Exhibit
10.3


 


NEITHER THESE
SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.  THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.


 


 


ARENA PHARMACEUTICALS, INC.


 


WARRANT


 


	
  Warrant No.

  	
  Dated: December 24, 2003

  



 


Arena
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby certifies that, for value received,
                                              
or its registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of
                
shares of common stock, $0.0001 par value per share (the “Common Stock”), of the Company (each such
share, a “Warrant Share” and all
such shares, the “Warrant Shares”)
at an exercise price equal to $10 per share (as adjusted from time to time as
provided in Section 9, the “Exercise
Price”), at any time and from time to time from and after the date
hereof and through and including the seven (7) year anniversary of the date
hereof (the “Expiration Date”),
and subject to the following terms and conditions.  This Warrant (this “Warrant”)
is one of a series of similar warrants issued pursuant to that certain
Securities Purchase Agreement, dated as of the date hereof, by and among the
Company and the Purchasers identified therein (the “Purchase Agreement”). 
All such warrants are referred to herein, collectively, as the “Warrants.”


 


1.             Definitions.  In addition to the terms defined elsewhere
in this Warrant, capitalized terms that are not otherwise defined herein have
the meanings given to such terms in the Purchase Agreement.


 


2.             Registration
of Warrant.  The Company shall
register this Warrant, upon records to be maintained by the Company for that
purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The Company may deem and treat the
registered Holder of this Warrant as the absolute owner hereof for the purpose
of any exercise hereof or any distribution to the Holder, and for all other
purposes, absent actual notice to the contrary.


 


3.             Registration
of Transfers.  Subject to Section
4.1 of the Purchase Agreement, the Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon


 

















 


surrender of this Warrant, with
the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at its address specified herein.  Upon any such registration or transfer, a
new warrant to purchase Common Stock, in substantially the form of this Warrant
(any such new warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder.  The acceptance of the New Warrant by the
transferee thereof shall be deemed the acceptance by such transferee of all of
the rights and obligations of a holder of a Warrant.


 


4.             Exercise
and Duration of Warrant.


 


(a)           This
Warrant shall be exercisable by the registered Holder at any time and from time
to time on or after the date hereof to and including the Expiration Date.  At 6:30 P.M., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value.


 


(b)           A
Holder may exercise this Warrant by delivering to the Company (i) an exercise
notice, in the form attached hereto (the “Exercise Notice”), appropriately completed and duly signed,
and (ii) payment of the Exercise Price for the number of Warrant Shares as
to which this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a “cashless exercise”
may occur at such time pursuant to 
Section 10 below), and the date such items are delivered to the Company
(as determined in accordance with the notice provisions hereof) is an “Exercise Date.”  The
Holder shall not be required to deliver the original Warrant in order to effect
an exercise hereunder.  Execution and
delivery of the Exercise Notice shall have the same effect as cancellation of
the original Warrant and issuance of a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.


 


5.             Delivery
of Warrant Shares.


 


(a)           Upon
exercise of this Warrant, the Company shall promptly (but in no event later
than three Trading Days after the Exercise Date) issue or cause to be issued
and cause to be delivered to or upon the written order of the Holder and in
such name or names as the Holder may designate, a certificate for the Warrant
Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective and the
Warrant Shares are not freely transferable without volume restrictions pursuant
to Rule 144 under the Securities Act. 
The Holder, or any Person so designated by the Holder to receive Warrant
Shares, shall be deemed to have become holder of record of such Warrant Shares
as of the Exercise Date.  The Company
shall, upon request of the Holder, use its best efforts to deliver Warrant
Shares hereunder electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions.


 


(b)           This
Warrant is exercisable, either in its entirety or, from time to time, for a
portion of the number of Warrant Shares. 
Upon surrender of this Warrant following one or more partial exercises,
the Company shall issue or cause to be issued, at its expense, a New Warrant
evidencing the right to purchase the remaining number of Warrant Shares.


 


2

















 


(c)           In
addition to any other rights available to a Holder, if the Company fails to
deliver to the Holder a certificate representing Warrant Shares by the third
Trading Day the date on which delivery of such certificate is required by this
Warrant, and if after such third Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder
anticipated receiving from the Company (a “Buy-In”), then in the Holder’s sole discretion, the Company
shall within three Trading Days after the Holder’s request, either (i) pay cash
to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Common
Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Common Stock and pay
cash to the Holder in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of shares of Common Stock, times (B)
the Closing Price on the date of the event giving rise to the Company’s
obligation to deliver such certificate.


 


(d)           The
Company’s obligations to issue and deliver Warrant Shares in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation
of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares.  Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of this Warrant  as required pursuant to the terms hereof.


 


6.             Charges,
Taxes and Expenses.   Issuance and
delivery of certificates for shares of Common Stock upon exercise of this
Warrant shall be made without charge to the Holder for any issue or transfer
tax, withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder or an Affiliate thereof.  The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.


 


7.             Replacement
of Warrant.  If this Warrant is
mutilated, lost, stolen or destroyed, or a Holder fails to deliver such
certificate as may otherwise be provided herein, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction (in such case) and, in each case, and customary and
reasonable indemnity, if requested. 
Applicants for a New Warrant


 


3

















 


under such circumstances shall
also comply with such other reasonable regulations and procedures and pay such
other reasonable third-party costs as the Company may prescribe.


 


8.             Reservation
of Warrant Shares.  The Company
covenants that it will at all times reserve and keep available out of the
aggregate of its authorized but unissued and otherwise unreserved Common Stock,
solely for the purpose of enabling it to issue Warrant Shares upon exercise of
this Warrant as herein provided, the number of Warrant Shares which are then
issuable and deliverable upon the exercise of this entire Warrant, free from
preemptive rights or any other contingent purchase rights of persons other than
the Holder (taking into account the adjustments and restrictions of Section
9). The Company covenants that all Warrant Shares so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable. 
The Company
will take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed.


 


9.             Certain
Adjustments.  The Exercise Price and
number of Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9.


 


(a)           Stock
Dividends and Splits.  If the
Company, at any time while this Warrant is outstanding, (i) pays a stock
dividend on its Common Stock or otherwise makes a distribution on any class of
capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or (iii)
combines outstanding shares of Common Stock into a smaller number of shares,
then in each such case the Exercise Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event.  Any adjustment made pursuant to clause (i)
of this paragraph shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution, and any adjustment pursuant to clause (ii) or (iii) of this
paragraph shall become effective immediately after the effective date of such
subdivision or combination.


 


(b)           Pro
Rata Distributions.  If the Company,
at any time while this Warrant is outstanding, distributes to holders of Common
Stock (i) evidences of its indebtedness, (ii) any security (other than a
distribution of Common Stock covered by the preceding paragraph),
(iii) rights or warrants to subscribe for or purchase any security, or
(iv) any other asset (in each case, “Distributed
Property”), then in each such case the Exercise Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution shall be adjusted (effective on such
record date) to equal the product of such Exercise Price times a fraction of
which the denominator shall be the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) such record date and of
which the numerator shall be such average less the then fair market value of
the Distributed Property distributed in respect of  one outstanding share of Common Stock, as determined by the
Company’s independent certified public accountants that regularly examine the
financial statements of the Company (an “Appraiser”).  In such event, the Holder, after receipt of
the


 


4

















 


determination by the Appraiser,
shall have the right to select an additional appraiser (which shall be a
nationally recognized accounting firm), in which case such fair market value
shall be deemed to equal the average of the values determined by each of the
Appraiser and such appraiser.  As an
alternative to the foregoing adjustment to the applicable Exercise Price, at
the request of any Holder delivered before the 90th day after the
record date fixed for determination of stockholders entitled to receive such
distribution, the Company will hold the Distributed Property in escrow and
deliver to such Holder, the Distributed Property that such Holder would have
been entitled to receive in respect of such number of Warrant Shares had the
Holder been the record holder of such Warrant Shares immediately prior to such
record date within 3 Trading Day following exercise of this Warrant.


 


(c)           Fundamental
Transactions.  If, at any time while
this Warrant is outstanding, (i) the Company effects any merger or
consolidation of the Company with or into another Person, (ii) the Company
effects any sale of all or substantially all of its assets in one or a series
of related transactions, (iii) any tender offer or exchange offer (whether by
the Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property, or (iv) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or
property (other than as a result of a subdivision or combination of shares of
Common Stock covered by Section 9(a) above) (in any such case, a “Fundamental Transaction”), then the Holder shall have the
right thereafter to receive, upon exercise of this Warrant, the same amount and
kind of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of the number of Warrant
Shares then issuable upon exercise in full of this Warrant (the “Alternate Consideration”). 
The aggregate Exercise Price for this Warrant will not be affected by any
such Fundamental Transaction, but the Company shall apportion such aggregate
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common
Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any exercise of this
Warrant following such Fundamental Transaction.  At the Holder’s request, any successor to the Company or
surviving entity in such Fundamental Transaction shall issue to the Holder a
new warrant consistent with the foregoing provisions and evidencing the
Holder’s right to purchase the Alternate Consideration for the aggregate
Exercise Price upon exercise thereof. 
The terms of any agreement pursuant to which a Fundamental Transaction
is effected shall include terms requiring any such successor or surviving
entity to comply with the provisions of this paragraph (c) and insuring that
this Warrant (or any such replacement security) will be similarly adjusted upon
any subsequent transaction analogous to a Fundamental Transaction.  If any Fundamental Transaction constitutes
or results in a “going private” transaction as defined in Rule 13e-3 under the
Exchange Act, then at the request of the Holder delivered before the 90th day
after such Fundamental Transaction, the Company (or any such successor or
surviving entity) will purchase this Warrant from the Holder for a purchase
price, payable in cash within five Trading Days after such request (or, if
later, on the effective date of the Fundamental Transaction), equal to the
Black Scholes value of the remaining unexercised portion of this Warrant on the
date of such request.


 


5

















 


(d)           Subsequent
Equity Sales.


 


(i)            If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues additional shares of Common Stock or rights,
warrants, options or other securities or debt convertible, exercisable or
exchangeable for shares of Common Stock or otherwise entitling any Person to
acquire shares of Common Stock (collectively, “Common Stock Equivalents”) at an effective net price to the
Company per share of Common Stock (the “Effective Price”)
less than $6.72 (“Adjustment Price”),
then the Exercise Price shall be reduced to equal the product of (A) the
Exercise Price in effect immediately prior to such issuance of Common Stock or
Common Stock Equivalents times (B) a fraction, the numerator of which is the
sum of (1) the number of shares of Common Stock outstanding immediately prior
to such issuance, plus (2) the number of shares of Common Stock which the
aggregate Effective Price of the Common Stock issued (or deemed to be issued)
would purchase at the Adjustment Price, and the denominator of which is the
aggregate number of shares of Common Stock outstanding or deemed to be
outstanding immediately after such issuance. 
For purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common Stock
potentially issuable at any time upon conversion, exercise or exchange of such
Common Stock Equivalents (the “Deemed Number”)
shall be deemed to be outstanding upon issuance of such Common Stock
Equivalents, (B) the Effective Price applicable to such Common Stock shall
equal the minimum dollar value of consideration payable to the Company to
purchase such Common Stock Equivalents and to convert, exercise or exchange
them into Common Stock (net of any discounts, fees, commissions and other
expenses), divided by the Deemed Number, (C) no further adjustment shall be
made to the Exercise Price upon the actual issuance of Common Stock upon
conversion, exercise or exchange of such Common Stock Equivalents, and (D) to
the extent that any such Common Stock Equivalents expire before fully
converted, exercised or exchanged, the Exercise Price will be readjusted to
reflect such expiration.


 


(ii)           If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues Common Stock Equivalents with an Effective
Price or a number of underlying shares that floats or resets or otherwise
varies or is subject to adjustment based (directly or indirectly) on market
prices of the Common Stock (a “Floating
Price Security”), then for purposes of applying the preceding
paragraph in connection with any subsequent exercise, the Effective Price will
be determined separately on each Exercise Date and will be deemed to equal the
lowest Effective Price at which any holder of such Floating Price Security is
entitled to acquire Common Stock on such Exercise Date (regardless of whether
any such holder actually acquires any shares on such date).


 


(iii)          Notwithstanding the foregoing, no adjustment will be made
under this paragraph (d) in respect of any Excluded Stock.


 


(e)           Number
of Warrant Shares.  Simultaneously
with any adjustment to the Exercise Price pursuant to paragraphs (a), (b) or
(d) of this Section, the number of Warrant Shares that may be purchased upon
exercise of this Warrant shall be increased or decreased proportionately, so
that after such adjustment the aggregate Exercise Price payable hereunder for


 


6

















 


the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.


 


(f)            Calculations.  All calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share, as
applicable.  The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the sale or issuance of any such
shares shall be considered an issue or sale of Common Stock.


 


(g)           Notice
of Adjustments.  Upon the occurrence
of each adjustment pursuant to this Section 9, the Company at its
expense will promptly compute such adjustment in accordance with the terms of
this Warrant and prepare a certificate setting forth such adjustment, including
a statement of the adjusted Exercise Price and adjusted number or type of
Warrant Shares or other securities issuable upon exercise of this Warrant (as
applicable), describing the transactions giving rise to such adjustments and
showing in detail the facts upon which such adjustment is based.  Upon written request, the Company will
promptly deliver a copy of each such certificate to the Holder and to the
Company’s Transfer Agent.


 


(h)           Notice
of Corporate Events.  If the Company
(i) declares a dividend or any other distribution of cash, securities or other
property in respect of its Common Stock, including without limitation any
granting of rights or warrants to subscribe for or purchase any capital stock
of the Company or any Subsidiary, (ii) authorizes or approves, enters into any
agreement contemplating or solicits stockholder approval for any Fundamental
Transaction or (iii) authorizes the voluntary dissolution, liquidation or
winding up of the affairs of the Company, then the Company shall deliver to the
Holder a notice describing the material terms and conditions of such
transaction, at least 20 calendar days prior to the applicable record or
effective date on which a Person would need to hold Common Stock in order to
participate in or vote with respect to such transaction, and the Company will
take all steps reasonably necessary in order to insure that the Holder is given
the practical opportunity to exercise this Warrant prior to such time so as to
participate in or vote with respect to such transaction; provided, however,
that the failure to deliver such notice or any defect therein shall not affect
the validity of the corporate action required to be described in such notice.


 


10.           Payment of Exercise Price.  The Holder shall pay the Exercise Price in
immediately available funds; provided, however, that if, on any Exercise Date
occurring after the Effective Date of the initial Underlying Shares
Registration Statement, the Underlying Shares Registration Statement is not
effective, the Holder may satisfy its obligation to pay the Exercise Price
through a “cashless exercise,” in which event the Company shall issue to the
Holder the number of Warrant Shares determined as follows:


 


	
   

  	
  X = Y [(A-B)/A]

  
	
  where:

  	
   

  
	
   

  	
  X = the number of Warrant Shares to be
  issued to the Holder.

  
	
   

  	
   

  
	
   

  	
  Y = the number of Warrant Shares with
  respect to which this Warrant is being exercised.

  



 


7

















 


	
   

  	
  A = the average of the Closing Prices for
  the five Trading Days immediately prior to (but not including) the Exercise
  Date.

  
	
   

  	
   

  
	
   

  	
  B = the Exercise Price.

  



 


For purposes
of Rule 144 promulgated under the Securities Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction shall be deemed to have been acquired by the Holder, and the
holding period for the Warrant Shares shall be deemed to have commenced, on the
date this Warrant was originally issued pursuant to the Purchase Agreement.


 


11.           Limitation on Exercise. 
(a)  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any exercise of this Warrant (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such exercise (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the Exchange Act,
does not exceed 4.999% (the “Maximum Percentage”)
of the total number of issued and outstanding shares of Common Stock (including
for such purpose the shares of Common Stock issuable upon such exercise).  Each
delivery of an Exercise Notice by a Holder will constitute a representation by
such Holder that it has evaluated the limitation set forth in this paragraph
and determined that issuance of the full number of Warrant Shares requested in
such Exercise Notice is permitted under this paragraph.  For such purposes, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder.  Each delivery of an Exercise Notice
hereunder will constitute a representation by the Holder that it has evaluated
the limitation set forth in this paragraph and determined that issuance of the
full number of Warrant Shares requested in such Exercise Notice is permitted
under this paragraph.  The Company’s
obligation to issue shares of Common Stock in excess of the limitation referred
to in this Section shall be suspended (and shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as
such shares of Common Stock may be issued in compliance with such
limitation.  By written notice to the
Company, the Holder may waive the provisions of this Section or increase or
decrease the Maximum Percentage to any other percentage specified in such
notice, but (i) any such waiver or increase will not be effective until the
61st day after such notice is delivered to the Company, and (ii) any such
waiver or increase or decrease will apply only to the Holder and not to any
other holder of Warrants.


 


(b)           Notwithstanding anything to the
contrary contained herein, the maximum number of shares of Common Stock that
the Company may issue pursuant to the Transaction Documents at an effective
purchase price less than the Closing Price on the Trading Day immediately
preceding the Closing Date equals 5,121,877 shares (the “Issuable Maximum”), unless
the Company obtains shareholder approval in accordance with the rules and
regulations of the Trading Market.  If,
at the time any Holder requests an exercise of any of the Warrants, the Actual
Minimum (excluding any shares issued or issuable at an effective purchase price
in excess of the Closing Price on the Trading Day immediately preceding the
Closing Date) exceeds the Issuable Maximum (and if the Company has not
previously obtained the required


 


8

















 


shareholder
approval), then the Company shall issue to the Holder requesting such exercise
a number of shares of Common Stock not exceeding such Holder’s pro-rata
portion of the Issuable Maximum (based on such Holder’s share (vis-à-vis other
Holders) of the aggregate purchase price paid under the Purchase Agreement and
taking into account any Warrant Shares previously issued to such Holder), and
the remainder of the Warrant Shares issuable in connection with such exercise
or conversion (if any) shall constitute “Excess Shares” pursuant to Section
11(c) below.  For the purposes hereof, “Actual Minimum” shall mean, as of any date,
the maximum aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the Transaction Documents,
including any Underlying Shares issuable upon exercise in full of all Warrants,
ignoring any limits on the number of shares of Common Stock that may be owned
by a Holder at any one time.


 


(c)           In the event that any Holder’s
receipt of shares of Common Stock upon exercise of this Warrant is restricted
based on the Issuable Maximum, the Company shall either: (i) use best
efforts to obtain the required shareholder approval necessary to permit the
issuance of such Excess Shares as soon as is reasonably possible, but in any
event not later than the 75th day after the event giving rise to such Excess
Shares, or (ii) within five Trading Days after such event, pay cash to such
Holder, as liquidated damages and not as a penalty, in an amount equal to the
Black Scholes value of this Warrant with respect to the portion of this Warrant
which is unexercisable due to the Issuable Maximum after giving effect to the limitations
in Section 11(b), measured as of the date of such event or, if greater, the
date of payment (such difference, the “Cash
Amount”).  No shares of
Common Stock that were issued pursuant to the Transaction Documents may be
entitled to vote to approve the issuance of such Excess Shares.  If the Company elects the first option under
the first sentence of this Section 11(c) and the Company fails to obtain the
required shareholder approval on or prior to the 75th day after such event,
then within five Trading Days after such 75th day, the Company shall pay the
Cash Amount to such Holder, as liquidated damages and not as a penalty.  The portion of this Warrant in respect of
which the Cash Amount has been paid shall be cancelled and retired and the
Company shall have no further obligation with respect thereto.


 


12.           Call
Right.


 


(a)           Subject
to the provisions of this Section 12, if at any time after the Effective
Date, the Closing Price of the Common Stock on the NASDAQ National Market is
equal to or above 140% of the Exercise Price (as adjusted for any stock splits,
stock combinations, stock dividends and other similar events) (the “Threshold Price”) for each of any thirty
consecutive Trading Days, then the Company shall have the right, but not the
obligation (the “Call Right”),
on 10 Trading Days prior written notice to the Holder, to cancel any
unexercised portion of this Warrant for which an Exercise Notice has not yet
been delivered prior to the Cancellation Date (the “Call Amount”).


 


(b)           To
exercise the Call Right, the Company shall deliver to the Holder an irrevocable
written notice (a “Call Notice”)
indicating the Call Amount.  The date
that the Company delivers the Call Notice to the Holder shall be referred to as
the “Call Date.”  Within 10 Trading Days of receipt of the
Call Notice, and provided that the Holder is permitted to exercise this Warrant
pursuant to Section 4(a) above, the Holder may exercise this Warrant in
whole or in part in accordance with Section 4(b) above.  Any portion of the Call Amount that is


 


9

















 


not exercised by 6:30 p.m. (New
York City time) on the 10th Trading Day following the date of receipt of the
Call Notice (the “Cancellation Date”)
shall be cancelled.  Any unexercised
portion of this Warrant to which the Call Notice does not pertain (the “Remaining Portion”) will be unaffected by
such Call Notice.  The Company covenants
and agrees that it will honor any Exercise Notice with respect to the Call
Amount that is tendered to the Company from the time of delivery of the Call
Notice through and including 6:30 p.m. (New York City time) on the Redemption
Date.


 


(c)           Notwithstanding
anything to the contrary set forth in this Warrant, unless waived in writing by
the Holder, the Company may not deliver a Call Notice or require the
cancellation of any unexercised Call Amount (and any Call Notice will be void)
unless from the beginning of the thirty (30) consecutive Trading Days used to
determine whether the Common Stock has achieved the Threshold Price through the
date on which the Holder exercises the Call Amount (the “Call Period”) (i) the Company shall have honored in
accordance with the terms of this Warrant any Exercise Notice delivered by 6:30
p.m. (New York City time) on the Call Date, (ii) the Registration Statement
shall be effective as to all Underlying Shares and the prospectus thereunder
available for use by the Holder for the resale all such Underlying Shares,
(iii) the Closing Price on each Trading Day during the Call Period is greater
than the Threshold Price and (iv) the Equity Conditions are satisfied with
respect to all Common Stock and Underlying Shares then issuable upon conversion
in full of all the outstanding Series B Preferred Stock and Warrants.


 


(d)           Upon
the earlier of (i) the exercise of the Warrant pursuant to the Call Notice in Section
12(b) or (ii) the Cancellation Date, the Company shall issue and deliver to the
Holder an Exchange Warrant (the “Exchange
Warrant”) entitling the Holder to purchase up to such number of
shares of Common Stock equal to the Call Amount and containing the same terms
and conditions as this Warrant except that (x) the maturity date of the
Exchange Warrant shall be seven (7) years from the date of issuance of such
Exchange Warrant, and (y) the exercise price shall equal 130% of the arithmetic
average of the Volume Weighted Average Prices for the five Trading Days
preceding the Cancellation Date.  If the Company fails to deliver an Exchange
Warrant when due under this Section 12(d), at Holder’s option, the Call Notice
issued pursuant to the Company’s right under Section 12(b) shall be void
and of no effect.


 


(e)           In
the event that at any time after the Effective Date the Closing Price of the
Company’s Common Stock on the NASDAQ National Market is equal to or above
Threshold Price for each of any thirty consecutive Trading Days, then the
Holder shall have the right, but not obligation, to require the Company to
issue a Call Notice pursuant to Section 12(b) to redeem all or any portion of
the unexercised portion of this Warrant in accordance with this Section 12.


 


13.           Fractional
Shares.  The Company shall not be
required to issue or cause to be issued fractional Warrant Shares on the
exercise of this Warrant.  If any
fraction of a Warrant Share would, except for the provisions of this Section,
be issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share.


 


14.           Notices.  Any and all notices or other communications
or deliveries hereunder (including without limitation any Exercise Notice)
shall be in writing and shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is


 


10

















 


delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York City
time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the
Trading Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is required to be given.  The address
for such notices or communications shall be as set forth in the Purchase
Agreement.


 


15.           Warrant
Agent.  The Company shall serve as
warrant agent under this Warrant.  Upon
30 days’ notice to the Holder, the Company may appoint a new warrant
agent.  Any corporation into which the
Company or any new warrant agent may be merged or any corporation resulting
from any consolidation to which the Company or any new warrant agent shall be a
party or any corporation to which the Company or any new warrant agent
transfers substantially all of its corporate trust or shareholders services
business shall be a successor warrant agent under this Warrant without any
further act.  Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s
last address as shown on the Warrant Register.


 


16.           Miscellaneous.


 


(a)           Subject
to the restrictions on transfer set forth on the first page hereof and in the
Purchase Agreement, this Warrant may be assigned by the Holder.  This Warrant may not be assigned by the
Company except to a successor in the event of a Fundamental Transaction.  This Warrant shall be binding on and inure
to the benefit of the parties hereto and their respective successors and
assigns.  Subject to the preceding
sentence, nothing in this Warrant shall be construed to give to any Person
other than the Company and the Holder any legal or equitable right, remedy or
cause of action under this Warrant. 
This Warrant may be amended only in writing signed by the Company and
the Holder and their successors and assigns.


 


(b)           The
Company will not, by amendment of its governing documents or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment.  Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any Warrant Shares above the amount payable
therefor on such exercise, (ii) will take all such action as may be reasonably
necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable Warrant Shares on the exercise of this
Warrant, and (iii) will not close its shareholder books or records in any
manner which interferes with the timely exercise of this Warrant.


 


(c)           Governing Law; Venue; Waiver Of Jury Trial.  all
questions concerning the construction, validity, enforcement and interpretation
of this warrant shall be governed by and construed and enforced in accordance
with the laws of the state of new york. 
each party hereby irrevocably submits to the


 


11

















 


exclusive
jurisdiction of the state and federal courts sitting in the city of new york,
borough of manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the transaction
documents), and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper.  each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.  the company hereby waives all rights to a trial by jury.


 


(d)           The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.


 


(e)           In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]


 


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IN WITNESS
WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.


 


 


	
   

  	
  ARENA PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


13

















 


FORM OF EXERCISE NOTICE


 


(To be executed by the Holder
to exercise the right to purchase shares of Common Stock under the foregoing
Warrant)


 


To:  Arena Pharmaceuticals, Inc.


 


The undersigned is the Holder
of Warrant No.
              
(the “Warrant”) issued by Arena
Pharmaceuticals, Inc., a Delaware corporation (the “Company”).  Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.


 


1.                               The
Warrant is currently exercisable to purchase a total of                             
Warrant Shares.


 


2.                               The
undersigned Holder hereby exercises its right to purchase
                                  
Warrant Shares pursuant to the Warrant.


 


3.                               The
Holder intends that payment of the Exercise Price shall be made as (check one):


 


                “Cash Exercise”


 


                “Cashless Exercise”


 


4.                               If
the holder has elected a Cash Exercise, the holder shall pay the sum of
$                        
to the Company in accordance with the terms of the Warrant.


 


5.                               Pursuant
to this exercise, the Company shall deliver to the holder
                              
Warrant Shares in accordance with the terms of the Warrant.


 


6.                               Following
this exercise, the Warrant shall be exercisable to purchase a total of
                            
Warrant Shares.


 


 


	
  Dated:
                   ,
  

  	
   

  	
  Name of Holder:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Print)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in all respects to
  name of holder as specified on the face of the Warrant)

  
							



 

















 


FORM OF ASSIGNMENT


 


[To be
completed and signed only upon transfer of Warrant]


 


FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                                                
the right represented by the within Warrant to purchase 
                        
shares of Common Stock of Arena Pharmaceuticals, Inc. to which the within
Warrant relates and appoints
                                
attorney to transfer said right on the books of Arena Pharmaceuticals, Inc.
with full power of substitution in the premises.


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:                      ,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in
  all respects to name of holder as specified on the face of the Warrant)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address of Transferee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


 


 


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