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Scientific Advisory Board Chairman Agreement

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Exhibit 10.1

SCIENTIFIC ADVISORY BOARD CHAIRMAN AGREEMENT

This Scientific Advisory Board Chairman Agreement (this "Agreement") dated as of January 26, 2007 (the "Effective Date") is by and between ArQule, Inc. (the " Company") located at 19 Presidential Way, Woburn, MA 01801 and Chiang J. Li, M.D. (the "Consultant").

W I T N E S S E T H

WHEREAS , the Company is engaged in scientific research, development and production of pharmaceutical products, specifically anticancer compounds which are designed to target specific cell control pathways (the "Field");

WHEREAS , the Consultant has extensive expertise in the Field, and the Company seeks to benefit from the Consultant92s expertise; and

WHEREAS , the Company desires to have the Consultant serve as the chairman of the Company92s Scientific Advisory Board (the "SAB") and the Consultant wishes to perform advisory services in the Field for the Company;

NOW, THEREFORE , in consideration of the promises and mutual agreements hereinafter set forth, effective as of the Effective Date, the Company and the Consultant agree as follows:

1. Scientific Advisory Board . The Consultant shall serve on the Company92s SAB as its chairman, advising the Company with respect to matters related to the Field, upon the terms and conditions hereinafter set forth. The Consultant shall be engaged by the Company for the exchange of ideas only and shall not direct or conduct research for or on behalf of the Company.

2. Services .

2.1. SAB Duties . The Consultant92s duties shall include: (i) attending and serving as chair of SAB meetings; (ii) providing scientific advice regarding the Company92s product lines, the general direction of its research programs, recruitment of personnel, and techniques used in research in the Field; and (iii) generally advising the Company in its efforts to produce, develop, and market products in the Field.

2.2. Consulting Duties . Upon request by the Company, and at times mutually agreed upon by the Company and the Consultant, the Consultant shall devote additional consulting time annually to provide services to the Company pursuant to this Agreement.

2.3. Services . The services set forth in Articles 1 and 2 shall be referred to as the "Services."

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3. Term and Termination .

3.1. Term . The Consultant shall commence rendering the Services on the Effective Date and, unless earlier terminated as provided in Section 3.2 hereof, shall continue for a term of one year (the "Period of Service"). This Agreement may be extended for additional one year periods upon the written agreement of both parties.

3.2. Termination . Either the Company or the Consultant may, without prejudice to any right or remedy it may have due to any failure of the other party to perform obligations under this Agreement, terminate the Period of Service upon 30 days prior written notice to the other party for any or no reason. Notwithstanding the foregoing, the Company may terminate the Period of Service, effective immediately upon receipt of written notice, if the Consultant breaches or threatens to breach any provision of Sections 5, 6, 7 or 8 of this Agreement.

3.3 Effect of Termination . In the event of a termination of this Agreement pursuant to this section, the parties shall not enter into any new agreements or financial arrangements with respect to the subject matter hereof from the date of termination until the next anniversary date of the Effective Date. Upon termination all accrued payments as of the date of the notice of termination will be paid by the Company.

3.4. Survival. The following provisions shall survive the expiration or termination of this Agreement: Sections 3.3, 5, 6, 7, 8, 11.1, 11.3 and, 11.5.

4. Compensation.

4.1. Stock Options . As compensation for the Services rendered by Consultant during the Period of Service, the Company shall grant to the Consultant an option (the "Option") to purchase 12,500 shares of the Company92s Common Stock, $0.01 par value per share (the "Common Stock"), pursuant to the Company92s Amended and Restated 1994 Equity Incentive Plan (the "Plan") and in accordance with the terms set forth in the form of Option Certificate, attached hereto as Exhibit A .The exercise price of the Option will be set at the closing price of ArQule stock on the date of grant. The Option will be fully vested and exercisable as of the date of grant, and Consultant shall have until the expiration of the term of the Option to exercise the Option. In the event that the Period of Service is extended by mutual agreement of the parties, Consultant may be granted additional stock options.

4.2. Reimbursement of Expenses. The Company shall reimburse the Consultant for all reasonable and necessary expenses incurred in connection with or related to the performance of Services under this Agreement. Within 30 days following the end of each month, Consultant shall submit to Company his expense reports, and the Company shall issue a check for the applicable amount within 30 days following receipt of such reports or otherwise in accordance with the Company92s standard payment cycle. Notwithstanding the foregoing, the Company shall not reimburse expenses in excess of one thousand dollars ($1,000) without its prior written approval.

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4.3. Taxes, Benefits and Independent Contractor . The Consultant shall be responsible for all tax obligations associated with the receipt of fees and other consideration from the Company, including the grant of options referred to in Section 4.1, and shall not be entitled to any benefits, coverages or privileges made available to employees of the Company, including without limitation, unemployment, worker92s compensation, or medical insurance benefits or social security or pension payments. The Consultant shall be an independent contractor and not an employee of the Company.

4.4 Fair Market Value . The Company and Consultant acknowledge and agree that the consideration set forth in this Section 4 represents the fair market value for the Services to be rendered under this Agreement, and no amount payable hereunder is intended to constitute a payment for the inducement of patient referrals, the purchase, lease or order of any item or service, or the recommending or arranging for the purchase, lease or order of any item or service.

5. Confidential Information and Proprietary Materials .

5.1. Confidential Information .

5.1.1. Definition of Confidential Information . "Confidential Information" shall mean any technical or business information furnished by the Company to the Consultant in connection with this Agreement or developed by the Consultant in the course of performing the Services. Such Confidential Information may include, without limitation:

(a) inventions, trade secrets, discoveries and computer programs, including 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; and

(e) 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).

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.

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5.1.2. Obligations . During the Period of Service and thereafter, the Consultant shall:

(a) maintain all Confidential Information in strict confidence and not publish, disclose or otherwise make available to any third party, other than employees of the Company, any Confidential Information, except as expressly authorized in writing by the Company;

(b) use all Confidential Information solely for the purpose of providing the Services as requested by the Company, in accordance with any Company policies regarding the protection of Confidential Information, and not use any Confidential Information for Consultant92s own benefit or for the benefit of any person or business entity other than the Company; and

(c) reproduce the Confidential Information only to the extent necessary for providing the Services as requested by the Company, with all such reproductions being considered Confidential Information.

5.1.3. Exceptions . The obligations of the Consultant under Section 5.1.2. above shall not apply to the extent that the Consultant can demonstrate by clear and convincing evidence that the Confidential Information in question:

(a) is or has become generally known within the Company92s industry through no fault of Consultant;

(b) was known to Consultant at the time it was disclosed by the Company, as evidenced by Consultant92s written records at the time of disclosure; or

(c) was developed independently by Consultant and not under the auspices of the Company or any other employer of Consultant;

(d) was lawfully and in good faith made available to Consultant by a third party who did not derive it from the Company and who imposes no obligation of confidence on Consultant; or

(e) is required to be disclosed to comply with applicable laws or regulations, or with a court or administrative order, provided that the Company receives prior written notice of such disclosure and that the Consultant takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure.

5.2. Proprietary Materials .

5.2.1. Definition of Proprietary Materials . "Proprietary Materials" shall mean any tangible chemical, biological, or physical r
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