Document:

iex10-2.htm

AGREEMENT

This Agreement dated as of March 22, 2010, is entered into by and between Nicholas A. LaBella Jr. (“Employee”) and Insmed Incorporated, a Virginia corporation (“Insmed”).

 

Employee and Insmed hereby agree to the following terms and conditions:

 

 

1. Purpose of Agreement.  The purpose of this Agreement is to provide that, in the event of a “Change in Control,” Employee may become entitled to receive additional benefits in the event of his termination.  It is believed that the existence of these potential benefits will benefit Insmed by discouraging turnover and causing Employee to be more able to respond to the possibility of a Change in Control without being influenced by the potential effect of a Change in Control on his job security.

 

 

2. Change in Control.  As used in this Agreement, “Change in Control” means an event or occurrence set forth in any one or more of subsections (a) through (d) below (including an event or occurrence that constitutes a Change in Control under one of such subsections but is specifically exempted from another such subsection):

 

 

(a)  the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership of any capital stock of Insmed if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 40% or more of either (x) the then-outstanding shares of common stock of Insmed (the “Outstanding Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of Insmed entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Insmed (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of Insmed, unless the Person exercising, converting or exchanging such security acquired such security directly from Insmed or an underwriter or agent of Insmed), (ii) any acquisition by Insmed, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Insmed or any corporation controlled by Insmed, or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i) and (ii) of subsection (c) of this Section 2; or

 

 

(b) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of Insmed (the “Board”) (or, if applicable, the Board of Directors of a successor corporation to Insmed), where the term “Continuing Director” means at any date a member of the  Board (i) who was a member of the Board on the date of the execution of this Agreement or (ii) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (ii) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or

 

 

(c) the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving Insmed or a sale or other disposition of all or substantially all of the assets of Insmed in one or a series of transactions (a “Business Combination”), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (i) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns Insmed or substantially all of the Insmed’s assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by Insmed or by the Acquiring Corporation) beneficially owns, directly or indirectly, 40% or more of the then outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination); or

 

 

(d) approval by the stockholders of Insmed of a complete liquidation or dissolution of Insmed.

 

 

3. Rights and Obligations Prior to a Change in Control.  Prior to a Change in Control, the rights and obligations of Employee with respect to his employment by Insmed shall be whatever rights and obligations are negotiated between Insmed and Employee from time to time.  The existence of this Agreement, which deals with such rights and obligations subsequent to a Change in Control, shall not be treated as raising any inference with respect to what rights and obligations exist prior to a Change in Control unless specifically stated elsewhere in this Agreement.

 

 

4. Effect of a Change in Control.  In the event of a Change in Control and Employee’s employment is terminated pursuant to a “Qualifying Termination” (as set forth below) on or prior to the date that is within twelve (12) months of the effective date of the Change in Control (the “Change in Control Date”), Employee shall be entitled to the severance payments and other benefits set forth in this Agreement.

 

 

5. Qualifying Termination.  If, subsequent to a Change in Control, Employee’s employment terminates within one year of the Change in Control Date, such termination shall be considered a Qualifying Termination unless:

 

 

(a) Employee voluntarily terminates employment.  However, it shall not be considered a voluntary termination of employment if, following the Change in Control, Employee’s compensation or duties are changed in any material respect from what they were immediately prior to a Change in Control, and subsequent to such change Employee elects to terminate employment.  A “change in any material respect” shall encompass (i) any significant diminution in Employee’s position, authority, duties, responsibilities, or reporting relationship, (ii) any material reduction in Employee’s then compensation and/or benefits, unless such reduction is an across-the-board reduction of the compensation and/or benefits of all similarly situated executives, (iii) any change in Employee’s job location to a site more than 50 miles away from his place of employment prior to the Change in Control or (iv) the failure of Insmed to obtain the agreement of any successor to Insmed to assure and agree to perform this Agreement.

 

 

(b) The termination is on account of Employee’s death or disability.  As used herein, “disability” refers to an illness or accident that causes Employee to be unable to perform the duties of his job for at least six consecutive months, as determined by a physician mutually acceptable to Insmed and Employee.

 

 

(c) Employee is involuntarily terminated for “Cause”, or it is determined that the facts conclusively demonstrate that Employee would have been terminated had any of the events set forth in clauses (i) through (iii) below had been known at the date of termination.  For this purpose “Cause” means:

 

 

(i) Employee’s willful and continued failure to substantially perform his reasonable assigned duties (other than any such failure resulting from incapacity due to physical or mental illness or any failure after Employee gives notice of termination for any of the reasons set forth in Section 5(a)), which failure is not cured within 60 days after a written demand for substantial performance is received by Employee from the Chairman of the Board which specifically identifies the manner in which the Chairman of the Board believes Employee has not substantially performed his duties;

 

 

(ii) Employee’s willful engagement in illegal conduct or gross misconduct that is materially and demonstrably injurious to Insmed; or

 

 

(iii) Employee’s conviction of a felony involving a crime of moral turpitude.

 

For purposes of this Section 5(c), no act or failure to act by Employee shall be considered “willful” unless it is done, or omitted to be done, in bad faith and without reasonable belief that Employee’s action or omission was in the best interests of Insmed.

 

6. Constructive Qualifying Termination.  If Employee’s employment terminates as a result of any change described in Section 5(a) of this Agreement or as a result of a termination by Insmed without Cause and a Change in Control occurs within six (6) months thereafter, subject to the execution of a release of employment claims in a form acceptable to Insmed and the expiration of the statutory revocation period, Employee shall be entitled to the compensation, payments and other benefits that Employee would have received if such termination had occurred after a Change in Control; provided, however, that Employee’s option exercise period would not be extended to the extent such options had expired prior to a Change in Control.

 

 

7. Date and Notice of Termination.  Any termination of Employee’s employment by Insmed or by Employee shall be communicated by a written notice of termination to the other party (the “Notice of Termination”).  Where applicable, the Notice of Termination shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed.

 

 

8. Severance Payments.

 

 

(a) If Employee is terminated as a result of a Qualifying Termination, subject to the execution of a release of employment claims in a form acceptable to Insmed and the expiration of the statutory revocation period, Insmed shall pay Employee within 30 days of said Qualifying Termination a cash lump sum equal 1.0 times Employee’s “Compensation” as a severance payment (“Severance Payment”). For this purpose, “Compensation” means the sum of Employee’s highest annual salary rate (i.e. Employee’s highest rate of annual salary while an employee of Insmed) plus a bonus calculated by multiplying Employee’s annual salary by the maximum bonus potential for the year containing the Change in Control Date, and further prorated as of the date of the Qualifying Termination.

 

 

(b) Notwithstanding anything herein to the contrary, if at the time of Employee’s termination of employment with Insmed, Employee is a “specified employee” as defined in Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and Insmed notifies Employee that, based on the advice of counsel, the deferral of the commencement of any Severance Payment is necessary in order to comply with Section 409A of the Code, then Insmed will defer the commencement of the Severance payment (without any reduction) by a period of at least six months. Any Severance Payment that would have been paid during such six-month period but for the provisions of the preceding sentence shall be paid in a lump sum within the first five (5) days of the seventh month following Employee’s termination of employment.  The provisions of this Section 8(c) shall apply only to the extent required to avoid Employee’s incurrence of any accelerated or additional tax under Section 409A of the Code.

 

 

(c) The Severance Payment set forth in this Section 8 is in lieu of any severance payments that Employee might otherwise be entitled to receive from Insmed under the terms of any severance pay arrangement not referred to in this Agreement.

 

 

9. Stock Option Grants and Other Forms of Employee Compensation.  In the event of a Change in Control, (i) all stock options then held by Employee shall become fully exercisable, and (ii) the restrictions imposed on any restricted stock held by Employee shall lapse.

 

 

10. Additional Benefits.  In the event of a Qualifying Termination, Insmed shall continue to provide to Employee health, dental, life insurance, continuation of D&O insurance, and the other fringe benefits that Employee received prior to the Qualifying Termination for the 18 month period immediately subsequent to the Qualifying Termination.  This 18-month period shall constitute the COBRA continuation period.

 

 

11. Taxes.

 

 

(a) The benefits that Employee may be entitled to receive under this Agreement and other benefits that Employee is entitled to receive under other plans, agreements and arrangements (which, together with the benefits provided under this Plan, are referred to as “Payments”), may constitute Parachute Payments that are subject to the “golden parachute” rules of Section 280G of the Code and the excise tax of Code Section 4999.  As provided in this Section 11, the Parachute Payments will be reduced if, and only to the extent that, a reduction will allow Employee to receive a greater Net After Tax Amount than Employee would receive absent a reduction.

 

 

(b) The Accounting Firm will first determine the amount of any Parachute Payments that are payable to Employee.  The Accounting Firm also will determine the Net After Tax Amount attributable to Employee’s total Parachute Payments.

 

 

(c) The Accounting Firm will next determine the largest amount of Payments that may be made to Employee without subjecting Employee to tax under Code Section 4999 (the “Capped Payments”).  Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.

 

 

(d) Employee will receive the total Parachute Payments or the Capped Payments, whichever provides Employee with the higher Net After Tax Amount.  If Employee will receive the Capped Payments, the total Parachute Payments will be adjusted by first reducing the amount of any noncash benefits under this Agreement or any other plan, agreement or arrangement (with the source of the reduction to be directed by Employee) and then by reducing the amount of any cash benefits under this Agreement or any other plan, agreement or arrangement (with the source of the reduction to be directed by Employee).  The Accounting Firm will notify Employee and Insmed if it determines that the Parachute Payments must be reduced to the Capped Payments and will send Employee and Insmed a copy of its detailed calculations supporting that determination.

 

 

(e) As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that the Accounting Firm makes its determinations under this Section 11, it is possible that amounts will have been paid or distributed to Employee that should not have been paid or distributed under this Section 11 (“Overpayments”), or that additional amounts should be paid or distributed to Employee under this Section 11 (“Underpayments”).  If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against Insmed or Employee, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that Employee must repay to Insmed together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by Employee to Insmed unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999.  If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify Employee and Insmed of that determination and the amount of that Underpayment will be paid to Employee promptly by Insmed.

 

 

(f) For purposes of this Section 11, the following terms shall have their respective meanings:

 

 

(i) “Accounting Firm” means an independent accounting firm selected by Insmed immediately before the Change in Control Date.

 

 

(ii) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to Employee on the date of payment.  The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

 

 

(iii) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.

 

 

12. Term of Agreement.  This Agreement shall be effective from March 22, 2010, through February 28, 2011.  Insmed may, in its sole discretion and for any reason, provide written notice of termination (effective as of the then applicable expiration date) to Employee no later than 60 days before expiration date of this Agreement.  If written notice is not so provided, this Agreement shall be automatically extended for an additional period of 12 months past the expiration date.  This Agreement shall continue to be automatically extended for an additional twelve (12) months at the end of such 12-month period and each succeeding 12-month period unless notice is given in the manner described in this Section 12.

 

 

13. Governing Law.  Except to the extent that federal law is applicable, this Agreement is made and entered into in the Commonwealth of Virginia and the laws of Virginia shall govern its validity and interpretation in the performance by the parties hereto of their respective duties and obligations hereunder.

 

 

14. Entire Agreement.  This Agreement constitutes the entire agreement between the parties respecting the compensation, payments and benefits due Employee in the event of a Change in Control followed by a Qualifying Termination, and there are no representations, warranties or commitments, other than those set forth herein, which relate to such benefits.  This Agreement may be amended or modified only by an instrument in writing executed by Insmed and Employee.

 

 

15. No Duty to Mitigate.  Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor shall any earnings that Employee may receive from any other source reduce any such payment.

 

 

16. Successors:  Binding Agreement.

 

 

(a) Assumption by Successor.  Insmed shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of Insmed expressly to assume and to agree to perform its obligations under this Agreement in the same manner and to the same extent that Insmed would be required to perform such obligations if no such assumption had occurred.  As used herein, Insmed shall mean any successor to its business and/or assets as aforesaid that assumes and agrees to perform its obligations by operation of law or otherwise.

 

 

(b) Enforceability by Beneficiaries.  This Agreement shall be binding upon and inure to the benefit of Employee (and Employee’s personal representatives and heirs) and Insmed and any organization which succeeds to substantially all of the business or assets of Insmed, whether by means of merger, consolidation, acquisition of all or substantially all of the assets of Insmed or otherwise, including, without limitation, as a result of a Change in Control, or by operation of law.  This Agreement shall inure to the benefit of and be enforceable by Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If Employee should die while any amount would still be payable to such Employee hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his designee or, if there is no such designee, to his estate.

 

 

17. Confidentiality.  Employee acknowledges that in the course of his employment with Insmed, he has acquired non-public privileged or confidential information and trade secrets concerning the operations, future plans and methods of doing business (“Proprietary Information”) of Insmed, and Employee agrees that it would be extremely damaging to Insmed if such Proprietary Information were disclosed to a competitor of Insmed or to any other person or corporation.  Employee understands and agrees that all Proprietary Information Employee has acquired during the course of such employment has been divulged to Employee in confidence and further understands and agrees to keep all Proprietary Information secret and confidential (except for such information which is or becomes publicly available other than as a result of a breach by Employee of this provision) without limitation in time.  In view of the nature of Employee’s employment and the Proprietary Information Employee has acquired during the course of such employment, Employee likewise agrees that Insmed would be irreparably harmed by any disclosure of Proprietary Information in violation of the terms of this Section 17 and that Insmed shall therefore be entitled to preliminary and/or permanent injunctive relief prohibiting Employee from engaging in any activity or threatened activity in violation of the terms of this Section and to any other judicial relief available to it.  Inquiries regarding whether specific information constitutes Proprietary Information shall be directed to Insmed’s General Counsel (or, if such position is vacant, Insmed’s Chairman of the Compensation Committee); provided, however, that Insmed shall not unreasonably classify information as Proprietary Information.

 

 

18. Non-Competition.

 

 

(a) For a period of twelve (12) months after the termination of Employee’s employment with Insmed, Employee will not:

 

 

(i) as an individual proprietor, partner, stockholder, officer, director, employee, director, joint venturer, investor, lender, or in any capacity whatsoever (other than as the holder of not more than one percent (1%) of the total outstanding stock of a publicly held company), engage in any business that competes directly with the products or services provided by Insmed at the time of termination or for which definitive Insmed plans then exist to so provide such products or services;

 

 

(ii) directly or indirectly recruit or solicit any person who is then an employee of Insmed or was an employee of Insmed at any time within six months prior to such solicitation; or

 

 

(iii) solicit, divert or take away, or attempt to divert or to take away, the business or patronage of any of the clients, customers or accounts, or prospective clients, customers or accounts of Insmed.

 

 

(b) If any restriction set forth in this Section 18 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area to which it may be enforceable.

 

 

(c) The restrictions contained in this Section 18 are necessary for the protection of the business and goodwill of Insmed and are considered by Employee to be reasonable for such purpose.  Employee agrees that any breach of this Section will cause Insmed substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies that may be available, Insmed shall have the right to seek specific performance and injunctive relief.

 

 

19. Outplacement Services.  In the event Employee is terminated by Insmed (other than for Cause, disability or death), or Employee voluntarily terminates employment for the reasons set forth in Section 5(a), within twelve (12) months following the Change in Control Date, Insmed shall provide outplacement services through one or more outside firms of  Employee’s choosing up to an aggregate of $10,000, with such services to extend until the earlier of (i) 12 months following termination of Employee’s employment or (ii) the date Employee secures full time employment.

 

 

20. Notices.  All notices, instructions and other communications given hereunder or in connection herewith shall be in writing.  Any such notice, instruction or communication shall be sent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii) prepaid via a reputable nationwide overnight courier service, in each case addressed to Insmed and to Employee at their respective addresses set forth below (or to such other address as either Insmed or Employee may have furnished to the other in writing in accordance herewith).  Any such notice, instruction or communication shall be deemed to have been delivered five business days after it is sent by registered or certified mail, return receipt requested, postage prepaid, or two business days after it is sent via a reputable nationwide overnight courier service. Either party may give any notice, instruction or other communication hereunder using any other means, but no such notice, instruction or other communication shall be deemed to have been duly delivered unless and until it actually is received by the party for whom it is intended.

 

If to Insmed:

           Insmed Incorporated

8720 Stony Point Parkway, Suite 200

           Richmond, Virginia 23235

           Attention:  Chairman, Compensation Committee

If to Employee:

           Nicholas A. LaBella Jr.

(Address information redacted for personal privacy purposes)

 

 

21. Captions.  The captions of this Agreement are inserted for convenience and do not constitute a part hereof.

 

 

22. Severability.  In case any one or more of the provisions contained in this Agreement shall for any reasons be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein and there shall be deemed substituted such other provision as will most nearly accomplish the intent of the parties to the extent permitted by applicable law.  In case this Agreement, or any one or more of the provisions hereof, shall be held to be invalid, illegal or unenforceable within any governmental jurisdiction or subdivision thereof, this Agreement or any such provision thereof shall not as a consequence thereof be deemed to be invalid, illegal or unenforceable in any other governmental jurisdiction or subdivision thereof.

 

 

23. Counterparts.  This Agreement may be 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 Agreement.

 

 

[Signature Page Follows]

 

  

  

  

IN WITNESS HEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first written above in Richmond, Virginia.

 

 

                                                                           INSMED INCORPORATED

____/s/ Kevin P. Tully__________________                                                                                     By___/s/ Randall Whitcomb, M.D._________

Witness                                  Randall Whitcomb, M.D.

             Chairman, Compensation Committee

___/s/ Eileen S. LaBella__________________                                                                                     By___/s/ Nicholas A. LaBella Jr.___________

Witness                                                                                                       Nicholas A. LaBella Jr.Exhibit 10.1

 

AMENDMENT
TO EMPLOYMENT AGREEMENT

 

This
Amendment to Employment Agreement (“Amendment”) is entered into by and between
ArQule, Inc., a Delaware corporation (the “Company”) with its principal
offices at 19 Presidential Way, Woburn, Massachusetts 01801, and Paolo Pucci (“Executive”).  The purpose of this Amendment is to amend the
Employment Agreement dated as of April 15, 2008 between the Company and
Executive (the “Agreement”).  This
Amendment shall be effective as of July 15, 2010 (the “Effective Date”).  Capitalized terms used but not defined in
this Amendment shall have the meanings ascribed to them in the Agreement.  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 Parties agree that the Employment Term,
as defined in Section 1 of the Agreement, shall continue through June 30,
2015, unless earlier terminated in accordance with the provisions of Section 5
of the Agreement.

 

2.             Base Salary.  The word “initial” in Section 4.1 of the
Agreement is deleted and the term “$450,000” is replaced with the term “$475,000.”  The Parties agree that the effect of such
changes is to increase the Executive’s annual Base Salary to $475,000 as of the
Effective Date.

 

3.             Bonus Compensation.  The first sentence of Section 4.2 of the
Agreement is deleted and replaced in its entirety with the following: “For each
calendar year during the Employment Term starting in calendar year 2010,
Executive shall be eligible to receive a discretionary annual cash bonus, the
target amount of which shall be 60 percent of Executive’s Base Salary.”

 

4.             Deemed Termination.  Section 5.1.2(b) of
the Agreement is hereby deleted and replaced in its entirety with the
following:

 

“A
material diminution of Executive’s authority, duties, or CEO title without
Cause.  For purposes of this subsection,
a “material diminution” includes, but is not limited to, the following in the
context of a Change in Control (as defined in Section 6 of the Agreement):

 

(i)            A reduction of the scope of the functions reporting
to Executive, which consists of research and development, operations, finance,
and human resources, provided that it shall not be a material diminution of
Executive’s duties if additional functions are assigned to report to Executive
during the Employment Term but then such additional functions subsequently are
removed from reporting to Executive;

 

(ii)           Executive’s inability to have direct responsibility
for the Company’s fully-integrated profit and loss statement (whether as a
stand-alone entity or as a division or other business unit of some other
acquiring entity); or

 

(iii)          The exclusion from, or failure to appoint Executive
to, the Board of Directors, or the Executive Committee, Management Committee or
equivalent corporate managerial body of senior executives, of the acquiring
company following the Change in Control.

 

5.             Stock Option Catch-Up Grant.  On the Effective Date, the Company shall
grant Executive an award of options covering 100,000 shares of common stock of
which twenty-five percent shall vest on the Effective Date and twenty-five percent
shall vest annually for each of the next three years, commencing on the first
anniversary of the Effective Date, and which shall also be subject to the terms
and conditions, including the form of Stock Option Certificate and the method
for determining exercise price, applicable to the Execution Stock Option
awarded under the Agreement, as modified by Section 4 of this Amendment.

 

6.             Performance-Based Stock Units.  Subject to the approval of the Compensation,
Nominating and Governance Committee (the “CNG Committee”) and subject to the
terms and conditions of the Plan and the Stock Unit Agreement that the Company
shall provide to Executive (which shall be substantially in the form attached
as Exhibit B to the Amendment), and in addition to any other equity awards
for which Executive may be eligible, Executive shall be eligible to receive a
grant of a maximum of 390,000 shares of the Company’s common stock (the “Performance-Based
Stock Units”), which shall vest in two tranches based on the Company’s achievement
of each of the milestones set forth on Exhibit A to this Amendment.  Executive must be employed by the Company as
of the date each milestone is achieved to be entitled to the vesting of the
Performance-Based Stock Units associated with that milestone.  Notwithstanding the foregoing, if a Deemed
Termination occurs after the price of the Company’s common stock has averaged
at or above a target price and for a duration established by the CNG Committee,
then the Severance Package set forth in Section 5.1.1 of the Agreement
shall incrementally include 300,000 Performance-Based Stock Units, which shall
vest on the Termination Date (the remaining 90,000 Performance-Based Stock
Units shall be forfeited), provided that Executive satisfies all conditions
precedent to receiving the Severance Package as set forth in Section 5.1.1
of the Agreement.

 

 

7.             No tax advice.  Executive acknowledges and agrees that the
Company has provided no tax advice to Executive with respect to this Amendment
and that Executive shall be solely responsible for any and all taxes
attributable to Executive, including but not limited to income taxes and
payroll taxes.

 

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

 

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

 

 

IN
WITNESS WHEREOF, the Parties have executed or caused to be executed this
Agreement as of July15, 2010.

 

 

	
  ARQULE, INC.

  	
   

  	
  EXECUTIVE

  
	
  By:

  	
  /s/
  William Messenger

  	
   

  	
  By:

  	
  /s/
  Paolo Pucci

  
	
  Name:

  	
  William
  Messenger

  	
   

  	
  Name:

  	
  Paolo
  Pucci

  
	
  Title:

  	
  Chair, Compensation, Nominating

  and Governance Committee

  	
   

  	
   

  

 

Exhibit A

 

Vesting Schedule for
Performance-Based Stock Units

 

The Performance-Based Stock Units described in Section 6 of the
Amendment shall vest in two tranches according to the following schedule:

 

	
  Milestone

  	
   

  	
  Shares

  
	
  Regulatory
  approval of a Company compound as set forth in votes of the CNG Committee
  relating thereto (the “Clinical Development Target”).

  	
   

  	
  300,000

  
	
   

  	
   

  	
   

  
	
  If
  after the Clinical Development Target is met, the Company’s common stock
  trades at or above a target price and for a duration as set forth in votes of
  the CNG Committee relating thereto.

  	
   

  	
  90,000

  

 

 

Exhibit B

 

ARQULE, INC. AMENDED AND
RESTATED 1994 EQUITY INCENTIVE PLAN

 

STOCK UNIT AGREEMENT

 

This
Stock Unit Agreement (this “Agreement”), dated as of July 15, 2010 (“Grant
Date”) is made by and between ArQule, Inc., a Delaware Corporation (the
“Company”), and Paolo Pucci (“Executive”).

 

1.             Operative Documents.

 

As stated herein, terms of this Agreement may be,
subject to, make reference to, or incorporate, certain provisions of the
following documents (collectively, the “Operative Documents”):

 

(a)       ArQule,
Inc. Amended and Restated 1994 Equity Incentive Plan (the “Plan”);

(b)       Employment
Agreement between the Company and Executive dated April 15, 2008 (the
“Employment Agreement”);

(c)       Amendment
to the Employment Agreement between the Company and Executive, dated July 15,
2010 (the “Amendment”); and

(d)       Action
by unanimous written consent taken on July 15, 2010 by the Compensation,
Nominating and Governance Committee of the Board of Directors of the Company
(the “Consent”).

 

Capitalized terms used herein without definition
shall have the respective meanings given to them in, as the case may be, the
relevant Operative Document.

 

2.             Grant of
Performance-Based Stock Units.

 

In
accordance with the Amendment and with reference to the Consent, the Company
hereby awards to Executive a maximum of 390,000 Performance-Based Stock Units,
as provided for in Section 6 of the Amendment. The award of the
Performance-Based Stock Units is made pursuant and subject to the terms and
conditions of the Plan, and nothing herein shall be deemed to supersede such
terms and conditions.  Upon execution of
this Agreement, the Company shall cause the Performance-Based Stock Units to be
recorded in a separate account maintained on the books of the Company.  The term “Performance-Based Stock Units”
shall include any additional units issued to the Executive on account of the
Performance-Based Stock Units awarded hereunder by reason of stock dividends,
stock splits or recapitalizations (whether by way of mergers, consolidations,
combinations or exchanges of shares or the like).  Each Performance-Based Stock Unit shall, upon
vesting, entitle the Executive to receipt of one share of the Company’s Common
Stock as referred to in the Plan.

 

 

3.             Vesting
Schedule; Forfeiture.

 

The
interest of Executive in the Performance-Based Stock Units shall vest as set
forth in the Amendment with reference to the Consent.  Subject to last sentence of Section 6 of the
Amendment, if Executive ceases to be an employee of the Company for any reason,
all Performance-Based Stock Units that have not yet vested shall be forfeited
upon such termination of employment and Executive shall thereafter have no
further rights or interest in such Performance-Based Stock Units.  For avoidance of any doubt, the Company and
the Executive confirm that in no event shall the maximum number of
Performance-Based Stock Units or shares of the Company’s Common Stock issued
pursuant to the terms of the Operative Documents exceed 390,000.

 

4.             Restrictions.

 

Unless
permitted under the terms of the Plan, Performance-Based Stock Units granted
hereunder may not be sold, pledged or otherwise transferred and may not be
subject to lien, garnishment, attachment or other legal process.

 

5.             Taxes.

 

Executive
shall be liable for any and all taxes, including any withholding tax
obligation, arising out of the vesting of Performance-Based Stock Units
hereunder.  Executive may elect to
satisfy such withholding tax obligation by having the Company retain shares of
Common Stock underlying vested Performance-Based Stock Units having a fair
market value equal to the Company’s minimum withholding obligation.

 

6.             Miscellaneous.

 

(a)           Unless and until the Performance-Based Stock Units
awarded hereunder have vested, the Executive will have no right of a
shareholder with respect to the shares of Common Stock underlying the Performance-Based
Stock Units including no right to vote or to receive any dividends paid with
respect to such shares of Common Stock.

 

(b)           The parties agree to execute such further
instruments and to take such action as may reasonably be necessary to carry out
the intent of this Agreement.

 

(c)           Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon delivery to
Executive at his address then on file with the Company.

 

(d)           Neither the Plan nor this Agreement nor any
provisions under either shall be construed so as to grant Executive any right
to remain in the employ of the Company.

 

(e)           This Agreement and the Amendment constitute the
entire agreement of the parties with respect to the subject matter hereof.

 

2

 

 

IN WITNESS WHEREOF, the undersigned have executed this
Agreement effective as of the Grant Date set forth above.

 

 

	
   

  	
  ARQULE,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Peter S. Lawrence

  
	
   

  	
  Name:
  Peter S. Lawrence

  
	
   

  	
  Title:
  President and Chief Operating Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Paolo Pucci

  
	
   

  	
  PAOLO PUCCI

  

 

3

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