Document:

Exhibit 10.1

SETTLEMENT AGREEMENT AND RELEASE

This settlement agreement and release (“Agreement”),
dated as of June 30, 2006, is entered into by and between Arena
Pharmaceuticals, Inc., a Delaware corporation with its principal place of
business at 6166 Nancy Ridge Drive, San Diego, California 92121 (“Arena”),
and Smithfield Fiduciary LLC, a Cayman Islands limited liability company having
its principal place of business at c/o Harmonic Fund Services, The Cayman
Corporate Center, 4th Floor, 27 Hospital Road, George Town, Grand Cayman,
Cayman Islands, British West Indies (“Smithfield”) (each, a “Party”
and collectively the “Parties”):

Recitals

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

B.            Arena
has heretofore issued to Smithfield (i) that certain Warrant No. 2
dated December 24, 2003 (“Warrant No. 2”), exercisable for
636,943 shares of common stock, par value $.0001 per share, of Arena (“Common
Stock”) and (ii) that certain Warrant No. 4 dated April 22,
2005, exercisable for 192,913 shares of Common Stock (together with Warrant No. 2,
the “Warrants”).

C.            Smithfield
directed Arena to “issue Call Notices pursuant to Section 12(b) of
the Warrants to redeem all of the unexercised portion of the Warrants in
accordance with Section 12 of the Warrants” (the “Call Notice”).

D.            Arena
delivered to Smithfield a Call Notice for “the unexercised portion of the
Warrants for which an Exercise Notice has not yet been delivered prior to the
Cancellation Date.”

E.             Smithfield
delivered Exercise Notices to Arena to exercise the Warrants in full, along
with payment of the exercise price under the Warrants, and demanded, pursuant
to Section 12(d) of the Warrants, that Arena issue Exchange Warrants
(as defined in the Warrants) 

 

entitling
Smithfield to purchase shares of Common Stock equal to the unexercised portion
of the Warrants as of the date of the Call Notice.

F.             Arena
issued 829,856 shares of Common Stock to Smithfield upon the exercise of the
Warrants but did not issue Exchange Warrants.

G.            The
Parties disagree whether Arena is obligated to issue Exchange Warrants to Smithfield
pursuant to the Warrants (the “Dispute”).

H.            Without
admitting or denying any liability and solely for purposes of compromise, the
Parties now desire to resolve, compromise, and settle the claims and
controversies between and among them on the terms and conditions set forth
below.

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

Article I

Key Definitions

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

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

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

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

 2
 

 

Article II

Settlement Effective Date

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

Article III

Execution of Documents; Timing of Deliveries;
Conditions

Section 3.01           Deliveries
by Arena. Following the execution of this Agreement, counsel for Arena
shall promptly deliver to counsel for Smithfield:

(a)           a
warrant, registered in the name of Smithfield, to purchase up to 829,856 shares
of Common Stock at an initial exercise price of $15.49 per share, in the form
attached hereto as Exhibit A and made a part of this Agreement (the “2006
Warrant”); and

(b)           an
amendment to the Registration Rights Agreement, duly executed by Arena, in the
form attached hereto as Exhibit B and made a part of this Agreement (the “2006
Amendment”).

Section 3.02           Deliveries
by Smithfield. Following the delivery of the aforementioned documents in
accordance with Section 3.01, counsel for Smithfield shall promptly
deliver to counsel for Arena a copy of the 2006 Amendment, duly executed by
Smithfield.

Section 3.03           Conditions.
The 2006 Warrant and the 2006 Amendment are being issued in connection with
this Agreement and shall not become effective or have any force or effect until
the Settlement Effective Date as defined herein.

 3
 

 

Article IV

Releases

Section 4.01           Release
By Arena In Favor of the Smithfield Released Parties. Effective upon the
Settlement Effective Date, Arena, on behalf of itself and its successors and
assigns, hereby releases and discharges Smithfield, its Affiliates,
representatives, agents, employees, shareholders, officers, directors,
managers, members, partners, successors, and assigns (“Smithfield Released
Parties”) of and from any and all manner of action or actions, causes or
causes of action, suits, debts, liens, contracts, agreements, liability,
claims, demands, losses, costs or expenses, arising wheresoever in the world,
of any nature whatsoever, whether known or unknown, and whether based on facts
now known or unknown, which Arena, its Affiliates, subsidiaries and
predecessors, and their respective successors and assigns, ever had, now have,
or may ever have, against the Smithfield Released Parties concerning the
Dispute, from the beginning of the world to the day and date of this Agreement,
including, but not limited to: (a) any and all claims arising from or
based on Smithfield’s demand for Exchange Warrants pursuant to Section 12(d) of
the Warrants; (b) any and all claims arising from or based on Arena’s
non-issuance of Exchange Warrants pursuant to Section 12(d) of the
Warrants; and/or (c) any and all claims, on account of the Dispute,
arising from or based on any contention that either Party has breached any
provision of the Transaction Documents or defaulted on any of its obligations
thereunder. For the avoidance of doubt, Arena does not waive, release, or
discharge the Smithfield Released Parties from any of their obligations under
this Agreement, the 2006 Warrant, or the 2006 Amendment.

Section 4.02           Release
By Smithfield In Favor of the Arena Released Parties. Effective upon the
Settlement Effective Date, Smithfield, on behalf of its successors and assigns,
hereby releases and discharges Arena, its Affiliates, representatives, agents,
employees, shareholders, officers, directors, managers, members, partners,
successors, and assigns (“Arena Released Parties”) of and from any and
all manner of action or actions, causes or causes of action, suits, debts,
liens, contracts, agreements, liability, claims, demands, losses, costs or
expenses, arising wheresoever in the world, of any nature whatsoever, whether
known or unknown, and whether based on facts now known or unknown, which
Smithfield, its Affiliates, 

 4
 

 

subsidiaries
and predecessors, and their respective successors and assigns, ever had, now
have, or may ever have, against the Arena Released Parties concerning the
Dispute, from the beginning of the world to the day and date of this Agreement,
including, but not limited to: (a) any and all claims arising from or
based on Smithfield’s demand for Exchange Warrants pursuant to Section 12(d) of
the Warrants; (b) any and all claims arising from or based on Arena’s
non-issuance of Exchange Warrants pursuant to Section 12(d) of the
Warrants; and/or (c) any and all claims, on account of the Dispute,
arising from or based on any contention that either Party has breached any
provision of the Transaction Documents or defaulted on any of its obligations
thereunder. For the avoidance of doubt, Smithfield does not waive, release, or
discharge the Arena Released Parties from any of their obligations under this
Agreement, the 2006 Warrant, or the 2006 Amendment.

Article V

Miscellaneous

Section 5.01           Cancellation
of Warrants. Effective upon the Settlement Effective Date, any outstanding
rights and obligations of the Parties under the Warrants are hereby cancelled.

Section 5.02           Registration
of Warrant Shares. Promptly following the Settlement Effective Date, Arena
shall prepare and file with the Securities and Exchange Commission a shelf
registration statement covering the resale of all shares of Common Stock
issuable upon exercise of the 2006 Warrant (the “2006 Warrant Shares”)
for an offering to be made on a continuous basis pursuant to Rule 415
under the Securities Act with the 2006 Warrant Shares being treated as “Registrable
Securities” in accordance with, and being governed by, the Registration Rights
Agreement as amended herein and by the 2006 Amendment, the provisions and terms
of which are applicable hereto mutates
mutandis, as if the Company and Smithfield had executed such
Registration Rights Agreement as of the Settlement Effective Date; provided,
however, that (i) references in the Registration Rights Agreement
to the initial Filing Date shall be deemed amended to mean 30 days after the
Settlement Effective Date; (ii) Section 2(b) of the Registration
Rights Agreement shall be deemed amended to require that the initial
Registration Statement required to be filed hereunder shall cover the sale of
the 2006 Warrant Shares; (iii)

 5
 

 

Sections
2(e) and 2(f) of the Registration Rights Agreement shall be deemed
deleted and shall not apply; (iv) references in the Registration Rights
Agreement to Purchaser Counsel shall be deemed amended to mean Schulte Roth &
Zabel LLP; (v) references in the Registration Rights Agreement to the
initial Required Effectiveness Date shall be deemed amended to mean 120 days
after the Settlement Effective Date; and (vi) the limitations on
liquidated damages (including the 1% and 2% calculations and the 10% cap) set
forth in Section 2(c) of the Registration Rights Agreement and the
2006 Amendment (amending Section 2(c) of the Registration Rights
Agreement) shall apply on an aggregate basis (and not on an individual basis)
to the registration rights granted under this Section 5.02 and the
Registration Rights Agreement.

Section 5.03           Waiver
By Smithfield of Right of First Refusal. Effective upon the Settlement
Effective Date, Smithfield waives its right of first refusal, pursuant to Section 4.7
of the Purchase Agreement, with respect to a warrant, substantially identical
in all material respects in form to the 2006 Warrant, that Arena may issue to
Mainfield Enterprises, Inc. (or its successors and assigns) (“Mainfield”),
provided, however, that such warrant shall contain the following
material terms: (a) an exercise price that is not less than 130% percent
of the arithmetic average of the Volume Weighted Average Prices (as defined in
the Purchase Agreement) of Common Stock for the five Trading Days immediately
prior to the date of issuance; (b) a term of no more than seven (7) years
from the date of issuance; and (c) the number of shares issuable upon
exercise shall be no more than 1,106,344 (as the same may be adjusted in
accordance with the terms of the warrant) (the “Mainfield Exchange Warrant”).
For clarity, the term “Excluded Stock” as used in the Transaction Documents
shall include any issued or issuable Underlying Shares (including any
Underlying Shares issuable upon exercise of any Exchange Warrants or warrants
issued upon the exercise of the Unit Warrants), Series B Preferred Stock,
warrants issued upon exercise of the Unit Warrants, Exchange Warrants and Unit
Warrants issued under the Transaction Documents (as such capitalized terms not
otherwise defined herein are defined in the Purchase Agreement).

Section 5.04           Compliance
By Arena With Disclosure Obligations. The Parties acknowledge Arena’s
obligation to make all public disclosures required by the Nasdaq rules, the
Securities Act, the Securities Exchange Act of 1934 (the “Exchange Act”),
and other applicable

 6
 

 

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

Section 5.05           Notices.
All notices, demands, and other communications hereunder shall be in writing
and shall be deemed to have been duly given: (a) when personally
delivered; (b) upon receipt during normal business hours, otherwise on the
first business day thereafter, if transmitted by facsimile with confirmation of
receipt; (c) when mailed by certified mail, return receipt requested,
postage prepaid; or (d) when sent by overnight courier; in each case, to
the following addresses, or to such other addresses as a Party may from time to
time specify by notice to the other Party given pursuant hereto.

If to Smithfield, to:

c/o Highbridge Capital Management, LLC

9 West 57th Street, 27th Floor

New York, New York 10019

Facsimile No.: (212) 287-4720

Telephone No.: (212) 751-0755

Attn: Ari J. Storch/ Adam J. Chill

with a copy (for informational purposes only) to:

Schulte Roth & Zabel LLP 

919 Third Avenue

New York, New York  10022

Telephone:            (212) 756-2000

Facsimile:               (212) 593-5955

Attention:              Alan R. Glickman, Esq./Eleazer
N. Klein, Esq.

 7
 

 

If to Arena, to:

6166 Nancy Ridge Drive

San Diego, California 92121

Facsimile No.: (858) 677-0065

Telephone No.: (858) 453-7200

Attn: General Counsel

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

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

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

  Section 5.09         Authority to Enter Into Agreements.
Each Party represents and warrants that this Agreement, the 2006 Warrant and
the 2006 Amendment to which such Party is a party have been duly and validly
authorized, by all necessary action on the part of such Party, executed and
delivered on behalf of such Party and shall constitute the legal, valid and
binding obligations of such Party enforceable against such Party in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

Section 5.10           No
Admission of Liability. This Agreement is not an admission of any liability
but is a compromise and nothing contained in this Agreement shall be deemed, 

 8
 

 

construed
or treated in any respect as an admission or representation by any Party hereto
of any liability or obligation of any kind for any purpose.

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

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

Section 5.13           Governing
Law/Venue/Service of Process/Waiver of Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York without giving effect to any choice of law or conflict of
law provision or rule (whether of the State of New York or any other
jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. Each Party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, Borough of Manhattan, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of any such court, or that such
suit, action or proceeding is improper. Each Party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such Party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any matter permitted by law. The Parties hereby waive all
rights to a trial by jury.

 9
 

 

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

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

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

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

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

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

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOW]

 10
 

 

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

	
  

  	
   

  	
  ARENA PHARMACEUTICALS, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Jack Lief

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Jack Lief

  	
   

  
	
   

  	
   

  	
  Title: 

  	
  President and Chief Executive Officer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SMITHFIELD FIDUCIARY LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Scott Wallace

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Scott Wallace

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Authorized Signatory

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 11

 

Exhibit A

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. 5

  	
   

  	
  Dated: June 30, 2006

  

 

Arena Pharmaceuticals, Inc.,
a Delaware corporation (the “Company”), hereby certifies that, for value received,
Smithfield Fiduciary LLC or its registered assigns (the “Holder”), is entitled
to purchase from the Company up to a total of 829,856 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 $15.49 per share (as adjusted from time to time as
provided in Section 9, the “Exercise Price”), at
any time and from time to time from and after the Effective Date (as defined
below) and through and including the seven (7) year anniversary of the
Effective Date (the “Expiration
Date”), and subject to the following terms and conditions.

1.             DEFINITIONS.
In addition to
the terms defined elsewhere in this warrant to purchase shares of Company
Common Stock (the “Warrant”),
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in that certain Securities Purchase Agreement, dated as of December 24,
2003, by and among the Company and the Purchasers identified therein, as it may
be amended from time to time (the “Purchase Agreement”). This Warrant is being
issued in connection with that certain Settlement Agreement and Release by and
between the Company and the Holder, dated as of June 30, 2006 (the “Settlement Agreement”),
and shall not become effective or have any force or effect until the Settlement
Effective Date as defined in the Settlement Agreement (the “Effective Date”).

2.             REGISTRATION
OF WARRANT. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”), in the name of the record Holder
hereof from time to time. The Company may deem and treat the registered Holder 

 1
 

 

of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.

3.             REGISTRATION
OF TRANSFERS. Subject
to Section 4.1 of the Purchase Agreement, the Company shall register the
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Transfer Agent or to the Company at its address
specified herein. Upon any such registration or transfer, a new warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant.

4.             EXERCISE
AND DURATION OF WARRANT.

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

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

5.             DELIVERY
OF WARRANT SHARES.

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

 2
 

 

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

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

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

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

7.             REPLACEMENT
OF WARRANT. If
this Warrant is mutilated, lost, stolen or destroyed, or a Holder fails to
deliver such certificate as may otherwise be provided herein, the Company shall

 3
 

 

issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction (in
such case) and, in each case, and customary and reasonable indemnity, if
requested. Applicants for a New Warrant under such circumstances shall also
comply with such other reasonable regulations and procedures and pay such other
reasonable third-party costs as the Company may prescribe.

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

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

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

(b)           Pro Rata
Distributions. If the
Company, at any time while this Warrant is outstanding, distributes to holders
of Common Stock (i) evidences of its indebtedness, (ii) any security
(other than a distribution of Common Stock covered by the preceding paragraph),
(iii) rights or warrants to subscribe for or purchase any security, or (iv) any
other asset (in each case, “Distributed Property”), then in each such case the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution shall be adjusted (effective
on such record date) to equal the product of such Exercise Price times a
fraction of which the denominator shall be the average of the Closing Prices
for the five Trading Days immediately prior to (but not including) such record
date and of 

 4
 

 

which the numerator shall be such average less the
then fair market value of the Distributed Property distributed in respect
of  one outstanding share of Common
Stock, as determined by the Company’s independent certified public accountants
that regularly examine the financial statements of the Company (an “Appraiser”). In such
event, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case such fair market value shall be
deemed to equal the average of the values determined by each of the Appraiser
and such appraiser. As an alternative to the foregoing adjustment to the
applicable Exercise Price, at the request of any Holder delivered before the
90th day after the record date fixed for determination of stockholders entitled
to receive such distribution, the Company will hold the Distributed Property in
escrow and deliver to such Holder, the Distributed Property that such Holder
would have been entitled to receive in respect of such number of Warrant Shares
had the Holder been the record holder of such Warrant Shares immediately prior
to such record date within 3 Trading Day following exercise of this Warrant.

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

 5
 

 

this Warrant from the Holder for a purchase price,
payable in cash within five Trading Days after such request (or, if later, on
the effective date of the Fundamental Transaction), equal to the Black Scholes
value of the remaining unexercised portion of this Warrant on the date of such
request.

(d)           Subsequent
Equity Sales.

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

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

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

 6
 

 

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

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

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

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

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

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

where:

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

 7
 

 

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

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

B
= the Exercise Price.

For purposes of Rule 144
promulgated under the Securities Act, it is intended, understood and
acknowledged that the Warrant Shares issued in a cashless exercise transaction
shall be deemed to have been acquired by the Holder, and the holding period for
the Warrant Shares shall be deemed to have commenced, on the date 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 and this Warrant at an effective
purchase price less than the Closing Price on the Trading Day immediately
preceding the Closing Date equals 5,121,877 shares (the “Issuable Maximum”),
unless the Company obtains shareholder approval in accordance with the rules and
regulations of the Trading Market. If, at the time a Holder requests an
exercise of this Warrant, the Actual 

 8
 

 

Minimum (excluding any shares issued or issuable at an
effective purchase price in excess of the Closing Price on the Trading Day
immediately preceding the Closing Date) exceeds the Issuable Maximum (and if
the Company has not previously obtained the required shareholder approval),
then the Company shall issue to the Holder requesting such exercise a number of
shares of Common Stock not exceeding such Holder’s pro-rata portion of the
Issuable Maximum (based on such Holder’s share of the aggregate purchase price
paid under the Purchase Agreement and taking into account any Warrant Shares
and shares of Common Stock issued upon exercise of other Company warrants
previously issued to such Holder), and the remainder of the Warrant Shares
issuable in connection with such exercise or conversion (if any) shall
constitute “Excess Shares” pursuant to Section 11(c) below. For the
purposes hereof, “Actual
Minimum” shall mean, as of any date, the maximum aggregate
number of shares of Common Stock then issued or potentially issuable in the
future pursuant to the Transaction Documents and this Warrant, ignoring any
limits on the number of shares of Common Stock that may be owned by a Holder at
any one time.

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

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

13.          NOTICES.
Any and all
notices or other communications or deliveries hereunder (including without
limitation any Exercise Notice) shall be in writing and shall be deemed given
and effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on
a Trading Day, (ii) the next Trading Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
number specified in this Section on a day that is not a Trading Day or
later than 6:30 p.m. (New York City time) on any 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 

 9
 

 

to be given. The address for
such notices or communications shall be as set forth in the Purchase Agreement.

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

15.          MISCELLANEOUS.

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

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

(c)           Governing
Law; Venue; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and
interpretation of this warrant shall be governed by and construed and enforced
in accordance with the laws of the state of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the transaction documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is 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 

 10
 

 

registered or certified mail or overnight delivery
(with evidence of delivery) to such party at the address in effect for notices
to it under this agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. The company hereby waives all rights to a trial by jury.

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

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

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 11

 

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

	
  

  	
  Arena
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

FORM OF EXERCISE NOTICE

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

To:  Arena Pharmaceuticals, Inc.

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

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

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

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

“Cash
Exercise”

“Cashless
Exercise”

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

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

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

Dated:  ____________, ____                                           Name of Holder:

(Print)                                                                                                                     

By:                                                                                                                          

Name:                                                                                                                     

Title:                                                                                                                       

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

 

FORM OF ASSIGNMENT

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

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

Dated:  ____________, ____

	
  

  	
   

  	
   

  
	
   

  	
   

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

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address of Transferee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  In the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

Exhibit B

Amendment
to Registration Rights Agreement

This Amendment to
Registration Rights Agreement (this “Amendment”), dated as of June 30,
2006, is entered into by and among Arena Pharmaceuticals, Inc. (the “Company”)
and Smithfield Fiduciary LLC (“Purchaser”).

 WHEREAS, the Company, Purchaser and Mainfield
Enterprises, Inc. (“Mainfield”) are parties to that certain Registration
Rights Agreement, dated as of December 24, 2003, as it may be amended from
time to time (the “Registration Rights Agreement”); and

WHEREAS, in
accordance with Section 6(b) of the Registration Rights Agreement,
the Company and Purchaser, and by a separate agreement dated as of the date
hereof, the Company and Mainfield, desire to amend the Registration Rights
Agreement as provided herein and therein.

NOW THEREFORE, in
consideration of the mutual promises herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

1.               The first sentence
of Section 2(c) of the Registration Rights Agreement is hereby
deleted in its entirety and replaced with the following:

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; provided, however,
that the maximum amount payable by the Company as liquidated damages in respect
of all such Events (including, but not limited to, any Events relating to
Registrable Securities issued or issuable pursuant to the 2006 Warrant, as
defined in that certain Settlement Agreement and Release, dated as of the date
hereof, between the Company and Purchaser) shall be capped at 10% of the
aggregate purchase price paid by each Holder under the Purchase Agreement for
the Securities.

2.               The Registration Rights Agreement shall
continue in full force and effect except to the extent modified herein.

 

3.               This Amendment may
be executed in two or more counterparts, all of which when taken together shall
be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party,
it being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as
if such facsimile signature page were an original thereof.

4.               This Amendment
shall become effective provided that Mainfield has executed an amendment
substantially identical in all material respects to this Amendment.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOW]

 2
 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed by their respective authorized signatories as of the date first
indicated above.

	
  

  	
  Arena
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Smithfield Fiduciary
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 3Exhibit 10.2

Amendment
to Registration Rights Agreement

This Amendment to
Registration Rights Agreement (this “Amendment”), dated as of June 30,
2006, is entered into by and among Arena Pharmaceuticals, Inc. (the
“Company”) and Smithfield Fiduciary LLC (“Purchaser”).

 WHEREAS, the Company, Purchaser and Mainfield
Enterprises, Inc. (“Mainfield”) are parties to that certain Registration
Rights Agreement, dated as of December 24, 2003, as it may be amended from
time to time (the “Registration Rights Agreement”); and

WHEREAS, in
accordance with Section 6(b) of the Registration Rights Agreement,
the Company and Purchaser, and by a separate agreement dated as of the date
hereof, the Company and Mainfield, desire to amend the Registration Rights
Agreement as provided herein and therein.

NOW THEREFORE, in
consideration of the mutual promises herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:

1.               The first sentence
of Section 2(c) of the Registration Rights Agreement is hereby
deleted in its entirety and replaced with the following:

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; provided, however,
that the maximum amount payable by the Company as liquidated damages in respect
of all such Events (including, but not limited to, any Events relating to
Registrable Securities issued or issuable pursuant to the 2006 Warrant, as
defined in that certain Settlement Agreement and Release, dated as of the date
hereof, between the Company and Purchaser) shall be capped at 10% of the
aggregate purchase price paid by each Holder under the Purchase Agreement for
the Securities.

2.               The Registration Rights Agreement shall
continue in full force and effect except to the extent modified herein.

 

3.               This Amendment may
be executed in two or more counterparts, all of which when taken together shall
be considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party,
it being understood that all parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as
if such facsimile signature page were an original thereof.

4.               This Amendment
shall become effective provided that Mainfield has executed an amendment
substantially identical in all material respects to this Amendment.

[REMAINDER OF PAGE
INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOW]

 2
 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be
duly executed by their respective authorized signatories as of the date first indicated
above.

	
  

  	
  Arena
  Pharmaceuticals, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jack Lief

  
	
   

  	
  Name:

  	
  Jack Lief

  
	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Smithfield Fiduciary
  LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott Wallace

  
	
   

  	
  Name:

  	
  Scott Wallace

  
	
   

  	
  Title:

  	
  Authorized Signatory

  

 

 3

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00106-of-00352.parquet"}]]