Exhibit 10.1


 


Arena
Pharmaceuticals, Inc.


 


2008 Annual Incentive Plan


 


 

















 


2008 Annual Incentive Plan - Overview


 


Overview


 


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


 


·                  Arena
Pharmaceuticals, Inc. (“Arena”) sets up to approximately eight
corporate and individual goals (which may include subparts), 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 combined corporate and individual goal
completion is less than 50%.


 


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


 


·                  The
Compensation Committee has 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, General Counsel, CFO

  	
   

  	
  35

  	
  %

  
	
  CMO

  	
   

  	
  30

  	
  %

  
	
  VP, Quality Systems, VP,
  Marketing and Business Development

  	
   

  	
  25

  	
  %

  






 


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Annual Incentive Plan - Mix of Goals


 


Corporate 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, General Counsel, CFO

  	
   

  	
  60

  	
  %

  	
  40

  	
  %

  
	
  CMO, VP, Quality Systems,
  VP, Marketing and Business Development

  	
   

  	
  50

  	
  %

  	
  50

  	
  %

  



 


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


 


·                  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 Compensation 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.


 


3

















 


Rules Governing the Plan


 


·                  Eligible plan
participants must be actively employed at Arena on the last day of the fiscal
year to receive an award.  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, 2008 and
September 30, 2008 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, 2008 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 2009.


 


·                  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.


 


·                  Arena and the
Board reserve the right to change or waive any provision in the incentive plan
at any time, including (but not limited to) its award formula, performance
measures and payout schedule.  Although Arena
intends to pay incentives at levels indicated by the plan, this plan shall not
obligate Arena 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 programs with partners;


 


(iii) budget,
finance and integration of new capabilities; and


 


(iv) progress
of research programs.