Exhibit 10.3

 

Arena Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan

 

Incentive Stock Option Grant Agreement

 

THIS GRANT AGREEMENT (this “Agreement”), effective as of
                           (the “Grant Date”), is entered into by and between
Arena Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and
                           (the “Grantee”).

 

1. Grant of Options. The Company hereby grants to the Grantee a stock option
(the “Option”) to purchase                   shares of common stock of the
Company, par value $0.0001 per share (the “Shares”), at the exercise price of
$             per Share (the “Exercise Price”). The Option is intended to
qualify as an incentive stock option under Section 422 of the Code.

 

2. Subject to the Plan. This Agreement is subject to the provisions of the Arena
Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan (the “Plan”), and, unless
the context requires otherwise, terms used herein shall have the same meaning as
in the Plan. In the event of a conflict between the provisions of the Plan and
this Agreement, the Plan shall control.

 

3. Term of Options. Unless the Option terminates earlier pursuant to the
provisions of this Agreement, the Option shall expire on the tenth anniversary
of the Grant Date.

 

4. Vesting. Except as otherwise set forth in Sections 6(b), (c) or (d) of this
Agreement, provided the Grantee is then an Employee or, if applicable, a
Director, the Option shall become vested and exercisable on the following dates:

 

Vest Date

 

Vested Options

 

 

 

 

 

 

 

 

 

 

5. Exercise of Option

 

(a)  Manner of Exercise. To the extent vested, the Option may be exercised, in
whole or in part, by delivering written notice to the Company in accordance with
paragraph (f) of Section 8 in such form as the Company may require from time to
time. Such notice shall specify the number of Shares subject to the Option as to
which the Option is being exercised, and shall be accompanied by full payment of
the Exercise Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan, except that payment with previously acquired Shares may
only be made with the consent of the Committee. The Option may be exercised only
in multiples of whole Shares and no partial Shares shall be issued.

 

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(b)  Issuance of Shares. Upon exercise of the Option and payment of the Exercise
Price for the Shares as to which the Option is exercised, the Company shall
issue to the Grantee the applicable number of Shares in the form of fully paid
and nonassessable Shares.

 

(c)  Capitalization Adjustments. The number of Shares subject to the Option and
the exercise price per Share shall be equitably and appropriately adjusted as
provided in Section 12.2 of the Plan.

 

(d)  Notice of Disposition. Grantee agrees to notify the Company in writing
within fifteen (15) days after the date of any disposition of any of the Shares
issued upon exercise of the Option that occurs within the later of two (2) years
after the Grant Date or within one (1) year after such Shares are transferred to
the Grantee.

 

(e)  Withholding. No Shares will be issued on exercise of the Option unless and
until the Grantee pays to the Company, or makes satisfactory arrangement with
the Company for payment of, any federal, state or local taxes, if any, required
by law to be withheld in respect of the exercise of the Option. The Grantee
hereby agrees that the Company may withhold from Grantee’s wages or other
remuneration the applicable taxes. At the discretion of the Company, the
applicable taxes may be withheld in kind from the Shares otherwise deliverable
to the Grantee on exercise of the Option, up to the Grantee’s minimum required
withholding rate or such other rate that will not trigger a negative accounting
impact.

 

6. Termination of Option

 

(a) Termination of Employment Other Than Due to Retirement, Death, Disability or
Cause. Unless the Option has earlier terminated, the Option shall terminate in
its entirety, regardless of whether the Option is vested, ninety (90) days after
the date the Grantee ceases to be an Employee and, if applicable, a Director,
for any reason other than the Grantee’s Retirement, death, Disability or
termination by the Company for Cause. Except as provided below in Section 6(b),
(c) or (d), any portion of the Option that is not vested at the time the Grantee
ceases to be an Employee or, if applicable, a Director, shall immediately
terminate.

 

(b)  Retirement. Upon the Retirement of the Grantee, unless the Option has
earlier terminated, the Option shall continue in effect (and for purposes of
vesting pursuant to Section 4 the Grantee shall be deemed to continue to be an
Employee) until the earlier of (i) two (2) years after the Grantee’s Retirement
(or, if later, the fifth anniversary of the Grant Date) or (ii) the expiration
of the Option’s term pursuant to Section 3. For purposes of this Agreement,
“Retirement” shall mean termination of the Grantee’s employment with the Company
and its Subsidiaries other than for Cause if (i) the Grantee is then at least
age 60 and (ii) the Grantee has provided at least ten (10) years of continuous
service to the Company and its Subsidiaries.

 

(c)  Death. Upon the Grantee’s death, unless the Option has earlier terminated,
to the extent the Option is not fully vested the installment of the Option that
would vest on the next anniversary of the Grant Date following the Grantee’s
death shall become vested and exercisable based on a fraction, the numerator of
which is the number of whole months elapsed since the prior anniversary of the
Grant Date (or, if applicable, the Grant Date) and the denominator of

 

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which is 12. Notwithstanding the foregoing, if on the date of the Grantee’s
death the Grantee was eligible for Retirement the installments of the Option
that would vest in the next two (2) years following the date of the Grantee’s
death shall become vested and exercisable. The Grantee’s executor or personal
representative, the person to whom the Option shall have been transferred by
will or the laws of descent and distribution, or such other permitted
transferee, as the case may be, may exercise the Option in accordance with
paragraph (a) of Section 5, to the extent vested, provided such exercise occurs
within twelve (12) months (twenty-four (24) months if the Grantee was eligible
for Retirement) after the date of the Grantee’s death or the end of the term of
the Option pursuant to Section 3, whichever is earlier.

 

(d)  Disability. In the event that the Grantee ceases to be an Employee by
reason of Disability, unless the Option has earlier terminated (i) to the extent
the Option is not fully vested the installment of the Option that would vest on
the next anniversary of the Grant Date following the Grantee’s Disability shall
become vested and exercisable based on a fraction, the numerator of which is the
number of whole months elapsed since the prior anniversary of the Grant Date
(or, if applicable, the Grant Date) and the denominator of which is 12 and (ii)
the Option may be exercised, in accordance with paragraph (a) of Section 5, to
the extent vested, provided such exercise occurs within twelve (12) months after
the date of Disability or the end of the term of the Option pursuant to Section
3, whichever is earlier. Notwithstanding the foregoing, if on the date of the
Grantee’s Disability the Grantee was eligible for Retirement (x) the
installments of the Option that would vest in the next two (2) years following
the date of the Grantee’s Disability shall become vested and exercisable and (y)
the Option may be exercised within twenty-four (24) months after the date of the
Grantee’s Disability or the end of the term of the Option pursuant to Section 3,
whichever is earlier.

 

For purposes of this Agreement, “Disability” shall mean the Grantee’s becoming
disabled within the meaning of Section 22(e)(3) of the Code, or as otherwise
determined by the Committee in its discretion. The Committee may require such
proof of Disability as the Committee in its sole and absolute discretion deems
appropriate and the Committee’s determination as to whether the Grantee has
incurred a Disability shall be final and binding on all parties concerned.

 

(e)  Termination for Cause. Upon the termination of the Grantee’s employment by
the Company or a Subsidiary for Cause, unless the Option has earlier terminated,
the Option shall immediately terminate in its entirety and shall thereafter not
be exercisable to any extent whatsoever. For purposes of this Agreement, except
as otherwise provided in a written employment or severance agreement between the
Grantee and the Company or a severance plan of the Company covering the Grantee
(including a change in control severance agreement or plan), “Cause” shall mean:
a finding by the Committee that the Grantee has breached his or her employment
agreement with the Company, or has been engaged in disloyalty to the Company,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment, or has
disclosed trade secrets or confidential information of the Company to persons
not entitled to receive such information, or has breached any written
noncompetition or nonsolicitation agreement between the Grantee and the Company
or has engaged in such other behavior detrimental to the interests of the
Company as the Committee determines.

 

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(f)  Extension of Exercise Period. Notwithstanding any provisions of paragraphs
(a), (b), (c) or (d) of this Section to the contrary, if exercise of the Option
following termination of employment or service during the time period set forth
in the applicable paragraph or sale during such period of the Shares acquired on
exercise would violate any of the provisions of the federal securities laws (or
any Company policy related thereto), the time period to exercise the Option
shall be extended until the later of (i) forty-five (45) days after the date
that the exercise of the Option or sale of the Shares acquired on exercise would
not be a violation of the federal securities laws (or a related Company policy),
or (ii) the end of the time period set forth in the applicable paragraph.

 

7. Change in Control; Corporate Transaction.

 

(a)  Effect of Change in Control on Option. In the event of a Change in Control,
the Surviving Corporation or the Parent Corporation, if applicable, may assume,
continue or substitute for the Option on substantially the same terms and
conditions (which may include the right to acquire the same consideration paid
to the stockholders of the Company pursuant to the Change in Control). In the
event of a Change in Control, to the extent the Surviving Corporation or the
Parent Corporation, if applicable, does not assume, continue or substitute for
the Option on substantially the same terms and conditions (which may include
settlement in the common stock of the Surviving Corporation or the Parent
Corporation), the Option shall (i) become fully vested and exercisable
immediately prior to the Change in Control if the Grantee is then an Employee
or, if applicable, a Director, and (ii) terminate on the date of the Change in
Control. In the event of a Change in Control, to the extent the Surviving
Corporation or the Parent Corporation, if applicable, assumes or substitutes for
the Option on substantially the same terms and conditions (which may include
providing for settlement in the common stock of the Surviving Corporation or the
Parent Corporation), if within 24 months following the date of the Change in
Control the Grantee ceases to be an Employee by reason of (i) an involuntary
termination without Cause, or (ii) a voluntary termination in connection with a
Relocation Requirement, the Option shall become fully vested and exercisable,
and may be exercised by the Grantee at any time until the first anniversary of
the date the Grantee ceases to be an Employee or the end of the term of the
Option pursuant to Section 3, whichever is earlier.

 

For purposes of this Agreement (i) if the Company is the Surviving Corporation
or the Parent Corporation, if applicable, it shall be deemed to have assumed the
Option unless it takes explicit action to the contrary and (ii) “Relocation
Requirement” shall mean a requirement by the Company, the Surviving Corporation
or an affiliate thereof that the Grantee be based anywhere more than fifty (50)
miles from both the Grantee’s primary office location at the time of the Change
in Control and the Grantee’s principal residence at the time of the Change in
Control.

 

Notwithstanding the foregoing, if on the date of the Change in Control the Fair
Market Value of one Share is less than the Exercise Price, then the Option shall
terminate as of the date of the Change in Control, except as otherwise
determined by the Committee.

 

(b)  Effect of Corporate Transaction on Option. In the event of a Corporate
Transaction that is not a Change in Control, any surviving corporation or
acquiring corporation (or the

 

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surviving or acquiring corporation’s parent company) may assume, continue or
substitute for the Option on substantially the same terms and conditions (which
may include the right to acquire the same consideration paid to the stockholders
of the Company pursuant to the Corporate Transaction). In the event of a
Corporate Transaction that is not a Change in Control, then notwithstanding
Section 11 of the Plan and paragraph (a) of this Section, to the extent that the
surviving corporation or acquiring corporation (or its parent company) does not
assume, continue or substitute for the Option on substantially the same terms
and conditions (which may include the right to acquire the same consideration
paid to the stockholders of the Company pursuant to the Corporate Transaction),
then the Option shall (i) become fully vested and exercisable immediately prior
to the Corporate Transaction if the Grantee is then an Employee or, if
applicable, a Director, and (ii) terminate on the date of the Corporate
Transaction.

 

For purposes of this Agreement, “Corporate Transaction” means (i) the
consummation of a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or (ii) the consummation of a
merger, consolidation or similar transaction following which the Company is the
surviving corporation but the Shares outstanding immediately preceding the
merger, consolidation or similar transaction are converted or exchanged by
virtue of the merger, consolidation or similar transaction into other property,
whether in the form of securities, cash or otherwise. Notwithstanding the
foregoing, a “Corporate Transaction” shall not include a transaction that is
effected exclusively for the purpose of changing the domicile of the Company.

 

(c)  Other Agreement or Plan. The provisions of this Section (including the
definition of Cause), shall be superseded by the specific provisions, if any, of
a written employment or severance agreement between the Grantee and the Company
or a severance plan of the Company covering the Grantee, including a change in
control severance agreement or plan, to the extent such a provision in such
other agreement or plan provides a greater benefit to the Grantee.

 

8. Miscellaneous.

 

(a)  No Rights of Stockholder. The Grantee shall not have any of the rights of a
stockholder with respect to the Shares subject to this Option until such Shares
have been issued upon the due exercise of the Option.

 

(b)  Nontransferability of Option. The Option shall be nontransferable otherwise
than by will or the laws of descent and distribution, and during the lifetime of
the Grantee, the Option may be exercised only by the Grantee or, during the
period the Grantee is under a legal disability, by the Grantee’s guardian or
legal representative. Notwithstanding the foregoing, the Grantee may, by
delivering written notice to the Company, in a form provided by or otherwise
satisfactory to the Company, designate a third party who, in the event of the
Grantee’s death, shall thereafter be entitled to exercise the Option.

 

(c)  Severability. If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court of competent
jurisdiction, such provision shall (i) be deemed limited to the extent that such
court of competent jurisdiction deems it lawful, valid and/or enforceable and as
so limited shall remain in full force and effect, and (ii)

 

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not affect any other provision of this Agreement or part thereof, each of which
shall remain in full force and effect.

 

(d)  Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of Delaware, other than its conflict of
laws principles.

 

(e)  Headings. The headings in this Agreement are for reference purposes only
and shall not affect the meaning or interpretation of this Agreement.

 

(f)  Notices. All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered or mailed by
registered or certified mail, postage prepaid. Notice by mail shall be deemed
delivered on the date on which it is postmarked.

 

Notices to the Company should be addressed to:

 

Arena Pharmaceuticals, Inc.

6150 Nancy Ridge Drive

San Diego, California 92121

Attention:  Chief Financial Officer

 

With a copy to: General Counsel

 

Notice to the Grantee should be addressed to the Grantee at the Grantee’s
address as it appears on the Company’s records.

 

The Company or the Grantee may by writing to the other party, designate a
different address for notices. If the receiving party consents in advance,
notice may be transmitted and received via telecopy or via such other electronic
transmission mechanism as may be available to the parties. Such notices shall be
deemed delivered when received.

 

(g)  Agreement Not a Contract.  This Agreement (and the grant of the Option) is
not an employment or service contract, and nothing in the Option shall be deemed
to create in any way whatsoever any obligation on Grantee’s part to continue as
an Employee, or of the Company or a Subsidiary to continue Grantee’s service as
an Employee.

 

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(h)  Entire Agreement; Modification. This Agreement and the Plan contain the
entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or in a
written document signed by each of the parties hereto, and may be rescinded only
by a written agreement signed by both parties.

 

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
Grant Date.

 

 

ARENA PHARMACEUTICALS, INC.

 

 

 

 

 

By:

 

 

 

 

 

 

 

 

 

 

Grantee

 

 

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