OPTION AGREEMENT

 

                                                                   EXHIBIT 10.17
                                                                   -------------

                                OPTION AGREEMENT

     This Agreement, effective as of March 10, 1995 (the "Effective Date"), is
between ArQule, Inc. ("ArQule"), a Delaware corporation, and Pharmacia Biotech
AB ("Pharmacia"), a Swedish corporation.

                                    RECITALS

     WHEREAS, ArQule has developed certain technology that has applications in
the areas of                                 *

     WHEREAS, Pharmacia has established itself as a leading manufacturer of
products in the areas of                           *

     WHEREAS, Pharmacia desires to evaluate whether the ArQule technology would
contribute to the development of products in these business areas and, if so, to
license the ArQule technology;

     WHEREAS, ArQule desires to give Pharmacia the opportunity to evaluate the
ArQule technology and to license such technology;

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

1. Definitions.
   -----------

     1.1. "ARQULE TECHNOLOGY" shall mean certain technology that is owned or
controlled by ArQule as of the Effective Date, as set forth on EXHIBIT A.

     1.2. "BIOMOLECULES" shall mean amino acids, peptides, proteins, nucleic
acids, (nucleotides, oligonucleotides, polynucleotides), carbohydrates
(monosaccharides, oligosaccarides, polysaccharides), lipids, phospholipids, or
any combination of such molecules, whether produced by natural means or by
organic synthesis in solution or using solid phase technologies.

     1.3. "CHIRAL APPLICATIONS" shall mean 

                                       *

     1.4. "CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section
5.1.1.

     1.5. "DERIVATIVES" shall mean any molecules that are chemical derivatives
or analogues of Biomolecules or Natural Products.

                      * Confidential treatment has been
                        requested for marked portions  

     1.6. "FIELD OF APPLICATIONS" shall mean 

                                       *

     1.7. "FIRST DECISION PERIOD" shall have the meaning set forth in Section
2.2.1.(a).

     1.8. "IMPROVEMENT" shall mean any improvement, change, addition, upgrade,
or modification to the ArQule Technology that ArQule discovers or develops in
the course of research funded by Pharmacia.

     1.9. "LIBRARY APPLICATIONS" shall mean 

                                          *

     1.10. "NATURAL PRODUCTS" shall mean all molecules (other than Biomolecules)
that are the naturally occurring products of biosynthesis in living cells or are
produced by isolated cellular components outside of living cells, whether by
natural means or by organic synthesis in solution or using solid phase
technologies. This definition is intended to include sub-cellular components and
viral particles. Examples of Natural Products are vitamins, steroid hormones,
and various cofactors.

     1.11. "NEGOTIATION PERIOD" shall mean each thirty-day period in which
Pharmacia may (i) negotiate revisions to the Research and Development Agreement,
(ii) pay the appropriate option maintenance fee to retain the right to acquire a
license for a Subfield, or (iii) negotiate and execute a license agreement for a
Subfield.

     1.12. "OPTION PERIOD" shall have the meaning set forth in Section 2.1.

     1.13. "OPTION RIGHT" shall have the meaning set forth in Section 2.1.

                      * Confidential treatment has been
                        requested for marked portions  

                                      - 2 -

     1.14. "PRODUCTS" shall mean products that incorporate or are made through
the use of any ArQule Technology or Improvements.

     1.15. "PROPRIETARY MATERIALS" shall have the meaning set forth in Section
5.2.1.

     1.16. "RESEARCH AND DEVELOPMENT AGREEMENT" shall mean a certain Research
and Development Agreement between the parties, dated as of the Effective Date,
which is attached to this Agreement as EXHIBIT C.

     1.17. "RESERVED FIELD" shall mean certain applications in each Subfield for
which ArQule has reserved rights. The following applications are within the
Reserved Field: Chiral Applications, Library Applications, and Synthesis
Applications. The Reserved Field also includes all applications within the Field
of Applications for internal research at ArQule for the development of products
outside the Field of Applications.

     1.18. "SECOND DECISION PERIOD" shall have the meaning set forth in Section
2.2.1(b).

     1.19. "SUBFIELD I" shall mean 

                                      *

     1.20. "SUBFIELD II" shall mean 

                                      *

     1.21. "SUBFIELD III" shall mean 

                                      *

                      * Confidential treatment has been
                        requested for marked portions  

                                      - 3 -

     1.22. "SUBFIELD IV" shall mean 

                                      *

     1.23. "SYNTHESIS APPLICATIONS" shall mean 

                                      *

2. Grant of Option Rights.
   ----------------------

     2.1. OPTION RIGHTS. Subject to payment of the option fee set forth in
Section 3.1., ArQule hereby grants Pharmacia a first option to acquire the
following rights in respect of each Subfield (the "Option Rights"):

     (i)  an exclusive, worldwide, royalty-bearing license (with the right to
          sublicense) under the ArQule Technology and Improvements to make, have
          made, use, and sell Products in each of Subfields 1 through 4 (as
          applicable), excluding the Reserved Field; and

     (ii) a worldwide license (without the right to sublicense) to use the
          ArQule Technology in the Reserved Field for its own internal research
          for the development of Products in each of Subfields 1 through 4 (as
          applicable).

At the time Pharmacia exercises its Option Right for Subfield 1, Pharmacia shall
have the right to include under such license for Subfield 1 the right to make,
have made, use, and sell Products not in the Reserved Field that are 

                                *
                                                                       At the
time Pharmacia exercises its Option Right for Subfield 3, Pharmacia shall have
the right to include under such license for Subfield 3 the right to make, have
made, use, and sell Products not in the Reserved Field that are 

                                  *

These Option Rights shall become effective on April 1, 1995 and shall remain in
effect for a period of six (6) months (the "Option Period"), subject to
extension in accordance with Section 2.2 below.

                      * Confidential treatment has been
                        requested for marked portions  

                                      -4-

     2.2. Extension of Option Period.
          --------------------------
 
          2.2.1. PHARMACIA ELECTION TO EXTEND. Subject to payment or
waiver of the relevant option maintenance fee in accordance with Section 3.2,
Pharmacia shall have the right to extend the Option Period for the Option Right
applicable to a Subfield for up to three (3) successive six-month periods, as
follows:

               (a) Upon the expiration of the initial six-month Option Period,
Pharmacia shall have a thirty-day period ("First Decision Period") to determine
whether to extend the Option Period for Subfield I. Prior to the expiration of
the First Decision Period, Pharmacia may elect to extend the Option Period for
Subfield I upon written notice to ArQule. If Pharmacia elects to extend the
Option Period for Subfield I, ArQule and Pharmacia may negotiate and implement
appropriate revisions to the Research and Development Agreement during the
thirty-day period immediately following the First Decision Period (a
"Negotiation Period"), and the first six-month extension to the Option Period
shall commence immediately upon the expiration of this Negotiation Period.

               (b) Upon the expiration of the First Decision Period, Pharmacia
shall have a thirty-day period ("Second Decision Period") to determine whether
to extend the Option Period for each of Subfields 2 through 4. Prior to the
expiration of the Second Decision Period, Pharmacia may elect to extend the
Option Period for each of Subfields 2 through 4 upon written notice to ArQule.
If Pharmacia elects to extend the Option Period for any of Subfields 2 through
4, then Pharmacia shall have a period of thirty (30) days immediately following
the Second Decision Period (a "Negotiation Period") in which to pay the
appropriate option maintenance fee or to negotiate and implement appropriate
revisions to the Research and Development Agreement, and the first six-month
extension to the Option Period for those Subfields shall commence immediately
upon the expiration of this Negotiation Period.

               (c) Prior to the expiration of any six-month extension for each
of Subfields 1 through 4, Pharmacia may extend the Option Period for the
relevant Subfield upon written notice to ArQule. If Pharmacia elects to extend
the Option Period for any such Subfield, then Pharmacia shall have a period of
thirty (30) days immediately following the expiration of such six-month
extension (a "Negotiation Period") in which to pay the appropriate option
maintenance fee or to negotiate and implement appropriate revisions to the
Research and Development Agreement, and the next six-month extension to the
Option Period for that Subfield or Subfields shall commence immediately upon the
expiration of this Negotiation Period.

               (d) If Pharmacia has not exercised its Option Right for a
Subfield (as described in Section 2.3), and if Pharmacia (i) fails to notify
ArQule within the prescribed time periods that Pharmacia intends to extend the
Option Period for that Subfield or (ii) fails to make any required payments
within the prescribed time period, then the Option Right for such Subfield shall
lapse upon the expiration of the applicable Option Period and the provisions of
Section 2.4 shall apply.

          2.2.2. AUTOMATIC EXTENSION. The Option Period for every Subfield shall
be automatically extended during the First Decision Period. The Option Period
for Subfields 2 

                                      -5-

through 4 shall be automatically extended during the Second Decision Period. In
addition, the Option Period for each Subfield shall be automatically extended
during any Negotiation Period applicable to that Subfield.

          2.3. EXERCISE OF OPTION. Pharmacia may exercise its Option Rights upon
written notice to ArQule received at any time during the First Decision Period
(for Subfield 1), Second Decision Period (for any of Subfields 2 through 4), or
any six-month extension to an Option Period (for the relevant Subfield). If
Pharmacia elects to exercise its Option Right with respect to a Subfield, the
parties agree to negotiate in good faith a license agreement during the
thirty-day period immediately following the date of notification (a "Negotiation
Period"). The license agreement shall contain commercially reasonable terms,
including the terms set forth on EXHIBIT B. If the parties fail to negotiate and
execute the license agreement within the Negotiation Period, then after a period
of sixty (60) days ArQule shall be free to license the ArQule Technology in the
relevant Subfield to any third party on any terms.

          2.4. EFFECT OF LAPSE.
              
          2.4.1. LOSS OF RIGHTS. Upon the lapse of an Option Right for any
Subfield (as set forth in Section 2.2.1.(d)), Pharmacia shall have no further
right to acquire or maintain any license rights under the ArQule Technology or
Improvements to make, have made, use, or sell Products in such Subfield.

          2.4.2. NON-COMPETITION. If the Option Right for a particular Subfield
lapses for any reason, then ArQule shall be bound by a covenant not to
manufacture, sell, or license a competitive product in such Subfield for a
period of six (6) months from the date upon which such Option Right lapsed.

          2.4.3. OWNERSHIP OF INTELLECTUAL PROPERTY. Pharmacia acknowledges and
agrees that ArQule retains ownership of the ArQule Technology and that ArQule
shall own all rights in any Improvements. Pharmacia further acknowledges and
agrees that no license or conveyance of the ArQule Technology or Improvements is
granted or implied under this Agreement. Any license of ArQule Technology or
Improvements shall be expressly granted in a written agreement in accordance
with the procedures set forth in Section 2.3.

          2.5. FLOW CHART. Set forth on EXHIBIT D is a graphical presentation of
the time periods and events described in this Article 2. In the event of any
conflict or ambiguity between EXHIBIT D and the text of this Article 2, the
textual provisions shall govern.

3. PAYMENTS FOR OPTION RIGHTS.

          3.1. OPTION FEE. In consideration of the Option Rights granted under
Section 2.1, Pharmacia shall pay to ArQule an option fee in the amount of
     *     in immediately available funds within thirty (30) days after the
Effective Date.

          3.2. MAINTENANCE FEES. In consideration of each six-month extension to
the Option Period for a particular Option Right, Pharmacia shall pay to ArQule
option maintenance fees in the 

                      * Confidential treatment has been
                        requested for marked portions  

                                      -6-

following amounts in immediately available funds on or before the expiration
date of the relevant Negotiation Period: Subfield 1 -     *     ; Subfield 2 -
   *     ; Subfield 3 -     *    ; Subfield 4 -   *     . ArQule agrees to waive
such maintenance fee for a particular Subfield if Pharmacia agrees to pay ArQule
at least     *      to conduct research for that Subfield under the Research and
Development Agreement.

4. RESEARCH AND DEVELOPMENT.

     ArQule and Pharmacia have entered into a separate Research and Development
Agreement, attached on EXHIBIT C, under which ArQule agrees to conduct certain
research into applications of the ArQule Technology and Improvements in Subfield
I in exchange for payment of research and development fees by Pharmacia. The
parties intend to amend the Project Plan attached to the Research and
Development Agreement from time to time in order to add other Subfields to the
research program or to revise an ongoing research program.

5. CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS.

         5.1. CONFIDENTIAL INFORMATION.

          5.1.1. DEFINITION OF CONFIDENTIAL INFORMATION. Confidential
Information shall mean any technical or business information furnished by one
party (the "Disclosing Party") to the other party (the "Receiving Party") in
connection with this Agreement or the Research and Development Agreement and
specifically designated as confidential. Such Confidential Information may
include, without limitation, 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.

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

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

               (a) maintain all Confidential Information in strict confidence,
          except that the Receiving Party may disclose or permit the disclosure
          of any Confidential Information to its 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 this Agreement; and

                      * Confidential treatment has been
                        requested for marked portions

                                      -7-

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

          5.1.4. EXCEPTIONS. The obligations of the Receiving Party under
Section 5.1.2. above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:

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

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

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

               (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 with
          respect to such Confidential Information; or

               (e) is required to be disclosed to comply with applicable laws or
          regulations, or 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.

     5.2. PROPRIETARY MATERIALS.

          5.2.1. DEFINITION OF PROPRIETARY MATERIALS. "Proprietary Materials"
shall mean any tangible chemical, biological, or physical research materials
that are furnished by one party (the "Transferring Party") to the other party
(the "Receiving Party") in connection with this Agreement or the Research and
Development Agreement regardless of whether such materials are specifically
designated as proprietary to the Transferring Party. The Transferring Party
shall furnish such Proprietary Materials to the Receiving Party in a mutually
acceptable form, including appropriate labelling and packaging.

          5.2.2. LIMITED USE. The Receiving Party shall use Proprietary
Materials solely for the purposes set forth in this Agreement and the Research
and Development Agreement. The Receiving Party shall use the Proprietary
Materials only in compliance with all applicable governmental laws and
regulations, and not for any IN VIVO experiments on human subjects.

                                      -8-

          5.2.3. LIMITED DISPOSITION. The Receiving Party shall not transfer or
distribute any Proprietary Materials to any third party without the prior
written consent of the Transferring Party.

     5.3. RETURN OF CONFIDENTIAL INFORMATION AND PROPRIETARY MATERIALS. Upon the
termination of this Agreement, at the request of the Disclosing Party the
Receiving Party shall return to the Disclosing Party all originals, copies, and
summaries of documents, materials, and other tangible manifestations of
Confidential Information in the possession or control of the Receiving Party,
except that the Receiving Party may retain one copy of the Confidential
Information in the possession of its legal counsel solely for the purpose of
monitoring its obligations under this Agreement. Upon the termination of this
Agreement, the Receiving Party shall at the instruction of the Transferring
Party either destroy or return any unused Proprietary Materials.

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

6. TERMINATION.

     This Agreement shall commence on the Effective Date and shall terminate on
the date upon which the all Option Rights have either lapsed or been exercised
as provided in this Agreement. The following provisions shall survive
termination of this Agreement: Articles 1 and 5; Sections 2.3, 7.1, and 7.2.

7. MISCELLANEOUS.

     7.1. GOVERNING LAW. The License Agreement shall be governed by and
construed in accordance with the laws of the State of New York irrespective of
any conflicts of law principles.

     7.2. DISPUTE RESOLUTION. Any disputes between the parties that arise under
or relate to this Agreement shall be resolved in accordance with the following
procedures. The parties shall first attempt in good faith to resolve the matter
among themselves. If the matter remains unresolved after a period of thirty (30)
days, the dispute shall be referred to a member of senior management from each
party. If the matter remains unresolved after an additional thirty-day period,
the dispute shall be finally settled by binding arbitration in London, England
under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. In case of a dispute which cannot be resolved by good faith
negotiations, ArQule shall also have the right to apply with a court of
competent jurisdiction to enjoin Pharmacia from further use of the ArQule
Technology and Improvements. Notwithstanding any of the foregoing, Pharmacia
does not waive any right to contest such application and to argue that the
requisite criteria that would allow the court to issue an injunction do not
exist.

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

                                      -9-

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

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

     7.6. ASSIGNMENT. This Agreement may not be assigned by either party without
the prior written consent of the other party, except that ArQule may assign this
Agreement to a successor in connection with the merger, consolidation, or sale
of all or substantially all of its assets or that portion of its business
pertaining to the subject matter of this Agreement.

     7.7. NOTICES. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have 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 Pharmacia:                        If to ArQule:

Pharmacia Biotech AB                    ArQule, Inc.
S-751 82 Uppsala                        200 Boston Avenue, Suite 3600
Sweden                                  Medford, Massachusetts  02155
Attention: Johan von Heijne             Attention: President

Tel: 46 1816 5700                       Tel: (617) 395-4100
Fax: 46 1816 6409                       Fax: (617) 395-1225

                                     - 10 -

With a copy to:                         With a copy to:

Ulf Lundberg                            Palmer & Dodge
General Counsel                         One Beacon Street
Pharmacia Biotech AB                    Boston, Massachusetts  02108
S-751 82 Uppsala                        USA
Sweden                                  Attention:  Michael Lytton, Esq.

Tel: 46 1816 3000                       Tel: (617) 573-0327
Fax: 46 1816 6301                       Fax: (617) 227-4420

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

     7.8. 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.

     7.9. 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.

     7.10. ENTIRE AGREEMENT. Except for the Research and Development 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.

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

ARQULE, INC.                                 PHARMACIA BIOTECH AB

By: /s/                                      By: /s/
   -------------------------------------        -------------------------------
   Seth L. Harrison                             Arne Forsell
   President and Chief Executive Officer        President

                                             By: /s/
                                                -------------------------------
                                                  Bengt Belfrage

                                     - 11 -

                                                  Executive Vice President

                                     - 12 -

                                   EXHIBIT A

                               ARQULE TECHNOLOGY*
                               -----------------

                       * Confidential treatment has been
                         requested for marked portions

                                    EXHIBIT B

                       CERTAIN TERMS OF LICENSE AGREEMENT
                       ----------------------------------

1.   Payments.

     Under the License Agreement, Pharmacia shall pay to ArQule,

     (a)  License fee payments for each Subfield in the following amounts:
          Subfield 1 -     *     Subfield 2 -   *    ; Subfield 3 -     *
          and Subfield 4 -     *     with such payments due and payable within
          immediately available funds.

     (b)  Running royalties of  *   percent   *   payable on a quarterly basis
          and based on Pharmacia's net sales in arm's length transactions (to be
          defined in the License Agreement) of Products. If a Product is sold in
          combination with, or as a component of, other products not
          incorporating the ArQule Technology or Improvements, net sales for
          purposes of determining royalties shall be calculated by multiplying
          the net sales from the combined product by the fractions A/B, where A
          is the most recently available average sales price of the product
          incorporating such ArQule Technology or Improvements sold separately,
          and B is the most recently available average sales price of the
          combined product. If a Product is not sold separately, the net sales
          for purposes of calculating royalties shall be reasonably determined
          by agreement of ArQule and Pharmacia prior to the sale of such
          combined product. The parties further agree that the royalty on 

                                         *

                                  Further, the parties agree that from time
          to time during the course of the collaboration, applications may be
          developed with a truly unusual level of benefit in the Field of
          Applications ("Innovative Result(s)"). A collaboration steering
          committee formed by the two parties must in good faith determine
          unanimously that the result is an Innovative Result. In these cases,
          both parties will enter into good faith negotiations to determine the
          appropriate royalty level prior to a Product launch incorporating the
          Innovative Result. During such negotiations, both parties shall take
          into account all factors associated with the development of the
          Innovative Result, provided that in no case shall the royalty
          negotiated for such Innovative Result be less than  *   percent   *
          As a guideline, the following example is offered of a result of the
          collaboration which would not likely be an Innovative Result: 
               *           Also, the following example is offered of a result of
          the collaboration which could be an Innovative Result: 
                                        *

                      * Confidential treatment has been
                        requested for marked portions  



     (c)  Minimum royalties payable in equal quarterly increments based upon the
          annual amounts set forth below for Subfields 1 through 4. For a
          Subfield, the first quarterly minimum royalty payment shall be due on
          or before March 31 of the third calendar year commencing after the end
          of the calendar year in which the License Agreement applicable to such
          Subfield has been executed and the "R&D Fee" is no longer being paid
          by Pharmacia for such Subfield.

Year ---- 1 2 3 4+ --- --- --- --- Subfield 1 * Subfield 2 * Subfield 3 * Subfield 4 *
(d) Milestone payments related to the level of Pharmacia's sales of Products shall be payable upon reaching a sales level of (i) * (ii) * (iii) * 2. Accounting and Payment. Pharmacia shall account for and pay all of the royalties having accrued within thirty (30) days of each calendar quarter during the term of the License Agreement; milestone payments shall be paid within thirty (30) days of the end of each calendar year. 3. Transfer of Know-How. The License Agreement shall provide for a mechanism for the transfer of know-how between the parties. * Confidential treatment has been requested for marked portions 4. Improvements. ArQule shall own all improvements made by either party to the ArQule Technology and Pharmacia shall own all improvements made by either party to Pharmacia's background technology. Pharmacia shall have the exclusive right to exploit such improvements within the Subfields for which it has acquired a License. ArQule shall be permitted to exploit on a non-exclusive basis improvements to Pharmacia's background technology, including for the development of and incorporation into systems and other assets which ArQule may use for the development of internal programs and service businesses outside the Subfields for which Pharmacia has acquired a License. In the event that improvements to Pharmacia's background technology are physically incorporated into a product by ArQule, then ArQule and Pharmacia shall negotiate in good faith a royalty to be paid to Pharmacia on ArQule's net sales of such product. Further, Pharmacia shall, subject to reciprocity, grant to ArQule the right to grant non-exclusive rights to ArQule's other licensees to use improvements to Pharmacia's background technology. 5. Term and Termination. The term of the License Agreement shall be until the later of (i) ten years after the first commercial sale of a product incorporating or produced through use of a patented ArQule Technology or Improvements or (ii) for the life of the patents on ArQule Technology or Improvements which may issue from the patent applications now filed or hereafter to be filed, subject to earlier termination in the event of breach and other customary events. 6. Law and Disputes The License Agreement shall be governed and construed in accordance with the laws of the State of New York and disputes, if any, shall be first attempted to be settled by members of management of each party and in the event that such approach is not successful, shall be finally settled by arbitration in London, England under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. In case of a dispute which cannot be resolved by good faith negotiations, ArQule shall also have the right to apply with a court of competent jurisdiction to enjoin Pharmacia from further use of the ArQule Technology and Improvements. Notwithstanding any of the foregoing, Pharmacia does not waive any right to contest such application and to argue that the requisite criteria that would allow the court to issue an injunction do not exist. EXHIBIT C RESEARCH AND DEVELOPMENT AGREEMENT ---------------------------------- See Exhibit 10.16 of the Registrant's Registration Statement. EXHIBIT D FLOW CHART ---------- * Confidential treatment has been requested for marked portions February 13, 1996 BY FACSIMILE - 011-46 18 166301 - ------------------------------- Mr. Ulf Lundberg General Counsel Pharmacia Biotech AB Bjorkgatan 30 D-751 82 Uppsala, Sweden Re: Amendment to Option Agreement and Research Agreement ---------------------------------------------------- Dear Mr. Lundberg: Reference is hereby made to the Option Agreement (the "Option Agreement") and the Research and Development Agreement (the "Research Agreement"), both effective as of March 10, 1995, by and between ArQule, Inc. ("ArQule") and Pharmacia Biotech AB ("Pharmacia"). In consideration of the mutual covenants and agreements hereinafter set forth and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the undersigned hereby acknowledge and agree as follows: I. In accordance with Section 2.2.1 of the Option Agreement, Pharmacia hereby confirms to ArQule (i) that it has elected not to extend the Option Period for its Option Right for Subfields II, III and IV (as such capitalized terms are defined in the Option Agreement) in accordance with Section 2.2.1(b) of the Option Agreement and (ii) that it has elected to extend the Option Period for its Option Rights for Subfield I through August 15, 1996 in accordance with Section 2.2.1(a) of the Option Agreement. 1. The Project Plan is hereby amended by replacing the initial Research Project (as such capitalized terms are defined in the Research Agreement) entitled "Research Plan for Ligand Design Project" attached as Enclosure 3 to the Research Agreement with the Research Project entitled "Research Plan for the Second Ligand Design Project", a copy of which is attached hereto (as so amended, the "Amended Research Project"), for the period commencing on February 15, 1996 and continuing until August 15, 1996. The parties agree that the Amended Research Project has been approved by the Research Committee, as required under Section 2.2 of the Research Agreement. Pharmacia biotech February 13, 1996 Page 2 2. In consideration of the research to be conducted by ArQule as provided in the Amended Research Project, Pharmacia hereby agrees to pay ArQule * payable on or before March 12, 1996. Except as otherwise expressly amended by this letter agreement, each of the terms, conditions and provisions of the Option Agreement and the Research Agreement shall remain in full force and effect. This letter agreement may be signed in one or more counterparts, each of which when taken together shall constitute one and the same instrument. Very truly yours, ARQULE, INC. By:/s/ -------------------------------- Eric B. Gordon President and Chief Executive Officer Agreed to and Accepted this 19th day of February, 1996 PHARMACIA BIOTECH AB By: /s/ Ulf Lundberg ------------------------------ * Confidential treatment has been requested for marked portions

Basic Info X:

Name: OPTION AGREEMENT
Type: Option Agreement
Date: Aug. 29, 1996
Company: ARQULE INC
State: Delaware

Other info:

Date:

  • April 1 , 1995
  • March 31
  • 011-46 18
  • March 10 , 1995
  • February 15 , 1996
  • August 15 , 1996
  • February 13 , 1996
  • March 12 , 1996
  • 19th day of February , 1996

Organization:

  • Field of Applications
  • Second Decision Period
  • First Decision Period
  • Disclosing Party the Receiving Party
  • Pharmacia Biotech AB ArQule , Inc.
  • Ulf Lundberg Palmer & Dodge General Counsel One Beacon Street Pharmacia Biotech AB Boston
  • INC. PHARMACIA BIOTECH AB
  • Rules of Conciliation and Arbitration of the International Chamber of Commerce
  • ArQule Technology and Improvements
  • the Research and Development Agreement
  • the Research Committee
  • Amended Research Project

Location:

  • Delaware
  • Boston Avenue
  • Sweden Medford
  • Massachusetts
  • Uppsala USA Sweden
  • Esq
  • Pharmacia
  • New York
  • London
  • England

Person:

  • Johan von Heijne
  • Michael Lytton
  • Seth L. Harrison Arne Forsell
  • Bengt Belfrage
  • Eric B. Gordon President
  • Ulf Lundberg

Percent:

  • * percent