Document:

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                                                                   EXHIBIT 10.45

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (the "Agreement") dated as of January 1, 2004
(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 Stephen A. Hill, M. D. ("Executive") whose
current principal residential address is 26 Dole Hill Lane, Boxford, MA 01921.

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

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

         NOW, THEREFORE, in consideration of the premises, and 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 (the "Parties") hereby agree as follows:

         1.       Term of Employment. The Company hereby agrees to continue to
employ Executive, and Executive hereby accepts such continued employment with
the Company, upon the terms and subject to the conditions set forth in this
Agreement, for a period commencing on January 1, 2004 (the "Effective Date") and
continuing until terminated in accordance with the provisions of Section 5 (the
"Employment Term").

         2.       Title; Duties. During the Employment Term, Executive shall
serve as President and Chief Executive Officer of the Company reporting directly
to the Board of Directors of the Company or its designee (the "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.

         3.       No Conflict. During the Employment Term, Executive shall
devote substantially all of Executive's business time and efforts to the
performance of Executive's duties hereunder and shall not, directly or
indirectly, engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such duties
without the prior written consent of the Board, which consent shall not be
unreasonably withheld, delayed or conditioned. Executive represents and warrants
that Exhibit A attached hereto states all current business relationships,
including, but not limited to, consulting agreements, confidentiality agreements
and non-competition agreements to which Executive is a party as of the Execution
Date.

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         4.       Compensation and Benefits.

                  4.1.     Base Salary and Bonus. During the Employment Term,
the Company shall pay Executive for Executive's services hereunder a base salary
at the initial annual rate of $412,000, payable in regular installments in
accordance with the Company's usual payment practices and subject to annual
review and upward adjustment by the Board in its sole discretion. Such amount
(as it may be raised (but not decreased) from time to time in accordance with
this Section 4.1) shall be referred to herein as the "Base Salary." Executive
shall also be eligible to receive a discretionary annual cash bonus based on a
target amount (either as a percentage or a fixed dollar amount) established by
the Board and on Company and individual performance. Executive shall also be
eligible to participate in any and all other bonus plans and packages that are
made available to the Company's executives, on a basis consistent with
Executive's position and then-current Base Salary and in accordance with the
policies and practices of the Company and the Company's Board of Directors (the
"Board").

                  4.2.     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 zero
(0) shares of the Company's Common Stock, $0.01 par value per share (the "Common
Stock"), pursuant to the Company's Amended and Restated 1994 Equity Incentive
Plan (the "Plan") and in accordance with the terms, and subject to a vesting
schedule pursuant to which twenty-five percent of the shares shall vest annually
commencing on the first anniversary of the Effective Date, and other conditions,
set forth in the form of Option Certificate (attached hereto as Exhibit B in the
event the Execution Stock Option grants an option to purchase more than zero
shares of Common Stock). The method of determining the exercise price of the
Execution Stock Option is set forth in the attached Exhibit C. Subject to the
discretion of the Board, 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, together with
any stock options to purchase Common Stock which the Company has previously
granted to Executive, collectively, the "Stock Options").

                  4.3.     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.

                  4.4.     Paid Time Off. Executive shall be entitled to four
weeks (20 working days) of paid time off ("PTO") per annum during the Employment
Term, 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 existing policies and practices.

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                  4.5.     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 during the Employment Term 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.

         5.       Termination.

                  5.1.     Without Cause by the Company.

                           5.1.1.   The Severance Package. The Company may
terminate Executive's employment hereunder at any time without Cause (as defined
in Section 5.2) upon not less than fourteen (14) days prior written notice from
the Company to Executive. The effective date of Executive's termination shall be
referred to herein as the "Termination Date." If Executive's employment is
terminated by the Company pursuant to this Section 5.1, the Company shall pay
Executive all amounts owed to Executive for work performed prior to the
Termination Date plus the following amounts and consideration (the "Severance
Package"), subject to standard payroll deductions and withholdings: (i) two
times the Base Salary through the end of the twelve (12) month period commencing
on the Termination Date to be paid in a lump sum; (ii) a lump sum payment equal
to two times the average bonus, if any, paid by the Company to Executive with
respect to the two (2) years preceding the year in which the Termination Date
occurs; (iii) the costs associated with continuing the benefits which Executive
is entitled to receive pursuant to Section 4.3 of this Agreement at the level in
effect as of the Termination Date (subject to any employee contribution
requirements applicable to Executive on the Termination Date) through the twelve
(12) month period commencing on the Termination Date; and (iv) the cash value of
any accrued but unused PTO, as of the Termination Date. The payment to Executive
of any benefits or consideration other than the Severance Package following the
termination of Executive's employment pursuant to this Section 5.1 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company and applicable laws, including that the Board, in
its sole discretion, may accelerate the vesting of any Stock Option held by
Executive as of the Termination Date.

                           5.1.2.   Deemed Termination. For purposes of this
Section 5.1, a "termination without cause" shall be deemed to occur, and
Executive shall be entitled to the Severance Package, in the event any of the
following occurs and Executive provides to the Company Notice of Termination (as
defined in Section 5.6) within forty-five (45) days thereafter: (a) the Company
substantially reduces or diminishes Executive's responsibilities or title
without Cause; (b) the Company reduces Executive's Base Salary or bonus target
(other than in connection with a Company-wide decrease in salary or bonus,
respectively); (c) the Company materially breaches any of its obligations to
Executive pursuant to this Agreement, and fails to cure such breach within 30
days of receipt of notice thereof; (d) the Company relocates Executive's place
of employment without Executive's written consent by a distance of more than
fifty (50) miles, excluding any relocation to the Company's existing offices in
Medford or Woburn, MA which would not constitute a deemed termination; or (e) a
successor in interest to the Company fails to assume the obligations of this
Agreement.

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                           5.1.3.   Accelerated Vesting in Change of Control. In
the event that the Company terminates or is deemed to terminate Executive's
employment pursuant to this Section 5.1 within one year of the latest possible
date of a Change of Control, in addition to the Severance Package, 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. For purposes of this Agreement, any one of the
following events shall be considered a "Change of Control" of the Company:

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

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

                           (e)      the 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.

                  5.2.     For Cause by the Company. Notwithstanding any other
provision of this Agreement, Executive's employment hereunder may be terminated
by the Company at any time for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) Executive's arbitrary, unreasonable, or willful failure to
follow the reasonable instructions of the 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)
Executive's willful misconduct that is materially injurious to the Company
(whether from a monetary perspective or otherwise); (iii) Executive's willful
commission of an act constituting fraud with respect to the Company; (iv)
conviction of Executive for a felony under the laws of the United States or any
state thereof; or (v) Executive's material breach of Executive's obligations
under Section 6 hereof. If Executive's employment is

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terminated by the Company for Cause, 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. The
payment to Executive of any other benefits following the termination of
Executive's employment pursuant to this Section 5.2 shall be determined by the
Board in its sole discretion in accordance with the policies and practices of
the Company and applicable laws.

                  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
substantially Executive's duties hereunder 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, (a) the
Company shall pay Executive all amounts owed to Executive for work performed
prior to the Termination Date, plus the Severance Package, except that the 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 (b) any Stock
Option held as of the Termination Date shall become immediately exercisable as
to all option shares without regard to the vesting schedule set forth on the
applicable Option Certificate. The payment to Executive of any benefits other
than as described in the immediately preceding sentence following the
termination of Executive's employment pursuant to this Section 5.3 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company and applicable laws.

                  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, (a) the Company shall pay to
Executive's estate or legal representative all amounts owed to Executive for
work performed through the last day of Executive's actual employment by the
Company plus the Severance Package, and (b) any Stock Option held as of the
Termination Date shall become immediately exercisable as to all option shares
without regard to the vesting schedule set forth on the applicable Option
Certificate. The payment to Executive of any benefits other than as described in
the immediately preceding sentence following the termination of Executive's
employment pursuant to this Section 5.4 shall be determined by the Board in its
sole discretion in accordance with the policies and practices of the Company and
applicable laws.

                  5.5.     Termination by Executive. Executive's employment
hereunder may be terminated by Executive at any time upon not less than thirty
(30) days prior written notice from Executive to the Company. Executive agrees
that such notice period is reasonable and necessary in light of the duties
assumed by Executive pursuant to this Agreement and fair in light of the

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consideration Executive is receiving pursuant to this Agreement. If Executive
terminates Executive's employment with the Company pursuant to this Section 5.5,
the Company shall pay Executive only an amount equal to the Base Salary through
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 8 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      Excise Tax. Notwithstanding any other provision of
this Agreement, in the event that any portion of the Severance Package or any
other payment or benefit received or to be received by Executive (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement) (collectively, the "Package") would be subject to the excise tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Excise Tax"), then the Package shall be reduced to the extent necessary so that
no portion of the Package is subject to the Excise Tax. All determinations
required to be made under this Section 5.7 shall be made by tax counsel selected
by the Company and reasonably acceptable to Executive ("Tax Counsel"), which
determinations shall be conclusive and binding on Executive and the Company
absent manifest error. All fees and expenses of Tax Counsel shall be borne
solely by the Company. Prior to any reduction in Executive's Package pursuant to
this Section 5.7, (a) Tax Counsel shall provide Executive and the Company with a
report setting forth its calculations and containing related supporting
information, and (b) Executive shall be entitled to specify which component(s)
of the Package shall be reduced in order to comply with the terms of this
Section 5.7.

                  5.8.     Survival. The provisions of Section 6 shall survive
the termination of this Agreement.

         6.       Confidentiality.

                  6.1      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;

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                           (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.

                  6.2      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.

                  6.3      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

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                                    the Company has the opportunity if it so
                                    desires to seek a protective order or other
                                    appropriate remedy.

                  6.4      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.

         7.       Specific Performance. Executive acknowledges and agrees that
the Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 6 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.

         8.       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 Board with a copy to the General Counsel at the
Company's executive offices or to such other address as the Company may
designate in writing at any time or from time to time to Executive, and if to
Executive, to Executive's most recent address on file with the Company. Notice
shall be deemed given, if by personal delivery or by overnight courier, on the
date of such delivery or, if by telex or facsimile, on the business day
following receipt of answer back or facsimile information or, if by certified
mail, on the date shown on the applicable return receipt.

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

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         10.      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. As of the Effective
Date, this Agreement shall supercede and replace in its entirety the Employment
Agreement by and between the Parties dated as of December 8, 1998 (the "Original
Agreement") and the Original Agreement shall be of no further force or effect.

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

         12.      Arbitration. In the event any dispute should arise between the
Parties with respect to any of the terms and conditions of this Agreement, then,
at the initiation of either Party, such dispute shall be submitted and finally
settled by arbitration in Boston, Massachusetts under the rules of the
Employment Disputes Rules of the American Arbitration Association by an
arbitrator selected by the American Arbitration Association. The dispute shall
be determined in accordance with Section 18 of this Agreement, except with
respect to issues of arbitrability, which shall be governed by the Federal
Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law. The arbitrator shall
allow such discovery as is appropriate to the purposes of arbitration in
accomplishing a fair, speedy and cost-effective resolution of the dispute. If
any Party fails to participate in the arbitration proceedings, the arbitrators
may proceed to decision based on expedited written submissions by the
participating Party. The award rendered by the arbitrator shall be
nonappealable, final and binding upon the Parties, and judgment upon the award
rendered may be entered by either Party in any court of competent jurisdiction.
The Parties agree not to institute any litigation or proceedings against each
other in connection with this Agreement except as provided in this Section 12,
provided, however, that either Party shall have the right to seek injunctive
relief or other provisional remedies in any federal or state court of competent
jurisdiction in the Commonwealth of Massachusetts.

         13.      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.

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         14.      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.

         15.      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.

         16.      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 instrument.

         17.      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.

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

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

                                            ARQULE, INC.

                                            By:_________________________________
                                            Name:
                                            Title:

                                            EXECUTIVE

                                            By:_________________________________
                                            Name:  Stephen A. Hill
                                            Title: President and Chief Executive
                                                   Office

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                                    EXHIBIT A

                             Business Relationships

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                                    EXHIBIT B

                               Option Certificate

Not applicable.

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                                    EXHIBIT C

                          Determination of Option Price

The exercise price of the Execution Stock Option is the Fair Market Value of
ArQule's Common Stock (as defined below) as of the date of the commencement of
Executive's employment with the Company.

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

                                       13<PAGE>

                                                                   EXHIBIT 10.46

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (the "Agreement") dated as of January 1, 2004
(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 J. David Jacobs ("Executive") whose current
principal residential address is 38 Kenwood Avenue, Newton, MA 02459.

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

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

         NOW, THEREFORE, in consideration of the premises, and 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 (the "Parties") hereby agree as follows:

         1.       Term of Employment. The Company hereby agrees to continue to
employ Executive, and Executive hereby accepts such continued employment with
the Company, upon the terms and subject to the conditions set forth in this
Agreement, for a period commencing on January 1, 2004 (the "Effective Date") and
continuing until terminated in accordance with the provisions of Section 5 (the
"Employment Term").

         2.       Title; Duties. During the Employment Term, Executive shall
serve as Vice President, Legal, General Counsel and Secretary of the Company
reporting directly to the Chief Executive Officer. 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 Chief
Executive Officer shall from time to time reasonably assign to Executive.

         3.       No Conflict. During the Employment Term, Executive shall
devote substantially all of Executive's business time and efforts to the
performance of Executive's duties hereunder and shall not, directly or
indirectly, engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such duties
without the prior written consent of the Chief Executive Officer, which consent
shall not be unreasonably withheld, delayed or conditioned. Executive represents
and warrants that Exhibit A attached hereto states all current business
relationships, including, but not limited to, consulting agreements,
confidentiality agreements and non-competition agreements to which Executive is
a party as of the Execution Date.

<PAGE>

         4.       Compensation and Benefits.

                  4.1.     Base Salary and Bonus. During the Employment Term,
the Company shall pay Executive for Executive's services hereunder a base salary
at the initial annual rate of $222,480, payable in regular installments in
accordance with the Company's usual payment practices and subject to annual
review and upward adjustment by the Chief Executive Officer or the Chief
Executive Officer's designee in his or her sole discretion. Such amount (as it
may be raised (but not decreased) from time to time in accordance with this
Section 4.1) shall be referred to herein as the "Base Salary." Executive shall
also be eligible to receive a discretionary annual cash bonus based on a target
amount (either as a percentage or a fixed dollar amount) established by the
Chief Executive Officer and on Company and individual performance. Executive
shall also be eligible to participate in any and all other bonus plans and
packages that are made available to the Company's executives, on a basis
consistent with Executive's position and then-current Base Salary and in
accordance with the policies and practices of the Company and the Company's
Board of Directors (the "Board").

                  4.2.     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 zero
(0) shares of the Company's Common Stock, $0.01 par value per share (the "Common
Stock"), pursuant to the Company's Amended and Restated 1994 Equity Incentive
Plan (the "Plan") and in accordance with the terms, and subject to a vesting
schedule pursuant to which twenty-five percent of the shares shall vest annually
commencing on the first anniversary of the Effective Date, and other conditions,
set forth in the form of Option Certificate (attached hereto as Exhibit B in the
event the Execution Stock Option grants an option to purchase more than zero
shares of Common Stock). The method of determining the exercise price of the
Execution Stock Option is set forth in the attached Exhibit C. Subject to the
discretion of the Chief Executive Officer and the Board, 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, together with any stock options to purchase Common Stock which
the Company has previously granted to Executive, collectively, the "Stock
Options").

                  4.3.     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.

                  4.4.     Paid Time Off. Executive shall be entitled to four
weeks (20 working days) of paid time off ("PTO") per annum during the Employment
Term, to be taken at such time or times as shall be mutually convenient for the
Company and Executive; provided, however,

                                       2
<PAGE>

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
existing policies and practices.

                  4.5.     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 during the Employment Term 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.

         5.       Termination.

                  5.1.     Without Cause by the Company.

                           5.1.1.   The Severance Package. The Company may
terminate Executive's employment hereunder at any time without Cause (as defined
in Section 5.2) upon not less than fourteen (14) days prior written notice from
the Company to Executive. The effective date of Executive's termination shall be
referred to herein as the "Termination Date." If Executive's employment is
terminated by the Company pursuant to this Section 5.1, the Company shall pay
Executive all amounts owed to Executive for work performed prior to the
Termination Date plus the following amounts and consideration (the "Severance
Package"), subject to standard payroll deductions and withholdings: (i) the Base
Salary through the end of the twelve (12) month period commencing on the
Termination Date to be paid in a lump sum; (ii) a lump sum payment of the
average bonus, if any, paid by the Company to Executive with respect to the two
(2) years preceding the year in which the Termination Date occurs; (iii) the
costs associated with continuing the benefits which Executive is entitled to
receive pursuant to Section 4.3 of this Agreement at the level in effect as of
the Termination Date (subject to any employee contribution requirements
applicable to Executive on the Termination Date) through the twelve (12) month
period commencing on the Termination Date; and (iv) the cash value of any
accrued but unused PTO, as of the Termination Date. The payment to Executive of
any benefits or consideration other than the Severance Package following the
termination of Executive's employment pursuant to this Section 5.1 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company and applicable laws, provided, however, that the
Chief Executive Officer, in his sole discretion, may accelerate the vesting of
any Stock Option held by Executive as of the Termination Date.

                           5.1.2.   Deemed Termination. For purposes of this
Section 5.1, a "termination without cause" shall be deemed to occur, and
Executive shall be entitled to the Severance Package, in the event any of the
following occurs and Executive provides to the Company Notice of Termination (as
defined in Section 5.6) within forty-five (45) days thereafter: (a) the Company
substantially reduces or diminishes Executive's responsibilities or title
without Cause; (b) the Company reduces Executive's Base Salary or bonus target
(other than in connection with a Company-wide decrease in salary or bonus,
respectively); (c) the Company materially breaches any of its obligations to
Executive pursuant to this Agreement, and fails to cure such breach within 30
days of receipt of notice thereof; (d) the Company relocates Executive's place
of employment without Executive's written consent by a distance of more than

                                       3
<PAGE>

fifty (50) miles, excluding any relocation to the Company's existing offices in
Medford or Woburn, MA which would not constitute a deemed termination; or (e) a
successor in interest to the Company fails to assume the obligations of this
Agreement.

                           5.1.3.   Accelerated Vesting in Change of Control. In
the event that the Company terminates or is deemed to terminate Executive's
employment pursuant to this Section 5.1 within one year of the latest possible
date of a Change of Control, in addition to the Severance Package, 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. For purposes of this Agreement, any one of the
following events shall be considered a "Change of Control" of the Company:

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

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

                           (e)      the 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.

                  5.2.     For Cause by the Company. Notwithstanding any other
provision of this Agreement, Executive's employment hereunder may be terminated
by the Company at any time for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) Executive's arbitrary, unreasonable, or willful failure to
follow the reasonable instructions of the Chief Executive Officer or otherwise
perform Executive's duties hereunder (other than as a result of a Disability (as
defined in Section 5.3)) for thirty (30) days after a written demand for
performance is delivered to Executive on behalf of the Company which demand
specifically identifies the manner in which the Company alleges that Executive
has not substantially followed such instructions or otherwise performed
Executive's duties; (ii) Executive's willful misconduct that

                                       4
<PAGE>

is materially injurious to the Company (whether from a monetary perspective or
otherwise); (iii) Executive's willful commission of an act constituting fraud
with respect to the Company; (iv) conviction of Executive for a felony under the
laws of the United States or any state thereof; or (v) Executive's material
breach of Executive's obligations under Section 6 hereof. If Executive's
employment is terminated by the Company for Cause, 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. The payment to Executive of any other benefits following the
termination of Executive's employment pursuant to this Section 5.2 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company and applicable laws.

                  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
substantially Executive's duties hereunder 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, (a) the
Company shall pay Executive all amounts owed to Executive for work performed
prior to the Termination Date, plus the Severance Package, except that the 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 (b) any Stock
Option held as of the Termination Date shall become immediately exercisable as
to all option shares without regard to the vesting schedule set forth on the
applicable Option Certificate. The payment to Executive of any benefits other
than as described in the immediately preceding sentence following the
termination of Executive's employment pursuant to this Section 5.3 shall be
determined by the Board in its sole discretion in accordance with the policies
and practices of the Company and applicable laws.

                  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, (a) the Company shall pay to
Executive's estate or legal representative all amounts owed to Executive for
work performed through the last day of Executive's actual employment by the
Company plus the Severance Package, and (b) any Stock Option held as of the
Termination Date shall become immediately exercisable as to all option shares
without regard to the vesting schedule set forth on the applicable Option
Certificate. The payment to Executive of any benefits other than as described in
the immediately preceding sentence following the termination of Executive's
employment pursuant to this Section 5.4 shall be determined by the Board in its
sole discretion in accordance with the policies and practices of the Company and
applicable laws.

                                       5
<PAGE>

                  5.5.     Termination by Executive. Executive's employment
hereunder may be terminated by Executive at any time upon not less than thirty
(30) days prior written notice from Executive to the Company. Executive agrees
that such notice 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,
the Company shall pay Executive only an amount equal to the Base Salary through
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 8 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 6 shall survive
the termination of this Agreement.

         6.       Confidentiality.

                  6.1      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

                                       6
<PAGE>

                                    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.

                  6.2      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.

                  6.3      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.

                  6.4      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

                                       7
<PAGE>

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.

         7.       Specific Performance. Executive acknowledges and agrees that
the Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 6 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.

         8.       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 Chief Executive Officer with a copy to the
General Counsel at the Company's executive offices or to such other address as
the Company may designate in writing at any time or from time to time to
Executive, and if to Executive, to Executive's most recent address on file with
the Company. Notice shall be deemed given, if by personal delivery or by
overnight courier, on the date of such delivery or, if by telex or facsimile, on
the business day following receipt of answer back or facsimile information or,
if by certified mail, on the date shown on the applicable return receipt.

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

         10.      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. As of the Effective
Date, this Agreement shall supercede and replace in its entirety the letter
agreement by and between the Parties dated April 3, 2001 (the "Letter
Agreement") and the Employment Agreement by and between the Parties dated as of
June 4, 2001 (the "Original Agreement") and the Letter Agreement and the
Original Agreement shall be of no further force or effect.

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

                                       8
<PAGE>

Executive for all reasonable costs, fees and expenses (including reasonable
attorneys' fees) incurred by Executive in connection with such proceeding.

         12.      Arbitration. In the event any dispute should arise between the
Parties with respect to any of the terms and conditions of this Agreement, then,
at the initiation of either Party, such dispute shall be submitted and finally
settled by arbitration in Boston, Massachusetts under the rules of the
Employment Disputes Rules of the American Arbitration Association by an
arbitrator selected by the American Arbitration Association. The dispute shall
be determined in accordance with Section 18 of this Agreement, except with
respect to issues of arbitrability, which shall be governed by the Federal
Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law. The arbitrator shall
allow such discovery as is appropriate to the purposes of arbitration in
accomplishing a fair, speedy and cost-effective resolution of the dispute. If
any Party fails to participate in the arbitration proceedings, the arbitrators
may proceed to decision based on expedited written submissions by the
participating Party. The award rendered by the arbitrator shall be
nonappealable, final and binding upon the Parties, and judgment upon the award
rendered may be entered by either Party in any court of competent jurisdiction.
The Parties agree not to institute any litigation or proceedings against each
other in connection with this Agreement except as provided in this Section 12,
provided, however, that either Party shall have the right to seek injunctive
relief or other provisional remedies in any federal or state court of competent
jurisdiction in the Commonwealth of Massachusetts.

         13.      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.

         14.      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.

         15.      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

                                       9
<PAGE>

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.

         16.      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 instrument.

         17.      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.

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

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

                                            ARQULE, INC.

                                            By:________________________________
                                            Name:  Stephen A. Hill
                                            Title: President and Chief Executive
                                                   Officer

                                            EXECUTIVE

                                            By:________________________________
                                            Name:  J. David Jacobs
                                            Title: Vice President, Legal,
                                                   General Counsel and Secretary

                                       10
<PAGE>

                                    EXHIBIT A

                             Business Relationships

Director of and Counsel to the Volpi Foundation for the Performing Arts, Inc.

                                       11
<PAGE>

                                    EXHIBIT B

                               Option Certificate

Not applicable.

                                       12
<PAGE>

                                    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 date of the commencement of
Executive's employment with the Company.

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

                                       13

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