Document:

Exhibit 10.2

 

REGISTRATION
RIGHTS AGREEMENT

 

This
Registration Rights Agreement (this “Agreement”) is made and entered into
as of December 24, 2003, among Arena Pharmaceuticals, Inc., a Delaware
corporation (the “Company”), and the investors
signatory hereto (each such investor is a “Purchaser” and all such investors are,
collectively, the “Purchasers”).

 

WHEREAS, the
parties have agreed to enter into this Agreement in connection with, and as a
condition to the Closing under, the Securities Purchase Agreement, dated as of
the date hereof, among the Company and the Purchasers (the “Purchase Agreement”);

 

NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers agree
as follows:

 

1.     Definitions.  In addition to the terms defined elsewhere
in this Agreement, (a) capitalized terms that are not otherwise defined herein
have the meanings given to such terms in the Purchase Agreement, and (b) the
following terms have the meanings indicated:

 

“Filing Date”
means, with respect to the initial Registration Statement required to be filed
pursuant to Section 2, February 7, 2004, and, with respect to any additional
Registration Statements that may be required pursuant to Section 3(c),
the 30th day following the date on which the Company first knows, or reasonably
should have known, that such additional Registration Statement is required
under such Section.

 

“Holder”
means any holder, from time to time, of Registrable Securities.

 

“Prospectus”
means the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

 

“Purchaser Counsel”
means each counsel designated by each Holder and set forth in a written notice
to the Company.  Mainfield Enterprises,
Inc. has initially designated Proskauer Rose LLP as its Purchaser Counsel.

 

“Registrable Securities”
means any Common Stock (including Underlying Shares) issued or issuable
pursuant to the Transaction Documents, together with any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the foregoing.

 

“Registration Statement”
means the initial registration statement required to be filed hereunder and any
additional registration statements contemplated by Section 3(c),

 

 

including (in each case) the Prospectus, amendments and supplements to
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.

 

“Required Effectiveness Date”
means, with respect to the initial Registration Statement required to be filed
hereunder, April 22, 2004(1), and, with respect to any additional Registration
Statements that may be required pursuant to Section 3(c), the 75th day
following the date on which the Company first knows, or reasonably should have
known, that such additional Registration Statement is required under such
Section.

 

“Rule 415,” “Rule 424”
and “Rule
461” means Rule 415, Rule 424 and Rule 461, respectively,
promulgated by the Commission pursuant to the Securities Act, as such Rules may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

 

2.     Shelf Registration

 

(a)  As promptly as possible, and in any event on
or prior to each Filing Date, the Company shall prepare and file with the
Commission a “Shelf” Registration Statement covering the resale of all
Registrable Securities for an offering to be made on a continuous basis
pursuant to Rule 415.  The Registration
Statement shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance herewith as the
Holders may consent) and shall contain (except if otherwise directed by the
Holders) the “Plan of Distribution” attached hereto as Annex A.  The Company shall use its commercially
reasonable efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Required Effectiveness Date, and shall use its best
efforts to keep such Registration Statement continuously effective under the
Securities Act until the earlier of (i) the fifth anniversary of the
Effective Date and (ii) when all Registrable Securities covered by such
Registration Statement have been sold or can be sold under Rule 144(k) (the “Effectiveness Period”). 
The Company shall notify each Holder in writing promptly (and in any
event within two Trading Days) after receiving notification from the Commission
that a Registration Statement has been declared effective.

 

(b)  The initial Registration Statement to be
filed hereunder shall cover the sale by the Holders of at least the Required
Minimum number of shares of Common Stock.

 

(1) 120 days following Closing.

 

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(c)  Upon the occurrence of any Event (as defined
below) and on every monthly anniversary thereof until the applicable Event is
cured, as partial relief for the damages suffered therefrom by the Holders
(which remedy shall not be exclusive of any other remedies available at law or
in equity), the Company shall pay to each Holder an amount in cash, as
liquidated damages and not as a penalty, equal to 1.0% of the aggregate
purchase price paid under the Purchase Agreement for the Securities held by
such Holder for each of the first and second months and 2.0% for each month
thereafter.  The liquidated damages
payable pursuant to the terms hereof shall apply on a pro-rata basis for any
portion of a month prior to the cure of an Event.  For such purposes, each of the following shall constitute an “Event”:

 

(i)            a Registration Statement is not filed on or prior to the
applicable Filing Date or is not declared effective on or prior to the
applicable Required Effectiveness Date;

 

(ii)           subject to Section 2(g) below, after the Effective Date
for a Registration Statement, a Holder is not permitted to sell Registrable
Securities under such Registration Statement (or a subsequent Registration
Statement filed in replacement thereof) for any reason for seven consecutive
Trading Days or 30 days in aggregate in any 12 month period;

 

(iii)          the Common Stock is not listed or quoted, or is suspended
from trading, on an Eligible Market for five consecutive Trading Days or 10
days in aggregate in any 12 month period;

 

(iv)          the Company fails for any reason to deliver a certificate
evidencing any Securities to a Holder within seven Trading Days after delivery
of such certificate is required pursuant to any Transaction Document or the
exercise or conversion rights of the Holders pursuant to the Transaction
Documents are otherwise suspended for any reason, except in accordance with
Section 18 of the Certificate of Designations or Section 11 of the Warrant;

 

(v)           the Company fails to have available a sufficient number of
authorized but unissued and otherwise unreserved shares of Common Stock
available to issue Underlying Shares upon any exercise of the Warrants or any
conversion of convertible Securities; or

 

(vi)          after the Effective Date for a Registration Statement, any
Registrable Securities covered by such Registration Statement are not listed on
an Eligible Market.

 

(d)  At the election of the Company, any amount
required to be paid by the Company to such Holder pursuant to Section 2(c)
may instead be added to the Stated Value of the outstanding Shares then owned
by such Holder.  Notwithstanding
anything to the contrary, the Events set forth in clauses (i) and (ii) of
Section 2(c) above shall not apply following the date when all the Securities
can be sold pursuant to Rule 144 (k).

 

(e)  The Company shall not, prior to the
Effective Date of the Registration Statement, prepare and file with the
Commission a registration statement relating to an offering

 

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for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-8 (as promulgated under the Securities Act).

 

(f)  If any Event occurs and remains uncured for
60 days, then at any time or times thereafter any Holder may deliver to the
Company a notice (a “Repurchase Notice”)
requiring the Company to repurchase all or any portion of the shares of Series
B Preferred Stock and any Underlying Shares previously issued to such Holder
upon conversion of Series B Preferred Stock then beneficially owned by such
Holder at a price per share equal to (i) with respect to all shares of Series B
Preferred Stock held by such Holder the greater of (A) 115% of the Stated Value
plus all accrued but unpaid dividends thereon through the date of payment, or
(B) the product of (x) the Event Equity Value and (y) the Underlying Shares
then issuable upon conversion of such Series B Preferred Stock (including such
accrued but unpaid dividends thereon) (without regard to any limitation on
conversion or issuance of such shares), and (ii) with respect to any Underlying
Shares issued to such Holder and then beneficially owned by such Holder, at a
price per share equal to the Event Equity Value of such Underlying Shares.  If a Holder delivers a Repurchase Notice
pursuant to this Section, the Company shall pay the aggregate repurchase price
(together with any other payments, expenses and liquidated damages then due and
payable pursuant to the Transaction Documents) to such Holder no later than the
fifth Trading Day following the date of delivery of the Repurchase Notice, and
upon receipt thereof such Holder shall deliver original certificates evidencing
the Securities so repurchased to the Company (to the extent such certificates
have been delivered to such Holder). 
Notwithstanding the foregoing, (x) immediately upon the occurrence of a
Bankruptcy Event, each Holder will automatically be deemed to have delivered a
Repurchase Notice pursuant to this Section and will be entitled to receive the
corresponding repurchase price without any further action or notice to the
Company, and (y) a Holder shall not be permitted to deliver a Repurchase Notice
following receipt of a notice from the Company of the cure of such Event.

 

(g)  Notwithstanding anything in this Agreement
to the contrary, after 60 consecutive Trading Days of continuous effectiveness
of the initial Registration Statement filed and declared effective pursuant to
this Agreement, the Company may, by written notice to the Purchasers, suspend
sales under a Registration Statement after the Effective Date thereof and/or
require that the Purchasers immediately cease the sale of shares of Common
Stock pursuant thereto and/or defer the filing of any subsequent Registration
Statement if the Company is engaged in a material merger, acquisition, sale or
financing or is in possession of other material nonpublic information and the
Board of Directors determines in good faith, by appropriate resolutions, that,
as a result of such activity or information, (A) (x) it would be
materially detrimental to the Company (other than as relating solely to the
price of the Common Stock) to file a Registration Statement at such time and
(y) it is in the best interests of the Company to defer proceeding with
such registration at such time, or (B) it would be materially detrimental to
the Company (other than as relating solely to the price of the Common Stock) to
amend or supplement an effective Registration Statement or the related
prospectus to disclose such activity or information, as applicable.  Upon receipt of such notice, each Purchaser shall
immediately discontinue any sales of Registrable Securities pursuant to such
registration until such Purchaser has received copies of a supplemented or
amended Prospectus or until such Purchaser is advised in writing by the Company
that the then-current Prospectus may be used and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus. In no event, however, shall this right be
exercised to suspend sales

 

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beyond the period during which
(in the good faith determination of the Company’s Board of Directors) the
failure to require such suspension would be materially detrimental to the
Company.  The Company’s rights under this
Section 2(g) may be exercised for no more than 2 times and a period of no more
than 30 days in any twelve-month period. 
Immediately after the end of any suspension period under this Section
2(g), the Company shall take all necessary actions (including filing any
required supplemental prospectus) to restore the effectiveness of the
applicable Registration Statement and the ability of the Purchasers to publicly
resell their Registrable Securities pursuant to such effective Registration
Statement.

 

3.     Registration Procedures.  In connection with the Company’s
registration obligations hereunder, the Company shall:

 

(a)  Not less than three Trading Days prior to
the filing of each Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders and their respective Purchaser Counsel copies
of all such documents proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to the
review of such Holders and their respective Purchaser Counsel, and (ii) cause
its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act. 
The Company shall not file the Registration Statement or any such Prospectus
or any amendments or supplements thereto to which the Holders of a majority of
the Registrable Securities and their respective Purchaser Counsel shall
reasonably object; provided that such Holders shall provide any such objections
within three Trading Days following receipt of any such documents.

 

(b)  (i) Prepare and file with the Commission
such amendments, including post-effective amendments, to the Registration
Statement and the Prospectus used in connection therewith as may be necessary
to keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible, and in any event within ten
Trading Days, to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as reasonably
possible provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement, unless such
correspondence contains material non-public information as determined by the
Company and its counsel; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.

 

(c)  If, on any date, the number of shares of
Common Stock previously registered under all existing Registration Statements
is less than 125% of the Actual Minimum on such

 

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date, then the Company shall
file an additional Registration Statement covering a number of shares of Common
Stock at least equal to (i) the Required Minimum on such date, less (ii) the
number of shares of Common Stock previously registered under all existing
Registration Statements; provided that the Company will not be required at any
time to register a number of shares of Common Stock greater than the maximum
number of shares of Common Stock that could possibly be issued pursuant to the Transaction
Documents.

 

(d)  Notify the Holders of Registrable Securities
to be sold and their respective Purchaser Counsel as promptly as reasonably
possible, and (if requested by any such Person) confirm such notice in writing
no later than one Trading Day thereafter, of any of the following events: (i)
the Commission notifies the Company whether there will be a “review” of any
Registration Statement; (ii) the Commission comments in writing on any
Registration Statement (in which case the Company shall deliver to each Holder
a copy of such comments and of all written responses thereto, unless such
correspondence contains material non-public information as determined by the
Company and its counsel); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any
other Federal or state governmental authority requests any amendment or
supplement to a Registration Statement or Prospectus or requests additional
information related thereto; (v) the Commission issues any stop order
suspending the effectiveness of any Registration Statement or initiates any
Proceedings for that purpose; (vi) the Company receives notice of any
suspension of the qualification or exemption from qualification of any
Registrable Securities for sale in any jurisdiction, or the initiation or
threat of any Proceeding for such purpose; or (vii) the financial statements
included in any Registration Statement become ineligible for inclusion therein
or any statement made in any Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration Statement,
Prospectus or other document is required so that it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(e)  Use its best efforts to avoid the issuance
of or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of any Registration Statement or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.

 

(f)  Furnish to each Holder and their respective
Purchaser Counsel, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

 

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(g)  Promptly deliver to each Holder and their
respective Purchaser Counsel, without charge, as many copies of the Prospectus
or Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request.  The Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.

 

(h)  (i) In the time and manner required by each
Trading Market, if at all, prepare and file with such Trading Market an
additional shares listing application covering all of the Registrable
Securities; (ii) use its best efforts to approve for listing and to list the
Registrable Securities covered by such Registration Statement with each Trading
Market as soon as reasonably practicable; (iii) to the extent available to the
Company, provide to the Purchasers evidence of such listing; and (iv) maintain
the listing of such Registrable Securities on each such Trading Market or
another Eligible Market.

 

(i)  Prior to any public offering of Registrable
Securities, use its commercially reasonable efforts to register or qualify or
cooperate with the selling Holders and their respective Purchaser Counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions within the
United States as any Holder requests in writing, to keep each such registration
or qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement, except that the Company shall not for any such purpose
be required (A) to qualify generally to do business as a foreign corporation in
any jurisdiction wherein it would not but for the requirements of this
paragraph (i) be obligated to be so qualified, (B) to subject itself to
taxation in any such jurisdiction, or (C) to consent to general service of
process in any jurisdiction.

 

(j)  Cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be delivered to a transferee pursuant to a Registration
Statement, which certificates shall be free, to the extent permitted by the
Purchase Agreement, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such names as any such
Holders may request.

 

(k)  Upon the occurrence of any event described
in Section 3(d)(vii), as promptly as reasonably possible, prepare a
supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.

 

(l)  Cooperate with any reasonable due diligence
investigation undertaken by the Holders in connection with the sale of
Registrable Securities, including without limitation by making available any
documents and information reasonably requested; provided that the

 

7

 

Company will not deliver or
make available to any Holder material, nonpublic information unless such Holder
specifically requests in advance to receive material, nonpublic information.

 

(m)  Comply with all applicable rules and
regulations of the Commission.

 

4.     Registration Expenses.  Except as otherwise provided in the
Transaction Documents, all fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to the Registration
Statement.  The fees and expenses
referred to in the foregoing sentence shall include, without limitation, (a)
all registration and filing fees (including, without limitation, fees and
expenses (i) with respect to filings required to be made with any Trading
Market, and (ii) in compliance with applicable state securities or Blue Sky
laws (including, without limitation, fees and disbursements of counsel for the
Company in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as requested by
the Holders )), (b) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing
prospectuses requested by the Holders), (c) messenger, telephone and delivery
expenses, (d) fees and disbursements of counsel for the Company, and (e) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement.  The Holders shall be responsible for all
fees and expenses of Purchaser Counsel.

 

5.     Indemnification

 

(a)  Indemnification by the Company.  The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, partners, members, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment
advisors and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all Losses, as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in
any amendment or supplement thereto or (ii) in the case of an occurrence of an
event of the type specified in Section 3(d)(v)-(vii), the use by such
Holder of an outdated or defective Prospectus after the Company has notified
such Holder in writing that the Prospectus is outdated or defective and prior
to the receipt by such Holder of

 

8

 

the Advice contemplated in Section
6(f).  The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

 

(b)  Indemnification by Holders.  Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and
the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of any untrue statement of a material
fact contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for
inclusion in such Registration Statement or such Prospectus.  In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

 

(c)  Conduct of Indemnification Proceedings.  If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly
notify the Person from whom indemnity is sought (the “Indemnifying
Party”) in writing, and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.

 

An Indemnified
Party shall have the right to employ separate counsel in any such Proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party or Parties
unless:  (i) the Indemnifying Party has
agreed in writing to pay such fees and expenses; or (ii) the Indemnifying Party
shall have failed promptly to assume the defense of such Proceeding and to
employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (iii) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior

 

9

 

written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

 

All fees and
expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend
such Proceeding in a manner not inconsistent with this Section, provided that
it shall not include  the costs of more
than one law firm) shall be paid to the Indemnified Party, as incurred, within
ten Trading Days of written notice thereof to the Indemnifying Party
(regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder; provided, that the Indemnifying
Party may require such Indemnified Party to undertake to reimburse all such
fees and expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).

 

(d)  Contribution.  If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
public policy or otherwise), then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses (not including the
cost of more than one law firm for the Holders of the Company), in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys’ or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section was available to such party in accordance with its terms.

 

The parties
hereto agree that it would not be just and equitable if contribution pursuant
to this Section 5(d) were determined by pro  rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the
provisions of this Section 5(d), no Holder shall be required to
contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

 

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The indemnity
and contribution agreements contained in this Section are in addition to any
liability that the Indemnifying Parties may have to the Indemnified Parties.

 

6.     Miscellaneous

 

(a)  Remedies.  In the event of a breach by the Company or by a Holder of any of
their obligations under this Agreement, each Holder or the Company, as the case
may be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.  The Company and each Holder agree that
monetary damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.

 

(b)  Amendments and Waivers.  The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the same shall be in writing and signed by the Company and the
Holders of at least a majority of the then outstanding Registrable
Securities.  Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.

 

(c)  No Inconsistent Agreements.  Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor shall the Company or any
of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. 
Except as and to the extent specified in the applicable schedule to the
Purchase Agreement, neither the Company nor any Subsidiary has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person that have not been satisfied in full.

 

(d)  No Piggyback on Registrations.  Except as and to the extent specified in
Schedule 3.1(w) to the Purchase Agreement, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.

 

(e)  Compliance.  Each Holder covenants and agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement.

 

11

 

(f)  Discontinued Disposition.  Each Holder agrees by its acquisition of
such Registrable Securities that, upon receipt of a notice from the Company of
the occurrence of any event of the kind described in Sections 2(g), 3(d)(v),
3(d)(vi), or 3(d)(vii), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder’s receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), or until it
is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus may be resumed, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement. 
The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.

 

(g)  Piggy-Back Registrations.  If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder written notice of
such determination and, if within fifteen days after receipt of such notice,
any such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
holder requests to be registered.

 

(h)  Notices. Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of
(a) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Agreement on a
day that is not a Trading Day or later than 5:30 p.m. (New York City time) and
earlier than 11:59 p.m. (New York City time) on any Trading Day, (c) the
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given.  The
address for such notices and communications shall be as set forth in the
Purchase Agreement.

 

(i)  Successors and Assigns.  This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. 
The Company may not assign its rights or obligations hereunder without
the prior written consent of each Holder. 
Each Holder may assign its rights and obligations hereunder in the
manner and to the extent permitted under the Purchase Agreement.

 

(j)  Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the

 

12

 

party executing (or on whose
behalf such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.

 

(k)  Governing
Law; Venue; Waiver Of Jury Trail. 
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 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
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.

 

(l)    Cumulative Remedies.  The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

 

(m) Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

 

13

 

(n)  Headings.  The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

 

14

 

IN WITNESS
WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

 

 

	
   

  	
  ARENA PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Jack Lief

  	
   

  
	
   

  	
  Name:

  	
      Jack Lief

  	
   

  
	
   

  	
  Title:

  	
    President and Chief Executive Officer

  	
   

  
						

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF PURCHASERS TO FOLLOW]

 

15

 

	
   

  	
  MAINFIELD ENTERPRISES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Aui Vigder

  	
   

  
	
   

  	
  Name:

  	
  Aui Vigder

  	
   

  
	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
  Mainfield Enterprises, Inc.

  
	
   

  	
  c/o Sage Capital Growth, Inc.

  
	
   

  	
  660 Madison Avenue

  
	
   

  	
  New York, NY 10022

  
	
   

  	
  Telephone No.: (212) 651-9000

  
	
   

  	
  Facsimile No.: (212) 651-9010

  
	
   

  	
  Attn:  Eldad Gal

  
	
   

  	
   

  
	
   

  	
  With copies to:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Proskauer Rose LLP

  
	
   

  	
  1585 Broadway

  
	
   

  	
  New York, New York 10036-8299

  
	
   

  	
  Facsimile No.:  (212) 969-2900

  
	
   

  	
  Telephone No.:  (212) 969-3000

  
	
   

  	
  Attn:  Adam J. Kansler, Esq.

  
						

 

16

 

	
   

  	
  SMITHFIELD FIDUCIARY LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adam J. Chill

  	
   

  
	
   

  	
  Name: Adam J. Chill

  
	
   

  	
  Title: Authorized Signatory

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address for Notice:

  
	
   

  	
   

  
	
   

  	
  c/o Highbridge Capital Management, LLC

  
	
   

  	
  9 West 57th Street, 27th floor

  
	
   

  	
  New York, NY 10019

  
	
   

  	
  Facsimile No.:  (212) 287-4720

  
	
   

  	
  Telephone No.: (212) 751-0755

  
	
   

  	
  Attn:  Ari J. Storch / Adam J.
  Chill

  

 

17

 

Annex A

 

 

Plan
of Distribution

 

The selling
stockholders may, from time to time, sell any or all of their shares of common
stock on any stock exchange, market or trading facility on which the shares are
traded or in private transactions. 
These sales may be at fixed or negotiated prices.  The selling stockholders may use any one or
more of the following methods when selling shares:

 

•                                          ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;

 

•                                          block
trades in which the broker-dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;

 

•                                          purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;

 

•                                          an
exchange distribution in accordance with the rules of the applicable exchange;

 

•                                          privately
negotiated transactions;

 

•                                          short
sales;

 

•                                          broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;

 

•                                          a
combination of any such methods of sale; and

 

•                                          any
other method permitted pursuant to applicable law.

 

The selling
stockholders may also sell shares under Rule 144 under the Securities Act, if
available, rather than under this prospectus.

 

The selling
stockholders may also engage in short sales against the box, puts and calls and
other transactions in our securities or derivatives of our securities and may
sell or deliver shares in connection with these trades.

 

Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales.  Broker-dealers
may receive commissions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated.  The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.  Any profits on the resale of shares of common stock by a
broker-dealer acting as principal might be deemed to be underwriting discounts
or commissions under the Securities Act. 
Discounts, concessions, commissions and similar selling expenses, if
any, attributable to the sale of shares will be borne by a selling stockholder.  The selling stockholders may agree to
indemnify any

 

18

 

agent, dealer or broker-dealer
that participates in transactions involving sales of the shares if liabilities
are imposed on that person under the Securities Act.

 

The selling
stockholders may from time to time pledge or grant a security interest in some
or all of the shares of common stock owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.

 

The selling
stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus
and may sell the shares of common stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under this prospectus.

 

The selling
stockholders and any broker-dealers or agents that are involved in selling the
shares of common stock may be deemed to be “underwriters” within the meaning of
the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares of common stock purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.

 

We are
required to pay all fees and expenses incident to the registration of the
shares of common stock, other than the fees and disbursements of counsel to the
selling stockholders.  We have agreed to
indemnify the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.

 

The selling
stockholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers
regarding the sale of their shares of common stock, nor is there an underwriter
or coordinating broker acting in connection with a proposed sale of shares of
common stock by any selling stockholder. 
If we are notified by any selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
of common stock, if required, we will file a supplement to this
prospectus.  If the selling stockholders
use this prospectus for any sale of the shares of common stock, they will be
subject to the prospectus delivery requirements of the Securities Act.

 

The
anti-manipulation rules of Regulation M under the Securities Exchange Act of
1934 may apply to sales of our common stock and activities of the selling
stockholders.

 

19Exhibit
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]

 

12

 

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:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

 

14

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