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.


 

















 


(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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