Document:

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                                                                   EXHIBIT 10.20

                                 FLONETWORK INC.

                      NON-STATUTORY STOCK OPTION AGREEMENT

         1. GRANT OF OPTION. This agreement evidences the grant by FloNetwork
Inc., a corporation organized under the laws of Ontario, Canada (the "Company"),
on July 1, 1999 (the "Grant Date") to Eric Goodwin (the "Optionee") of an option
to purchase, in whole or in part, on the terms provided herein, an aggregate of
2,601,408 Common Shares of the Company ("Common Shares") at a price of CDN $.25
per share. Except where the context otherwise requires, the term "Company" shall
include the parent and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the U.S. Internal Revenue Code of 1986,
as amended or replaced from time to time (the "Code").

         2.  NON-STATUTORY STOCK OPTION. This option is not intended to qualify
as an incentive stock option under Section 422 of the Code.

         3.  EXERCISE OF OPTION AND PROVISIONS FOR TERMINATION.

             (a) Vesting Schedule. Except as otherwise provided in this
Agreement, this option may be exercised prior to the tenth anniversary of the
Grant Date (hereinafter the "Expiration Date") as to 108,392 of the Shares on
the Grant Date and as to an additional 108,392 of the Shares at the end of each
successive one-month period until such time as this option shall become
exercisable in full.

         Notwithstanding the foregoing, if, prior to the date on which the
Employee ceases to be an Eligible Optionee of the Company (as defined below),

             (i) the Company consummates an underwritten initial public
offering of its Common Shares pursuant to an effective registration statement in
the United States or prospectus in Canada as a result of which the Company's
Common Shares are listed and traded on the Nasdaq National Market, the Toronto
Stock Exchange or a similar national exchange, then the vesting of the Shares
that have not vested as of the closing of such initial public offering shall
immediately accelerate upon such closing such that (A) upon such date this
option shall become immediately exercisable with respect to a number of the then
unvested Shares equal to the aggregate number of Shares then exercisable under
this option and previously exercised under this option and (B) following such
date this option shall become exercisable with respect to an additional 216,784
of the remaining unvested Shares at the end of each successive one-month period
until such time as this option shall become exercisable in full; or

             (ii) a Change in Control (as defined below) of the Company is
consummated, then the vesting of this option shall immediately accelerate in
full upon the date of consummation of the Change in Control such that upon such
date this option shall become immediately exercisable with respect to all of the
Shares. For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred if: (i) the Company consummates an amalgamation, plan of
arrangement, merger or consolidation with any other entity, other than an

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amalgamation, plan of arrangement, merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; (ii) the
stockholders of the Company approve a plan of complete liquidation of the
Company; or (iii) the Company consummates the sale or disposition of all or
substantially all of the Company's assets.

         The right of exercise shall be cumulative so that if the option is not
exercised to the maximum extent permissible during any exercise period, it shall
continue to be exercisable, in whole or in part, with respect to all Shares not
so purchased at any time prior to the Expiration Date or the earlier termination
of this option.
This option may not be exercised at any time on or after the Expiration Date.

             (b)  EXERCISE PROCEDURE. Subject to the conditions set forth in
this Agreement, this option shall be exercised by the Optionee's delivery of
written notice of exercise to the Company specifying the number of shares to be
purchased and the purchase price to be paid therefor and accompanied by payment
in full in accordance with Section 4. Such exercise shall be effective upon
receipt by the Company of such written notice together with the required
payment. The Optionee may purchase fewer than the total number of shares covered
hereby, provided that no partial exercise of this option may be for any
fractional share.

             (c)  CONTINUOUS RELATIONSHIP WITH THE COMPANY REQUIRED. Except
as otherwise provided in this Section 3, this option may not be exercised unless
the Optionee, at the time he or she exercises this option, is, and has been at
all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company (an "Eligible Optionee").

             (d)  TERMINATION OF RELATIONSHIP WITH THE COMPANY. If the
Optionee ceases to be an Eligible Optionee of the Company for any reason other
than death or disability or a termination of such relationship by the Company
for "cause", each as provided below, the right to exercise this option shall
terminate upon the Expiration Date, provided that this option shall be
exercisable only to the extent that the Optionee was entitled to exercise this
option on the date of such cessation. Notwithstanding the foregoing, if the
Optionee, prior to the Expiration Date, materially violates the non-competition
or confidentiality provisions of the Employment Agreement dated as of July 1,
1999 (the "Employment Agreement") between the Company and the Optionee, the
Non-Competition and Assignment of Intellectual Property Agreement dated as of
July 1, 1999 (the "Non-Competition Agreement") between the Company and the
Optionee or any other employment or consulting contract, confidentiality and
non-disclosure agreement or other agreement between the Optionee and the
Company, the right to exercise this option shall terminate immediately upon such
violation.

             (e) EXERCISE PERIOD UPON DEATH OR DISABILITY. If the Optionee
dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code)
prior to the Expiration Date while he or she is an Eligible Optionee, or if the
Optionee dies prior to the Expiration Date but after the Optionee ceases to be
an Eligible Optionee (other than as the result of a termination of such
relationship by the Company for "cause" as specified in paragraph (f) below),
this option

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shall be exercisable, within the period of one year following the date of death
or disability of the Optionee (but in no event after the Expiration Date), by
the Optionee or by the person to whom this option is transferred by will or the
laws of descent and distribution, PROVIDED THAT this option shall be exercisable
only to the extent that this option was exercisable by the Optionee on the date
of his or her death or disability. Except as otherwise indicated by the context,
the term "Optionee", as used in this option, shall be deemed to include the
estate of the Optionee or any person who acquires the right to exercise this
option by bequest or inheritance or otherwise by reason of the death of the
Optionee.

                (f)  DISCHARGE FOR CAUSE. If the Optionee, prior to the
Expiration Date, ceases his relationship with the Company because such
relationship is terminated by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon such cessation.
"Cause" shall have the meaning set forth in any employment agreement between the
Company and the Optionee, or if there shall be at such time no employment
agreement or no such definition in such employment agreement, shall mean willful
misconduct by the Optionee or willful failure to perform his or her
responsibilities in the best interests of the Company (including, without
limitation, breach by the Optionee of any provision of the Employment Agreement,
the Non-Competition Agreement or any other employment, consulting, advisory,
nondisclosure, non-competition or other similar agreement between the Optionee
and the Company), as determined by the Company, which determination shall be
conclusive.

         4.       PAYMENT OF PURCHASE PRICE.

                  (a) METHOD OF PAYMENT. Payment of the purchase price for
Shares purchased upon exercise of this option shall be made (i) by delivery to
the Company of cash or a check to the order of the Company in an amount equal to
the purchase price of such Shares, (ii) subject to the consent of the Company,
by delivery to the Company of Common Shares then owned by the Optionee having a
fair market value equal in amount to the purchase price of such shares, (iii) by
any other means which the Board of Directors approves and determines are
consistent with the purpose of this option and applicable laws and regulations,
or (iv) by any combination of such methods of payment.

                  (b) VALUATION OF SHARES OR OTHER NON-CASH CONSIDERATION
TENDERED IN PAYMENT OF PURCHASE PRICE. For the purposes hereof, the fair market
value of any Common Shares or other non-cash consideration which may be
delivered to the Company in exercise of this option shall be determined in good
faith by the Board of Directors of the Company.

                  (c) DELIVERY OF SHARES TENDERED IN PAYMENT OF PURCHASE PRICE.
If the Optionee exercises this option by delivery of Common Shares of the
Company, the certificate or certificates representing the Common Shares of the
Company to be delivered shall be duly executed in blank by the Optionee or shall
be accompanied by a stock power duly executed in blank suitable for purposes of
transferring such shares to the Company. Fractional Common Shares of the Company
will not be accepted in payment of the purchase price of shares acquired upon
exercise of this option.

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         5.       DELIVERY OF SHARES; COMPLIANCE WITH SECURITIES LAWS, ETC.

                  (a) GENERAL. The Company shall, upon payment of the option
price for the number of Shares purchased and paid for, make prompt delivery of
such Shares to the Optionee, provided that if any law or regulation requires the
Company to take any action with respect to such Shares before the issuance
thereof, then the date of delivery of such Shares shall be extended for the
period necessary to complete such action.

                  (b) LISTING, QUALIFICATION, ETC. This option shall be subject
to the requirement that if, at any time, counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject hereto
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
hereunder, this option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, disclosure, or
satisfaction of such other condition shall have been effected or obtained on
terms acceptable to the Board of Directors. Nothing herein shall be deemed to
require the Company to apply for, effect or obtain such listing, registration,
qualification, or disclosure, or to satisfy such other condition.

         6.       AGREEMENT IN CONNECTION WITH PUBLIC OFFERING.

         The Optionee agrees, in connection with the initial underwritten public
offering of the Company's securities pursuant to a registration statement under
the Securities Act, (i) not to sell, make short sale of, loan, grant any options
for the purchase of, or otherwise dispose of any Common Shares held by the
Optionee (other than those shares included in the offering) without the prior
written consent of the Company or the underwriters managing such initial
underwritten public offering of the Company's securities for a period of 180
days from the effective date of such registration statement, and (ii) to execute
any agreement reflecting clause (i) above as may be requested by the Company or
the managing underwriters at the time of such offering.

         7. NONTRANSFERABILITY OF OPTION. This option is personal and no rights
granted hereunder may be transferred, assigned, pledged or hypothecated in any
way (whether by operation of law or otherwise) nor shall any such rights be
subject to execution, attachment or similar process, except that this option may
be transferred (i) by will or the laws of descent and distribution or (ii)
pursuant to a qualified domestic relations order as defined in Section 414(p) of
the Code. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of this option or of such rights contrary to the provisions hereof, or
upon the levy of any attachment or similar process upon this option or such
rights, this option and such rights shall, at the election of the Company,
become null and void.

         8. NO SPECIAL EMPLOYMENT OR SIMILAR RIGHTS. Nothing contained in this
option shall be construed or deemed by any person under any circumstances to
bind the Company to continue the employment or other relationship of the
Optionee with the Company for the period within which this option may be
exercised. The Optionee acknowledges that if the Optionee ceases to be an
Eligible Optionee for any reason, the exercisability of this option will be
subject to the

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limitations set forth herein, including those provisions limiting the number of
shares for which this option is exercisable and the period during which this
option may be exercised.

         9. RIGHTS AS A SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares which may be purchased by exercise of
this option (including, without limitation, any rights to receive dividends or
non-cash distributions with respect to such Shares) unless and until a
certificate representing such Shares is duly issued and delivered to the
Optionee. No adjustment shall be made for dividends or other rights for which
the record date is prior to the date such stock certificate is issued.

         10.      ADJUSTMENT PROVISIONS.

                  (a) GENERAL. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding Common
Shares are increased or decreased or are exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such Common Shares or other securities,
then the Board of Directors shall determine, in its sole discretion, appropriate
adjustments with respect to (x) the number and kind of shares as to which this
option is then exercisable and (y) the exercise price per share at which this
option is exercisable.

                  (b) BOARD AUTHORITY TO MAKE ADJUSTMENTS. Any adjustments under
this Section 9 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued pursuant to this
option on account of any such adjustments.

         11.      ACQUISITION EVENTS.

                  (a) DEFINITION. An "Acquisition Event" shall mean: (a) any
amalgamation, plan of arrangement, merger or consolidation of the Company with
or into another entity as a result of which Common Shares are converted into or
exchanged for the right to receive cash, securities or other property or (b) any
exchange of shares of the Company for cash, securities or other property
pursuant to a statutory share exchange transaction.

                  (b) CONSEQUENCES OF AN ACQUISITION EVENT ON OPTIONS. Upon the
occurrence of an Acquisition Event, or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall provide that
this option shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof). For purposes
hereof, this option shall be considered to be assumed if, following consummation
of the Acquisition Event, this option confers the right to purchase, for each
Common Share subject to this option immediately prior to the consummation of the
Acquisition Event, the consideration (whether cash, securities or other
property) received as a result of the Acquisition Event by holders of Common
Shares for each Common Share held immediately prior to the consummation of the
Acquisition Event (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Common

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Shares); provided, however, that if the consideration received as a result of
the Acquisition Event is not solely common stock of the acquiring or succeeding
corporation (or an affiliate thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the consideration to be
received upon the exercise of Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair
market value to the per share consideration received by holders of outstanding
Common Shares as a result of the Acquisition Event.

                  Notwithstanding the foregoing, if the acquiring or succeeding
corporation (or an affiliate thereof) does not agree to assume, or substitute
for, this option, then the Board shall, upon written notice to the Optionee,
provide that this option will become exercisable in full as of a specified time
prior to the Acquisition Event and will terminate immediately prior to the
consummation of such Acquisition Event, except to the extent exercised by the
Optionee before the consummation of such Acquisition Event; provided, however,
that in the event of an Acquisition Event under the terms of which holders of
Common Shares will receive upon consummation thereof a cash payment for each
Common Share surrendered pursuant to such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that this option shall terminate
upon consummation of such Acquisition Event and that the Optionee shall receive,
in exchange therefor, a cash payment equal to the amount (if any) by which (A)
the Acquisition Price multiplied by the number of Common Shares subject to this
option (whether or not then exercisable), exceeds (B) the exercise price of this
option.

         12.  WITHHOLDING TAXES. The Company's obligation to deliver shares upon
the exercise of this option shall be subject to the Optionee's satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.

         13.  INVESTMENT REPRESENTATIONS; LEGENDS.

                  (a) REPRESENTATIONS.  The Optionee represents, warrants and
                  covenants that:

                  (i) Any Shares purchased upon exercise of this option shall be
                  acquired for the Optionee's account for investment only, and
                  not with a view to, or for sale in connection with, any
                  distribution of the Shares in violation of the Securities Act
                  of 1933, as amended (the "Securities Act"), or any rule or
                  regulation under the Securities Act.

                  (ii) The Optionee has had such opportunity as he has deemed
                  adequate to obtain from representatives of the Company such
                  information as is necessary to permit the Optionee to evaluate
                  the merits and risks of his investment in the Company.

                  (iii) The Optionee is able to bear the economic risk of
                  holding such Shares acquired pursuant to the exercise of this
                  option for an indefinite period.

                  (iv) The Optionee understands that (A) the Shares acquired
                  pursuant to the exercise of this option will not be registered
                  under the Securities Act and are "restricted securities"
                  within the meaning of Rule 144 under the Securities Act;

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                  (B) such Shares cannot be sold, transferred or otherwise
                  disposed of unless they are subsequently registered under the
                  Securities Act or an exemption from registration is then
                  available; (C) in any event, an exemption from registration
                  under Rule 144 or otherwise under the Securities Act may not
                  be available for at least two years and even then will not be
                  available unless a public market then exists for the Common
                  Shares, adequate information concerning the Company is then
                  available to the public, and other terms and conditions of
                  Rule 144 are complied with; and (D) there is now no
                  registration statement on file with the Securities and
                  Exchange Commission with respect to any Shares of the Company
                  and the Company has no obligation or current intention to
                  register any Shares acquired pursuant to the exercise of this
                  option under the Securities Act.

By making payment upon exercise of this option, the Optionee shall be deemed to
have reaffirmed, as of the date of such payment, the representations made in
this Section 13.

                  (b) LEGENDS ON STOCK CERTIFICATE. All stock certificates
representing Common Shares issued to the Optionee upon exercise of this option
shall have affixed thereto legends substantially in the following forms, in
addition to any other legends required by applicable state law:

         "The shares of stock represented by this certificate have not been
         registered under the Securities Act of 1933 and may not be transferred,
         sold or otherwise disposed of in the absence of an effective
         registration statement with respect to the shares evidenced by this
         certificate, filed and made effective under the Securities Act of 1933,
         or an opinion of counsel satisfactory to the Company to the effect that
         registration under such Act is not required."

         "The shares of stock represented by this certificate are subject to
         certain restrictions on transfer contained in an Option Agreement, a
         copy of which will be furnished upon request by the issuer."

         14.      MISCELLANEOUS.

                  (a) This option will be administered by the Board of Directors
of the Company, whose construction and interpretation of the terms and
provisions of this option agreement shall be final and conclusive. The Board of
Directors of the Company shall have the authority to construe this option and
option agreement and to make all determinations in the judgment of the Board of
Directors necessary or desirable for the administration of this option and
option agreement. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in this option agreement in the manner
and to the extent it shall deem expedient to carry the intent of this option
into effect, and it shall be the sole and final judge of such expediency. No
director or person acting pursuant to authority delegated by the Board of
Directors shall be liable for any action or determination made in good faith.
The Board of Directors may, to the full extent permitted by or consistent with
applicable laws or regulations, delegate any or all of its powers hereunder to a
committee (the "Committee") appointed by the Board of Directors, and if the
Committee is so appointed, all references to the Board of Directors in this
option agreement shall mean and relate to such Committee.

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                  (b) This option constitutes the entire agreement between the
Company and the Optionee and supersedes all prior agreements and understandings,
whether written or oral, relating to the subject matter of this option.

                  (c) Except as provided herein, this option may not be amended
or otherwise modified unless evidenced in writing and signed by the Company and
the Optionee.

                  (d) All notices under this option shall be mailed or delivered
by hand to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.

                  (e) This option shall be governed by and construed in
accordance with the laws of Ontario, Canada.

Date of Grant:                              FLONETWORK INC.

July 1, 1999
                                            By: /s/ Wilson Lee
                                               ---------------------------------

                                            Title: Chief Financial Officer
                                                  ------------------------------

                                            Address: 260 King Street East
                                                    ----------------------------

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                              OPTIONEE'S ACCEPTANCE

         The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof.

         OPTIONEE

         /s/ Eric Goodwin
         -----------------------------------
         Eric Goodwin

         ADDRESS: RR 1
                 ---------------------------

                 Lombardy, Ontario
                 ---------------------------<PAGE>   1
                                                                    EXHIBIT 10.1

                              AMENDED AND RESTATED
                      ARRAY DELIVERY AND TESTING AGREEMENT

         This Amended and Restated Array Delivery and Testing Agreement, dated
as of January 11, 2000, is between ArQule, Inc. ("ArQule"), a Delaware
corporation, and Monsanto Company ("Monsanto"), a Delaware corporation. For the
purposes of this Agreement, the name "Monsanto" is used for Monsanto, G.D.
Searle & Co., and other Primary Affiliates (as defined below) of Monsanto, and
the name "ArQule" is used for ArQule and Primary Affiliates (as defined below)
of ArQule.

                                 R E C I T A L S

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

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

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

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

1.       DEFINITIONS.

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

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

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

<PAGE>   2

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

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

                  "ANIMAL HEALTH FIELD" means animal health applications.

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

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

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

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

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

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

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

                                      -2-

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

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

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

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

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

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

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

                  "DIRECTED ARRAY(TM) PROGRAM" shall mean the Directed Array
Program that was terminated by the Parties as described in Section 3.3.1.

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

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

                                      -3-
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                  "EU" shall mean Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal,
Spain, Sweden, United Kingdom and such other countries that may be subsequently
admitted to or excluded from the EU.

                  "EUP" shall mean an Experimental Use Permit.

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

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

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

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

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

                  "HUMAN THERAPEUTICS FIELD" means human therapeutic
applications.

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

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

                  "LICENSED COMPOUND" shall mean (i) all Directed Array
Compounds and (ii) any ArQule Compound that the Research Committee has
designated as a Licensed Compound as provided in Section 3.2.2 below.

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

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

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

                                      -4-
<PAGE>   5

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

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

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

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

                  "NET SALES PRICE" shall mean [*]:

         (i)      [*];

         (ii)     [*];

         (iii)    [*];

         (iv)     [*]

         (v)      [*].

[*].

                  "NUTRITION FIELD" means human nutrition applications.

                  "PARTY" means ArQule, Monsanto, or one of their respective
Primary Affiliates; "PARTIES" means ArQule, Monsanto, and their respective
Primary Affiliates.

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

                  "PHASE II CLINICAL TRIALS" means clinical trials in a small
sample of the intended patient population to assess the efficacy for a specific
indication of a compound proposed to be used as a therapeutic pharmaceutical
product, to determine dose tolerance and the optimal dose range as well as to
gather additional information relating to safety and potential adverse effects,
and meeting the requirements established by the FDA for Phase II clinical
trials. A Phase II

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Clinical Trial is deemed to commence upon acceptance of a trial protocol with
the FDA and concludes with the filing of a final study report with the FDA, but
in any event not later than the commencement of a Phase III Clinical Trial for
that product.

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

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

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

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

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

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

                  "RESEARCH PERIOD" shall mean the period commencing on December
23, 1996 and ending on December 31, 2002.

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

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

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

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

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

2.       MANAGEMENT OF MAPPING ARRAY PROGRAM.

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

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

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

                                      -7-
<PAGE>   8

quarterly meeting of the Research Committee, the Research Committee shall
prepare and deliver, to both Parties, a written report describing the decisions
made, conclusions and actions agreed upon.

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

3.       ACCESS FEE; DESCRIPTION OF PROGRAMS.

         3.1. ACCESS FEE. In partial consideration for Monsanto's obtaining
access to ArQule's Mapping Array Program and Directed Array Program as provided
herein, Monsanto has agreed to pay to ArQule a technology access fee equal to
[*] in the aggregate, payable in [*] equal installments of [*] each. ArQule
acknowledges receipt of the [*], and Monsanto acknowledges its obligation to pay
the remaining [*] not later than [*].

         3.2.     MAPPING ARRAY PROGRAM.

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

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                                      -8-
<PAGE>   9

Co. with (i) [*] and (ii) [*], provided that Monsanto agrees [*] and further
provided that Monsanto agrees that [*].

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

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                                      -9-
<PAGE>   10

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

                  3.2.4 TIMING OF DELIVERY. If ArQule provides Monsanto with the
Compass Array Libraries together with their corresponding Mapping Arrays in any
quarter during calendar years [*], ArQule agrees to ship the Compass Array
Libraries and the corresponding Mapping Arrays to Monsanto at the same time as
ArQule ships such ArQule Compounds to its other collaborators in the Field or
uses such ArQule Compounds in an Internal ArQule Discovery Program. In the event
that ArQule provides Monsanto with the Compass Array Libraries after ArQule
ships the corresponding Mapping Arrays to its other collaborators or uses the
corresponding Mapping Arrays in an Internal ArQule Discovery Program in any
quarter in calendar years [*], then notwithstanding the delivery requirements in
Section 3.2.2, ArQule shall provide Monsanto with [*] of each ArQule Compound in
the Mapping Arrays provided to its other collaborators or used in an Internal
ArQule Discovery Program at the same time as ArQule ships such Mapping Arrays to
those collaborators or uses such Mapping Arrays in an Internal ArQule Discovery
Program and then shall provide Monsanto with another [*] of each such ArQule
Compound (i) in the Compass Array Library format and (ii) in the Mapping Array
format minus the ArQule Compounds provided in the Compass Array Library format
(i.e., ArQule will split the total [*] of each ArQule Compound into [*]
shipments, with the [*] shipment split into a Compass Array Library and a
smaller Mapping Array library that contains the ArQule Compounds not included in
the Compass Array Library) within [*] thereafter. In the event that ArQule
provides a Compass Array Library to another collaborator or uses a Compass Array
Library in an Internal ArQule Discovery Program in any quarter in calendar years
[*], ArQule shall provide that Compass Array Library to Monsanto not later than
the time that such Compass Array Library is provided to the other collaborator
or used in an Internal ArQule Discovery Program.

                  3.2.5. PAYMENTS. ArQule acknowledges receipt of payment in
full for the Mapping Array Program for calendar year [*]. Monsanto acknowledges
its obligation to pay any remaining amounts due to ArQule for the Mapping Array
Program for calendar year [*]. In consideration of the performance by ArQule of
the Mapping Array Program and the delivery of the Compass Array libraries for
calendar years [*], Monsanto shall pay ArQule the following delivery fee in
calendar years [*]:

         [*]

         [*]

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<PAGE>   11

In consideration of the delivery of the Compass Array libraries for calendar
year [*] and the expansion of the Field beyond the Agrochemical Field, Monsanto
shall pay ArQule a fee in the amount of [*] in the calendar year [*]. The
payments under this Subsection shall be made in [*] at the beginning of each
[*].

         3.3.     LEAD OPTIMIZATION PROGRAM.

                  3.3.1. DIRECTED ARRAY PROGRAM. The parties have terminated the
Directed Array Program as of the Effective Date. Monsanto acknowledges
satisfactory completion of the Directed Array Programs performed by ArQule and
its obligation to pay ArQule for the Directed Array Program completed in 1999,
and ArQule acknowledges receipt of payment in full for the completion of the
Directed Array Programs through 1998. ArQule represents and warrants that it has
delivered to Monsanto, or will promptly deliver to Monsanto, the structures of
all Directed Array Compounds and the synthetic procedures for such Directed
Array Compounds in ACS experimental format. ArQule agrees to provide Monsanto
with reasonable technical and other support, at the expense of Monsanto, for
future efforts by Monsanto to develop and commercialize Royalty-Bearing Products
based on Directed Array Compounds.

                  3.3.2. TERMINATION PAYMENTS. Monsanto shall pay ArQule the
following termination payments in each of calendar years [*]:

         [*]

         [*].

The termination payments in this Section 3.2.2 supersede and replace the payment
provisions set forth in Section 3.3.4 and 3.3.5 of the Array Delivery and
Testing Agreement dated December 23, 1996 between ArQule and Monsanto.

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

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                                      -11-
<PAGE>   12

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

4.       LICENSE GRANTS; DILIGENCE .

         4.1. SCREENING LICENSES . ArQule hereby grants to Monsanto (a) a
nonexclusive, worldwide, royalty-free license (without the right to sublicense)
to test ArQule Compounds against Targets in the Field and to perform other
analytical work on ArQule Compounds, and (b) an exclusive (including to the
exclusion of ArQule), worldwide, royalty-free license (without the right to
sublicense) to test any Directed Array Compounds for significant functional
activity against Targets in the Field and to perform other analytical work on
Directed Array Compounds.

         4.2. COMMERCIALIZATION LICENSES. ArQule hereby grants to Monsanto,
under ArQule Patent Rights, ArQule's interest in any Joint Patent Rights and
ArQule Technology, an exclusive (including to the exclusion of ArQule),
worldwide, royalty-bearing license (with the right to grant sublicenses) (i) to
develop (including the making of Derivative Compounds), have developed, make, or
have made Royalty-Bearing Products incorporating or using any patent or other
intellectual property rights of ArQule covering the composition, manufacture or
use of Licensed Compounds for use, distribution and sale in the Field, and (ii)
to distribute for sale and sell in the Field Royalty-Bearing Products
incorporating or using any patent or other intellectual property rights of
ArQule covering the composition, manufacture or use of Licensed Compounds, and
(iii) to use in the Field Royalty-Bearing Products incorporating or using any
patent or other intellectual property rights of ArQule covering the composition,
manufacture or use of Licensed Compounds.

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

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

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                                      -12-
<PAGE>   13

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

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

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

         4.7. REVERSE ENGINEERING. Monsanto shall not attempt to reverse
engineer, or attempt to determine the structure of, any ArQule Compound until
the structure of such compound has been disclosed to Monsanto by ArQule pursuant
to Section 3.2.2.

5.       INTELLECTUAL PROPERTY RIGHTS.

         5.1.     OWNERSHIP OF PATENT RIGHTS.

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

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

                                      -13-
<PAGE>   14

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

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

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

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

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

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

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

6.       OWNERSHIP OF COMPOUNDS.

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

                                      -14-
<PAGE>   15

7.       PAYMENTS, REPORTS, AND RECORDS.

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

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

<TABLE>
<CAPTION>

                  PAYMENT                            MILESTONE
                  -------                            ---------
<S>                                                   <C>
                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  1[*].
</TABLE>

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

<TABLE>
<CAPTION>

                  PAYMENT                            MILESTONE
                  -------                            ---------
<S>                                                  <C>
                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]

                  [*]                                                       [*]
</TABLE>

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

                                      -15-
<PAGE>   16

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

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

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

         7.2.     ROYALTIES.

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

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

                           [*]                       ROYALTY AS % OF NET SALES
                                                     -------------------------
                           [*]                                         [*]

                           [*]                                         [*]

                           [*]                                         [*]

                           Where the [*]. For the purposes of this Subsection
                           7.2(b), the term "Parent ArQule Compound" means (i)
                           in the case of a Licensed Compound, the Licensed
                           Compound itself, (ii) in the case of an ArQule

-------------------
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                                      -16-
<PAGE>   17

                           Derivative Compound, an ArQule Compound in the
                           Mapping Array from which the final ArQule Derivative
                           Compound was derived, (iii) in the case of a Directed
                           Array Compound, the Directed Array Compound itself
                           except as otherwise provided in Subsection 7.2(c)
                           below, or (iv) in the case of any other compound
                           discovered or designed by Monsanto directly as a
                           result of information obtained by Monsanto under the
                           Mapping Array Program or Directed Array Program from
                           one or more ArQule Compounds or Directed Array
                           Compounds, which information forms the primary basis
                           for such discovery or development and which
                           information was not previously known to Monsanto from
                           sources other than ArQule, an ArQule Compound or a
                           Directed Array Compound from which such information
                           was obtained. The [*]. The Parties agree to
                           periodically review [*]. For the purposes of this
                           paragraph, [*].

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

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

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

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

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

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

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

                                      -17-
<PAGE>   18

7.4, and such amounts shall be paid without deduction, except as required by
law, of any withholding taxes, value-added taxes, or other charges applicable
to such payments.

         7.4. INVOICES; PAYMENTS IN U.S. DOLLARS. With the exception of
milestone payments due under Section 7.1 and royalty payments due under Section
7.2, ArQule shall submit invoices to Monsanto for each payment due ArQule
hereunder (including without limitation all payments due pursuant to Sections
3.1, 3.2.5, and 3.3.2), and Monsanto shall pay such invoices within sixty (60)
days of receipt thereof. All payments due under this Agreement shall, except as
provided in Section 7.5 below, be payable in United States dollars. Conversion
of foreign currency to U.S. dollars shall be made at the conversion rate
existing in the United States (as reported in THE WALL STREET JOURNAL) on the
last working day of the calendar quarter preceding the applicable calendar
quarter. Such payments shall be without deduction of exchange, collection, or
other charges.

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

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

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

                                      -18-
<PAGE>   19

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

         7.9 LATE DELIVERIES. In the event that ArQule makes a late delivery of
Mapping Arrays to Monsanto pursuant to Section 3.2.1 or delivers a Compass Array
Library after the [*] period described in Section 3.2.1, Monsanto may deduct
from the next quarterly installment of the delivery fee set forth in Section
3.2.5 an amount determined by multiplying the amount of such quarterly
installment by an annualized rate equal to [*] above the Base Rate of Interest
calculated based on the number of days that delivery was late.

8.       CONFIDENTIAL INFORMATION.

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

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

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

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

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

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

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

                                      -19-
<PAGE>   20

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

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

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

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

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

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

9.       REPRESENTATIONS AND WARRANTIES.

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

10.      INDEMNIFICATION AND INSURANCE.

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

                                      -20-
<PAGE>   21

right shall not apply to any liability, damage, loss, or expense to the extent
directly attributable to the negligent activities, reckless misconduct, or
intentional misconduct of the Indemnitees.

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

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

11.      TERM AND TERMINATION.

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

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

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

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

                                      -21-
<PAGE>   22

Section 3.2 and 4.1, select Licensed Compounds pursuant to Section 3.2. or to
develop and commercialize ArQule Compounds pursuant to Section 4.2.; (ii)
Monsanto shall immediately return or destroy (with such destruction certified in
writing by an officer of Monsanto) all unused ArQule Compounds in a manner
directed by ArQule; and (iii) ArQule shall have the right to effect reversion of
the Licensed Compounds pursuant to Section 4.4. Notwithstanding the foregoing,
if Monsanto terminates this Agreement pursuant to Section 11.3., then Monsanto
[*].

12.      MISCELLANEOUS.

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

         12.2. PUBLICITY. Except as otherwise expressly provided in this Section
12.2, neither Party shall (i) use the name of the other Party in relation to
this transaction in any public announcement, press release, or other public
document or (ii) originate any written publicity, news release, or other
announcement relating to this Agreement, to performance under this Agreement, or
to the existence of an arrangement between the Parties (collectively, "WRITTEN
DISCLOSURE"), without the prior prompt review and approval of the other Party,
which approval shall not be unreasonably withheld or delayed. Any Party may make
any public Written Disclosure it believes in good faith, based upon the opinion
of its general outside counsel, is required by applicable law or any listing or
trading agreement concerning its publicly traded securities, provided that prior
to making such Written Disclosure, the disclosing Party shall request
confidential treatment of such information pursuant to Rule 406 of the
Securities Act of 1933 or Rule 24b-2 of the Securities Exchange Act of 1934, as
applicable (or any other applicable regulation relating to the confidential
treatment of information) to the extent reasonably practicable and consistent
with any applicable limitations imposed by such regulations. In addition, ArQule
shall provide Monsanto with the relevant portion of its draft Form 10K filing
for 1999, together with the draft exhibit to such Form 10K which sets forth the
the Agreement and the redactions for which ArQule intends to seek confidential
treatment. A Party may also make a Written Disclosure (i) to government
agencies, courts, or other governmental bodies where required by law, so long as
the disclosing Party notifies the other Party prior to the disclosure and seeks
to obtain a protective order to maintain the confidentiality of the information
and (ii) to third parties under an agreement of confidentiality, with the prior
written consent of the other Party, which consent shall not be unreasonably
withheld or delayed. Once a "Written Disclosure" is approved, either Party may
reuse the disclosed information in a materially unaltered form without further
consent or approval. Specifically, each Party may state that the other Party has
entered into this this Agreement after such information has appeared in an
approved Written Disclosure, without the prior consent or approval of the other
Party.

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

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

                                      -22-
<PAGE>   23

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

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

         12.5.    DISPUTE RESOLUTION PROCEDURES.

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

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

                                      -23-
<PAGE>   24

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

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

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

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

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

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

If to Monsanto:                             If to ArQule:

Monsanto Company                            ArQule, Inc.
700 Chesterfield Parkway North              19 Presidential Way
St. Louis, Missouri 63198                   Woburn, MA 01801
Attention: Grace Bonner                     Attention: President
Tel: (314) 694-3165                         Tel: (781) 994-0300
Fax: (314) 694-9009                         Fax: (781) 994-0676

with a copy to:                             with a copy to:

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

                                      -24-
<PAGE>   25

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

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

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

         12.13. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements or understandings between the parties relating
to the subject matter hereof.

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

         12.15.   CHANGE TO MAPPING ARRAY PROGRAM. [*].

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

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

                                      -25-
<PAGE>   26

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

MONSANTO COMPANY                              ARQULE, INC.

By: Phil Needleman                            By:  Stephen A. Hill
   --------------------------------              -------------------------------

Name: Phil Needleman                          Name: Stephen A. Hill
     ------------------------------                -----------------------------

Title: Chief Scientific Officer               Title: CEO
      -----------------------------                 ----------------------------

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