Document:

Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Executive Employment
Agreement (this “Agreement”), dated January 1, 2008, is between CREDENCE
SYSTEMS CORPORATION (the “Company”) and CASEY EICHLER (“Executive”).

 

 

I.                                        POSITION
AND RESPONSIBILITIES

 

A.                                    Position.  Effective as of the date Executive commences
employment with the Company, Executive is employed in the position of Senior
Vice President, Chief Financial Officer and Secretary, reporting to the Company’s
Chief Executive Officer.  Executive will
perform such duties and responsibilities as are normally related to such
position in accordance with the standards of the industry and any additional
duties now or hereafter assigned to Executive by the Company.  Executive will abide by the rules, regulations,
and practices as adopted or modified from time to time in the Company’s sole
discretion.

 

B.                                    Other Activities.  Except
upon the prior written consent of the Company, Executive will not, during the
term of this Agreement:  (i) accept
any other employment; or (ii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage) that might
interfere with Executive’s duties and responsibilities hereunder or create a
conflict of interest with the Company. The following will be understood not to
interfere with Executive’s duties and responsibilities hereunder: (i) Executive’s
management of his personal finances, (ii) Executive’s participation in
charitable organizations; and (iii) Executive’s participation on the Advisory
Board or similar body of the companies listed on Schedule I to this Agreement
(as amended by mutual agreement of the parties from time to time) and their
respective affiliates, provided that Executive will not serve as an operating
officer of any such company.

 

C.                                    No Conflict.  Executive
represents and warrants that his execution of this Agreement, his employment
with the Company, and the performance of his proposed duties under this
Agreement will not violate any obligations he may have to any other employer,
person or entity, including any obligations with respect to proprietary or
confidential information of any other person or entity.

 

 

II.                                   COMPENSATION
AND BENEFITS

 

A.                                    Base Salary.  In consideration of the services to be
rendered under this Agreement, the Company will pay Executive an annual base
salary of Three Hundred and Twenty-five Thousand Dollars ($325,000) (“Base
Salary”).  The Base Salary will be paid
in accordance with the Company’s regularly established payroll practice.  Executive’s Base Salary will be reviewed on an
annual basis in accordance with the established procedures of the Company for
adjusting salaries for similarly situated employees and may be adjusted in the sole
discretion of the Company.

 

B.                                    Bonuses.  Executive will be eligible to receive an
annual target incentive bonus equal to sixty percent (60%) of his then-current
annual  salary compensation (“Target
Bonus”), based on Executive’s achievement of performance objectives determined
by the Company.  Executive’s bonus for fiscal
year 2008 will be no less than $81,250 which will be paid at the end of the
fiscal year in accordance with the Company’s customary bonus payment practices.

 

C.                                    Initial Equity Grants.  Contemporaneous with the commencement of
Executive’s employment with the Company, the Company will grant to Executive an
option to purchase Four Hundred Thousand (400,000) shares of the Company’s
Common Stock.  The Option Shares will
vest according to the following schedule, subject to Executive’s continued
service to the Company: (i) 12.5% of the Option Shares will vest on the
first six months of the date of grant, and (ii) the remaining 87.5% of the
Option Shares will vest in fourteen equal and successive quarterly installments
upon the Executive’s completion of each additional three (3) month period
of service thereafter.     In
addition, contemporaneous with the commencement of Executive’s employment, Executive
will be granted Fifty Thousand (50,000) restricted shares of the Company’s
Common Stock (the “Restricted Shares”), subject to the terms of the Company’s
Restricted Stock Agreement (the “Restricted Stock Agreement”) and the Company’s
Stock Incentive Plan. The Restricted Shares will vest according to the
following schedule, subject to Executive’s continued service to the Company:
25% of the Restricted Shares will vest on the first anniversary of the

 

 

 

date of grant, and an additional 25% of the Restricted Shares will vest
on each anniversary thereafter for the next three years. The date of grant and
the exercise or purchase price per share of the Restricted Shares will be
determined by the Board.

 

D.                                    Long Term Incentive Program.  In addition to the foregoing and subject to
approval by the Company’s Board of Directors and the approval by the Company’s
shareholders of the addition of a requisite number of shares to the Company’s
2005 Stock Incentive Plan in connection therewith, the Company will recommend
to the Board that you be eligible to earn 150,000 options, restricted shares or
restricted stock units, as determined by the plan design.  These equity equivalents will be earned or
vested contingent on the Company’s successful achievement of defined
performance objectives.

 

E.                                    Benefits.  Executive will be eligible to participate in
the benefits made generally available by the Company to similarly-situated
executives, in accordance with the benefit plans established by the Company,
and as may be amended from time to time in the Company’s sole discretion.

 

F.                                     Expenses.  The Company will reimburse Executive for
reasonable business expenses incurred in the performance of Executive’s duties
hereunder in accordance with the Company’s expense reimbursement guidelines.

 

 

III.                              AT-WILL
EMPLOYMENT; TERMINATION BY COMPANY

 

A.                                    At-Will Termination by Company.  Executive’s employment with the Company will
be “at-will” at all times.  The Company
may terminate Executive’s employment with the Company at any time, without any
advance notice, for any reason or no reason at all, notwithstanding anything to
the contrary contained in or arising from any statements, policies or practices
of the Company relating to the employment, discipline or termination of its
employees.  Upon and after such
termination, all obligations of the Company under this Agreement will cease,
except as otherwise provided herein.

 

B.                                    Separation Benefits.  Except
in situations where the employment of Executive is terminated For Cause, By
Death or By Disability (as defined in Section IV below), in the event that
the Company terminates Executive’s employment at any time, Executive will be
eligible to receive the following benefits (collectively, “Separation
Benefits):

 

1.                                      An
amount equal to:  (a) one hundred percent
(100%) of Executive’s then-current Base Salary; plus (b) one hundred percent
(100%) of Executive’s annual Target Bonus, payable in equal monthly
installments over the twelve (12) month period following the date of such
termination (“Salary Continuation Period”);

 

2.                                      accelerated
vesting of Executive’s outstanding and unvested stock options and/or restricted
stock grants such that said stock options and/or restricted stock will be
vested as of the date Executive’s employment terminates to the same extent as
if he were continuously employed through the end of the Salary Continuation
Period; provided that notwithstanding the terms of the relevant notice of stock
option award or notice of restricted stock award (each an “Award”), such
vesting will be calculated as if such stock options and restricted stock vested
in equal amounts on a monthly basis commencing on the initial grant date and
ending on the final vesting date under the relevant Award;

 

3.                                      If
Executive elects to continue his medical, dental and vision coverage under the
Consolidated Omnibus Reconciliation Act (“COBRA”), the Company will pay the
premiums for Executive’s COBRA coverage until the earlier of:  (a) the end of the Salary Continuation
Period; or (b) the date Executive becomes covered under another employer’s
health plan; and

 

4.                                      Continued
payment of the premiums required to maintain Executive’s coverage under his Company-provided
life insurance policy during the Salary Continuation Period.

 

 

 

Executive will not be
eligible to participate in the Company’s deferred compensation, 401K, or
employee stock purchase plans during the Salary Continuation Period.

 

Executive’s eligibility
for the foregoing Separation Benefits is conditioned on:  (a) Executive remaining available during
the Salary Continuation Period to consult with the Company regarding matters
for which he previously had responsibility as a Company executive; (b) Executive
having first signed a Mutual Release Agreement in the form attached as Exhibit A;
and (c) Executive’s agreement not to compete with the Company, or its
successors or assigns, during the Salary Continuation Period.  If Executive engages in any business activity
competitive with the Company or its successors or assigns during the Salary
Continuation Period, all Separation Benefits immediately will cease.

 

 

IV.                               OTHER
TERMINATIONS BY COMPANY

 

A.                                    Termination for Cause.  For purposes of this Agreement, “For Cause” will
mean:  (i) Executive is convicted of
or pleads no contest to a crime involving dishonesty, breach of trust, or  intentional physical harm to any person; (ii) Executive
willfully engages in conduct that is in bad faith and materially injurious to
the Company, including but not limited to, misappropriation of trade secrets,
fraud or embezzlement; (iii) Executive commits a material breach of this
Agreement, which breach is not cured within twenty (20) days after written
notice to Executive from the Company; (iv) Executive willfully refuses to
implement or follow a reasonable lawful policy or directive of the Company,
which refusal has a material adverse effect on the Company and which refusal  is not cured within twenty (20) days
after written notice to Executive from the Company; or (v) Executive
engages in misfeasance or malfeasance demonstrated by a pattern of failure to
perform job duties diligently and professionally and Executive has been
notified of such pattern and has not remedied such failure within thirty
(30) days after receipt of such notice.  The Company may terminate Executive’s
employment For Cause at any time, without any advance notice except as
specified above.  The Company will pay to
Executive all compensation to which Executive is entitled up through the date
of termination, subject to any other rights or remedies of the Company under
law; and thereafter all obligations of the Company under this Agreement will
cease.

 

B.                                    By Death.  Executive’s employment will terminate
automatically upon Executive’s death.  The Company will pay to Executive’s
beneficiaries or estate, as appropriate, any compensation then due and owing and the Separation Benefits described
in Section III(B) above, subject to the terms and conditions set
forth therein.  Thereafter, all
obligations of the Company under this Agreement will cease.  Nothing in this Section will affect any
entitlement of Executive’s heirs or devisees to the benefits of any life
insurance plan or other applicable benefits.

 

C.                                    By Disability.  If Executive becomes eligible for the Company’s
long term disability benefits or if, in the sole opinion of the Company,
Executive is unable to carry out the responsibilities and functions of the
position held by Executive by reason of any physical or mental impairment for
more than ninety (90) consecutive days or more than one hundred twenty (120)
days in any twelve (12) month period, then, to the extent permitted by
law, the Company may terminate Executive’s employment.  The Company will pay to Executive all
compensation to which Executive is entitled up through the date of termination and
the Separation Benefits described in Section III(B) above, subject to
the terms and conditions set forth therein. Thereafter all obligations of the
Company under this Agreement will cease.  Nothing in this Section will affect
Executive’s rights under any disability plan in which Executive is a
participant.

 

 

V.                                    CHANGE
OF CONTROL

 

A.                                    “Change of Control.”  For purposes of this Agreement, “Change of
Control” will mean a change in ownership or control of the Company effected
through a merger, consolidation or acquisition by any person or related group
of persons (other than an acquisition by the Company or by a Company-sponsored
employee benefit plan or by a person or persons that directly or indirectly
controls, is controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934) of securities possessing more than fifty percent (50%)
 of the total combined voting power of
the outstanding securities of the Company.

 

 

 

B.                                    Termination Following a Change of Control.  If the Executive is still employed at the time
of a Change of Control and the Company terminates Executive’s employment in the
absence of Cause and within twelve (12) months following a Change of
Control, Executive will be eligible to receive the following Separation
Benefits in lieu of the benefits set forth in Section III(B) above
but subject to the conditions set forth in Section III(B) above:

 

1.                                      an
amount equal to (a) twelve (12) months’ pay at Executive’s
then-current Base Salary, plus (b) One Hundred Percent (100%) of
Executive’s annual Target Bonus, payable in equal monthly installments over the
twelve (12) month period following the date of such termination (“Salary
Continuation Period”);

 

2.                                      accelerated
vesting as to 100% of Executive’s outstanding and unvested stock options and/or
restricted stock such that all such stock options and/or restricted stock will
be fully vested as of the date Executive’s employment terminates;

 

3.                                      if
Executive elects to continue medical, dental and/or vision coverage then
covered by the Company’s medical plans under the Consolidated Omnibus
Reconciliation Act (“COBRA”), the Company will pay the premiums for Executive’s
COBRA coverage until the earlier of (a) the end of the Salary Continuation
Period or (b) the date Executive becomes covered under another employer’s
health plan; and

 

4.                                      continued
payment of the premiums required to maintain Executive’s coverage under his
Company-provided life insurance policy during the Salary Continuation Period.

 

C.                                    Termination Without Cause Prior to a Change in
Control. If Executive’s employment is terminated by the Company without
Cause and a Change in Control occurs within six months following such
termination, in addition to the benefits payable to Executive in accordance
with Section III (B), the Company will pay to Executive an amount equal to
(A) the difference between (y) the value (based upon the price
of such securities in the Change of Control transaction or, if the Change of
Control is implemented through a series of transactions, the highest price in
such series of transactions) of the shares underlying all of Executive’s stock
options that expired unexercised (whether vested or unvested) from and after
the date of Executive’s termination but prior to the Change in Control and the (z) the
aggregate exercise price of all such unexercised options; plus (B) the
difference between (y) the value of any  shares of restricted stock that were sold by
Executive after the date of termination of Executive’s employment but prior to
the Change of Control and (z) the value of such shares had they been
retained by the Executive based on the price of such securities in the Change
of Control transaction or, if the Change of Control is implemented through a
series of transactions, the highest price in such series of transactions.

 

 

VI.                               TERMINATION
BY EXECUTIVE

 

A.                                    At-Will Termination By Executive.  Executive may terminate his employment with
the Company at any time for any reason or no reason at all, upon four (4) weeks
advance written notice.  During such
notice period Executive will continue to diligently perform all of Executive’s
duties hereunder.  The Company will have
the option, in its sole discretion, to make Executive’s termination effective
at any time prior to the end of such notice period as long as the Company pays
Executive all compensation to which Executive is entitled up through the last
day of the four (4) week notice period.  Thereafter all obligations of the Company will
cease.

 

B.                                    Termination by Executive
for Good Reason.
Notwithstanding anything else in this Agreement, if Executive terminates his employment
with the Company for Good Reason (as defined below), the following will apply:

 

1.                                      Executive
will give two weeks’ advance written notice of such termination, which notice will
specify the reason for termination;

 

2.                                      Company
will pay to Executive all compensation to which Executive is entitled through
the date of termination, and the Separation Benefits described in items (1)-(4) of
Section III(B) above, provided that (i) the amount payable under
item (1) of such Section will be paid in a single lump sum upon
termination and (ii) Executive will not be subject to the restrictions set
forth in the last paragraph of such Section; provided, however, that if the
Company engages in such conduct giving rise to a termination by Executive for
Good Reason

 

 

 

within twelve (12) months
following a Change of Control, Executive will be entitled to the Separation
Benefits described in items (1)-(4) of Section V(B) above.

 

“Good
Reason” will mean
any of the following: (1) a breach by Company of its obligations to
Executive arising in connection with this Agreement, which breach is not cured
within twenty days after written notice to the Company from Executive; or (2) if
Company relocates, without Executive’s consent, the principal place of
Executive’s duties to a place more than 25 miles from the current location; or (3) if
Company materially, and without Executive’s consent reduces Executive’s title,
authority, status or job responsibilities (at Credence compared to the
surviving combined corporation(s) as a whole), reduces the benefits
available to Executive or reduces Executive’s salary, except for general,
across-the-board reductions in benefits by the Company affecting all employees
equally and not disproportionately affecting Executive.

 

 

VII.         TERMINATION
OBLIGATIONS

 

A.                                    Return of Property.  Executive agrees that all property (including
without limitation all equipment, tangible proprietary information, documents,
records, notes, contracts and computer-generated materials) furnished to or
created or prepared by Executive incident to Executive’s employment belongs to
the Company and will be promptly returned to the Company upon termination of
Executive’s employment.

 

B.                                    Resignation and Cooperation.  Upon termination of Executive’s employment,
Executive will be deemed to have resigned from all offices and directorships
then held with the Company.  Following
any termination of employment, Executive will cooperate with the Company in the
winding up of pending work on behalf of the Company and the orderly transfer of
work to other employees; provided, however, Company will reimburse Executive
for reasonable expenses in accordance with its expense reimbursement policies.

 

 

VIII.                     INVENTIONS
AND PROPRIETARY INFORMATION; PROHIBITION ON THIRD PARTY INFORMATION

 

A.                                    Proprietary Information Agreement.  Executive acknowledges that he has signed and
remains bound by the terms of the Company’s Proprietary Information and
Inventions Agreement,  which is attached
as Exhibit B (“Proprietary Information Agreement”), provided that in the
event of any inconsistency between the terms of the Proprietary Information
Agreement and this Agreement, the terms of this Agreement will control .

 

B.                                    Non-Solicitation.  Executive acknowledges that because of
Executive’s position in the Company, Executive will have access to material
intellectual property and confidential information.  During the term of Executive’s employment and
for one (1) year thereafter, in addition to Executive’s other
obligations hereunder or under the Proprietary Information Agreement, Executive
will not, for Executive or any third party, directly or indirectly:  (i) divert or attempt to divert from the
Company any business of any kind, including without limitation the solicitation
of or interference with any of its customers, clients, members, business
partners or suppliers; or (ii) solicit or otherwise induce any person
employed by the Company to terminate his employment.

 

C.                                    Non-Disclosure of Third Party Information.  Executive represents and warrants and
covenants that Executive will not disclose to the Company, or use, or induce
the Company to use, any proprietary information or trade secrets of others at
any time, including but not limited to any proprietary information or trade
secrets of any former employer, if any; and Executive acknowledges and agrees
that any violation of this provision will be grounds for Executive’s immediate
termination and could subject Executive to substantial civil liabilities and
criminal penalties.  Executive further
specifically and expressly acknowledges that no officer or other employee or
representative of the Company has requested or instructed Executive to disclose
or use any such third party proprietary information or trade secrets.

 

 

IX.                              ARBITRATION

 

Executive agrees
to sign and be bound by the terms of the Company’s Arbitration Agreement, which
is attached as Exhibit C, provided that in the event of any
inconsistency between the terms of the Arbitration Agreement and this
Agreement, the terms of this Agreement will control. .

 

 

 

X.                                   AMENDMENTS;
WAIVERS; REMEDIES

 

This Agreement may
not be amended or waived except by a writing signed by Executive and by a duly
authorized representative of the Company other than Executive.  Failure to exercise any right under this
Agreement will not constitute a waiver of such right.  Any waiver of any breach of this Agreement will
not operate as a waiver of any subsequent breaches.  All rights or remedies specified for a party
herein will be cumulative and in addition to all other rights and remedies of
the party hereunder or under applicable law.

 

 

XI.                              ASSIGNMENT;
BINDING EFFECT

 

A.                                    Assignment.  The performance of Executive is personal
hereunder, and Executive agrees that Executive will have no right to assign and
will not assign or purport to assign any rights or obligations under this
Agreement.  This Agreement may be
assigned or transferred by the Company solely in connection with a
consolidation, merger or sale of the Company or a sale of substantially all of
the assets of the Company; and nothing in this Agreement will prevent the
consolidation, merger or sale of the Company or a sale of any or all or substantially
all of its assets.

 

B.                                    Binding Effect.  Subject to the foregoing restriction on
assignment by Executive, this Agreement will inure to the benefit of and be
binding upon each of the parties; the affiliates, officers, directors, agents,
successors and assigns of the Company; and the heirs, devisees, spouses, legal
representatives and successors of Executive.

 

 

XII.                         NOTICES

 

All notices or
other communications required or permitted hereunder will be made in writing
and will be deemed to have been duly given if delivered:  (A) by hand; (B) by a nationally
recognized overnight courier service; or (C) by United States first class
registered or certified mail, return receipt requested, to the principal
address of the other party, as set forth below.  The date of notice will be deemed to be the
earlier of:  (A) actual receipt of
notice by any permitted means, or (B) five (5) business days
following dispatch by overnight delivery service or the United States Mail.  Executive will be obligated to notify the
Company in writing of any change in Executive’s address.  Notice of change of address will be effective
only when done in accordance with this Section XII.

 

Company’s Notice Address:

 

Credence Systems Corporation

1421 California Circle

Milpitas, CA 95035

 

Executive’s Notice Address:

 

As such address appears
in the Human Resources records of the Company

 

 

XIII.                    SEVERABILITY

 

If any provision
of this Agreement will be held by a court or arbitrator to be invalid,
unenforceable, or void, such provision will be enforced to the fullest extent
permitted by law, and the remainder of this Agreement will remain in full force
and effect.  In the event that the time
period or scope of any provision is declared by a court or arbitrator of
competent jurisdiction to exceed the maximum time period or scope that such
court or arbitrator deems enforceable, then such court or arbitrator will
reduce the time period or scope to the maximum time period or scope permitted
by law.

 

 

 

XIV.                     TAXES

 

All amounts paid
under this Agreement (including without limitation Base Salary, Bonus, or
Separation Benefits) will be paid less all applicable state and federal tax
withholdings and any other withholdings required by any applicable
jurisdiction.

 

 

XV.                          GOVERNING
LAW

 

This Agreement will
be governed by and construed in accordance with the laws of the State of
California.

 

 

XVI.                     INTERPRETATION

 

This Agreement will
be construed as a whole, according to its fair meaning, and not in favor of or
against any party.  Sections and section
headings contained in this Agreement are for reference purposes only, and will
not affect in any manner the meaning or interpretation of this Agreement.  Whenever the context requires, references to
the singular will include the plural and the plural the singular.

 

 

XVII.                OBLIGATIONS
SURVIVE TERMINATION OF EMPLOYMENT

 

Each party hereto agrees
that any and all of its obligations under this agreement, including but not
limited to Exhibit B, will survive the termination of employment
and the termination of this Agreement.

 

 

XVIII.           COUNTERPARTS

 

This Agreement may
be executed in any number of counterparts, each of which will be deemed an
original of this Agreement, but all of which together will constitute one and
the same instrument.

 

 

XIX.                    AUTHORITY

 

Each party
represents and warrants that such party has the right, power and authority to
enter into and execute this Agreement and to perform and discharge all of the
obligations hereunder; and that this Agreement constitutes the valid and
legally binding agreement and obligation of such party and is enforceable in
accordance with its terms.

 

 

XX.                         ENTIRE
AGREEMENT

 

This Agreement is
intended to be the final, complete, and exclusive statement of the terms of
Executive’s employment by the Company and may not be contradicted by evidence
of any prior or contemporaneous statements or agreements, except for agreements
specifically referenced herein (including the Release Agreement attached as Exhibit A,
the Arbitration Agreement attached as Exhibit B, the Executive
Proprietary Information and Inventions Agreement attached as Exhibit C,
and the Stock Plan, Stock Option Agreement and Restricted Stock Agreement of
the Company and any Awards thereunder).  To
the extent that the practices, policies or procedures of the Company, now or in
the future, apply to Executive and are inconsistent with the terms of this
Agreement, the provisions of this Agreement will control.  Any subsequent change in Executive’s duties,
position, or compensation will not affect the validity or scope of this
Agreement.

 

 

 

XXI.                    EXECUTIVE
ACKNOWLEDGEMENT

 

EXECUTIVE
ACKNOWLEDGES EXECUTIVE HAS HAD THE OPPORTUNITY TO CONSULT LEGAL COUNSEL
CONCERNING THIS AGREEMENT, THAT EXECUTIVE HAS READ AND UNDERSTANDS THE
AGREEMENT, THAT EXECUTIVE IS FULLY AWARE OF ITS LEGAL EFFECT, AND THAT
EXECUTIVE HAS ENTERED INTO IT FREELY BASED ON EXECUTIVE’S OWN JUDGMENT AND NOT
ON ANY REPRESENTATIONS OR PROMISES OTHER THAN THOSE CONTAINED IN THIS
AGREEMENT.

 

IN WITNESS
WHEREOF, the parties have duly executed this Agreement as of the date first
written above.

 

	
  CREDENCE SYSTEMS
  CORPORATION

  	
   

  	
  CASEY EICHLER

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
   

  	
  Signature

  	
   

  
	
  President and Chief
  Executive Officer

  	
   

  	
   

  	
   

  

 

 

 

SCHEDULE
I

 

LIST OF
ADVISORY POSITIONS

 

 

EXHIBIT
A

RELEASE

 

EXHIBIT
B

PROPRIETARY
INFORMATION AGREEMENT

 

EXHIBIT
C

ARBITRATION
AGREEMENTExhibit 10.1

 

January 4,
2008

 

Stephen
A. Hill

26
Dole Hill Lane

Boxford,
MA  01921

 

RE:  Employment Agreement between ArQule, Inc.
(the “Company”) and

Stephen A. Hill dated as of January 1, 2004 and amended as of October 4,
2007

(the “Agreement”).

 

Dear
Steve,

 

You
and the Board of Directors of the Company have been discussing the possibility
of your leaving the Company based on your desire to pursue other career
interests.  The conclusion of the members
of the Board, including yourself, is that it is important for succession
planning purposes to set a date certain at which time you will no longer serve
as an officer or director of the Company. In order to maintain continuity
during this period of transition you will continue to serve as President and
Chief Executive Officer and a director of the Company until March 31,
2008, at which time you shall resign those positions.

 

With
that understanding, this letter will serve to amend the Agreement solely to
provide that, upon your resignation and notwithstanding any other provision of
the Agreement, you will receive the payments and benefits provided for in Section 16
of the Agreement to the same extent as if a termination without “Cause” had
occurred and the “Notice Period” had commenced, subject to the conditions and
limitations contained in that Section, until the first anniversary of this
letter.  The other terms of the Agreement
shall remain in force and unchanged.

 

If
the foregoing is consistent with our mutual understanding, please indicate your
agreement by signing one of the enclosed counterparts of this letter in the
space indicated below and returning it to my attention

 

Thank
you for your continued cooperation in this transition.

 

ArQule, Inc.

 

	
  /s/Patrick
  J. Zenner

  	
   

  
	
  Patrick
  J. Zenner

  
	
  Chairman
  of the Board of Directors

  
	
   

  	
   

  
	
   

  	
   

  
	
  Acknowledged
  and agreed:

  
	
   

  
	
  /s/
  Stephen A. Hill

  	
   

  
	
  Stephen
  A. Hill

  
	
  January 7,
  2008

  
			

 

1

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