Exhibit 10.2


 


EMPLOYMENT
AGREEMENT


 


This Employment Agreement
(the “Agreement”) dated as of November 21, 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 Thomas Chan (“Executive”) whose
current principal residential address is 7 Stoney Brook Road, Hopkinton,
MA  01748.


 


WHEREAS, the Company desires
to employ Executive as its Chief Scientific Officer (CSO) 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. 
The Agreement shall continue until November 17, 2012 unless  earlier 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 CSO of the
Company, reporting directly to its Chief Executive Officer (CEO).  Executive hereby agrees to undertake the
duties and responsibilities inherent in such position and such other duties and
responsibilities consistent with such position as 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 CEO’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
$309,000.00, payable in substantially equal installments in accordance with the
Company’s usual payment practices and subject to annual review and adjustment
upward or downward by the Company in its sole discretion; provided, however,
that an adjustment downward shall only occur in connection with a percentage
decrease in salary affecting all or substantially all senior management
employees of the Company.  Such amount
(as adjusted 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 30 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.  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 100,000 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”) subject to a vesting schedule
pursuant to which rights to twenty-five percent of the shares shall vest
annually on the next four anniversaries of the Effective Date and the terms 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.          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 CEO 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 fewer 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.


 


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For purposes of
clarity, a termination of Executive’s employment by reason of the expiration of
the Employment Term as set forth in Section 1 shall not be considered a
termination without Cause.


 


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 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-month period commencing on the
Termination Date; plus


 


(ii)           An amount equal to the average annual discretionary
bonus, if any, paid by the Company to Executive with respect to the two years
preceding the year in which the Termination Date occurs.  Bonus amounts paid to Executive by the
Company prior to the Effective Date shall be included in the calculation set
forth in the preceding sentence.  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 (subject to
any employee contribution requirements applicable to Executive on the
Termination Date) through the twelve-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 a twelve-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


 


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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 $309,000
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,
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 fewer than 30 days following such
notice (the “Cure Period”), to remedy the Deemed 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 CEO or otherwise perform Executive’s duties hereunder 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


 


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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.          Termination by Executive. 
Executive’s employment hereunder may be terminated by Executive at any
time upon not fewer than 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 5.3, 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.


 


5.4.          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 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; (b) in
the event the Company terminates Executive by reason of Disability after a


 


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calendar year has been completed but before the discretionary annual
cash bonus, if any, relating to that calendar year as provided in Section 4.2
above has been paid, the Company shall pay Executive such discretionary annual
cash bonus amount, if awarded; and (c) 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.


 


5.5.          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; (b) in the event the
Company terminates Executive by reason of Death after a calendar year has been
completed but before the discretionary annual cash bonus, if any, relating to
that calendar year as provided in Section 4.2 above has been paid, the
Company shall pay Executive such discretionary annual cash bonus amount, if
awarded; and (c) 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.


 


5.6.          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.


 


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


 


5.6           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,


 


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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 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.


 


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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:


 


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


 


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(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.             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 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


 


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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 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 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.             Other Agreements. 
Executive hereby represents to the Company 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). 
Executive understands that the Company does not desire to acquire from Executive
any trade secrets or confidential business information Executive may have
acquired from others.  Therefore,
Executive agrees that during the Employment Term and thereafter, Executive will
not improperly use or disclose any 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.


 


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10.                                 Injunctive Relief.  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 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 flowing to Executive from the Company, including but not
limited to the Severance Package, shall be subject to disgorgement by the
Employee and/or may be terminated, reduced, or cancelled by the Company.


 


11.                                 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 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.


 


12.                                 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).


 


13.                                 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

















 


14.                                 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.


 


15.                                 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.


 


16.                                 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.


 


17.                                 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.


 


18.                                 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.


 


19.                                 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.


 


20.                                 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/ Thomas C. Chan

  
	
  Name: Paolo Pucci

  	
  Name: Thomas C. Chan

  
	
  Title: Chief Executive
  Officer

  	
   

  
					



 

















 


EXHIBIT A


 


Outside Activities


 


1.                                       National
Institutes of Health-National Cancer Institute: 
Chair and Study Section member


 


2.                                       Department of
Defense — U.S. Army Prostate and Breast Cancer Scientific Advisory Panels:  Chair and Panel member


 


3.                                       Hope Funds for
Cancer Research:  Study Section member


 


4.                                       University of
Massachusetts:  Scientific Advisory Board
member


 


5.                                       Longy School of
Cambridge:  Board of Trustee member


 


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),  5.4 or 5.5 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.


 


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 


 


16

















 


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, 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 


 


17

















 


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 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.


 


18

















 


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 as its Chief Scientific Officer.


 


19

















 


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:


 


These calculations are for
illustrative purposes only and the following assumptions are utilized knowing
that going forward exact numbers will change the calculation of the bonus
payments:


 


	
  2008 Salary:

  	
   

  	
  $

  	
  286,000

  	
   

  
	
  2008 Bonus Target:

  	
   

  	
  25

  	
  %

  
	
  2009 Salary:

  	
   

  	
  $

  	
  325,000

  	
   

  
	
  2009 Bonus Target:

  	
   

  	
  30

  	
  %

  



 


Example
#1:  Executive terminated in 2009


 


Bonus
Severance = $68,750 (average of 25% for 2008 and 24% for 2007).


 


Example
#2:  Executive awarded a 25% bonus for
2008 and 30% for 2009, terminated during 2010


 


Bonus
Severance = $84,500 (average of 2008 and 2009)


 


Example
#3:  Executive awarded a 25% bonus for
2008, 0% bonus for 2009, terminated during 2010


 


Bonus
Severance = $35,750 (average of year 1 and year 2 bonuses actually awarded)


 


20