Document:

Exhibit 10.1

 

Second Amendment to Employment Agreement

 

This Second Amendment to Employment Agreement (“Second
Amendment”) is entered into by and between ArQule, Inc., a Delaware
corporation (the “Company”) with its principal offices at 19 Presidential Way,
Woburn, Massachusetts 01801, and Peter Lawrence (“Executive”) whose current
principal residential address is 29 Fairfield Street, Unit 4-5, Boston, MA
02116.  The purpose of this Second
Amendment is to amend the Employment Agreement dated as of April 13, 2006
between the Company and Executive (the “Agreement”), as amended by the
amendment effective as of October 4, 2007 (“First Amendment”).  This Second Amendment shall be effective as
of April 14, 2008.

 

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

 

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

 

NOW THEREFORE, in consideration of $1.00, the receipt and
sufficiency of which is hereby acknowledged by Executive, the Company and
Executive hereby agree as follows:

 

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

 

2.                                       Title; Duties.  During the Employment Term, Executive shall serve as
President, Chief Operating Officer, General Counsel and Secretary, reporting to
the Chief Executive Officer (“CEO”) of the Company.  Executive hereby agrees to undertake the
duties and responsibilities inherent in such positions and such other duties
and responsibilities consistent with such position as the CEO shall from time
to time reasonably assign to Executive. 
Anything in Section 2 of the Agreement or in the First Amendment
which is inconsistent with the terms of this Section shall be of no
further effect, subject to the terms of Section 4 below.

 

3.                                       Base Salary, Target Amount for
Bonus.  Notwithstanding anything to the contrary in
the Agreement, (i) the Base Salary, as set forth in Section 4.1 of
the Agreement, shall be increased to $375,000, and (ii) the target amount
of Executive’s discretionary annual cash bonus, as set forth in Section 4.2
of the Agreement, shall be 40 percent of Executive’s Base Salary.

 

4.                                       Deemed Termination.  Section 3
of the First Amendment shall be null and void. 
Any determination of whether a “termination without Cause” has occurred
shall be governed by the provisions of Section 5.1.2 of the
Agreement.  For avoidance of doubt, the
reference to “title” in 5.1.2 (a) shall refer to the title conferred in Section 2
of this Second Amendment.

 

 

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

 

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

 

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

 

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

 

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

 

 

	
  ARQULE, INC.

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
  By: 

  	
  /s/ Patrick J. Zenner

  	
   

  	
  By: 

  	
  /s/ Peter S. Lawrence

  	
   

  
	
  Name:

  	
  Patrick J. Zenner

  	
  Name: Peter S. Lawrence

  
	
  Title:

  	
  Chair, Board of DirectorsExhibit 10.4

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement (the “Agreement”) dated as of April 15,
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 Paolo Pucci (“Executive”) whose current principal residential
address is 47 Bonnie Brook Road, Westport, Connecticut 06880.

 

WHEREAS, the Company desires to employ Executive as its
Chief Executive Officer and to enter into an agreement embodying the terms of
such employment; and

 

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

 

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

 

1.             Term
of Employment.  The Company hereby
agrees to employ Executive, and Executive hereby accepts such employment with
the Company, upon the terms and subject to the conditions set forth in this
Agreement, for a period commencing on June 9, 2008 (the “Effective Date”)
and continuing for a period of four (4) years, unless earlier terminated
in accordance with the provisions of Section 5 (the “Employment Term”), provided that the Company shall
provide Executive with no less than ninety (90) days advance written notice in
the event it decides not to extend this Agreement beyond the 4-year Employment
Term or negotiate in good faith a new agreement, and in the event the Company
does not provide such 90-day advance notice, the Company shall pay Executive up
to 90 days of his Base Salary in lieu of such advance notice.

 

2.             Title;
Duties.  During the Employment Term,
Executive shall serve as the Chief Executive Officer of the Company, reporting
directly to the Board of Directors of the Company (“Board”).  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 Board shall from time to
time reasonably assign to Executive.  In
addition, during the Employment Term, the Company shall nominate and renominate
Executive to serve as a member of the Board, and Executive understands and
agrees that he shall resign the directorship and any other positions that he
may hold with the Company upon the termination of his employment with the
Company for any reason.

 

3.             No
Conflict.  During the Employment
Term, Executive shall devote substantially all of his business time and efforts
to the performance of his 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
Board’s written consent, which consent shall not be unreasonably withheld,
delayed or conditional, before engaging in any such Outside Activities and
provided further that Executive’s participation in such Outside Activities
shall not be in violation of any of his obligations to the Company, including
but not limited to those set forth in the Company’s Code of Conduct.  Executive represents and warrants that Exhibit A
attached hereto states all 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 $450,000, payable in substantially equal
installments in accordance with the Company’s usual payment practices and
subject to annual review and upward adjustment by the Company in its sole
discretion.  Such amount (as it may be
increased, but not decreased, from time to time in accordance with this Section 4.1)
shall be referred to herein as the “Base Salary.”

 

4.2.          Bonus
Compensation.  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 50 percent
of Executive’s Base Salary.  The award of
an annual cash bonus, if any, shall be in the Board’s sole discretion and shall
be based on Company and individual performance. 
For calendar year 2008, Executive shall be guaranteed a bonus of
$225,000 which shall not be pro-rated. 
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 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 Board.

 

4.3.          Stock
Option Grant.  As further
compensation for Executive’s services hereunder, the Company shall grant to
Executive, on the Effective Date, a stock option (the “Execution Stock Option”)
to purchase five hundred thousand (500,000) 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 on the Effective Date and twenty-five percent
of the shares vesting annually for each of the next three years 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-1.  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.          Restricted
Shares.  Upon the approval of the
Committee that administers the Plan, and subject to the terms and conditions of
the Plan and the Restricted Stock Agreement substantially in the form attached
hereto as Exhibit B-2, the Company shall grant to Executive, on the
Effective Date, 125,000 shares of the Company’s restricted stock, of which 50%
shall become vested and free of restrictions as of the Effective Date of this
Agreement, and the remaining 50% shall become vested and free of restrictions
as of the first anniversary of the Effective Date.

 

4.5.          Signing
Bonus.  Upon execution of this
Agreement, Executive shall be entitled to a signing bonus of $200,000.00 (the “Signing
Bonus”).  The Signing Bonus shall be paid
to Executive on the Company’s next regular payroll date following the Effective
Date of this Agreement.

 

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

 

4.7.          Paid
Time Off.  Executive shall be
entitled to five weeks (25 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.

 

4.8.          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.

 

4.9.          Temporary Housing
Allowance.  During the first six (6) months
of the Employment Term, the Company shall provide Executive with a temporary
housing allowance in the gross amount of $2,000 per month, payable on the first
regularly scheduled payroll date of the Company each month.

 

4.10.        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 $100,000, for reasonable expenses incurred by Executive in the
course of such relocation.  Reimbursable
expenses include, but shall not be limited to, closing costs (excluding
points), up to a maximum of three percent of the purchase price, for both the
purchase of a new primary residence and the sale of Executive’s current primary
residence and the reasonable costs of moving Executive’s household goods to a
new primary residence, provided that the Board’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.

 

4.11.        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.

 

4.12.        Annual
Review.  Executive shall receive an
annual review of his performance by the Board, or by a Committee of the Board,
or both.

 

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, plus the signing bonus pursuant to Section 4.5 of this Agreement, if
not previously paid, and shall grant Executive the Execution Stock Option as
provided in Section 4.3 and subject to Sections 4.3 and 5.1.1 of this
Agreement, and the restricted stock as provided in Section 4.4 and subject
to Sections 4.4 and 5.1.1 of this Agreement, both to the extent not previously
granted.  In addition, in the event the
Company terminates Executive without Cause after a calendar year has been
completed but before the annual bonus, if any, relating to that calendar year
as provided in Section 4.2 above has been paid, the Company shall pay
Executive such annual bonus amount, if awarded. 
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 twenty four (24) month period
commencing on the Termination Date; plus

 

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

 

(b)           Payment of
the costs associated with continuing the benefits which Executive is entitled
to receive pursuant to Section 4.6 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
twenty four (24) 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, 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.

 

(d)           As
of the Termination Date, any Stock Option held by Executive shall become
immediately exercisable as to all options shares without regard to the vesting
schedule set forth on the applicable Option Certificate, to the extent such
Stock Option would have vested within the one-year period following the
Termination Date.  Executive shall have
one year from the Termination Date to exercise any vested Stock Option, unless
the terms of the applicable grant documents for any such Stock Option provide
for a longer exercise period.  In
addition, on the Termination Date, any shares of Restricted Stock previously
granted shall be vested and shall be free and clear of any restrictions to the
extent such Restricted Stock would have vested and to the extent any such
restrictions would have lapsed during the one year period following the
Termination Date.

 

(e)           For
purposes of clarity, in the event Executive does not become an employee of the
Company pursuant to the terms and conditions of this Agreement as of the
Effective Date as a result of the Company’s actions or inactions (other than as
a result of any action or inaction of Executive which would permit the Company
to terminate Executive’s employment for Cause), the Executive shall be entitled
to receive the Severance Package, as well as the signing bonus pursuant to Section 4.5
of this Agreement, and the Execution Stock Option and restricted stock as
provided in Sections 4.3 and 4.4 of this Agreement, respectively, which
Execution Stock Option and restricted stock shall be subject to the provisions
of this Section 5.1.1 as if Executive had received such Execution Stock
Option and restricted stock prior to the Termination Date.  However, in lieu of the payment of the costs
associated with continuing the benefits which Executive is entitled to receive
pursuant to Section 4.6 of this Agreement as part of the Severance Package
as provided in Section 5.1.1(b), the Company shall pay the cost of the
balance of Executive’s COBRA continuation coverage from Executive’s prior
employer, if elected, for a period of 18 months or such shorter period as
Executive’s COBRA continuation coverage ceases.

 

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 (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 or CEO title  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 fails to
grant the Execution Stock Option or the restricted stock as provided in
Sections 4.3 and 4.4 of this Agreement, respectively.

 

(e)           The Company materially
breaches any of its obligations to Executive pursuant to this Agreement,
including but not limited to its obligation to nominate and renominate
Executive to serve as a member of the Board.

 

“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 Board 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 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 Board 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,
provided that the Company first provides Executive with written notice of such
material breach.  A final determination
of whether Cause exists under this Agreement, including but not limited to any
determination of whether any act or omission of Executive constitutes a “material”
violation of the Company’s Code of Conduct, a “material” breach of this
Agreement, or is “materially injurious” to the Company, shall be made by the
Board.

 

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 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, plus the signing bonus pursuant to Section 4.5
of this Agreement, if not previously paid, and shall grant Executive the
Execution Stock Option as provided in Section 4.3 and subject to Sections
4.3 and 5.3 of this Agreement and the restricted stock as provided in Section 4.4
and subject to Sections 4.4 and 5.3 of this Agreement, both to the extent not
previously granted; (b) in the event the Company terminates Executive by
reason of Disability after a calendar year has been completed but before the
annual bonus, if any, relating to that calendar year 

 

 

as provided in Section 4.2 above has been paid, the Company shall
pay Executive such annual 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, and any Stock Option held as of the
Termination Date shall become immediately exercisable as to all option shares
without regard to the vesting schedule set forth on the applicable Option
Certificate and shall have one year from the Termination Date to exercise any
vested Stock Option, unless the terms of the applicable grant documents for any
such Stock Option provide for a longer exercise period, and any shares of
Restricted Stock previously granted shall immediately be free and clear of any
restrictions.

 

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, plus the signing bonus pursuant to Section 4.5
of this Agreement, if not previously paid, and shall grant Executive the
Execution Stock Option as provided in Section 4.3 and subject to Sections
4.3 and 5.4 of this Agreement, and the restricted stock as provided in Section 4.4
and subject to Section 4.4 and 5.4 of this Agreement, both to the extent
not previously granted, (b) in the event the Company terminates Executive
by reason of Death after a calendar year has been completed but before the
annual bonus, if any, relating to that calendar year as provided in Section 4.2
above has been paid, the Company shall pay Executive such annual 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, and any Stock Option held as of the Termination Date
shall become immediately exercisable as to all option shares without regard to
the vesting schedule set forth on the applicable Option Certificate and shall
have one year from the Termination Date to exercise any vested Stock Option,
unless the terms of the applicable grant documents for any such Stock Option
provide for a longer exercise period, and any shares of Restricted Stock
previously granted shall immediately be free and clear of any restrictions.

 

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 9
hereof.  For purposes of this Agreement,
a “Notice of Termination” shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision so indicated.

 

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

 

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 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.

 

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;

 

(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 two (2) years 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, and provided further that it shall not be a violation of this Section for
Executive (i) to accept employment with or otherwise perform services for
any entity which engages in Competitive Activity, provided that the operations
of such entity are not substantially devoted to engaging in Competitive
Activity and provided further that at least one level of executive management
exists within such entity between Executive and any Competitive Activity; or (ii) to
accept employment with or otherwise perform services for any entity which
engages in Competitive Activity provided that the business unit within such
entity in which Executive is employed or otherwise performing services, is in
no way engaged, directly or indirectly, in any Competitive Activity.  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 Board 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 Board, 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 two (2) years 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 represent 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 agree 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.

 

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 twenty-four 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.

 

11.                                 Excess Parachute Payments. 
If any payment or benefit Executive would receive under this Agreement,
when combined with any other payment or benefit Executive receives pursuant to
the termination of Executive’s employment with the Company (“Payment”) would
constitute in whole or in part an “excess parachute payment” within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”)
subject to the excise tax imposed by Section 4999 of the Code (the “Excise
Tax”), then such Payment shall be either (i) the full amount of such
Payment or (ii) such lesser amount (with cash payments being reduced
before stock option compensation) as would result if the payment were reduced
until no portion of the Payment was subject to the Excise Tax, whichever of the
foregoing amounts, taking into account the applicable federal state and local
employments taxes, income taxes, and the Excise Tax, results in Executive’s
retention, on an after-tax basis, of the greater net amount.

 

12.                                 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 Chair of the
Board at the Company’s executive offices or to such other address as the Board
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.

 

13.                                 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).

 

14.                                 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.

 

15.                                 Expenses.  The Parties
shall each pay their own respective expenses incident to the enforcement or
interpretation of, or dispute resolution with respect to, this Agreement,
including all fees and expenses of their counsel for all activities of such
counsel 

 

 

undertaken
pursuant to this Agreement, provided, however, that in the event Executive is
the prevailing Party in any judicial proceeding relating to this Agreement, the
Company shall reimburse Executive for all reasonable costs, fees and expenses
(including reasonable attorneys’ fees) incurred by Executive in connection with
such proceeding.

 

16.                                 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.

 

17.                                 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.

 

18.                                 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.

 

19.                                 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.

 

20.                                 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.

 

21.                                 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/ Patrick J. Zenner

  	
   

  	
  By:

  	
   /s/ Paolo Pucci

  
	
  Name: Patrick J. Zenner

  	
   

  	
  Name: Paolo Pucci

  
	
  Title: Chair, Board of
  Directors

  	
   

  	
   

  
					

 

 

EXHIBIT A

 

Outside Activities

 

 

EXHIBIT B-1

 

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, and nothing herein shall be deemed to supercede the terms and conditions
of the Plan.  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.

 

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, Paragraph 9 of this Agreement or as expressly set
forth in the Employment Agreement (and, in that case, subject to the applicable
terms and conditions of the Employment Agreement), if the Option Holder’s
employment with (a) the Company, or (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
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.

 

 

EXHIBIT B-2

 

ARQULE, INC. AMENDED AND RESTATED 1994 EQUITY INCENTIVE
PLAN

 

Restricted Stock Agreement

 

This
Restricted Stock Agreement (“Agreement”) between ArQule, Inc. (the “Company”)
and Paolo Pucci (the “Grantee”) dated as of [date].

 

1.  Grant; Plan Incorporated by Reference.

 

                (a)  On the terms and
conditions set forth in this Agreement, the Company hereby awards to Grantee
125,000 shares of Stock (the “Restricted Stock”), as provided for in Section 4.4
of the Employment Agreement between the Company and Grantee dated April 15,
2008 (the “Employment Agreement”).  The
award of the Restricted Shares is made pursuant to and is governed by the
ArQule, Inc. Amended and Restated 1994 Equity Incentive Plan (the “Plan”),
the terms of which are incorporated into this Agreement by this reference, and
nothing herein shall be deemed to supercede the terms and conditions of the
Plan.  Upon execution of this Agreement,
the Company will cause the shares of Restricted Stock to be issued, in
electronic form (with the restrictions contained herein electronically noted)
in the Grantee’s name.  The term “Restricted
Stock” shall include any additional shares of Stock issued on account of the
forgoing shares by reason of stock dividends, stock splits or recapitalizations
(whether by way of mergers, consolidations, combinations or exchanges of shares
or the like).

 

                (b)  Grantee agrees and
acknowledges that this Agreement shall constitute, for purposes of Section 151(f) of
the Delaware General Corporation Law, notice of the restrictions set forth
herein with respect to the Restricted Stock.

 

                (c)  Capitalized terms used
and not otherwise defined in this Agreement will have the meanings ascribed to
them in the Plan.  The Compensation,
Nominating and Governance Committee of the Board of Directors of ArQule, Inc.
(the “Committee”) administers the Plan and its determinations regarding the
interpretation and operation of the Plan are final and binding.  A copy of the Plan, the Plan Prospectus and
the Prospectus Supplement are available on the ArQule Intranet site.

 

2.  Schedule for Vesting of Rights.  Subject to Section 8 below, and subject
to the terms and conditions of the Employment Agreement, the schedule for
vesting of rights (i.e., the date upon which the restrictions on the Grantee’s
Restricted Stock will lapse) is as follows:

 

(a)                                  62,500 shares of Restricted
Stock will be vested and free of restrictions as of the effective date of the
Employment Agreement; and

 

(b)                                 62,500 shares of Restricted
Stock will be vested and free of restrictions on the first anniversary of the
effective date of the Employment Agreement.

 

3.  Forfeiture.  Subject to the terms and conditions of the
Employment Agreement, if the Grantee ceases to be an employee of the Company or
an affiliate for any reason, including disability, death and retirement, all
shares of Restricted Stock that remain subject to the restrictions imposed
under Section 2 hereof shall be forfeited upon such termination of
employment and returned to the Company unless the Board or Committee in its
discretion shall otherwise determine, and 

 

 

neither
the Grantee nor any successors, heirs, assigns or personal representatives of
the Grantee shall thereafter have any further rights or interest in such
shares.

 

4.  Rights as a Stockholder.  The Grantee will have all the rights of a
shareholder with respect to the Restricted Stock except as provided in Section 5
below.  Accordingly, the Grantee will
have the right during the Restricted Period to vote the Restricted Stock and to
receive any dividends paid with respect to the Restricted Stock.  All such rights shall cease upon forfeiture
of the Restricted Stock.

 

5.  Award not Transferable.

 

(a) 
For purposes of this Agreement, “Restricted Period” shall mean, with respect to
any shares of Restricted Stock, the period of time between the date of this
Agreement and the date on which rights in such shares of Restricted Stock
become vested in accordance with Section 2 above.

 

(b) 
During the Restricted Period, neither the Restricted Stock nor any rights
relating to such shares may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of by the Grantee.

 

(c) 
The Company shall not be required (i) to transfer on its books any shares
of Restricted Stock which have been sold or transferred in violation of any of
the provisions of this Agreement, or (ii) to treat as owner of such shares
or to accord the right to vote or to pay dividends to anyone to whom such
shares have been so transferred.

 

6.  Termination of Restrictions.  In the event that the Restricted Period shall
terminate with respect to the Restricted Stock and the Restricted Stock shall
not have been previously forfeited to the Company, the Company will remove the
restrictions on the shares and will deliver (in either electronic or
certificated form) such unrestricted shares to the Grantee or his or her legal
representative.

 

7.  Section 83(b) Election.  If the Grantee timely files an election
pursuant to Section 83(b) of the Code in respect of the Restricted
Stock, the Grantee shall promptly deliver to the Company a copy of the
election.

 

8.  Taxes. 
Any obligation of the Company to deliver shares upon the termination of
the Restricted Period with respect to the Restricted Stock, and any obligation
to deliver any dividends on those shares, will be subject to the satisfaction
of all applicable federal, state and local tax withholding requirements.  Unless otherwise determined by the Committee,
withholding requirements shall, at Grantee’s election, be satisfied with
respect to shares of Restricted Stock (i) for which no Section 83(b) election
is made, by (A) the Company’s retention of shares, with a Fair Market
Value equal to the Company’s required withholding obligation, otherwise
issuable to the Grantee as the result of the termination of the Restricted
Period, or (B) by the Company’s withholding, through payroll, of the
required amounts from payments otherwise due to the Grantee and (ii) for
which a Section 83(b) election is made, by the Company’s withholding,
through payroll, of the required amounts from payments otherwise due to the
Grantee.

 

Unless
otherwise determined by the Committee, withholding requirements with respect to
any dividend paid on shares of Restricted Stock during the Restricted Period
shall be satisfied (i) in the case of a cash dividend, by withholding from
such cash, and (ii) in the case of a stock 

 

 

dividend,
by withholding shares from such dividend with a Fair Market Value equal to the
Company’s required withholding obligation.

 

The
Grantee hereby authorizes and agrees to all such tax withholding.  For purposes of this Section 8, shares
that are withheld to satisfy any applicable withholding obligation shall be
valued at their Fair Market Value on the date the withholding obligation arises
and in no event shall the aggregate Fair Market Value of the shares withheld
exceed the amount of taxes required to be withheld.

 

9.  No Retention Rights.  Nothing in the Plan or this Agreement confers
upon the Grantee any right to continue in the service of the Company for any
period of specific duration or shall be construed to interfere with or
otherwise restrict in any way the rights of the Company or of the Grantee,
which rights are expressly reserved by each, to terminate the Grantee’s service
at any time and for any reason, with or without cause.

 

10.  Compliance with Securities Laws.  It shall be a condition to Grantee’s right to
receive the shares of Restricted Stock hereunder that the Company may, in its
discretion, require (a) that the shares of Restricted Stock 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, as amended (the “Act”),
with respect to the shares shall be in effect, or (ii) in the opinion of
counsel for the Company, the proposed issuance and delivery of the shares to
the Grantee shall be exempt from registration under the Act and the Grantee
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 Grantee, or both.  The
certificates representing the shares of Restricted Stock may contain such
legends as counsel for the Company shall consider necessary to comply with any
applicable law.

 

IN
WITNESS WHEREOF, the undersigned have executed this Agreement effective on the
date first set forth above.

 

	
  GRANTEE

  	
   

  	
  ARQULE,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

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.

 

 

EXHIBIT D

 

Calculation of the Severance
Payment

 

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

 

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

 

Bonus Component of Severance Payment =
$450,000 (deemed bonus amount for two-year lookback period where Executive did
not work for the Company).

 

Example #2 – Executive
deemed awarded a $225,000 bonus for year one of employment, and awarded no
bonus for year 2 of employment, then terminated during year 3.

 

Bonus Component of Severance Payment =
$225,000 (deemed year 1 bonus and year 2 bonus actually awarded).

 

Example #3 – Executive
awarded a $225,000 bonus for year 2 of employment, and awarded a $180,000 bonus
for year 3 of employment (40% of target), then terminated during year 4.

 

Bonus Component of Severance Payment =
$405,000 (total of year 2 and year 3 bonuses actually awarded)

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