Exhibit 10.1


 


Arena
Pharmaceuticals


 


Summary of


 


—            2006
Annual Incentive Plan               —


 

















 


2006 Annual Incentive Plan - Overview


 


Overview


 


•                  Each
participant is assigned a bonus target, expressed as a percentage of annual
salary.


 


•                  The
Company sets up to eight corporate and individual goals, each individually
weighted.


 


•                  Goals
will be specific and measurable.


 


•                  At
the end of the year, individual bonus awards are determined based upon the
level of goal achievement, the quality of achievement, and the weighting of
each goal.


 


•                  No
award is earned paid if weighted average goal completion is less than 50%.


 


•                  Certain
combinations of goal-achievement create “multipliers” of up to 125% of the
target award.


 


•                  The
CEO and Compensation Committee have the discretion to modify awards up to a
125%-of-target maximum funding level.


 


Individual Bonus Targets


 


•                  Targets are based on role, level, and the
market.


 


Target Award as a % Salary


 


	
  CEO

  	
   

  	
  50

  	
  %

  
	
  CSO, Gen Couns, CFO

  	
   

  	
  35

  	
  %

  
	
  CMO

  	
   

  	
  30

  	
  %

  
	
  VP Qlty, VP Mkt/Bus Dev

  	
   

  	
  25

  	
  %

  



 


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Annual Incentive Plan – Mix of Goals


 


Corp. vs. Individual Goals


 


•                  Each
participant’s goals are divided into corporate and individual components,
weighted based on role.


 


	
   

  	
   

  	
  Corporate

  	
   

  	
  Individual (MBOs)

  	
   

  
	
  CEO

  	
   

  	
  75

  	
  %

  	
  25

  	
  %

  
	
  CSO, Gen Couns, CFO

  	
   

  	
  60

  	
  %

  	
  40

  	
  %

  
	
  CMO, VP Qlty, VP Mkt/Bus Dev

  	
   

  	
  50

  	
  %

  	
  50

  	
  %

  



 


•                  All
participants have the same corporate goals, which aligns their interests with
one another and shareholders.


 


•                  Corporate
goals are proposed by the CEO and approved by the Compensation Committee and/or
the Board.


 


•                  Individual
goals are set by the CEO in partnership with each participant and reviewed by
the Committee.  The CEO’s individual
goals are proposed by the CEO and approved by the Compensation Committee and/or
the Board.


 


•                  The
categories of corporate goals are set forth on Annex I


 


Plan-year Goal Adjustment


 


•                  If
a goal becomes irrelevant during the year or if a strategic change affects a
goal (or more than one), then the Compensation Committee, in concert with the
CEO, will:


 


1.               Substitute a new goal with an appropriate
weighting (the weighting of the existing goals will be proportionately adjusted
if the new goal has a different weighting than its predecessor); or,


 


2.               Eliminate the irrelevant goal and re-weight
all other goals proportionately.


 


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Annual Incentive Plan - Funding


 


Threshold


 


•                  The
minimum total weighted average completion percentage is 50% for any award to be
earned.


 


Cap


 


•                  Total
award funding is capped at 125% of target.


 


Funding Relationship


 


•                  When
total weighted average completion is above 50%, the funded award will equal
weighted average completion percentage.


 


•                  For
example, if weighted average completion is 95% of the total, then the award
would fund at 95% of target (subject to the review and approval of the
Compensation Committee).


 


Discretionary Adjustment


 


•                  The
Compensation Committee may use its judgment and discretion to modify or adjust
the annual bonus award.


 


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Rules Governing the Plan


 


•                  Eligible
plan participants must be actively employed at Arena Pharmaceuticals on the
last day of the fiscal year to receive an annual payout.  Plan participants who leave Arena prior to
the end of the fiscal year are not eligible to receive an award.


 


•                  Eligible
plan participants whose first date of employment is between January 1,
2006 and September 30, 2006 will participate on a prorated basis based on
their date of hire.


 


•                  Plan
participants who are promoted to incentive-eligible positions (or positions
with a higher incentive target) before December 31, 2006 will participate
in the plan on a prorated basis, based on the effective date of the promotion.


 


•                  Payment
of an incentive to eligible plan participants who take a leave of absence for
any reason during the year will be prorated based on the time worked during the
year.


 


•                  The
Compensation Committee and the Board have the right to exclude participants and
exercise discretion, including canceling the plan or any earned awards.


 


•                  Awards
earned under this plan will be paid prior to the 15th day of March 2007.


 


•                  Participation
in the Annual Incentive Plan is not a guarantee of continued employment.  Arena reserves the right to terminate
employment and/or participation in the Annual Incentive Plan at any time and
for any reason.


 


•                  The
Company and the Board reserve the right to change or waive a provision in the
incentive plan at any time, including (but not limited to) its award formula,
performance measures and payout schedule. 
Although the Company intends to pay incentives at levels indicated by
the plan, this plan shall not obligate the Company or its management to grant
the benefits contemplated under its provisions.


 


•                  This
plan is not a contract and in no way represents a contractual obligation to pay
any amount under the plan, regardless of the performance achieved during the
plan period.


 


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Annex I


 


The
corporate goals relate to the following categories:


 


(i) development
of internal clinical programs;


 


(ii) progress
of partnered programs;


 


(iii) financial
goals; and


 


(iv) progress
of research programs.


 


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