Exhibit 10.5


 


Arena Pharmaceuticals, Inc. 2006 Long-Term Incentive Plan


 


Restricted
Stock Unit Grant Agreement


 


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


 


1.             Grant
of Restricted Stock Units. The Company hereby grants to the Participant
                      
Restricted Stock Units. Each Restricted Stock Unit shall be deemed to be the
equivalent of one Share.


 


2.             Subject to the Plan. This Agreement
is subject to the provisions of the Arena Pharmaceutical, 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.             Account.
The Company shall credit to a bookkeeping account (the “Account”)
maintained by the Company for the Participant’s benefit the Restricted Stock
Units. On each date that cash dividends are paid on the Shares, the Company
will credit the Account with a number of additional Restricted Stock Units
equal to the result of dividing (i) the product of the total number of Restricted
Stock Units credited to the Account on the record date for such dividend and
the per Share amount of such dividend by (ii) the Fair Market Value of one
Share on the date such dividend is paid by the Company to shareholders. The
additional Restricted Stock Units shall be or become vested to the same extent
as the Restricted Stock Units that resulted in the crediting of such additional
Restricted Stock Units.


 


4.             Vesting.
Except as provided in Sections 6(b), (c) or (d) of this Agreement, provided the Participant is then an Employee
or, if applicable, a Director, the Restricted Stock Units shall become
vested on the following dates:


 




	
   

  	
   

  	
  Vested Restricted

  
	
  Vest Date

  	
   

  	
  Stock Units

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  






 


5.             Capitalization Adjustments. The number of Restricted Stock Units
credited to the Account shall be
equitably and appropriately adjusted as provided in Section 12.2 of the Plan.


 

















 


6.             Termination
of Employment.


 


(a)  Termination
of Employment Other Than Due to Retirement, Death or Disability. In the
event the Participant ceases to be an Employee and, if applicable, a Director,
for any reason other than as a result of death, Disability or Retirement, the
Restricted Stock Units credited to the Account that were not vested on the date
of such termination of employment shall be immediately forfeited.


 


(b)  Retirement.
Upon the Retirement of the Participant, the Restricted Stock Units credited to
the Account that would vest on each of the next two (2) anniversaries of the
Grant Date following the Participant’s death shall become vested. For purposes
of this Agreement, “Retirement” shall mean termination of the Participant’s
employment with the Company and its Subsidiaries other than for Cause if (i)
the Participant is then at least age 60 and (ii) the Participant has provided
at least ten (10) years of continuous service to the Company and its
Subsidiaries.


 


(c)  Death.
Upon the Participant’s death, to the extent the Restricted Stock Units are not
fully vested the Restricted Stock Units credited to the Account that would vest
on the next anniversary of the Grant Date following the Participant’s death
shall become vested 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. Notwithstanding
the foregoing, if on the date of the Participant’s death the Participant was
eligible for Retirement the Restricted Stock Units credited to the Account that
would vest in the next two (2) years following the date of the Participant’s
death shall become vested.


 


(d)  Disability.
In the event that the Participant ceases to be an Employee by reason of
Disability to the extent the Restricted Stock Units are not fully vested the
Restricted Stock credited to the Account that would vest on the next
anniversary of the Grant Date following the Participant’s Disability shall
become vested 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. Notwithstanding
the foregoing, if on the date of the Participant’s Disability the Participant
was eligible for Retirement the Restricted Stock Units credited to the Account
that would vest in the next two (2) years following the date of the
Participant’s Disability shall become vested. 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.


 


7.             Payment of Restricted Stock Units. The Company shall
make a payment to the Participant of the vested Restricted Stock Units credited
to the Account as provided in Section 9 upon the date the Restricted Stock
Units vest; provided, however, that Restricted Units that vest due to
Retirement shall not be paid until the applicable Vest Date as provided in
Section 4.


 


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The Participant may elect, in
accordance with procedures adopted by the Company, to change the payment date
determined in accordance with the first sentence of the preceding paragraph by
written notice to the Company at least 12 months prior to the payment date,
provided that the new payment date must be at least five years after the
previously applicable payment date. Notwithstanding the foregoing, upon:


 


(a) 
The death of the Participant prior to the new payment date, payment
shall be accelerated to the date of the Participant’s death and paid in
accordance with the provisions of Section 9; and


 


(b) 
The occurrence of a Section 409A CIC (as defined in Appendix A), payment
shall be accelerated to the date of such Section 409A CIC and paid in Shares (or, if applicable, in shares
of the common stock of the Surviving
Corporation or the Parent Corporation).


 


8.             Form of Payment. Payments pursuant to Section 7 shall be made
in Shares equal to the number of vested Restricted Stock Units credited to the
Account. Payment shall be made as soon as practicable after the applicable
payment date, but in no event later than 30 days after the date established
pursuant to Section 7.


 


9.             Beneficiary.
In the event of the Participant’s death prior to payment of
the Restricted Stock Units credited to the Account, payment shall be made to
the last beneficiary designated in writing that is received by the Company
prior to the Participant’s death or, if no designated beneficiary survives the Participant,
such payment shall be made to the Participant’s estate.


 


10. Change in Control; Corporate Transaction.


 


(a)  Effect
of Change in Control on Restricted Stock Units. In the event of a Change in
Control, the Surviving Corporation or the Parent Corporation, if applicable,
may assume or substitute for the Restricted Stock Units credited to the Account
on substantially the same terms and conditions (which may include payment in
shares of the common stock of the Surviving Corporation or the Parent
Corporation). In the event of a Change in Control, to the extent the Surviving
Corporation or the Parent Corporation, if applicable, does not assume or
substitute for the Restricted Stock Units credited to the Account on
substantially the same terms and conditions (which may include payment in
shares of the common stock of the Surviving Corporation or the Parent
Corporation), all of such Restricted Stock Units shall become fully vested
immediately prior to the Change in Control, provided the Participant is then an
Employee or, if applicable, a Director. In the event of a Change in Control, to
the extent the Surviving Corporation or the Parent Corporation, if applicable,
does assume or substitute for the Restricted Stock Units credited to the
Account on substantially the same terms and conditions (which may include payment
in shares of the common stock of the Surviving Corporation or the Parent
Corporation) and within 24 months thereafter the Participant 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, all of such
Restricted Stock Units shall become fully vested.


 


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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 Restricted Stock Units 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 Participant be based anywhere more than fifty (50) miles from both the
Participant’s primary office location at the time of the Change in Control and
the Participant’s principal residence at the time of the Change in Control. In
addition, for purposes of this Agreement, except as otherwise provided in a
written employment or severance agreement between the Participant and the
Company or a severance plan of the Company covering the Participant (including
a change in control severance agreement or plan), “Cause” shall mean: a finding
by the Committee that the Participant 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 Participant and the
Company or has engaged in such other behavior detrimental to the interests of
the Company as the Committee determines.


 


(b)  Effect
of Corporate Transaction on Restricted Stock Units. In the event of a
Corporate Transaction that is not a Change in Control, any surviving
corporation or acquiring corporation (or the surviving or acquiring
corporation’s parent company) may assume, continue or substitute for the
Restricted Stock Units credited to the Account on substantially the same terms
and conditions (which may include payment in shares of the common stock of the
surviving corporation, acquiring corporation, or the surviving or acquiring
corporation’s parent company). 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 Restricted Stock Units credited to the Account on
substantially the same terms and conditions (which may include payment in
shares of the common stock of the surviving corporation, acquiring corporation,
or the surviving or acquiring corporation’s parent company), then all of such
Restricted Stock Units shall become fully vested immediately prior to the
Corporate Transaction if the Participant is then an Employee or, if applicable,
a Director.


 


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.


 


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(c)  Payment
of Restricted Stock Units. Payment of Restricted Stock Units that vest
pursuant to the second sentence of paragraph (a) of this Section shall be made
in Shares (or, if applicable, in shares of the common stock of the Surviving
Corporation or the Parent Corporation), as soon as practicable following the
earliest of (i) the date of the Change in Control if such Change in Control is
also a Section 409A CIC, (ii) the applicable Vest Date as provided in Section 4
or (iii) the date of the Participant’s termination of employment with the
Company and its Subsidiaries for any reason. Payment of Restricted Stock Units
that vest pursuant to the third sentence of paragraph (a) of this Section shall
be made in Shares (or, if applicable, in shares of the common stock of the successor
company) as soon as practicable following the termination of employment
referred to in such sentence. Payment of Restricted Stock Units that vest
pursuant to the second sentence of paragraph (b) of this Section shall be made
in Shares (or, if applicable, in shares of the common stock of the surviving
corporation, acquiring corporation, or the surviving or acquiring corporation’s
parent company), as soon as practicable following the earliest of (i) the date
of the Corporate Transaction if such Corporate Transaction is also a Section
409A CIC, (ii) the applicable Vest Date as provided in Section 4 or (iii) the
date of the Participant’s termination of employment with the Company and its
Subsidiaries for any reason.


 


(d)  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 Participant and the Company or a severance plan
of the Company covering the Participant, 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 Participant.


 


11.          Source of Payments. The Participant’s
right to receive payment under this Agreement shall be an unfunded entitlement
and shall be an unsecured claim against the general assets of the Company. The Participant
has only the status of a general unsecured creditor hereunder, and this
Agreement constitutes only a promise by the Company to pay the value of the
Account on the payment date.


 


12.          Nontransferability.
Except to the extent and
under such terms and conditions as determined by the Committee, the Restricted
Stock Units shall not be transferable otherwise than by will or the laws of
descent and distribution or as provided in Section 9.


 


13.          Withholding.
The Participant agrees to pay to the Company, or to make 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 payment of the
Restricted Stock Units. The Participant hereby agrees that the Company may
withhold from Participant’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 Participant on the payment of the
Restricted Stock Units.


 


14.          No
Rights of a Stockholder. The Participant shall not have any of the
rights of a stockholder with respect to the Shares subject to the Restricted
Stock Units until such Shares have been issued.


 


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15.          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 at the time and on the date the same 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


 


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


 


The Company or the Participant
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.


 


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


 


17.              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.


 


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


 


19.              Entire
Agreement; Modification. This Agreement and the Plan constitute the
entire agreement between the parties relative to the subject matter 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 executed by both parties.


 


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20.              Compliance with Section 409A of the Code.


 


(a)  Automatic Delay of Payment. Notwithstanding
anything contained in this Agreement to the contrary, if the Company determines
that as of the date of payment the Participant is a “specified employee” (as
such term is defined under Section 409A of the Code), any Shares (or shares of
the common stock of the successor company in the event of a Change in Control)
payable by reason of the Participant’s termination of employment with the
Company and its Subsidiaries for any reason other than death or “disability”
(as such term is defined under Section 409A of the Code) will not be paid until
the date that is six months following the date of termination of employment (or
such earlier time permitted under Section 409A of the Code without the
imposition of any accelerated or additional taxes under Section 409A of the
Code).


 


(b)  General. This Agreement is intended to
comply and shall be administered in a manner that is intended to comply with section
409A of the Code and shall be construed and interpreted in accordance with such
intent. Payment under this Agreement shall be made in a manner that will comply
with section 409A of the Code, including regulations or other guidance issued
with respect thereto, as determined by the Committee. Any provision of this
Agreement that would cause the payment or settlement thereof to fail to satisfy
section 409A of the Code shall be amended to comply with section 409A of the
Code on a timely basis, which may be made on a retroactive basis, in accordance
with regulations and other guidance issued under section 409A of the Code.


 


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


 


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


 


	
   

  	
   

  	
   

  	
  ARENA PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Participant

  	
   

  



 


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APPENDIX
A


 


“Section 409A CIC” means
and shall be deemed to have occurred as of the date of the first to occur of
the following events:


 


(a)           Any
Person or Group acquires stock of the Company that, together with stock held by
such Person or Group, constitutes more than 50% of the total fair market value
or total voting power of the stock of the Company. However, if any Person or
Group is considered to own more than 50% of the total fair market value or
total voting power of the stock of the Company, the acquisition of additional
stock by the same Person or Group is not considered to cause a Section 409A CIC.
An increase in the percentage of stock owned by any Person or Group as a result
of a transaction in which the Company acquires its stock in exchange for
property will be treated as an acquisition of stock for purposes of this subsection.
This subsection applies only when there is a transfer of stock of the Company
(or issuance of stock of the Company) and stock in the Company remains
outstanding after the transaction;


 


(b)           Any
Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) ownership of
stock of the Company possessing 35% or more of the total voting power of the
stock of the Company. However, if any Person or Group is considered to own 35%
of the total voting power of the stock of the Company, the acquisition of
additional stock by the same Person or Group is not considered to cause a Section
409A CIC;


 


(c)           A
majority of members of the Company’s Board is replaced during any 12-month
period by Participants whose appointment or election is not endorsed by a
majority of the members of the Company’s Board prior to the date of the
appointment or election; or


 


(d)           Any
Person or Group acquires (or has acquired during the 12-month period ending on
the date of the most recent acquisition by such Person or Group) assets from
the Company that have a total gross fair market value equal to or more than 40%
of the total gross fair market value of all of the assets of the Company
immediately prior to such acquisition or acquisitions. For this purpose, gross
fair market value means the value of the assets of the Company, or the value of
the assets being disposed of, determined without regard to any liabilities
associated with such assets. However, no Section 409A CIC shall be deemed to
occur under this subsection (d) as a result of a transfer to:


 


(i)            A
shareholder of the Company (immediately before the asset transfer) in exchange
for or with respect to its stock;


 


(ii)           An
entity, 50% or more of the total value or voting power of which is owned,
directly or indirectly, by the Company;


 


(iii)          A
Person or Group that owns, directly or indirectly, 50% or more of the total
value or voting power of all the outstanding stock of the Company; or


 


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(iv)          An entity, at least 50% of the total value or voting
power of which is owned, directly or indirectly, by a person described in
clause (iii) above.


 


For these purposes, the
term “Person” shall mean an individual, Company, association, joint stock
company, business trust or other similar organization, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government or agency, instrumentality or political subdivision thereof. The
term “Group” shall have the meaning set forth in Rule13d-5 of the Securities
Exchange Commission, modified to the extent necessary to comply with Proposed
Treasury Regulation Section 1.409A-3(g)(5)(v)(B), or any successor thereto in
effect at the time a determination of whether a Section 409A CIC has occurred
is being made.


 


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