Document:

Exhibit 10.1

 

EXCHANGE
AGREEMENT

 

This
Exchange Agreement (“Agreement”), dated as of August 14, 2008, is
entered into by and between Arena Pharmaceuticals, Inc., a Delaware
corporation with its principal place of business at 6166 Nancy Ridge Drive, San
Diego, California 92121 (“Arena”), and Mainfield Enterprises, Inc.,
a British Virgin Islands corporation having its principal place of business at c/o
Sage Capital Growth, Inc., 660 Madison Avenue, New York, NY 10022 (“Mainfield”)
(each, a “Party” and collectively the “Parties”):

 

Recitals

 

A.                                   The Parties have heretofore executed that certain Securities
Purchase Agreement dated as of December 24, 2003 (“Purchase Agreement”).

 

B.                                     Arena has heretofore issued to Mainfield (i) that certain
Warrant No. 1 dated December 24, 2003 (“Warrant No. 1”),
exercisable for 849,257 shares of common stock, par value $.0001 per share, of
Arena (“Common Stock”) and (ii) that certain Warrant No. 3  dated April 22, 2005, exercisable for 257,087 shares
of Common Stock (together with Warrant No. 1, the “Warrants”).

 

C.                                     The Parties disagree under what circumstances Arena may be
obligated, pursuant to Section 12(d) of the Warrants, to issue
Exchange Warrants (as defined in the Warrants) to Mainfield (the “Disagreement”).

 

D.                                    Without admitting or denying any liability and solely for purposes
of compromise, the Parties now desire to resolve the Disagreement, and resolve,
compromise, and settle any potential related claims and controversies that may
otherwise be created between and among them, all on the terms and conditions
set forth below.

 

NOW,
THEREFORE, in light of the foregoing, and in consideration of the mutual
promises and the releases contained herein, the sufficiency of which is
acknowledged to be binding, the Parties agree as follows.

 

1

 

Article I

 

Key Definitions

 

The
following capitalized terms shall have the meanings assigned below. Other
definitions are set forth elsewhere in this Agreement.

 

Section 1.01                                “Affiliate” means, when used with reference to a specified
Person, any Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with the
specified Person. As used in this definition of Affiliate, the term “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through
ownership of voting securities, by contract, or otherwise.

 

Section 1.02                                “Person” means any individual, partnership, corporation,
limited liability company, trust, or other entity of any kind, whether domestic
or foreign.

 

Section 1.03                                “Transaction Documents” shall have the same meaning as set
forth in Section 1.1 of the Purchase Agreement.

 

Article II

 

Effective Date

 

Section 2.01                                Effective Date.  This Agreement will become effective and
binding on the Parties on the first business day on which the parties have
executed and delivered each of the documents set forth in Article III
below (the “Effective Date”).

 

Article III

 

Execution of Documents; Timing of
Deliveries; Conditions

 

Section 3.01                                Deliveries by Arena.  Following the execution of this Agreement,
counsel for Arena shall promptly deliver to counsel for Mainfield, in exchange
for the delivery and cancellation of the Warrants pursuant to this Agreement, a
warrant, registered in the name of Mainfield, to purchase up to 1,106,344
shares of Common Stock at an initial exercise price of $7.71 (which is equal to
the greater of (i) 130% of the arithmetic average of the Volume Weighted
Average Price (as defined in the Purchase Agreement) of Common Stock  for the five 

 

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Trading
Days immediately prior to the date of issuance or (ii) $6.72)  per share, in the form attached
hereto as Exhibit A and made a part of this Agreement (the “2008
Warrant”).

 

Section 3.02                                Deliveries by Mainfield.  Concurrent with the delivery of the 2008
Warrant, counsel for Mainfield shall deliver to counsel for Arena each of the
original Warrants, duly endorsed (or accompanied by duly executed assignment
powers) and unexercised.

 

Section 3.03                                Conditions.  The 2008 Warrant is being issued in
connection with this Agreement and shall not become effective or have any force
or effect until the Effective Date as defined herein.

 

Article IV

 

Releases

 

Section 4.01                                Release By Arena In Favor of the Mainfield Released Parties.  Effective upon the Effective
Date, Arena, on behalf of itself and its successors and assigns, hereby
releases and discharges Mainfield, its Affiliates, representatives, agents,
employees, shareholders, officers, directors, managers, members, partners,
successors, and assigns (“Mainfield Released Parties”) of and from any
and all manner of action or actions, causes or causes of action, suits, debts,
liens, contracts, agreements, liability, claims, demands, losses, costs or
expenses, arising wheresoever in the world, of any nature whatsoever, whether
known or unknown, and whether based on facts now known or unknown, which Arena,
its Affiliates, subsidiaries and predecessors, and their respective successors
and assigns, ever had, now have, or may ever have, against the Mainfield
Released Parties concerning the Warrants or the Disagreement, from the
beginning of the world to the day and date of this Agreement.  For the avoidance of doubt, Arena does not waive,
release, or discharge the Mainfield Released Parties from any of their obligations
under this Agreement or the 2008 Warrant.

 

Section 4.02                                Release By Mainfield In Favor of the Arena Released Parties.  Effective upon the Effective
Date, Mainfield, on behalf of its successors and assigns, hereby releases and
discharges Arena, its Affiliates, representatives, agents, employees,
shareholders, officers, directors, managers, members, partners, successors, and
assigns (“Arena Released Parties”) of and from any and all manner of
action or actions, causes or causes of action, suits, 

 

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debts,
liens, contracts, agreements, liability, claims, demands, losses, costs or
expenses, arising wheresoever in the world, of any nature whatsoever, whether
known or unknown, and whether based on facts now known or unknown, which Mainfield,
its Affiliates, subsidiaries and predecessors, and their respective successors
and assigns, ever had, now have, or may ever have, against the Arena Released
Parties concerning the Warrants or the Disagreement, from the beginning of the
world to the day and date of this Agreement. 
For the avoidance of doubt, Mainfield does not waive, release, or
discharge the Arena Released Parties from any of their obligations under this
Agreement or the 2008 Warrant.

 

Article V

 

Miscellaneous

 

Section 5.01                                Cancellation of Warrants and Character of 2008 Warrant.  Effective upon the Effective
Date, any outstanding rights and obligations of the Parties under the Warrants are
hereby cancelled. For clarity, the 2008 Warrant is being exchanged for the
Warrants.

 

Section 5.02                                Registration of Warrant Shares.  In the event that the shares of Common Stock
issuable upon exercise of the 2008 Warrant (the “2008 Warrant Shares”)
are not registered for resale pursuant to an effective registration statement,
Arena shall, thereafter, upon receipt of a written request from Mainfield (the “Notice
Date”), prepare and file with the Securities and Exchange Commission a
shelf registration statement covering the resale of all 2008 Warrant Shares for
an offering to be made on a continuous basis pursuant to Rule 415 under
the Securities Act, with the 2008 Warrant Shares being treated as “Registrable
Securities” in accordance with, and being governed by, that certain Registration
Rights Agreement, dated as of December 24, 2003, as amended (“Registration
Rights Agreement”), the provisions and terms of which will be applicable thereto
mutates mutandis, as if the Company and Mainfield
had executed such Registration Rights Agreement as of the Notice Date; provided,
however, that (i) references in the Registration Rights Agreement
to the initial Filing Date shall be deemed amended to mean 30 days after the Notice
Date; (ii) Section 2(b) of the Registration Rights Agreement
shall be deemed amended to require that the initial Registration Statement
required to be filed hereunder shall cover the sale of the 2008 Warrant Shares;
(iii) Sections 2(e) and 2(f) of 

 

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the
Registration Rights Agreement shall be deemed deleted and shall not apply; (iv) references
in the Registration Rights Agreement to the initial Required Effectiveness Date
shall be deemed amended to mean 120 days after the Notice Date; and (v) the
limitations on liquidated damages (including the 1% and 2% calculations and the
10% cap) set forth in Section 2(c) of the Registration Rights
Agreement shall apply on an aggregate basis (and not on an individual basis) to
the registration rights granted under this Section 5.02 and the
Registration Rights Agreement.

 

Section 5.03                                Clarification regarding Excluded Stock.  For clarity, the Parties agree that the term “Excluded
Stock” as used in the Transaction Documents shall include any issued or
issuable Underlying Shares (including any Underlying Shares issuable upon
exercise of any Exchange Warrants or warrants issued upon the exercise of the
Unit Warrants), Series B Preferred Stock, warrants issued upon exercise of
the Unit Warrants, Exchange Warrants and Unit Warrants issued under the
Transaction Documents (as such capitalized terms not otherwise defined herein
are defined in the Purchase Agreement).

 

Section 5.04                                Compliance By Arena With Disclosure Obligations.  The Parties acknowledge
Arena’s obligation to make all public disclosures required by the Nasdaq rules,
the Securities Act, the Securities Exchange Act of 1934 (the “Exchange Act”), and other applicable law, including, but not
limited to, the public filing of this Agreement and/or the terms thereof with
the Securities and Exchange Commission. 
On or before 5:30 p.m., New York Time, on  the third Business Day following the date of this Agreement,
Arena shall file a Current Report on Form 8-K describing the terms of the
transactions contemplated by this Agreement in the form required by the Exchange
Act and attaching the material agreements in connection herewith (including all
attachments, the “8-K Filing”).  Neither Arena, any of its subsidiaries or any
of its respective officers, directors, employees or agents has provided
material nonpublic information  (determined as of immediately after
the 8-K Filing) to Mainfield other than the information that will be disclosed
in the 8-K Filing.  Arena shall not be in
breach of this Section to the extent Mainfield received material,
nonpublic information through its solicitation of such information from Persons
that are not executive officers or directors of the Company.

 

Section 5.05                                Notices.  All notices, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given: (a) when personally 

 

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delivered;
(b) upon receipt during normal business hours, otherwise on the first
business day thereafter, if transmitted by facsimile with confirmation of
receipt; (c) when mailed by certified mail, return receipt requested,
postage prepaid; or (d) when sent by overnight courier; in each case, to
the following addresses, or to such other addresses as a Party may from time to
time specify by notice to the other Party given pursuant hereto.

 

If
to Mainfield, to:

 

c/o Sage Capital Growth, Inc.

660 Madison Avenue

New York, New York 10022

Facsimile No.: (212) 651-9010

Telephone No.: (212) 651-9000

Attn: Eldad Gal

 

with a copy (for informational purposes only)
to:

 

Proskauer Rose LLP

1585 Broadway

New York, New York  10036

Telephone:            (212)
969-3000

Facsimile:     (212) 969-2900

Attention:                 Adam J. Kansler, Esq.

 

If
to Arena, to:

 

6166 Nancy Ridge Drive

San Diego, California 92121

Facsimile No.: (858) 677-0065

Telephone No.: (858) 453-7200

Attn: General Counsel

 

Section 5.06                                Cooperation.  The Parties will cooperate fully and will
execute any and all supplementary documents and will take all reasonable
actions that may be necessary or appropriate to give full force and effect to
the terms and intent of this Agreement.

 

Section 5.07                                No Assignment.  Each Party represents and warrants that, as
of the date of this Agreement and as of the Effective Date, it has not and will
not have assigned, encumbered, hypothecated or transferred, or purported to
assign, encumber, hypothecate or transfer, to any other Person or entity in any
manner, including by way of subrogation, (a) any of the claims and rights
that are the subject of the releases set forth in Article IV, above, or (b) any
rights under the Transaction Documents, including but not limited to the
Warrants.

 

6

 

Section 5.08                                Representation By Counsel.  Each Party represents and warrants that (a) it
has been represented by counsel in connection with entering into this Agreement,
(b) it has carefully read this Agreement and knows the contents thereof;
and (c) it has freely and voluntarily caused this Agreement to be signed.

 

  Section 5.09                          Authority to Enter Into Agreements.  Each Party represents and warrants that this
Agreement and the 2008 Warrant have been duly and validly authorized, by all
necessary action on the part of such Party, executed and delivered on behalf of
such Party and shall constitute the legal, valid and binding obligations of
such Party enforceable against such Party in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors’ rights and remedies.

 

Section 5.10                                No Admission of Liability.  This Agreement is not an admission of any
liability but is a compromise and nothing contained in this Agreement shall be
deemed, construed or treated in any respect as an admission or representation
by any Party hereto of any liability or obligation of any kind for any purpose.

 

Section 5.11                                Attorneys’ Fees/Expense Reimbursement.  Each Party shall be responsible for the
payment of its own attorneys’ fees and costs and all of its expenses in
connection with the Disagreement and the matters referred to in this Agreement,
including the preparation of this Agreement.

 

Section 5.12                                Construction.  The Parties 
acknowledge that they have all participated in the drafting of this
Agreement and that no Party shall be deemed to be the drafter of this Agreement
for any purpose.  Accordingly, this
Agreement shall be interpreted and construed in a neutral manner in accordance
with the plain meaning of the language contained herein and shall not be
presumptively construed against any Party.

 

Section 5.13                                Governing Law/Venue/Service of Process/Waiver of Jury Trial.  All questions concerning
the construction, validity, enforcement and interpretation of this agreement
shall be governed by and construed and enforced in accordance with the laws of
the 

 

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State
of New York without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.  Each Party hereby irrevocably submits to the
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, 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, or 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 matter
permitted by law. The Parties hereby waive all rights to a trial by jury.

 

Section 5.14                                Entire Agreement.  This Agreement contains the entire agreement
between the Parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the Parties
other than those set forth or referred to herein.

 

Section 5.15                                Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
assigns.

 

Section 5.16                                Scope of Agreement/No Third-Party Beneficiaries.  Except as provided in the
releases contained in Article IV, nothing in this Agreement shall confer
or be deemed to confer any rights on any Person not a Party hereto. This
Agreement is intended for the benefit of the Parties hereto and their
respective successors and assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.

 

Section 5.17                                Captions.  The captions of this Agreement are for
convenience only and are not a part of the Agreement and do not in any way
limit or amplify the terms and provisions of this Agreement and shall have no
effect on its interpretation.

 

8

 

Section 5.18                                Counterparts.  This Agreement may be executed in
counterparts, by either an original signature or signature transmitted by
facsimile transmission or other similar process and each copy so executed shall
be deemed to be an original and all copies so executed shall constitute one and
the same agreement.

 

Section 5.19                                Modification.  This Agreement may not be modified, amended
or supplemented by the Parties except by written agreement of those Parties.

 

[REMAINDER OF
PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE
FOLLOW]

 

9

 

IN
WITNESS WHEREOF, the Parties have signed this Agreement as of the date first
listed above.

 

	
   

  	
  ARENA PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jack Lief

  
	
   

  	
  Name: Jack
  Lief

  
	
   

  	
  Title:  
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  MAINFIELD ENTERPRISES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel Golan

  
	
   

  	
  Name: Daniel
  Golan

  
	
   

  	
  Title:
    Authorized Signatory

  
						

 

10

 

Exhibit A

 

Form of 2008 Warrant

 

11

 

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. 6

  	
   

  	
  Dated: August 14, 2008

  

 

Arena
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), hereby
certifies that, for value received, Mainfield Enterprises, Inc. or its
registered assigns (the “Holder”),
is entitled to purchase from the Company up to a total of 1,106,344 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 $7.71 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 Effective Date (as defined
below) and through and including the seven (7) year anniversary of the Effective
Date (the “Expiration
Date”), and subject to the following terms and conditions.

 

1.                                      DEFINITIONS.  In addition to the terms defined elsewhere in
this warrant to purchase shares of Company Common Stock (the “Warrant”),
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in that certain Securities Purchase Agreement, dated as of December 24,
2003, by and among the Company and the Purchasers identified therein, as it may
be amended from time to time (the “Purchase Agreement”).  This Warrant is being issued in connection
with that certain Exchange Agreement by and between the Company and the Holder,
dated as of August 14, 2008 (the “Exchange Agreement”), and shall not become
effective or have any force or effect until the Effective Date as defined in
the Exchange Agreement (the “Effective Date”).

 

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 

 

1

 

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 Effective Date 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.

 

2

 

(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.

 

(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 

 

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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 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 

 

4

 

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 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 

 

5

 

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.

 

(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.

 

6

 

(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 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.

 

7

 

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

 

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 the warrant in exchange for which 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 (i) Transaction Documents, (ii) that certain warrant, dated June 30,
2006, issued to Smithfield Fiduciary, LLC and (iii) this Warrant 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

 

8

 

regulations of the Trading Market.  If, at the time a Holder requests an exercise
of this Warrant, 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 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 of the aggregate purchase price
paid under the Purchase Agreement and taking into account any Warrant Shares and
shares of Common Stock issued upon exercise of other Company warrants 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 (i) the
Transaction Documents, (ii) that certain warrant, dated June 30,
2006, issued to Smithfield Fiduciary, LLC and (iii) this Warrant, 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 or this Warrant 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.                               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.

 

13.                               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 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 

 

9

 

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.

 

14.                               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.

 

15.                               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 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 

 

10

 

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]

 

11

 

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:

  	
  Jack Lief

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 

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:EXHIBIT
4.2

 

STOCK
OPTION AGREEMENT

 

Parties:  Micro Component Technology, Inc. (the “Company”);
LMWH Management Partners LLC (“Optionee”).

 

Date:      May 8, 2008 (the “Date of Grant”).

 

Agreement

 

1.             Grant of Option.  The Company irrevocably grants to Optionee
the right and option to purchase all or any part of the aggregate of 3,000,000
shares of the Company’s Common Stock at a price of $0.11 per share upon the
terms and conditions set forth herein. 
This Option is non-qualified for tax purposes.

 

2.             Option Period.  The Option shall continue for a period of
five years from the Date of Grant or, if earlier, one year from the date of
termination of the Consulting Agreement between the Company and Optionee (the “Consulting
Agreement”).

 

3.             Exercise of Option.  The Option shall vest and become exercisable
in increments, upon satisfaction of the following milestones, as follows:

 

	
  Milestone

  	
   

  	
  Shares Vested

  
	
   

  	
   

  	
   

  
	
  Execution by the
  Company of financial restructuring agreement with Laurus

  	
   

  	
  1,500,000 Shares

  
	
   

  	
   

  	
   

  
	
  Execution by the
  Company of first strategic agreement (e.g, joint venture, license, joint
  marketing or joint development) generating possibility of near term revenues
  in excess of $3M

  	
   

  	
  500,000 Shares

  
	
   

  	
   

  	
   

  
	
  Execution by the
  Company of second strategic agreement (e.g, joint venture, license, joint
  marketing or joint development) generating possibility of near term revenues
  in excess of $3M

  	
   

  	
  500,000 Shares

  
	
   

  	
   

  	
   

  
	
  Execution by the
  Company of third strategic agreement (e.g, joint venture, license, joint
  marketing or joint development) generating possibility of near term revenues
  in excess of $3M

  	
   

  	
  500,000 Shares

  

 

Prior to the
execution of the strategic agreement milestones, the Chairman of the Board and
the Optionee will provide the Board a detailed description of the potential
strategic agreements the Optionee plans to undertake to ensure the satisfaction
of the Board that such strategic agreements will satisfy the requirements of
the milestones.

 

The Option shall
become immediately exercisable in full in the event that the Company is
acquired by merger, purchase of all or substantially all of the Company’s
assets, or purchase of a majority of the outstanding stock by a single party or
a group acting in concert.

 

No additional
vesting shall occur after termination of the Consulting Agreement; provided,
however, that if the Company executes a strategic agreement referred to above
within 90 days after termination of the Consulting Agreement with a party with
which Consultant had substantive negotiations on behalf of the Company prior to
termination of the Consulting Agreement, the Option shall vest with respect to
the additional shares set forth in the above table with respect to such
agreement.  To the extent exercisable,
the Option may be exercised in whole or in part.

 

 

4.             Rights of Optionee.  Optionee shall not have the rights of a
shareholder with respect to the shares of stock subject to this Option until
issuance of shares pursuant to exercise of the Option.

 

5.             Non-Transferability of Option.  The Option shall not be transferable by
Optionee, except that the Option may be transferred to John Moon during his
lifetime and to his heirs upon his death.

 

6.             Manner of Exercise.  Exercise of the Option, or any part thereof,
shall be made by written notice given by Optionee to the Company, specifying
the number of shares to be purchased, accompanied by payment of the purchase
price in cash, by certified or cashier’s check, or in the form of shares of the
Company’s common stock with a fair market value equal to the purchase price and
free and clear of all liens and encumbrances.

 

7.             Adjustment.  In the event of a merger, stock split,
combination, reorganization, or other similar transaction affecting the Company’s
capital stock, the Company shall make an appropriate adjustment in the number
of shares and the exercise price for this Option.

 

8.             Restrictions on Transfer.  Optionee agrees that it is acquiring this
Option and the shares issuable upon exercise of this Option for investment
purposes, and not with a view to distribution. 
Optionee acknowledges that issuance of shares upon exercise of this
Option has not been registered under federal or state securities laws, and the
shares may not be sold unless they are first registered, or unless in the
option of counsel for the Company, registration is not required.  Optionee also agrees that certificates for
the shares shall contain a legend referring to these restrictions on transfer.

 

2

 

IN
WITNESS WHEREOF, the parties have executed this instrument as of the day and
year first above written.

 

	
   

  	
  MICRO COMPONENT
  TECHNOLOGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Roger E. Gower

  
	
   

  	
   

  	
  Roger
  E. Gower

  
	
   

  	
   

  	
  Its:
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  LMWH Management
  Partners LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Moon

  
	
   

  	
   

  	
  Its: Partner

  

 

3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00146-of-00352.parquet"}]]