Exhibit 10.3

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF OR OTHERWISE
ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
EXERCISED UNLESS (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR (II) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER,
SALE OR TRANSFER.

AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. HOLDERS MUST
RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE RISKS
INVOLVED.

 

Warrant to Purchase      shares      Warrant Number

Warrant to Purchase Common Stock

of

ARENA PHARMACEUTICALS, INC.

THIS CERTIFIES that                      (including any permitted transferee or
assignee of this Warrant under the terms hereof, “Holder”) has the right to
purchase from ARENA PHARMACEUTICALS, INC., a Delaware corporation, (the
“Company”),                     (                    ) fully paid and
nonassessable shares of the Company’s common stock, $0.0001 par value per share
(“Common Stock”), subject to adjustment as provided herein (such shares of
Common Stock, together with the stock and other securities and property at the
time receivable upon the exercise of this Warrant, the “Warrant Shares”), at a
price equal to the Exercise Price as defined in Section 3 below, at any time
during the Term (as defined below).

Holder agrees with the Company that this Warrant to Purchase Common Stock of the
Company (this “Warrant” or this “Agreement”) is issued, and all rights hereunder
shall be held, subject to all of the conditions, limitations and provisions set
forth herein.

1. Date of Issuance and Term.

This Warrant shall be deemed to be issued on                     , 2010 (“Date
of Issuance”). The term of this Warrant begins on the date that is six months
after the Date of Issuance and ends at 5:00 p.m., New York City time, on
June 17, 2013 (the “Term”). For clarity, this Warrant may only be exercised
during the Term. This Warrant was issued in conjunction with that certain
Purchase and Exchange Agreement (the “Purchase Agreement”), dated June     ,
2010, and Registration Rights Agreement (the “Registration Rights Agreement”),
dated June     , 2010, each by and between the Company and Deerfield Private
Design Fund, L.P., Deerfield Private Design International, L.P., Deerfield
Partners, L.P., Deerfield International Limited, Deerfield Special Situations
Fund, L.P. and Deerfield Special Situations Fund International Limited
(collectively, the “Initial Investors”). This Warrant replaces a portion of that
certain Warrant having a Date of Issuance of July 6, 2009 and originally issued
to Holder in conjunction with that certain Facility Agreement (the “Facility
Agreement”) by and between the Company and the Initial Investors, dated as of
June 17, 2009.

 

1.

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Notwithstanding anything herein to the contrary, the Company shall not issue to
the Holder, and the Holder shall not acquire, shares of Common Stock upon
exercise of this Warrant, or otherwise pursuant to the terms of this Warrant, to
the extent that, upon such issuance or acquisition, the number of shares of
Common Stock then beneficially owned by the Holder and its Affiliates and any
other persons or entities whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and the applicable
regulations of the Securities and Exchange Commission (the “SEC”) (including
shares held by any “group” of which the Holder is a member, but excluding shares
beneficially owned by virtue of the ownership of convertible securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) would exceed
9.98% of the total number of shares of Common Stock then issued and outstanding
(the “9.98% Cap”), provided, however, that the 9.98% Cap shall not apply with
respect to the issuance of shares of Common Stock pursuant to a Cashless Major
Exercise (as defined below) in connection with a Major Transaction (as defined
below) covered by the provisions of Section 5(c)(i)(A) below in which the
Company is not the surviving entity (a “Qualified Change of Control
Transaction”) to the extent that the number of shares beneficially owned by the
Holder and its Affiliates in the Successor Entity immediately following
consummation of such Qualified Change of Control Transaction does not exceed
9.98% of any class of equity securities of the Successor Entity. For purposes
hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act
and the applicable regulations of the SEC, and the percentage held by the Holder
shall be determined in a manner consistent with the provisions of Section 13(d)
of the Exchange Act and the applicable regulations of the SEC. Upon the written
request of the Holder, the Company shall, within three (3) Trading Days, confirm
in writing to the Holder (which writing may be via email) the number of shares
of Common Stock then outstanding. For purposes of this paragraph, it is
understood that the number of shares of Common Stock beneficially owned by each
Initial Investor shall be aggregated with each other Initial Investor for
purposes of Section 13(d) of the Exchange Act.

“Affiliate” means any person or entity that, directly or indirectly through one
or more intermediaries, controls or is controlled by or is under common control
with a person or entity, as such terms are used in and construed under Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”). Without
limiting the generality of the foregoing, with respect to a Holder of Warrants,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Holder will be deemed to be an Affiliate
of such Holder.

2. Exercise.

(a) Manner of Exercise. During the Term, this Warrant may be Exercised as to all
or any lesser number of whole Warrant Shares upon surrender of this Warrant,
with the Exercise Form attached hereto as Exhibit A (the “Exercise Form”) duly
completed and executed, together with the full Exercise Price (as defined below)
for each Warrant Share as to which this Warrant is Exercised, at the office of
the Company, Arena Pharmaceuticals, Inc., 6166 Nancy Ridge Drive, San Diego,
California 92121; Phone: (858) 453-7200, Fax: (858) 677-0065, or at such other
office or agency as the Company may designate in writing, by overnight mail,
with an advance copy of the Exercise Form sent to the Company and its transfer
agent (“Transfer Agent”) by facsimile (such surrender and payment of the
Exercise Price hereinafter called the “Exercise” of this Warrant).

(b) Date of Exercise. The “Date of Exercise” of the Warrant shall be defined as
the Trading Day that the Exercise Form attached hereto as Exhibit A, completed
and executed, is sent by facsimile to, and received during regular business
hours by, the Company, provided that (i) the original Warrant and Exercise Form
are received by the Company within two (2) Trading Days and (ii) in the event of
a Cash Exercise, the Exercise Price is satisfied on the next Trading Day. In all
other cases, the Date of Exercise shall be defined as the Trading Day on which
the original Warrant and Exercise Form are received by the Company and, in the
event of a Cash Exercise, the Exercise Price is satisfied. Upon the Date of
Exercise, the Holder shall be deemed for all corporate purposes to have become
the holder of record of the Warrant Shares with respect to which this Warrant
has been Exercised, irrespective of the date such Warrant Shares are credited to
the Holder’s Depository Trust Company (“DTC”) account or the date of delivery of
the certificates evidencing such Warrant Shares, as the case may be; provided,
however, that in the event of a Cashless Major Exercise in respect of a
Qualified Change of Control Transaction, the Holder shall be deemed to have
become the holder of record of the shares issuable upon such exercise
immediately prior to the consummation of such Qualified Change of Control
Transaction.

 

2.

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(c) Delivery of Common Stock Upon Exercise. Within three (3) Trading Days after
any Date of Exercise (or if the Holder requests the issuance of physical
certificate(s) rather than through DTC credit, within two (2) Trading Days after
receipt by the Company of the original Warrant), or in the case of a Cashless
Major Exercise (as defined in Section 5(c) below), within the period provided in
Section 5(c)(iv), as applicable (the “Delivery Period”), the Company shall issue
and deliver (or cause its Transfer Agent to issue and deliver) in accordance
with the terms hereof to or upon the order of the Holder that number of Exercise
Shares or Cashless Major Shares (as defined below), as applicable, for the
portion of this Warrant Exercised, as shall be determined in accordance
herewith. Upon the Exercise of this Warrant or any part hereof, the Company
shall, at its own cost and expense, take all commercially reasonable actions,
including obtaining and delivering an opinion of counsel, to assure that the
Transfer Agent shall issue stock certificates in the name of Holder (or its
nominee) or such other persons as designated by Holder and in such
denominations, each as specified in the Exercise Form, representing the number
of Warrant Shares issuable upon such Exercise (“Exercise Shares”).
Notwithstanding the foregoing, the Company shall not be required to pay any tax
or other charge imposed in connection with any transfer involved in the issuance
of any certificate for Exercise Shares in any name other than that of the
original registered holder of this Warrant, and in such case the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company’s
satisfaction that no tax or other charge is due.

(d) Delivery Failure. In addition to any other remedies which may be available
to the Holder, in the event that the Company fails for any reason to effect
delivery of the Exercise Shares by the end of the Delivery Period (a “Delivery
Failure”), the Holder will be entitled to revoke all or part of the relevant
Exercise Form by delivery of a notice to such effect to the Company not later
than three (3) Trading Days after the end of the Delivery Period, whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice, including without limitation
the return of the Warrant to the Holder and the return of certificates
representing Exercise Shares to the Company.

(e) Legends.

(i) Restrictive Legend. The Holder understands that this Warrant shall bear a
restrictive legend in substantially the form set forth on the first page of this
Warrant (and a stop-transfer order may be placed against transfer of such
securities). The Holder further understands that until such time as the Exercise
Shares have been registered under the Securities Act as contemplated by the
Registration Rights Agreement, or otherwise may be sold pursuant to Rule 144
under the Securities Act or an exemption from registration under the Securities
Act without any restriction as to the number of securities as of a particular
date that can then be immediately sold, the Exercise Shares shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such securities):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT INCLUDING, WITHOUT LIMITATION, PURSUANT TO RULES 144 OR 144A
UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR
INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF”
SALE”, SUBJECT TO DELIVERY OF AN OPINION, AS PROVIDED IN THE WARRANT, DATED AS
OF                     , 20    .

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION
RIGHTS AGREEMENT DATED AS OF JUNE     , 2010, AS AMENDED FROM TIME TO TIME,
AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER
OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

 

3.

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(ii) Removal of Restrictive Legends. The certificates evidencing the Exercise
Shares shall not contain any legend restricting the transfer thereof (including
the legend set forth above in subsection 2(e)(i)): (A) while a registration
statement (including a Registration Statement, as defined in the Registration
Rights Agreement) covering the resale of such security is effective under the
Securities Act, or (B) following any sale of such Exercise Shares pursuant to
Rule 144, or (C) if such Exercise Shares are eligible for sale under Rule
144(b)(1), or (D) if such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the SEC) (collectively, the “Unrestricted Conditions”).
If the Unrestricted Conditions are satisfied, the Company shall cause its
counsel to issue a legal opinion to the Transfer Agent promptly after the
Unrestricted Conditions are satisfied, if required and to the extent permitted
by the Transfer Agent, to effect the issuance of the Exercise Shares without a
restrictive legend or removal of the legend hereunder. The Company agrees that,
following the Effective Date, at such time as the Unrestricted Conditions are
met or such legend is otherwise no longer required under this Section 2(e), it
will, no later than five (5) Trading Days following the delivery (the
“Unlegended Shares Delivery Deadline”) by the Holder to the Company of a
certificate representing Exercise Shares containing a restrictive legend (such
fifth Trading Day, the “Legend Removal Date”), deliver or cause to be delivered
to such Holder a certificate (or electronic transfer) representing such shares
that is free from all restrictive and other legends. For purposes hereof,
“Effective Date” shall mean the date that the Registration Statement that the
Company is required to file pursuant to the Registration Rights Agreement has
been declared effective by the SEC.

(iii) Sale of Unlegended Shares. Holder agrees that the removal of the
restrictive legend from any certificates representing securities as set forth in
Section 2(e) above is predicated upon the Company’s reliance that the Holder
will sell, transfer, assign, pledge, hypothecate or otherwise dispose of this
Warrant or any Exercise Shares pursuant to either the registration requirements
of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if such securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein.

(f) Cancellation of Warrant. This Warrant shall be canceled upon (i) expiration
at the end of the Term, (ii) the full Exercise of this Warrant (including any
Cashless Major Exercise) or (iii) full redemption of this Warrant (including any
Early Termination Upon Major Transaction). If this Warrant is not Exercised in
full, Holder shall be entitled to receive a new Warrant (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant.
In the event of a Major Transaction (as defined below) in which all shares of
Common Stock are canceled and/or converted or exchanged into the right to
receive cash and/or securities of Another Entity (as defined below), then, any
portion of this Warrant that is neither (a) redeemed pursuant to an Early
Termination Upon Major Transaction, (b) assumed pursuant to Section 5(c)(ii)
below or (c) Exercised (including any Cashless Major Exercise) pursuant to the
terms of this Warrant prior to the closing of such Major Transaction, shall
(A) automatically and immediately be deemed to have been exercised pursuant to a
Cashless Exercise, immediately prior to the consummation of such Major
Transaction if the aggregate consideration to be received with respect to the
Warrant Shares in such Major Transaction is greater than the aggregate Exercise
Price for such shares, or (B) be canceled and terminated without further action
by the Holder or the Company upon consummation of such Major Transaction if the
aggregate consideration to be received with respect to the Warrant Shares in the
Major Transaction is less than the aggregate Exercise Price for such shares.

(g) Delivery of Electronic Shares. In lieu of delivering physical certificates
representing the Exercise Shares or shares of Common Stock submitted for legend
removal, provided the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer (“FAST”) program, upon written request of the Holder, the
Company shall use commercially reasonable efforts to cause its Transfer Agent to
electronically transmit such securities by crediting the account of the Holder’s
prime broker with DTC through its Deposit Withdrawal Agent Commission (DWAC)
system. The time periods for delivery and penalties described herein shall apply
to the electronic transmittals described herein. Any delivery not effected by
electronic transmission shall be effected by delivery of physical certificates.

 

4.

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(h) Buy-In. In addition to any other rights available to the Holder, if the
Company fails to cause its Transfer Agent to transmit to the Holder a
certificate or certificates, or electronic shares through DWAC, representing
Exercise Shares on or before the end of the applicable Delivery Period (other
than a failure caused by incorrect or incomplete information provided by Holder
to the Company hereunder), and if after such date the Holder is required by its
broker to purchase (in an open market transaction or otherwise), or the Holder’s
brokerage firm otherwise purchases shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Exercise Shares that the Company was
required to deliver to the Holder in connection with such Exercise (a “Buy-In”),
then the Company shall (1) pay in cash to the Holder the amount by which (x) the
Holder’s total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount (the “Sales Price”)
obtained by multiplying (A) the number of Exercise Shares that the Company was
required to deliver to the Holder in connection with the Exercise at issue times
(B) the price at which the sell order giving rise to such purchase obligation
was executed, and (2) at the option of the Holder, either reinstate the portion
of the Warrant and equivalent number of Exercise Shares for which such Exercise
was not timely honored or deliver to the Holder the Exercise Shares that would
have been issued had the Company timely complied with its Exercise and delivery
obligations hereunder. For example, if the Holder purchases Common Stock having
a total purchase price of $11,000 to cover a Buy-In with respect to an attempted
Exercise to cover the sale of Common Stock with an aggregate Sales Price of
$10,000, under clause (1) of the immediately preceding sentence the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice, within three (3) Trading Days after the occurrence of a Buy-In,
indicating the amounts payable to the Holder in respect of such Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Company. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
Exercise Shares upon Exercise of the Warrant as required pursuant to the terms
hereof; provided, however, that the Holder shall not be entitled to both
(i) reinstate the portion of the Warrant and equivalent number of Exercise
Shares for which such Exercise was not timely honored and (ii) receive such
Exercise Shares.

3. Payment of Warrant Exercise Price for Cash Exercise or Cashless Exercise;
Cashless Major Exercise.

(a) Exercise Price. The Exercise Price (“Exercise Price”) shall initially equal
$3.45 per share, as adjusted pursuant to the terms hereof, including but not
limited to Section 5(a) and Section 5(b) below.

Payment of the Exercise Price shall be made as follows:

(i) Cash Exercise: The Holder may exercise this Warrant in cash, cashier’s
check, wire transfer, or through a reduction of an amount of principal
outstanding under any Notes (as defined in the Facility Agreement) in accordance
with Section 2.11 of the Facility Agreement, then held by the Holder, equal to
the applicable Exercise Price (a “Cash Exercise”).

(ii) Cashless Exercise: The Holder, at its option, may exercise this Warrant in
a cashless exercise transaction pursuant to this subsection (ii) (a “Cashless
Exercise”). In order to effect a Cashless Exercise, the Holder shall surrender
this Warrant at the principal office of the Company together with an Exercise
Form, completed and executed, indicating Holders election to effect a Cashless
Exercise, in which event the Company shall issue Holder a number of shares of
Common Stock computed using the following formula:

X = Y (A-B)/A

 

where:   X = the number of shares of Common Stock to be issued to Holder.   Y =
the number of shares of Common Stock for which this Warrant is being Exercised.
  A = the Market Price of one (1) share of Common Stock (for purposes of this
Section 3(a)(ii), where “Market Price,” means the Volume Weighted Average Price
(as defined herein) of one (1) share of the Company’s Common Stock during the
ten (10) consecutive Trading Day period immediately preceding the Date of
Exercise.   B = the Exercise Price.

 

5.

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As used herein, the “Volume Weighted Average Price” for any security as of any
date means the volume weighted average sale price on The NASDAQ Global Market
(“NASDAQ”) as reported by, or based upon data reported by, Bloomberg Financial
Markets or an equivalent, reliable reporting service mutually acceptable to and
hereafter designated by holders of a majority in interest of the Warrants and
the Company (“Bloomberg”) or, if NASDAQ is not the principal trading market for
such security, the volume weighted average sale price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or, if no volume weighted average sale price is
reported for such security, then the last closing trade price of such security
as reported by Bloomberg, or, if no last closing trade price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security that are listed in the over the counter market by the
Financial Industry Regulatory Authority, Inc. or in the “pink sheets” by the
Pink OTC Market, Inc. If the Volume Weighted Average Price cannot be calculated
for such security on such date in the manner provided above, the volume weighted
average price shall be the fair market value as determined in good faith by the
Company’s Board of Directors. “Trading Day” shall mean any day on which the
Common Sock is traded for any period on NASDAQ, or on the principal securities
exchange or other securities market on which the Common Stock is then being
traded.

For purposes of Rule 144 and sub-section (d)(3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issued upon Exercise of this
Warrant in a Cashless Exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued. Moreover, it is intended, understood and
acknowledged that the holding period for the Common Stock issued upon Exercise
of this Warrant in a Cashless Exercise transaction shall be deemed to have
commenced on the date this Warrant was issued.

(b) Cashless Major Exercise: To the extent the Holder shall exercise this
Warrant or any portion thereof as a Cashless Major Exercise pursuant to
Section 5(c)(i) below, the Holder shall surrender this Warrant, prior to the end
of the Early Termination Period, at the principal office of the Company together
with the Exercise Form, completed and executed, indicating that the Holder is
exercising this Warrant (or such portion thereof) pursuant to a Cashless Major
Exercise, in which event the Company shall issue, when and as required pursuant
to Section 5(c)(iv) below, a number of shares of Common Stock (the “Cashless
Major Shares”) equal to (i) the Black-Scholes Value (as defined in
Section 5(c)(iii) below) of the remaining unexercised portion of this Warrant
(or such applicable portion being exercised) divided by (ii) the greater of
(A) 95% of the closing price of the Common Stock on the principal securities
exchange or other securities market on which the Common Stock is then traded
determined as of the Trading Day immediately preceding the date on which the
applicable Major Transaction is consummated or (B) $3.28.

(c) [RESERVED]

(d) Dispute Resolution. In the case of a dispute as to the determination of the
closing price or the Volume Weighted Average Price of the Company’s Common Stock
or the arithmetic calculation of the Exercise Price, Market Price or any Major
Transaction Warrant Early Termination Price, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within four
(4) business days of receipt, or deemed receipt, of the Exercise Notice or Major
Transaction Early Termination Notice, or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within two (2) business
days of such disputed determination or arithmetic calculation being submitted to
the Holder, then the Company shall, within two (2) business days submit via
facsimile (i) the disputed determination of the closing price or the Volume
Weighted Average Price of the Company’s Common Stock to an independent,
reputable investment bank selected by the Company and approved by the Holder,
which approval shall not be unreasonably withheld or delayed or (ii) the
disputed arithmetic calculation of the Exercise Price, Market Price or any Major
Transaction Warrant Early Termination Price to the Company’s independent,
outside accountant, or another accounting firm of national standing selected by
the Company. The Company shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than the later of (i) five
(5) business days from the time it receives the disputed determinations or
calculations or (ii) five (5) business days from the selection of the investment
bank and accounting firm, as applicable. Such investment bank’s or accountant’s
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

4. Transfer and Registration.

(a) Transfer Rights. Subject to the provisions of Section 8 of this Warrant,
this Warrant may be transferred on the books of the Company, in whole or in
part, in person or by attorney, upon surrender of this Warrant properly
completed and endorsed. This Warrant shall be canceled upon such surrender and,
as soon as practicable thereafter, the person to whom such transfer is made
shall be entitled to receive a new Warrant or Warrants as to the portion of this
Warrant transferred, and Holder shall be entitled to receive a new Warrant as to
any portion hereof retained.

 

6.

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(b) Registrable Securities. The Common Stock issuable upon the Exercise of this
Warrant are expected to be registered under the Securities Act as contemplated
by the Registration Rights Agreement.

5. Adjustments Upon Certain Events.

(a) Participation. The Holder, as the holder of this Warrant, shall be entitled
to receive such dividends paid and distributions of any kind made to the holders
of Common Stock of the Company to the same extent as if the Holder had Exercised
this Warrant (without regard to any limitations on exercise herein or elsewhere
and without regard to whether or not a sufficient number of shares are
authorized and reserved to effect any such exercise and issuance) and had held
such shares of Common Stock on the record date for such dividends and
distributions. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.

(b) Recapitalization or Reclassification; Consolidation, Merger or Sale. If the
Company shall at any time effect a stock split, payment of stock dividend,
recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which Holder shall be
entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such stock split, payment
of stock dividend, recapitalization, reclassification or similar transaction,
and the Exercise Price shall be, in the case of an increase in the number of
shares, proportionally decreased and, in the case of decrease in the number of
shares, proportionally increased. In addition, if any recapitalization,
reclassification or reorganization of the share capital of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its shares and/or assets or other transaction
(including, without limitation, a sale of substantially all of its assets
followed by a liquidation) shall be effected in such a way that holders of
shares of Common Stock shall be entitled to receive shares, securities or other
assets or property (a “Change”), then, lawful and adequate provisions shall be
made by the Company whereby the Holder shall thereafter have the right to
purchase and receive (in lieu of the shares of Common Stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby) such shares, securities or other assets or property as may
be issued or payable with respect to or in exchange for the number of
outstanding shares of Common Stock which such Holder would have been entitled to
receive had such Holder exercised this Warrant immediately prior to the
consummation of such Change. The provisions of this Section 5(b) shall similarly
apply to successive Changes. The Company shall give Holder the same notice it
provides to holders of Common Stock of any transaction or Change described in
this Section 5(b).

(c) Rights Upon Major Transaction.

(i) Major Transaction. In the event that a Major Transaction (as defined below)
is consummated, then (1) in the case of a Cash-Out Major Transaction, and in the
case of a Mixed Major Transaction to the extent of the percentage of the cash
consideration in the Mixed Major Transaction (determined in accordance with the
definition of a Mixed Major Transaction below), the Holder, at its option, may
require the Company to redeem, effective immediately prior to the consummation
of such Major Transaction, the Holder’s outstanding Warrants in accordance with
Section 5(c)(iii) below and (2) in the case of all other Major Transactions, and
in the case of a Mixed Major Transaction to the extent of the percentage of the
consideration represented by securities of a Successor Entity in the Mixed Major
Transaction, the Holder shall have the right to exercise this Warrant, effective
immediately prior to the consummation of such Major Transaction, as a Cashless
Major Exercise. Notwithstanding anything herein to the contrary, the Holder may
elect to waive its rights under this Section 5(c) with respect to any Major
Transaction in which event none of the provisions contained in this Section 5(c)
shall apply.

Consummation of each of the following events shall constitute a “Major
Transaction”:

(A) a consolidation, merger, exchange of shares, recapitalization,
reorganization, business combination or other similar event, following which the
holders of Common Stock immediately preceding such consolidation, merger,
exchange, recapitalization, reorganization, combination or event either (a) no
longer hold a majority of the shares of Common Stock or a majority of the voting
power of the Successor Entity or (b) no longer have the ability to elect a
majority of the board of directors of the Company or the Successor Entity
(collectively, a “Change of Control Transaction”); or

 

7.

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(B) a purchase, tender or exchange offer (other than any purchase, tender or
exchange offer made by the Holder or its Affiliates) made to the holders of
outstanding shares of Common Stock, such that following the consummation of such
purchase, tender or exchange offer a Change of Control Transaction shall have
occurred.

(C) [RESERVED].

(D) [RESERVED].

(E) [RESERVED].

(F) [RESERVED].

(ii) Assumption. In no event shall the Holder have the right to treat a Major
Transaction as an Assumption unless the Company has elected to treat such Major
Transaction as an Assumption pursuant to this paragraph. In the event of a
Qualified Major Transaction, the Company shall have the exclusive right, in its
sole discretion, to cause such Qualified Major Transaction (or the applicable
portion of a Mixed Major Transaction) to be treated as an Assumption in
accordance with this Section 5(c)(ii) with respect to the percentage of this
Warrant then owned by the Holder equal to the percentage of the consideration to
be paid in the Major Transaction represented by the securities of a Successor
Entity. If the Successor Entity is a Publicly Traded Successor Entity, the
percentage of consideration represented by securities of such Successor Entity
shall be equal to the percentage that the value of the aggregate anticipated
number of shares of the Publicly Traded Successor Entity to be issued to holders
of Common Stock of the Company represents of the aggregate value of all
consideration, including cash consideration, in such Major Transaction, as such
values are set forth in any definitive agreement for the Major Transaction that
has been executed at the time of the first public announcement of the Major
Transaction or, if no such value is determinable from such definitive agreement,
based on the closing price for shares of the Publicly Traded Successor Entity on
its principal securities exchange on the Trading Day preceding the closing of
the Major Transaction. If the Successor Entity is a Private Successor Entity,
the percentage of consideration represented by securities of such Successor
Entity shall be determined in good-faith by the Company’s Board of Directors.
Any election by the Company to treat this Warrant as an Assumption pursuant to
the terms hereof shall be made in the Major Transaction Notice (as defined in
Section 5(c)(iii) below) in respect of such Qualified Major Transaction. The
Company shall not enter into or be party to a Major Transaction that is to be
treated as an Assumption, unless the Successor Entity assumes in writing all of
the obligations of the Company under this Warrant and the Registration Rights
Agreement in accordance with the provisions of this Section (ii), including
agreements to deliver to each holder of Warrants in exchange for such Warrants a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Warrants, including, without limitation,
representing the appropriate number of shares of the Successor Entity, having
similar exercise rights as the Warrants (including but not limited to a similar
Exercise Price and similar Exercise Price adjustment provisions based on the
price per share or conversion ratio to be received by the holders of Common
Stock in the Major Transaction) and similar registration rights as provided by
the Registration Rights Agreement. Upon the occurrence of any Major Transaction
treated as an Assumption hereunder, any Successor Entity shall succeed to, and
be substituted for (so that from and after the date of such Major Transaction,
the provisions of this Warrant and the Registration Rights Agreement (or
substantially similar instruments, if applicable) referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Warrant with the same effect as if such Successor Entity had been
named as the Company herein. Upon consummation of the Major Transaction, the
Successor Entity shall deliver to the Holder confirmation that there shall be
issued upon exercise or redemption of this Warrant at any time after the
consummation of the Major Transaction, in lieu of the shares of Common Stock (or
other securities, cash, assets or other property) issuable upon the exercise of
the Warrants prior to such Major Transaction, such shares of common stock (or
their equivalent) of the Successor Entity (based on the price per share or
conversion ratio to be received by the holders of Common Stock in the Major
Transaction), as adjusted in accordance with the provisions of this Warrant. The
provisions of this Section shall apply similarly and equally to successive Major
Transactions and shall be applied without regard to any limitations on the
exercise of this Warrant other than any applicable beneficial ownership
limitations. Any assumption of Company obligations under this paragraph shall be
referred to herein as an “Assumption”.

 

8.

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(iii) Notice; Major Transaction Early Termination Right; Notice of Cashless
Major Exercise. At least fifteen (15) days prior to the consummation of any
Major Transaction, but, in any event, within two (2) Trading Days following the
date of the public announcement of any Major Transaction, the Company shall
deliver written notice thereof via facsimile and overnight courier to the Holder
(a “Major Transaction Notice”), which such Major Transaction Notice shall, if
applicable, indicate whether the Company desires to have the Warrant treated as
an Assumption in accordance with the provisions of Section 5(c)(ii) above. Other
than in respect of all or a portion of the Warrant that is to be treated as an
Assumption or is eligible for a Cashless Major Exercise (without taking into
consideration the 9.98% Cap) in accordance with Section 5(c)(i), the Holder may,
by delivery of written notice (“Major Transaction Early Termination Notice”) to
the Company at any time during the period beginning after the Holder’s receipt
of a Major Transaction Notice and ending five (5) Trading Days prior to the
consummation of such Major Transaction (the “Early Termination Period”), require
the Company to redeem (an “Early Termination Upon Major Transaction”), effective
immediately prior to the consummation of such Major Transaction, all or any
portion of this Warrant not treated as an Assumption or eligible to be exercised
as a Cashless Major Exercise pursuant to Section 5(c)(i) above (without taking
into consideration the 9.98% Cap). The Major Transaction Early Termination
Notice shall indicate the portion of the Warrant that the Holder is electing to
have redeemed. Such portion of this Warrant (the “Redeemable Portion”) shall be
redeemed by the Company at a price (the “Major Transaction Warrant Early
Termination Price”) payable in cash equal to the value of the Redeemable Portion
determined by use of the Black Scholes Option Pricing Model using the criteria
set forth in Schedule 1 hereto (the “Black Scholes Value”).

To the extent the Holder shall elect to effect a Cashless Major Exercise in
respect of a Major Transaction, the Holder shall deliver its exercise notice in
accordance with Section 3(b), within the Early Termination Period.

(iv) Escrow; Payment of Major Transaction Warrant Early Termination Price.
Following the receipt of a Major Transaction Early Termination Notice or a
notice of a Cashless Major Exercise from the Holder, the Company shall not
effect a Major Transaction that is being treated as an Early Termination Upon
Major Transaction or in connection with which this Warrant is eligible to be
exercised as a Cashless Major Exercise unless it either (a) obtains the written
agreement of the Successor Entity that payment of the Major Transaction Warrant
Early Termination Price and/or applicable Cashless Major Shares shall be made to
the Holder upon consummation of such Major Transaction or (b) it shall first
place into an escrow account with an independent escrow agent, at least three
(3) Trading Days prior to the closing date of such Major Transaction (the “Major
Transaction Escrow Deadline”), a number of shares of Common Stock or an amount
in cash, as applicable, equal to the Major Transaction Warrant Early Termination
Price and/or applicable Cashless Major Shares. If an escrow account is required
to be established pursuant to the preceding sentence, concurrently upon closing
of such Major Transaction, the Company shall pay or shall instruct the escrow
agent to pay the Major Transaction Warrant Early Termination Price and/or to
deliver the applicable Cashless Major Shares to the Holder. For purposes of
determining the amount, if any, required to be placed in escrow pursuant to the
provisions of this subsection (iv) and without affecting the amount of the
actual Major Transaction Warrant Early Termination Price and/or the number of
applicable Cashless Major Shares, the calculation of the “Stock Price” referred
to in Schedule 1 hereto shall be determined based on the Closing Market Price
(as defined on Schedule I) of the Common Stock on the Trading Day immediately
preceding the date that the funds and/or applicable Cashless Major Shares, as
applicable, are deposited with the escrow agent.

Notwithstanding anything to the contrary in this Section 5, until the Major
Transaction Warrant Early Termination Price is paid in full, this Warrant may be
exercised, in whole or in part, by the Holder.

For purposes hereof:

“Another Entity” shall mean an entity in which the holders of a majority of the
shares of Common Stock of the Company immediately prior to the consummation of a
Major Transaction do not hold a majority of the equity securities in such
entity.

“Cash-Out Major Transaction” means a Major Transaction in which the
consideration payable to holders of Common Stock in connection with the Major
Transaction consists solely of cash.

“Cashless Major Exercise” shall mean an exercise of this Warrant or portion
thereof as a “Cashless Major Exercise” in accordance with Section 3(b) and
5(c)(i) hereof.

 

9.

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“Eligible Market” means NASDAQ, the New York Stock Exchange, Inc., the NYSE
Arca, the NASDAQ Capital Market, the NASDAQ Global Select Market or the NYSE
Alternext U.S. or any successor exchanges or markets thereof.

“Mixed Major Transaction” means a Major Transaction in which the consideration
payable to the stockholders of the Company consists partially of cash and
partially of securities of a Successor Entity. If the Successor Entity is a
Publicly Traded Successor Entity, the percentage of consideration represented by
securities of such Successor Entity shall be equal to the percentage that the
value of the aggregate anticipated number of shares of the Publicly Traded
Successor Entity to be issued to holders of Common Stock of the Company
represents in comparison to the aggregate value of all consideration, including
cash consideration, in such Mixed Major Transaction, as such values are set
forth in any definitive agreement for the Mixed Major Transaction that has been
executed at the time of the first public announcement of the Major Transaction,
or, if no such value is determinable from such definitive agreement, based on
the closing market price for shares of the Publicly Traded Successor Entity on
its principal securities exchange on the Trading Day immediately preceding the
closing of the Mixed Major Transaction. If the Successor Entity is a Private
Successor Entity, the percentage of consideration represented by securities of
such Successor Entity shall be determined in good-faith by the Company’s Board
of Directors.

“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of a Major
Transaction.

“Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity and a government or any department or agency thereof.

“Private Successor Entity” means a Successor Entity that is not a Publicly
Traded Successor Entity.

“Publicly Traded Successor Entity” means a Successor Entity that is a publicly
traded corporation whose common stock is quoted on or listed for trading on an
Eligible Market (as defined above).

“Qualified Major Transaction” means a Major Transaction where (i) the
consideration payable to holders of Common Stock in connection with the Major
Transaction consists in whole or in part of securities of a Publicly Traded
Successor Entity or (ii) any non-cash portion of the consideration payable to
holders of Common Stock in connection with the Major Transaction consists of
securities of a Private Successor Entity, which such Private Successor Entity
shall be approved of in writing by the Holder.

“Successor Entity” means any Person purchasing the Company’s assets or Common
Stock, or any successor entity resulting from such Major Transaction, or if the
Warrant is to be exercisable for shares of capital stock of its Parent Entity
(as defined above), its Parent Entity.

(d) Adjustments: Additional Shares, Securities or Assets. In the event that at
any time, as a result of an adjustment made pursuant to this Section 5 or
otherwise, Holder shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to Common Stock shall be deemed to
refer to and include such shares and/or other securities or assets; and
thereafter the number of such shares and/or other securities or assets shall be
subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.

(e) Notice of Adjustments. Whenever the Exercise Price is adjusted pursuant to
the terms of this Warrant, the Company shall promptly mail to the Holder a
notice (an “Exercise Price Adjustment Notice”) setting forth the Exercise Price
after such adjustment and setting forth a statement of the facts requiring such
adjustment. The Company shall, upon the written request at any time of the
Holder, furnish to such Holder a like Warrant setting forth (i) such adjustment
or readjustment, (ii) the Exercise Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon Exercise of the Warrant. For
purposes of clarification, whether or not the Company provides an Exercise Price
Adjustment Notice pursuant to this Section 5(e), upon the occurrence of any
event that leads to an adjustment of the Exercise Price, the Holder would be
entitled to receive a number of Exercise Shares based upon the new Exercise
Price, as adjusted, for exercises occurring on or after the date of such
adjustment, regardless of whether the Holder accurately refers to the adjusted
Exercise Price in the Exercise Form.

 

10.

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6. Fractional Interests.

No fractional shares or scrip representing fractional shares shall be issuable
upon the Exercise of this Warrant, but on Exercise of this Warrant, Holder may
purchase only a whole number of shares of Common Stock. If, on Exercise of this
Warrant, Holder would be entitled to a fractional share of Common Stock, such
fractional share shall be disregarded and the Company shall calculate and pay to
the Holder an amount of cash in lieu of such fractional share, with such cash
amount based on the Market Price (as defined in Section 3(a)(ii) above). If more
than one Warrant shall be exercised concurrently by Holder, the number of whole
shares which shall be issuable upon exercise thereof shall be computed on the
basis of the aggregate Warrants so exercised.

7. Reservation of Shares.

From and after the date hereof, the Company shall at all times reserve for
issuance such number of authorized and unissued shares of Common Stock (or other
securities substituted therefor as herein above provided) as shall be sufficient
for the Exercise of this Warrant. If at any time the number of shares of Common
Stock authorized and reserved for issuance is below the number of shares
sufficient to permit the Exercise of this Warrant (a “Share Authorization
Failure”) (based on the Exercise Price in effect from time to time), the Company
will promptly take all corporate action reasonably necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of stockholders to authorize additional shares to meet the
Company’s obligations under this Section 7, and using commercially reasonable
efforts to obtain stockholder approval of an increase in such authorized number
of shares. The Company covenants and agrees that upon the Exercise of this
Warrant, other than in the event of a Share Authorization Failure, if any, all
Exercise Shares shall be duly and validly issued, fully paid and nonassessable
and not subject to preemptive rights, rights of first refusal or similar rights
of any Person.

8. Restrictions on Transfer.

(a) Registration or Exemption Required. This Warrant has been issued in a
transaction exempt from the registration requirements of the Securities Act by
virtue of Regulation D and exempt from state registration or qualification under
applicable state laws. Neither the Warrant nor the Exercise Shares may be
pledged, transferred, sold, assigned, hypothecated or otherwise disposed of
except pursuant to an effective registration statement covering the resale of
such securities or an exemption to the registration requirements of the
Securities Act and applicable state laws including, without limitation, a
so-called “4(1) and a half” transaction.

(b) Assignment. Subject to applicable securities laws and Section 8(a), the
Holder may sell, transfer, assign, pledge, or otherwise dispose of this Warrant,
in whole or in part; provided that Holder may not sell, transfer, assign,
pledge, or otherwise dispose of any portion of this Warrant with respect to less
than the lesser of (x) two-hundred thousand (200,000) Warrant Shares or (y) all
remaining Warrant Shares underlying this Warrant. Holder shall deliver a written
notice to Company, substantially in the form of the Assignment attached hereto
as Exhibit B, indicating the Person or Persons to whom the Warrant shall be
assigned and the respective number of warrants to be assigned to each assignee.
The Company shall effect the assignment within five (5) Trading Days (the
“Transfer Delivery Period”), and shall deliver to the assignee(s) designated by
Holder a Warrant or Warrants of like tenor and terms for the appropriate number
of shares. Subject to the foregoing, this Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors and
assigns of the Holder. The provisions of this Warrant are intended to be for the
benefit of all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder. For avoidance of doubt, in the event Holder
notifies the Company that such sale or transfer is a so called “4(1) and half”
transaction, the parties hereto agree that a legal opinion from outside counsel
for the Holder delivered to counsel for the Company substantially in the form
attached hereto as Exhibit C shall be the only requirement to satisfy an
exemption from registration under the Securities Act to effectuate such “4(1)
and half” transaction.

 

11.

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9. Noncircumvention.

The Company hereby covenants and agrees that the Company will not, by amendment
of its certificate of incorporation, bylaws or through any reorganization,
transfer of assets, consolidation, merger, scheme of arrangement, dissolution,
issue or sale of securities, or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, and
will at all times in good faith carry out all the provisions of this Warrant and
take all action as may be reasonably required to protect the rights of the
Holder. Without limiting the generality of the foregoing, the Company (i) shall
not increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, and (ii) shall
take all such actions as may be reasonably necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant.

10. Events of Failure.

The occurrence of each of the following shall be considered to be an “Event of
Failure.”

(i) A Delivery Failure Default occurs, where a “Delivery Failure Default” shall
be deemed to have occurred if the Company fails to use its reasonable best
efforts to deliver Exercise Shares to the Holder within any applicable Delivery
Period (other than due to the limitation contained in the provisions contained
in the second paragraph of Section 1);

(ii) A Legend Removal Failure occurs, where a “Legend Removal Failure” shall be
deemed to have occurred if the Company fails to use its reasonable best efforts
to issue Exercise Shares without a restrictive legend, or fails to use it
reasonable best efforts to remove a restrictive legend, when and as required
under Section 2(e) hereof;

(iii) a Transfer Delivery Failure occurs, where a “Transfer Delivery Failure”
shall be deemed to have occurred if the Company fails to use its reasonable best
efforts to deliver a Warrant within any applicable Transfer Delivery Period; and

(iv) a Registration Failure (as defined below).

For purposes hereof, “Registration Failure” means that (A) the Company fails to
use its best efforts to file with the SEC on or before the Filing Deadline (as
defined in the Registration Rights Agreement) any Registration Statement
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement, (B) the Company fails to use commercially reasonable efforts to cause
a Registration Statement to be declared effective by the SEC prior to the
Registration Deadline (as defined in the Registration Rights Agreement), and if
such Registration Statement is not so filed prior to the Registration Deadline,
as soon as possible thereafter, or fails to use commercially reasonable efforts
to keep such Registration Statement current and effective as required in
Section 3 of the Registration Rights Agreement (subject to the Company’s right
to delay or suspend effectiveness pursuant to Section 3(o) of the Registration
Rights Agreement), (C) any Registration Statement required to be filed under the
Registration Rights Agreement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of Registrable Securities (as defined in the Registration
Rights Agreement) then outstanding cannot otherwise be made thereunder (whether
by reason of the Company’s failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement, the
Company’s failure to file and use commercially reasonable efforts to obtain
effectiveness with the SEC of an additional Registration Statement or amended
Registration Statement required pursuant to Sections 2(a)(ii) or 3(b) of the
Registration Rights Agreement, as applicable, or otherwise) for a period of time
in excess of the Grace Period (as defined in the Registration Rights Agreement)
provided that in each case, a Registration Failure shall be deemed to not have
occurred if such Registration Failure results from a breach by any holder of a
Registrable Security of its obligations pursuant to Section 4 of the
Registration Rights Agreement.

 

12.

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11. Default.

(a) Events Of Default. Each of the following events shall be considered to be an
“Event of Default,” unless waived by the Holder:

(i) Failure To Effect Registration. With respect to all Registration Failures, a
Registration Failure occurs and remains uncured for a period of more than
forty-five (45) days (or sixty (60) days in the case where the Company (i) has,
by the Filing Deadline (as defined the Registration Rights Agreement) filed a
Registration Statement (as defined in the Registration Rights Agreement)
covering the number of shares required by the Registration Rights Agreement, and
(ii) has responded in writing to any comments to the Registration Statement that
the Company has received from the SEC, within ten (10) Business Days of such
receipt, and nevertheless the SEC has not declared effective the Registration
Statement by the Registration Deadline (as defined in the Registration Rights
Agreement), and such Registration Failure relates solely to the Company’s
failure to have the Registration Statement declared effective by the
Registration Deadline (as defined in the Registration Rights Agreement)) after
written notice thereof by Holder to the Company; provided that in each case, a
Registration Failure shall be deemed to not have occurred if such Registration
Failure results from a breach by any holder of a Registrable Security of its
obligations pursuant to Section 4 of the Registration Rights Agreement.

(ii) Failure To Deliver Common Stock. Other than as provided in Section 13(a)
below, a Delivery Failure (as defined above) occurs and the Company fails for
any reason to effect delivery of the applicable Exercise Shares for a period of
more than twenty (20) days after written notice thereof by Holder to the
Company; or at any time, the Company announces or states in writing that it will
not honor its obligations to issue shares of Common Stock to the Holder upon
Exercise by the Holder of the Exercise rights of the Holder in accordance with
the terms of this Warrant.

(iii) Legend Removal Failure. A Legend Removal Failure (as defined above) occurs
and remains uncured for a period of thirty (30) days after written notice
thereof by Holder to the Company; and

(iv) Corporate Existence; Major Transaction. (A) The Company has failed to
(x) either satisfy the requirements of Section 5(c)(iv)(a) above or place the
Major Transaction Warrant Early Termination Price or the Cashless Major Shares,
as the case may be, into escrow or (y) if an escrow account is required to be
established pursuant to Section 5(c)(iv), to instruct the escrow agent to
release such amount or such shares, as the case may be, to the Holder pursuant
to Section 5(c)(iv), or (B) with respect to a Major Transaction that is to be
treated as an Assumption under the terms hereof, the Company has failed to meet
the Assumption requirements of Section 5(c)(ii).

(b) [RESERVED]

(c) Remedies, Other Obligations, Breaches And Injunctive Relief. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant, the Registration Rights Agreement and the
Purchase Agreement, at law or in equity (including a decree of specific
performance and/or other injunctive relief), and nothing herein shall limit the
right of the Holder to pursue actual damages for any failure by the Company to
comply with the terms of this Warrant. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
holder of this Warrant shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

12. Holder’s Early Terminations. In the event that the Company does not deliver
the applicable Major Transaction Warrant Early Termination Price or the Exercise
Shares in respect of a Cashless Major Exercise, as the case may be, to the
Holder within the time period or as otherwise required pursuant to the terms
hereof, or at any time thereafter, the Holder shall have the option, upon notice
to the Company, in lieu of early termination or Cashless Major Exercise, as the
case may be, to require the Company to promptly return to the Holder all or any
portion of this Warrant that was submitted for early termination or exercise.
Upon the Company’s receipt of such notice, (x) the applicable early termination
or exercise, as the case may be, shall be null and void with respect to such
applicable portion of this Warrant, (y) the Company shall immediately return
this Warrant, or issue a new Warrant to the Holder representing the portion of
this Warrant that was submitted for early termination or exercise and (z) the
Exercise Price of this Warrant or such new Warrant shall be adjusted to the
greater of (A) the Exercise Price as in effect on the date on which the
applicable early termination or exercise notice, as the case may be, is voided
and (B) $3.28.

 

13.

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13. Limitation on Issuance of Common Stock.

(a) Share Cap. Notwithstanding anything herein to the contrary, the maximum
number of shares of Common Stock (i) issued or issuable pursuant to this Warrant
and all additional Warrants issued pursuant to the provisions of Section 2.15(a)
of the Facility Agreement may not exceed 28,000,000 shares of Common Stock and
(ii) issued or issuable pursuant to all Warrants issued pursuant to the
provisions of Section 2.15(b) of the Facility Agreement may not exceed 5,600,000
shares of Common Stock.

(b) No Obligation to Net Cash Settle this Warrant. Notwithstanding anything to
the contrary herein, in the event that the Company is not permitted to issue
shares of Common Stock to Holder pursuant to this Warrant because of the
provisions of Section 13(a) above or because the Holder would acquire a number
of shares of Common Stock such that, upon such acquisition, the number of shares
of Common Stock then beneficially owned by the Holder and its Affiliates and any
other persons or entities whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act
(including shares held by any “group” of which the Holder is a member, but
excluding shares beneficially owned by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) would exceed
the 9.98% Cap (subject to the proviso to the 9.98% Cap set forth in the second
paragraph of Section 1), the Company shall not be required to net cash settle or
otherwise make any cash payment to Holder (i) with respect to any related
obligation hereunder or (ii) to settle this Warrant by virtue of such
limitation.

14. Benefits of this Warrant.

Nothing in this Warrant shall be construed to confer upon any person other than
the Company and Holder any legal or equitable right, remedy or claim under this
Warrant and this Warrant shall be for the sole and exclusive benefit of the
Company and Holder.

15. Governing Law.

All questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party agrees that all legal
proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement (whether brought against a party
hereto or its respective Affiliates, directors, officers, stockholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of this Agreement, then the prevailing
party in such action or proceeding shall be reimbursed by the other party for
its reasonable attorneys’ fees and other costs and expenses incurred with the
investigation, preparation and prosecution or defense of such action or
proceeding.

16. Loss of Warrant.

Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.

 

14.

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17. Notice or Demands.

Notices or demands pursuant to this Warrant to be given or made by Holder to or
on the Company shall be sufficiently given or made if sent by certified or
registered mail, return receipt requested, postage prepaid or via overnight
delivery with a nationally recognized courier service, and addressed, until
another address is designated in writing by the Company, to the address set
forth in Section 2(a) above. Notices or demands pursuant to this Warrant to be
given or made by the Company to or on Holder shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid or via overnight delivery with a nationally recognized courier service,
and addressed, to the address of Holder set forth in the Company’s records,
until another address is designated in writing by Holder.

[Signature page follows]

 

15.

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IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
                    day of     , 20    .

 

ARENA PHARMACEUTICALS, INC.

By:  

 

  Print Name:   Title:

 

16.

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EXHIBIT A

EXERCISE FORM FOR WARRANT

TO: ARENA PHARMACEUTICALS, INC.

CHECK THE APPLICABLE BOX:

 

¨   

Cash Exercise

 

The undersigned hereby irrevocably exercises the attached warrant (the
“Warrant”) with respect to                      shares of Common Stock (the
“Common Stock”) of ARENA PHARMACEUTICALS, INC., a Delaware corporation (the
“Company”), and tenders herewith payment of the Exercise Price in full, together
with all applicable transfer taxes.

 

[IF APPLICABLE: The undersigned hereby encloses $             as payment of the
Exercise Price.]

 

[IF APPLICABLE: The undersigned hereby agrees to cancel $             of
principal outstanding under Notes of the Company held by the Holder.]

¨   

Cashless Exercise

 

The undersigned hereby irrevocably exercises the Warrant with respect to
                     shares of Common Stock of the Company, pursuant to the
terms of the Cashless Exercise provisions set forth in Section 3(a)(ii) of the
attached Warrant, and tenders herewith payment of all applicable transfer taxes,
if any.

¨   

Cashless Major Exercise

 

The undersigned hereby irrevocably exercises the Warrant with respect to     %
of the Warrant currently outstanding pursuant to a Cashless Major Exercise in
accordance with the terms of the Warrant.

¨    [RESERVED]

1. The undersigned requests that any stock certificates for such shares be
issued free of any restrictive legend, if appropriate, and a warrant
representing any unexercised portion hereof be issued, pursuant to the Warrant
in the name of the undersigned and delivered to the undersigned at the address
set forth below. The undersigned agrees not to sell, transfer, assign, pledge,
hypothecate or otherwise dispose of any of the Common Stock obtained on Exercise
of the Warrant, except in accordance with applicable securities laws and the
provisions of Section 8(a) of the Warrant.

2. The number of shares of Common Stock beneficially owned by the Holder and its
Affiliates (as defined in the Warrant) and any other persons or entities whose
beneficial ownership of Common Stock would be aggregated with the Holder’s for
purposes of Section 13(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) (including shares held by any “group” of which the Holder is a member, but
excluding shares beneficially owned by virtue of the ownership of securities or
rights to acquire securities that have limitations on the right to convert,
exercise or purchase similar to the limitation set forth herein) is
                    . For purposes hereof, “group” has the meaning set forth in
Section 13(d) of the Exchange Act and applicable regulations of the Securities
and Exchange Commission, and the number of shares beneficially owned has been
determined in a manner consistent with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder.

3. Capitalized terms used but not otherwise defined in this Exercise Form shall
have the meaning ascribed thereto in the Warrant.

--------------------------------------------------------------------------------

4. In the event of any conflict between the term of this Exercise Form and any
provisions of this Warrant, the terms of the Warrant shall govern.

Dated:                     

 

 

Signature

 

Print Name

 

Address

NOTICE

The signature to the foregoing Exercise Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.

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EXHIBIT B

ASSIGNMENT

(To be executed by the registered holder

desiring to transfer the Warrant)

FOR VALUE RECEIVED, the undersigned holder of the attached warrant (the
“Warrant”) hereby sells, assigns and transfers unto the person or persons below
named the right to purchase                      shares of the Common Stock of
ARENA PHARMACEUTICALS, INC., a Delaware corporation, evidenced by the attached
Warrant and does hereby irrevocably constitute and appoint                     
attorney to transfer the said Warrant on the books of the Company, with full
power of substitution in the premises.

 

Dated:                          

 

     Signature

Fill in for new registration of Warrant:

 

 

Name

 

Address

 

Please print name and address of assignee

(including zip code number)

NOTICE

The signature to the foregoing Assignment must correspond to the name as written
upon the face of the attached Warrant in every particular, without alteration or
enlargement or any change whatsoever.

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EXHIBIT C

FORM OF OPINION

                    , 20    

[                    ]

 

Re: Arena Pharmaceuticals, Inc. (the “Company”)

Dear Sir:

[                    ] (“[                    ]”) intends to transfer
                     Warrants (the “Warrants”) of the Company to
                    (“                     ”) without registration under the
Securities Act of 1933, as amended (the “Securities Act”). In connection
therewith, we have examined and relied upon the truth of representations
contained in an Investor Representation Letter attached hereto and have examined
such other documents and issues of law as we have deemed relevant.

Based on and subject to the foregoing, we are of the opinion that the transfer
of the Warrants by                      to                     may be effected
without registration under the Securities Act, provided, however, that the
Warrants to be transferred to                     shall contain a legend
restricting its transferability pursuant to the Securities Act and that transfer
of the Warrants is subject to a stop order.

The foregoing opinion is furnished only to                      and may not be
used, circulated, quoted or otherwise referred to or relied upon by you for any
purposes other than the purpose for which furnished or by any other person for
any purpose, without our prior written consent.

Very truly yours,

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[FORM OF INVESTOR REPRESENTATION LETTER]

                    , 20    

[                    ]

Gentlemen:

                    (“                     ”) has agreed to purchase
                    Warrants (the “Warrants”) of Arena Pharmaceuticals, Inc.
(the “Company”) from [                    ] (“[                    ]”). We
understand that the Warrants are “restricted securities.” We represent and
warrant that                     is a sophisticated institutional investor that
would qualify as an “Accredited Investor” as defined in Rule 501 of Regulation D
under the Securities Act of 1933, as amended (the “Securities Act”).

                    represents and warrants as of the date hereof as follows:

1. That it is acquiring the Warrants and the shares of common stock, $0.0001 par
value per share underlying such Warrants (the “Exercise Shares”) solely for its
account for investment and not with a view to or for sale or distribution of
said Warrants or Exercise Shares or any part thereof.                     also
represents that the entire legal and beneficial interests of the Warrants and
Exercise Shares                     is acquiring is being acquired for, and will
be held for, its account only;

2. That it understands and agrees that the Warrants and the Exercise Shares have
not been registered under the Securities Act on the basis that no distribution
or public offering of the stock of the Company is to be effected.
                    realizes that the basis for the exemption may not be present
if, notwithstanding its representations,                     has a present
intention of acquiring the securities for a fixed or determinable period in the
future, selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the securities.
                    has no such present intention;

3. That it understands and agrees that the Warrants and the Exercise Shares must
be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
                    recognizes that the Company has no obligation to register
the Warrants, or to comply with any exemption from such registration;

4. That it understands and agrees that neither the Warrants nor the Exercise
Shares may be sold pursuant to Rule 144 adopted under the Securities Act unless
certain conditions are met, including, among other things, the existence of a
public market for the shares, the availability of certain current public
information about Company, the resale following the required holding period
under Rule 144 and the number of shares being sold during any three month period
not exceeding specified limitations;

5. That it will not make any disposition of all or any part of the Warrants or
Exercise Shares in any event unless and until:

(i) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with said registration statement; or

(ii)                     shall have notified the Company of the proposed
disposition and, in the case of a sale or transfer in a so called “4(1) and a
half” transaction, shall have furnished counsel to the Company with an opinion
of its counsel, substantially in the form of Exhibit C to the Warrant.

--------------------------------------------------------------------------------

We acknowledge that the Company will place stop orders with respect to the
Warrants and the Exercise Shares, and if a registration statement is not
effective, the Exercise Shares shall bear the following restrictive legend:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT INCLUDING, WITHOUT LIMITATION, PURSUANT TO RULES 144 OR 144A
UNDER SAID ACT OR PURSUANT TO A PRIVATE SALE EFFECTED UNDER APPLICABLE FORMAL OR
INFORMAL SEC INTERPRETATION OR GUIDANCE, SUCH AS A SO-CALLED “4(1) AND A HALF”
SALE”, SUBJECT TO DELIVERY OF AN OPINION, AS PROVIDED IN THE WARRANT, DATED AS
OF                     , 20    .

“THE SALE, TRANSFER OR ASSIGNMENT OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN REGISTRATION
RIGHTS AGREEMENT DATED AS OF                     , 20    , AS AMENDED FROM TIME
TO TIME, AMONG THE COMPANY AND CERTAIN HOLDERS OF ITS OUTSTANDING SECURITIES.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY.”

The undersigned agrees to notify the Company immediately of any development or
occurrence which to the knowledge of the undersigned would render inaccurate or
incomplete any of the representations or agreements contained in this letter and
will indemnify and hold harmless the Company from and against any and all loss,
damage, claim, liability and expense arising out of or resulting from the breach
of any of the representations and agreements contained herein.

The Company and its counsel and transfer agent may rely on the information
contained herein. At any time and from time to time after the date hereof,
                    shall, without further consideration, execute and deliver to
[                    ] or the Company such other instruments or documents and
shall take such other actions as they may reasonably request to carry out the
transactions contemplated hereby.

Very truly yours,

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Schedule 1

Black-Scholes Value

 

Calculation Under Section 5(c)(iii) Remaining Term    Number of calendar days
from date of consummation of the Major Transaction until the last date of the
Term. Interest Rate    A risk-free interest rate corresponding to the US$
LIBOR/Swap rate on the Trading Day immediately preceding the date on which the
applicable Major Transaction is consummated for a period ending on the last date
of the Term. Volatility   

The lesser of (A): 50%; or

 

(B) (i) If the first public announcement of the Major Transaction is made at or
prior to 4:00 p.m., New York City time, the arithmetic mean of the historical
volatility for the 10, 30 and 50 Trading Day periods ending on the Trading Day
immediately preceding such first public announcement, obtained from the HVT or
similar function on Bloomberg; or

(ii) If the first public announcement of the Major Transaction is made after
4:00 p.m., New York City time, the arithmetic mean of the historical volatility
for the 10, 30 and 50 Trading Day periods ending on the date of such first
public announcement, obtained from the HVT or similar function on Bloomberg.

Stock Price    The greater of (1) the closing price of the Common Stock on
NASDAQ, or, if that is not the principal trading market for the Common Stock,
such principal market on which the Common Stock is traded or listed (the
“Closing Market Price”) on the trading day immediately preceding the date on
which a Major Transaction is consummated, (2) the first Closing Market Price
following the first public announcement of a Major Transaction, or (3) the
Volume Weighted Average Price as of the date immediately preceding the first
public announcement of the Major Transaction. Dividends    Zero. Strike Price   
Exercise Price as defined in section 3(a).