Exhibit 10.1


 


EMPLOYMENT
AGREEMENT


 


This
Employment Agreement (the “Agreement”) dated as of June 17, 2008 (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 Brian Schwartz (“Executive”) whose
current principal residential address is 18 October Hill Road, Woodbridge,
Connecticut 06525.


 


WHEREAS, the
Company desires to employ Executive as its Chief Medical Officer and Vice President
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.  Executive’s employment shall
commence on July 14, 2008  (the “Effective
Date”) and shall continue until terminated in accordance with the provisions of
Section 5 of this Agreement (the “Employment Term”).


 


2.                                       Title;
Duties.  During the Employment Term,
Executive shall serve as the Chief Medical Officer and Vice President 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
President or Chief Executive Officer of the Company 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 President’s written consent 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 Executive’s
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 Outside
Activities which Executive is participating in as of the Effective Date, and to
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 $325,000, payable in substantially equal
installments in accordance with the Company’s usual payment practices and
subject to annual review and adjustment by the Company in its sole
discretion.  Such amount (as it may be
adjusted upward or downward from time to time in accordance with this Section 4.1)
shall be referred to herein as the “Base Salary.”


 


4.2                                 Bonus
Compensation.  For each calendar year
during the Employment Term, Executive shall be eligible to receive a
discretionary annual cash bonus, the target amount of which shall be
thirty-five (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 2008, the annual cash bonus award, if any, shall be prorated based on the
portion of the year actually worked by Executive.  The annual cash bonus typically is paid
during the first quarter of the following calendar year, and, except as
otherwise expressly provided herein, Executive must be actively employed with
the Company as of the payment date in order to receive the discretionary 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.


 


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 200,000 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 substantially 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.  The Execution Stock Option
is intended to be an “incentive stock option” to the extent permissible under Section 422
of the Internal Revenue Code of 1986 (the “Code”), including the $100,000
limitation of Code Section 422(d).]


 


4.4                                 Executive
Benefits.  During the Employment
Term, Executive shall be eligible to participate in all employee benefit plans
and perquisite plans and policies


 


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(including fringe benefits, 401(k) plan participation, life,
health dental, accident and short and long term disability insurance) which the
Company may, in its sole and absolute discretion, make available to its
similarly-situated employees, whether such benefits are now in effect or
hereafter adopted, subject to the terms and conditions of each such plan or
policy.  The Company may alter, modify,
add to or delete its employee benefit plans and its perquisite plans and
policies at any time as it, in its sole judgment, determines to be appropriate,
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                                 Relocation
Expenses.  Upon delivery of adequate
documentation of expenses incurred in relocation of Executive’s primary
residence to Massachusetts, the Company shall reimburse Executive, in an amount
not to exceed $75,000, for reasonable expenses incurred by Executive in the
course of such relocation, subject to the ArQule Relocation Policy
Guidelines.  The Company’s decision on
which relocation expenses are reimbursable under this paragraph shall be
conclusive.  Executive shall not be
entitled to reimbursement under this paragraph if he does not submit a request
and provide documentation for such reimbursement within two years of the
Effective Date of this Agreement.  The
reimbursement provided under this paragraph shall not apply to more than one relocation
by Executive.  In the event that
Executive resigns his employment with the Company or is terminated for Cause
within one year of receiving any reimbursement as provided under this
paragraph, Executive shall be required to repay to the Company any and all
reimbursement amounts received pursuant to this paragraph.


 


4.8                                 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.


 


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4.9                                 Annual
Review.  Executive shall receive an
annual review of his performance by the President of the Company.


 


5.                                       Termination.


 


5.1                                 Without
Cause by the Company. 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 Base Salary 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.


 


5.1.1                        The Severance Package.  In the event the Company terminates Executive’s
employment without Cause, and provided that Executive first executes a general
release in a form and of a scope reasonably acceptable to the Company within
sixty (60) days of the Termination Date, the Company shall provide, following
the effective date of such general release, the following severance benefits to
Executive (the “Severance Package”):


 


(a)                                  A
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 annual
discretionary cash bonus, if any, awarded by the Company to Executive with
respect to the two 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 thirty-five percent of Base Salary bonus target for
any year within such two-year period in which Executive was not paid a bonus
solely because Executive was not employed by the Company, and provided further
that for purposes of this sub-paragraph only, the annual discretionary cash
bonus, if any, awarded by the Company shall not be pro-rated.  Attached at Exhibit D
is a series of examples of the manner in which this portion of the Severance
Payment shall be calculated.


 


(b)                                 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 


 


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(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).


 


(c)                                  The Severance Payment
shall be paid to Executive in substantially equal installments, according to
the Company’s regular payroll schedule, over the twelve (12) month period
beginning on the first regular payroll date following the effective date of the
general release executed by Executive as provided above, subject to Section 5.8
below.


 


5.1.2                        Deemed Termination.  For purposes of this Section 5.1, a “termination
without Cause” by the Company shall be deemed to have occurred where Executive
has complied with the “Deemed Termination Process” (hereinafter defined)
following the occurrence of any of the following events (a “Deemed Termination
Condition”) without the Executive’s prior written consent:


 


(a)                                  A
diminution of Executive’s Base Salary below $325,000 on an annualized basis
(other than in connection with a Company-wide decrease in salary affecting all
or substantially all senior management employees of the Company);


 


(b)                                 A
diminution in Executive’s authority, duties or responsibilities without Cause;


 


(c)                                  A
material change in the geographic location of Executive’s place of employment
(for purposes of this paragraph, a “material change” shall be deemed to occur
only if the Company relocates Executive’s place of employment by a distance of
more then fifty (50) miles, excluding any relocation to the Company’s existing
offices in Woburn, MA); or


 


(d)                                 The
Company materially breaches any of its obligations to Executive pursuant to
this Agreement.


 


“Deemed Termination Process” shall mean that (i) the
Executive reasonably determines in good faith that a Deemed Termination
Condition has occurred; (ii) the Executive provides written notice to the
Company of the occurrence of the Deemed Termination Condition within
45 days of the initial occurrence of such condition; (iii) the
Executive cooperates in good faith with the Company’s efforts, for a period not
less than 30 days following such notice (the “Cure Period”), to remedy the
Deemed 


 


5

















 


Termination Condition; (iv) notwithstanding
such efforts, the Deemed Termination Condition continues to exist; and (v) the
Executive provides the Company with a Notice of Termination, which establishes
a Termination Date within 30 days after the end of the Cure Period.  If the Company cures the Deemed Termination
Condition during the Cure Period, a “termination without Cause” shall be deemed
not to have occurred.


 


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 failure to follow the reasonable instructions
of the President or Chief Executive Officer 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) material
violation by Executive of the Company’s Code of Conduct; (iii) Executive’s
willful misconduct that is materially injurious to the Company (whether from a
monetary perspective or otherwise); (iv) Executive’s willful commission of
an act constituting fraud with respect to the Company; (v) conviction of
Executive for a felony under the laws of the United States or any state
thereof; or (vi) Executive’s material breach of Executive’s obligations
under Sections 7 or 8 hereof.


 


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 the
Company shall pay Executive all Base Salary 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 


 


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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 Base Salary 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; and (b) provided that Executive first executes a general
release in a form and of a scope reasonably acceptable to the Company within
sixty (60) days of the Termination Date, Executive shall be entitled to the Severance
Package, except that the portion of the Severance Payment 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.


 


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 Base Salary 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; and (b) provided that Executive’s
estate first executes a general release in a form and of a scope reasonably
acceptable to the Company within ninety (90) days of the Termination Date,
Executive shall be entitled to the Severance Package.


 


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 Board.  Executive agrees that such notice 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 11
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.


 


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5.7                                 Survival.  The provisions of Sections 7, 8 and 9 shall
survive the termination of this Agreement.


 


5.8                                 Section 409A
of the Code.  It is the intention of
the parties to this Agreement that, to the extent possible, no payment or
entitlement pursuant to this Agreement will give rise to any adverse tax
consequences to Executive under Section 409A of the Internal Revenue Code
(“Code”) and Department of Treasury regulations and other interpretive guidance
issued thereunder, including that issued after the date hereof (collectively, “Section 409A”).  The Agreement shall be interpreted to that
end and consistent with that objective. 
Notwithstanding any other provision herein, if Executive is a “specified
employee” as defined in, and pursuant to, Treas. Reg. Section 1.409A-1(i) on
the Termination Date, no payment of compensation under this Agreement shall be
made to Executive during the period lasting six (6) months from the
Termination Date.  If any payment to
Executive is delayed pursuant to the foregoing sentence, such payment instead
shall be made in a lump sum payment on the first business day following the
expiration of the six-month period referred to in the prior sentence, and, as
of the first business day following the expiration of such six-month period,
all such payments shall resume in accordance with the schedule for such
payments.


 


Each payment under this Agreement shall be designated as a “separate payment”
within the meaning of Section 409A of the Code.  To the extent any reimbursement or in-kind
benefit due to Executive under this Agreement constitutes “deferred
compensation” under Section 409A of the Code, any such reimbursement or
in-kind benefit shall be paid to Executive in a manner consistent with Treas.
Reg. Section 1.409A-3(i)(1)(iv).


 


6.                                       Accelerated
Vesting in Change of Control.  In the
event that both (i) a Change of Control occurs and (ii) the Company
terminates Executive’s employment without Cause (or is deemed to terminate
Executive’s employment without Cause) within the period commencing three months
prior to the latest possible date of a Change of Control and ending one year
after the latest possible date 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,
and any shares of Restricted Stock previously granted shall immediately be free
and clear of any restrictions.  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 


 


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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 Board, or its designated committee; or


 


(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.


 


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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:


 


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


 


(h)                                 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;


 


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


 


(j)                                     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


 


(k)                                  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.


 


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7.5           Other Agreements. 
Executive represents and warrants that Executive is not bound by any
agreement or any other previous or existing business relationship which
conflicts with or prevents the full performance of Executive’s duties and
obligations to the Company (including Executive’s duties and obligations under
this or any other agreement with the Company). 
If Executive is prevented from performing his duties under this
Agreement for any period of time by order of a court of competent jurisdiction
as a result of the exercise of any legal or equitable remedy available to
ZIOPHARM Oncology, Inc. (“ZIOPHARM”) under that certain Invention,
Non-Disclosure and Non-Competition Agreement dated June 1, 2006 between
Executive and ZIOPHARM, then as of the date of such court order the Company may
exercise its right to terminate Executive’s employment for Cause pursuant to Section 5.2
of this Agreement.  Executive understands
that the Company does not desire to acquire from Executive any trade secrets,
know-how, or confidential or proprietary business information that Executive
may have acquired from others. 
Therefore, Executive agrees that during the Employment Term and
thereafter, Executive shall not, through, for or on behalf of the Company,
improperly use or disclose any confidential or proprietary information or trade
secrets of any former or concurrent employer, or any other person or entity
with whom Executive has an agreement or to whom Executive owes a duty to keep
such information in confidence, and Executive further agrees that any such
improper use or disclosure of any such confidential or proprietary information
or trade secrets shall be a material breach of this Agreement.


 


8.             Non-Competition; Non-Solicitation.


 


8.1           Non-Competition. 
During Executive’s employment with the Company or any of its affiliates
and for a period of one (1) year after the termination or cessation of
such employment for any reason, Executive shall not directly or indirectly,
alone or through any other organization or entity, including without limitation
becoming an employee, investor (except as provided below), officer, agent,
partner, member or director of any such organization or entity, engage or
prepare to engage in any Competitive Activity. 
For purposes of this Agreement, the term “Competitive Activity” means
any area of business that the Company or any of its affiliates worldwide (which
affiliates shall not include any entity that purchases the Company or otherwise
acquires all or substantially all of the Company’s assets and any of such
purchasing or acquiring entity’s affiliates) conducted or actively planned to
conduct at any time during Executive’s employment, including but not limited to
oncological drug development and kinase platform drug development.  Notwithstanding the foregoing, Executive
shall not be deemed to be engaged directly or indirectly in any Competitive
Activity if Executive participates in any such business solely as a passive
investor in up to one percent (1%) of the equity securities of a company or partnership.  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, but only if Executive is preparing to
engage in Competitive Activity during such period.  Nothing in this Section shall 


 


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be construed to affect in any way Executive’s confidentiality
obligations as set forth in Section 7 of this Agreement.  Nothing in this Section shall be
construed to prohibit Executive from seeking permission from the Company to
engage in any activity which may otherwise fall within the definition of
Competitive Activity as set forth in this Section, provided that a grant of
permission from the Company, if any, must be in writing.


 


8.2                                 Non-Solicitation. 
During Executive’s employment with the Company or any of its affiliates
and for a period of one (1) year after the termination or cessation of
such employment for any reason thereafter, Executive will not directly or
indirectly: (a) solicit, divert or take away, or attempt to divert or take
away, the business or patronage of any of the clients, customers or accounts,
or prospective clients, customers or accounts of the Company or its affiliates
with whom the Company or its affiliates has or is actively negotiating a
written agreement as of the Termination Date; (b) recruit, solicit or hire
any person who is, or within the six (6) month period preceding the
Termination Date was, an officer, director or employee of the Company or any of
its affiliates or was a scientific consultant with an exclusive arrangement
with the Company or any of its affiliates; or (c) induce or attempt to
induce any officer, director, employee consultant, agent or representative of
the Company or any of its affiliates to discontinue his or her relationship
with the Company or any of its affiliates or to commence an employment or other
business relationship with another entity.


 


9.                                       Injunctive Relief and Other Remedies. 
Executive acknowledges and agrees that the Company’s remedies at law for
a breach or threatened breach of any of the provisions of Sections 7 and 8
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.  In addition, in the event
that Executive breaches any provision of Sections 7 or 8 of this Agreement, the
applicable time periods set forth in such Sections, shall be extended for a
period of time equal to the period of time during which Executive was in breach
of the Agreement, up to a maximum of twelve (12)  months,
and if the Company is required to seek relief from such breach in any judicial
proceedings, then such time limitations shall extend for a period of time equal
to the pendency of any such proceedings, including all appeals, up to a maximum
of twenty-four months.  In connection with
the restrictions in Sections 7 and 8, Executive represents that his economic
means are such that those provisions will not prevent him from providing for
himself and his family on a basis satisfactory to Executive.  Further, in addition to any other remedies
available to the Company, in the event Executive breaches any of the provisions
of this Agreement, including but not limited to Sections 7 or 8, Executive
agrees that any post-termination payments and benefits, if any, flowing to
Executive from the Company, including but not limited to the Severance Package,
shall be subject to termination, reduction, disgorgement or cancellation.


 


12

















 


10.           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 President 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.


 


11.           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 in writing any successor Person to
assume and agree to perform this Agreement; failure to so assume and agree
shall constitute a Deemed Termination Condition for purposes of Section 5.1.2(d).


 


12.           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.


 


13.           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.


 


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 


 


13

















 


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 and Forum. 
This Agreement 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
which may be commenced 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 the parties hereby consent to the jurisdiction of
such court with respect to any action, suit or proceeding commenced in such
court.


 


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


 


 


	
  ARQULE, INC.

  	
   

  	
  EXECUTIVE

  
	
  By:

  	
  /s/ Paolo Pucci

  	
   

  	
  By:

  	
  /s/ Brian Schwartz

  
	
  Name: Paolo Pucci

  	
   

  	
  Name: Brian Schwartz

  
	
  Title: Chief Executive
  Officer

  	
   

  	
   

  
					



 


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EXHIBIT A


 


Outside Activities


 


15

















 


EXHIBIT
B


 


ARQULE, INC. AMENDED AND RESTATED 1994 EQUITY INCENTIVE PLAN


Stock Option Terms And
Conditions


 


THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES
WHICH HAVE BEEN ISSUED UNDER THE 1994 EQUITY INCENTIVE PLAN AND REGISTERED
UNDER THE SECURITIES ACT OF 1933.


 


1.                                       Plan
Incorporated by Reference.  This
Option is issued pursuant to the terms of the Plan and may be amended as
provided in the Plan.  Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan.  This certificate does
not set forth all of the terms and conditions of the Plan, which are
incorporated herein by reference.  The
Committee administers the Plan and its determinations regarding the operation
of the Plan are final and binding. 
Copies of the Plan may be obtained upon written request without charge
from the Company.  This Option is
intended to be an “incentive stock option” to the extent permissible under Section 422
of the Internal Revenue Code of 1986 (the “Code”), including the $100,000
limitation of Code Section 422(d).


 


2.                                       Option Price.  The price to be paid for each share of Common
Stock issued upon exercise of the whole or any part of this Option is the
Option Price set forth on the face of this certificate.


 


3.                                       Vesting
Schedule.  This Option
may be exercised at any time and from time to time over the number of shares
and in accordance with the vesting schedule set forth on the face of this
certificate, but only for the purchase of whole shares, provided that if Option
Holder’s employment is terminated by the Company pursuant to Section 5.1
(including 5.1.2), 5.3 or 5.4 of the Employment Agreement between the Company
and Option Holder dated April 15, 2008 
(“Employment Agreement”), then this Option may be exercised at any time
and from time to time over the number of shares and in accordance with the
vesting schedule set forth in the applicable Section of the Employment
Agreement and subject to the terms and conditions of such applicable Section of
the Employment Agreement. 
Notwithstanding the foregoing, this Option may not be exercised as to
any shares after the Expiration Date.


 


4.                                       Method of
Exercise.  To exercise
this Option, the Option Holder shall deliver written notice of exercise to the
Company specifying the number of shares with respect to which the Option is
being exercised accompanied by payment of the Option Price for such shares in
cash, by certified check or in such other form, including shares of Common
Stock of the Company valued at their Fair Market Value on the date of delivery,
as the Committee may approve.  Promptly
following such a notice, the Company will deliver to the Option Holder a
certificate representing the number of shares with respect to which the Option
is being exercised.


 


16

















 


5.                                       Rights as a
Stockholder or Employee.  The
Option Holder shall not have any rights in respect of shares as to which the
Option shall not have been exercised and payment made as provided above.  The Option Holder shall not have any rights
to continued employment by the Company or any group company by virtue of the
grant of this Option.


 


6.                                       Recapitalization,
Mergers, Etc.  As provided
in the Plan, in the event of a corporate transaction affecting the Company’s
outstanding Common Stock, the Committee shall equitably adjust the number and
kind of shares subject to this Option and the exercise price hereunder or make
provision for a cash payment.  If such
transaction involves a consolidation or merger of the Company with another
entity, the sale or exchange of all or substantially all of the assets of the
Company or a reorganization or liquidation of the Company, then in lieu of the
foregoing, the Committee may upon written notice to the Option Holder provide
that this Option shall terminate on a date not less than 20 days after the date
of such notice unless theretofore exercised. 
In connection with such notice, the Committee may in its discretion
accelerate or waive any deferred exercise period.


 


7.                                       Option Not
Transferable.  This Option
is not transferable by the Option Holder other than upon the death of the
Option Holder, in accordance with the Plan.


 


8.                                       Exercise of
Option After Termination of Employment  Except as expressly set forth in this
Paragraph 9 of this Agreement, if the Option Holder’s employment with (a) the
Company, (b) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming a stock option in a transaction to which
section 424(a) of the Code applies, is terminated for any reason, the
Option Holder may exercise the rights which were available to the Option Holder
at the time of such termination only within three months from the date of termination.  Upon the death of the Option Holder, his or
her Designated Beneficiary shall have the right, at any time within twelve
months after the date of death, to exercise in whole or in part any rights that
were available to the Option Holder at the time of death.  It is understood and agreed, however, that
any part of the Option intended to be an “incentive stock option” that is not
exercised within three months following the date of termination will lose
incentive stock option qualification and automatically convert to a
Nonstatutory Stock Option for the remainder of the applicable exercise
period.  Notwithstanding the foregoing,
no rights under this Option may be exercised after the Expiration Date.


 


9.                                       Exercise of
Option Upon Retirement.  Upon
Retirement, as defined below, any unvested shares set forth on the face of this
certificate shall vest, and this Option may be exercised in whole or part until
the earlier of up to two years from the date of Retirement or the Expiration
Date.  “Retirement” as to any Option
Holder shall mean such person’s leaving the employment of the Company or an
Affiliate after reaching age 55 with ten (10) years of full-time
continuous service with the Company; provided, that the sum of the Option
Holder’s age plus the number of years of continuous service equals or exceed
seventy (70).


 


10.                                 Compliance with
Securities Laws.  It shall be
a condition to the Option Holder’s right to purchase shares of Common Stock
hereunder that the Company may, in its discretion,


 


17

















 


require (a) that the shares of Common Stock reserved for issue
upon the exercise of this Option shall have been duly listed, upon official
notice of issuance, upon any national securities exchange or automated
quotation system on which the Company’s Common Stock may then be listed or
quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Option Holder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company
shall consider necessary to comply with any law applicable to the issue of such
shares by the Company shall have been taken by the Company or the Option
Holder, or both.  The certificates
representing the shares purchased under this Option may contain such legends as
counsel for the Company shall consider necessary to comply with any applicable
law.


 


11.           Payment of Taxes.  To the extent applicable: The Option Holder
shall pay to the Company, or make provision satisfactory to the Company for
payment of, any taxes required by law to be withheld with respect to the
exercise of this Option.  The Committee
may, in its discretion, require any other Income taxes imposed on the sale of
the shares to be paid by the Option Holder. 
In the Committee’s discretion, such tax obligations may be paid by
entering into some other arrangements to ensure that such amount is available
to them or it (whether by authorizing the sale of some or all of the shares and
payment to the Company or the member of the Group (as the case may be) of the
requisite amount of the proceeds of sale or otherwise). The Company and any
group company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the Option Holder.


 


12.           Transfer of Personal Data.  By acknowledging and accepting this award,
you understand that, in order to perform its requirements under the Plan, the
Company may transfer and process personal data and/or sensitive personal data
about you.  Such data may include but is
not limited to personal and financial data about you and sale of shares
purchased under the Plan from time to time. 
You also hereby give explicit consent to the Company to transfer and
process any such personal data and/or sensitive data outside the country in
which you work or are employed including countries which may be outside the
European Economic Area where there may be no legislation in relation to an
individual’s rights concerning personal data. 
This may also apply to other companies in the Company group, third party
advisers and administrators or regulatory authorities.


 


13.           Special Tax
Consequences.  The Option Holder
acknowledges that, to the extent the aggregate Fair Market Value of stock with
respect to which “incentive stock options” (within the meaning of Section 422
of the Code, but without regard to Section 422(d) of the Code),
including this Option, are exercisable for the first time by the Option Holder
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, any Subsidiary and any parent corporation thereof (within
the meaning of Section 422 of the Code)) exceeds $100,000, such options
shall be treated as Nonstatutory Options to the extent required by Section 422
of the Code.  The Option Holder further
acknowledges that the rule set forth in the preceding sentence shall be
applied by taking 


 


18

















 


options
into account in the order in which they were granted.  For purposes of these rules, the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.


 


19

















 


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 of the commencement
of Executive’s employment with the Company.


 


20

















 


EXHIBIT D


 


Calculation of the Severance
Payment


 


Pursuant
to Section 5.1.1(a)(ii), the portion of Executive’s Severance Payment
based on annual discretionary cash bonuses (“Bonus Severance”) awarded to
Executive, if any, would be calculated in the following manner (in all
examples, Executive’s Base Salary is assumed to be an annual rate of $325,000):


 


Example #1 — Executive
terminated in 2008.


 


Bonus Severance = $113,750 (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 2008, terminated during 2009.


 


Bonus Severance = $105,625 (average of 30%
Year 1 award ($97,500) and 35% deemed amount ($113,750) 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 2008, a 0% bonus for 2009, terminated during 2010.


 


Bonus Severance = $48,750 (average of year 1
and year 2 bonuses actually awarded).


 


21