AGREEMENT AND PLAN OF REORGANIZATION

AGREEMENT AND PLAN OF REORGANIZATION (Reorganization Agreement or Agreement) dated as of July 16, 2003, by and between ArQule, Inc.  (ArQule), a Delaware corporation having its principal executive office at 19 Presidential Way, Woburn, MA 01801, and Cyclis Pharmaceuticals, Inc.  (Cyclis), a Delaware corporation having its principal executive office at 333 Providence Highway, Norwood, MA 02062.

WITNESSETH

WHEREAS, the parties hereof desire that Cyclis shall be merged (Merger) with and into ArQule, with ArQule as the surviving corporation, pursuant to an Agreement and Plan of Merger in the form attached hereto as Exhibit A (Plan of Merger);

WHEREAS, the parties hereto intend that the Merger shall qualify as or be part of a reorganization under Section 368(a) of the Code (as defined hereinafter); and

WHEREAS, the parties hereto desire to provide for certain undertakings, conditions, representations, warranties and covenants in connection with the transactions contemplated hereby;

NOW, THEREFORE, in consideration of the premises and of the mutual representations, warranties and covenants herein contained and intending to be legally bound hereby, the parties hereto do hereby agree as follows:

ARTICLE 1

DEFINITIONS

1.1.   Affiliate is defined in Section 2.1(c) hereof.

1.2.   Agreement is defined in the Preamble hereof.

1.3.   ArQule is defined in the Preamble hereof.

1.4.   ArQule Articles is defined in Section 3.2 hereof.

1.5.   ArQule Board is defined in Section 3.3(a) hereof.

1.6.   ArQule Bylaws is defined in Section 3.2 hereof.

1.7.   ArQule Common Stock is defined in Section 3.1(a) hereof.

1.8.   ArQule ERISA Affiliate is defined in Section 3.7(a) hereof.

1.9.   ArQule Financial Statements means (i) the balance sheets of ArQule as of December 31, 2002 and 2001 and the related statements of income, cash flows and changes in stockholders equity (including related notes, if any) for each of the three years ended December 31, 2002, 2001 and 2000 as filed by ArQule in SEC Documents prior to the date of this Agreement and (ii) the balance sheets of ArQule and related statements of income, cash flows and changes in stockholders equity (including related notes, if any) as filed by ArQule in SEC Documents with respect to periods ended subsequent to December 31, 2002.

1.10.   ArQule Pharmaceutical Products is defined in Section 3.12 (a) hereof.

1.11.   ArQule Plan is defined in Section 3.7(a) hereof.

1.12.   ArQule Preferred Stock is defined in Section 3.1(a) hereof.

1.13.   ArQule Subsidiaries means Camitro UK, Ltd., a company organized under the laws of the United Kingdom.

1.14.   Certificate of Merger is defined in Section 4.8 hereof, a form of such Certificate of Merger is attached hereto as Exhibit B.

1.15.   Closing is defined in Section 4.8 hereof.

1.16.   Closing Date means the date specified pursuant to Section 4.8 hereto as the date on which the parties hereof shall close the transactions contemplated herein.

1.17.   Code means the Internal Revenue Code of 1986, as amended.

1.18.   Commission or SEC means the Securities and Exchange Commission.

1.19.   Confidential Disclosure Agreement is defined in Section 4.4 hereof.

1.20.   Continuing Employee is defined in Section 4.12 hereof.

1.21.   Control or controlled means the possession, direct or indirect, of the power either (1) to vote fifty percent (50%) or more of the voting interests of a corporation, partnership, limited liability company, joint venture or other entity, or (2) to direct or cause the direction of the management and policies of a corporation, partnership, limited liability company, joint venture or other entity, whether by contract or otherwise.

1.22.   Covered Parties is defined in Section 4.9(a) hereof.

1.23.   Cyclis is defined in the Preamble hereof.

1.24.   Cyclis Articles is defined in Section 2.2 hereof.

2

1.25.   Cyclis Board is defined in Section 4.1(a) hereof.

1.26.   Cyclis Bylaws is defined in Section 2.2 hereof.

1.27.   Cyclis Common Stock is defined in Section 2.1(a) hereof.

1.28.   Cyclis ERISA Affiliate is defined in Section 2.11(a) hereof.

1.29.   Cyclis Financial Statements means (i) the balance sheets of Cyclis as of December 31, 2002 and 2001 and the related statements of income, cash flows and changes in stockholders equity (including related notes, if any) for the period from inception to December 31, 2002 as provided with the Disclosure Letter and (ii) the balance sheets of Cyclis and related statements of income, cash flows and changes in stockholders equity (including related notes, if any) as provided to ArQule subsequent to the date hereof with respect to periods ended subsequent to December 31, 2002.

1.30.   Cyclis Investments is defined in Section 2.3(b) hereof.

1.31.   Cyclis Licensed Intellectual Property means Intellectual Property licensed to Cyclis and material to the business, financial condition or results of operations of Cyclis.

1.32.   Cyclis Owned Intellectual Property means Intellectual Property owned by Cyclis material to the business, financial condition or results of operations of Cyclis.

1.33.   Cyclis Pharmaceutical Products is defined in Section 2.19(a) hereof.

1.34.   Cyclis Plan is defined in Section 2.11(a) hereof.

1.35.   Cyclis Preferred Stock is defined in Section 2.1(a) hereof.

1.36.   Cyclis Series A Preferred Stock is defined in Section 2.1(a) hereof.

1.37.   Cyclis Series B Preferred Stock is defined in Section 2.1(a) hereof.

1.38.   Cyclis Stock Plans means the Cyclis 2002 Equity Incentive Plan.

1.39.   Cyclis Takeover Proposal is defined in Section 4.6(b)(16) hereof.

1.40.   Cyclis Voting Proposal is defined in Section 4.1(a) hereof.

1.41.   DGCL means the General Corporation Law of the State of Delaware.

1.42.   Disclosure Letter means a letter dated of even date herewith from the party making such disclosure and delivered to the other party prior to the execution hereof.  Each partys Disclosure Letter shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in Articles 2 and 3, as the case may be, and the disclosure in any paragraph shall qualify (1) the corresponding paragraph in Article 2 or 3, as the case may be, and (2) any other paragraph of Article 2 or 3 only to the extent that it is reasonably

3

apparent from a reading of such disclosure that it also qualifies or applies to such other paragraphs.

1.43.   Effective Date means the date specified pursuant to Section 4.8 hereof as the effective date of the Merger.

1.44.   Environmental Claim means any written notice from any Governmental Entity or third party alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on, or resulting from the presence, or release into the environment, of any Materials of Environmental Concern.

1.45.   Environmental Laws means any federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any Governmental Entity relating to (1) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (2) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Materials of Environmental Concern.

1.46.   ERISA means the Employee Retirement Income Security Act of 1974, as amended.

1.47.   Escrow Agent means American Stock Transfer & Trust Company or any successor escrow agent appointed in accordance with Section 10(d) of the Escrow Agreement.

1.48.   Escrow Agreement means the agreement among ArQule, the stockholders of Cyclis and the Escrow Agent providing for the deposit of part of the consideration as discussed in the Plan of Merger, in the form attached as Exhibit C.

1.49.   Exchange Act means the Securities Exchange Act of 1934, as amended.

1.50.   FDA is defined in Section 2.19(a) hereof.

1.51.   Financing Documents means the Senior Secured Convertible Demand Promissory Note and Pledge and Security Agreement dated May 15, 2003 between ArQule and Cyclis.

1.52.   FDCA is defined in Section 2.19(a) hereof.

1.53.   GAAP is defined in Section 2.6 hereof.

1.54.   Governmental Entity means any foreign, federal or state government or political subdivision thereof, court, administrative agency or commission or other governmental authority or instrumentality.

4

1.55.   Indebtedness is defined in Section 2.8(b) hereof.

1.56.   Information Statement means an information statement (or similar document) in form and substance satisfactory to ArQule and Cyclis together with any amendments thereto to be sent to certain stockholders of Cyclis in connection with this Agreement and the Plan of Merger.

1.57.   Intellectual Property means (i) patents and patent applications, reissues, reexaminations, renewals, extensions, divisionals, continuations, continuations-in-part, and foreign counterparts of the foregoing, (ii) trademarks, service marks, domain names, trade dress, logos, trade names, corporate names and other source identifiers, and registrations and applications for registration thereof, (iii) copyrightable works, copyrights, and registrations and applications for registration thereof, (iv) confidential and proprietary information, including trade secrets and know-how, manufacturing processes and methods, formulae and technology, and (v) computer software.

1.58.   Material Adverse Effect means, with respect to Cyclis or ArQule, as the case may be, any material adverse change, event, circumstance or development with respect to, or material adverse effect on (i) the condition (financial or otherwise), results of operations, product development, business, assets, liabilities or capitalization of such party and its Subsidiaries, if any, taken as a whole or (ii) the ability of such party to consummate the transactions contemplated hereby; provided, however, that Material Adverse Effect shall not be deemed to include (i) the impact of changes in laws, regulations, accounting rules or interpretations thereof after the date of this Agreement, (ii) the impact of changes in general economic and/or general financial market conditions, (iii) expenses incurred in connection with the transactions contemplated hereby, (iv) actions or omissions of a party (or any of its subsidiaries) taken with the prior written consent of the other party in contemplation of the transactions contemplated hereby and (v) changes resulting from the announcement and performance of the transactions contemplated hereby; provided, further, that variations in operating results from internal projections and continued incurrence of losses in the ordinary course of business shall not by themselves constitute a Material Adverse Effect.

1.59.   Materials of Environmental Concern means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products and any other materials regulated under Environmental Laws.

1.60.   Merger is defined in the Recitals hereof.

1.61.   NDA is defined in Section 4.12(a) hereof.

1.62.   Outside Date is defined in Section 6.1(d) hereof.

1.63.   Person means any individual, corporation, company, partnership, joint venture or other entity.

1.64.   Plan of Merger is defined in the Recitals hereof.

5

1.65.   Previously Disclosed means disclosed prior to the execution hereof in the Disclosure Letter.

1.66.   Registerable Securities is defined in Section 4.10(c)(i) hereof.

1.67.   Registration Statement is defined in Section 4.10(a) hereof.

1.68.   Reorganization Agreement is defined in the Preamble hereof.

1.69.   Rights means warrants, options, rights, convertible securities and other arrangements or commitments which obligate an entity to issue, exchange, transfer, deliver, sell or dispose of any of its capital stock or other equity interests, and stock appreciation rights, phantom stock, performance units and other similar stock-based rights whether they obligate the issuer thereof to issue stock or other securities or to pay cash.

1.70.   SEC Documents means all reports and registration statements filed or furnished, or required to be filed or furnished, by ArQule pursuant to the Securities Laws.

1.71.   Securities Act means the Securities Act of 1933, as amended.

1.72.   Securities Laws means the Securities Act; the Exchange Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and regulations of the Commission promulgated thereunder.

1.73.   Short-Form Registration is defined in Section 4.10(c)(ii) hereof.

1.74.   Subsidiary means, with respect to any Person, a corporation, partnership, limited liability company, joint venture or other entity which is controlled directly or indirectly (through one or more intermediaries) by such Person.

1.75.   Suspension Certificate is defined in Section 4.10(d) hereof.

1.76.   Tax, collectively, Taxes means all taxes, however denominated, including any interest, penalties, or additions to tax (including, without limitation, any underpayment penalties for insufficient estimated tax payments) or other additional amounts that may become payable in respect thereof (or in respect of a failure to file any Tax Return when and as required), imposed by any Governmental Entity, which taxes shall include, without limiting the generality of the foregoing, all income taxes, payroll and employment taxes, withholding taxes (including withholding taxes in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other Person), unemployment insurance taxes, social security (or similar) taxes, sales and use taxes, excise taxes, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, value added taxes, transfer taxes, profits or windfall profits taxes, licenses in the nature of taxes, estimated taxes, severance taxes, duties (custom and others), workers compensation taxes, premium taxes, environmental taxes (including taxes under

6

Section 59A of the Code), disability taxes, registration taxes, alternative or add-on minimum taxes and other fees, assessments, charges or obligations in the nature of taxes.

1.77.   Tax Return, collectively, Tax Returns means all returns, reports, estimates, information statements or other written submissions, and any schedules or attachments thereto, required or permitted to be filed pursuant to the statutes, rules and regulations of any Governmental Entity relating to Taxes, including, but not limited to, original returns and filings, amended returns, claims for refunds, information returns and accounting method change requests.

1.78.   TriNet Agreement is defined in Section 2.11(k) hereof.

1.79.   TriNet Plans is defined in Section 2.11(k) hereof.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF CYCLIS

Cyclis hereby represents and warrants to ArQule as follows:

2.1.   Capital Structure of Cyclis

(a)   The authorized capital stock of Cyclis consists of (i) 31,000,000 shares of common stock, par value $0.001 per share (Cyclis Common Stock), 10,224,553 shares of which, as of the date hereof, are issued and outstanding and none of which shares are held in treasury, and (ii) 24,445,177 shares of preferred stock, par value $0.001 per share (Cyclis Preferred Stock), 4,445,117 shares of which are designated Series A Convertible Preferred Stock (Cyclis Series A Preferred Stock) and 10,565,000 shares of which are designated Series B Convertible Preferred Stock (Cyclis Series B Preferred Stock).  As of the date hereof, no shares of Cyclis Series A Preferred Stock or Cyclis Series B Preferred Stock are issued and outstanding.  Except as set forth above, Cyclis does not have any outstanding capital stock.

(b)   As of the date hereof, no shares of Cyclis Preferred Stock or Cyclis Common Stock are reserved for issuance, except that (i) 540,000 shares of each of Cyclis Series B Preferred Stock and Cyclis Common Stock are reserved for issuance upon the conversion of the Senior Secured Convertible Demand Promissory Note comprising the Financing Documents, and (ii) 6,000,000 shares of Cyclis Common Stock are reserved for issuance upon the exercise of stock options heretofore granted by Cyclis.  Section 2.1(b) of the Cyclis Disclosure Letter sets forth a complete and accurate list, as of the date of this Agreement, of: (i) all Cyclis Stock Plans, indicating for each plan, as of the close of business on the business day prior to the date of this Agreement, the number of shares of Cyclis Common Stock issued to date under such plan, the number of shares of Cyclis Common Stock subject to outstanding options under such plan and the number of shares of Cyclis Common Stock reserved for future issuance under such plan; and (ii) all outstanding Cyclis stock options, indicating with respect to each such stock option the name of the holder thereof, the plan under which it was granted, the number of shares of Cyclis Common Stock subject to such

7

option, the exercise price, the date of grant, and the vesting schedule, including whether (and to what extent) the vesting will be accelerated in any way by the Merger or by termination of employment or change in position following consummation of the Merger.  Except as set forth in this Section 2.1(b), Cyclis does not have and is not bound by any Rights which are authorized, issued or outstanding with respect to the capital stock of Cyclis.

(c)   All outstanding shares of Cyclis Common Stock are, and all shares of Cyclis Common Stock subject to issuance as specified in Section 2.1(b), upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, Cyclis Articles or Cyclis Bylaws or any agreement to which Cyclis is a party or is otherwise bound.  There are no obligations, contingent or otherwise, of Cyclis to repurchase, redeem or otherwise acquire any shares of Cyclis Common Stock.  Except as set forth in Section 2.1(c) of the Cyclis Disclosure Letter, neither Cyclis nor any of its Affiliates is a party to or is bound by any, and to the knowledge of Cyclis, there are no, agreements or understandings with respect to the voting (including voting trusts and proxies) or sale or transfer (including agreements imposing transfer restrictions) of any shares of capital stock or other equity interests of Cyclis.  For purposes of this Agreement, the term Affiliate when used with respect to any party shall mean any Person who is an affiliate of that party within the meaning of Rule 405 promulgated under the Securities Act.  Except as contemplated by this Agreement and as set forth in Section 2.1(c) of the Cyclis Disclosure Letter, there are no registration rights, and there is no rights agreement, poison pill anti-takeover plan or other agreement or understanding to which Cyclis is a party or by which it is bound with respect to any equity security of any class of Cyclis.

2.2.   Organization, Standing and Authority of Cyclis

Except as set forth in Section 2.2 of the Cyclis Disclosure Letter, Cyclis is a duly organized corporation, validly existing and in good standing under the laws of Delaware with all requisite corporate power and authority to own and lease its properties and assets and to carry on its business as now conducted and is duly licensed or qualified to do business in the states of the United States and foreign jurisdictions where its ownership or leasing of property or the conduct of its business requires such licensing or qualification, except where the failure to be so licensed or qualified has not had, and is not reasonably likely to have a Material Adverse Effect on Cyclis.  Cyclis has heretofore delivered to ArQule true and complete copies of the Certificate of Incorporation (Cyclis Articles) and Bylaws (Cyclis Bylaws) of Cyclis.

Home        Intelligence        Services        Subscriptions        News        About Us

Contact Us       Terms of Use       Resend Documents       Shopping Cart

Copyright © 2008 The Consus Group LLC