Item 1.01 Entry into a Material Definitive Agreement.





Agreement and Plan of Merger

On December 6, 2019, ArQule, Inc., a Delaware corporation ("ArQule"), entered into an Agreement and Plan of Merger (the "Merger Agreement") with Merck Sharp & Dohme Corp., a New Jersey corporation ("Merck"), and Argon Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Merck ("Merger Sub").

Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Merger Sub will merge with and into ArQule, with ArQule surviving as a wholly owned subsidiary of Merck (the "Merger"). In the Merger, each share of ArQule common stock (a "Share") issued and outstanding immediately prior to the effective time (the "Effective Time") of the Merger (other than certain excluded shares as described in the Merger Agreement) will automatically be converted into the right to receive $20.00 in cash, without interest (the "Merger Consideration").

The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to the satisfaction or waiver of a number of conditions set forth in Annex I to the Merger Agreement, including (i) that there shall have been validly tendered and not validly withdrawn Shares that, considered together with all other Shares, if any, beneficially owned by Merck and its affiliated entities, represent at least one more Share than half of the sum of (A) all Shares then outstanding as of the expiration of the Offer, and (B) all Shares that ArQule is required to issue upon the vesting (including vesting solely as a result of the consummation of the Offer), conversion, settlement or exercise of all then outstanding warrants, options, benefit plans, obligations or securities convertible or exchangeable into Shares, or other rights to acquire or be issued Shares regardless of the conversion or exercise price or other terms and conditions thereof; (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and receipt of clearance, approval or consent under any other applicable antitrust law; and (iii) those other conditions set forth in Annex I to the Merger Agreement.

In addition, immediately prior to the Effective Time, each (i) unexpired and unexercised option to purchase Shares under any ArQule stock plan (each, a "Company Stock Option"), shall, to the extent unvested, become fully vested and exercisable, and any Company Stock Option that vests based on the achievement of performance goals shall become fully vested and exercisable with respect to 100% of the total number of Shares subject to such Company Stock Option. Any unexpired and unexercised Company Stock Option that is an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, shall become fully vested and exercisable no later than five business days prior to the Effective Time. At the Effective Time, each Company Stock Option shall be cancelled and converted into the right to receive, a payment in cash equal to the product of (A) the total number of Shares subject to such Company Stock Option immediately prior to such cancellation and (B) the excess, if any, of the Merger Consideration over the exercise price per Share subject to such Company Stock Option immediately prior to such cancellation. No Company Stock Option that, as of immediately prior to such cancellation, has an exercise price per Share that is equal to or greater than the Merger Consideration shall entitle the holder thereof to any payment with respect to the cancelled Company Stock Option.

The Merger Agreement includes representations, warranties and covenants of the parties customary for a transaction of this nature. Among other things, until the earlier of the termination of the Merger Agreement or the Effective Time, ArQule has agreed to operate its business in the ordinary course consistent with past practice and has agreed to certain other operating covenants, as set forth fully in the Merger Agreement. The Merger Agreement also prohibits ArQule's solicitation of proposals relating to alternative transactions and restricts ArQule's ability to furnish information to, or participate in any discussions or negotiations with, any third party with respect to any such transaction, subject to certain limited exceptions.

Either ArQule or Merck may terminate the Merger Agreement in certain circumstances, including if (1) the Merger is not completed by April 6, 2020, subject to automatic extension in certain circumstances in the event that antitrust approval is not obtained (the "End Date"), (2) a governmental authority of competent jurisdiction has issued a final non-appealable judgment preventing the consummation of the Offer or the Merger or any applicable law makes consummation of the Offer or the Merger illegal, (3) the other party breaches its representations, warranties or covenants in the Merger Agreement in a way that would cause any condition of the Offer not to be satisfied, subject to the right of the breaching party to cure the breach, (4) subject to compliance with specified process and notice requirements, ArQule terminates the Merger Agreement in order to enter into an agreement providing for a "Superior Proposal" (as such term is defined in the Merger Agreement), (5) ArQule's board of directors has changed its recommendation in favor of the Offer and the Merger, failed to include its recommendation in the Schedule 14D-9, failed to reaffirm its recommendation when requested by Merck and certain other actions described in the Merger Agreement (a "Change in Recommendation"); or (6) ArQule has violated or breached in any material respect the non-solicitation provision of the Merger Agreement. In the event of a termination of the Merger Agreement under certain specified circumstances, including (i) termination by ArQule to enter into an agreement providing for a Superior Proposal, (ii) a termination by Merck following a Change in Recommendation, (iii) a termination by Merck because ArQule has violated or breached the non-solicitation provision in any material respect, or (iv) termination because (A) ArQule has received an acquisition proposal after the date of the Merger Agreement; (B)(1) the End Date has occurred; (2) the Offer has expired without the acceptance of the Shares for payment; or (3) ArQule has breached and not cured any representation, warranty or covenant such that a condition to the Offer is not capable of being satisfied; and (C) within twelve months following (B)(1), (2) or (3), ArQule signs an agreement or consummates such acquisition proposal, ArQule may be required to pay Merck a termination fee equal to $95,300,000.





Tender and Support Agreement

Concurrently with the execution and delivery of the Merger Agreement, certain stockholders (each a "Tendering Stockholder") entered into the Support Agreement (the "Support Agreement") with Merck and Merger Sub, pursuant to which each Tendering Stockholder agreed, among other things, to tender his, her or its Shares pursuant to the Offer and, if necessary, vote his, her or its Shares (i) against any Acquisition Proposal (as defined in the Merger Agreement); . . .

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On December 6, 2019, the board of directors of ArQule amended and restated ArQule's existing Amended and Restated By-Laws (the "Bylaws") to (i) revise Article V of the Bylaws to clarify certain indemnification provisions (the "Indemnification Amendment") and (ii) add a new Article VIII, Section 1 forum selection provision (the "Forum Selection Amendment").

The Indemnification Amendment updates the Bylaws to clarify that certain references to indemnification include advancement of expenses. The Forum Selection Amendment provides that, unless ArQule consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of ArQule; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, stockholder, employee or agent of ArQule to ArQule or ArQule's stockholders; (iii) any action asserting a claim against ArQule or any director, officer, stockholder, employee or agent of ArQule arising out of or relating to any provision of the Delaware General Corporation Law or ArQule's Restated Certificate of Incorporation or its Bylaws; or (iv) any action asserting a claim against ArQule or any director, officer, stockholder, employee or agent of ArQule governed by the internal affairs doctrine of the State of Delaware. In the event that the Court of Chancery of the State of Delaware lacks subject matter jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be another state or federal court located within the State of Delaware, in each such case, unless the Court of Chancery (or such other state or federal court located within the State of Delaware, as applicable) has dismissed a prior action by the same plaintiff asserting the same claims because such court lacked personal jurisdiction over an indispensable party named as a defendant therein.

This summary is qualified in its entirety by reference to the Amendment to the Bylaws, dated as of December 6, 2019, and filed as Exhibit 3.1 hereto and incorporated by reference herein.




Item 8.01   Other Events.

On December 9, 2019, ArQule and Merck issued a joint press release announcing the execution of the Merger Agreement. A copy of the press release is attached to this Current Report as Exhibit 99.2 and is incorporated herein by reference.




Item 9.01   Financial Statements and Exhibits.



(d) Exhibits



Exhibit
Number     Description

  2.1        Agreement and Plan of Merger, dated December 6, 2019, among ArQule,
           Inc., Merck Sharp & Dohme Corp. and Argon Merger Sub, Inc.*

  3.1        Second Amended and Restated By-Laws of ArQule, Inc., dated December 6,
           2019, as amended.

  99.1       Form of Tender and Support Agreement, among Merck Sharp & Dohme Corp.,
           Argon Merger Sub, Inc. and certain stockholders of ArQule, Inc.

  99.2       Joint Press Release, dated December 9, 2019.

*Schedules to the Agreement and Plan of Merger have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant will furnish copies of any such schedules to the U.S. Securities and Exchange Commission upon request.

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