Document:

Exhibit
10.24.10

 

FOURTH LOAN
MODIFICATION AGREEMENT

 

This Fourth Loan
Modification Agreement (“this Agreement”) is made as of September 3, 2003
between ArQule, Inc., a Delaware corporation (the “Borrower”) and Fleet
National Bank (the “Bank”).  The Bank is
the successor by merger to the entity formerly known as “Fleet National Bank”
(“Old FNB”).  For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:

 

1.          Reference is made
to:  (i) that certain letter
agreement dated March 18, 1999 (the “Original Letter Agreement”) between
the Borrower and Old FNB, the Bank having succeeded to the rights and
obligations of Old FNB thereunder; (ii) that certain Loan Modification
Agreement dated as of March 2, 2001 (the “First Modification”) between the Bank
and the Borrower, that certain Second Loan Modification Agreement dated as of
September 27, 2002 (the “Second Modification”) between the Bank and the
Borrower, and that certain Third Loan Modification Agreement dated as of
February 12, 2003 (the Original Letter Agreement, as amended by the First
Modification, the Second Modification and the Third Modification, being
hereinafter referred to as the “Letter Agreement”); (iii) that certain
$15,000,000 face principal amount promissory note dated March 18, 1999, as
amended by Allonge to Note dated as of March 2, 2001 (as so amended, the
“Facility One Term Note”) originally made by the Borrower and payable to the
order of Old FNB, the Bank having succeeded to the interests of Old FNB
thereunder; (iv) that certain $16,000,000 original principal amount
promissory note dated as of March 2, 2001 (the “Facility Two Term Note”) made
by the Borrower and payable to the order of the Bank; (v) that certain
$2,500,000 face principal amount promissory note dated September 27, 2002 (the
“Facility Three Term Note”) made by the Borrower and payable to the order of
the Bank; (vi) that certain Mortgage and Security Agreement and Assignment
of Leases and Rents dated as of March 2, 2001 given by the Borrower, as
mortgagor, to the Bank, as mortgagee, as amended by Amendment to Mortgage dated
as of September 27, 2002 (as so amended, the “Mortgage”); (vii) that
certain Environmental Compliance and Indemnity Agreement dated as of March 2,
2001 (the “Environmental Agreement”) given by the Borrower to the Bank; and
(viii) that certain Security Agreement (All Assets Except Intellectual
Property) dated as of September 27, 2002 (the “Security Agreement”) from the
Borrower to the Bank.  The Letter
Agreement, the Facility One Term Note, the Facility Two Term Note, the Facility
Three Term Note, the Mortgage, the Environmental Agreement and the Security
Agreement are hereinafter collectively referred to as the “Financing Documents”.

 

2.          The Bank hereby consents
to the acquisition of Cyclis Pharmaceuticals, Inc. by ArQule substantially on
the economic terms described on Exhibit A attached, and (ii) waives any
default under Sections 3.5, 4.6, 4.7 and 4.8 of the Loan Agreement which would
otherwise have resulted from this acquisition.

 

 

3.             The Letter Agreement
is hereby amended, effective as of September 30, 2003, by deleting the
penultimate sentence of Section 3.9 of the Letter Agreement (as most recently
amended by the Third Modification) and by substituting in its stead the
following:

 

“As used herein, ‘Cash
Burn’ for any period is the sum of (1) consolidated EBITDA of the Borrower and
Subsidiaries for such period (negative EBITDA being expressed as a positive
number for this purpose and positive EBITDA being expressed as a negative
number for this purpose), plus (2) all taxes actually paid by the
Borrower during such period, plus (3) all Capital Expenditures (except
to the extent financed with a Term Loan or with other purchase money financing
permitted under §4.1) incurred by the Borrower and/or any of its Subsidiaries
during such period, plus (4) all payments on account of Debt Service
paid or accrued by the Borrower and/or any of its Subsidiaries during such
period, but minus (5) all non-cash charges relating to (a) goodwill
and/or intangible asset impairment and (b) acquired in-process research and
development which were deducted by the Borrower on its consolidated books for
the purposes of determining consolidated EBITDA for the relevant period.”

 

4.          Wherever in any
Financing Document, or in any certificate or opinion to be delivered in
connection therewith, reference is made to a “letter agreement” or to the
“Letter Agreement”, from and after the date hereof same will be deemed to refer
to the Letter Agreement, as hereby amended.

 

5.          In order to induce the
Bank to enter into this Agreement, the Borrower agrees to pay to the Bank, at
the date hereof, an amendment fee of $5,000. 
Said fee is in addition to, and shall not be reduced by or applied
against, any interest, fees, charges or other amounts paid or payable with
respect to the Letter Agreement and/or with respect to any note issued
thereunder.

 

6.          In order to induce the
Bank to enter into this Agreement, the Borrower also agrees to pay, promptly
upon receipt of an invoice therefor, all costs and expenses (including, without
limitation, reasonable attorneys’ fees) incurred by the Bank with respect to
this Agreement and/or the transactions contemplated hereby.

 

7.          In order to induce the
Bank to enter into this Agreement, the Borrower further represents and warrants
as follows:

 

a.          The execution, delivery
and performance of this Agreement have been duly authorized by the Borrower by
all necessary corporate and other action, will not require the consent of any
third party and will not conflict with, violate the provisions of, or cause a
default or constitute an event which, with the passage of time or the giving of
notice or both, could cause a default on the part of the Borrower under its
charter documents or by-laws or under any contract, agreement, law, rule,
order, ordinance, franchise, instrument or other document, or result in the
imposition of any lien or encumbrance on any property or assets of the
Borrower, except (I) liens and encumbrances in favor of the Bank and (II) liens
and encumbrances on the property and assets of Cyclis Corporation created prior
to the acquisition.

 

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b.          The Borrower has duly
executed and delivered this Agreement.

 

c.          This Agreement is the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms.

 

d.          The statements,
representations and warranties of the Borrower made in the Letter Agreement
and/or in the Security Agreement continue to be correct as of the date hereof;
except as amended, updated and/or supplemented by the attached Supplemental
Disclosure Schedule.

 

e.          The covenants and
agreements of the Borrower contained in the Letter Agreement (as amended
hereby) and/or in the Security Agreement have been complied with on and as of
the date hereof.

 

f.           Giving effect to the
amendment set forth above, no event which constitutes or which, with notice or
lapse of time, or both, could constitute, an Event of Default (as defined in
the Letter Agreement) has occurred and is continuing.

 

g.          No material adverse
change has occurred in the financial condition of the Borrower from that
disclosed in the financial statements of the Borrower filed with the Securities
and Exchange Commission to date.

 

8.          Except as expressly
affected hereby, the Letter Agreement and each of the other Financing Documents
remains in full force and effect as heretofore.  All of the Borrower’s obligations, indebtedness and liabilities
to the Bank as evidenced by or otherwise arising under the Financing Documents,
except as otherwise expressly modified in this Agreement, are, by the
Borrower’s execution of this Agreement, ratified and confirmed in all respects
by the Borrower.  In addition, by the
Borrower’s execution of this Agreement, the Borrower represents and warrants
that no counterclaim, right of set-off or defense of any kind exists or is
outstanding with respect to such obligations, indebtedness and liabilities.  The Borrower acknowledges that the security
interests and liens created by the Security Agreement and/or the Mortgage run
in favor of the Bank and constitute valid liens on the Collateral (as defined
in the Security Agreement) and the Mortgaged Premises (as defined in the
Mortgage) and the Borrower agrees that the Borrower shall take no action to
impair or invalidate said security interests and liens.  The Borrower acknowledges that the
obligations secured by such security interests and liens include, without
limitation, the Facility One Term Note, the Facility Two Term Note, the
Facility Three Term Note and the Letter Agreement (as amended by this
Agreement).

 

9.          Nothing contained herein
nor in any documents delivered herewith will be deemed to constitute a waiver
or a release of any provision of any of the Financing Documents.  Nothing contained herein will in any event
be deemed to constitute an agreement to give a waiver or release or to agree to
any amendment or modification of any provision of any of the Financing
Documents on any other or future occasion.

 

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Executed, as an
instrument under seal, as of the day and year first above written.

 

	
   

  	
  ARQULE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  Accepted and agreed:

  	
   

  
	
  FLEET NATIONAL BANK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  David E. Meagher

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
						

 

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SUPPLEMENTAL
DISCLOSURE SCHEDULE

 

ArQule, Inc. Acquisition of Cyclis
Pharmaceuticals, Inc. Term Sheet dated June 26, 2003.Exhibit
10.44

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement
(the “Agreement”) dated as of September 5, 2003 (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
Chiang J. Li, M.D. (“Executive”) whose current principal residential address is
61 Gardner Street, West Roxbury, Massachusetts 02132.

 

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

 

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

 

NOW, THEREFORE, in
consideration of the promises, 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 employ Executive, and Executive hereby accepts employment with the
Company, upon the terms and subject to the conditions set forth in this
Agreement, for a period commencing on September 8, 2003 (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, Chief Scientific Officer and Head of
the ArQule Biomedical Institute of the Company reporting solely 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, provided
that nothing contained in this Section 3 will be deemed to prevent or limit
Executive’s right to manage his personal investments on his own personal time,
subject to the terms and conditions of the NDA (as defined in Section 5.2,
below).  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.

 

 

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 $280,000, 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 with an initial target of 25% of Base Salary
based on Company and individual performance, and subject to pro-ration in
Executive’s first partial calendar year of employment, and in a partial year in
which Executive resigns pursuant to Section 4.2.2(b), if any.  Executive shall also be eligible to
participate in any and all other bonus plans and packages that are made
available to the Company’s executives, on a basis consistent with Executive’s
position and then-current Base Salary and in accordance with the policies and
practices of the Company and the Company’s Board of Directors (the “Board”).

 

4.2.                              Additional
Compensation.

 

4.2.1.                     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 “Stock Option”) to
purchase 115,000 shares of the Company’s Common Stock, $0.01 par value per
share (the “Common Stock”), pursuant to the Company’s Amended and Restated 1994
Equity Incentive Plan (the “Plan”) and in accordance with the terms, and subject
to a vesting schedule pursuant to which twenty-five percent (25%) of the shares
shall vest annually commencing on July 2, 2003(two thousand three), and other conditions, set forth in the form of
Option Certificate attached hereto as Exhibit B.  The method of determining the exercise price of such Stock Option
is set forth in the attached Exhibit C.

 

4.2.2                        Acceleration
of Options.

 

(a)                                  Termination.  Starting on the Effective Date, in the event
that Executive’s employment is terminated or deemed terminated without Cause
pursuant to Section 5.1, the Stock Option shall become immediately exercisable
as to all option shares without regard to the vesting schedule set forth on the
Option Certificate.

 

(b)                                 Academic
Appointment.  In the event that
following the second anniversary of the Effective Date, Executive resigns from
the Company and accepts a full time appointment from and commences full time
academic duties with an academic institution, the Stock Option shall become
immediately exercisable as to all option shares without regard to the vesting
schedule set forth on the Option Certificate.

 

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, accident and disability insurance) which the Company may, in its sole
and

 

2

 

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.

 

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.  Executive’s
employment hereunder may be terminated by the Company 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) 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;
(iii) the cash value of any accrued but unused PTO, as of the Termination Date;
(iv) as provided in Section 4.2.2(a), the Stock Option shall become immediately
exercisable as to all option
shares without regard to the vesting schedule set forth on the Option
Certificate; and (v) 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.  The payment to
Executive of any benefits 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.  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 that any of the following occur
and Executive provides to the Company Notice of Termination (as defined in
Section 5.6) within forty-five (45) days thereafter: (a) the Company materially
reduces or diminishes Executive’s compensation or responsibilities

 

3

 

or title without Cause;
(b) 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; (c) within six (6) months of a
Change of Control, the Company changes Executive’s reporting relationship so
that Executive no longer reports directly to Stephen A. Hill; or (d) 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.  For purposes of the
immediately preceding subsection (c), 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 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)

 

4

 

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
or under the Employee Non-Disclosure and Inventions Agreement in a form
substantially similar to the form attached hereto as Exhibit D, to be executed
by Executive as of the Execution Date (the “NDA”).  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, 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.  The payment to Executive of any benefits
other than the Severance Package 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, 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.  The payment to Executive of
any benefits other than the Severance Package 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 three (3) months 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

 

5

 

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 mutants, as well as any and all
derivatives or replications derived from or relating to such materials; and

 

(f)                                    any
and all information, materials and other items supplied by third parties to the
Company (or generated by the Company for third parties) under an obligation of
confidentiality.

 

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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 (or any other
employer of Executive) with respect to such information;

 

(c)  can be shown by Executive to have been
independently (and not under the auspices of the Company or any other employer
of Executive) developed by Executive;

 

(d)  Executive establishes by competent proof was
in Executive’s possession at the time of disclosure by the Company (or any
other employer of Executive) and was not acquired, directly or indirectly from
the Company (or such other employer); 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, computers, PDAs, 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

 

7

 

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 seek 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.

 

10.                                 Entire
Agreement.  The NDA and this
Agreement constitute 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.  In the extent there is any
conflict between this Agreement and the NDA, this Agreement shall prevail.  As
of the Execution Date, this Agreement shall supercede and replace in its
entirety the letter agreement by and between the Parties dated July 29, 2003
(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

 

8

 

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 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.

 

9

 

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

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Chiang J. Li, M.D.

  

 

10

 

EXHIBIT A

 

Business
Relationships

 

Executive’s non-paid
academic service (less than 10% of professional time) include:

 

1.                                       Attending/Teaching
Physician in Internal Medicine and Gastroenetrology/Hepatology at Beth Israel
Deaconess Medical Center, Harvard Medical School.

 

2.                                       Advisor
to postdoctoral fellows at BIDMC, Harvard Medical School.

 

11

 

EXHIBIT B

 

Option Certificate

 

12

 

EXHIBIT C

 

Determination of
Option Price

 

The exercise price of the
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

 

EXHIBIT D

 

EMPLOYEE NON-DISCLOSURE AND
INVENTIONS AGREEMENT

 

In consideration of my
employment or continued employment by ArQule, Inc., a Delaware corporation, and
its successors, subsidiaries, and affiliates (collectively, the “Company”), and
for other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, I agree as follows:

 

1.              Confidential
Information and Proprietary Materials

 

I understand that the
Company continually obtains and develops valuable proprietary and confidential
information concerning its business, business relationships, and financial affairs
(as further defined below, the “Confidential Information”) and valuable
Proprietary Materials (as defined below) which may become known to me in
connection with my employment.

 

I acknowledge that all
Proprietary Materials and all Confidential Information are and shall remain the
exclusive property of the Company or of the third party providing such
Proprietary Materials or Confidential Information to me or the Company.  By way of illustration, but not limitation,
Confidential Information may include Inventions (as defined below), trade
secrets, technical information, know-how, research and development activities
of the Company, product and marketing plans, customer and supplier information,
and information disclosed to the Company or to me by third parties of a
proprietary or confidential nature or under an obligation of confidence.  Confidential Information is contained in
various media, including without limitation, patent applications, computer
programs in object and/or source code, flow charts and other program
documentation, manuals, plans, drawings, designs, technical specifications,
laboratory notebooks, supplier and customer information, internal financial
data, and other documents and records of the Company, whether or not in writing
and whether or not labeled or identified as confidential or proprietary.  As used in this Agreement “Proprietary
Materials” shall include, without limitation: 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.

 

I agree that I shall not,
during the term of my employment and thereafter, publish, disclose, or
otherwise make available to any third party, other than employees of the
Company, any Confidential Information or Proprietary Materials except as
expressly authorized in writing by the Company.  I agree that I shall use such Confidential Information and
Proprietary Materials only in the performance of my duties for the Company and
in accordance with any Company policies regarding the protection of
Confidential Information and Proprietary Materials.  I agree not to use such Confidential Information or Proprietary
Materials for my own benefit or for the benefit of any person or business
entity other than the Company.

 

I agree to exercise all
reasonable precautions to protect the integrity and confidentiality of
Confidential Information and Proprietary Materials in my possession.  I further agree not to remove any
Proprietary Materials or materials containing Confidential Information from the
Company’s premises except to the extent necessary to my employment. Upon the
termination of

 

14

 

my employment, or at any
time upon the Company’s request, I shall return immediately to the Company any
and all Proprietary Materials and any materials containing any Confidential
Information then in my possession or under my control.

 

Confidential Information
shall not include information that (a) is or becomes generally known within the
Company’s industry through no fault of mine; (b) was known to me at the time it
was disclosed as evidenced by my written records at the time of disclosure; or
(c) is lawfully and in good faith made available to me by a third party who did
not derive it from the Company and who imposes no obligation of confidence on
me.

 

2.               Assignment
of Inventions

 

I agree promptly to
disclose to the Company any and all ideas, concepts, discoveries, inventions,
developments, original works of authorship, software programs, software and
systems documentation, trade secrets, technical data, know-how, and Proprietary
Materials that relate, directly or indirectly, to the business of the Company
or that arise out of my employment with the Company and that are conceived,
devised, invented, developed, or reduced to practice or tangible medium by me,
under my direction, or jointly by me and others during any period that I am
employed or engaged by the Company, whether or not during normal working hours
or on the premises of the Company (“Inventions”).

 

I hereby assign to the
Company all of my right, title, and interest to the Inventions and any and all
related patent rights, copyrights, and applications and registrations for such
patent rights and copyrights.  During
and after my employment, I shall cooperate with the Company, at the Company’s
expense, in obtaining proprietary protection for the Inventions and I shall execute
all documents that the Company shall reasonably request in order to perfect the
Company’s rights in the Inventions.  I
hereby appoint the Company my attorney to execute and deliver any such
documents on my behalf in the event I should fail or refuse to do so within a
reasonable period of time following the Company’s request.  I understand that, to the extent this
Agreement shall be construed in accordance with the laws of any state that
limits the assignability to the Company of certain employee inventions, this
Agreement shall be interpreted not to apply to any such invention that a court
rules or the Company agrees is subject to such state limitation.

 

I further represent that
the attached Schedule A contains a complete list of all inventions made,
conceived, or first reduced to practice by me, under my direction, or jointly
by me and others prior to my employment with the Company (“Prior Inventions”)
and that are not assigned to the Company under the terms of this Agreement. If
there are no Prior Inventions listed in Schedule A, I represent that
there are no such Prior Inventions.

 

3.               Other
Business Relationships

 

                                                I
hereby represent to the Company that, except as identified on Schedule B,
I am not bound by any agreement or any other previous or existing business
relationship that conflicts with or prevents the full performance of my duties
and obligations to the Company (including my duties and obligations under this
or any other agreement with the Company) during my employment, such as
confidentiality agreements or covenants restricting future employment.

 

15

 

I understand that the
Company does not desire to acquire from me any trade secrets, know-how, or
confidential business information that I may have acquired from others.
Therefore, I agree that during my employment with the Company, I will not
improperly use or disclose any proprietary information or trade secrets of any
former or concurrent employer, or any other person or entity with whom I have
an agreement or to whom I owe a duty to keep such information in
confidence.  Those persons or entities
with whom I have such agreements or to whom I owe such a duty are identified on
Schedule B.

 

4.               Non-Solicitation
of Employees; Non-Competition

 

I
acknowledge the highly competitive nature of the business of the Company and
its affiliates, and accordingly agree as follows:

 

A.                                   During my employment with the Company or any
of its affiliates and for a period of one (1) year thereafter, I will not
directly or indirectly, alone or through any other organization or entity,
including without limitation becoming an employee, investor (except as provided
below), officer, agent, partner or director of any such organization or entity,
engage in any activity that competes with the business of the Company and its
affiliates (“Competitive Activity”). 
For purposes of this Agreement, Competitive Activity means all business
activities of the Company and its affiliates worldwide.  Notwithstanding the foregoing, I will not be
deemed to be engaged directly or indirectly in any Competitive Activity if I
participate in any such business solely (a) as a passive investor in up to one
percent (1%) of the equity securities of a company or partnership, or (b) in
connection with full time academic duties with an academic institution.

 

B.                                    During my employment with the Company or any
of its affiliates and for a period of one (1) year thereafter, I will not
directly or indirectly: (a) solicit, divert or take away, or attempt to divert
or take away, the business or patronage of any of the clients, customers or
accounts, or prospective clients, customers or accounts of the Company or its
affiliates with whom the Company or its affiliates has or is actively
negotiating a written agreement as of the date as of which my employment with the
Company or any of its affiliates terminates (the “Separation Date”); (b)
recruit, solicit or hire any person who is, or within the six (6) month period
preceding the Separation Date was, an officer, director or employee of the
Company or any of its affiliates or was a scientific consultant with an
exclusive arrangement with the Company or any of its affiliates; or (c) induce
or attempt to induce any officer, director, employee consultant, agent or
representative of the Company or any of its affiliates to discontinue his or
her relationship with the Company or any of its affiliates or to commence an
employment or other business relationship with another entity.

 

Your failure to comply
with the requirements in this paragraph may result in termination for cause.

 

16

 

5.               No
Obligation of Continued Employment

 

I understand that this
Agreement does not constitute a contract of employment or create an obligation
on the part of the Company to continue my employment with the Company.  I understand that my employment is “at will”
and that my obligations under this Agreement shall not be diminished by any
change in my position, title, or function with, or compensation by, the Company.

 

6.               Miscellaneous

 

This Agreement may be
assigned by the Company to (a) any entity controlled by, controlling or under
common control with the Company or (b) to any successor of its business to
which this Agreement relates (whether by purchase, merger, consolidation or
otherwise).  I may not assign or
transfer any of my rights or obligations under this Agreement.  This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
other legal representatives, including, to the extent permitted by the terms of
this Agreement, their assignees.

 

This Agreement supersedes
all prior agreements, written or oral, with respect to the subject matter of
this Agreement.  This Agreement may be
changed only by a written instrument signed by both parties.

 

In the event that any one
or more of the provisions contained in this Agreement shall, for any reason, be
held to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provisions of this
Agreement, and all other provisions shall remain in full force and effect.  If any of the provisions of this Agreement
is held to be excessively broad, it shall be reformed and construed by limiting
and reducing it so as to be enforceable to the maximum extent permitted by
law.  I agree that should I violate any
obligation imposed on me in this Agreement, I shall continue to be bound by the
obligation until a period equal to the term of such obligation has expired
without violation of such obligation.

 

No delay or omission by
the Company in exercising any right under this Agreement will operate as a
waiver of that or any other right.  A
waiver or consent given by the Company on any occasion is effective only in that
instance and will not be construed as a bar to or waiver of any right on any
other occasion.

 

I acknowledge that the
restrictions contained in this Agreement are necessary for the protection of
the business and goodwill of the Company and are reasonable for such purpose. I
agree that any breach of this Agreement by me will cause irreparable damage to
the Company and that in the event of such breach, the Company shall be
entitled, in addition to monetary damages and to any other remedies available
to the Company under this Agreement and at law, to equitable relief, including
injunctive relief, and to payment by myself of all costs incurred by the
Company in enforcing the provisions of this Agreement, including reasonable
attorneys fees.

 

This Agreement shall be
construed as a sealed instrument and shall in all events and for all purposes
be governed by, and construed in accordance with, the laws of the Commonwealth

 

17

 

of Massachusetts without
regard to any choice of law principle that would dictate the application of the
laws of another jurisdiction.  Any
action, suit, or other legal proceeding I may commence in order to resolve any
matter arising under or relating to any provision of this Agreement shall be
commenced only in a court of the Commonwealth of Massachusetts (or, if
appropriate, a federal court located within Massachusetts), and I hereby
consent to the jurisdiction of such court with respect to any action, suit, or
proceeding commenced in such court by the Company.

 

I HAVE READ ALL OF THE PROVISIONS OF
THIS AGREEMENT AND I UNDERSTAND, AND AGREE TO, EACH OF SUCH PROVISIONS.

 

 

	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
  Signature of
  Employee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Acknowledged and agreed
  to by:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARQULE, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Anthony S. Messina

  	
   

  	
   

  
	
  Vice President, Human
  Development

  	
   

  	
   

  
				

 

18

 

SCHEDULE A

 

PRIOR INVENTIONS

 

The following is a
complete list of all Prior Inventions:

 

o                                                                                 No
Prior Inventions

 

ý                                                                                 See
below for description of Prior Inventions

 

1.                                       Tat
as a target for HIV therapeutics and vaccine

2.                                       Treatment
of gastrointestinal and hepatic diseases by RNA interference

3.                                       In
vivo delivery of RNA interference

4.                                     Treatment
of human diseases with a modified antibody technology

5.                                     A
vaccination methodology for the prevention of human colon cancer

6.                                     Activated
checkpoint therapy against human cancer (licensed to Cyclis Pharmaceuticals)

7.                                     Treatment
of human cancers with beta-lapachone and derivatives (licensed by Cyclis
Pharmaceuticals)

 

 

o                                                                                 Additional
Sheets Attached

 

If I am claiming any
Prior Inventions above, I agree that, if in the course of my employment with
the Company, I incorporate into a Company product, process, or machine a Prior
Invention owned by me or in which I have an interest, the Company shall automatically
be granted and shall have a nonexclusive, royalty-free, irrevocable,
transferable, perpetual worldwide license, with the right to grant sublicenses,
to make, have made, modify, use, and sell such Prior Invention as part of, or
in connection with, such product, process, or machine.

 

19

 

SCHEDULE B

 

PRIOR COMMITMENTS

 

20

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