rebates and
         similar types of rebates (e.g., P.P.R.S. Medicaid, each as consistently
         and reasonably applied by Roche to its products), volume (quantity)
         discounts, each as consistently and reasonably applied by Roche to its
         products, and taxes (value added or sales taxes, government mandated
         exceptional taxes and other taxes directly linked to the gross sales
         amount), it being understood that income and capital gains taxes are
         not the type of taxes contemplated as a deduction in this definition of
         Adjusted Gross Sales. Notwithstanding the foregoing, amounts received
         by Roche, its Affiliates and sublicensees for the sale of Product among
         Roche, its Affiliates or sublicensees for resale shall not be included
         in the computation of Adjusted Gross Sales.

1.2      "Adverse Drug Reaction" and "Adverse Event" shall have the meaning
         given at 21 C.F.R. 314.80 or 21 C.F.R. 312.32, as applicable, and in
         the ICH guidelines. For purposes of this Agreement, "ICH guidelines"
         means the E2A ICH Harmonized Tripartite Guideline: Clinical Safety Data
         Management - Definitions and Standards for Expedited Reporting (as
         currently in effect and adopted by the relevant regulatory agency).

1.3      "Affiliate" means (a) a business entity which owns, directly or
         indirectly, more than fifty percent (50%) of the voting shares or other
         means of control of a Party; or (b) a business entity in which more
         than fifty percent (50%) of the voting shares or other means of control
         are owned by a Party, either directly or indirectly; or (c) a business
         entity, the majority ownership of which is directly or indirectly
         common to the majority ownership of a Party. Anything to the contrary
         in this paragraph notwithstanding, Genentech, Inc., a Delaware
         corporation, and Chugai Pharmaceutical Co., Ltd., a Japanese
         corporation, (each, a "Roche Entity"), shall not be deemed an Affiliate
         of Roche unless Roche provides written notice to ArQule of its desire
         to include a particular Roche Entity as an Affiliate of Roche and such
         Roche Entity otherwise meets the definition of an Affiliate.
         Notwithstanding such written notice, if any Roche Entity does not agree
         to be bound by the terms and conditions of this Agreement, then such
         Roche Entity shall have none of the rights and obligations of an
         Affiliate of Roche under this Agreement, and such Roche Entity shall be
         treated as a Third Party under this Agreement and, accordingly, Roche
         may not grant a sublicense to such Roche Entity except as permitted by
         Section 2.3 hereof. Notwithstanding the preceding

                                     - 2 -
<PAGE>

         provisions, once an entity ceases to be an Affiliate, then such entity
         shall, without any further action, cease to have any rights, including
         license and sublicense rights, under this Agreement that it has by
         reason of being an Affiliate.

1.4      "Agreement Term" means the term of this Agreement, more fully described
         in Section 17.2.

1.5      "ArQule Know-How" means all Know-How that ArQule owns, or otherwise has
         the right to grant as part of and pertinent to the License that may be
         granted herein, during the Agreement Term.

1.6      "ArQule Patent Rights" means all Patent Rights that ArQule owns or
         otherwise controls and has the right to grant as part of the License
         that may be granted herein during the Agreement Term. As of the date
         set forth in the first paragraph of this Agreement, the ArQule Patent
         Rights are as specified in Schedule 1.

1.7      "ArQule Program" has the meaning given in the first paragraph of the
         Introduction of this Agreement.

1.8      "Backup Compound" means, as of the Option Exercise, any analog of the
         Primary Compound and any other compound developed by ArQule that has
         been screened for regulation of the E2F1 protein prior to the Effective
         Date or as part of the Strategic Alliance, and as a direct result of
         such screening has been determined to modulate E2F1 in cancer cells,
         directly leading to apoptosis.

1.9      "Bioequivalent Product" means, with respect to a given Product sold in
         a given country of the Territory by Roche, its Affiliate or
         sublicensee, a product sold by a Third Party in such country containing
         the same compound (or an acid, salt or ester thereof) as an Optioned
         Compound.

1.10     "Clinical Candidate" means, subject to Section 4.3(a), as of or within
         * following the date of the Option Exercise, a Backup Compound that has
         commenced * studies.

1.11     "Combination Product" means any product containing both a
         pharmaceutically active agent that causes it to be considered a Product
         and one or more other pharmaceutically active agents that are not
         Products.

1.12     "Compound Evaluation Report" shall have the meaning given in Section
         9.3.

1.13     "Cover" (including the variations such as "Covered", "Coverage" or
         "Covering") shall mean that the making, using, offering for sale,
         selling or importing of a given compound or product would infringe a
         claim of a Patent Right in the absence of a license under such Patent
         Right. The determination of whether a compound or product is Covered by
         a particular Patent Right shall be made on a country-by-country basis.
         In the event of a disagreement between the Parties as to whether a
         compound or product is Covered by a particular Valid Claim, the

                                     - 3 -
<PAGE>

         Parties shall refer such disagreement pursuant to the dispute
         resolution process of Section 18.1.

1.14     "Effective Date" shall have the meaning given in Section 17.1(a).

1.15     "End of Phase 1" means the date of completion of a particular Phase 1
         clinical trial.

1.16     "End of Phase 2" means the date of completion of a particular Phase 2
         or Phase 2a clinical trial.

1.17     "EU Launch" means a Launch in any country in Europe.

1.18     "EU NDA Filing" means an application for marketing authorization filed
         in the European Union for a given Product and a given Indication.

1.19     "Europe" means the United Kingdom, Germany, Italy, France, and Spain.

1.20     "FDA" means the US Food and Drug Administration.

1.21     "Field" means only all Indications. For the avoidance of doubt, the
         Field does not include Specifically Excluded Areas.

1.22     "IND" means an Investigational New Drug Application filed with the FDA,
         or the foreign equivalent, for human clinical testing of a drug.

1.23     "Indication" means any therapeutic indication for human cancer.

1.24     "Initiation of Phase 1" means the date that a human is first dosed with
         a Product in a Phase 1 clinical trial.

1.25     "Initiation of Phase 2" means the date that a human is first dosed with
         a Product in a Phase 2 clinical trial. In the event a Phase 1b clinical
         trial and a Phase 2 clinical trial constitute component parts of a
         combined trial, "Initiation of Phase 2" means the formal commencement
         date pursuant to the applicable protocol of the Phase 2 clinical trial
         component part.

1.26     "Initiation of Phase 3" means the date that a human is first dosed with
         a Product in a Phase 3 clinical trial.

1.27     "Invention" means an invention that is conceived or reduced to practice
         in the conduct of the Strategic Alliance.

1.28     "Invention Priority Application" means a patent application that can be
         cited as a priority document for a patent filing.

1.29     "Joint Patent Rights" means all Patent Rights that ArQule and Roche
         jointly own, or otherwise jointly have the right to grant as part of
         the licenses herein, during the Agreement Term.

                                     - 4 -
<PAGE>

1.30     "Joint R&D Committee" has the meaning given in Section 8.2.

1.31     "Know-How" means data, knowledge and information, including materials,
         samples, chemical manufacturing data, toxicological data,
         pharmacological data, preclinical data, assays, platforms,
         formulations, specifications, quality control testing data, that are
         necessary for the discovery, manufacture, development or
         commercialization of Optioned Compounds or Products in the Territory.

1.32     "Launch" means, with respect to a Product in a country of the
         Territory, the date of the first commercial sale to a Third Party by
         Roche, its Affiliate or its sublicensee of the given Product in the
         given country.

1.33     "License" has the meaning given in Section 2.1(a).

1.34     "License Rights Maintenance Fees" means the payments by Roche to ArQule
         pursuant to Section 4.4 hereof.

1.35     "Major Indication" means an Indication for any one or more of the
         following types of human cancer: *.

1.36     "Major Market Countries" means the US, Canada, Japan and any country in
         Europe.

1.37     "Net Sales" means:

         (a)      for the US, the amount calculated by subtracting from the
                  amount of Adjusted Gross Sales a lump sum deduction of *
                  percent (*%) of Adjusted Gross Sales in lieu of those sales
                  related deductions which are not accounted for within Roche on
                  a product by product basis (e.g., outward freight, postage
                  charges, transportation insurance, packaging materials for
                  dispatch of goods, custom duties, bad debt, and legal
                  discounts granted later than at the time of invoicing);

         (b)      for the ROW Territory, the amount calculated by subtracting
                  from the amount of Adjusted Gross Sales a lump sum deduction
                  of * percent (*%) of Adjusted Gross Sales in lieu of those
                  sales related deductions which are not accounted for within
                  Roche on a product by product basis (e.g., outward freight,
                  postage charges, transportation insurance, packaging materials
                  for dispatch of goods, custom duties, bad debt, and legal
                  discounts granted later than at the time of invoicing).

                  Notwithstanding the foregoing, amounts received by Roche, its
                  Affiliates and sublicensees for the sale of Product among
                  Roche, its Affiliates or sublicensees for resale shall not be
                  included in the computation of Net Sales.

1.38     "Option Exercise" has the meaning given in Section 2.1(a).

                                     - 5 -
<PAGE>

1.39     "Option Exercise Period" means the period beginning on the last day of
         the Option Term, and ending * calendar days thereafter.

1.40     "Option Term" means the period commencing on the Effective Date and
         ending on the date that is the earlier of the Option Trigger Date and
         *, except as extended pursuant to Section 4.5.

1.41     "Option Trigger Date" means the date on which ArQule has delivered to
         Roche the Compound Evaluation Report.

1.42     "Optioned Compounds" means the Primary Compound, the Clinical
         Candidates and, if Roche makes the payment set forth in Section 4.3(b),
         then also the Potential Optioned Compounds.

1.43     "Other Indication" means any Indication that is not a Major Indication.

1.44     "Party" means Roche or ArQule, and "Parties" means Roche and ArQule.

1.45     "Patent Rights" means all rights under any patent or patent
         application, in any country of the Territory, including any patents
         issuing on such patent application, and further including any
         substitution, extension or supplementary protection certificate,
         reissue, reexamination, renewal, division, continuation or
         continuation-in-part of any of the foregoing, Covering a Product or an
         Optioned Compound in the Territory.

1.46     "Phase 1" means the first phase of human clinical trials of a drug
         required by the FDA to gain evidence of safety in patients, as
         described in 21 C.F.R. Part 312, as it may be amended.

1.47     "Phase 1a" means the currently ongoing Phase 1 trial of the Primary
         Compound governed by the IND filed on July 7, 2003.

1.48     "Phase 1b" means a Phase 1 study of the Primary Compound (in a
         combination protocol) subsequent to Phase 1a.

1.49     "Phase 2" means the second phase of human clinical trials of a drug
         required by the FDA to gain evidence of efficacy in the target
         population for an Indication, determine optimal dosage, and obtain
         expanded evidence of safety for Product(s), as described in 21 C.F.R.
         Part 312, as it may be amended.

1.50     "Phase 2a" means the first set of exposure response studies in patients
         in Phase 2 trials (conducted in a Major Market Country) collectively
         designed to demonstrate clinical proof of concept. These studies shall
         incorporate early stopping rules, where feasible and appropriate.

1.51     "Phase 3" means the third phase of human clinical trials of a drug
         required by the FDA to gain evidence of efficacy in the target
         population for an Indication and

                                     - 6 -
<PAGE>

         obtain expanded evidence of safety for Product(s), as described in 21
         C.F.R. Part 312, as it may be amended.

1.52     "Potential Optioned Compounds" means, as of the date of the Option
         Exercise, those Backup Compounds which have not been selected as
         Clinical Candidates.

1.53     "Primary Compound" means the compound known as ARQ 501.

1.54     "Primary Compound Trials" means at least * clinical trials with respect
         to the Primary Compound, of which (a) * shall be in *, (b) * shall be
         in * as a * and (c) * shall be in * either as a * or as a * protocol
         (to be determined by the Joint R&D Committee), in each case for tumor
         types to be determined by the Joint R&D Committee.

1.55     "Product" means any and all products for use in the Field that include,
         in whole or as a component thereof, an Optioned Compound. "Product"
         shall also include any and all products that include, in whole or as a
         component thereof, any Optioned Compound to which Roche has acquired a
         license pursuant to Section 2.1(b).

1.56     "Publishing Party" shall have the meaning set forth in Section 16.4(a).

1.57     "Reasonable Diligence" means the same standard of effort as used by the
         Parties, or in any case not less than common in the industry taken as a
         whole for similarly situated companies, for the activities to be
         undertaken pursuant to this Agreement, including, in the case of Roche,
         activities relating to development, clinical testing, manufacturing,
         marketing and sale, with respect to a product which (i) is intended to
         receive approval from FDA or another regulatory agency in Major Market
         Countries and (ii) has similar potential for treatment of an Indication
         as do the Optioned Compounds, taking into account scientific, business,
         marketing and return on investment considerations. It is understood
         that such compound potential may change from time to time based upon
         changing scientific, business, marketing and return on investment
         considerations. The Parties also acknowledge that, even within the
         Major Market Countries, Roche and its Affiliates do not always seek to
         market their own products in every such country or seek to obtain
         regulatory approval in every such country or for every potential
         indication or every compound that has potential for an indication. As a
         result, the exercise by Roche of Reasonable Diligence is to be
         determined by judging its efforts taken as a whole.

1.58     "Research Plan" means the plan of research and development attached as
         Schedule 2, developed by the Parties, outlining the work expected to be
         performed by ArQule as part of the Strategic Alliance, as such plan may
         be updated from time to time as provided in this Agreement.

1.59     "Regulatory Approval" means any approvals (including pricing and
         reimbursement approvals), licenses, registrations or authorizations of
         any national or international or local regulatory authority,
         department, bureau or other

                                     - 7 -
<PAGE>

         governmental entity, necessary for the manufacture, marketing and sale
         of a Product in a regulatory jurisdiction in the Territory.

1.60     "Roche Patent Rights" means all Patent Rights that Roche owns or
         otherwise controls and has the right to grant as part of the licenses
         herein, during the Agreement Term.

1.61     "ROW Territory" means all countries and territories in the world other
         than the US.

1.62     "Serious Adverse Drug Reaction" and "Serious Adverse Event" shall have
         the meaning given at 21 C.F.R. 314.80 or 21 C.F.R. 312.32, as
         applicable, and the ICH guidelines.

1.63     "Specifically Excluded Areas" means (i) the *, and (ii) the *.

1.64     "Strategic Alliance" means discovery and development by ArQule of
         pharmaceutical compounds in the Field during the Agreement Term and
         development and commercialization of such compounds by Roche and ArQule
         pursuant to this Agreement.

1.65     "Territory" means all countries and territories in the world, provided
         however that in the event Roche exercises its right of termination
         pursuant to Section 17.4(c) with respect to any country or countries,
         such country or countries shall be excluded from the definition of
         "Territory."

1.66     "Third Party" means a person or entity other than (i) ArQule or any of
         its Affiliates or (ii) Roche or any of its Affiliates.

1.67     "US" means the United States of America and its possessions and
         territories, including Puerto Rico.

1.68     "US Launch" means Launch in the US.

1.69     "US NDA" means a New Drug Application filed with the FDA for a drug.

1.70     "US NDA Filing" means for a given Product, the date that a US NDA is
         filed with the FDA for such Product for an Indication.

1.71     "Valid Claim" means a claim in any (i) unexpired and issued patent
         right that has not been (x) held permanently revoked, unenforceable or
         invalid by a final unappealable decision of a court or government
         agency of competent jurisdiction over such claim or (y) admitted to be
         invalid or unenforceable through disclaimers, consent decrees or
         otherwise, or (ii) pending patent application that has been on file
         with the applicable patent office for no more than ten (10) years and
         for which there has been reasonably consistent activity to advance to
         issuance of a patent.

                                     - 8 -
<PAGE>

                                ARTICLE 2 GRANTS

2.1      Grants.

         (a)      Subject to the terms and conditions of this Agreement,
                  commencing on the Effective Date and ending at the conclusion
                  of the Option Exercise Period, Roche shall have the right with
                  respect to the Products to exercise an option ("Option
                  Exercise") to obtain a sole and exclusive license, including
                  the right to grant sublicenses in accordance with Section 2.3,
                  under the ArQule Patent Rights and Joint Patent Rights, and a
                  non-exclusive license to use the ArQule Know-How, in each case
                  solely to make, use, offer for sale, sell and import the
                  Products in the Territory for use in the Field (the
                  "License").

         (b)      If Roche has effected the Option Exercise, and, within * after
                  the date of Option Exercise, Roche has delivered a written
                  notice to ArQule designating a particular Optioned Compound as
                  subject to this Section 2.1(b), then, subject to the terms and
                  conditions of this Agreement, Roche shall have, with respect
                  to such designated Optioned Compound and its associated
                  Products, for no further consideration, a sole and exclusive
                  license, including the right to grant sublicenses in
                  accordance with Section 2.3, under the ArQule Patent Rights,
                  and a non-exclusive license to use the ArQule Know-How, in
                  each case solely to make, use, offer for sale, sell and import
                  such product in the Territory for use outside the Field
                  (except that such licenses shall exclude Specifically Excluded
                  Areas).

         (c)      The right of Roche to effect the Option Exercise shall be made
                  by Roche giving ArQule written notice to such effect prior to
                  the conclusion of the Option Exercise Period and making or
                  having made payment to ArQule of (1) all research and
                  development payments specified in Section 4.1, (2) either (i)
                  the one-time payment specified in Section 4.3(a) or (ii) the
                  one-time payment specified in Section 4.3(b), and (3) any of
                  the License Rights Maintenance Fees due and payable pursuant
                  to Section 4.4, or, subject to Section 8.2(f), if an event or
                  events described in Section 4.4 which, but for having occurred
                  prior to the date of Option Exercise, would have triggered the
                  payment of such License Rights Maintenance Fee(s), the License
                  Rights Maintenance Fee(s) associated with such event or
                  events.

         (d)      If Roche exercises its right to obtain the License as provided
                  in this Section 2.1, ArQule shall be deemed to have granted
                  such License hereunder without any requirement for further
                  action by or on behalf of either Party. For the avoidance of
                  doubt, except as may be provided pursuant to Section 2.1(g),
                  Roche shall have no license or other rights (except for the
                  right to effect the Option Exercise) in or to any ArQule
                  Patent Rights, ArQule Know-How or Optioned Compound unless and
                  until it effects the Option Exercise.

                                     - 9 -
<PAGE>

         (e)      From and after the Option Exercise, Roche shall be responsible
                  for and pay all costs and expenses relating to the continued
                  development of Products, including obtaining all Regulatory
                  Approvals with respect thereto.

         (f)      Except as expressly provided in Sections 2.1(b) and 2.1(h),
                  nothing in this Agreement grants to Roche any option, right or
                  license to use ArQule Know-How or ArQule Patent Rights for any
                  purpose other than to make, use, offer for sale, sell and
                  import Products in the Territory for use in the Field.
                  Further, except as expressly provided in this Agreement to the
                  contrary, nothing in this Agreement shall limit the right of
                  ArQule to use ArQule Know-How or ArQule Patent Rights for any
                  purpose not related to the making, using, offering for sale,
                  selling or importing of Products in the Territory for use in
                  the Field, including without limitation Potential Optioned
                  Compounds.

         (g)      In the event that ArQule provides Roche with any compound or
                  other material (including any Optioned Compound or Potential
                  Optioned Compound) prior to the Option Exercise, Roche shall
                  have the right to use such compound or other material solely
                  for the purpose of evaluating whether to effect the Option
                  Exercise. The foregoing right shall not include the right to
                  grant sublicenses, and such right shall expire upon the
                  earlier of the Option Exercise, if any, and the expiration of
                  the Option Term.

         (h)      In the event that, after Roche has exercised its option
                  pursuant to Section 2.1(a) but prior to the end of the
                  Agreement Term, ArQule wishes to license to any Third Party
                  any ArQule Patent Rights Covering any Optioned Compound (other
                  than any Optioned Compound to which Roche has acquired a
                  license pursuant to Section 2.1(b)) outside of the Field
                  (other than for Specifically Excluded Areas) (the "Rights"),
                  the following procedures must be followed and the following
                  conditions must be satisfied before ArQule may license such
                  Rights to a Third Party:

                           (i) ArQule shall, prior to entering into negotiations
                  with any Third Party, deliver to Roche written notice of
                  ArQule's interest in negotiating such a license;

                           (ii) ArQule shall not, unless Roche indicates
                  otherwise in a written notice to ArQule to the contrary,
                  participate in any negotiations with any Third Party for a
                  period of * following such notice. If Roche provides the
                  notice referred to in section 2.1(h)(iii), the * period
                  referred to in the preceding sentence shall be extended to *
                  following receipt by ArQule of the notice referred to in
                  Section 2.1(h)(iii);

                           (iii) If, on or before the expiration of such *
                  period, Roche provides to ArQule written notice of Roche's
                  interest in negotiating a

                                     - 10 -
<PAGE>

                  license to the Rights, ArQule and Roche shall engage in
                  negotiations in good faith, for a period not to exceed * from
                  ArQule's receipt of the notice from Roche, to enter into a
                  license agreement for the Rights. Nothing in this Section
                  2.1(h)(iii) shall require either Party to enter into any such
                  license agreement; and

                           (iv) In the event Roche fails to provide to ArQule
                  notice of Roche's interest in negotiating a license agreement
                  within the * period referred to in Section 2.1(h)(ii), or in
                  the event the Parties fail to enter into such a license
                  agreement within the * period referred to in Section
                  2.1(h)(iii), ArQule shall be free to license the Rights to any
                  Third Party on any terms and conditions.

2.2      ArQule's Rights to Grant Licenses to Third Parties. In the event that
         Roche declines or fails to exercise its right to obtain the License,
         ArQule shall be free to license or grant any rights to a Third Party
         with respect to any Potential Optioned Compound or Optioned Compound in
         the Field or otherwise.

2.3      Sublicense Rights.

         (a)      Subject to the restriction set forth in Section 2.3(b), the
                  rights and licenses granted to Roche in the event of an Option
                  Exercise shall include the right of Roche to grant written
                  sublicenses to its Affiliates and Third Parties under such
                  rights and licenses, in whole or in part, solely to the extent
                  necessary to make, use, offer for sale, sell or import
                  Products in the Territory for use in the Field. If Roche
                  grants such a sublicense, Roche shall ensure that all of the
                  applicable terms and conditions of this Agreement shall apply
                  to the Affiliate or Third Party sublicensee to the same extent
                  as they apply to Roche for all purposes. Roche assumes full
                  responsibility for the performance of all obligations and
                  observance of all terms so imposed on such Affiliate or Third
                  Party sublicensee and shall itself account to ArQule for all
                  payments due under this Agreement by reason of such
                  sublicense.

         (b)      Notwithstanding Section 2.3(a), for so long as ArQule has a
                  co-promotion right with respect to a Product, Roche shall not
                  have the right to sublicense the rights granted to Roche in
                  the event of an Option Exercise to any Third Party with
                  respect to such Product in the US, except upon the prior
                  written approval of ArQule, which approval may be granted or
                  withheld by ArQule in its sole discretion.

         (c)      Any sublicense may, at the written election of ArQule in its
                  sole discretion, continue in full force and effect after the
                  termination (in whole or in part) of the underlying License
                  granted herein to Roche, and all sublicenses shall contain a
                  provision to this effect. Upon the License that will be
                  granted herein to Roche in the event of an Option Exercise

                                     - 11 -
<PAGE>

                  becoming fully paid up pursuant to Section 17.2, any and all
                  sublicenses granted by Roche similarly shall become fully paid
                  up as to ArQule.

2.4      ArQule Co-Promotion Right. ArQule shall have the right to co-promote
         each Product in the US, on a Product-by-Product basis, as specified in
         this Section 2.4. For purposes of this Agreement, "co-promote" and
         "co-promotion" shall mean the marketing, promotion, detailing and
         advertisement of a Product by or on behalf of ArQule or any of its
         Affiliates under the relevant Regulatory Approvals and the then
         existing trademarks. * shall not * of a *. ArQule may exercise its
         co-promotion right with respect to each Product by giving written
         notice thereof to Roche at any time during the period commencing upon
         the Initiation of * for such Product and ending * following such date,
         provided that at the time of such exercise ArQule has an established
         sales force or has committed resources and funds to hire a sales force
         sufficient to meet ArQule's co-promotion obligations. Upon ArQule's
         exercise of its co-promotion right with respect to any Product, the
         Parties shall negotiate in good faith and enter into a written
         co-promotion agreement (the "Co-Promotion Agreement"). In addition to
         any other terms agreed to by the Parties, the Co-Promotion Agreement
         shall contain the terms set forth in Schedule 3 hereto.

2.5      Requirement to Divest. If Roche is required by a relevant government
         authority in a given country of the Territory to divest rights to an
         Optioned Compound and/or Product with respect to which Roche has not
         commenced * prior to the order to divest, then Roche shall use its
         Reasonable Diligence to obtain authority to fulfill such requirement by
         * in and to such Optioned Compound and/or Product in accordance with
         the transfer procedures specified in Section 17.6. If Roche is required
         by a relevant government authority in a given country of the Territory
         to divest rights to an Optioned Compound and/or Product with respect to
         which Roche has commenced * prior to the order to divest, then Roche
         shall * to other potential acquirers of such rights, including in
         bidding or other acquisition processes.

                              ARTICLE 3 DILIGENCE

3.1      Diligence.

         (a)      ArQule shall use Reasonable Diligence in proceeding with the
                  development of the Optioned Compounds in the Field, except
                  that ArQule's obligation hereunder shall expire upon the
                  earlier of the Option Exercise, if any, and the expiration of
                  the Option Term. From and after the Option Exercise, Roche
                  shall use Reasonable Diligence in proceeding with the
                  development of at least one Product, including obtaining
                  required Regulatory Approvals, and manufacturing, marketing
                  and selling such Product or Products in the Major Market
                  Countries.

                                     - 12 -
<PAGE>

         (b)      If either Party believes in good faith that the other Party
                  has failed to utilize Reasonable Diligence as required by this
                  Section 3.1, then such Party may give the other Party written
                  notice of such alleged failure, identifying the Optioned
                  Compounds or Product (if known) and giving specific detailed
                  reasons supporting such allegation. Within * following the
                  other Party's receipt of any such notice ("Response Period"),
                  the other Party shall have the right to provide such Party
                  with a written response specifying, in reasonable detail, how
                  it has used Reasonable Diligence as required hereby.

         (c)      If the other Party has failed to provide within the Response
                  Period a written response, in reasonable detail, indicating
                  the manner in which it is in compliance with its obligations
                  under this Section 3.1 or in which it has remedied any breach
                  thereof, or the other Party has failed within the Response
                  Period to remedy any breach of its obligations under this
                  Section 3.1, then the Party alleging failure of Reasonable
                  Diligence shall have the right to terminate this Agreement
                  upon written notice to such Party effective as of the end of
                  the Response Period, in addition to any other rights it may
                  have under this Agreement as a result of such breach.

         (d)      In the event of a dispute between the Parties with respect to
                  whether either Party has complied with its obligation under
                  this Section 3.1, then such dispute shall be resolved in
                  accordance with Article 18. The consequences of any
                  termination under this Section 3.1 are set forth in Section
                  17.6.

         (e)      Roche acknowledges that ArQule may subcontract, and is
                  permitted to subcontract, ArQule's obligations under this
                  Agreement. However, prior to entering into any material
                  subcontracts, ArQule shall first solicit the advice and input
                  of Roche with respect to such subcontract.

3.2      Non-Exclusive Remedy. The Parties confirm and agree that nothing in
         this Article 3 limits the obligations or rights of Roche or ArQule
         under this Agreement.

                          ARTICLE 4 PAYMENTS TO ARQULE

4.1      Research and Development Payments.

         (a)      Roche shall reimburse to ArQule a total of * dollars ($*) for
                  the ArQule Program research and development costs and expenses
                  incurred by ArQule on or before the end of the Option Term.
                  These payments shall be non-refundable and non-creditable, and
                  shall be due and payable, except as provided in Section
                  4.1(b), as follows:

                           (i) Within * after the Effective Date, a payment of *
                  dollars ($*);

                                     - 13 -
<PAGE>

                           (ii) A payment of * dollars ($*) due and payable
                  within 30 days after * and receipt of an invoice for such
                  amount; and

                           (iii) Aggregate payments totaling $*, payable in *
                  equal quarterly installments of $* per installment, each
                  installment due and payable within * after (i) the first day
                  of each calendar quarter and receipt of an invoice from
                  ArQule, with the first such installment of $* to be due and
                  payable within * after * and receipt of an invoice from ArQule
                  for such amount.

         (b)      Notwithstanding Section 4.1(a), if Roche effects the Option
                  Exercise, the entire amount of the payment otherwise due and
                  not yet paid pursuant to Section 4.1(a) shall be immediately
                  due and payable in full upon such exercise.

4.2      Decision. By the end of the Option Exercise Period, Roche shall advise
         ArQule in writing of its decision to (i) effect the Exercise Option
         pursuant to Section 4.3 below, (ii) extend the Option Term by a period
         of up to an additional * pursuant to Section 4.5, or (iii) terminate
         this Agreement pursuant to Section 17.4. Failure of Roche to timely
         advise ArQule in writing of its decision shall be deemed a termination
         pursuant to Section 17.4.

4.3      Payment Upon Option Exercise.

         (a)      If Roche effects the Option Exercise with respect to the
                  Primary Compound and the Clinical Candidates, then Roche shall
                  pay to ArQule concurrent with its notice that it is effecting
                  the Option Exercise a one-time payment of * dollars ($*),
                  which amount shall be non-refundable and non-creditable; and
                  thereupon Roche shall obtain the License with respect to the
                  associated Products. Roche shall also pay to ArQule the
                  remaining amounts, if any, due under Section 4.1(b) concurrent
                  with its notice that it is effecting the Option Exercise and
                  any amounts due and payable pursuant to Section 2.1(c)(3). If
                  there are fewer than * Clinical Candidates as of the date of
                  Option Exercise, Roche may elect, in a writing delivered to
                  ArQule at the time of the Option Exercise, for its License to
                  extend to additional Back-Up Compounds, up to the number of
                  compounds fewer than * as to which Roche would otherwise have
                  a License. For example, if there are * Clinical Candidates as
                  of the date of Option Exercise, then Roche shall have the
                  right to extend the License to * additional Back-Up Compound.
                  If Roche desires to exercise such election, then Roche shall
                  give such written notice to ArQule of its election, and
                  Roche's rights to other Back-Up Compounds that * during the *
                  month period after the Option Term shall become null and void.

         (b)      If Roche effects the Option Exercise with respect to the
                  Primary Compound, the Clinical Candidates and the Potential
                  Optioned Compounds, then Roche shall pay to ArQule concurrent
                  with its notice

                                     - 14 -
<PAGE>

                  that it is effecting the Option Exercise a one-time payment of
                  * dollars ($*), which amount shall be non-refundable and
                  non-creditable; and thereupon Roche shall obtain the License
                  with respect to the associated Products. Roche shall also pay
                  to ArQule the remaining amounts, if any, due under Section
                  4.1(b) concurrent with its notice that it is effecting the
                  Option Exercise and any amounts due and payable pursuant to
                  Section 2.1(c)(3).

4.4      License Rights Maintenance Fees.

         (a)      Major Indications. Roche shall pay to ArQule, in order to
                  maintain the License (in the event that the Option Exercise
                  has occurred) and the other provisions of this Agreement with
                  respect to such Product, the following nonrefundable payments
                  (shown in millions of US dollars) upon the first occurrence of
                  the following events for each Product that is for a Major
                  Indication:

<TABLE>
<CAPTION>
               First               Second               Third
               Major                Major               Major
Event       Indication           Indication          Indication
-----       ----------           ----------          ----------
<S>         <C>                  <C>                 <C>
  *             *                    *                   *
</TABLE>

         (b)      Other Indications. Roche shall pay to ArQule, in order to
                  maintain the License (in the event that the Option Exercise
                  has occurred) and the other provisions of this Agreement with
                  respect to such Product, the following nonrefundable payments
                  (shown in millions of US dollars) upon the first occurrence of
                  the following events for each Product that is for an Other
                  Indication:

<TABLE>
<CAPTION>
                            Any
                           Other
Event                   Indication
-----                   ----------
<S>                     <C>
  *                          *
</TABLE>

         (c)      Clinical Candidates. Roche shall pay to ArQule, in order to
                  maintain the option set forth in Section 2.1(a), or the
                  License (in the event that the Option Exercise has occurred)
                  and the other provisions of this Agreement with respect to
                  such Product, the following non-refundable and non-creditable
                  payments for each Clinical Candidate developed in the Field:

                           (i) * dollars ($*) upon the first *; and

                           (ii) * dollars ($*) upon the first *. In the event
                  that ArQule progresses a Clinical Candidate to * or * without
                  *, such payment shall be due upon the first such Filing, in
                  addition to any other payments triggered by such Filing.

                                     - 15 -
<PAGE>

         (d)      Timing of Payments. Each payment in Section 4.4 (a) through
                  4.4 (c) shall be due and payable by Roche within * after
                  occurrence of the applicable event.

         (e)      Successive Events. Roche shall make each of such payments only
                  once for the first occurrence of the requisite event for such
                  Product or Clinical Candidate, regardless of how many times
                  the event may be subsequently achieved with such Product or
                  Clinical Candidate.

         (f)      Effect on Royalty Payments. No amount payable under this
                  Article 4 shall reduce any royalties payable under Article 5
                  except that the payments set forth in Sections 4.4 (a) and
                  4.4(b) corresponding to US Launch and EU Launch events shall
                  result in a credit of *% of each such payment (if any) against
                  Roche's royalty obligations set forth in Article 5.

4.5      Payment for Extension of Option Term. If, at the end of the Option
         Term, the Option Trigger Date has not yet occurred, ArQule shall advise
         Roche in writing of the aspects of the deliverables not achieved and a
         proposed budget to complete such deliverables by *. If Roche has a
         positive interest to continue the Strategic Alliance but not yet to
         exercise its Option, Roche may elect to extend the Option Term for one
         additional year, from *, to *, by giving written notice to ArQule and
         paying ArQule an amount equal to the amount of the proposed budget as
         described in the preceding sentence, but not to exceed * dollars ($*),
         on or before *. ArQule shall use the payment provided by Roche under
         this Section 4.5 only in support of the Strategic Alliance. In the
         event ArQule's actual expenditures for such additional year in support
         of the Strategic Alliance are less than the budgeted amount (or such
         lesser amount if the budgeted amount exceeds $*), ArQule shall return
         to Roche such difference no later than *. However, Roche shall not have
         any responsibility or liability to ArQule for any actual expenditures
         exceeding the budgeted amount.

                              ARTICLE 5 ROYALTIES

5.1      Royalties. Roche shall pay to ArQule the following payments based on
         the Net Sales of a given Product, which payments shall be subject to
         adjustment as provided in this Article 5. Such royalty payments shall
         be calculated by multiplying the percentages specified below by the *
         Net Sales of such Product and as provided further in Section 7.2:

<TABLE>
<CAPTION>
     ANNUAL NET SALES                       PERCENT (%) OF NET SALES
     ----------------                       ------------------------
(IN MILLIONS OF US DOLLARS)
<S>                                         <C>
             *                                         *
</TABLE>

5.2      Term of Royalty Payments. Roche's obligation to make royalty payments
         to ArQule under Section 5.1 with respect to a Product shall commence on
         the Launch of such Product in any country. The Adjusted Gross Sales in
         a given

                                     - 16 -
<PAGE>

         country shall be included for purposes of calculating royalties under
         Section 5.1 from such Launch date until the later of (a) expiration of
         the last to expire Valid Claim Covering the sale of such Product in
         such country and (b) * from the Launch of such Product in such country.
         For purposes of this Section 5.2, the EU will be considered as one
         country.

5.3      Adjustments Related to Valid Claims from ArQule Patent Rights. With
         respect to a given Product in a given calendar quarter, if in a country
         of the Territory no Valid Claim from ArQule Patent Rights Covers the
         sale of such Product, then Roche may calculate royalties for such
         Product using only * percent (*%) of the amount of Adjusted Gross Sales
         that Roche would have used for such country to calculate royalties for
         such Product if a Valid Claim from ArQule Patent Rights Covered such
         Product in such country; provided however that if a Valid Claim from
         ArQule Patent Rights Covering such Product later exists in such
         country, Roche shall resume calculating and paying royalties using one
         hundred percent (100%) of such amount.

5.4      Adjustments Related to Valid Claims from Joint Patent Rights. With
         respect to a given Product in a given calendar quarter, if in a country
         in the Territory (a) no Valid Claim from an ArQule Patent Right Covers
         such Product, but (b) only a Valid Claim or Claims from one or more
         Joint Patent Rights Covers such Product, and (c) Roche sublicenses the
         Product to a Third Party and, but for the provisions of this Agreement,
         by operation of the law of such country, ArQule must consent to such
         sublicense, then Roche may calculate royalties for such Product with
         respect to such calendar quarter by including only * percent (*%) of
         the amount of Adjusted Gross Sales that Roche would have otherwise
         included for such country to calculate royalties for such Product if a
         Valid Claim from ArQule Patent Rights Covered it as well; provided,
         however, that if such Product subsequently is Covered in such country
         by ArQule Patent Rights as well, Roche shall resume calculating and
         paying royalties using one hundred percent (100%) of such amount. In
         the event that (x) no Joint Patent Rights Cover such Product, or (y)
         for a sublicense described in clause (c) of the preceding sentence, no
         consent would, but for the provisions of this Agreement, be required in
         a country, then Roche may calculate royalties for such Product using
         only * percent (*%) of the amount of Adjusted Gross Sales that Roche
         would have used for such country to calculate royalties for such
         Product if a Valid Claim from ArQule Patent Rights Covered such Product
         in such country; provided however that if, subsequent to such time,
         neither condition described in clause (x) or clause (y) of this
         sentence any longer exists, Roche shall resume calculating and paying
         royalties using * percent (*%) of such amount during the time they are
         satisfied.

5.5      Adjustments Related to Third Party Competition. With respect to a given
         Product in a given calendar quarter, if in a country of the Territory
         (a) a Third Party is selling a Bioequivalent Product, (b) Roche has an
         obligation to make payments under this Agreement with respect to
         Adjusted Gross Sales of the given Product in such country, (c) a Valid
         Claim Covers the sale of the Bioequivalent Product in such country, (d)
         in such country, sales of units of Bioequivalent Products

                                     - 17 -
<PAGE>

         (adjusted as necessary so that units of Bioequivalent Products and
         Products are comparable) in aggregate total at least * percent (*%) of
         the aggregate sales of units of Bioequivalent Products and Products as
         measured at the end of such calendar quarter, and (e) Roche has, if it
         is reasonable under the circumstances, brought in such country and
         continued to diligently prosecute a patent infringement suit under any
         relevant Valid Claims against the Third Party or another in privity
         with respect to such Bioequivalent Product, then Roche shall have the
         right to calculate royalties with respect to such calendar quarter by
         including only * percent (*%) of the amount of Adjusted Gross Sales
         that Roche would have otherwise included for such country to calculate
         sales-based payments if no Bioequivalent Product existed in such
         country.

5.6      Third Party Payments. ArQule shall be solely responsible for all
         payments to Third Parties incurred pursuant to any license agreements
         entered into by ArQule prior to and as of the Effective Date. Roche
         shall be solely responsible for all payments to Third Parties incurred
         pursuant to license agreements entered into by Roche prior to, as of or
         after the Effective Date. With respect to license agreements related to
         any Product and entered into by ArQule after the Effective Date but
         prior to the date of the Option Exercise, the Parties shall equally
         share the responsibility for all payments due to Third Parties made
         pursuant to such license agreements; provided, however, that if Roche
         does not agree in writing to the terms and conditions of such license
         agreement, then ArQule shall be solely responsible, and further
         provided that subsequent to the date of the Option Exercise, Roche
         shall be solely responsible for all such payments.

         If a Third Party claims a payment is due from ArQule under a license
         agreement related to any Product and entered into by ArQule and ArQule
         does not agree to make such payment, during the Agreement Term ArQule
         shall immediately advise Roche in writing of such disagreement and
         shall use Reasonable Diligence to provide Roche with a right to assume
         such agreement.

5.7      Combination Products. In the event Roche or any of its Affiliates or
         sublicensees intends to sell a Combination Product, the Parties shall
         meet approximately one (1) year prior to the anticipated commercial
         launch of such Combination Product to negotiate in good faith and agree
         to an appropriate adjustment to the calculation of Adjusted Gross Sales
         to reflect the relative significance and value (including consideration
         of relative market share, sales potential and price potential) of the
         Product and the other pharmaceutically active agent(s) contained in the
         Combination Product. If, after good faith negotiations (not to exceed
         ninety (90) days), the Parties cannot agree to an appropriate
         adjustment, Adjusted Gross Sales shall equal Adjusted Gross Sales of
         the Combination Product multiplied by a fraction, the numerator of
         which is the reasonable fair market value (including consideration of
         relative market share, sales potential and price potential) of the
         Product and the denominator of which is the reasonable fair market
         value (including consideration of relative market share, sales
         potential and price potential) in the aggregate of all pharmaceutically
         active agents contained in the Combination Product. If the Parties
         cannot agree to the relevant fair market

                                     - 18 -
<PAGE>

         values for purposes of the preceding sentence, such disagreement shall
         be resolved in accordance with the dispute resolution procedure
         specified in Section 18.3.

5.8      Application of Adjustments. For each Product with respect to which
         Roche is entitled to an adjustment in royalty payments pursuant to
         Sections 5.3, 5.4 and 5.5, such adjustment shall be applied pursuant to
         only the first to occur of the events described or referred to in each
         of the foregoing sections, and not to any subsequent event.
         Notwithstanding the foregoing, or any other provision of this
         Agreement, in no event shall any credit or adjustment pursuant to
         Sections 5.3, 5.4 or 5.5 result in ArQule receiving royalties for a
         given calendar quarter pursuant to Section 5.1 in an amount less than *
         percent (*%) of the amounts set forth therein if no adjustment(s) had
         been made. Credits and adjustments not utilized pursuant to the
         immediately preceding sentence may be carried forward to any quarter
         that the credit or adjustment is not fully utilized in accordance with
         this Section 5.8 until utilized.

5.9      Allowances to Third Parties. In case of a sale or disposal of a Product
         for value other than in an arm's length transaction exclusively for
         money, such as barter or counter-trade, sales shall be calculated using
         the fair market value of such Product (if higher than the stated sales
         price) in the country of disposal.

                          ARTICLE 6 MILESTONE PAYMENTS

6.1      Milestone Adjusted Gross Sales Payments. Roche shall pay to ArQule the
         following one-time payments for each Product, payable the first time
         the applicable sales threshold is met, based upon the total Adjusted
         Gross Sales throughout the world for such Product.

<TABLE>
<CAPTION>
ANNUAL ADJUSTED GROSS SALES GREATER THAN   PAYMENT (IN MILLIONS OF US DOLLARS)
----------------------------------------   -----------------------------------
       (IN MILLIONS OF US DOLLARS)
<S>                                        <C>
                   *                                       *
</TABLE>

                     ARTICLE 7 PAYMENT, REPORTING, AUDITING

7.1      Currency and Conversion.

         (a)      All payments under this Agreement are stated and shall be
                  payable in US Dollars by wire transfer of immediately
                  available funds in accordance with the instructions of the
                  Party being paid.

         (b)      Whenever calculation of Adjusted Gross Sales requires
                  conversion from any foreign currency, Roche shall convert the
                  amount of Adjusted Gross Sales in such foreign currency as
                  computed in Roche's central Swiss

                                     - 19 -
<PAGE>

                  Francs Sales Statistics for the countries concerned, using for
                  internal foreign currency translation Roche's then current
                  standard practices actually used on a consistent basis in
                  preparing its audited financial statements.

         (c)      For sublicensees in a country, when calculating the Adjusted
                  Gross Sales, Roche shall require the sublicensee to report to
                  Roche the amount of such sales within * from the end of the
                  reporting period, after having converted each applicable
                  monthly sales in foreign currency into Swiss Francs using the
                  average rate of exchange published in the Wall Street Journal
                  (or some other source agreed upon by the Parties for any
                  particular country) for each month of the reporting period.

7.2      Payments.

         (a)      After the Launch of a Product in any country of the Territory:

                           (i) Roche shall calculate royalty payments set forth
                  in Article 5 and milestone payments set forth in Article 6
                  quarterly as of * (each being the last day of a reporting
                  period).

                           (ii) In calculating the payments due to ArQule, until
                  Adjusted Gross Sales of all Products in any calendar year have
                  exceeded * Dollars ($*), the royalty payable to ArQule shall
                  be calculated according to Article 5.

                  After Adjusted Gross Sales of all Products in any calendar
                  year have exceeded * Dollars ($*), then the royalty payable to
                  ArQule shall be calculated for the remainder of the Agreement
                  Term (without regard to whether Adjusted Gross Sales
                  subsequently exceed * Dollars ($*)) in each quarterly period
                  on an annualized basis, based on the Net Sales for the period
                  between January 1 of such year and the end of the most recent
                  quarter. Thus, for example, if in year 2008 Adjusted Gross
                  Sales exceeded $* and in the period between January 1, 2009
                  and March 31, 2009, Net Sales are $*, then the royalty for
                  such period shall be * and the total royalty payment due for
                  the three month period shall be $*.

                           (iii) Following the quarter ended December 31 in each
                  year in which royalties are calculated on an annualized basis
                  (i.e., pursuant to the second sentence of Section 7.2(a)(ii)),
                  Roche shall determine the royalties due for the immediately
                  preceding calendar year, and adjust the payment due to ArQule
                  for the quarter ended December 31 by the amount necessary to
                  make the aggregate payments made for the four quarters of such
                  year equal the amount due for the entire year. Thus, if during
                  2011 Adjusted Gross Sales for all Products first exceed $*,
                  and if after the quarter ended December 31, 2012, payments
                  made to ArQule for the preceding three quarters in the
                  aggregate were $*, and Net Sales for the

                                     - 20 -
<PAGE>
                  entire year were $*, the total royalty due for the year would
                  be $*, and the amount due for the quarter ended December 31
                  would be $*.

                           (iv) Roche shall pay such payments quarterly within *
                  after the end of each reporting period in which Net Sales
                  occur during the Agreement Term.

         (b)      With each such payment, Roche shall deliver to ArQule the
                  following information, and methodology for its calculation,
                  stated separately for the US and the ROW Territory:

                           (i) Net Sales for each Product; and

                           (ii) the royalty payments and milestone payments due
                  to ArQule for such reporting period.

         (c)      If ArQule reasonably requests additional information relating
                  to gross sales of any Product in any of the Major Market
                  Countries, deductions therefrom to calculate Adjusted Gross
                  Sales and/or adjustments thereto, Roche agrees to provide
                  promptly such information to ArQule.

         (d)      In the event Roche does not pay ArQule any amounts due under
                  this Agreement, including pursuant to Articles 4, 5 and 6,
                  within the applicable time period set forth herein, without
                  limiting ArQule's rights under Article 17, such payment shall
                  bear interest, to the extent permitted by applicable law, at
                  the rate of interest (prime rate) as published from time to
                  time in the weekly Federal Reserve H.15 bulletin (or a
                  successor or similar publication) plus * percent (*%) for the
                  applicable period calculated on the number of days such a
                  payment is overdue.

7.3      Taxes.

         (a)      ArQule shall pay all applicable taxes levied on ArQule under
                  this Agreement.

         (b)      If provision is made in law or regulation of any country for
                  withholding of taxes of any type, levies on ArQule or other
                  charges against ArQule with respect to any amounts payable
                  under this Agreement to ArQule, Roche shall promptly pay such
                  tax, levy or charge for and on behalf of ArQule to the proper
                  governmental authority, and shall promptly furnish ArQule with
                  a receipt evidencing such payment. Roche shall have the right
                  to deduct any such tax, levy or charge actually paid from
                  payment due ArQule hereunder or to be promptly reimbursed by
                  ArQule if no further payments are due ArQule hereunder. Each
                  Party agrees to assist the other Party in claiming exemption
                  from such deductions or withholdings under double taxation or
                  similar agreement or treaty from time to time in force and in
                  minimizing the amount required to be so withheld or deducted.

                                      -21-
<PAGE>

7.4      Accounting.

         (a)      During the Agreement Term and for a period of * thereafter,
                  Roche shall, and shall cause its Affiliates and sublicensees
                  to, maintain at their respective principal places of business
                  records and books of account containing all particulars that
                  may be necessary for the purpose of calculating all payments
                  due under this Agreement. ArQule shall have the right to
                  engage on its own behalf Roche's independent, certified public
                  accountant, to perform, on behalf of ArQule, during the
                  Agreement Term and for a period of five years thereafter, an
                  audit of such books and records of Roche and its Affiliates
                  and sublicensees as may be necessary to confirm any amounts
                  payable to ArQule under this Agreement for the period or
                  periods requested by ArQule or to confirm the accuracy of any
                  report made under this Agreement.

         (b)      Such audits shall be conducted during normal business hours
                  upon reasonable prior written notice from ArQule (minimum of
                  *) in such a manner as to not unnecessarily interfere with
                  Roche's normal business activities, and shall be permitted
                  with respect to records and books covering the * immediately
                  preceding the date of notification of the audit.

         (c)      Audits conducted pursuant to this Section 7.4 shall not occur
                  more frequently than once per calendar year nor more
                  frequently than once with respect to records covering any
                  specific period of time. Notwithstanding the preceding, if
                  ArQule reasonably believes, after reviewing information
                  received from Roche's independent public accountant, that an
                  additional audit is appropriate to address an apparent
                  discrepancy between Roche's returns and other information as
                  is necessary for reporting hereunder, ArQule shall have the
                  right, by an audit specialty firm reasonably acceptable to
                  Roche, employed by ArQule and at ArQule's own expense (subject
                  to Section 7.4(e) below), to perform such additional audit.

         (d)      ArQule shall use all information, data, documents and
                  abstracts obtained during an audit conducted pursuant to this
                  Section 7.4 solely for the purposes described in Section
                  7.4(a). ArQule shall treat all such information, data,
                  documents and abstracts as Roche Confidential Information
                  subject to Article 16 of this Agreement and, except in the
                  event of a dispute between the Parties regarding amounts
                  payable hereunder or the results of any audit, ArQule shall
                  not retain such information, data, documents and abstracts for
                  more than * from the end of the calendar year to which each
                  shall pertain. Audit results shall be shared by Roche and
                  ArQule.

         (e)      If any audit hereunder reveals an underpayment, Roche shall
                  promptly make up such underpayment. If any audit hereunder
                  reveals an overpayment, ArQule shall promptly reimburse such
                  overpayment. ArQule shall bear the full cost of any audit
                  under this Section 7.4, unless

                                      -22-
<PAGE>

                  such audit discloses an underpayment by Roche of more than *
                  percent (*%) of the amount owed hereunder in which case Roche
                  shall bear the full cost of such audit as performed by Roche's
                  or ArQule's independent, certified public accountant and any
                  audit specialty firm employed by ArQule, together with
                  interest on any such underpayment from the date otherwise due
                  through the date of payment at the rate set forth in Section
                  7.2(d).

         (f)      The failure of ArQule to request verification of any payment
                  calculation within the * period following receipt of such
                  payment shall be considered acceptance of such calculation by
                  ArQule.

                              ARTICLE 8 GOVERNANCE

8.1      Strategic Alliance. The Parties hereby establish a Strategic Alliance
         with respect to the development of Products.

8.2      Joint R&D Committee. Until the earlier of the Option Exercise, if any,
         and the expiration of the Option Term, a joint research and development
         team (the "Joint R&D Committee") shall govern the research and
         development activities of the Strategic Alliance, including preparing
         development plans, considering and adopting modifications to the
         Research Plan, supervising ongoing research and development activities
         (including scale-up, formulation and synthesis plans), recommending
         actions in response to unforeseen events, assessing the compounds that
         are being considered as candidates for Clinical Candidate Selection,
         developing the requirements for the Compound Evaluation Report, and
         supervising the transition of development and manufacturing activities
         from ArQule to Roche. After such time, the Joint R&D Committee shall be
         automatically dissolved.

         (a)      Organization. The Joint R&D Committee shall consist of *
                  members, * members to be designated by Roche and * members to
                  be designated by ArQule. Each Party shall notify the other
                  Party in writing of the members designated by such Party
                  within thirty (30) days after the Effective Date. Any Party
                  may withdraw the designation of any of its members of the
                  Joint R&D Committee and designate a replacement at any time by
                  giving prior written notice of the withdrawal and identifying
                  the replacement to the other Party. The chairperson of the
                  Joint R&D Committee shall be from ArQule.

         (b)      Meetings. The Joint R&D Committee shall hold no fewer than
                  semi-annual meetings on mutually agreeable dates, with the
                  location of the meetings to alternate between ArQule and
                  Roche, or any of their respective Affiliates' facilities. The
                  frequency and location of such meetings may be modified by
                  mutual agreement of the Parties. Notwithstanding the
                  foregoing, one of the semi-annual meetings per year

                                      -23-
<PAGE>

                  may be held by videoconference. Each Party shall pay its own
                  expenses associated with meetings. Each Party may, in its
                  discretion, invite employees of such Party who are not members
                  of the Joint R&D Committee to attend meetings of the Joint R&D
                  Committee on a non-voting basis.

         (c)      Decision-Making. Decisions of the Joint R&D Committee shall be
                  by consensus, with each Party getting one vote. If the Joint
                  R&D Committee is unable to decide a matter by consensus, the
                  Parties shall refer such matter for resolution to the * or the
                  * on behalf of Roche and the * of ArQule ("Alliance
                  Executives"). If the Alliance Executives are unable to resolve
                  any such matter after good faith discussions, then the final
                  decision shall rest with ArQule. For disputes involving
                  preclinical issues, the Parties shall refer such matter for
                  resolution to the * of Hoffmann-La Roche Inc. and the * of
                  ArQule prior to referring the matter to the Alliance
                  Executives. *.

         (d)      Clinical Candidate Selection. The chairperson of the Joint R&D
                  Committee shall provide no less than thirty (30) days prior
                  written notice to the other members of the Joint R&D Committee
                  of any meeting of the Joint R&D Committee at which
                  consideration of any compound as a candidate for (1) pilot pK
                  or pilot toxicology studies, (2) Clinical Candidate, or (3)
                  Phase 1 will be on the agenda. Joint R&D Committee members
                  shall be free to invite any subject matter experts to attend
                  such meeting. Joint R&D Committee members, with the possible
                  input of such experts, if any, shall consider pertinent data
                  concerning the compound in question, considering Schedule 5 to
                  this Agreement.

         (e)      The Joint R&D Committee shall appoint a subcommittee (the "CMC
                  Subcommittee) to handle day-to-day issues relating to
                  chemistry/manufacturing/control technical development ("CMC")
                  issues (e.g., synthetic route, market formulation and supply
                  chain structure). This CMC Subcommittee shall report to the
                  Joint R&D Committee and shall meet regularly as needed, but no
                  less often than quarterly. Schedule 6 of this Agreement
                  provides guidance as to the issues and matters to be
                  considered by the CMC Subcommittee.

         (f)      *.

8.3      Progress Reports. Within thirty (30) days after the end of each
         calendar quarter, ArQule shall prepare and deliver to Roche a written
         progress report for the Joint R&D Committee summarizing in reasonable
         detail the results to date of the Strategic Alliance. After each
         meeting, the Joint R&D Committee shall prepare a report summarizing the
         discussions held and conclusions reached and setting forth plans for
         the Strategic Alliance for the next six (6) months.

                                      -24-
<PAGE>

8.4      Joint Development Committee. No fewer than * to the anticipated
         date as of which the first Optioned Compound will be at the *, the
         Parties shall establish a joint development committee (the "Joint
         Development Committee") to conduct reviews of Roche's development of
         Products in the Territory and to provide Roche with strategic guidance
         with respect to Roche's development of Products in the Territory. Prior
         to the Launch of a Product, Roche shall provide the Joint Development
         Committee with quarterly reports on the status of its clinical
         development and commercialization efforts relating to such Product,
         which reports shall include a description of Regulatory Approvals and
         efforts associated therewith. After Launch of a Product, Roche shall
         provide such reports on an annual basis. In addition, both prior to and
         following Launch of a Product, Roche shall provide to ArQule with
         reports on all significant clinical and regulatory issues relating to
         such Product as soon as possible following the occurrence of each such
         issue, but in all events no later than ten (10) days following such
         occurrence. The Joint Development Committee shall make recommendations
         and provide strategic guidance with respect to issues raised in such
         reports.

         (a)      Organization. The Joint Development Committee shall consist of
                  * members, * members to be designated by Roche and * members
                  to be designated by ArQule. Each Party shall notify the other
                  Party in writing of the members designated by such Party
                  within sixty (60) days prior to the date as of which the first
                  Optioned Compound will be at the *. Any Party may withdraw the
                  designation of any of its members of the Joint Development
                  Committee and designate a replacement at any time by giving
                  prior written notice of the withdrawal and identifying the
                  replacement to the other Party. The chairperson of the Joint
                  Development Committee shall be from Roche.

         (b)      Meetings. For so long as the Joint Development Committee
                  contemplates clinical development of any Optioned Compounds
                  for the purpose of obtaining Regulatory Approval in the
                  Territory, the Joint Development Committee shall hold no fewer
                  than semi-annual meetings on mutually agreeable dates, with
                  the location of the meetings to alternate between ArQule and
                  Roche, or any of their respective Affiliates' facilities.
                  After Launch of a Product, the Joint Development Committee may
                  hold annual meetings unless the Parties mutually agree to more
                  frequent meetings. The frequency and location of such meetings
                  may be modified by mutual agreement of the Parties.
                  Notwithstanding the foregoing, one of the semi-annual meetings
                  per year may be held by videoconference. Each Party shall pay
                  its own expenses associated with meetings. Each Party may, in
                  its discretion, invite employees of such Party who are not
                  members of the Joint Development Committee to attend meetings
                  of the Joint Development Committee on a non-voting basis.

         (c)      Decision-Making. Decisions of the Joint Development Committee
                  shall be by consensus, with each Party getting one vote. If
                  the Joint Development Committee is unable to decide a matter
                  by consensus, the

                                      -25-
<PAGE>

                  Parties shall refer such matter for resolution to the Alliance
                  Executives. Subject to Section 8.4(d), if the Alliance
                  Executives are unable to resolve any such matter after good
                  faith discussions, then the final decision shall rest with
                  Roche.

         (d)      Coordination. Subsequent to the date of Option Exercise, the
                  Joint Development Committee shall also conduct reviews of
                  ArQule's development of Optioned Compounds in the Territory
                  for the Specifically Excluded Areas defined in Section
                  1.63(i). Subsequent to the date of Option Exercise, ArQule
                  shall provide the Joint Development Committee with semi-annual
                  reports on the status of its clinical development and
                  commercialization efforts relating to Optioned Compounds for
                  the Specifically Excluded Areas defined in Section 1.63(i),
                  including reports on all related significant clinical and
                  regulatory issues as soon as possible following the occurrence
                  of each such issue, but in all events no later than ten (10)
                  days following such occurrence. Subsequent to the date of the
                  Option Exercise, with respect to an Optioned Compound
                  designated by Roche as subject to Section 2.1(b), ArQule shall
                  not conduct a particular clinical trial for the Specifically
                  Excluded Areas defined in Section 1.63(i) with respect to
                  which it had not commenced any part thereof prior to the date
                  of such Section 2.1(b) designation if the Joint Development
                  Committee determines that such particular activity would with
                  reasonable likelihood have a material adverse impact on the
                  potential of such Optioned Compound in the Field, from a
                  business or scientific perspective ("Impact"). Should the
                  Joint Development Committee not be able to reach consensus as
                  to whether such particular activity would with reasonable
                  likelihood have an Impact, any member of the Joint Development
                  Committee may cause the determination to be submitted for
                  consideration by the Alliance Executives. Notwithstanding
                  Section 8.4(c), in the event after good faith discussions, the
                  Alliance Executives do not reach agreement on such
                  determination, either Party may submit the matter for
                  determination in accordance with the arbitration procedures
                  set forth in Section 18.3.

                         ARTICLE 9 CLINICAL DEVELOPMENT

9.1      ArQule Responsibilities. ArQule, at its sole cost, shall use Reasonable
         Diligence to pursue clinical development of the Optioned Compounds in
         the Field through the earlier of the Option Exercise, if any, and the
         expiration of the Option Term and, subject to the provisions of
         Sections 3.1 and 8.2 hereof, and oversight of the Joint R&D Committee,
         shall have sole control of all such clinical development activities.
         ArQule shall from time to time review and, as necessary or appropriate,
         propose modifications to the Research Plan to the Joint R&D Committee.
         The Joint R&D Committee may adopt any such modifications or make other
         modifications as it considers appropriate, in accordance with Section
         8.2. After the date of Option Exercise, if any, ArQule shall provide
         Roche within

                                      -26-
<PAGE>

         30 days of each anniversary of the Effective Date, a written report
         concerning development of any of the Optioned Compounds outside of the
         Field (subject to any ArQule obligations of confidentiality to Third
         Parties). During the Option Term, ArQule shall provide Roche with such
         written reports on a quarterly basis.

9.2      Trials and Development. As part of its responsibilities described in
         Section 9.1, ArQule agrees to use Reasonable Diligence to:

         (a)      conduct the currently ongoing monotherapy Phase 1a trial of
                  the Primary Compound;

         (b)      conduct the Primary Compound Trials, until ArQule delivers *
                  data to Roche that satisfies the requirements of Section
                  9.3(a);

         (c)      conduct clinical trials for a Backup Compound * through the *;

         (d)      conduct evaluation of one or more additional Backup Compounds
                  for *; and

         (e)      prepare a plan for the synthetic route, market formulation and
                  supply chain structure for Products.

9.3      Compound Evaluation Report. ArQule shall use Reasonable Diligence to
         prepare and deliver to Roche, at such time as ArQule determines
         appropriate consistent with its progress in pursuing clinical
         development in the ArQule Program, a report ("Compound Evaluation
         Report") containing the following:

         (a)      data covering the criteria listed in Schedule 4 from at least
                  the following studies involving the Primary Compound: (i) a *
                  trial; and (ii) the Primary Compound Trials.; and

         (b)      with respect to at least one Backup Compound that is at the *,
                  data covering the criteria listed in Schedule 5 from at least
                  * trial and the studies on such Backup Compound(s) that
                  include pre-clinical data confirming mechanism of action,
                  pharmacology, pK exposure, preclinical efficacy and clinical
                  toxicity profile and such other matters as the Joint R&D
                  Committee shall reasonably determine appropriate.

9.4      Roche Responsibilities. Roche, at its sole cost, shall use Reasonable
         Diligence to (1) pursue clinical development of the Optioned Compounds
         in the Field from and after the date of the Option Exercise and,
         subject to the provisions of Section 3.1 hereof and oversight of the
         Joint Development Committee, be responsible for all such clinical
         development activities; and (2) obtain all Regulatory Approvals,
         including authorizations as may be required for the production,
         importation, pricing, reimbursement, and sale of Products in the
         Territory. For avoidance of doubt, Roche shall have sole discretion as
         to which Optioned Compound shall be pursued for further development as
         a Product, and Roche's decision not to pursue development of a
         particular Optioned Compound in favor of pursuing

                                      -27-
<PAGE>

         development of another Optioned Compound shall not constitute a breach
         of Roche's diligence obligations. Roche shall notify ArQule of all
         Serious Adverse Drug Reactions and Serious Adverse Events occurring
         during any clinical study of an Optioned Compound within * of Roche's
         notice to the applicable regulatory authority. Roche shall notify
         ArQule of all Adverse Drug Reactions and Adverse Events occurring
         during any clinical study of an Optioned Compound within * of Roche's
         notice to the applicable regulatory authority. Upon the Option
         Exercise, the Parties shall cooperate to effect on orderly transition
         to Roche of ArQule's database of information relating to the Optioned
         Compounds.

9.5      Interpretation. For purposes of Sections 9.2 and 9.3, Phase 1b and
         Phase 2 may constitute distinct clinical trials or may constitute
         component parts of a combined trial.

                         ARTICLE 10 REGULATORY MATTERS

10.1     ArQule Regulatory Approvals. ArQule, at its sole cost, except as
         provided in Section 4.1, shall pursue all Regulatory Approvals related
         to each Product through the date of the Option Exercise.

10.2     Roche Regulatory Approvals.

         (a)      Roche, at its sole cost, shall pursue all Regulatory Approvals
                  related to Products from and after the date of the Option
                  Exercise, including the preparation and filing of applications
                  for Regulatory Approvals, as well as any and all governmental
                  approvals required to manufacture, have manufactured and sell
                  Products. Without limiting the generality of the foregoing,
                  from and after the Option Exercise, and during the Agreement
                  Term, Roche shall be responsible for pursuing, compiling and
                  submitting all regulatory filing documentation, and for
                  interacting with regulatory authorities, for all Products in
                  all countries in the Territory. During such time, Roche or its
                  Affiliates shall own and file, at its cost, all regulatory
                  filings and Regulatory Approvals for all Products in all
                  countries of the Territory. Roche shall supply ArQule with a
                  copy of all material communications related to any Product to
                  and from any regulatory authority for all Major Market
                  Countries, promptly after receipt of such communication from
                  such authority or concurrently with sending such communication
                  to such authority, as applicable. Upon request of ArQule,
                  Roche shall supply ArQule with a copy of all such
                  communications in all other countries. Roche shall also notify
                  ArQule of any status change or action undertaken by a data
                  protection authority in any country in Europe with respect to
                  Roche's status as a registered entity under the data
                  protection laws or regulations of such country.

         (b)      From and after the Option Exercise, Roche, at its sole cost,
                  shall report to appropriate authorities in accordance with and
                  as required by all

                                      -28-
<PAGE>

                  applicable laws, rules and regulations all Adverse Events,
                  Adverse Drug Reactions, Serious Adverse Events and Serious
                  Adverse Drug Reactions related to use of Products anywhere in
                  the Territory. Roche shall provide ArQule with a copy of each
                  such report relating to Serious Adverse Events and Serious
                  Adverse Drug Reactions within * of the submission of such
                  report to the applicable regulatory authority. Roche shall
                  provide ArQule with a copy of each report relating to Adverse
                  Drug Reactions and Adverse Events within * of Roche's
                  submission of such report to the applicable regulatory
                  authority. Historical data from ArQule's drug safety database
                  shall be transferred to Roche prior to transfer of regulatory
                  responsibilities from ArQule to Roche. Serious Adverse Events
                  and Serious Adverse Drug Reactions related to the use of
                  Product in the Territory shall be in a single reference
                  database, developed, centralized, held and owned by Roche.
                  ArQule may request database searches from the reference
                  database.

10.3     Pharmacovigilance. Subsequent to the date of Option Exercise, if any,
         if ArQule decides to perform clinical studies outside the Field
         involving one or more Optioned Compounds, then prior to initiating such
         clinical studies, the Parties shall enter into a pharmacovigilance
         agreement governing the exchange of drug safety information.

                       ARTICLE 11 MANUFACTURE AND SUPPLY

11.1     Clinical Supply of Product. ArQule shall supply, either by itself or
         through a Third Party, at its own cost all clinical supply of each
         Optioned Compound, Product and placebo to be used in the Territory
         through the date of the Option Exercise, either by itself or through a
         Third Party.

         As of the date of Option Exercise, ArQule shall supply, or cause to be
         supplied, to Roche its clinical requirements of Optioned Compound(s)
         and Product(s) and placebo, provided that (i) such requirements shall
         be supplied to Roche at ArQule's direct manufacturing costs and
         allocation of manufacturing overhead, and (ii) ArQule's supply
         obligation shall not continue for more than * after Option Exercise,
         and (iii) ArQule shall maintain the same Product(s) and Optioned
         Compound(s) and placebo quality and specifications as immediately prior
         to Option Exercise, and (iv) Roche shall use Reasonable Diligence in
         effecting a transfer as soon as practicable of Product(s) and Optioned
         Compound(s) and placebo manufacturing activities from ArQule to Roche.
         ArQule shall also transfer to Roche a manufacturing transfer package
         that will enable Roche to manufacture the Product(s) and Optioned
         Compound(s) and placebo in a timely manner.

         After transition of manufacturing to Roche as contemplated in the
         preceding paragraph, Roche shall supply either by itself or through a
         Third Party at its own cost all of its clinical supply of Optioned
         Compound, Product and placebo. The

                                      -29-
<PAGE>

         Parties shall cooperate in all reasonable respects relating to the
         transition of manufacturing activities from ArQule to Roche.

11.2     Commercial Supply. From and after the date of the Option Exercise,
         Roche shall be solely and exclusively responsible at its own expense
         for the manufacture and supply of Products for sale in the Territory,
         either by itself or through Third Parties.

                          ARTICLE 12 COMMERCIALIZATION

         Except as expressly set forth in any Co-Promotion Agreement entered
into by the Parties pursuant to Section 2.4, from and after the Option Exercise,
Roche, at its own expense, shall have sole responsibility and decision making
authority for the marketing, promotion, sale and distribution of Products in the
Territory. During the Agreement Term, Roche will fully inform ArQule in writing
on a regular basis (but no less frequently than once per quarter) regarding the
commercialization of Products in the Territory by Roche, its Affiliates and
sublicensees.

                             ARTICLE 13 TRADEMARKS

         Roche shall own all trademarks used on or in connection with Products
in the Territory, and shall, at its sole cost, be responsible for procurement,
maintenance, enforcement and defense of all trademarks used on or in connection
with Products in the Territory.

                            ARTICLE 14 PATENT RIGHTS

14.1     Ownership of Patent Rights.

         (a)      Generally. Ownership of any Patent Rights developed in the
                  course of the Strategic Alliance shall be determined in
                  accordance with United States patent law.

         (b)      ArQule Inventions. ArQule or its Affiliates, as applicable,
                  shall own all Inventions having as inventors only employees,
                  consultants or agents of ArQule or any of its Affiliates. Each
                  of ArQule and its Affiliates shall require all of its
                  employees, consultants and agents to assign all Inventions
                  made by them to ArQule.

         (c)      Roche Inventions. Roche or its Affiliates, as applicable,
                  shall own all Inventions having as inventors only employees,
                  consultants or agents of Roche or any of its Affiliates. Each
                  of Roche and its Affiliates shall require all of its
                  employees, consultants and agents to assign all Inventions
                  made by them to Roche.

                                      -30-
<PAGE>

         (d)      Joint Inventions. ArQule and Roche or their respective
                  Affiliates, as applicable, shall own jointly all Inventions
                  having as inventors employees, consultants or agents of ArQule
                  and Roche or any of their respective Affiliates. The Parties
                  will agree on a case by case basis the appropriate allocation
                  of cost and control concerning matters regarding the patent
                  prosecution, maintenance, defense and infringement of such
                  jointly owned Inventions and Joint Patent Rights.

         (e)      Disputes. For the avoidance of doubt, all disputes as to
                  inventorship shall be settled in accordance with Section 18.1.

14.2     Patent Prosecution and Maintenance.

         (a)      General. ArQule shall have the right, but not the obligation,
                  to prepare, file, prosecute and pursue any proceeding before
                  the US Patent and Trademark Office, and the foreign
                  equivalents thereof (including interference, re-examination
                  and opposition proceedings), and to maintain (collectively,
                  "Handle") all ArQule Patent Rights. Should ArQule decide that
                  it does not desire to Handle an ArQule Patent Right in a given
                  country, it shall provide written notice to Roche thereof no
                  less than * prior to the date when the ArQule Patent Right
                  would become abandoned in such country. After receiving such
                  notice, Roche may, but is not obligated, to Handle such ArQule
                  Patent Right in such country, at Roche's sole cost and in
                  Roche's name, to the extent Roche desires to do so.

         (b)      ArQule Prosecution Obligations Prior to Option Exercise.
                  ArQule shall have an obligation to keep Roche informed
                  generally as specified in this Section 14.2(b) as to the
                  status of any pending patent applications and issued patents
                  in the ArQule Patent Rights. During the Agreement Term, ArQule
                  will provide Roche with updates as to the status of ArQule's
                  prosecution of the ArQule Patent Rights or Joint Patent
                  Rights, if any, on a regular basis (but no less than once per
                  quarter).

         (c)      ArQule Prosecution Obligations After Option Exercise. After
                  the Option Exercise, Roche shall reimburse ArQule, on a
                  patent-by-patent basis, for * percent (*%) of reasonable and
                  documented costs for Handling ArQule Patent Rights incurred
                  after the date of the Option Exercise, provided such ArQule
                  Patent Right Covers per se an Optioned Compound.

                  If Roche obtains the License, then:

                           (i) Subject to Subsection (ii), below, ArQule shall
                  use reasonable efforts to consult with Roche as to the
                  Handling of the ArQule Patent Rights in sufficient time before
                  any action is due (for example, thirty (30) days in advance
                  for instances where actions are due within three (3) months of
                  a communication from a patent office) to allow Roche

                                      -31-
<PAGE>

                  to provide comments thereon, which comments ArQule must
                  reasonably consider if provided to ArQule at least * before
                  such action is due.

                           (ii) ArQule shall notify and consult with Roche in
                  accordance with the provisions of this Section 14.2(c) prior
                  to filing any patent application included in the ArQule Patent
                  Rights. ArQule shall prepare and send to Roche a draft of each
                  such patent application for Roche's comment, which Roche shall
                  provide within * after receipt of such draft application
                  ("Comment Period"). After reasonably considering Roche's
                  comments, ArQule shall file such patent application.
                  Notwithstanding the foregoing, ArQule shall have the right to
                  shorten the Comment Period if in its reasonable discretion
                  ArQule believes it is necessary to file any patent application
                  on an expedited basis. If Roche fails to provide comments on a
                  draft within the applicable Comment Period, ArQule shall be
                  free to file such application at the end of the Comment Period
                  or later. For the avoidance of doubt, notwithstanding any
                  comments that Roche may make on a draft patent application,
                  ArQule shall have ultimate decision making authority with
                  respect to the content of each patent application included in
                  the ArQule Patent Rights.

                           (iii) Within * after the filing of an Invention
                  Priority Application, ArQule shall provide Roche with a
                  written list of countries ("Country List") in which ArQule
                  intends to file patent applications included in the ArQule
                  Patent Rights that claim priority from the given Invention
                  Priority Application. For purposes of this Section 14.2, the
                  terms "Country" and "Countries" shall be deemed to include
                  regional groupings of countries. For the avoidance of doubt,
                  an Invention Priority Application may be a PCT application.
                  Roche, as promptly as practicable, but in no event later than
                  * after receipt of such Country List, shall notify ArQule in
                  writing of those countries on the Country List and any
                  additional countries ("Additional Countries") where Roche
                  requests that such patent applications be filed. Promptly
                  after receipt of Roche's notice, ArQule shall notify Roche if
                  it agrees with the filing of such applications in such
                  Additional Countries selected by Roche. Should Roche not
                  respond to ArQule within * after the date that ArQule provides
                  the Country List to Roche, then ArQule shall be free to file
                  such patent applications, at ArQule's *, in the countries on
                  the Country List and any other countries that ArQule may
                  select.

                           (iv) Provided that ArQule receives Roche's comments
                  within the * period specified in Section 14.2(c)(iii) above,
                  ArQule shall file patent applications in those countries where
                  Roche and ArQule agree in writing to the filing of patent
                  applications ("Mutually Agreed to Countries") as well as in
                  Additional Countries selected by Roche that are not within the
                  Mutually Agreed to Countries, provided that Roche shall
                  reimburse ArQule for * to the Handling of such patent
                  applications and of any patents issuing therefrom in the
                  Additional Countries. ArQule shall

                                      -32-
<PAGE>

                  have the option of filing an international (PCT) application
                  designating at least the Mutually Agreed to Countries, to be
                  followed by national filings in the desired countries, or
                  commencing immediately with national filings.

                           (v) If Roche decides at any time not to continue
                  funding the prosecution of a patent application or maintenance
                  of a patent included in the ArQule Patent Rights in any
                  country under this Section 14.2, Roche shall notify ArQule in
                  writing ("Withdrawal Notice"), and Roche shall be relieved
                  from paying any further expenses incurred after ArQule's
                  receipt of such Withdrawal Notice with regard to such patent
                  filing in such country. After receiving the Withdrawal Notice,
                  ArQule may, but is not obligated to, continue to prosecute and
                  maintain the patent filing in such country at its sole expense
                  and discretion.

                           (vi) If ArQule decides at any time not to continue
                  the prosecution of a patent application or maintenance of a
                  patent included in the ArQule Patent Rights in any country
                  under this Section 14.2, and such patent application or patent
                  is not one as to which Roche has already sent a Withdrawal
                  Notice, then ArQule shall notify Roche in writing no less than
                  * prior to the date when such patent application or patent
                  would become abandoned in such country. After providing such
                  notice, ArQule shall have no further obligation to prosecute
                  such patent application or to maintain such patent in such
                  country. At Roche's written request, no later than * after
                  receipt of ArQule's written notice, and at Roche's sole cost,
                  ArQule shall then assign to Roche such patent application or
                  patent in such country, and Roche may thereafter continue to
                  prosecute and maintain such patent filing in such country, at
                  Roche's sole cost and in Roche's name, to the extent Roche
                  desires to do so.

                           (vii) For the Mutually Agreed to Countries and
                  Additional Countries, ArQule shall use reasonable efforts to
                  consult with Roche as to the prosecution and maintenance of
                  all patent applications and patents included in the ArQule
                  Patent Rights in sufficient time before any action is due (for
                  example, * in advance for instances where actions are due
                  within * of a communication from a patent office) to allow
                  Roche to provide comments thereon, which comments ArQule must
                  reasonably consider if provided to ArQule at least * before
                  such action is due. For the avoidance of doubt,
                  notwithstanding any comments that Roche may make on a draft
                  pursuant to this Section 14.2(c)(vii), ArQule shall have
                  ultimate decision making authority with respect to the content
                  of each such action.

14.3     Cooperation. The Parties shall cooperate in the preparation, filing and
         prosecution of all patent applications filed under this Article 14, and
         the maintenance of all patents issuing therefrom, including obtaining
         and executing necessary powers of attorney and assignments by the named
         inventors, providing relevant technical and other information as may be
         requested concerning the Invention(s) disclosed in any such patent
         application, obtaining execution of such

                                      -33-
<PAGE>

         other documents that may be needed in the filing or prosecution of such
         patent applications, discussing in good faith United States and foreign
         filing strategy, and, as requested, updating each other regarding the
         status of any such patent applications.

14.4     Patent Marking. Roche shall, and shall cause its Affiliates and
         sublicensees to, mark all Products sold or otherwise distributed
         pursuant to this Agreement in accordance with the applicable patent
         statutes and other relevant regulations in the country or countries of
         manufacture, sale or other distribution thereof.

14.5     Infringement.

         (a)      The provisions of this Section 14.5 shall apply to all
                  Infringements (as hereinafter defined) that are not
                  Hatch-Waxman Suits (as defined in Section 14.6 below).

         (b)      During the Agreement Term, each Party shall promptly provide
                  written notice to the other Party of any known or suspected
                  infringement of any ArQule Patent Right or Joint Patent Right
                  in the Field by a Third Party (an "Infringement").

         (c)      Prior to the Option Exercise, ArQule shall have the first
                  right to bring and control any action or proceeding with
                  respect to an Infringement of an ArQule Patent Right at
                  ArQule's own expense and by counsel of its own choice, and
                  Roche shall have the right, at its own expense, to be
                  represented in any such action or proceeding by counsel of its
                  own choice. Notwithstanding the foregoing, if ArQule fails to
                  bring any such action or proceeding with respect to an
                  Infringement within (a) thirty (30) days following the notice
                  of alleged infringement or (b) ninety (90) days before the
                  time limit, if any, set forth in the applicable laws and
                  regulations for the filing of such actions, whichever comes
                  first, Roche shall have the right to bring and control any
                  such action or proceeding at its own expense and by counsel of
                  its own choice, and ArQule shall have the right, at its own
                  expense, to be represented in any such action or proceeding by
                  counsel of its own choice.

         (d)      After the Option Exercise, Roche shall have the first right to
                  bring and control any action or proceeding with respect to an
                  Infringement of an ArQule Patent Right at Roche's own expense
                  and by counsel of its own choice; at all times, Roche shall
                  have the first right to bring and control any action or
                  proceeding with respect to an Infringement of any Joint Patent
                  Right at Roche's own expense and by counsel of its own choice.
                  However, ArQule shall have the right, at its own expense, to
                  be represented in any such action or proceeding by counsel of
                  its own choice. Notwithstanding the foregoing, if Roche fails
                  to bring any such action or proceeding with respect to an
                  Infringement within (a) * following the notice of alleged
                  infringement or (b) * before the time limit, if any, set

                                      -34-
<PAGE>

                  forth in the appropriate laws and regulations for the filing
                  of such actions, whichever comes first, ArQule shall have the
                  right to bring and control any such action or proceeding at
                  its own expense and by counsel of its own choice, and Roche
                  shall have the right, at its own expense, to be represented in
                  any such action or proceeding by counsel of its own choice.

         (e)      A Party that elects to bring and control an Infringement
                  action or proceeding pursuant to this Section 14.5 (the
                  "Initiating Party") shall provide prompt written notice to the
                  other Party of any such proceeding commenced or action taken
                  in connection with such proceeding by such Initiating Party.

         (f)      The Initiating Party shall keep the other Party informed of
                  the status of any such proceeding or action and shall provide
                  the other Party with copies of all substantive documents and
                  communications filed in such proceeding or action concurrent
                  with filing such documents.

         (g)      The Initiating Party shall have the sole and exclusive right
                  to select counsel for any such proceeding or action. The
                  Initiating Party shall, except as provided below, pay all
                  expenses of the proceeding or action, including the Initiating
                  Party's attorneys' fees and court costs. Prior to the Option
                  Exercise, ArQule shall pay its own attorneys' fees and court
                  costs and shall be entitled to retain all damages, settlement
                  payments and other consideration received as a result of such
                  proceeding or action. After the Option Exercise, the Parties'
                  attorneys' fees and court costs in connection with any such
                  proceeding or action shall be reimbursed and deducted from any
                  damages, settlement payments and other consideration received
                  as a result of such proceeding or action, and the balance
                  thereof shall belong to the Initiating Party, except to the
                  extent such damages, settlement payments or other
                  consideration are attributable to lost profits with respect to
                  Products in the Territory, in which case the Parties shall
                  share the balance of such recovery as follows: ArQule shall
                  receive the royalty that it would have been paid pursuant to
                  Article 5 and the milestone payments that it would have been
                  paid pursuant to Article 6 had the infringing sales been made
                  by Roche, and Roche shall receive the remaining balance
                  thereof.

         (h)      If the Initiating Party believes it reasonably necessary, upon
                  written request to the other Party, the other Party shall join
                  as a party to any proceeding or action brought pursuant to
                  this Section 14.5 but shall be under no obligation to
                  participate in such proceeding or action except to the extent
                  that participation is required as the result of its being a
                  named party to the proceeding or action. At the Initiating
                  Party's written request, the other Party shall offer
                  reasonable assistance to the Initiating Party in connection
                  with any proceeding or action brought pursuant to this Section
                  14.5 at no charge to the Initiating Party, except that the
                  Initiating Party shall reimburse the other Party for
                  reasonable out-of-pocket

                                      -35-
<PAGE>

                  expenses incurred by such other Party in rendering such
                  assistance. The other Party shall have the right to
                  participate and have its own representation in any such
                  proceeding or action at its own expense.

         (i)      Prior to the Option Exercise, ArQule shall have the sole right
                  to control any settlement and all negotiations relating to any
                  proceeding or action brought with respect to an Infringement
                  of an ArQule Patent Right, and Roche shall have the sole right
                  to control any settlement and all negotiations relating to any
                  proceeding or action brought with respect to an Infringement
                  of a Joint Patent Right. After the Option Exercise, the
                  Initiating Party shall have the right to control settlement
                  and all negotiations relating to an Infringement; provided,
                  however, that the Initiating Party shall not enter into a
                  settlement without the written consent of the other Party, not
                  to be unreasonably withheld.

         (j)      For the avoidance of doubt, ArQule shall have the sole right,
                  but not the obligation, to bring, control and settle any
                  action or proceeding with respect to any ArQule Patent Right
                  relating to an infringement not in the Field, at its own
                  expense, without notice or any other obligation to Roche.

14.6     Hatch-Waxman Suits. Notwithstanding the provisions of Section 14.5,
         should a Party receive a certification for a Product pursuant to the
         Drug Price Competition and Patent Term Restoration Act of 1984 (Public
         Law 98-417), as amended, or its equivalent in a country other than the
         US (each a "Hatch-Waxman Suit"), then such Party shall immediately
         provide the other Party with a copy of such certification. Prior to the
         Option Exercise, ArQule shall have the sole right to enforce ArQule
         Patent Rights Covering such Product and Roche shall have the sole right
         to enforce Joint Patent Rights Covering such Product. After the Option
         Exercise, Roche shall have the right to enforce ArQule Patent Rights
         and Joint Patent Rights Covering such Product in the Field; and Roche
         shall have * from the date on which it receives or provides a copy of
         such certification to provide written notice to ArQule ("H-W Suit
         Notice") whether Roche will bring suit, at its expense, within a *
         period from the date of such certification. Should such * period expire
         without Roche bringing suit or providing such H-W Suit Notice, then
         ArQule shall be free to immediately bring suit in its name. If Roche
         brings suit, at Roche's written request, ArQule agrees to be named as a
         party to such suit.

14.7     Defense. Prior to the Option Exercise, if a Third Party commences,
         either as a claim or as a counterclaim, an action or proceeding
         challenging any ArQule Patent Right or Joint Patent Right, ArQule shall
         have the sole right to defend such ArQule Patent Right and Roche shall
         have the sole right to defend such Joint Patent Right against such
         challenge. After the Option Exercise, if a Third Party commences,
         either as a claim or as a counterclaim, an action or proceeding
         challenging any ArQule Patent Right or Joint Patent Right in the Field,
         then Roche shall have the first right to defend such Patent Right
         against such challenge at Roche's own expense and by counsel of its own
         choice, and ArQule shall have the right, at its own expense, to be
         represented in any such action or proceeding

                                      -36-
<PAGE>

         by counsel of its own choice. Notwithstanding the foregoing, if Roche
         does not on a timely basis commence to defend such ArQule Patent Right
         or Joint Patent Right against such challenge, ArQule shall have the
         right to defend such ArQule Patent Right or Joint Patent Right against
         such challenge at its own expense and by counsel of its own choice, and
         Roche shall have the right, at its own expense, to be represented in
         any such action or proceeding by counsel of its own choice. The Party
         defending an ArQule Patent Right or Joint Patent Right pursuant to this
         Section 14.7 shall have the right to control settlement and all
         negotiations relating to the defense; provided, however, that such
         Party shall not enter into a settlement without the written consent of
         the other Party, not to be unreasonably withheld. For the avoidance of
         doubt, ArQule shall have the sole right, but not the obligation, to
         defend, control and settle any Third Party challenges of an ArQule
         Patent Right or Joint Patent Right outside the Field, at its own
         expense, without notice or any other obligation to Roche. Any damages,
         settlement payments and other consideration received as a result of the
         defense of an ArQule Patent Right or Joint Patent Right pursuant to
         this Section 14.7 shall be allocated between the Parties in accordance
         with the procedure specified in Section 14.5(g).

14.8     Cooperation Relating to Infringements and Defense. Each Party shall
         cooperate fully with the other Party in any action or proceeding
         brought in connection with an Infringement or in any defense of an
         ArQule Patent Right against challenge by a Third Party, and shall
         provide all assistance reasonably requested by such other Party in
         carrying on such action, proceeding or defense.

14.9     Patent Notices. All notices required or permitted under this Article 14
         to Roche shall be given to:

                       F. Hoffmann-La Roche Ltd
                       Grenzacherstrasse 124
                       CH-4070
                       Basel, Switzerland
                       Attn: Head, Patent Law

         with copies of all notices relating to U.S. cases to:

                       Hoffmann-La Roche Inc.
                       340 Kingsland Street
                       Nutley, New Jersey  07110
                       Attn: Chief Patent Counsel

         All notices required or permitted under this Article 14 to ArQule shall
         be given to:

                       ArQule, Inc.
                       19 Presidential Way
                       Woburn, Massachusetts 01801-5140
                       Attn: General Counsel

                                      -37-
<PAGE>

         with copies of all notices to:

                       Arnold & Porter
                       555 Twelfth Street, NW
                       Washington, D.C. 20004
                       Attn:  David Marsh, Esq.

         Notices under this Section shall be effective when delivered to the
         addressee at the address listed above, or such other address as the
         addressee shall have specified in a written notice actually received by
         the addresser.

                   ARTICLE 15 REPRESENTATIONS AND WARRANTIES

15.1     Representations and Warranties of the Parties. Each Party warrants and
         represents to the other Party that:

         (a)      it has the full right and authority to enter into this
                  Agreement and that it is not aware of any impediment that
                  would inhibit its ability to perform the terms and conditions
                  imposed on it by this Agreement;

         (b)      all corporate action on the part of such Party, its officers,
                  directors and stockholders necessary for (i) the
                  authorization, execution and delivery of this Agreement and
                  (ii) the performance of all obligations of such Party
                  hereunder has been taken, and this Agreement constitutes the
                  legal and binding obligation of such Party, enforceable
                  against such Party in accordance with its terms; and

         (c)      the execution of this Agreement and the performance of the
                  transactions contemplated by this Agreement by such Party will
                  not conflict with or result in a breach of any of the terms,
                  conditions or provisions of, or constitute a default under any
                  agreement or other instrument to which such Party is a party
                  or by which it or any of its property is bound.

15.2     Representations and Warranties of ArQule.

         (a)      Right to Grant Licenses. ArQule represents and warrants to
                  Roche that it has the right to grant Roche any License that
                  may be granted to Roche under this Agreement.

         (b)      No Material Misstatements. ArQule represents and warrants to
                  Roche that its senior executives have not intentionally failed
                  to disclose any information actually known to them which, in
                  their reasonable opinion, would be material to Roche entering
                  into this Agreement, and to the actual knowledge of such
                  senior executives no information provided to Roche in
                  connection with this Agreement contains any untrue statement
                  of material fact or omits to state a material fact.

                                      -38-
<PAGE>

         (c)      As of the date set forth in the first paragraph of this
                  Agreement, the only existing licenses held by ArQule that
                  reasonably relate to the Strategic Alliance are those listed
                  in Schedule 7.

15.3     Disclaimer. THE FOREGOING REPRESENTATIONS AND WARRANTIES ARE IN LIEU OF
         ALL OTHER REPRESENTATIONS AND WARRANTIES NOT EXPRESSLY SET FORTH
         HEREIN. EACH OF ARQULE AND ROCHE DISCLAIM ALL OTHER REPRESENTATIONS AND
         WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THEIR
         RESPECTIVE RESEARCH, DEVELOPMENT AND COMMERCIALIZATION EFFORTS
         HEREUNDER, INCLUDING WHETHER THE PRODUCTS CAN BE SUCCESSFULLY DEVELOPED
         OR MARKETED, AND THE ACCURACY, PERFORMANCE, UTILITY, RELIABILITY,
         TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS, MERCHANTABILITY
         OR FITNESS FOR ANY PARTICULAR PURPOSE WHATSOEVER OF THE PRODUCTS OR ANY
         RESEARCH. EXCEPT WITH RESPECT TO A BREACH OF ARTICLE 16 AND ANY CLAIM
         FOR INDEMNIFICATION PURSUANT TO SECTION 19.1, IN NO EVENT SHALL EITHER
         ARQULE OR ROCHE BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
         CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT BASED ON CONTRACT,
         TORT OR ANY OTHER LEGAL THEORY.

                      ARTICLE 16 CONFIDENTIAL INFORMATION

16.1     Treatment of Confidential Information. In carrying out rights and
         obligations under this Agreement, each Party will be sharing
         proprietary information ("Confidential Information") with the other
         Party. Except as expressly permitted by this Agreement, each Party
         shall, and shall cause its Affiliates to, treat Confidential
         Information received from the other Party (the "Disclosing Party") as
         it treats its own proprietary information. In particular, during the
         Agreement Term and for a period of * thereafter, the Party in receipt
         of the Disclosing Party's Confidential Information (the "Receiving
         Party") shall not disclose, divulge or otherwise communicate such
         Confidential Information to any Third Party, or use it for any purpose
         except pursuant to and in order to carry out its obligations under this
         Agreement. Notwithstanding the foregoing, the Receiving Party may
         disclose Confidential Information of the Disclosing Party to the
         Receiving Party's directors, officers, employees, Affiliates,
         consultants, subcontractors, sublicensees or agents to the extent
         reasonably necessary to carry out its obligations under this Agreement,
         provided that such directors, officers, employees, Affiliates,
         consultants, subcontractors, sublicensees or agents have been advised
         of the confidential nature of such information and have agreed to
         maintain such information as confidential to the same extent required
         by this Article 16.

16.2     Exceptions to Definition of Confidential Information. Confidential
         Information shall not include information that the Receiving Party can
         demonstrate:

                                      -39-
<PAGE>

         (a)      was known by the Receiving Party or its Affiliates prior to
                  the date it was disclosed to the Receiving Party or its
                  Affiliates by the Disclosing Party or its Affiliates, as
                  evidenced by the prior written records of the Receiving Party
                  or its Affiliates; or

         (b)      is lawfully disclosed to the Receiving Party or its Affiliates
                  by a Third Party rightfully in possession of such information,
                  either before or after the date of the disclosure to the
                  Receiving Party or its Affiliates; or

         (c)      becomes generally known to the public through no act or
                  omission on the part of the Receiving Party or its Affiliates,
                  either before or after the date of the disclosure to the
                  Receiving Party or its Affiliates, but such exclusion applies
                  only after such information is published or becomes generally
                  known; or

         (d)      is independently developed by the Receiving Party or its
                  Affiliates without reference to or reliance upon any
                  Confidential Information of the Disclosing Party or its
                  Affiliates; or

         (e)      is reasonably determined by the Receiving Party's legal
                  counsel to be required to be disclosed by the Receiving Party
                  or its Affiliates to comply with applicable securities or
                  other laws, to defend or prosecute litigation or to comply
                  with governmental regulations, provided that the Receiving
                  Party or its Affiliates use all reasonable efforts to provide
                  prior written notice of such disclosure to the Disclosing
                  Party or its Affiliates and to take reasonable and lawful
                  actions to avoid or limit such disclosure or to assist the
                  Disclosing Party in avoiding or limiting such disclosure; or

         (f)      is disclosed to the Receiving Party's financial sources or
                  potential acquirers of its stock or assets (directly or
                  indirectly) so long as any such disclosure is made pursuant to
                  a written confidentiality agreement between the Receiving
                  Party and such financial source or potential acquirer that is
                  at least as protective of the Disclosing Party's Confidential
                  Information as the provisions of this Article 16. Disclosures
                  permitted pursuant to this Section 16.2(f) include disclosure
                  of this Agreement to financial sources or potential acquirers.

16.3     Exceptions. The restrictions set forth in this Article 16 shall not
         prevent either Party from (i) preparing, filing, prosecuting or
         maintaining a patent application or its resulting patents related to a
         Product in accordance with Article 14 or (ii) disclosing Confidential
         Information to governmental agencies to the extent required or
         desirable to obtain a Regulatory Approval, provided that the Party
         disclosing Confidential Information of the Disclosing Party shall use
         all reasonable efforts to provide prior written notice of such
         disclosure to the Disclosing Party and to take reasonable and lawful
         actions to avoid or limit such disclosure or to assist the Disclosing
         Party in avoiding or limiting such disclosure.

                                      -40-
<PAGE>

16.4     Publications. After the Option Exercise, the following provisions shall
         apply to the Parties with respect to all publications, presentations
         and other public disseminations of any information relating to Optioned
         Compounds (whether or not used in the Field) or to scientific work
         performed as part of the Strategic Alliance:

         (a)      The Party desiring to publish, present or otherwise publicly
                  disseminate such information (the "Publishing Party") shall
                  provide the other Party with a copy of any proposed
                  publication, presentation or other public dissemination at
                  least * prior to submission for publication, presentation or
                  other public dissemination so as to provide such other Party
                  an opportunity to recommend any changes it reasonably believes
                  are necessary to preserve the Confidential Information
                  belonging in whole or in part to such other Party or to
                  preserve such other Party's ability to obtain a patent or
                  patents Covering any Invention. The incorporation of such
                  recommended changes shall not be unreasonably refused.

         (b)      If such other Party provides written notice ("Notice") to the
                  Publishing Party within * of receipt of the copy of the
                  proposed publication, presentation or other public
                  dissemination that such publication, presentation or other
                  public dissemination in its reasonable judgment (i) discloses
                  information about an Invention for which the other Party
                  desires patent protection or (ii) discloses Confidential
                  Information of the other Party, the Publishing Party shall
                  prevent such publication or delay such publication,
                  presentation or other dissemination until the Parties have
                  agreed on mutually acceptable modifications thereto so as not
                  to prejudice the other Party's right to obtain a patent and
                  not to disclose the other Party's Confidential Information. In
                  the case of Inventions, a delay shall be for a period
                  reasonably sufficient to permit the timely preparation and
                  filing of a patent application(s) or application(s) on the
                  Invention, and in no event less than * from the date of
                  Notice.

                         ARTICLE 17 TERM AND TERMINATION

17.1     HSR Condition Subsequent.

         (a)      If the Hart-Scott-Rodino Antitrust Improvements Act of 1976
                  (the "HSR Act") applies to the transactions currently
                  contemplated by this Agreement, the effectiveness of this
                  Agreement and the transactions contemplated hereunder shall be
                  subject to and shall be contingent upon the satisfaction of
                  the following condition subsequent to the execution of this
                  Agreement. The condition subsequent shall be the earlier to
                  occur of (i) approval of the transaction by the Federal Trade
                  Commission or the appropriate US anti-trust authorities or
                  (ii) the expiration or termination of all applicable waiting
                  periods, requests for information (and any extensions thereof)
                  under the HSR Act. If the HSR Act does not apply to

                                     - 41 -
<PAGE>

                  the transactions currently contemplated by this Agreement, the
                  effectiveness of this Agreement and the transactions
                  contemplated hereunder shall commence on the date set forth in
                  the first paragraph of this Agreement. For purposes of this
                  Agreement, "Effective Date" means the date as of which the
                  Agreement becomes effective pursuant to this Section 17.1(a).

         (b)      Subject to the terms and conditions of this Agreement, each
                  Party shall use all reasonable efforts to take, or cause to be
                  taken, all reasonable actions and to do, or cause to be done,
                  all things necessary and appropriate to satisfy the foregoing
                  condition subsequent and to consummate the transactions
                  contemplated by this Agreement in accordance with the terms
                  hereof.

         (c)      Each Party shall cooperate with the other Party in the
                  preparation, execution and filing of all documents that are
                  required or permitted to be filed on or before the Effective
                  Date for the purpose of consummating this transaction,
                  including filings pursuant to the HSR Act. Each Party shall
                  bear its own costs with respect to preparing, executing and
                  filing such documents.

17.2     Agreement Term. The Agreement Term shall commence on the Effective Date
         and end, unless earlier terminated upon the mutual written agreement of
         the Parties or in accordance with the provisions of this Article 17, on
         the date of expiration of all royalty and other payment obligations
         (the "Expiration Date") under this Agreement. Upon the Expiration Date,
         if the Option Exercise has occurred, the License granted to Roche by
         ArQule under this Agreement to make, have made, use, offer for sale,
         sell and import Products shall be fully paid-up.

17.3     Termination for Breach.

         (a)      Each Party ("Non-Breaching Party") shall be entitled to
                  terminate this Agreement by written notice to the other Party
                  ("Breaching Party") in the event that the Breaching Party is
                  in default of any of its material obligations hereunder and
                  fails to remedy such default within sixty (60) days (or, in
                  the case of payment defaults, within thirty (30)) days after
                  provision of written notice thereof by the Non-Breaching
                  Party.

         (b)      The effective date of termination under this Section 17.3 for
                  an unremedied breach of a material obligation shall be the
                  date * (or, in the case of an unremedied payment default, *)
                  after provision of written notice thereof by the Non-Breaching
                  Party.

17.4     Roche's Rights to Terminate.

         (a)      Roche shall have the unilateral right to terminate this
                  Agreement effective *, by providing written notice to ArQule
                  any time between * and the close of business on *.

                                     - 42 -
<PAGE>

         (b)      Roche shall have the unilateral right to terminate this
                  Agreement at any time prior to the Option Exercise in the
                  event that the FDA imposes a clinical hold on any clinical
                  trial of the Primary Compound or a Clinical Candidate pursuant
                  to 21 C.F.R. 312.42(d), and such hold is not lifted within *.
                  Roche may exercise its right to terminate this Agreement
                  pursuant to this Section 17.4(b) by providing written notice
                  to ArQule within * after the end of such * period.

         (c)      Roche shall have the unilateral right to terminate this
                  Agreement, at any time following the Option Exercise, on a
                  country-by-country basis or Product-by-Product basis, either
                  on a worldwide basis or on a country-by-country basis, by
                  providing * prior written notice to ArQule. Notwithstanding
                  the preceding sentence, if for an affected country, there has
                  been a Launch of a Product in that country, or for an affected
                  Product, such Product has been Launched, then such prior
                  notice must be for *.

         (d)      Roche shall have the unilateral right to terminate this
                  Agreement at any time following the first anniversary of the
                  Effective Date, by providing * prior written notice to ArQule.
                  Notwithstanding the preceding sentence, if there has been a
                  Launch of a Product in a Major Market Country, then such prior
                  notice must be for *.

         (e)      The effective date of termination under this Section 17.4
                  shall be the date of the notice in the case of a termination
                  under Section 17.4(a) or Section 17.4(b), or the date * (or *
                  as the case may be) after Roche provides such written notice
                  to ArQule in the case of a termination under Section 17.4(c)
                  or Section 17.4(d). In the case of a termination under Section
                  17.4(a) or Section 17.4(b), Roche shall have no obligation to
                  pay any amounts under Article 4 not yet due as of the
                  effective date of termination. In the case of a termination
                  under Section 17.4(c) or Section 17.4(d), Roche shall have no
                  obligation to pay any amounts under Section 4.4 not yet due as
                  of the effective date of termination, that may otherwise be
                  triggered during the * or * period (as the case may be) prior
                  to the effective date of termination, where such termination
                  is of this Agreement in its entirety; provided that Roche
                  shall not be relieved of any of its payment obligations under
                  Section 4.1 with respect to such * period where such
                  termination is of this Agreement in its entirety; and further
                  provided that Roche shall not be relieved of any of its
                  payment obligations under this Agreement in the event the
                  termination is not of this Agreement in its entirety.

17.5     ArQule's Right to Terminate. ArQule shall have the unilateral right to
         terminate this Agreement in its entirety if Roche has not effected the
         Option Exercise on or before the conclusion of the Option Term.

17.6     Consequences of Termination.

                                     - 43 -
<PAGE>

         (a)      Reversion of License and Assignment of Roche Rights. Upon any
                  termination of this Agreement pursuant to this Article 17
                  including, without limitation, a termination pursuant to
                  Section 17.4(c), any and all affected rights and licenses
                  (including the Licenses to affected Products or countries if
                  the Option Exercise has occurred) of any kind or nature
                  granted by ArQule to Roche under this Agreement shall
                  terminate on the effective date of termination. In the event
                  of any such termination, the following provisions shall apply:

                           (i)      Roche shall, upon ArQule's written request,
                  assign and transfer to ArQule, or its Affiliates as requested
                  by ArQule, at no expense to ArQule or its Affiliates, and free
                  of any liens, pledges, or security interests or encumbrances
                  other than those incurred in the commercialization of the
                  Product, all of Roche's right, title and interest in and to
                  (i) all regulatory filings (such as INDs and drug master
                  files), Regulatory Approvals, and clinical trial agreements
                  (to the extent assignable and not cancelled) for the
                  Product(s) or any Optioned Compounds, and (ii) all data,
                  including clinical data, materials and information of any kind
                  or nature whatsoever, in Roche's possession or in the
                  possession of its Affiliates or its or their respective agents
                  related to the Product(s) or any Optioned Compounds and (iii)
                  all rights relating to the infringement of ArQule Patent
                  Rights and Joint Patent Rights, related to and necessary for
                  the commercialization of the relevant Product(s) or Optioned
                  Compounds. Without limiting the generality of the preceding
                  sentence, ArQule shall, upon such transfer, have the right to
                  disclose such filings, approvals and data as necessary or
                  desirable for the further development and commercialization of
                  the Optioned Compounds and the Products, including disclosures
                  to (i) governmental agencies of the country or country to the
                  extent required or desirable to secure government approval for
                  the development, manufacturing or sale of a Product in the
                  country, (ii) Third Parties acting on behalf of ArQule, its
                  Affiliates or sublicensees, to the extent reasonably necessary
                  or desirable for the development, manufacture, or sale of a
                  Product or an Optioned Compound in the country, and (iii)
                  Third Parties to the extent reasonably necessary or desirable
                  to market a Product in the country. All such filings,
                  approvals and data transferred to ArQule pursuant to this
                  Section 17.6 shall be deemed to be ArQule Confidential
                  Information.

                           (ii)     In addition, for each Product and for the
                  Territory, or in the case of a termination pursuant to Section
                  17.4(c), for each terminated Product or country, Roche hereby
                  grants to ArQule the right to obtain a sole and exclusive,
                  royalty bearing license, (i) under Roche Patent Rights, Joint
                  Patent Rights and Roche Know-How Covering the Product, to
                  make, have made, use, offer for sale, sell and import such
                  Product(s) in the Territory and (ii) to use all trademarks and
                  trademark applications used or intended for use on or in
                  connection with the Product(s) or any Optioned Compound in the
                  Territory. ArQule may exercise such right by giving

                                     - 44 -
<PAGE>

                  written notice thereof to Roche within ninety (90) days after
                  the date of termination of this Agreement. In consideration of
                  such license, ArQule shall pay Roche reasonable milestones and
                  royalties consistent with industry practices as may be
                  mutually agreed upon by the Parties; and if the Parties are
                  unable to agree upon such financial terms, such matter shall
                  be resolved by arbitration in accordance with Section 18.3.

                           (iii)    Roche shall supply, or cause to be supplied,
                  to ArQule, upon ArQule's written request, ArQule's or its
                  licensee's clinical and/or commercial requirements of Optioned
                  Compound(s) and Product(s), pursuant to a supply agreement to
                  be negotiated in good faith by the Parties, provided that (i)
                  such requirements shall be supplied to ArQule or its licensee
                  at Roche's direct manufacturing costs and allocation of
                  manufacturing overhead, plus, only in the case of commercial
                  requirements produced by Roche itself, *, and (ii) Roche's
                  supply obligation shall not continue for more than * after the
                  termination of this Agreement, and (iii) Roche shall maintain
                  the same Product(s) and Optioned Compound(s) quality and
                  specifications as immediately prior to notice of termination,
                  and (iv) as to other terms, such agreement shall be reasonably
                  consistent with Roche's other arm's length supply agreements,
                  and (v) ArQule shall use Reasonable Diligence in effecting a
                  transfer as soon as practicable of Product(s) and Optioned
                  Compound(s) manufacturing activities from Roche to another
                  supplier. Roche shall also transfer to ArQule and its
                  designated supplier a manufacturing transfer package that will
                  enable ArQule or such designated supplier to manufacture the
                  Product(s) and Optioned Compound(s) in a timely manner. In
                  addition to or in lieu of the foregoing, ArQule may offer to
                  purchase from Roche all or part of its remaining inventory of
                  Product(s) and Optioned Compound(s).

                  Roche shall take prompt actions, including the execution of
                  such instruments, agreements and documents, as are necessary
                  or desirable to effect the foregoing. It is agreed such
                  transfers and actions shall be completed in a manner that will
                  permit ArQule to continue without interruption the business of
                  developing, manufacturing, marketing and selling the
                  Product(s) and Optioned Compound(s). At ArQule's request,
                  Roche, at its own expense, shall use Reasonable Diligence to
                  effect the assignment to ArQule of any manufacture and supply
                  agreements that it has with Third Parties with respect to the
                  manufacture and supply of Product(s) or Optioned Compound(s).

         (b)      Royalty and Payment Obligations. Termination of this Agreement
                  by either Party for any reason will not release Roche from any
                  obligation to pay royalties or milestones or to make any
                  payments to ArQule which were accrued prior to the effective
                  date of termination (including for sales made and events
                  achieved under Articles 5 and 6, prior to the date of
                  termination). However, termination of this Agreement by either
                  Party for

                                     - 45 -
<PAGE>

                  any reason will release Roche from any obligation to pay
                  royalties or make any payments to ArQule which would have
                  otherwise become accrued after the effective date of
                  termination (provided that Roche shall be obligated to pay
                  royalties and milestones for payments received after the
                  effective date of termination for Products sold prior to such
                  effective date).

         (c)      Effect of Termination. Upon any termination of this Agreement,
                  other than pursuant to Section 17.3 and as provided in Section
                  17.7, there shall be no liabilities or obligations on the part
                  of either Party other than those set forth in Section 17.6(a)
                  and (b).

         (d)      Non-exclusive remedy for breach. The provisions of this
                  Section 17.6 are not intended to be exclusive and are without
                  prejudice to the rights of the Parties to seek any other
                  rights and remedies that they may have under this Agreement or
                  otherwise.

17.7     Termination for Failure to Satisfy Condition Subsequent. Either Party
         may terminate this Agreement in its entirety, upon * prior written
         notice to the other Party if the condition subsequent under Section
         17.1 has not been fulfilled within * after the date in the first
         paragraph of this Agreement, in which case, upon termination there
         shall be no liabilities for obligations on the part of either Party
         (other than as provided pursuant to Sections 16.1, 17.6(a) and 17.8 and
         except for any breach of Section 16.1), provided, however, that prior
         to any such termination, the Parties shall negotiate in good faith such
         revisions as may be appropriate to satisfy such conditions.

17.8     Survival of Obligations. Section 2.3, Article 7, Article 15, Article
         16, Section 17.6, Section 17.8, Article 18 and Article 19, and any
         definitions used in any such Section or Article, shall survive the
         termination of this Agreement in its entirety. Except for obligations
         which clearly are not intended to continue in respect of a partial
         termination pursuant to Section 17.4(c) (including the applicable
         diligence obligation), with respect to the country or Product
         terminated, all obligations in this Agreement shall survive such
         partial termination.

                         ARTICLE 18 LAW AND ARBITRATION

18.1     Law. This Agreement shall be governed by the laws of the State of
         Delaware applicable to contracts made and to be performed entirely
         within such jurisdiction and without giving effect to its choice or
         conflict of laws, rules or principles. Each of the Parties irrevocably
         submits to the exclusive jurisdiction of any court of the State of
         Delaware or in the United States District Court for the District of
         Delaware for the purpose of any suit, action or other proceeding
         arising out of or relating to this Agreement, and irrevocably agrees
         that all claims in respect of such action or proceedings shall be heard
         and determined in any such Delaware or

                                     - 46 -
<PAGE>

         United States District Court for the District of Delaware. Each Party
         further agrees that service of any process, summons, notice or document
         by registered mail to the address of such Party set forth in Section
         19.6 shall be effective service of process for any action or proceeding
         brought against such Party in any such court. Each Party hereby
         irrevocably and unconditionally waives any objection to the laying of
         venue of any action or proceeding arising out of or relating to this
         Agreement in any such court and further irrevocably and unconditionally
         waives and agrees not to plead or claim in any such court that any such
         action or proceeding brought in any such court has been brought in any
         inconvenient forum. Each Party further agrees that a final,
         nonappealable judgment in any such action or proceeding shall be
         conclusive and may be enforced in any other jurisdictions by suit on
         the judgment or in any other manner provided by law.

18.2     No Offsets. In the event of a dispute, a Party shall have no right to
         toll or delay any obligation in this Agreement unrelated to the dispute
         as a result of the Dispute. For example, if Roche owes ArQule five
         million dollars ($5,000,000) and claims a separate two million dollars
         ($2,000,000) payment is not due by reason of breach of ArQule, then
         Roche shall pay the five million dollars ($5,000,000), and the Parties
         shall resolve such two million dollars ($2,000,000) dispute pursuant to
         this Article 18.

18.3     AAA. All disputes, controversies or claims (each a "Dispute") arising
         out of or in relation to the last sentence of each of Sections 5.7,
         8.4(d) and 17.6(a)(ii) shall be settled by arbitration conducted in
         accordance with the rules then in effect of the American Arbitration
         Association ("AAA"). All other disputes not resolved by the Parties
         shall be resolved pursuant to Section 18.1. Either Party may submit a
         Dispute to arbitration if the Parties are not able to settle such
         Dispute amicably within forty-five (45) days after appropriate officers
         of the Parties have had good faith discussions to resolve the Dispute.
         Any such arbitration shall take place in Wilmington, Delaware, or in a
         venue mutually agreed by the Parties. Any such arbitration shall be
         conducted by a panel of three (3) arbitrators. Each Party shall
         designate one (1) arbitrator, and the two (2) arbitrators designated by
         the Parties shall select the third arbitrator, all within the time
         limits established by the then existing rules of the AAA. If scientific
         or technical matters are a central issue of the Dispute, at least one
         of the arbitrators chosen hereunder shall have educational training
         and/or experience sufficient to demonstrate a reasonable level of
         knowledge in the Field and pharmaceutical drug development. If the two
         (2) arbitrators designated by the Parties are unable to agree upon a
         third arbitrator within two (2) months after submission of the matter
         to arbitration, the AAA shall select such third arbitrator within three
         (3) months of such original submission. The written decision of the
         panel of arbitrators shall be final and binding on the Parties and may
         be enforced in any court having jurisdiction over the Parties or their
         current assets.

                                     - 47 -
<PAGE>

                            ARTICLE 19 MISCELLANEOUS

19.1     Indemnification.

         (a)      Roche shall defend ArQule and its Affiliates and its and their
                  respective directors, officers, employees and agents (the
                  "ArQule Indemnified Parties") at Roche's cost and expense, and
                  shall indemnify and hold ArQule and the ArQule Indemnified
                  Parties harmless from and against any claims, losses, costs,
                  damages, fees or expenses (including reasonable attorney's
                  fees) (each a "Claim") to the extent arising out of or
                  otherwise relating to (i) acts or omissions of Roche or its
                  Affiliates in the conduct of the Strategic Alliance, (ii) the
                  development, manufacture, use, offer for sale, sale or other
                  disposition of any product by Roche, its Affiliates or
                  sublicensees, and each of their respective distributors,
                  representatives or anyone in privity therewith, or (iii) the
                  gross negligence or willful misconduct of Roche, its
                  Affiliates or sublicensees and each of their respective
                  distributors, representatives or anyone in privity therewith.
                  In the event of a Claim against the ArQule Indemnified Parties
                  by a Third Party, ArQule shall promptly notify Roche in
                  writing of the Claim (provided that any failure or delay to so
                  notify Roche shall not excuse any obligation of Roche except
                  to the extent Roche is actually prejudiced thereby) and Roche
                  solely shall manage and control, at its sole expense, the
                  defense of the Claim and its settlement; provided further that
                  Roche shall not settle any Claim if such settlement may have
                  an adverse effect on ArQule without the prior written consent
                  of ArQule, which consent shall not be unreasonably withheld.
                  The ArQule Indemnified Parties shall cooperate with Roche and
                  may, at their option and expense, be represented in any such
                  action or proceeding. The ArQule Indemnified Parties shall
                  provide Roche with access to any and all documents and
                  information in their possession relating to the Claim. Roche
                  shall not be liable for any litigation costs or expenses
                  incurred by the ArQule Indemnified Parties without Roche's
                  written authorization.

         (b)      ArQule shall defend Roche and its Affiliates and its and their
                  respective directors, officers, employees and agents (the
                  "Roche Indemnified Parties") at ArQule's cost and expense, and
                  shall indemnify and hold Roche and the Roche Indemnified
                  Parties harmless from and against any Claim to the extent
                  arising out of or otherwise relating to (i) acts or omissions
                  of ArQule in the conduct of the Strategic Alliance, (ii) the
                  development, manufacture, use, offer for sale, sale or other
                  disposition of any product by ArQule, its Affiliates,
                  licensees other than Roche, sublicensees and each of their
                  respective distributors, representatives or anyone in privity
                  therewith (but only to the extent such Claim is a consequence
                  of acts or omissions with respect to ArQule's obligations
                  arising under Section 2.4, Article 3 and/or Article 17), or
                  (iii) the gross negligence or willful misconduct of ArQule,
                  its Affiliates, licensees other than Roche, sublicensees and
                  each of their respective distributors,

                                     - 48 -
<PAGE>

                  representatives or anyone in privity therewith. In the event
                  of a Claim against the Roche Indemnified Parties by a Third
                  Party, Roche shall promptly notify ArQule in writing of the
                  Claim (provided that any failure or delay to notify shall not
                  excuse any obligation of ArQule except to the extent ArQule is
                  actually prejudiced thereby) and ArQule solely shall manage
                  and control, at its sole expense, the defense of the Claim and
                  its settlement; provided further that ArQule shall not settle
                  any Claim if such settlement may have an adverse effect on
                  Roche without the prior written consent of Roche, which
                  consent shall not be unreasonably withheld. The Roche
                  Indemnified Parties shall cooperate with ArQule and may, at
                  their option and expense, be represented in any such action or
                  proceeding. The Roche Indemnified Parties shall provide ArQule
                  with access to any and all documents and information in their
                  possession relating to the Claim. ArQule shall not be liable
                  for any litigation costs or expenses incurred by the Roche
                  Indemnified Parties without ArQule's written authorization.

19.2     Publicity. Neither Party shall make any publicity, news release or
         other public announcement, written or oral, relating to this Agreement,
         including its terms, without the prior approval of the other Party,
         except solely to the extent a Party is advised by its legal counsel
         that the same is required by law. Approval required pursuant to the
         preceding sentence shall not be unreasonably withheld. Each Party shall
         to the extent consistent with applicable laws and regulations limit the
         public disclosure of the financial terms set forth in this Agreement
         (such as by requesting confidential treatment of such terms in
         documents required to be filed with the US Securities and Exchange
         Commission).

19.3     Force Majeure. Except with respect to a Party's obligation to make
         payments to the other Party hereunder, neither Party to this Agreement
         shall be responsible to the other Party for nonperformance or delay in
         performance of the terms or conditions of this Agreement due to acts of
         God, acts of governments, war, riots, strikes, accidents in
         transportation, or other causes beyond the reasonable control of such
         Party, but such force majeure shall toll any and all obligations (other
         than payment obligations) and time periods for so long as such force
         majeure continues. Upon the occurrence of an event of force majeure,
         the Party whose performance is affected thereby shall notify the other
         Party promptly of such event. Upon the cessation of such event, such
         Party shall take all reasonable steps within its power to resume with
         the least possible delay compliance with its obligations hereunder.

19.4     Bankruptcy. The License (and to the extent applicable rights) that may
         be granted under or pursuant to this Agreement by ArQule to Roche are,
         and shall otherwise be deemed to be, for purposes of Section 365(n) of
         Title 11, US Code (the "Bankruptcy Code"), licenses of rights to
         "intellectual property" as defined under Section 101(35A) of the
         Bankruptcy Code. The Parties agree that during the Agreement Term,
         Roche, as a licensee of such rights under this Agreement, shall retain
         and may fully exercise all of its rights and elections under the
         Bankruptcy Code, subject to the continued performance of its
         obligations under this

                                     - 49 -
<PAGE>

         Agreement. Nothing in this Section 19.4 shall be construed to expand
         Roche's rights under Section 365(n) of the Bankruptcy Code or to confer
         any rights on Roche that it would not otherwise have under such
         section.

19.5     Waiver. The waiver by a Party of a breach or a default of any provision
         of this Agreement by the other Party shall not be construed as a waiver
         of any subsequent breach of the same or any other provision hereof, nor
         shall any delay or omission on the part of a Party to exercise or avail
         itself of any right, power or privilege that it has or may have
         hereunder operate as a waiver of that or any other right, power or
         privilege of such Party hereunder.

19.6     Notices. Any notice or other communication required or permitted to be
         given in connection with this Agreement must be in writing and may be
         given by any of the following methods: (i) personal delivery with a
         signed acknowledgement of receipt; (ii) registered or certified mail,
         postage prepaid, return receipt requested; or (iii) by overnight
         delivery service with a signed acknowledgement of receipt. Notice shall
         be effective when delivered to the addressee at the address listed
         below or, as applicable, the address listed in Article 14, or such
         other address as the addressee shall have specified in a written notice
         actually received by the addresser.

         If to ArQule:

                           ArQule, Inc.
                           19 Presidential Way
                           Woburn, Massachusetts  01801-5140
                           Attn:  General Counsel

         and

                           Arnold & Porter
                           1600 Tysons Boulevard, Suite 900
                           McLean, Virginia  22102
                           Attn:  Steve Parker, Esq.

         If to Roche:

                           F. Hoffmann-La Roche Ltd
                           Grenzacherstrasse 124
                           CH-4070
                           Basel, Switzerland
                           Attn:  Legal Department

         and

                           Hoffmann La-Roche Inc.
                           340 Kingsland Street
                           Nutley, NJ  07110
                           Attn.:  Corporate Secretary

                                     - 50 -
<PAGE>

19.7     Relationship of the Parties. The Parties are independent contractors.
         Nothing herein is intended or shall be deemed to constitute a
         partnership, agency, joint venture or employment relationship between
         the Parties. Neither Party shall be responsible for the acts or
         omissions of the other Party, and neither Party will have authority to
         speak for, represent or obligate the other Party in any way without
         prior written authority from the other Party.

19.8     Entire Agreement. This Agreement and the Schedules attached hereto
         (which Schedules are incorporated herein by reference and are deemed to
         be a part of this Agreement for all purposes) contain the entire
         agreement of the Parties with respect to the subject matter hereof and
         supersede all prior understandings and writings between the Parties
         relating thereto, including the Non-Disclosure Agreement dated as of
         October 1, 2002 by and between Hoffmann-La Roche Inc. and Cyclis
         Pharmaceuticals, Inc., which agreement was assigned to ArQule (such
         assignment accepted and agreed to by Hoffmann-La Roche Inc. on
         September 29, 2003). No amendment, waiver, alteration or modification
         of any of the provisions of this Agreement shall be binding unless made
         in writing and signed by the Parties.

19.9     Headings. The headings contained in this Agreement are for convenience
         of reference only and shall not be considered in interpreting this
         Agreement.

19.10    Severability. In the event that any provision of this Agreement is held
         by a court of competent jurisdiction to be unenforceable because it is
         invalid or in conflict with any law of any relevant jurisdiction, the
         validity of the remaining provisions of this Agreement shall not be
         affected thereby, and the Parties shall negotiate a substitute
         provision that, to the extent possible, accomplishes the original
         business purpose of the unenforceable provision. During the period of
         such negotiation, and thereafter if no substituted provision is agreed
         upon in writing by the Parties, any such provision which is enforceable
         in part but not in whole shall be enforced to the maximum extent
         permitted by law.

19.11    Assignment. Neither this Agreement nor any of the rights or obligations
         hereunder may be assigned by either Party without the prior written
         consent of the other Party, except to an Affiliate of the assigning
         Party or to any other party who acquires all or substantially all of
         the pharmaceutical or drug development business of the assigning Party
         by merger, sale of assets or otherwise, so long as such Affiliate or
         other party agrees in writing to be bound by all the terms of this
         Agreement.

19.12    Successors and Assigns. Except as otherwise provided herein, this
         Agreement shall be binding upon and inure to the benefit of the Parties
         hereto and their successors and permitted assigns.

19.13    Non-Solicitation. Roche agrees that, during the period from the
         Effective Date to the date that is * after the Effective Date, it shall
         not directly or indirectly solicit the services (by way of employment
         or otherwise), or employ or otherwise engage

                                     - 51 -
<PAGE>

         the services, of any * of ArQule holding any position at or more senior
         than the *; provided however that the foregoing restriction shall not
         prohibit Roche from conducting general solicitations in newspapers or
         other media in connection with its hiring.

19.14    Interpretation. The words "include," "includes" and "including" when
         used in this Agreement shall be deemed to be followed by the phrase
         "without limitation." All references herein to Articles, Sections, and
         Schedules shall be deemed references to Articles and Sections of, and
         Schedules to, this Agreement unless the context shall otherwise
         require. Except as otherwise expressly provided herein, all terms of an
         accounting or financial nature shall be construed in accordance with
         International Financial Reporting Standards ("IFRS"), as in effect from
         time to time. Unless the context otherwise requires, countries shall
         include all territories thereof.

19.15    Counterparts. This Agreement may be executed in counterparts, each of
         which shall be deemed an original but all of which together shall
         constitute one and the same instrument.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 52 -
<PAGE>

         IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed in their names by their properly and duly authorized officers or
representatives as of the date first written above.

ARQULE, INC.                               HOFFMANN-LA ROCHE INC.

By:   _____________________________        By: _________________________________

Title:  ____________________________       Title: ______________________________

                                           F. HOFFMANN-LA ROCHE LTD

                                           By: _________________________________

                                           Title:  _____________________________

                                           By: _________________________________

                                           Title: ______________________________

                                     - 53 -
<PAGE>

                                   SCHEDULE 1

                              ARQULE PATENT RIGHTS

                                        *

                                     - 1 -
<PAGE>

                                   SCHEDULE 2

                                  RESEARCH PLAN

OVERVIEW

*

                                     - 1 -
<PAGE>

                                   SCHEDULE 3

                    SUMMARY TERMS FOR CO-PROMOTION OF PRODUCT

1.     CO-PROMOTION TERRITORY. The "Co-Promotion Territory" shall be the United
       States of America and its possessions and territories, including Puerto
       Rico.

2.     TERM AND TERMINATION. The "Co-Promotion Term" for each Product shall be
       for a period commencing on the date of first commercial sale of such
       Product pursuant to the co-promotion and ending on the earlier of (1) *
       after such date or (2) * by ArQule or its Third Party licensee of an E2F1
       activator. In addition to any other termination rights that may be
       specified in the Co-Promotion Agreement, ArQule shall have the right to
       terminate the Co-Promotion Agreement at any time upon * prior written
       notice.

3.     ASSIGNABILITY. ArQule may not assign its co-promotion rights without
       Roche's express written consent; provided, however, that ArQule may
       assign such rights to any Affiliate of ArQule.

4.     MARKETING. If ArQule exercises its right to co-promote a Product, the
       Parties' respective rights and obligations with respect to detailing and
       marketing shall be set forth in the Co-Promotion Agreement. The
       Co-Promotion Agreement shall provide that ArQule shall provide up to *
       full time professional trained sales employees of ArQule or its Affiliate
       to conduct details for Product in the Territory. The JPT (see below)
       shall decide upon the number and type of details such representatives
       will provide. Except as otherwise provided herein, *. Each Party shall be
       responsible for the costs relating to its sales force, except that Roche
       shall reimburse ArQule for Product specific sales territory performance
       versus goal (i.e., bonus), which rates the JPT shall determine.

5.     GOVERNANCE. Within ninety (90) days after ArQule's notice to Roche that
       it wishes to co-promote a Product, the Parties shall form a Joint
       Promotional Team ("JPT"), which shall oversee the co-promotional
       activities of the Parties with respect to such Product. The JPT shall
       consist of * members, * members to be designated by Roche and * members
       to be designated by ArQule. Any Party may withdraw the designation of
       any of its members of the JPT and designate a replacement at any time
       by giving prior written notice of the withdrawal and identifying the
       replacement to the other Party. Decisions of the JPT shall be by
       consensus. The chairperson of the JPT shall be from Roche. If the JPT
       is unable to decide a matter by consensus, the Parties shall refer such
       matter for resolution to the Alliance Executives. If the Alliance
       Executives are unable to resolve any such matter after good faith
       discussions, then the final decision shall rest with Roche.

                                     - 1 -
<PAGE>

6.     ROCHE'S OBLIGATIONS AND AUTHORITY. Roche shall be ultimately responsible
       for establishing and modifying the terms and conditions with respect to
       the sale of the Product, including pricing for the Product. Roche shall
       provide ArQule, without charge, with the same training materials
       regarding the detailing and promotion of the Product as Roche uses to
       train its own sales force, and with such promotional materials as may be
       specified in the Co-Promotion Plan. ArQule shall then supply such copies
       of such training and/or promotional materials to its sales force. At
       ArQule's request, Roche shall make available sales and training personnel
       to assist ArQule in training ArQule's sales force to detail and promote
       the Product. For avoidance of doubt, each Party has final responsibility
       for the adequate training of its own sales force.

7.     INDEMNIFICATION. Each Party shall indemnify the other Party for all Third
       Party claims relating to the marketing or promotion of the Product to the
       extent that such indemnifying Party or its representatives are negligent
       or fail to promote the Product in accordance with applicable federal,
       state and local laws, rules and regulations.

8.     DEFINITIVE AGREEMENT. Any of the terms described in this Heads of
       Agreement may be modified in the Co-Promotion Agreement. In addition, the
       Co-Promotion Agreement shall contain ordinary and customary terms for an
       agreement in which a pharmaceutical product of like nature is co-promoted
       in the US, such as insurance, warranties and the like.

                                     - 2 -
<PAGE>

                                   SCHEDULE 4

                     PRIMARY COMPOUND CLINICAL DELIVERABLES

*

                                     - 1 -
<PAGE>

                                   SCHEDULE 5

                   BACKUP COMPOUND PRE-CLINICAL DELIVERABLES

*

                                     - 1 -
<PAGE>

                                   SCHEDULE 6

          PRIMARY OR BACKUP COMPOUNDS CMC TECHNICAL POINTS TO CONSIDER

*

                                     - 1 -
<PAGE>

                                   SCHEDULE 7

                            EXISTING ARQULE LICENSES

Exclusive License Agreement Between the Dana-Farber Cancer Institute and
CoPharma, Inc., dated as of January 31, 2001 (as amended)

License Agreement By and Amongst the Beth Israel Deaconess Medical Center, the
Dana-Farber Cancer Institute, and Cyclis Pharmaceuticals, Inc., dated as of
September 26, 2002 (as amended)

                                     - 1 -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}]]