Exhibit 10.5





 


ARENA PHARMACEUTICALS, INC.


 


2001 ARENA EMPLOYEE STOCK
PURCHASE PLAN


 


The
following constitutes the provisions of the 2001 Arena Employee Stock Purchase
Plan, as amended.


 


1. Purpose.
The purpose of the Plan is to provide employees of Arena Pharmaceuticals, Inc.
(the “Company”) and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an “Employee Stock Purchase
Plan” under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section of
the Code.


 


2.
Definitions.


 


(a)                                  “Board”
shall mean the Board of Directors of the Company.


 


(b)                                 “Code”
shall mean the Internal Revenue Code of 1986, as amended. References to
specific sections of the Code shall be taken to be references to corresponding
sections of any successor statute.


 


(c)                                  “Common
Stock” shall mean the common stock of the Company.


 


(d)                                 “Company”
shall mean Arena Pharmaceuticals, Inc., or any successor by merger or
otherwise, and any Designated Subsidiary of the Company.


 


(e)                                  “Compensation”
shall mean all base gross earnings, commissions, overtime, shift premium,
incentive compensation, incentive payments, and bonuses before giving effect to
any compensation reductions made in connection with plans


 


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described in section 401(k)
or 125 of the Code, but exclusive of payments for any other compensation.


 


(f)                                    “Designated
Subsidiary” shall mean any Subsidiary that has been designated by the Board
from time to time in its sole discretion as eligible to participate in the Plan.
For purposes of the Plan, BRL Screening, Inc. shall be deemed to have been
designated by the Board as a Designated Subsidiary.


 


(g)                                 “Employee”
shall mean any individual who is an Employee of the Company for tax purposes
whose customary employment with the Company is at least twenty (20) hours per
week. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual’s right to reemployment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.


 


(h)                                 “Enrollment
Date” shall mean the first Trading Day of each Offering Period.


 


(i)                                     “Exercise
Date” shall mean the last Trading Day of each Purchase Period.


 


(j)                                     “Fair
Market Value” shall mean, as of any date, the value of Common Stock determined
as follows:


 


(1)                                  If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
on the date of such determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;


 


(2)                                  If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean of the
closing bid and asked prices for the Common Stock on the date of such
determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable; or


 


(3)                                  In
the absence of an established market for the Common Stock, the Fair Market
Value thereof shall be determined in good faith by the Board.


 


(k)                                  “Offering
Periods” shall mean the periods of approximately twenty-four (24) months during
which an option granted pursuant to the Plan may be exercised, commencing
on the first Trading Day on or after January 1, April 1, July 1,
and October 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later. The first Offering Period shall be the
period commencing July 1, 2001 and


 


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terminating on the last
Trading Day on or before June 30, 2003. The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.


 


(l)                                     “Plan”
shall mean this 2001 Arena Employee Stock Purchase Plan, as amended.


 


(m)                               “Purchase
Period” shall mean the approximately three (3) month period commencing on
the next Trading Day following the preceding Exercise Date and ending with the
next Exercise Date, except that the first Purchase Period of any Offering
Period shall commence on the Enrollment Date and end with the next Exercise
Date.


 


(n)                                 “Purchase
Price” shall mean 85% of the Fair Market Value of a share of Common Stock on
the Enrollment Date or on the Exercise Date, whichever is lower; provided
however, that the Purchase Price may be adjusted by the Board pursuant to Section 20.


 


(o)                                 “Reserves”
shall mean the number of shares of Common Stock covered by each option under
the Plan that have not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but not yet placed
under option.


 


(p)                                 “Subsidiary”
shall mean a corporation, domestic or foreign, of which not less than 50% of
the voting shares are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company or
a Subsidiary.


 


(q)                                 “Trading
Day” shall mean a day on which national stock exchanges and the Nasdaq System
are open for trading.


 


3.
Eligibility.


 


(a)                                  Any
Employee who shall be employed by the Company on a given Enrollment Date shall
be eligible to participate in the Plan.


 


(b)                                 Any
provisions of the Plan to the contrary notwithstanding, no Employee shall be
granted an option under the Plan (i) to the extent that, immediately after
the grant, such Employee (or any other person whose stock would be attributed
to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of the capital stock of the Company or of any parent or
subsidiary corporation, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and any
parent or subsidiary corporation accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.


 


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4.
Offering Periods.


 


(a)                                  Plan Implementation. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1, April 1, July 1, and October 1
of each year, or on such other date as the Board (or its committee appointed
pursuant to Section 14) shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof. The first Offering Period
shall begin on July 1, 2001 and, except as may be otherwise provided
for in Section 4(c), shall end on the last Trading Day on or before June 30,
2003. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced prior to the scheduled
beginning of the first Offering Period to be affected thereafter.


 


(b)                                 Offering Period Duration. Each Offering
Period shall be for a period of approximately twenty-four (24) months during which
an option granted pursuant to the Plan may be exercised.


 


(c)                                  Automatic Transfer to Low
Price Offering Period. To the
extent permitted by any applicable laws, regulations, stock exchange rules, or
Nasdaq Stock Market rules, if the Fair Market Value of the Common Stock on any
Exercise Date in an Offering Period is lower than the Fair Market Value of the
Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.


 


(d)                                 Changes by Board. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.


 


5. Participation.


 


(a)                                  An
eligible Employee may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions in the form of Exhibit A attached to this Plan and filing it with the
Company’s payroll office prior to the applicable Enrollment Date.


 


(b)                                 Payroll
deductions for a participant shall commence on the first payroll following the
Enrollment Date and shall end on the last payroll in the Offering Period to
which such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.


 


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6.
Payroll Deductions.


 


(a)                                  At
the time a participant files his or her subscription agreement, he or she shall
elect to have payroll deductions made on each pay day during the Offering
Period in an amount not exceeding fifteen percent (15%) of the Compensation
which he or she receives on each pay day during the Offering Period.


 


(b)                                 All
payroll deductions made for a participant shall be credited to his or her
account under the Plan and shall be withheld in whole percentages only. A
participant may not make any additional payments into such account.


 


(c)                                  A
participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company’s payroll office a new subscription agreement
authorizing a change in payroll deduction rate. The Board may, in its discretion,
limit the number of participation rate changes during any Offering Period. Any
such reduction or increase would be effective beginning with the first Purchase
Period that begins no earlier than 5 business days after the Accounting Group’s
receipt of a new subscription agreement from the participant, unless the
request is processed more quickly. A participant’s subscription agreement shall
remain in effect for successive Offering Periods unless terminated as provided
in Section 10 hereof.


 


(d)                                 Notwithstanding
the foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and Section 3(b) hereof, a participant’s payroll deductions may be
decreased to zero percent (0%) at any time during a Purchase Period. Payroll
deductions shall recommence at the rate provided in such participant’s
subscription agreement at the beginning of the first Purchase Period that is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.


 


(e)                                  At
the time the option is exercised, in whole or in part, or at the time some or
all of the Company’s Common Stock issued under the Plan is disposed of, the
participant must make adequate provision for the Company’s federal, state, or
other tax withholding obligations, if any, which arise upon the exercise of the
option or the disposition of the Common Stock. At any time, the Company may,
but shall not be obligated to, withhold from the participant’s compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Stock by the Employee.


 


7. Grant
of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company’s Common
Stock determined by dividing


 


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such Employee’s payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant’s account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during
each Purchase Period more than Six Hundred Twenty Five (625) shares of the
Company’s Common Stock (subject to any adjustment pursuant to Section 19),
and provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. The Board may, for future Offering
Periods, increase or decrease, in its absolute discretion, the maximum number
of shares of the Company’s Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the
last day of the Offering Period.


 


8.
Exercise of Option.


 


(a)                                  Unless
a participant withdraws from the Plan as provided in Section 10 hereof,
his or her option for the purchase of shares shall be exercised automatically
on the Exercise Date, and the maximum number of full shares subject to the
option shall be purchased for such participant at the applicable Purchase Price
with the accumulated payroll deductions in his or her account. No fractional
shares shall be purchased; any payroll deductions accumulated in a participant’s
account which are not sufficient to purchase a full share shall be retained in
the participant’s account for the subsequent Purchase Period or Offering
Period, subject to earlier withdrawal by the participant as provided in Section 10
hereof. Any other monies left over in a participant’s account after the
Exercise Date shall be returned to the participant. During a participant’s
lifetime, a participant’s option to purchase shares hereunder is exercisable
only by him or her.


 


(b)                                 If
the Board determines that, on a given Exercise Date, the number of shares with
respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number
of shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine
in its sole discretion to be equitable among all participants exercising
options to purchase Common Stock on such Exercise Date, and terminate any or
all Offering Periods then in effect pursuant to Section 20 hereof. The
Company may make pro rata allocations of the shares available on the
Enrollment Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional shares for issuance
under the Plan by the Company’s stockholders subsequent to such Enrollment
Date.


 


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9.
Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.


 


10.
Withdrawal.


 


(a)                                  A
participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by giving written notice to the Company’s payroll
office in the form of Exhibit B
attached to this Plan. All of the participant’s payroll deductions credited to
his or her account shall be paid to such participant promptly after receipt of
notice of withdrawal and such participant’s option for the Offering Period
shall be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company’s payroll office a new subscription agreement.


 


(b)                                 A
participant’s withdrawal from an Offering Period shall not have any effect upon
his or her eligibility to participate in any similar plan that may hereafter
be adopted by the Company or in succeeding Offering Periods that commence after
the termination of the Offering Period from which the participant withdraws.


 


11.
Termination of Employment.


 


Upon a
participant’s ceasing to be an Employee, for any reason, he or she shall be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to such participant’s account during the Offering Period but not yet
used to exercise the option shall be returned to such participant or, in the
case of his or her death, to the person or persons entitled thereto under Section 15
hereof, and such participant’s option shall be automatically terminated.


 


12.
Interest.      No
interest shall accrue on the payroll deductions of a participant in the Plan.


 


13. Stock.


 


(a)                                  Subject
to adjustment upon changes in capitalization of the Company as provided in Section 19
hereof, the maximum number of shares of the Company’s Common Stock which shall
be made available for sale under the Plan shall be One Million Five Hundred
Thousand (1,500,000) shares.


 


(b)                                 The
participant shall have no interest or voting rights in shares covered by his or
her option until such option has been exercised.


 


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(c)                                  Shares
to be delivered to a participant under the Plan shall be registered in the name
of the participant or in the name of the participant and his or her spouse.


 


14.
Administration. The Board or a committee of members of the
Board appointed by the Board shall administer the Plan. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.


 


15.
Designation of Beneficiary.


 


(a)                                  A
participant may file with the Company’s payroll office a written
designation of a beneficiary who is to receive any shares and cash from the
participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the
option is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file with the Company’s
payroll office a written designation of a beneficiary who is to receive any
cash from the participant’s account under the Plan in the event of such
participant’s death prior to the exercise of the option. If a participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.


 


(b)                                 Such
designation of beneficiary may be changed by the participant at any time
by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant’s death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.


 


16.
Transferability. Neither payroll deductions credited to a
participant’s account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged
or otherwise disposed of in any way (other than by will, the laws of descent
and distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election
to withdraw funds from an Offering Period in accordance with Section 10
hereof.


 


17. Use
of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.


 


18.
Reports.      Individual
accounts shall be maintained for each participant in the Plan. Statements of
account shall be given to participating Employees at least annually,


 


8

















 


which statements shall
set forth the amounts of payroll deductions, the Purchase Price, the number of
shares purchased and the remaining cash balance, if any.


 


19.
Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or
Asset Sale.


 


(a)                                  Changes in Capitalization.  Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7),
as well as the price per share and the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration”. Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.


 


(b)                                 Dissolution or Liquidation. In the event of a proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the “New Exercise Date”),
and shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company’s proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the participant’s
option has been changed to the New Exercise Date and that the participant’s
option shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as provided
in Section 10 hereof.


 


(c)                                  Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or
an equivalent option substituted by the successor corporation or a parent or
subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase
Periods then in progress shall be shortened by setting a new Exercise Date (the
“New Exercise Date”) and any Offering Periods then in progress shall end on the
New Exercise Date. The New Exercise Date shall be before the date of the
Company’s proposed sale or merger. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date,
that the Exercise Date for the participant’s option has been changed to the New
Exercise Date and that the


 


9

















 


participant’s option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in Section 10
hereof.


 


20.
Amendment or Termination.


 


(a)                                  The
Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its stockholders.
Except as provided in Section 19 and this Section 20 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or Nasdaq stock market rule or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.


 


(b)                                 Without
stockholder consent and without regard to whether any participant rights may be
considered to have been “adversely affected,” the Board (or its committee
appointed pursuant to Section 14) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company’s processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with amounts
withheld from the participant’s Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its
sole discretion advisable which are consistent with the Plan.


 


(c)                                  In
the event the Board determines that the ongoing operation of the Plan may result
in unfavorable financial accounting consequences, the Board may, in its
discretion and, to the extent necessary or desirable, modify or amend the Plan
to reduce or eliminate such accounting consequences including, but not limited
to:


 


(1)                                  altering
the Purchase Price for any Offering Period including an Offering Period
underway at the time of the change in Purchase Price;


 


(2)                                  shortening
any Offering Period so that the Offering Period ends on a new Exercise Date,
including an Offering Period underway at the time of the Board action; and


 


(3)                                  allocating
shares.


 


10

















 


Such modifications or
amendments shall not require stockholder approval or the consent of any Plan
participants.


 


21.
Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.


 


22.
Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and
the requirements of the Nasdaq Stock Market or any stock exchange upon which
the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a condition
to the exercise of an option, the Company may require the person
exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.


 


23. Term
of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect until March 14,
2011, unless sooner terminated under Section 20 hereof.


 


24.
Miscellaneous.


 


(a)                                  Administrative Costs. The Company shall pay the administrative
expenses associated with the operation of the Plan (other than brokerage
commissions resulting from sales of Common Stock directed by Employees).


 


(b)                                 No Employment Rights. Participation in the Plan shall not
give an Employee any right to continue in the employment of the Company, and
shall not affect the right of the Company to terminate the Employee’s
employment at any time, with or without cause.


 


(c)                                  Repurchase
of Stock. The Company shall not be required to purchase or repurchase from
any Employee any of the shares of Common Stock that the Employee acquires under
the Plan.


 


(d)                                 Internal
Revenue Code and ERISA Considerations. The Plan is intended to constitute
an “employee stock purchase plan” within the meaning of section 423 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder. The
provisions of the Plan, accordingly, shall be construed so as to comply with
the


 


11

















 


requirements of that section of
the Code or any successor provision, and the regulations thereunder. The Plan
is not intended and shall not be construed as constituting an “employee benefit
plan,” within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.


 


(e)                                  Headings,
Captions, Gender. The headings and captions herein are for convenience of
reference only and shall not be considered as part of the text. The
masculine shall include the feminine, and vice versa.


 


(f)                                    Severability of Provisions, Prevailing Law. The provisions
of the Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent jurisdiction
or by reason of a change in an applicable statute, the Plan shall continue to
exist as though such provision had never been included therein (or, in the case
of a change in an applicable statute, had been deleted as of the date of such
change). The Plan shall be governed by the laws of the State of California to
the extent such laws are not in conflict with, or superseded by, federal law.


 


[End of Plan]


 


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ARENA PHARMACEUTICALS, INC.


 


EXHIBIT A


 


2001 ARENA EMPLOYEE STOCK PURCHASE PLAN


 


*SUBSCRIPTION AGREEMENT*


 


	
  o
  Original Application

  	
  Enrollment Date:
  

  	
   

  	
   

  
	
  o
  Change in Payroll Deduction Rate

  	
   

  
	
  o
  Change of Beneficiary(ies)

  	
   

  



 


1.                                                                 
hereby elects to participate in the 2001 Arena Employee Stock Purchase Plan
(the “Employee Stock Purchase Plan”) and subscribes to purchase shares of the
Company’s Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.


 


2.                                       I
hereby authorize payroll deductions from each paycheck in the amount of     %
of my Compensation on each payday (from 1 to 15%) during the Offering Period in
accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)


 


3.                                       I
understand that said payroll deductions shall be accumulated for the purchase
of shares of Common Stock at the applicable Purchase Price determined in
accordance with the Employee Stock Purchase Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.


 


4.                                       I
have received a copy of the complete Employee Stock Purchase Plan. I understand
that my participation in the Employee Stock Purchase Plan is in all respects
subject to the terms of the Plan. I understand that my ability to exercise the
option under this Subscription Agreement is subject to stockholder approval of
the Employee Stock Purchase Plan.


 


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5.                                       Shares
purchased for me under the Employee Stock Purchase Plan should be issued in the
name(s) of (Employee or Employee and Spouse only):                              ;                                                                        .


 


6.                                       I
understand that if I dispose of any shares received by me pursuant to the Plan
within 2 years after the Enrollment Date (the first day of the Offering Period
during which I purchased such shares) or one year after the Exercise Date, I
will be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing immediately or within 10 days after the date of any
disposition of my shares and I will make adequate provision for Federal, state
or other tax withholding obligations, if any, which arise upon the disposition
of the Common Stock. The Company may, but will not be obligated to, withhold
from my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I will
be treated for federal income tax purposes as having received income only at
the time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price which I paid for the shares, or (2) 15% of the
fair market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be taxed as
capital gain.


 


7.                                       I
hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility
to participate in the Employee Stock Purchase Plan.


 


[The rest of this page is intentionally
blank]


 


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8.                                       In
the event of my death, I hereby designate the following as my beneficiary(ies)
to receive all payments and shares due me under the Employee Stock Purchase
Plan:


 


NAME:  (Please print)


 


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (First)

  	
  (Middle)

  	
  (Last)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Relationship to
  Employee

  
						



 


	
  ADDRESS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Employee’s
  Social

  	
   

  	
   

  
	
  Security Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Employee’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


I UNDERSTAND THAT THIS
SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING
PERIODS UNLESS TERMINATED BY ME.


 


	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature of
  Employee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Spouse’s
  Signature (If beneficiary under item 8 is other
  than spouse)

  
				



 


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ARENA PHARMACEUTICALS, INC.


 


EXHIBIT B


 


2001 ARENA EMPLOYEE STOCK PURCHASE PLAN


 


*NOTICE OF WITHDRAWAL*


 


The undersigned
participant in the Offering Period of the 2001 Arena Employee Stock Purchase
Plan that began on             , 20    
(the “Enrollment Date”) hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions credited
to his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.


 


	
   

  	
  Name and Address
  of Participant:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
				



 


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