Exhibit 10.3

 

Amendment to Employment Agreement

 

This Amendment to Employment Agreement (“Amendment”) is entered into by and
between ArQule, Inc., a Delaware corporation (the “Company”) with its principal
offices at 19 Presidential Way, Woburn, Massachusetts 01801, and Stephen A.
Hill, M.D. (“Executive”) whose current principal residential address is 26 Dole
Hill Lane, Boxford, MA 01921. The purpose of this Amendment is to amend the
Employment Agreement dated as of January 1, 2004 between the Company and
Executive (the “Agreement”). This Amendment shall be effective as of [date].

 

WHEREAS, the Company desires to continue to employ and retain Executive in a
senior executive capacity and to enter into this Amendment embodying certain
changes to the terms of such employment from that which was set forth in the
Agreement;

 

WHEREAS, Executive desires to accept such continued employment and enter into
such Amendment;

 

NOW THEREFORE, in consideration of the promises, and the mutual covenants and
agreements contained herein and in the Agreement, and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the Company and Executive hereby agree as follows:

 

14.                                 Definitions. All capitalized terms not
specifically defined in this Amendment shall have the same meaning herein as in
the Agreement (including as in any plans or other documents incorporated by
reference into the Agreement).

 

15.                                 Stock Options. Over the course of his
employment with the Company, Executive has been granted certain stock options
(“Options”), as set forth in the attached Exhibit A, to purchase shares of the
Company’s Common Stock pursuant to the Company’s Amended and Restated 1994
Equity Incentive Plan (the “Plan”). Subject to appropriate approvals by the
Company’s Board of Directors, the terms and conditions of Executive’s Options
shall be modified as follows:

 

a.                                       Continued vesting of Options in the
event of a termination other than for Cause. Notwithstanding anything in the
Plan, the Agreement or any other agreement concerning any of the Options to the
contrary, in the event that Executive’s employment with the Company is
terminated (including by Executive) for any reason other than Cause, all of
Executive’s Options, to the extent unvested as of the Termination Date, shall
continue to vest according to the schedule set forth in each separate Option
grant, without regard to Executive’s employment status, and any agreement or
terms and conditions with respect to such Options shall be amended accordingly.

 

b.                                      Extension of period to exercise Options
in the event of a termination other than for Cause. Notwithstanding anything in
the Plan, the Agreement or any other agreement concerning any of the Options to
the contrary, in the event that

 

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Executive’s employment with the Company is terminated (including by Executive)
for any reason other than Cause, each Option shall remain fully exercisable
until the sooner of (i) the tenth anniversary of the date of grant of that
Option; or (ii) June 30, 2011. Any agreement or terms and conditions with
respect to such Options shall be amended accordingly. The Company and Executive
hereby acknowledge and agree that, to the extent any of the Options were granted
as incentive stock options (“ISOs”) within the meaning of the Internal Revenue
Code, the extension of time for Executive to exercise the Options as provided in
this Section will be treated as a modification of such Options for ISO purposes.
It is expressly agreed that, except as expressly provided in this Amendment,
Executive has three months from the Termination Date to exercise the Options.

 

16.                                 Notice of termination without Cause.
Notwithstanding anything in the Agreement to the contrary, and except as
expressly provided below, the Company may terminate Executive’s employment at
any time without Cause pursuant to Section 5.1.1 of the Agreement only upon not
less than 52 weeks prior written notice from the Company to Executive (the
“Notice Period”), provided that the Company shall retain its rights to terminate
Executive’s employment for Cause during the Notice Period. In addition,
Executive shall not be entitled to the Severance Package in the event of a
termination without Cause. However, during the Notice Period, Executive shall
continue to receive his regular Base Salary and shall remain eligible to receive
a discretionary annual cash bonus based on a target amount (either as a
percentage or a fixed dollar amount) established by the Board and based on
Company performance. Bonus compensation awarded to Executive during the Notice
Period, if any, shall be at the Board’s sole discretion. In addition, Executive
shall continue to be eligible to receive benefits as set forth in Section 4.3 of
the Agreement, subject to the terms and conditions of the applicable benefit
plans and policies, during the Notice Period. Executive shall not be required to
report to work on a regular basis during the Notice Period, but shall be
required to be available for activities on behalf of the Company upon request
from, and at the discretion of, the Board. The payments and benefits to be
provided to Executive during the Notice Period pursuant to this Section shall
cease in the event Executive obtains other employment or consulting work.
Notwithstanding anything in this Section to the contrary, in the event the
Company terminates Executive’s employment without Cause at any time within one
(1) year following the latest possible date of a Change in Control, as that term
is defined in the Agreement, the terms of this Section shall not apply, but
rather any such termination shall be governed by Sections 5.1.1 and 5.1.3 of the
Agreement. For purposes of clarity, in the event that the latest possible date
of a Change of Control, as that term is defined in the Agreement, occurs during
the Notice Period and Executive has not secured new employment or consulting
work prior to the last possible date of the Change in Control, then the
provisions of Sections 5.1.1 and 5.1.3 of the Agreement shall apply (Executive’s
Termination Date shall be deemed to be 14 days after the latest possible date of
the Change in Control)  and the provisions of this Section shall not apply;
however, in the event that the latest possible date of a Change of Control
occurs during the Notice Period and Executive already has accepted new
employment or consulting work prior to the last possible date of the Change in
Control,

 

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then Sections 5.1.1 and 5.1.3 of the Agreement shall not apply, and Executive
shall receive only the payments and benefits provided for in this Section.

 

17.                                 Non-Competition.

 

a.                                       For purposes of this Section 4,
“Competitive Activity” shall mean engaging or planning to engage in any business
or enterprise concerning E2F1 Checkpoint Activation, Kinase Inhibitors and/or
c-MET Inhibitors, whether as an owner, member, manager, partner, officer,
employee, director, investor, lender, consultant, independent contractor or
otherwise (except as the holder of not more than 1% percent of the combined
voting power of the outstanding stock of a publicly held company), provided
that, except as set forth in the last sentence of this Section 4(a), it shall
not be a violation of this Section for Executive to accept employment with any
entity which engages in a business or enterprise concerning E2F1 Checkpoint
Activation, Kinase Inhibitors and/or c-MET Inhibitors if at least one level of
executive management exists within such entity between Executive and any E2F1
Checkpoint Activation, Kinase Inhibitors and/or c-MET Inhibitors program and/or
line of business. For purposes of this Section, Executive shall be deemed to be
engaging in Competitive Activity as of the date that Executive accepts
employment or consulting engagement with any other person or entity, regardless
of when Executive actually begins providing services under such employment or
consulting engagement. Notwithstanding anything in this Amendment to the
contrary, Executive shall be deemed to be engaging in Competitive Activity in
the event he accepts employment and/or consulting work with any of the following
entities:  Exelixis, Aveo, Supergen, Methylgene or SGX.

 

b.                                      If at any time within one (1) year
following the Termination Date Executive engages or prepares to engage in any
Competitive Activity, then Executive acknowledges and agrees that such action
would cause irreparable damage to the Company and that, in the event of such
action, the Company shall be entitled, in addition to the remedies listed below
and any other remedies available to the Company under this Amendment, the
Agreement or at law, to equitable relief, including injunctive relief, and to
payment by Executive of all costs incurred by the Company in enforcing the
provisions of this Amendment, including reasonable attorneys fees.

 

c.                                       If at any time Executive engages or
prepares to engage in any Competitive Activity, or if Executive materially
breaches Section 6 of the Agreement or Section 1 of the Employee Non-Disclosure
and Inventions Agreement at any time, then, notwithstanding any provision of
this Amendment to the contrary, and in addition any other remedies available to
the Company under this Amendment, the Agreement or at law, all unvested Options
shall lapse and shall not vest further and Executive shall have the shorter of
(i) ninety (90) days from the date of first engaging in Competitive Activity or
(ii) the remaining term of the applicable Option, to exercise any vested
portion(s) of the Options. Executive shall provide written notice to the Company
as provided in Section 8 of the Agreement that he

 

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is engaging in Competitive Activity within one business day of first engaging in
Competitive Activity. In the event Executive fails to provide timely notice,
Executive shall be required to repay the Company for any and all net, after-tax
gains realized from the sale of any Options that either would not have vested or
would have not been exercisable as of the date Executive exercises the Options
had Executive provided timely notice, and Executive shall pay all costs incurred
by the Company in enforcing the provisions of this Amendment, including
reasonable attorneys fees.

 

d.                                      Executive acknowledges that the
restrictions contained in this Section are necessary for the protection of the
business and goodwill of the Company and are reasonable for such purpose.

 

e.                                       The terms of this Section shall not
limit, and shall not in any way affect, Executive’s obligations concerning the
non-use and non-disclosure of the Company’s Confidential Information, including
those set forth in the Agreement and in the Employee Non-Disclosure and
Inventions Agreement.

 

18.                                 Employee Non-Disclosure and Inventions
Agreement. As an express condition of the benefits to be provided under this
Agreement, Executive agrees to execute and be bound by the Employee
Non-Disclosure and Inventions Agreement attached hereto as Exhibit B.

 

19.                                 409A Compliance. The provisions of Section 2
of this Amendment will be implemented as to comply with Section 409A of the
Internal Revenue Code regarding deferred compensation, such that the eventual
exercise of any Option will not be deemed to represent deferred compensation
under Section 409A. Notwithstanding anything in the Agreement to the contrary,
to the extent Executive is a “Specified Employee” as defined in Section
409A(a)(2)(B) of the Internal Revenue Code on the Termination Date, and in the
event that Executive is entitled to payment of the Severance Package upon
termination of employment, payment of the Severance Package shall be delayed for
six months from the Termination Date or, if earlier, the death of Executive.

 

20.                                 Cause. Executive acknowledges that a breach
of the provisions of Section 4 and/or Section 5 of this Agreement shall
constitute Cause to terminate his employment with the Company pursuant to
Section 5.2 of the Agreement.

 

21.                                 No Advice. Executive represents and warrants
that the Company has provided him no advice as to this Amendment and/or the
Agreement, including but not limited to the tax implications of the Amendment
and/or the Agreement. Executive has been advised to consult his own counsel
and/or personal tax advisor.

 

22.                                 Waivers and Further Agreements. Any waiver
of any terms or conditions of this Amendment shall not operate as a waiver of
any other breach of such terms or conditions or any other term or condition, nor
shall any failure to enforce any provision hereof operate as a waiver of such
provision or of any other provision hereof; provided, however, that no such
written waiver, unless it, by its own terms, explicitly provides to the
contrary, shall be construed to effect a continuing waiver of the provision
being

 

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waived and no such waiver in any instance shall constitute a waiver in any other
instance or for any other purpose or impair the right of the Party against whom
such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision. Each of the Parties agrees to
execute all such further instruments and documents and to take all such further
action as the other Party may reasonably require in order to effectuate the
terms and purposes of this Amendment.

 

23.                                 Amendments. This Amendment may not be
amended, nor shall any waiver, change, modification, consent or discharge be
effected except by an instrument in writing executed by both Parties.

 

24.                                 Severability. In the event that any one or
more of the provisions contained herein shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this Agreement, and
all other provisions shall remain in full force and effect. If any provision of
this Agreement is held to be excessively broad, it shall be reformed and
construed by limiting and reducing it so as to be enforceable to the maximum
extent permitted by law.

 

25.                                 Counterparts. This Amendment maybe executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

 

26.                                 Section Headings. The headings contained in
this Amendment are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Amendment.

 

27.                                 Governing Law. This Amendment shall be
governed by and construed and enforced in accordance with the law (other than
the law governing conflict of law questions) of the Commonwealth of
Massachusetts.

 

28.                                 Entire Understanding. This Amendment,
including its Exhibits, constitutes the entire understanding and agreement
between the Parties regarding the subject matter hereof and supersedes all prior
agreements, written or oral, with respect to the subject matter hereof, except
that, other than as explicitly modified by the terms of this Amendment, the
Agreement shall remain in full force and effect in accordance with its
provisions. This Amendment shall be incorporated into the Agreement as an
additional provision thereto.

 

IN WITNESS WHEREOF, the Parties have executed or caused to be executed this
Amendment as of the date set forth above.

 

 

ARQULE, INC.

 

EXECUTIVE

 

 

 

 

 

 

By:

/s/ Patrick J. Zenner

 

By:

/s/ Stephen A. Hill

Name:

Patrick J. Zenner

 

Name:

Stephen A. Hill

Title:

Chair, Compensation Committee

 

Title:

President and Chief Executive

Board of Directors

 

 

Officer

 

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Exhibit B

 

EMPLOYEE NON-DISCLOSURE AND INVENTIONS AGREEMENT

 

In consideration of the benefits to be provided to me by ArQule, Inc., a
Delaware corporation, and its successors, subsidiaries, and affiliates
(collectively, the “Company”), and for other valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, I agree as follows:

 

1.             Confidential Information and Proprietary Materials

 

I understand that the Company continually obtains and develops valuable
proprietary and confidential information concerning its business, business
relationships, and financial affairs (as further defined below, the
“Confidential Information”) and valuable Proprietary Materials (as defined
below) which may become known to me in connection with my employment.

 

I acknowledge that all Proprietary Materials and all Confidential Information
are and shall remain the exclusive property of the Company or of the third party
providing such Proprietary Materials or Confidential Information to me or the
Company. By way of illustration, but not limitation, Confidential Information
may include Inventions (as defined below), trade secrets, technical information,
know-how, research and development activities of the Company, product and
marketing plans, customer and supplier information, and information disclosed to
the Company or to me by third parties of a proprietary or confidential nature or
under an obligation of confidence. Confidential Information is contained in
various media, including without limitation, patent applications, computer
programs in object and/or source code, flow charts and other program
documentation, manuals, plans, drawings, designs, technical specifications,
laboratory notebooks, supplier and customer information, internal financial
data, and other documents and records of the Company, whether or not in writing
and whether or not labeled or identified as confidential or proprietary. As used
in this Agreement “Proprietary Materials” shall include, without limitation: any
and all reagents, substances, chemical compounds, subcellular constituents,
cells or cell lines, organisms and progeny, and mutants, as well as any and all
derivatives or replications derived from or relating to such materials.

 

I agree that I shall not, during the term of my employment and thereafter,
publish, disclose, or otherwise make available to any third party, other than
employees of the Company, any Confidential Information or Proprietary Materials
except as expressly authorized in writing by the Company. I agree that I shall
use such Confidential Information and Proprietary Materials only in the
performance of my duties for the Company and in accordance with any Company
policies regarding the protection of Confidential Information and Proprietary
Materials. I agree not to use such Confidential Information or Proprietary
Materials for my own benefit or for the benefit of any person or business entity
other than the Company.

 

I agree to exercise all reasonable precautions to protect the integrity and
confidentiality of Confidential Information and Proprietary Materials in my
possession. I further agree not to remove any Proprietary Materials or materials
containing Confidential Information from the Company’s premises except to the
extent necessary to my employment. Upon the termination of

 

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my employment, or at any time upon the Company’s request, I shall return
immediately to the Company any and all Proprietary Materials and any materials
containing any Confidential Information then in my possession or under my
control.

 

Confidential Information shall not include information that (a) is or becomes
generally known within the Company’s industry through no fault of mine; (b) was
known to me at the time it was disclosed as evidenced by my written records at
the time of disclosure; or (c) is lawfully and in good faith made available to
me by a third party who did not derive it from the Company and who imposes no
obligation of confidence on me.

 

2.                                     Assignment of Inventions

 

I agree promptly to disclose to the Company any and all ideas, concepts,
discoveries, inventions, developments, original works of authorship, software
programs, software and systems documentation, trade secrets, technical data,
know-how, and Proprietary Materials that relate, directly or indirectly, to the
business of the Company or that arise out of my employment with the Company and
that are conceived, devised, invented, developed, or reduced to practice or
tangible medium by me, under my direction, or jointly by me and others during
any period that I am employed or engaged by the Company, whether or not during
normal working hours or on the premises of the Company (“Inventions”).

 

I hereby assign to the Company all of my right, title, and interest to the
Inventions and any and all related patent rights, copyrights, and applications
and registrations for such patent rights and copyrights. During and after my
employment, I shall cooperate with the Company, at the Company’s expense, in
obtaining proprietary protection for the Inventions and I shall execute all
documents that the Company shall reasonably request in order to perfect the
Company’s rights in the Inventions. I hereby appoint the Company my attorney to
execute and deliver any such documents on my behalf in the event I should fail
or refuse to do so within a reasonable period of time following the Company’s
request. I understand that, to the extent this Agreement shall be construed in
accordance with the laws of any state that limits the assignability to the
Company of certain employee inventions, this Agreement shall be interpreted not
to apply to any such invention that a court rules or the Company agrees is
subject to such state limitation.

 

I further represent that the attached Schedule A contains a complete list of all
inventions made, conceived, or first reduced to practice by me, under my
direction, or jointly by me and others prior to my employment with the Company
(“Prior Inventions”) and that are not assigned to the Company under the terms of
this Agreement. If there are no Prior Inventions listed in Schedule A, I
represent that there are no such Prior Inventions.

 

3.                                       Miscellaneous

 

This Agreement may be assigned by the Company to (a) any entity controlled by,
controlling or under common control with the Company or (b) to any successor of
its business to which this Agreement relates (whether by purchase, merger,
consolidation or otherwise). I may not assign or transfer any of my rights or
obligations under this Agreement. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors

 

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and other legal representatives, including, to the extent permitted by the terms
of this Agreement, their assignees.

 

This Agreement supersedes all prior agreements, written or oral, with respect to
the subject matter of this Agreement. This Agreement may be changed only by a
written instrument signed by both parties.

 

In the event that any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provisions of this Agreement, and all other provisions shall remain in
full force and effect. If any of the provisions of this Agreement is held to be
excessively broad, it shall be reformed and construed by limiting and reducing
it so as to be enforceable to the maximum extent permitted by law. I agree that
should I violate any obligation imposed on me in this Agreement, I shall
continue to be bound by the obligation until a period equal to the term of such
obligation has expired without violation of such obligation.

 

No delay or omission by the Company in exercising any right under this Agreement
will operate as a waiver of that or any other right. A waiver or consent given
by the Company on any occasion is effective only in that instance and will not
be construed as a bar to or waiver of any right on any other occasion.

 

I acknowledge that the restrictions contained in this Agreement are necessary
for the protection of the business and goodwill of the Company and are
reasonable for such purpose. I agree that any breach of this Agreement by me
will cause irreparable damage to the Company and that in the event of such
breach, the Company shall be entitled, in addition to monetary damages and to
any other remedies available to the Company under this Agreement and at law, to
equitable relief, including injunctive relief, and to payment by myself of all
costs incurred by the Company in enforcing the provisions of this Agreement,
including reasonable attorneys fees.

 

This Agreement shall be construed as a sealed instrument and shall in all events
and for all purposes be governed by, and construed in accordance with, the laws
of the Commonwealth of Massachusetts without regard to any choice of law
principle that would dictate the application of the laws of another
jurisdiction. Any action, suit, or other legal proceeding I may commence in
order to resolve any matter arising under or relating to any provision of this
Agreement shall be commenced only in a court of the Commonwealth of
Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and I hereby consent to the jurisdiction of such court with
respect to any action, suit, or proceeding commenced in such court by the
Company.

 

[The remainder of this page is left blank intentionally.]

 

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I HAVE READ ALL OF THE PROVISIONS OF THIS AGREEMENT AND I UNDERSTAND, AND AGREE
TO, EACH OF SUCH PROVISIONS.

 

 

 

 

 

Date

 

Signature of Employee

 

 

 

 

 

 

 

 

Print Name

 

 

 

 

 

 

Acknowledged and agreed to by:

 

 

 

 

 

ARQULE, INC.

 

 

 

 

 

 

 

 

 

 

 

 

Anthony S. Messina

 

 

Vice President, Human Development

 

 

 

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