<PAGE>
EXHIBIT 10.16
RESEARCH AND DEVELOPMENT AGREEMENT
BETWEEN
SANKYO CO., LTD
and
ARQULE, INC.
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EXHIBIT 10.16
Table of Contents
1.
Definitions
1.1.
"Active Homolog"
1.2.
"Active ArQule Compound"
1.3.
"Active Compound"
1.4.
"Active Sankyo Compound"
1.5.
"Affiliate"
1.6.
"Agreement"
1.7.
"ArQule Compound"
1.8. "ArQule Derivative
Compound"
1.9.
"ArQule Patent Rights"
1,10.
"ArQule Technology"
1.11.
"Array"
1.12.
"Base Rate of Interest"
1.13.
"Chemical Theme"
1.14.
"Confidential Information"
1.15.
"Contract Year"
1.16.
"Derivative Compound"
1.17.
"Directed Array (tm)"
1.18.
"Directed Array (tm) Program"
1.19.
"Disclosing Party"
1.20.
"Effective Date"
1.21.
"Extraordinary Expenses"
1.22.
"FDA"
1.23.
"Joint Patent Rights"
1.24.
"Licensed Compound"
1.25.
"Licensed Compound Set"
1.26.
"Mapping Array (tm)"
1.27.
"Mapping Array (tm) Program"
1.28. "Net
Sales"
1.29. "Net
Sales Price"
1.30.
"Party"
1.31.
"Patent Rights"
1.32.
"Phase I Clinical Trials"
1.33.
"Phase II Clinical Trials"
1.34.
"Phase III Clinical Trials"
1.35.
"Preclinical Compound"
1.36.
"Preclinical Development"
1.37.
"Receiving Party"
1.38.
"Research Period"
1.39.
"Research Program"
1.40.
"Research Plan"
1.41.
"Royalty-Bearing Product"
1.42.
"Royalty Period"
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EXHIBIT 10.16
1.42.
"Sankyo Compound"
1.44.
"Sankyo Derivative Compound
1.45.
"Sankyo Patent Rights"
1.46.
"Steering Committee
1.47.
"Sublicensee"
1.48.
"Target"
1.49.
"U.S. Territory"
1.50
"Valid Claim"
1.51
"Worldwide Territory `
2.
Management of Research Program
2.1.
Composition of Steering Committee
2.2.
Duties of the Steering Committee
2.3.
Compounds Excluded from the Directed Array (tm) Program
2.4.
Meetings of the Steering Committee
2.5.
Cooperation
2.6.
Visits to Facilities
3.
Mapping Array" (tm) Program
3.1.
Conduct of Mapping Array (tm) Program
3.2.
Mutual Disclosure
3.3.
Reservation of Active ArQule Compounds
3.4.
Mapping Array (tm) Program Payments
3.5.
Term of Mapping Array (tm) Program
3.6.
Performance of Mapping Array (tm) Program
4.
Directed Array (tm) Program
4.1.
Description of Directed Array (tm) Program
4.2.
Conduct of Directed Array (tm) Program
4.3.
Directed Array (tm) Program Payments
4.3.1. Delivery
Fee
4.3.2.
Expenses
4.4.
Term of Directed Array (tm) Program
5.
License Grants: Reversion of Rights
5.1.
Screening Licenses
5.2.
Preclinical and Clinical Licenses
5.3.
Commercialization License
5.4.
Reversion of Rights: Return of Materials
6.
Ownership of Compounds
6.1.
Sankyo Compounds; Sankyo Derivative Compounds
6.2.
ArQule Compounds: ArQule Derivative Compounds
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EXHIBIT 10.16
7.
Intellectual Property Rights
7.1.
Ownership of Patent Rights
7.2.
Management of Joint Patent Rights
7.3.
Cooperation of the Parties
7.4.
Infringement by Third Parties
8.
Payments, Reports, and Records
8.1.
Milestone Payments
8.2.
Alternative to Milestone Payments
8.3.
Royalties
8.4.
Reports and Payments
8.5.
Invoices: Payments in U.S. Dollars
8.6.
Payments in Other Currencies
8.7.
Records
8.8.
Late Payments
8,9.
Withholding Tax Payments
8.9.1. Payments
8.9.2. Royalty Payments
9.
Confidential Information
9.1.
Definition of Confidential Information
9.2.
Definition of Confidential Information
9.3.
Obligations
9.4.
Exceptions
9.5.
Return of Confidential Information
9.6.
Survival of Obligations
10.
Representations and Warranties
10.1.
Authorization
11.
Indemnifications and Insurance
11.1.
Sankyo Indemnity Obligations
11.2.
Procedure
11.3.
Insurance
12. Term and
Termination
12.1.
Term
12.2.
Breach of Payment Obligations
12.3.
Material Breach
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EXHIBIT 10.16
12.4.
Effect of Termination
13.
Miscellaneous
13.1
Relationship of Parties
13.2.
Publicity
13.3.
Non-Solicitation
13.4.
Governing Law
13.5.
Dispute Resolution Procedures
13.6.
Counterparts
13.7.
Headings
13.3.
Binding Effect
13.9.
Assignment
13.10.
Notices
13.11. Amendment
and Waiver
13.12.
Severability
13.13. Entire
Agreement
13.14. Force
Majeure
EXHIBIT A
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EXHIBIT 10.16
RESEARCH AND DEVELOPMENT AGREEMENT
This Agreement, dated as of November 1, 1997, is between Sankyo
Co.,
LTD ("Sankyo"),
a Japanese corporation, having a business address at 5-1,
Nihonbashi
Honcho 3-chome, Chuo-ku Tokyo 103, Japan, and ArQule, Inc.
("ArQule"), a Delaware
corporation, having a business address at 200 Boston
Avenue, Medford,
Massachusetts, U.S.A.
RECITALS
WHEREAS, ArQule has developed certain technology that has
applications
in the discovery
and development of pharmaceutical compounds;
WHEREAS, Sankyo desires that ArQule apply its technologies to
the
research and
development of pharmaceutical compounds for Sankyo; and
WHEREAS, in exchange for payment by Sankyo of research funds,
milestone
payments and
royalties, ArQule is willing to perform certain research and
development
activities for Sankyo, 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.
1.1.
"Active Homologs" shall mean any ArQule Derivative Compound or
Sankyo Derivative Compound that exhibits
substantial homology with an Active
Compound as determined by the Steering
Committee.
1.2.
`Active ArQule Compound" shall mean any ArQule Compound or
ArQule Derivative Compound which exhibits
confirmed significant functional
activity against a Target. The Steering
Committee shall establish the criteria
for "significant functional activity" at
the time of selection of each Target.
1.3.
"Active Compound" shall mean any Active ArQule Compound or
Active Sankyo Compound.
1.4.
"Active Sankyo Compound" shall mean any Sankyo Compound or
Sankyo Derivative Compound which exhibits
confirmed significant functional
activity against a Target. The Steering
Committee shall establish the criteria
for "significant functional activity" at
the time of selection of each Target.
1.5.
"Affiliate" shall mean a corporation or other legal entity
that controls, is
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EXHIBIT 10.16
controlled by, or is under common control
with such Party. For purposes of this
definition, "control" means the ownership,
directly or indirectly, of 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
1.6. "Agreement" shall mean this Research and Development
Agreement,
together with Exhibit A hereto.
1.7.
"ArQule Compound" shall mean any organic chemical molecule
that is synthesized by ArQule using its
proprietary technology and provided by
ArQule to Sankyo under the Mapping Array
(tm) Program.
1.8.
"ArQule Derivative Compound" shall mean a Derivative Compound
synthesized by ArQule from an ArQule
Compound under the Directed Array (tm)
Program described in Section 4.
1.9.
"ArQule Patent Rights" shall mean Patent Rights controlled or
owned by ArQule as of the Effective Date or
during the Research Period; 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.
1.10.
"ArQule Technology" shall mean all information and data which
is owned by ArQule or licensed by third
parties to ArQule prior to or during the
Research Program and is necessary or useful
to conduct the screening to discover
Active ArQule Compounds and Active Homologs
thereto or to develop, make, use,
sell or seek regulatory approval in any
country to market a product containing a
Licensed Compound; all to the extent and
only to the extent that ArQule now Las
or hereafter will have the right to grant
licenses, immunities or other rights
thereunder.
1.11.
"Array" shall mean a set of samples of structurally related
chemical compounds arranged in a format
such as a microtiter screening plate.
1.12.
"Base Rate of Interest" shall mean the base rate of interest
declared from time to time by the Bank of
Boston.
1.13. "Chemical Theme" shall
mean the chemical or structural
characteristics shared by a group of
compounds as determined by the Steering
Committee pursuant to Section 2,2.
1.14.
"Confidential Information" shall have the meaning set forth in
Section 9.1.
1.15.
"Contract Year" shall mean each twelve (12) month period of
the Research Period, commencing on the
Effective Date.
1.16.
"Derivative Compound" shall mean a chemical compound
structurally derived in
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EXHIBIT 10.16
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. 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.
1.17.
"Directed Array (tm) shall mean an Array comprised of ArQule
Derivative Compounds synthesized by ArQule
under the Directed Array (tm) Program
described in Section 4.
1.18.
"Directed Array (tm) Program" shall mean a Directed Array (tm)
Program conducted by ArQule as set forth in
Section 4, with each Directed Array
(tm) Program consisting of multiple Arrays
derived from one (1) Sankyo Compound
or one (1) Active ArQule Compound.
1.19.
"Disclosing Party" shall mean that Party disclosing
Confidential Information to the other Party
under Section 9.
1.20,
"Effective Date" shall mean the first business day of the
month immediately following the date of
execution of this Agreement by the
Parties hereto.
1.21. "Extraordinary
Expenses" shall mean those expenses incurred
from time to time by ArQule in connection
with the Directed Array (tm) Program
which are not (a) direct, out-of-pocket
costs provided for in the Research Plan
which are directly attributable to the
Directed Array (tm) Program or (b) fixed
overhead costs provided for in the Research
Plan which are allocable to the
Directed Array (tm) Program.
1.22.
"FDA" shall mean the United States Food and Drug
Administration (or its foreign equivalent
in Japan or Europe).
1.23.
"Joint Patent Rights" shall mean any Patent Rights that are
jointly owned by the Parties, as set forth
in Section 7.1(b).
1.24.
"License Compound" shall mean any Active Compound or Active
Homolog thereto with respect to which the
Steering Committee has designated in
accordance with Sections 2.2 and 3.2.
1.25.
"Licensed Compound Set" shall mean, with respect to a Licensed
Compound, such Licensed Compound and any
Active Homolog thereto.
1.26.
"Mapping Array (tm) " shall mean an Array of ArQule Compounds
synthesized by ArQule under the Mapping
Array (tm) Program set forth in
Section 3.
1.27.
"Mapping Array (tm) Program" shall mean the Mapping Array (tm)
component of the Research Program as set
forth in Section 3.
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EXHIBIT 10.16
1.28. "Net Sales" shall mean the aggregate Net Sales Price of
Royalty-Bearing Products in any Royalty
Period.
1.29. "Net Sales Price" shall mean the gross amount received on
sales by Sankyo, its Affiliates and
Sublicensees of Royalty-Bearing Products,
less the following; (i) trade, quantity,
and cash discounts or rebates actually
allowed, (ii) credits or allowances given
for rejections or returns, and (iii)
freight, shipping, or other costs of
transportation charged to a customer. In
any transfers of Royalty-Bearing Products
between Sankyo and an Affiliate, the
Net Sales Price shall be calculated based
on the final sale of the
Royalty-Bearing Product to an independent
third party. In the event that Sankyo
receives non-monetary consideration for any
Royalty-Bearing Products, the Net
Sales Price shall be calculated based on
the average price charged by Sankyo for
such Royalty-Bearing Products during the
preceding Royalty Period.
1.30.
"Party" means ArQule or Sankyo or their respective Affiliates;
"Parties" means ArQule and Sankyo and theft
respective Affiliates,
1.31.
"Patent Rights" shall mean all rights arising under issued
patents and reissues, reexaminations,
extensions and supplementary protection
certificates thereof and all patent
applications and any divisions,
continuations, or continuations-in-part
thereof or patents issuing thereon,
1.32,
"Phase I Clinical Trials" shall mean clinical trials in
healthy adults and/or in a small number of
patients commencing upon the filing
of a trial protocol with the appropriate
regulatory body and designed to
determine the metabolism and pharmacologic
actions of a product in humans, the
side effects associated with increasing
doses and to gather evidence on
effectiveness and meeting the requirements
established by the FDA or by the
equivalent Japanese agency for Phase I
clinical trials, The completion of the
Phase I Clinical Trials will be deemed to
have occurred upon the first formal
internal issuance of trial results as
measured by trial objectives, or in any
event no later than the commencement of the
Phase II Clinical Trials.
1.33.
"Phase II Clinical Trials" shall mean clinical trials in a
small sample of the intended patient
population commencing upon the filing of a
trial protocol with the appropriate
regulatory body and designed to assess the
efficacy for a specific indication of a
compound proposed to be used as a
therapeutic or diagnostic pharmaceutical
product, to determine dose tolerance
arid 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 or the equivalent
Japanese agency for Phase H clinical
trials. The completion of the Phase II
Clinical Trials will be deemed to have
occurred upon the first formal internal
issuance of trial results as measured by
trial objectives, or in any event no later
than the commencement of the Phase UI
Clinical Trials.
<PAGE>
EXHIBIT 10.16
1.34.
"Phase III Clinical Trials" shall mean clinical trials
commencing upon the filing of a trial
protocol with the appropriate regulatory
body and designed to demonstrate safety and
efficacy of a compound proposed to
be used as a prophylactic, therapeutic or
diagnostic pharmaceutical product in
an expanded patient population at
geographically dispersed study sites, meeting
the requirements established by the FDA or
the equivalent Japanese agency for
Phase In clinical trials. The completion of
the Phase Ill Clinical Trials will
be deemed to have occurred upon the first
formal internal issuance of trial
results as measured by trial objectives, or
in any event no later than the
filing of an NDA.
1.35.
"Preclinical Compound" shall mean any Licensed Compound
selected by Sankyo or an Affiliate of
Sankyo to enter into Preclinical
Development.
1.36.
"Preclinical Development" shall mean, with respect to any
Preclinical Compound, the commencement of
potency and efficacy testing in animal
models,
1.37.
"Receiving Party" mean that Party receiving Confidential
Information under Section 9.1,
1.38.
"Research Period" shall mean the period during which the
Research Program remains in effect. The
duration of the Research Period shall be
a minimum of three (3) years, unless
extended by the mutual agreement of the
Parties.
1.39.
"Research Program" shall mean, collectively, each of the
Directed Array (tm) Programs and the
Mapping Array (tm) Program.
1.40.
"Research Plan" shall mean a plan of research for the Directed
Array (tm) Program covering a minimum of a
six-month period, which shall be
updated quarterly pursuant to Section 2.2
to reflect developments during the
previous three (3) months and extended for
the subsequent three (3) months. The
parties will begin development of the
initial Research Plan by December 31,
1997. The parties will complete the
Research Plan for the first Directed Array
(tm) Program by January 31, 1998 and will
complete the Research Plan for the
second Directed Array (tm) Program by March
31, 1998. The completed Research
Plan will be attached to this Agreement as
& Exhibit A
1.41.
"Royalty Bearing Product" shall mean a product containing as
one of its constituents (a) any Active
ArQule Compound; (b) any ArQule
Derivative Compound; (c) any Sankyo
Derivative Compound; or (d) any other
Derivative Compound discovered or designed
by Sankyo from any ArQule Compound,
ArQule Derivative Compound or Sankyo
Derivative Compound, or otherwise as a
result of information provided by ArQule to
Sankyo under the Mapping Array (tm)
Program described in Section 3, or the
Directed Array (tm) Program described in
Section 4 developed.
1.42.
"Royalty Period" shall mean, with respect to each
Royalty-Bearing Product, every calendar
quarter, or partial calendar quarter,
commencing with the first commercial sale
of
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EXHIBIT 10.16
such Royalty-Bearing Product in any country
and ending on the later to occur of
(i) the end of the quarter during which all
Valid Claims of all Patent Rights
covering such Royalty-Bearing Product
expire in the applicable country, or (ii)
ten (10) years after such first commercial
sale in the applicable country.
1.43.
"Sankyo
Compound" shall mean any chemical compound provided by
Sankyo or its Affiliates to ArQule under
the Directed Array (tm) Program
described in Section 4.
1.44.
"Sankyo Derivative Compound" shall mean a Derivative Compound
synthesized by ArQule from a Sankyo
Compound under the Directed Array (tm)
Program describe in Section 4.
1.45.
"Sankyo Patent Rights" shall mean Patent Rights controlled or
owned by Sankyo as of the Effective Date or
during the Research Period; all to
the extent and only to the extent that
Sankyo now has or hereafter will have the
right to grant licenses, immunities or
other rights thereunder.
1.46,
"Steering Committee" shall have the meaning set forth in
Section 2.1.
1.47.
"Sublicensee" shall mean any non-Affiliate third party
licensed by Sankyo to make, use (except
where the right to use accompanies the
sale of any Royalty-Bearing Product by
Sankyo or its Affiliates or Sublicensees)
or sell any Royalty-Bearing Product.
1.48.
"Target" shall mean any biological target selected by
Sankyo for which Sankyo has certain
proprietary technology and/or expertise.
1.49.
"U.S. Territory" shall mean the fifty states comprising the
United States of America and all American
possessions.
1.50.
"Valid Claim" shall mean either (a) a claim of an issued
patent that has not been held unenforceable
or invalid by an agency or a court
of competent jurisdiction in any
unappealable or unappealed decision or (b) a
claim of a pending patent application that
has not been abandoned or finally
rejected without the possibility of appeal
or refiling.
1.51.
"Worldwide Territory" shall mean the world excluding the U.S.
Territory.
1.52. The
above definitions are intended to encompass the defined
terms in both the singular and plural
tenses.
2.
Management of Research Program,
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EXHIBIT 10.16
2.1.
Composition of Steering Committee. The Parties hereby
establish a Steering Committee comprised of
six (6) members, with three (3)
representatives appointed by each Party.
The initial members of the Steering
Committee shall be as follows:
Sankyo Representative
Douglas Burdi, Ph.D.
Dayid L Coffen, Ph.D.
Kaplan, Ph.D.
A Party may change one or more of its
representatives to the Steering 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 Steering Committee. The Steering Committee shall
direct and administer the Research Program.
With respect to each Directed Array
(tm) Program, the Steering Committee shall
specifically determine the following:
(i) the appropriate objectives of each
Chemical Theme and/or Active Compound to
be submitted to the Directed Array (tm)
Program; (ii) the appropriate number and
type of Chemical Themes to be submitted to
the Directed Array (tm) Program,
subject to ArQule's right to exclude
certain compounds as set forth in Section
2.3 below; (iii) the appropriate number of
compounds that ArQule should generate
in a Directed Array (tm) for a particular
Chemical Theme; and (iv) the
appropriate amount of each compound in a
Directed Array (tm) that ArQule should
deliver to Sankyo for further research and
development. The scope of each
Chemical Theme will be determined on the
basis of the following criteria: (i)
the specific reaction or reaction sequence
used to combine members of two or
more discrete chemical units in which each
chemical unit bears the functional
group(s) required for the specific
reaction(s) that result in the combination of
the chemical units; and (ii) the extent to
which a class of compounds is related
by a recurring structural motif associated
with a particular biological
activity. In addition, the Steering
Committee shall (i) determine whether any
Active Compound should be designated as a
Licensed Compound; (ii) determine and
update the list of Licensed Compounds;
(iii) determine the allocation of the
funding and personnel resources to be
contributed by ArQule under this
Agreement; (iv) revise and extend the
Research Plan each calendar quarter for
the subsequent six (6) months based on
prior developments; and (v) resolve
matters involving scientific questions.
2.3.
Compounds Excluded from the Directed Array (tm) Program.
ArQule shall have the right, at the time
Sankyo seeks to include any Active
ArQule Compound or Active Homolog thereto
in any Directed Array (tm) Program, to
exclude from such Directed Array (tm)
Program any Active ArQule Compound or
Active Homolog thereto that is at that time
either (I) included within a
Directed Array (tm) Program for a third
party(1) (ii) being optimized by a third
party from a Mapping Array (tm) Program,
(iii) previously licensed or reserved
by a third party, or (iv) is
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EXHIBIT 10.16
included within an existing ArQule internal
development program.
2.4.
Meetings of the Steering Committee. The Steering Committee
shall communicate regularly, but in no
event less than monthly, via written
project status reports through written
communications means, including, without
limitation, electronic mail. A member of
the committee from each Party will
promptly respond to such communications
where appropriate within seven (7) days
of its receipt by such member, In the event
that questions or issues arise from
such written communications that cannot be,
or are not being effectively
addressed by such written communications,
or upon request by any member of the
Steering Committee, the Steering Committee
shall promptly conduct one or more
telephone conferences to address such
questions or issues and shall prepare and
deliver to each Party a brief written
report describing the significant issues
and discussions that take place during such
telephone conference(s). A
representative of the Steering Committee
jointly appointed by its members shall
provide each member with five (5) business
days notice of the time of any such
telephone conferences and the proposed
agenda with respect thereto, unless
waived by all members. The Steering
Committee shall meet at least once each
quarter at the facilities of ArQule, or at
such other times and locations as the
Steering Committee determines. A
representative of the Steering 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 Steering 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 Steering Committee will
require the unanimous consent of all of
its members. If the Steering Committee
fails to reach agreement upon any matter,
the dispute will be resolved in accordance
with the procedures set forth in
Section 13.5 below. Within ten (10) days
following each quarterly meeting of the
Steering Committee, the Steering Committee
shall prepare and deliver, to both
Parties, a written report describing the
decisions made, conclusions and actions
agreed upon.
2.5.
Cooperation. Each Party agrees to provide the Steering
Committee with information and
documentation as reasonably required for the
Steering 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 Steering Committee, The
Parties anticipate that members of the
Steering Committee will communicate
informally with each other and with
employees and consultants of the Parties on
matters relating to the Directed
Array (tm) Program.
2.6.
Visits to Facilities. Members of the Steering Committee shall
have reasonable access to the facilities of
each Party where activities under
this Agreement are in progress, but only
during normal business hours and with
reasonable prior notice. Each Party shall
bear its own expenses in connection
with such site visits.
3.
Mapping Array (tm) Program.
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EXHIBIT 10.16
3.1,
Conduct of Mapping Array (tm) Program. ArQule will supply
Sankyo with Mapping Arrays (tm) containing
approximately one (1) milligram each
of approximately 100,000 different ArQule
Compounds during the first Contract
Year- selected by ArQule from the 1996 and
1997 Mapping Arrays (tm) of
approximately 200,000 different ArQule
Compounds (which includes approximately
100,000 ArQule Compounds from ArQule's 1996
Mapping Array (tm) and approximately
100,000 ArQule Compounds from ArQule's 1997
Mapping Array (tm)) based on no more
than fifteen (15) Chemical Themes selected
by Sankyo and approved by the
Steering Committee. Subject to Section 3.6,
ArQule will supply Sankyo with
Mapping Arrays (tm) containing
approximately one (1) milligram each of
approximately 100,000 different ArQule
Compounds during each subsequent Contract
Year of the term of the Mapping Array (tm)
Program provided for in Section 3.5,
selected at the start of such subsequent
Contract Year from the then available
Mapping Array (tm) compounds based on no
more than fifteen (15) Chemical Themes
selected by Sankyo and approved by the
Steering Committee. ArQule agrees to ship
such 100,000 Mapping Array (tm) compounds
(i) for the first Contract Year by
December 31, 1997, (ii) for the second
Contract Year on or after the earlier to
occur of (a) three (3) months after Sankyo
completes initial screening, as
determined by the Steering Committee, of
the Mapping Array (tm) compounds
shipped to Sankyo during the first Contract
Year, or (ii) July 1, 1999, or
earlier when available if so requested by
Sankyo in writing, and (iii) for the
third Contract Year by the end of the
second Contract Year. Sankyo agrees to
accept each such shipment of Mapping Array
(tm) compounds unless Sankyo has
terminated the Mapping Array (tm) Program
pursuant to Section 3.6 prior to the
date of such shipment, provided, however,
notwithstanding any such termination
of the Mapping Array (tm) Program, Sankyo
agrees to accept any such shipment
requested by Sankyo in writing. Promptly
upon its receipt of any such Mapping
Arrays (tm), Sankyo shall commence testing
of such Mapping Arrays (tm) for
activity against Targets. Upon the
completion by Sankyo of its testing of any
such Mapping Arrays (tm), Sankyo shall
promptly provide each member of the
Steering Committee with notice by telefax
communication detailing the discovery
of Active Compounds, together with relevant
information concerning the
functional activity identified, which
telefax shall be followed by a
confirmatory letter,
3.2.
Mutual Disclosure, Initially, ArQule will identify the
Chemical Themes of each Mapping Array (tm)
but not the structures of the
individual ArQule Compounds in the Mapping
Arrays (tm). Sankyo may screen the
Mapping Arrays (tm) against any Targets
during the term of this Agreement and
thereafter, Initially, Sankyo will not
disclose the Targets screened. If Sankyo
detects any Active ArQule Compound in a
Mapping Array (tm), ArQule will disclose
(a) the structure of each Active ArQule
Compound and (b) the structures, but not
the locations in the Mapping Array (tm), of
all other ArQule Compounds in the
Mapping Array (tm) and Sankyo will disclose
(a) the identity of the Target and
(b) the level of activity. All such
disclosed information shall be treated as
Confidential Information by both Parties.
Sankyo shall submit each such Active
ArQule Compound to the Directed Array (tm)
Program pursuant to Section 4.
Sankyo, at its discretion, may request that
the Steering Committee designate any
such Active ArQule
<PAGE>
EXHIBIT 10.16
Compound and Active Homologs thereto as
Licensed Compounds comprising a Licensed
Compound Set if such Active ArQule Compound
and Active Homologs are still
available as Licensed Compounds, ArQule
shall have the right, at the time Sankyo
seeks to designate any Active ArQule
Compound or Active Homolog thereto as a
Licensed Compound, to exclude from such
Licensed Compound designation any Active
ArQule Compound or Active Homolog thereto
that is at that time either (1)
included within a Directed Array (tm)
Program for a third party, (ii) being
optimized by a third party from a Mapping
Array (tm) Program, (iii) previously
licensed or reserved by a third party, or
(iv) is included within an existing
ArQule internal development program.
Subject to the foregoing, (a) ArQule shall
notify the Steering Committee that such
Active ArQule Compound and Active
Homologs thereto are properly designated as
Licensed Compounds and (b) provide
Sankyo with the confirmed chemical
composition structure, purity information and
location of all Active ArQule Compounds and
Active Homologs thereto so
designated as Licensed Compounds belonging
to such Licensed Compound Set.
3.3.
Reservation of Active ArQule Compounds. Prior to designating
any Active ArQule Compounds and Active
Homologs thereto as Licensed Compounds
pursuant to Section 3.2 hereof, Sankyo, at
its discretion, may notify ArQule of
its intent to license such Active ArQule
Compounds and Active Homologs, and
request a reservation of such Active ArQule
Compounds and Active Homologs
thereto (collectively the "Reserved
Compounds"). Upon ArQule receiving from
Sankyo (i) a written request to reserve
such Reserved Compounds, and (ii)
disclosure of the Target and activity
information pursuant to Section 3.2
hereof, ArQule shall reserve such Reserved
Compounds for subsequent designation
by Sankyo as Licensed Compounds for a
period ending upon the earlier to occur of
(i) Sankyo's notification to ArQule that it
no longer has an interest in
licensing or developing such Reserved
Compounds, or (ii) sixty (60) days.
3.4.
In consideration of the performance by ArQule of the Mapping
Array (tm) Program, during each Contract
Year, Sankyo shall pay ArQule a
delivery fee equal to $1,000,000 in the
initial Contract Year, payable one-third
(1/3) upon the Effective Date and
two-thirds (2/3) within thirty (30) days of
the delivery of the Mapping Arrays (tm) to
be provided by ArQule in such first
Contract Year. Thereafter, Sankyo shall
make the following annual payment to
ArQule during each Contract Year, in the
second Contract Year payable in full
with thirty (30) days of the delivery of
the Mapping Arrays (tm) to be provided
by ArQule in such Contract Year, and in the
third Contract Yeas payable
one-third (1/3) on the first day of such
Contract Year and two-thirds (2/3)
within thirty (30) days of the deli
