Document:

Exhibit 10.3
STATE STREET CORPORATION

DEFERRED COMPENSATION PLAN FOR DIRECTORS

(January 1, 2007 Restatement)
ARTICLE I
NAME AND PURPOSE OF PLAN AND DEFINITIONS
1.1                                              Name and Effective Date.  The Plan set forth herein is an amendment, restatement and continuation of the State Street Corporation Deferred Compensation Plan for Directors, originally established effective June 19, 1975.  Except as otherwise provided, this restatement shall have effect with respect to amounts earned in respect of services on or after January 1, 2007.
1.2                                              Prior Deferrals.  Deferrals of amounts earned in respect of services prior to January 1, 2007 shall remain subject to their original terms and to the State Street Corporation Deferred Compensation Plan for Directors in effect prior to this amendment and restatement, except to the extent a Participant elects prior to January 1, 2007 for such deferrals to become subject to the terms of the Plan as set forth herein.
1.3                                              Definitions.  Capitalized terms have the meaning set forth below unless a different meaning is required by the context:
(a)                                               “Account” means an account established for a Participant’s benefit under Section 3.4.
(b)                                              “Annual Stock Award” means the annual award of shares of Stock to Directors.
(c)                                               “Beneficiary” means the person or persons designated by a Participant in writing, subject to such rules as the Plan Administrator may prescribe, to receive benefits under the Plan in the event of the Participant’s death.  In the absence of an effective designation at the time of a Participant’s death, the Participant’s Beneficiary shall be his or her surviving spouse or domestic partner, or if none, his or her issue per stirpes, or if none, his or her surviving parents, or if none, his or her estate.
(d)                                              “Board” means the Board of Directors of State Street Corporation.
(e)                                               “Code” means the Internal Revenue Code of 1986, as amended from time to time.
(f)                                                 “Compensation” means a Director’s Retainer Fees, Meeting Fees, and Annual Stock Award.

 

 
(g)                                              “Corporation” means State Street Corporation and any successor thereto.
(h)                                              “Deferred Compensation Agreement” means a written agreement described in Section 3.1, which shall be in a form approved by or acceptable to the Plan Administrator.
(i)                                                  “Director” means a director of the Corporation who is not an employee of the Corporation or of any of its subsidiaries or affiliates.
(j)                                                  “Disabled” and “Disability,” with respect to a Participant, mean that the Participant is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or that the Participant has been determined to be totally disabled by the Social Security Administration.
(k)                                               “Entry Date” means each January 1.
(l)                                                  “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
(m)                                            “Meeting Fees” means the fees payable in cash to Directors for attendance at Board and Board committee meetings.
(n)                                              “Participant” means a Director who elects to participate in the Plan or who has an Account under the Plan.
(o)                                              “Plan” means the State Street Corporation Deferred Compensation Plan for Directors, as from time to time amended and in effect.
(p)                                              “Plan Administrator” means the Plan Administrator appointed pursuant to Section 6.1
(q)                                              “Plan Year” means the calendar year.
(r)                                                 “Retainer Fees” means any annual retainer payable to a Director, which for the period specified by the Board may be payable in cash or Stock, as designated by the Director.
(s)                                               “Section 409A” means Section 409A of the Code.
(t)                                                 “Stock” means the common stock of the Corporation.

 

 
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1                                              Commencement of Participation.  Except as the Board otherwise determines (consistent with the requirements of Section 409A), a Director may elect, prior to any Entry Date following his or her election to the Board, to commence participation as of such Entry Date.
2.2                                              Termination of Participation.  A Director shall remain a Participant until his or her Accounts have been fully distributed, or until his or her death if earlier.
ARTICLE III
ELECTION TO DEFER
3.1                                             Deferred Compensation Agreement.  Prior to the beginning of any Plan Year, a Director may elect to defer a portion of his or her Compensation to be earned in such Plan Year by entering into a Deferred Compensation Agreement with respect to such Compensation.  Compensation that is deferred shall be credited to one or more Accounts of the Participant as soon as practicable after the Compensation would otherwise have been paid.  Any Compensation not deferred shall be paid in cash or shares of Stock as designated by the Director.
3.2                                             Election Procedures.
(a)                                              Advance elections required.  A Deferred Compensation Agreement must be made prior to the applicable Entry Date for the Plan Year in which the Compensation is to be earned (or by such earlier date as the Plan Administrator may prescribe consistent with the requirements of Section 409A).  Once a Deferred Compensation Agreement becomes effective for a Plan Year, it may not be modified or revoked by the Participant.
(b)                                             Other requirements.  Except as otherwise determined by the Plan Administrator, a new Deferred Compensation Agreement must be timely executed for each Plan Year and shall be effective only if accepted and approved by the Plan Administrator by the applicable deadline.  
3.3                                             Compensation to be Deferred.  A Director may elect to defer either 50% or 100%, but no other or different portion or percentage, of each type of Compensation (i.e., Annual Stock Award, Meeting Fees, and Retainer Fees) which may become payable to him or her currently with respect to services as a Director during any Plan Year by entering into a Deferred Compensation Agreement with respect to 50% or 100% of any such Compensation.

 

 
3.4                                             Accounts.  The Plan Administrator shall establish an Account or Accounts for each Participant reflecting elective deferrals and any adjustments under this Section 3.4.
(a)                                              Stock deferrals.  An Account established for a Participant in connection with the deferral of an award otherwise payable in shares of Stock shall be denominated in Stock units (each representing a share of Stock).  Such an Account shall be equitably adjusted by the Plan Administrator to reflect any stock dividends, stock splits or combinations of shares (including a reverse stock split), recapitalizations or other changes in the Corporation’s capital structure, and shall be adjusted in connection with the payment of any dividend or other distribution on the Stock to reflect the notional (hypothetical) reinvestment of the amount of the dividend or distribution in additional shares of Stock, such additional shares being treated thereafter (including with respect to subsequent dividends and distributions) in the same manner as the shares initially deferred.  Any notional reinvestment shall be deemed to have been made using the closing price of the Stock on the date the dividend or other distribution was paid.
(b)                                             Cash deferrals.  All Accounts not described in Section 3.4(a) shall be adjusted for notional (hypothetical) investment experience as described in this Section 3.4(b).  The Board shall designate for purposes of the Plan one or more investment alternatives (each, a “tracking option”), including a tracking option notionally invested in shares of Stock and, if the Plan Administrator so determines, a tracking option that offers a return of notional interest.  Each Participant shall have the opportunity to allocate Accounts not described in Section 3.4(a) and/or additional cash deferrals among the available tracking options.  Amounts allocated under the Plan to a tracking option shall be treated as notionally invested in that tracking option.  In the absence of an affirmative allocation by a Participant, the Plan Administrator may designate a default tracking option and treat the Accounts and/or deferrals (or such portions thereof as shall not have been affirmatively allocated) as being notionally invested in the default tracking option.  The Plan Administrator shall periodically adjust Accounts to reflect increases or decreases attributable to these notional investments, and with respect to any Account invested in a tracking option notionally invested in Stock, shall also adjust such Account in the manner described in Section 3.4(a).  Except as otherwise determined by the Plan Administrator and subject to such rules as the Plan Administrator may prescribe, a Participant may make notional investment changes once per calendar month with respect to either existing deferrals and/or future deferrals.  The Plan Administrator may, at the direction of the Board, at any time and from

 

time to time, eliminate or add tracking options or substitute a new for an existing tracking option, including with respect to balances already notionally invested under the Plan.  The Corporation may, but need not, purchase securities or other investments with characteristics similar to the tracking options from time to time offered under the Plan, but any such securities or other investments shall remain part of the Corporation’s general assets.
3.5                                             Miscellaneous.  The Plan Administrator shall maintain such records and prepare such reports as it considers to be necessary or appropriate to carry out the purposes of the Plan.  In addition to the adjustments to Accounts referred to in Section 3.4 above, the Plan Administrator shall increase each Account to reflect additional deferrals and shall decrease the Account to reflect distributions.
ARTICLE IV
VESTING
4.1                                             Vesting of Accounts.  All Accounts are fully vested at all times.  However, the fact that an Account is fully vested shall not give a Participant or Beneficiary or any other person any right to receive the value of such Account except in accordance with the terms of the Plan.
ARTICLE V
PLAN DISTRIBUTIONS
5.1                                             Time of Payment; In General.  Each Participant shall elect, in connection with each Deferred Compensation Agreement entered into, for the portion of his or her Accounts under the Plan attributable to the Compensation so deferred is to be paid, or commence to be paid, either:
(a)                                            at separation from service as a Director whenever occurring, or
(b)                                             at a specific future date not earlier than the date five years after the effective date of such Deferred Compensation Agreement.
In the absence of an affirmative election, the Participant shall be deemed to have elected payment upon separation from service as a Director.
5.2                                             Payment Rules.
(a)                                              Time of Payment.  The Corporation shall pay or commence to pay the applicable portion of a Participant’s Accounts under the Plan on or as soon as practicable following the date or event entitling the Participant or his or her Beneficiaries to a distribution.  A payment to be made on a particular date shall be made in all events not later than the later of

 

 
the 15th day of the third calendar month following such date or the last day of the Plan Year that includes such date.
(b)                                             Death.  If a Participant should die before the specified distribution date, his or her Accounts shall be paid in a single payment to his or her Beneficiaries as soon as practicable following the Participant’s death.
(c)                                              Disability.  If a Participant becomes Disabled before the specified distribution date, his or her Accounts shall be paid in a single payment to the Participant as soon as practicable following the event of Disability.
5.3                                              Amount and Form of Payment.
(a)                                             Amount of Payment.  The amount payable to any Participant or Beneficiary shall be all or a portion of the balance of the Participant’s Accounts to the extent subject to the applicable election, adjusted as described below in the case of installment payments.
(b)                                             Form of payment.  Payment of all or a portion a Participant’s Accounts shall be made in a single payment or in annual installments over a period of two to 10 years as elected by means of the respective Deferred Compensation Agreement.  Where payment is to be made in installments, the amount of each installment shall be determined by dividing the total amount standing to the Participant’s credit under each Account that is subject to the election immediately prior to the installment by the number of installments remaining to be paid.  In the absence of an affirmative election, a Participant shall be deemed to have elected to receive a single payment.
(c)                                              Medium of payment.  Deferrals of Compensation otherwise payable in cash, and related notional earnings, shall be paid in cash.  Deferrals of Compensation otherwise payable in shares of Stock, together with notionally reinvested dividends, shall be paid by delivery of shares of Stock.
5.4                                              Changes to Distribution Elections.  A Participant may not change the form or payment commencement date for payment of his or her Accounts except in accordance with the following rules:
(a)                                             Change in commencement date.  At any time prior to a date that is at least 12 months preceding the Plan Year in which an Account or portion thereof would otherwise have been paid (if payable in a single payment rather than in installments) or in which payment would have commenced (if payable in installments), a Participant may elect to defer the payment or payment commencement date to a specified date

 

 
at least five years following the date on which the amount would otherwise be paid or commence to be paid.
(b)                                            Change in form of payment.  A Participant who has elected (or is deemed to have elected) to receive his or her benefit in a single payment may instead elect installments, and a Participant who has elected installment payments may instead elect a single payment, provided in each case that the change is elected in accordance with the requirements of subsection (a) above.
(c)                                             Effectiveness of change.  No change to an election as to the time or form of payment will take effect until at least 12 months after the date on which the election is made.
ARTICLE VI
ADMINISTRATION OF THE PLAN
6.1                                              Plan Administrator.  Except as the Board may otherwise determine, the Plan Administrator shall be the Executive Vice President-Global Human Resources as from time to time in office, or his or her delegate.  The Plan Administrator shall have complete discretionary authority to interpret the Plan and to decide all matters under the Plan.  Such interpretations and decisions shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously.  No individual acting as Plan Administrator may determine his or her own rights or entitlements under the Plan, if any.
6.2                                              Outside Services.  The Plan Administrator may engage counsel and such clerical, financial, investment, accounting, and other specialized services as the Plan Administrator may deem necessary or appropriate for the administration of the Plan.  The Plan Administrator shall be entitled to rely upon any opinions, reports, or other advice furnished by counsel or other specialists engaged for that purpose and, in so relying, shall be fully protected in any action, determination, or omission made in good faith.
6.3                                              Indemnification.  To the extent permitted by law and not prohibited by its charter or by-laws, the Corporation will indemnify and hold harmless every person who serves or who has served (directly or by delegation) as Plan Administrator and his or her estate if he or she is deceased from and against all claims, loss, damages, liability and reasonable costs and expenses incurred in carrying out his or her responsibilities as Plan Administrator, unless due to the gross negligence, bad faith or willful misconduct of such individual; provided, that counsel fees and amounts paid in settlement must be approved by the Corporation, and provided further that this Section 6.3 will not apply to any claims, loss, damages, liability or costs and expenses which are covered by a

 

 
liability insurance policy maintained by the Corporation or by the individual.  The provisions of the preceding sentence shall not apply to any corporate trustee, insurance company, investment manager or outside service provider (or to any employee of any of the foregoing) except as the Corporation specifies in writing.
ARTICLE VII
AMENDMENT AND TERMINATION
7.1                                             Amendment; Termination.  By action of the Board, the Corporation reserves the absolute right at any time and from time to time to amend any or all provisions of the Plan or to terminate the Plan.
7.2                                             Effect of Amendment or Termination.  No action under Section 7.1 shall operate to reduce the balance of a Participant’s Accounts other than through a distribution to the Participant or his or her Beneficiaries.  No Plan amendment or instrument of termination will accelerate or defer distributions under the Plan or otherwise alter the availability of elections or other rights under the Plan except as permitted by Code section 409A and applicable guidance thereunder.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1                                             Source of Payments.  All amounts payable hereunder to Participants and their Beneficiaries shall be paid from the general assets of the Corporation.
8.2                                             No Warranties.  The Corporation does not warrant or represent in any way that the value of a Participant’s Accounts will increase or not decrease.  Each Participant and his or her Beneficiaries assume all risk in connection with any change in such value.
8.3                                             Inalienability of Benefits.  Except as required by law, no benefit under, or interest in, the Plan or any Account shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void.
8.4                                             Expenses.  The Corporation shall pay all costs and expenses incurred in operating and administering the Plan.
8.5                                             Headings.  The headings of the sections in the Plan are placed herein for convenience of reference, and, in the case of any conflict, the text of the Plan, rather than such heading, shall control.
8.6                                             Acceptance of Plan Terms.  By executing a Deferred Compensation Agreement, a Participant agrees, for himself or herself and on behalf of his or her

 

 
Beneficiaries, to abide by the terms of the Plan and the determinations of the Plan Administrator with respect thereto.
8.7                                             Section 409A.  The Plan and all related instruments shall be construed and administered consistent with the objective that all deferrals and payments under the Plan will comply with the requirements of Section 409A.  Notwithstanding the foregoing, deferrals of amounts earned and vested prior to January 1, 2005 (including any earnings thereon determined in accordance with Section 409A) shall be administered consistent with the objective that such deferrals will remain exempt from the requirements of Section 409A, except to the extent the Participant has elected for any such deferral to be subject to the terms of the Plan as set forth herein.
8.8                                             Construction.  The  Plan shall be construed, regulated, and administered in accordance with applicable federal laws and the laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.Exhibit 10.5

 

ARENA PHARMACEUTICALS, INC.

 

2001 ARENA EMPLOYEE STOCK
PURCHASE PLAN

 

The
following constitutes the provisions of the 2001 Arena Employee Stock Purchase
Plan, as amended.

 

1. Purpose.
The purpose of the Plan is to provide employees of Arena Pharmaceuticals, Inc.
(the “Company”) and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an “Employee Stock Purchase
Plan” under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section of
the Code.

 

2.
Definitions.

 

(a)                                  “Board”
shall mean the Board of Directors of the Company.

 

(b)                                 “Code”
shall mean the Internal Revenue Code of 1986, as amended. References to
specific sections of the Code shall be taken to be references to corresponding
sections of any successor statute.

 

(c)                                  “Common
Stock” shall mean the common stock of the Company.

 

(d)                                 “Company”
shall mean Arena Pharmaceuticals, Inc., or any successor by merger or
otherwise, and any Designated Subsidiary of the Company.

 

(e)                                  “Compensation”
shall mean all base gross earnings, commissions, overtime, shift premium,
incentive compensation, incentive payments, and bonuses before giving effect to
any compensation reductions made in connection with plans

 

1

 

described in section 401(k)
or 125 of the Code, but exclusive of payments for any other compensation.

 

(f)                                    “Designated
Subsidiary” shall mean any Subsidiary that has been designated by the Board
from time to time in its sole discretion as eligible to participate in the Plan.
For purposes of the Plan, BRL Screening, Inc. shall be deemed to have been
designated by the Board as a Designated Subsidiary.

 

(g)                                 “Employee”
shall mean any individual who is an Employee of the Company for tax purposes
whose customary employment with the Company is at least twenty (20) hours per
week. For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual’s right to reemployment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.

 

(h)                                 “Enrollment
Date” shall mean the first Trading Day of each Offering Period.

 

(i)                                     “Exercise
Date” shall mean the last Trading Day of each Purchase Period.

 

(j)                                     “Fair
Market Value” shall mean, as of any date, the value of Common Stock determined
as follows:

 

(1)                                  If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or The
Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
on the date of such determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;

 

(2)                                  If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean of the
closing bid and asked prices for the Common Stock on the date of such
determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable; or

 

(3)                                  In
the absence of an established market for the Common Stock, the Fair Market
Value thereof shall be determined in good faith by the Board.

 

(k)                                  “Offering
Periods” shall mean the periods of approximately twenty-four (24) months during
which an option granted pursuant to the Plan may be exercised, commencing
on the first Trading Day on or after January 1, April 1, July 1,
and October 1 of each year and terminating on the last Trading Day in the
periods ending twenty-four months later. The first Offering Period shall be the
period commencing July 1, 2001 and

 

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terminating on the last
Trading Day on or before June 30, 2003. The duration and timing of
Offering Periods may be changed pursuant to Section 4 of this Plan.

 

(l)                                     “Plan”
shall mean this 2001 Arena Employee Stock Purchase Plan, as amended.

 

(m)                               “Purchase
Period” shall mean the approximately three (3) month period commencing on
the next Trading Day following the preceding Exercise Date and ending with the
next Exercise Date, except that the first Purchase Period of any Offering
Period shall commence on the Enrollment Date and end with the next Exercise
Date.

 

(n)                                 “Purchase
Price” shall mean 85% of the Fair Market Value of a share of Common Stock on
the Enrollment Date or on the Exercise Date, whichever is lower; provided
however, that the Purchase Price may be adjusted by the Board pursuant to Section 20.

 

(o)                                 “Reserves”
shall mean the number of shares of Common Stock covered by each option under
the Plan that have not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but not yet placed
under option.

 

(p)                                 “Subsidiary”
shall mean a corporation, domestic or foreign, of which not less than 50% of
the voting shares are held by the Company or a Subsidiary, whether or not such
corporation now exists or is hereafter organized or acquired by the Company or
a Subsidiary.

 

(q)                                 “Trading
Day” shall mean a day on which national stock exchanges and the Nasdaq System
are open for trading.

 

3.
Eligibility.

 

(a)                                  Any
Employee who shall be employed by the Company on a given Enrollment Date shall
be eligible to participate in the Plan.

 

(b)                                 Any
provisions of the Plan to the contrary notwithstanding, no Employee shall be
granted an option under the Plan (i) to the extent that, immediately after
the grant, such Employee (or any other person whose stock would be attributed
to such Employee pursuant to Section 424(d) of the Code) would own
capital stock of the Company and/or hold outstanding options to purchase such
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of the capital stock of the Company or of any parent or
subsidiary corporation, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and any
parent or subsidiary corporation accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

 

3

 

4.
Offering Periods.

 

(a)                                  Plan Implementation. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after January 1, April 1, July 1, and October 1
of each year, or on such other date as the Board (or its committee appointed
pursuant to Section 14) shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof. The first Offering Period
shall begin on July 1, 2001 and, except as may be otherwise provided
for in Section 4(c), shall end on the last Trading Day on or before June 30,
2003. The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced prior to the scheduled
beginning of the first Offering Period to be affected thereafter.

 

(b)                                 Offering Period Duration. Each Offering
Period shall be for a period of approximately twenty-four (24) months during which
an option granted pursuant to the Plan may be exercised.

 

(c)                                  Automatic Transfer to Low
Price Offering Period. To the
extent permitted by any applicable laws, regulations, stock exchange rules, or
Nasdaq Stock Market rules, if the Fair Market Value of the Common Stock on any
Exercise Date in an Offering Period is lower than the Fair Market Value of the
Common Stock on the Enrollment Date of such Offering Period, then all
participants in such Offering Period shall be automatically withdrawn from such
Offering Period immediately after the exercise of their option on such Exercise
Date and automatically re-enrolled in the immediately following Offering Period
as of the first day thereof.

 

(d)                                 Changes by Board. The Board shall have the
power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

 

5. Participation.

 

(a)                                  An
eligible Employee may become a participant in the Plan by completing a
subscription agreement authorizing payroll deductions in the form of Exhibit A attached to this Plan and filing it with the
Company’s payroll office prior to the applicable Enrollment Date.

 

(b)                                 Payroll
deductions for a participant shall commence on the first payroll following the
Enrollment Date and shall end on the last payroll in the Offering Period to
which such authorization is applicable, unless sooner terminated by the
participant as provided in Section 10 hereof.

 

4

 

6.
Payroll Deductions.

 

(a)                                  At
the time a participant files his or her subscription agreement, he or she shall
elect to have payroll deductions made on each pay day during the Offering
Period in an amount not exceeding fifteen percent (15%) of the Compensation
which he or she receives on each pay day during the Offering Period.

 

(b)                                 All
payroll deductions made for a participant shall be credited to his or her
account under the Plan and shall be withheld in whole percentages only. A
participant may not make any additional payments into such account.

 

(c)                                  A
participant may discontinue his or her participation in the Plan as
provided in Section 10 hereof, or may increase or decrease the rate
of his or her payroll deductions during the Offering Period by completing or
filing with the Company’s payroll office a new subscription agreement
authorizing a change in payroll deduction rate. The Board may, in its discretion,
limit the number of participation rate changes during any Offering Period. Any
such reduction or increase would be effective beginning with the first Purchase
Period that begins no earlier than 5 business days after the Accounting Group’s
receipt of a new subscription agreement from the participant, unless the
request is processed more quickly. A participant’s subscription agreement shall
remain in effect for successive Offering Periods unless terminated as provided
in Section 10 hereof.

 

(d)                                 Notwithstanding
the foregoing, to the extent necessary to comply with Section 423(b)(8) of
the Code and Section 3(b) hereof, a participant’s payroll deductions may be
decreased to zero percent (0%) at any time during a Purchase Period. Payroll
deductions shall recommence at the rate provided in such participant’s
subscription agreement at the beginning of the first Purchase Period that is
scheduled to end in the following calendar year, unless terminated by the
participant as provided in Section 10 hereof.

 

(e)                                  At
the time the option is exercised, in whole or in part, or at the time some or
all of the Company’s Common Stock issued under the Plan is disposed of, the
participant must make adequate provision for the Company’s federal, state, or
other tax withholding obligations, if any, which arise upon the exercise of the
option or the disposition of the Common Stock. At any time, the Company may,
but shall not be obligated to, withhold from the participant’s compensation the
amount necessary for the Company to meet applicable withholding obligations,
including any withholding required to make available to the Company any tax
deductions or benefits attributable to sale or early disposition of Common
Stock by the Employee.

 

7. Grant
of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company’s Common
Stock determined by dividing

 

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such Employee’s payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant’s account as of the Exercise Date by the applicable Purchase Price;
provided that in no event shall an Employee be permitted to purchase during
each Purchase Period more than Six Hundred Twenty Five (625) shares of the
Company’s Common Stock (subject to any adjustment pursuant to Section 19),
and provided further that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. The Board may, for future Offering
Periods, increase or decrease, in its absolute discretion, the maximum number
of shares of the Company’s Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the
last day of the Offering Period.

 

8.
Exercise of Option.

 

(a)                                  Unless
a participant withdraws from the Plan as provided in Section 10 hereof,
his or her option for the purchase of shares shall be exercised automatically
on the Exercise Date, and the maximum number of full shares subject to the
option shall be purchased for such participant at the applicable Purchase Price
with the accumulated payroll deductions in his or her account. No fractional
shares shall be purchased; any payroll deductions accumulated in a participant’s
account which are not sufficient to purchase a full share shall be retained in
the participant’s account for the subsequent Purchase Period or Offering
Period, subject to earlier withdrawal by the participant as provided in Section 10
hereof. Any other monies left over in a participant’s account after the
Exercise Date shall be returned to the participant. During a participant’s
lifetime, a participant’s option to purchase shares hereunder is exercisable
only by him or her.

 

(b)                                 If
the Board determines that, on a given Exercise Date, the number of shares with
respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number
of shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Exercise Date, and continue all Offering Periods then in effect, or (y)
provide that the Company shall make a pro rata allocation of the shares
available for purchase on such Enrollment Date or Exercise Date, as applicable,
in as uniform a manner as shall be practicable and as it shall determine
in its sole discretion to be equitable among all participants exercising
options to purchase Common Stock on such Exercise Date, and terminate any or
all Offering Periods then in effect pursuant to Section 20 hereof. The
Company may make pro rata allocations of the shares available on the
Enrollment Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional shares for issuance
under the Plan by the Company’s stockholders subsequent to such Enrollment
Date.

 

6

 

9.
Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.

 

10.
Withdrawal.

 

(a)                                  A
participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by giving written notice to the Company’s payroll
office in the form of Exhibit B
attached to this Plan. All of the participant’s payroll deductions credited to
his or her account shall be paid to such participant promptly after receipt of
notice of withdrawal and such participant’s option for the Offering Period
shall be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company’s payroll office a new subscription agreement.

 

(b)                                 A
participant’s withdrawal from an Offering Period shall not have any effect upon
his or her eligibility to participate in any similar plan that may hereafter
be adopted by the Company or in succeeding Offering Periods that commence after
the termination of the Offering Period from which the participant withdraws.

 

11.
Termination of Employment.

 

Upon a
participant’s ceasing to be an Employee, for any reason, he or she shall be
deemed to have elected to withdraw from the Plan and the payroll deductions
credited to such participant’s account during the Offering Period but not yet
used to exercise the option shall be returned to such participant or, in the
case of his or her death, to the person or persons entitled thereto under Section 15
hereof, and such participant’s option shall be automatically terminated.

 

12.
Interest.      No
interest shall accrue on the payroll deductions of a participant in the Plan.

 

13. Stock.

 

(a)                                  Subject
to adjustment upon changes in capitalization of the Company as provided in Section 19
hereof, the maximum number of shares of the Company’s Common Stock which shall
be made available for sale under the Plan shall be One Million Five Hundred
Thousand (1,500,000) shares.

 

(b)                                 The
participant shall have no interest or voting rights in shares covered by his or
her option until such option has been exercised.

 

7

 

(c)                                  Shares
to be delivered to a participant under the Plan shall be registered in the name
of the participant or in the name of the participant and his or her spouse.

 

14.
Administration. The Board or a committee of members of the
Board appointed by the Board shall administer the Plan. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.

 

15.
Designation of Beneficiary.

 

(a)                                  A
participant may file with the Company’s payroll office a written
designation of a beneficiary who is to receive any shares and cash from the
participant’s account under the Plan in the event of such participant’s death subsequent to an Exercise Date on which the
option is exercised but prior to delivery to such participant of such shares
and cash. In addition, a participant may file with the Company’s
payroll office a written designation of a beneficiary who is to receive any
cash from the participant’s account under the Plan in the event of such
participant’s death prior to the exercise of the option. If a participant is
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.

 

(b)                                 Such
designation of beneficiary may be changed by the participant at any time
by written notice. In the event of the death of a participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such participant’s death, the Company shall deliver such shares and/or
cash to the executor or administrator of the estate of the participant, or if
no such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

 

16.
Transferability. Neither payroll deductions credited to a
participant’s account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged
or otherwise disposed of in any way (other than by will, the laws of descent
and distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election
to withdraw funds from an Offering Period in accordance with Section 10
hereof.

 

17. Use
of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.

 

18.
Reports.      Individual
accounts shall be maintained for each participant in the Plan. Statements of
account shall be given to participating Employees at least annually,

 

8

 

which statements shall
set forth the amounts of payroll deductions, the Purchase Price, the number of
shares purchased and the remaining cash balance, if any.

 

19.
Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or
Asset Sale.

 

(a)                                  Changes in Capitalization.  Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7),
as well as the price per share and the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been “effected
without receipt of consideration”. Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issuance by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option.

 

(b)                                 Dissolution or Liquidation. In the event of a proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the “New Exercise Date”),
and shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company’s proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the participant’s
option has been changed to the New Exercise Date and that the participant’s
option shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as provided
in Section 10 hereof.

 

(c)                                  Merger or Asset Sale. In the event of a proposed sale of all
or substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or
an equivalent option substituted by the successor corporation or a parent or
subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase
Periods then in progress shall be shortened by setting a new Exercise Date (the
“New Exercise Date”) and any Offering Periods then in progress shall end on the
New Exercise Date. The New Exercise Date shall be before the date of the
Company’s proposed sale or merger. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise Date,
that the Exercise Date for the participant’s option has been changed to the New
Exercise Date and that the

 

9

 

participant’s option
shall be exercised automatically on the New Exercise Date, unless prior to such
date the participant has withdrawn from the Offering Period as provided in Section 10
hereof.

 

20.
Amendment or Termination.

 

(a)                                  The
Board of Directors of the Company may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its stockholders.
Except as provided in Section 19 and this Section 20 hereof, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law, regulation or Nasdaq stock market rule or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.

 

(b)                                 Without
stockholder consent and without regard to whether any participant rights may be
considered to have been “adversely affected,” the Board (or its committee
appointed pursuant to Section 14) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company’s processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with amounts
withheld from the participant’s Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its
sole discretion advisable which are consistent with the Plan.

 

(c)                                  In
the event the Board determines that the ongoing operation of the Plan may result
in unfavorable financial accounting consequences, the Board may, in its
discretion and, to the extent necessary or desirable, modify or amend the Plan
to reduce or eliminate such accounting consequences including, but not limited
to:

 

(1)                                  altering
the Purchase Price for any Offering Period including an Offering Period
underway at the time of the change in Purchase Price;

 

(2)                                  shortening
any Offering Period so that the Offering Period ends on a new Exercise Date,
including an Offering Period underway at the time of the Board action; and

 

(3)                                  allocating
shares.

 

10

 

Such modifications or
amendments shall not require stockholder approval or the consent of any Plan
participants.

 

21.
Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have
been duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.

 

22.
Conditions Upon Issuance of Shares. Shares shall not be
issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and
the requirements of the Nasdaq Stock Market or any stock exchange upon which
the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a condition
to the exercise of an option, the Company may require the person
exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

 

23. Term
of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect until March 14,
2011, unless sooner terminated under Section 20 hereof.

 

24.
Miscellaneous.

 

(a)                                  Administrative Costs. The Company shall pay the administrative
expenses associated with the operation of the Plan (other than brokerage
commissions resulting from sales of Common Stock directed by Employees).

 

(b)                                 No Employment Rights. Participation in the Plan shall not
give an Employee any right to continue in the employment of the Company, and
shall not affect the right of the Company to terminate the Employee’s
employment at any time, with or without cause.

 

(c)                                  Repurchase
of Stock. The Company shall not be required to purchase or repurchase from
any Employee any of the shares of Common Stock that the Employee acquires under
the Plan.

 

(d)                                 Internal
Revenue Code and ERISA Considerations. The Plan is intended to constitute
an “employee stock purchase plan” within the meaning of section 423 of the
Internal Revenue Code of 1986, as amended, and the regulations thereunder. The
provisions of the Plan, accordingly, shall be construed so as to comply with
the

 

11

 

requirements of that section of
the Code or any successor provision, and the regulations thereunder. The Plan
is not intended and shall not be construed as constituting an “employee benefit
plan,” within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended.

 

(e)                                  Headings,
Captions, Gender. The headings and captions herein are for convenience of
reference only and shall not be considered as part of the text. The
masculine shall include the feminine, and vice versa.

 

(f)                                    Severability of Provisions, Prevailing Law. The provisions
of the Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent jurisdiction
or by reason of a change in an applicable statute, the Plan shall continue to
exist as though such provision had never been included therein (or, in the case
of a change in an applicable statute, had been deleted as of the date of such
change). The Plan shall be governed by the laws of the State of California to
the extent such laws are not in conflict with, or superseded by, federal law.

 

[End of Plan]

 

12

 

ARENA PHARMACEUTICALS, INC.

 

EXHIBIT A

 

2001 ARENA EMPLOYEE STOCK PURCHASE PLAN

 

*SUBSCRIPTION AGREEMENT*

 

	
  o
  Original Application

  	
  Enrollment Date:
  

  	
   

  	
   

  
	
  o
  Change in Payroll Deduction Rate

  	
   

  
	
  o
  Change of Beneficiary(ies)

  	
   

  

 

1.                                                                 
hereby elects to participate in the 2001 Arena Employee Stock Purchase Plan
(the “Employee Stock Purchase Plan”) and subscribes to purchase shares of the
Company’s Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.

 

2.                                       I
hereby authorize payroll deductions from each paycheck in the amount of     %
of my Compensation on each payday (from 1 to 15%) during the Offering Period in
accordance with the Employee Stock Purchase Plan. (Please
note that no fractional percentages are permitted.)

 

3.                                       I
understand that said payroll deductions shall be accumulated for the purchase
of shares of Common Stock at the applicable Purchase Price determined in
accordance with the Employee Stock Purchase Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions will be
used to automatically exercise my option.

 

4.                                       I
have received a copy of the complete Employee Stock Purchase Plan. I understand
that my participation in the Employee Stock Purchase Plan is in all respects
subject to the terms of the Plan. I understand that my ability to exercise the
option under this Subscription Agreement is subject to stockholder approval of
the Employee Stock Purchase Plan.

 

13

 

5.                                       Shares
purchased for me under the Employee Stock Purchase Plan should be issued in the
name(s) of (Employee or Employee and Spouse only):                              ;                                                                        .

 

6.                                       I
understand that if I dispose of any shares received by me pursuant to the Plan
within 2 years after the Enrollment Date (the first day of the Offering Period
during which I purchased such shares) or one year after the Exercise Date, I
will be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess of the
fair market value of the shares at the time such shares were purchased by me
over the price which I paid for the shares. I hereby agree to notify the
Company in writing immediately or within 10 days after the date of any
disposition of my shares and I will make adequate provision for Federal, state
or other tax withholding obligations, if any, which arise upon the disposition
of the Common Stock. The Company may, but will not be obligated to, withhold
from my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I will
be treated for federal income tax purposes as having received income only at
the time of such disposition, and that such income will be taxed as ordinary
income only to the extent of an amount equal to the lesser of (1) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price which I paid for the shares, or (2) 15% of the
fair market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be taxed as
capital gain.

 

7.                                       I
hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility
to participate in the Employee Stock Purchase Plan.

 

[The rest of this page is intentionally
blank]

 

14

 

8.                                       In
the event of my death, I hereby designate the following as my beneficiary(ies)
to receive all payments and shares due me under the Employee Stock Purchase
Plan:

 

NAME:  (Please print)

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (First)

  	
  (Middle)

  	
  (Last)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Relationship to
  Employee

  
						

 

	
  ADDRESS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Employee’s
  Social

  	
   

  	
   

  
	
  Security Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Employee’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

I UNDERSTAND THAT THIS
SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING
PERIODS UNLESS TERMINATED BY ME.

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Signature of
  Employee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Spouse’s
  Signature (If beneficiary under item 8 is other
  than spouse)

  
				

 

15

 

ARENA PHARMACEUTICALS, INC.

 

EXHIBIT B

 

2001 ARENA EMPLOYEE STOCK PURCHASE PLAN

 

*NOTICE OF WITHDRAWAL*

 

The undersigned
participant in the Offering Period of the 2001 Arena Employee Stock Purchase
Plan that began on             , 20    
(the “Enrollment Date”) hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions credited
to his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.

 

	
   

  	
  Name and Address
  of Participant:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
				

 

16

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