Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) dated as of April 13, 2006 (the
“Execution Date”) is made by and between ArQule, Inc., a Delaware corporation
(the “Company”) with its principal offices at 19 Presidential Way, Woburn,
Massachusetts 01801, and Peter Lawrence (“Executive”) whose current principal
residential address is 29 Fairfield Street, Unit 4-5, Boston, MA 02116.

 

WHEREAS, the Company desires to employ Executive in a senior executive capacity
and to enter into an agreement embodying the terms of such employment; and

 

WHEREAS, Executive desires to accept such employment and enter into such an
agreement;

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the Company and
Executive (collectively, the “Parties”) hereby agree as follows:

 

1.             Term of Employment.  The Company hereby agrees to employ
Executive, and Executive hereby accepts such employment with the Company, upon
the terms and subject to the conditions set forth in this Agreement, for a
period commencing on April 13, 2006 (the “Effective Date”) and continuing until
terminated in accordance with the provisions of Section 5 (the “Employment
Term”).

 

2.             Title; Duties.  During the Employment Term, Executive shall serve
as Executive Vice President, Chief Business and Legal Officer, General Counsel
and Secretary, reporting directly to the CEO of the Company.  Executive hereby
agrees to undertake the duties and responsibilities inherent in such position
and such other duties and responsibilities consistent with such position as the
CEO shall from time to time reasonably assign to Executive.

 

3.             No Conflict.  During the Employment Term, Executive shall devote
substantially all of Executive’s business time and efforts to the performance of
Executive’s duties hereunder and shall not, directly or indirectly, engage in
any other business, profession or occupation for compensation or otherwise which
would conflict with the rendition of such duties.  Notwithstanding the
foregoing, Executive may engage in other activities, such as activities
involving charitable, educational, religious, trade association, civic and
similar types of organizations, speaking engagements and membership on the Board
of Directors or equivalent of other organizations (“Outside Activities”),
provided that Executive shall obtain the Company’s written consent, which
consent shall not be unreasonably withheld, delayed or conditional, before
engaging in any such Outside Activities and provided further that Executive’s
participation in such Outside Activities shall not be in violation of any of his
obligations to the Company, including but not limited to those set forth in the
Company’s Code of Conduct.  Executive represents and warrants that Exhibit A
attached hereto states all current business relationships, including, but not
limited to, consulting agreements, confidentiality agreements and non-

 

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competition agreements to which Executive is a party as of the Execution Date,
to each of which the Company hereby consents.

 

4.             Compensation and Benefits.

 

4.1.          Base Salary.  During the Employment Term, the Company shall pay
Executive for Executive’s services hereunder a base salary at the initial annual
rate of $360,000, payable in substantially equal installments in accordance with
the Company’s usual payment practices and subject to annual review and upward
adjustment by the Company in its sole discretion.  Such amount (as it may be
increased, but not decreased, from time to time in accordance with this
Section 4.1) shall be referred to herein as the “Base Salary.”

 

4.2.          Bonus Compensation.  Executive shall be eligible to receive a
discretionary annual cash bonus, the target amount of which shall be 35 percent
of Executive’s Base Salary.  The award of an annual cash bonus, if any, shall be
in the Company’s sole discretion and shall be based on Company and individual
performance.  For calendar year 2006, the annual cash bonus awarded to
Executive, if any, shall be prorated based on the number of months Executive
works for the Company during that year.  The annual cash bonus typically is paid
during the first quarter of the following calendar year, and Executive must be
actively employed with the Company as of the payment date in order to receive
the annual cash bonus, if any.  Executive shall also be eligible to participate
in any and all other bonus plans and packages that are made available to the
Company’s executives, on a basis consistent with Executive’s position and
then-current Base Salary and in accordance with the policies and practices of
the Company and the Company’s Board of Directors (the “Board”).

 

4.3.          Stock Option Grant.  As further compensation for Executive’s
services hereunder, the Company shall grant to Executive, on the Effective Date,
a stock option (the “Execution Stock Option”) to purchase three hundred thousand
(300,000) shares of the Company’s Common Stock, $0.01 par value per share (the
“Common Stock”), pursuant to the Company’s Amended and Restated 1994 Equity
Incentive Plan (the “Plan”) and in accordance with the terms, and subject to a
vesting schedule pursuant to which twenty-five percent of the shares shall vest
annually commencing on the first anniversary of the Effective Date, and other
conditions, set forth in the form of Option Certificate (attached hereto as
Exhibit B).  The method of determining the exercise price of the Execution Stock
Option is set forth in the attached Exhibit C.  In its sole discretion, the
Company may grant to Executive from time to time other stock options to purchase
additional shares of Common Stock, also pursuant to the Plan and such other
terms and conditions set forth at the time of such grant (the Execution Stock
Option and such other stock options, collectively, the “Stock Options”) and may
also grant stock awards.

 

4.4.          Executive Benefits.  During the Employment Term and subject to any
contributions therefor generally required of senior executives of the Company,

 

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Executive shall be entitled to receive such employee benefits (including fringe
benefits, 401(k) plan participation, and life, health, dental, accident and
short and long term disability insurance) which the Company may, in its sole and
absolute discretion, make available generally to its senior executives or
personnel similarly situated; provided, however, that it is hereby acknowledged
and agreed that any such employee benefit plans may be altered, modified or
terminated by the Company at any time in its sole discretion without recourse by
Executive.

 

4.5.          Paid Time Off.  Executive shall be entitled to four weeks (20
working days) of paid time off (“PTO”) per annum during the Employment Term,
which will accrue pursuant to the Company’s policies and practices and is to be
taken at such time or times as shall be mutually convenient for the Company and
Executive; provided, however, that the Company may elect to increase the annual
time to which Executive shall be entitled to PTO.  Unused PTO shall be allocated
pursuant to the Company’s policies and practices.

 

4.6.          Business Expenses and Perquisites.  Upon delivery of adequate
documentation of expenses incurred in accordance with the policies and practices
of the Company, Executive shall be entitled to reimbursement by the Company for
reasonable travel, entertainment and other business expenses incurred by
Executive in the performance of Executive’s duties hereunder in accordance with
such policies as the Company may from time to time have in effect.

 

4.7           Deductions and Withholdings.  Notwithstanding any other provision
of this Agreement, any payments or benefits hereunder shall be subject to the
withholding of such amounts, if any, relating to tax and other payroll
deductions, as the Company reasonably determines it should withhold pursuant to
any applicable law or regulation.

 

4.8           Annual Review.  Executive shall receive an annual review of his
performance by the Chief Executive Officer of the Company, or by a Committee of
the Board of Directors, or both.

 

5.             Termination.

 

5.1.          Without Cause by the Company.

 

5.1.1.       The Severance Package.  The Company may terminate Executive’s
employment hereunder at any time without Cause (as defined in Section 5.2) upon
not less than fourteen (14) days prior written notice from the Company to
Executive.  The effective date of Executive’s termination shall be referred to
herein as the “Termination Date.”  If Executive’s employment is terminated by
the Company pursuant to this Section 5.1, all compensation and benefits provided
to Executive by the Company pursuant to this Agreement or otherwise shall cease
as of the Termination Date, except that the Company shall pay Executive all
amounts owed to Executive for work performed prior to the Termination Date, plus
the cash

 

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value of any accrued but unused PTO, as of the Termination Date.  In addition,
provided that Executive first executes a general release in a form and of a
scope acceptable to the Company, the Company shall provide the following
severance benefits (the “Severance Package”):

 

(a)           A lump sum payment (the “Severance Payment”) in the following
amount:

 

(i)            An amount equal to Executive’s Base Salary through the end of the
twelve (12) month period commencing on the Termination Date; plus

 

(ii)           An amount equal to the average bonus, if any, paid by the Company
to Executive with respect to the two (2) years preceding the year in which the
Termination Date occurs, provided that, for purposes of this paragraph only,
Executive shall be deemed to have received his 35 percent bonus target for any
year within such 2-year period in which Executive was not paid a bonus solely
because he was not employed by the Company.  Attached at Exhibit D is a series
of examples of the manner in which this portion of the Severance Payment shall
be calculated.

 

(b)           Immediate vesting of fifty (50) percent of any unvested portion of
the Execution Stock Option granted pursuant to Section 4.3 of this Agreement; 
and

 

(c)           Payment of the costs associated with continuing the benefits which
Executive is entitled to receive pursuant to Section 4.4 of this Agreement at
the level in effect as of the Termination Date (subject to any employee
contribution requirements applicable to Executive on the Termination Date)
through the twelve (12) month period commencing on the Termination Date, to the
extent such benefits may continue beyond the Termination Date (for example,
among other things, Executive’s coverage under the Company’s life and disability
insurance policies will terminate as of the Termination Date).

 

(d)           Notwithstanding the foregoing, to the extent the Company
reasonably determines that any portion of the Severance Package is subject to
Section 409A of the Internal Revenue Code, payment of any such portion of the
Severance Package subject to Section 409A shall (i) to the extent required, be
delayed for a period of six months from the Termination Date, or (ii) to the
extent permitted under subsequent guidance from the Internal Revenue Service,
otherwise made to comply with such Section 409A requirements, provided, however,
that any such action under this subsection

 

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(ii) that is more detrimental to Executive than that in subsection (i) shall
only be made with Executive’s consent.

 

5.1.2.       Deemed Termination.  For purposes of this Section 5.1, a
“termination without cause” shall be deemed to occur in the event any of the
following occurs and Executive provides to the Company Notice of Termination (as
defined in Section 5.6) within forty-five (45) days thereafter:

 

(a)           The Company substantially reduces or diminishes Executive’s
responsibilities or title without Cause;

 

(b)           The Company reduces Executive’s Base Salary or bonus target (other
than in connection with a Company-wide decrease in salary or bonus,
respectively);

 

(c)           The Company materially breaches any of its obligations to
Executive pursuant to this Agreement, and fails to cure such breach within 30
days of receipt of notice thereof;

 

(d)           The Company relocates Executive’s place of employment without
Executive’s written consent by a distance of more than fifty (50) miles,
excluding any relocation to the Company’s existing offices in Woburn, MA; or

 

(e)           A successor in interest to the Company fails to assume the
obligations of this Agreement.

 

5.2.          For Cause by the Company.  Notwithstanding any other provision of
this Agreement, Executive’s employment hereunder may be terminated by the
Company at any time for Cause.  For purposes of this Agreement, “Cause” shall
mean: (i) Executive’s arbitrary, unreasonable, or willful failure to follow the
reasonable instructions of the CEO or otherwise perform Executive’s duties
hereunder (other than as a result of a Disability (as defined in Section 5.3))
for thirty (30) days after a written demand for performance is delivered to
Executive on behalf of the Company which demand specifically identifies the
manner in which the Company alleges that Executive has not substantially
followed such instructions or otherwise performed Executive’s duties;
(ii) Executive’s willful misconduct that is materially injurious to the Company
(whether from a monetary perspective or otherwise); (iii) Executive’s willful
commission of an act constituting fraud with respect to the Company;
(iv) conviction of Executive for a felony under the laws of the United States or
any state thereof; or (v) Executive’s material breach of Executive’s obligations
under Section 7 hereof.  A final determination of whether Cause exists shall be
made by the Board of Directors.

 

If Executive’s employment is terminated by the Company for Cause, all
compensation and benefits provided to Executive by the Company pursuant to this
Agreement or otherwise shall cease as of the Termination Date, except that

 

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the Company shall pay Executive all amounts owed to Executive for work performed
prior to the Termination Date, plus the cash value of any accrued but unused
PTO, as of the Termination Date.

 

5.3.          Disability.  Subject to the requirements of the Americans with
Disabilities Act, Massachusetts General Laws Chapter 151B and any other
applicable laws, Executive’s employment hereunder may be terminated by the
Company at any time in the event of the Disability of Executive.  For purposes
of this Agreement, “Disability” shall mean the inability of Executive to perform
the essential functions of Executive’s position, with or without reasonable
accommodation, due to physical or mental disablement which continues for a
period of four (4) consecutive months during the Employment Term, as determined
by an independent qualified physician mutually acceptable to the Company and
Executive (or Executive’s personal representative) or, if the Company and
Executive (or such representative) are unable to agree on an independent
qualified physician, as determined by a panel of three physicians, one
designated by the Company, one designated by Executive (or such representative)
and one designated by the two physicians so designated.  If Executive’s
employment is terminated by the Company for Disability, all compensation and
benefits provided to Executive by the Company pursuant to this Agreement or
otherwise shall cease as of the Termination Date, except that (a) the Company
shall pay Executive all amounts owed to Executive for work performed prior to
the Termination Date, (b) provided that Executive first executes a general
release in a form and of a scope acceptable to the Company, Executive shall be
entitled to the Severance Package, except that the lump sum based on Executive’s
Base salary paid as a part of the Severance Package shall be reduced by the
amount of Base Salary, salary continuation (short-term disability), and cash
disability benefits (long-term disability) paid to Executive for the
corresponding period under the Company’s employee benefit plans as then in
effect, and any Stock Option held as of the Termination Date shall become
immediately exercisable as to all option shares without regard to the vesting
schedule set forth on the applicable Option Certificate.

 

5.4.          Death.  Executive’s employment hereunder shall automatically
terminate in the event of Executive’s death.  If Executive’s employment is
terminated by the death of Executive, all compensation and benefits provided to
Executive by the Company pursuant to this Agreement or otherwise shall cease as
of the Termination Date, except that (a) the Company shall pay to Executive’s
estate or legal representative all amounts owed to Executive for work performed
through the last day of Executive’s actual employment by the Company plus the
Severance Package, and (b) any Stock Option held as of the Termination Date
shall become immediately exercisable as to all option shares without regard to
the vesting schedule set forth on the applicable Option Certificate.

 

5.5.          Termination by Executive.  Executive’s employment hereunder may be
terminated by Executive at any time upon not less than thirty (30) days prior
written notice from Executive to the Company.  Executive agrees that such notice

 

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period is reasonable and necessary in light of the duties assumed by Executive
pursuant to this Agreement and fair in light of the consideration Executive is
receiving pursuant to this Agreement.  If Executive terminates Executive’s
employment with the Company pursuant to this Section 5.5, all compensation and
benefits provided to Executive by the Company pursuant to this Agreement or
otherwise shall cease as of the Termination Date, except that the Company shall
pay Executive all amounts owed to Executive for work performed prior to the
Termination Date, plus the cash value of any accrued but unused PTO as of the
Termination Date.

 

5.6.          Notice of Termination.  Any purported termination of employment by
the Company or by Executive shall be communicated by written Notice of
Termination to the other Party in accordance with Section 9 hereof.  For
purposes of this Agreement, a “Notice of Termination” shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.

 

5.7.          Survival.  The provisions of Section 7 shall survive the
termination of this Agreement.

 

6.             Accelerated Vesting in Change of Control.  In the event of a
Change of Control, any Stock Option held by Executive shall become immediately
exercisable as to all option shares without regard to the vesting schedule set
forth on the applicable Option Certificate.  For purposes of this Agreement, any
one of the following events shall be considered a “Change of Control” of the
Company:

 

(a)           Acquisition by any “person” (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934) of any amount of the
Company’s Common Stock so that such person holds or controls fifty percent (50%)
or more of the Company’s Common Stock;

 

(b)           Merger or consolidation of the Company with or into any other
entity in which the holders of the Company’s outstanding shares of capital stock
immediately before such merger or consolidation do not, immediately after such
merger or consolidation, retain capital stock representing a majority of the
voting power of the surviving entity of such merger or consolidation;

 

(c)           Sale of all or substantially all of the assets of the Company to a
third party;

 

(d)           Within any twenty-four (24) month period, the election by the
stockholders of the Company of twenty percent (20%) or more of the directors of
the Company other than pursuant to nomination by the Company’s management; or

 

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(e)           Execution of a legally binding, definitive agreement approved by
the Board of Directors providing for any of the events set forth in (a), (b),
(c) or (d) above.

 

7.             Confidentiality.

 

7.1.          Definitions.  As used herein, the term “Confidential Information”
shall mean any and all ideas, inventions, information, know-how, compounds,
materials and other items (whether patentable or not) that are confidential or
proprietary to the Company (or to its affiliates, collaborators, consultants,
suppliers, or customers) whether disclosed in written, oral, tangible or other
form and whether or not labeled or otherwise identified as confidential or
proprietary.  Confidential Information shall include, without limitation, the
following to the extent proprietary to the Company (or to its affiliates,
collaborators, consultants, suppliers or customers) and not publicly available:

 

(a)           inventions, trade secrets, discoveries and computer programs, and
any improvements or modifications thereto;

 

(b)           engineering, research, development and design projects, data,
designs, drawings and specifications;

 

(c)           manufacturing, development and other technical processes,
applications, methods, apparatus and equipment;

 

(d)           business information such as lists of approved components and
sources, price lists, product costs, production schedules, business plans, sales
information, profit and loss information, and customer and collaborator lists;

 

(e)           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; and

 

(f)            any and all information, materials and other items supplied by
third parties to the Company (or generated by the Company for third parties)
under an obligation of confidentiality.

 

7.2.          Non-Disclosure.  Executive shall not at any time (whether during
or after Executive’s employment with the Company) disclose or use any
Confidential Information for Executive’s own benefit or purposes or the benefit
or purposes of any other person, firm, partnership, joint venture, association,
corporation or other organization, entity or enterprise (a “Person”) other than
the Company.

 

7.3.          Exceptions.  Notwithstanding any other provision in the Agreement,
Confidential Information shall not include any information or material which:

 

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(a)           is or becomes generally available to the public other than as a
result of disclosure thereof by Executive;

 

(b)           is lawfully received by Executive on a non-confidential basis from
a third party that is not itself under an obligation of confidentiality or
non-disclosure to the Company with respect to such information;

 

(c)           can be shown by Executive to have been independently developed by
Executive;

 

(d)           Executive establishes by competent proof was in Executive’s
possession at the time of disclosure by the Company and was not acquired,
directly or indirectly from the Company; or

 

(e)           is required to be publicly disclosed by law or by regulation;
provided, however, that in such event Executive shall provide the Company with
prompt advance notice of such disclosure so that the Company has the opportunity
if it so desires to seek a protective order or other appropriate remedy.

 

7.4.          Return of Company Property.  Executive agrees that upon
termination of Executive’s employment hereunder, Executive shall return
immediately to the Company any proprietary materials, any materials containing
Confidential Information and any other Company property then in Executive’s
possession or under Executive’s control, including, without limitation all
notes, drawings, lists, memoranda, magnetic disks or tapes, or other recording
media containing such Confidential Information, whether alone or together with
non-confidential information, all documents, reports, files, memoranda, records,
software, credit cards, door and file keys, telephones, PDAs, computers,
computer access codes, disks and instructional manuals, or any other physical
property that Executive received, prepared, or helped prepare in connection with
Executive’s employment under this Agreement.  Upon termination, Executive shall
not retain any copies, duplicates, reproductions, or excerpts of Confidential
Information, nor shall Executive show or give any of the above to any third
party.  Executive further agrees that Executive shall not retain or use for
Executive’s account at any time any trade name, trademark, service mark, logo or
other proprietary business designation used or owned in connection with the
business of the Company.

 

8.             Specific Performance.  Executive acknowledges and agrees that the
Company’s remedies at law for a breach or threatened breach of any of the
provisions of Section 7 would be inadequate and, in recognition of this fact,
Executive agrees that, in the event of such a breach or threatened breach, in
addition to any remedies at law, the Company, without posting any bond, shall be
entitled to obtain equitable relief in the form of specific performance,
temporary restraining orders, temporary or permanent injunctions or any other
equitable remedy which may then be available.

 

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9.             Notices.  Any notice hereunder by either Party to the other shall
be given in writing by personal delivery, telex, facsimile, overnight courier or
certified mail, return receipt requested, addressed, if to the Company, to the
attention of the CEO at the Company’s executive offices or to such other address
as the Company may designate in writing at any time or from time to time to
Executive, and if to Executive, to Executive’s most recent address on file with
the Company.  Notice shall be deemed given, if by personal delivery or by
overnight courier, on the date of such delivery or, if by telex or facsimile, on
the business day following receipt of answer back or facsimile information or,
if by certified mail, on the date shown on the applicable return receipt.

 

10.           Assignment.  This Agreement may not be assigned by either Party
without the prior written consent of the other Party, provided, however, that
the Company may assign this Agreement without Executive’s consent in the event
of a merger, acquisition, or transfer of all or substantially all of the assets
of the Company with or to a third party (a “Merger”).  In the event of a Merger,
the Company shall require any successor Person to assume and agree to perform
this Agreement; failure to so assume and agree shall constitute a deemed
termination for purposes of Section 5.1.2(e).

 

11.           Entire Agreement.  This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and there have
been no oral or other agreements of any kind whatsoever as a condition precedent
or inducement to the signing of this Agreement or otherwise concerning this
Agreement or the subject matter hereof.

 

12.           Expenses.  The Parties shall each pay their own respective
expenses incident to the enforcement or interpretation of, or dispute resolution
with respect to, this Agreement, including all fees and expenses of their
counsel for all activities of such counsel undertaken pursuant to this
Agreement, provided, however, that in the event Executive is the prevailing
Party in any judicial or arbitral proceeding relating to this Agreement, the
Company shall reimburse Executive for all reasonable costs, fees and expenses
(including reasonable attorneys’ fees) incurred by Executive in connection with
such proceeding.

 

13.           Arbitration.  In the event any dispute should arise between the
Parties with respect to any of the terms and conditions of this Agreement, then,
at the initiation of either Party, such dispute shall be submitted and finally
settled by arbitration in Boston, Massachusetts under the rules of the
Employment Disputes Rules of the American Arbitration Association by an
arbitrator selected by the American Arbitration Association.  The dispute shall
be determined in accordance with Section 19 of this Agreement, except with
respect to issues of arbitrability, which shall be governed by the Federal
Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law.  The arbitrator shall
allow such discovery as is appropriate to the purposes of arbitration in
accomplishing a fair, speedy and cost-effective resolution of the dispute.  If
any Party fails to participate in the arbitration proceedings, the arbitrator
may proceed to decision based on expedited written submissions by the
participating Party.  The award rendered by the arbitrator shall be
nonappealable, final and binding upon the Parties, and judgment upon the award
rendered may be entered by either Party in any court of competent jurisdiction. 
The Parties agree not to institute any litigation or proceedings against each
other in connection with this Agreement except as provided in this Section 13,
provided, however, that either Party

 

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shall have the right to seek injunctive relief or other provisional remedies in
any federal or state court of competent jurisdiction in the Commonwealth of
Massachusetts.

 

14.           Waivers and Further Agreements.  Any waiver of any terms or
conditions of this Agreement 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 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 Agreement.

 

15.           Amendments.  This Agreement 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.

 

16.           Severability.  If any provision of this Agreement shall be held or
deemed to be, or shall in fact be, invalid, inoperative or unenforceable as
applied to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.

 

17.           Counterparts.  This Agreement 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.

 

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

 

19.           Governing Law.  This Agreement 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.

 

IN WITNESS WHEREOF, the Parties have executed or caused to be executed this
Agreement as of the Execution Date.

 

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ARQULE, INC.

EXECUTIVE

By:

 

 

By:

 

 

Name: Steve Hill

Name: Peter Lawrence

Title: President and CEO

 

 

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EXHIBIT A

 

BUSINESS RELATIONSHIPS

 

1.             Director of Pod Holding, Ltd.

 

2.             Director of Spherics, Inc.

 

3.             Board Observer of Paratek Pharmaceuticals, Inc.

 

4.             Director of Corestreet, Ltd.

 

5.             Director of Peppercoin, Inc.

 

6.             Vice Chairman and Director, Greater Boston Food Bank

 

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EXHIBIT B

 

OPTION CERTIFICATE

 

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EXHIBIT C

 

DETERMINATION OF OPTION PRICE

 

The exercise price of the Execution Stock Option is the Fair Market Value of
ArQule’s Common Stock (as defined below) as of the Effective Date as defined in
Section 1 of the Employment Agreement between the Company and Executive.

 

The Fair Market Value of ArQule’s Common Stock shall be the closing price of the
Common Stock as reported by the NASDAQ National Market on the trading day
immediately prior to the date of the commencement of Executive’s employment with
the Company.

 

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EXHIBIT D

 

Calculation of the Severance Payment

 

Pursuant to Section 5.1.1(a)(ii), the portion of Executive’s Severance Payment
based on bonuses (“Bonus Severance”) awarded to Executive, if any, would be
calculated in the following manner:

 

Example #1 – Executive terminated in year one of employment.

 

Bonus Severance = 35% (average of 35% deemed amount for two-year lookback period
where Executive did not work for the Company).

 

Example #2 – Executive awarded a 30% bonus for year one of employment,
terminated during year 2.

 

Bonus Severance = 32.5% (average of 30% Year 1 award and 35% deemed amount for
the year during the two-year lookback period where Executive did not work for
the Company).

 

Example #3 – Executive awarded a 30% bonus for year one of employment, a 0%
bonus for year 2 of employment, terminated during year 3.

 

Bonus Severance = 15% (average of year 1 and year 2 bonuses actually awarded).

 

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