Document:

Exhibit 10.2

SJW CORP.
EXECUTIVE OFFICER SHORT-TERM INCENTIVE PLAN
I.    PURPOSE OF THE PLAN
      The SJW Corp. Executive Officer Short-Term Incentive Plan
(the "Plan") is intended to promote the interests of SJW Corp.
(the "Company") and its shareholders by establishing a compensation
program to provide the Company's executive officers with the
opportunity to earn incentive awards that are tied to the achievement
of specific performance objectives and that should accordingly
qualify as performance-based compensation for purposes of Section 162(m)
of the Internal Revenue Code of 1986, as amended from time to time (the "Code").

II.    PLAN STRUCTURE
      A.    Bonuses shall be earned under the Plan on the basis of
the
Company's performance measured in terms of one or more pre-established
performance
objectives to be attained over a designated performance period (the
"Performance
Period").  Each applicable Performance Period under the Plan shall be
established
by the Plan Administrator and may range in duration from a minimum
period of
twelve (12) months to a maximum period of thirty-six (36) months. The
initial
Performance Period shall be the twelve (12)-month period coincident with
the
Company's 2009 fiscal year beginning January 1, 2009 and ending December
31, 2009.
      B.    No bonus shall be earned with respect to a particular
performance goal unless that performance goal is attained at the minimum
threshold level. The Participant may earn a bonus at a dollar amount in
excess of the target bonus set for the Participant for a particular
Performance Period if the applicable performance goals for that Performance
Period are attained at an above-target level.
      C.    The Plan Administrator shall have the discretionary
authority to reduce the actual bonus amount payable to any Participant
below the amount that would otherwise be payable to that individual
based solely on the attained level of the performance goals for the applicable
Performance Period. In no event, however, may the Plan Administrator increase
the bonus amount payable to a Participant beyond the maximum bonus amount
set for the attained level of performance.
III.  PLAN ADMINISTRATION
      A.    The Plan shall be administered by a committee of two or more
non-employee members of the Company's Board of Directors, each of whom
shall qualify as an "outside director" under Code Section 162(m) and
Section 1.162-27(e) of the Treasury Regulations thereunder.  Such committee
in its capacity as administrator of the Plan (the "Plan Administrator")
shall have full power and authority (subject to the express provisions
of the Plan)  to:

                  a.    establish the duration of each Performance
Period;
                  b.    select the eligible individuals who are to
participate in the Plan for such Performance Period;
                  c.    determine the specific performance objectives
for each Performance Period at one or more designated levels of
attainment and set the bonus potential for each participant at each
corresponding level of attainment;
                  d.    certify the attained level of the applicable
performance goals for the Performance Period and determine, on the
basis of that certification, the actual bonus for each participant
in an amount not to exceed his or her maximum bonus potential for the
certified level of attainment; and
                  e.    exercise discretionary authority, when appropriate,
to reduce the actual bonus payable to any participant below his or her
bonus potential for the attained level of performance for the Performance
Period.
      B.    The Plan Administrator shall also have full power and
authority to interpret and construe the provisions of the Plan and adopt
rules and regulations for the administration of the Plan.
      C.    Decisions of the Plan Administrator shall be final and
binding upon all parties who may have an interest in the Plan or any bonus
amount payable under the Plan.
IV.   ELIGIBILITY AND PARTICIPATION
      A.    The individuals eligible to participate in the Plan shall
be limited to the executive officers of the Company subject to the short-
swing profit liability provisions of Section 16 of the Securities Exchange
Act of 1934, as amended.  The Plan Administrator shall have complete discretion
in selecting the eligible individuals who are to participate in the Plan for
one or more Performance Periods.
      B.    An individual selected for participation in the Plan for a
Performance Period shall cease to be a participant and shall not be entitled
to any bonus payment for that Performance Period if such individual ceases
Employee status for any reason prior to the date that Performance Period ends
(the "Completion Date"); provided, however, that the following participants
shall receive a portion of the actual bonus to which they would otherwise
have been entitled pursuant to Articles V and VI, on the basis of the
attained level of performance for that Performance Period, had they
continued in Employee status through the Completion Date:
      (i)   any participant who ceases Employee status prior to the
Completion Date by reason of death or Disability;
      (ii)  any participant whose Employee status terminates under
circumstances entitling that individual to a full or pro-rata bonus
pursuant to the express terms of any agreement or arrangement to which
that individual and the Company are parties; and
      (iii) any participant whose Employee status terminates under
special circumstances that warrant, in the Plan Administrator's sole
discretion, a pro-rated bonus award for that Performance Period.
      C.    In no event shall the bonus paid to any participant
pursuant to Paragraph IV.B exceed the dollar amount determined by dividing
(a) the actual bonus to which that participant would have become entitled
pursuant to Articles V and VI, on the basis of the attained level of
performance for the Performance Period, had he or she continued in Employee
status through the Completion Date by (b) a fraction the numerator of
which is the number of days such individual remained in active Employee
status during that Performance Period and the denominator of which is
the total number of days in such Performance Period; provided, however,
that a participant covered under subparagraph (ii) of Paragraph IV.B
may become entitled, pursuant to the terms of his or her agreement or
arrangement with the Company, to the full amount of the bonus earned
for the Performance Period on the basis of the attained level of performance.
      D.    For purposes of this Article IV, the following definitions
shall be in effect:
      (i)   A participant shall be deemed to continue in "Employee"
status for so long as that individual remains in the employ of the Company
or any parent or subsidiary of the Company.
      (ii)   A participant shall be deemed to have ceased Employee
status by reason of a "Disability" if such cessation of Employee status
occurs by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
      (iii)  Each corporation (other than the Company) in an unbroken
chain of corporations ending with the Company shall be considered to be
a "parent" of the Company, provided that each such corporation (other than
the Company) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other
      (iv)   Each corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company shall be considered to be a
"subsidiary" of the Company, provided that each such corporation (other than
the last corporation in the unbroken chain) owns, at the time of determination,
stock possessing more than fifty percent (50%) of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
      E.    A participant who is absent from active Employee status
for a portion of a Performance Period by reason of an authorized leave
of absence shall not be deemed to have ceased Employee status during the
period of that leave.  However, any bonus to which such participant may
otherwise become entitled under the Plan for that Performance Period based
on the attained level of performance for such Performance Period shall
be pro-rated based on the portion of that Performance Period during which
that individual is in active working status and not on such leave of absence,
unless the Plan Administrator otherwise deems it appropriate under the
circumstances to provide that individual with the full bonus that he or
she would have earned for that Performance Period, on the basis of the
attained level of performance, had there been no leave of absence.
V.    DETERMINATION OF PERFORMANCE GOALS AND POTENTIAL BONUS
AMOUNTS
      A.    Participants shall be eligible to earn a cash bonus
under the Plan for each Performance Period for which one or more performance
objectives established by the Plan Administrator for that Performance Period
are attained.  The Plan Administrator shall, within the first ninety (90)
days of each Performance Period, establish the specific performance objectives
for that Performance Period. In no event may a performance objective be
established at a time when there exists no substantial uncertainty as
to its attainment.
      B.    For each Performance Period, the performance objectives may
be based on one or more of the following criteria:  (i) pre-tax or after-tax
earnings, profit or net income, (ii) revenue or revenue growth, (iii) earnings
per share, (iv) return on assets, capital or shareholder equity, (v) total
shareholder return, (vi) gross or net profit margin, (vii) cash flow, (viii)
approved rate increases, (ix) earnings or operating income before interest,
taxes, depreciation, amortization and/or charges for stock-based compensation,
(x) increases in customer base, (xi) operating income, net operating income
or net operating income after recorded tax expense, (xii) operating profit,
net operating profit or net operating profit after recorded tax expense,
(xiii) operating margin, (xiv) cost reductions or other expense control
objectives, (xv) market price of the Company's common stock, whether
measured in absolute terms or in relationship to earnings or operating income,
(xvi) compliance with applicable environmental requirements or applicable
regulatory requirements, (xvii) budget objectives, (xviii) working capital,
(xix) mergers, acquisitions or divestitures, (xx) attainment of water
industry objectives measured in terms of water quality, service, reliability
and efficiency or (xxi) measures of customer satisfaction.  In addition,
such performance criteria may be based upon the attainment of specified
levels of the Company's performance under one or more of the measures
described above relative to the performance of other entities and may
also be based on the performance of any of the Company's business units
or divisions or any parent or subsidiary.  Each applicable performance
criteria may be structured at the time of establishment to provide for
appropriate adjustment for one or more of the following items:  (i) asset
impairments or write-downs, (ii) litigation judgments or claim settlements,
(iii) the effect of changes in tax law, accounting principles or other
laws, regulations or provisions affecting reported results, (iv) accruals
for reorganization and restructuring programs, (v) any extraordinary
nonrecurring items as described in Accounting Principles Board Opinion
No. 30 and/or in management's discussion and analysis of financial condition
and results of operations appearing in the Company's annual report to
shareholders for the applicable year, (vi) the operations of any business
acquired by the Company or any parent or subsidiary or of any joint venture
in which the Company or any parent or subsidiary participates, (vii) the
divestiture of one or more business operations or the assets thereof or
(viii) the costs incurred in connection with such acquisitions or
divestitures.

      C.    For each performance objective, the Plan Administrator may
establish up to three (3) designated levels of attainment: threshold, target
and above-target levels of attainment.  At the time the performance objectives
for a particular Performance Period are established, the Plan Administrator
shall also set the bonus potential for each participant at each of the
designated performance levels.  Alternatively, the Plan Administrator may
establish a linear formula for determining the bonus potential at various
points of performance goal attainment. Under no circumstance, however,
shall the aggregate bonus potential for any participant for any Performance
Period exceed the applicable Maximum Bonus Amount set forth in Paragraph VI.B.
      D.    The actual bonuses to be paid for each Performance Period
shall be determined by the Plan Administrator on the basis of the level at
which each of the performance objectives applicable to that Performance
Period is actually attained. Accordingly, each performance objective shall
be measured separately in terms of actual level of attainment and shall be
weighted, equally or in such other proportion as the Plan Administrator
shall determine at the time such performance objectives are established,
in determining the actual bonus payable to each participant for the
Performance Period.  For example, if four (4) performance objectives are
established for the Performance Period and weighted equally, then each of
those objectives attained at target level will contribute an amount
equal to twenty-five percent (25%) of the total bonus payable to the
participant at target level performance, and each objective attained at
above-target level will contribute an amount equal to twenty-five percent
(25%) of the total bonus payable to the participant at above-target level
performance.  However, no bonus amount shall be payable with respect any
performance objective, unless the specified threshold level for that
objective is attained.
      E.    The Plan Administrator shall certify in writing the
actual level of attainment of each performance objective for the
Performance Period before any bonuses are paid for that Performance
Period.
      F.    The Plan Administrator shall not waive any performance
objective applicable to a participant's bonus potential for a particular
Performance Period, except under such circumstances as the Plan
Administrator deems appropriate in the event a Change in Control should
occur prior to the Completion Date of that Performance Period.  For purposes
of the Plan, a Change in Control shall have the same definition as set forth
in the Company's Amended and Restated Long-Term Incentive Plan.
VI.	INDIVIDUAL BONUS AWARDS
      A.    The actual bonus to be paid to each participant for a
particular Performance Period will be determined on the basis of the
bonus potential established for that individual at the various levels of
attainment designated for each of the performance goals applicable to that
Performance Period.  Should the actual level of attainment of any such
performance goal be between two of the designated levels, then the
participant's bonus potential will be interpolated on a straight-line basis.
In no event shall any participant be awarded a total bonus in excess of the
amount determined on the basis of the bonus potential (as so interpolated)
established for the particular level at which each of the applicable
performance goals for the Performance Period is attained. However, the Plan
Administrator shall have the discretion to reduce or eliminate the bonus that
would otherwise be payable with respect to one or more performance goals
on the basis of the certified level of attained performance of those goals.
      B.    The maximum bonus payment under the Plan (the "Maximum Bonus
Amount") that any one participant may receive shall be limited to One Million
Dollars ($1,000,000) per each twelve (12)-month period included within the
applicable Performance Period, up to a maximum award of Three Million Dollars
($3,000,000) for any Performance Period with a maximum duration of thirty-six
(36) months.
      C.    Except as otherwise provided in Paragraphs IV.B and C, no
participant shall accrue any right to receive a bonus award under the Plan
unless that participant remains in Employee status through the Completion
Date of the Performance Period.  Accordingly, no bonus payment shall be made
to any participant who ceases Employee status prior to the Completion Date,
provided, however, that the provisions of Paragraphs IV.B and C shall govern
the bonus entitlement of participants whose Employee status terminates under
the various circumstances set forth in those provisions.
      D.    The actual bonus which a participant earns for a particular
Performance Period shall be paid pursuant to the following procedures:
           (i)    As soon as administratively practicable following
the Company's release of the financial results for the fiscal period or
periods coincident with the Performance Period, the Plan Administrator
shall meet to certify the actual levels at which the performance goals for
such period or periods have been attained and determine, on the basis of such
certified levels, the actual bonus amount to be paid to each participant for
that Performance Period.
            (ii)  Within fifteen (15) business days following the
completion of such certification and determination process, the actual bonus
amount determined for each participant shall be paid, subject to the Company's
collection of all applicable federal, state and local income and employment
withholding taxes.
            (iii)  The scheduled payment date for the bonuses earned
for each Performance Period shall be the first business day of March of the
calendar year (the "Post-Performance Year") immediately following the calendar
year in which the Completion Date for that Performance Period occurs. In no
event will the bonuses be paid earlier than the first day of the Post-
Performance Year or later than the last day of the Post-Performance Year,
unless an earlier payment date for those bonuses would not otherwise result
in adverse tax consequences under Section 409A of the Code.  A participant
may, however, defer the receipt of his or her bonus payment until separation
from service or other designated date through a timely election made under
the Company's Special Deferral Election Plan
      E.    All bonus payments shall be made in cash.

VII.	GENERAL PROVISIONS
      A.    The Plan shall be subject to approval by the Company's
shareholders at the 2008 Annual Meeting and shall become effective upon
such shareholder approval, with the initial Performance Period to commence
under the Plan on January 1, 2009 and end on December 31, 2009. Should such
shareholder approval not be obtained, then the Plan shall not be implemented,
and no bonus payments shall be made under the Plan.
      B.    The Plan and all rights hereunder shall be construed,
administered and governed in all respects in accordance with the laws of
the State of California without resort to its conflict-of-laws provisions.
If any provision of the Plan shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions of
the Plan shall continue in full force and effect.
      C.    The Plan Administrator may at any time amend, suspend
or terminate the Plan, provided such action does not adversely affect the
rights and interests of participants accrued to date under the Plan or
otherwise impair their ability to earn a bonus award based upon the
performance objectives established by the Plan Administrator for the
then-current Performance Period.
      D.    Any amendment or modification of the Plan shall be
subject to shareholder approval to the extent required under Code
Section 162(m) or other applicable law or regulation.
      E.    Neither the action of the Company in establishing
or maintaining the Plan, nor any action taken under the Plan by the
Plan Administrator, nor any provision of the Plan itself shall be
construed so as to grant any person the right to remain in Employee
status for any period of specific duration, and each participant
shall at all times remain an Employee at-will and may accordingly be
discharged at any time, with or without cause and with or without
advance notice of such discharge.
     F.    No participant shall have the right to transfer, alienate,
pledge or encumber his or her interest in the Plan, and such interest
shall not (to the maximum permitted by law) be subject to the claims
of the participant's creditors or to attachment, execution or other
process of law. However, should a participant die before payment is
made of the actual bonus to which he or she has become entitled under
the Plan, then that bonus shall be paid to the executor or other legal
representative of his or her estate.
      G.    The terms and conditions of the Plan, together with the
obligations and liabilities of the Company that accrue hereunder,
shall be binding upon any successor to the Company, whether by way
of merger, consolidation, reorganization or other change in ownership
or control of the Company.
      H.    No amounts accrued or earned under the Plan shall
actually be funded, set aside or to otherwise segregated prior to actual
payment.  The obligation to pay the bonuses that actually become due and
payable under the Plan shall at all times be an unfunded and unsecured
obligation of the Company.  Participants shall have the status of general
creditors and shall look solely and exclusively to the general assets
of the Company for payment.exhibit101.htm

    EXHIBIT
10.1

     

    NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT; OR (B) 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 LAWS.

    

    
      	 
      

    

    NEUROGEN
CORPORATION

    WARRANT
TO PURCHASE OF SHARES OF  COMMON STOCK

    

    WARRANT
NO.
[______]                                                                                                CUSIP
NO. 64124E
114

    

    Issuance
Date: April 11,
2008

    Expiration
Date: April 11,
2013

    

    THIS
CERTIFIES THAT, for value received, [__________], or its permitted
assigns (the “Holder”),
is entitled to subscribe for and purchase at the Exercise Price (defined below)
from Neurogen Corporation, a Delaware corporation (the “Company”), that number of
shares of the common stock of the Company, par value $0.025 per share (the
“Common Stock”), equal to 50% of the number of shares of Common Stock
into which the total number of shares of Series A Exchangeable Preferred Stock
(“Preferred
Stock”) then held by the original Holder
hereof is exchangeable, calculated as of
the earliest to occur of (i) the date
of the Stockholders Meeting at which the
Proposals are approved by the Company’s stockholders and (ii) on the earlier of (A) the date of the exercise of
this warrant (this “Warrant”) and (B) the one year anniversary of the Issuance
Date, in the event that the Stockholders
Meeting is held and the Proposals are not approved by the Company’s
stockholders. This warrant (this “Warrant”) is one of a series
of warrants of like tenor originally issued by the Company as of the Issuance
Date set forth above pursuant to that certain Securities Purchase Agreement by
and among the Company and the several purchasers named therein (including the
original Holder), dated as of April 7, 2008 (the “Securities Purchase
Agreement”).

    

    1. CERTAIN
DEFINITIONS. Capitalized but otherwise undefined terms used herein shall
have the meanings set forth in the Securities Purchase Agreement. In addition,
as used herein, the following terms shall have the following
meanings:

     

    (a) “Exercise Date” means the date
on which this Warrant is exercised by delivery to the Company of the items
described in Section 2.1(a) and (b) below.

     

    (b) “Exercise Period” means the
period commencing on the earlier of (i) the date the Stockholders Meeting is
held and the vote of the stockholders on the Proposals has occurred and (ii) the
one year anniversary of the Issuance Date and ending at 5:00 p.m., New York City
time on the Expiration Date set forth above.

     

    (c) “Exercise Price” means $2.30
per share, subject to adjustment pursuant to Section 4 below.

      
        
           

        

        
           

           

        

        
           

        

      

    (d) “Trading Day” means: (i) any
day on which the Common Stock is listed or quoted and traded on its primary
trading market; (ii) if the Common Stock is not then listed or quoted and traded
on any eligible market (meaning any of the NYSE, AMEX or NASDAQ), then a day on
which trading occurs on the OTC Bulletin Board (or any successor thereto); or
(iii) if trading does not occur on the OTC Bulletin Board (or any successor
thereto), any business day.

     

    (e) “Warrant Shares” means the
shares of Common Stock issuable upon exercise of this Warrant.

     

    2. EXERCISE OF
WARRANT.

     

    2.1 Subject
to the limitations in Section 2.3 below, this Warrant may be exercised in whole
or in part at any time during the Exercise Period, by delivery of the following
to the Company:

     

    (a)           A
duly completed and executed Exercise Notice in the form attached hereto;
and

     

    (b)           Subject
to the cashless exercise provisions set forth in Section 2.2 below, the
aggregate Exercise Price of the Warrant Shares with respect to which this
Warrant is being exercised, in lawful money of the United States, in cash,
certified check or bank draft payable to the order of the Company (or as
otherwise agreed to by the Company).

     

    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, if any. If requested by the Company, the Holder agrees to
provide this Warrant, or an affidavit of lost security, to the Company within a
reasonable period after the delivery of the Exercise Notice. In such event, and
upon any partial exercise of this Warrant, the Company, at its expense, will
forthwith and, in any event within three Trading Days thereafter, issue and
deliver to the Holder a new Warrant or Warrants of like tenor, registered in the
name of the Holder and exercisable, in the aggregate, for the balance of the
number of shares of Common Stock remaining available for purchase under this
Warrant.

     

    2.2 Cashless Exercise.
Notwithstanding the foregoing, the Holder may, in its sole discretion,
satisfy its obligation to pay the Exercise Price through a “cashless exercise”,
in which case the Company shall issue to the Holder the number of Warrant Shares
determined as follows:

     

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

     

    where:

     

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

     

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

     

    A = the Fair Market Value of one share
of the Company’s Common Stock as of the Exercise Date; and

    
       

      
         

         

      

      
         

      

    

    B = the Exercise Price then in effect
for the applicable Warrant Shares at the time of such exercise.

     

    For purposes of the above calculation,
the “Fair Market Value”
of one share of Common Stock shall mean: (i) the last reported sales price of
such security on the NASDAQ Global Market or other trading market where such
security is listed or traded as reported by Bloomberg Financial Markets (or a
comparable reporting service of national reputation selected by the Company and
reasonably acceptable to the Holder if Bloomberg Financial Markets is not then
reporting sales prices of such security) (collectively, “Bloomberg”) on the Trading Day
prior to the Exercise Date; or (ii) if the NASDAQ Global Market is not the
principal trading market for the shares of Common Stock, the last reported sales
price of such security reported by Bloomberg on the principal trading market for
the Common Stock on the Trading Day prior to the Exercise Date; or (iii) if
neither of the foregoing applies, the last sales price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or if no sales price is so reported for such security,
the last bid price of such security as reported by Bloomberg; or (iv) if Fair
Market Value cannot be calculated as of such date on any of the foregoing bases,
the Fair Market Value shall be as determined by the Board of Directors of the
Company in the exercise of its good faith judgment.

     

    2.3 EXERCISE LIMITATIONS.
Notwithstanding anything to the contrary contained herein, the number of Warrant
Shares that may be acquired by the Holder upon any exercise of this Warrant
shall be limited to the extent necessary to ensure that, following such
exercise, 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% 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). 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 Section 2.3 and determined that
issuance of the full number of Warrant Shares requested in such Exercise Notice
is permitted hereunder, and nothing in this Warrant shall obligate the Company
to determine the beneficial ownership of any Holder. This Section 2.3 shall not
restrict the number of shares of Common Stock that a Holder may receive or
beneficially own in order to determine the amount of securities or other
consideration that such Holder may receive in the event of a Fundamental
Transaction as contemplated in Section 4. By written notice to the Company, the
Holder may waive the provisions of this Section 2.3, but any such waiver will
not be effective until the 61st day after such notice is delivered to the
Company, nor will any such waiver affect any other Holder. This provision shall
not apply to Holders who, together with their affiliates, as of the Issuance
Date beneficially own (as determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) in excess of
5.00% of the total number of issued and outstanding shares of Common
Stock.

     

    2.4 Delivery
of Warrant Shares, etc.

     

    (a) Upon
exercise of this Warrant, the Company shall promptly (but in no event later than
three Trading Days after the Exercise Date) issue and deliver (or cause to be
issued and delivered) to the Holder a certificate or certificates for the
Warrant Shares issuable upon such exercise, subject to the electronic delivery
provisions set forth in the last sentence of this Section 2.4(a). Unless the
Warrant Shares are not freely transferable without volume or manner of
sale

      
        
           

        

        
           

           

        

        
           

        

      

    (b) restrictions
pursuant to Rule 144 under the Securities Act
under the Securities Act or if the Warrant
Shares may be sold pursuant to a Registration Statement filed under the
Securities Act, such certificate(s) will be free of
restrictive legends. The Holder, or any person permissibly designated by the
Holder to receive Warrant Shares, shall be deemed to have become the holder of
record of such Warrant Shares as of the Exercise Date. If the Warrant Shares may
be issued without restrictive legends, the Company shall use its commercially
reasonable best efforts to deliver, or cause to be delivered, Warrant Shares
hereunder electronically through the Depository Trust and Clearing Corporation
or another established clearing corporation performing similar functions, if
available.

     

    (c) If by the
close of the third Trading Day after delivery of a Exercise Notice, the Company
fails to either:

     

    (i) deliver
to the Holder a certificate or certificates representing the required number of
Warrant Shares, or

     

    (ii) to effect
electronic delivery of such Warrant Shares in the manner required pursuant to
Section 2.4(a),

     

    and if
(in either case) after such third Trading Day and prior to the receipt of such
Warrant Shares, 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 which the Holder anticipated receiving upon such
exercise (a “Buy-In”),
then the Company shall, within three Trading Days after the Holder’s request and
in the Holder’s sole discretion, either: (1) pay in cash to the Holder 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 Warrant
Shares) shall terminate; or (ii) promptly honor its obligation to deliver to the
Holder a certificate or certificates representing such Warrant Shares 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 Warrant Shares; times (B) the closing bid
price on the date of the event giving rise to the Company’s obligation to
deliver such certificate.

     

    (d) To the
extent permitted by law, 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 that 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 the Warrant as required pursuant to the
terms hereof.

     

    3. COVENANTS
OF THE COMPANY.

     

    3.1 Covenants as to Warrant
Shares. The Company covenants and agrees that all Warrant Shares that may
be issued upon the exercise of the rights represented by this Warrant

      
        
           

        

        
           

           

        

        
           

        

      

    3.2 will,
upon issuance, be validly issued and outstanding, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issuance thereof.
The Company further covenants and agrees that the Company will at all times
during the Exercise Period, have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. If at any time during the
Exercise Period the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit exercise of this Warrant, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.

     

    3.3 No Impairment. The Company
will not, by amendment of its Certificate of Incorporation 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 to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the exercise
rights of the Holder against impairment. The Company will not increase the par
value of the Common Stock in excess of the Exercise Price for the
Warrant.

     

    4. ADJUSTMENT OF EXERCISE PRICE AND
SHARES. The Exercise Price and number of Warrant Shares issuable upon
exercise of this Warrant are subject to adjustment from time to time beginning
on the day immediately following the date the Stockholders Meeting is held and
the Company’s stockholders vote on the Proposals as set forth in this Section
4.

     

    4.1 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, the
numerator or which is equal to the number of shares of Common Stock outstanding
immediately before such event, and the denominator of which is equal to 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.

     

    4.2 Pro Rata Distributions. If the
Company, at any time while this Warrant is outstanding, distributes to all
holders of Common Stock for no consideration: (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,
upon any exercise of this Warrant that occurs after the record date fixed for
determination of stockholders entitled to receive such distribution, the Holder
shall be entitled to receive, in addition to the Warrant Shares otherwise
issuable upon such exercise (if applicable), 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.

     

    4.3 Fundamental
Transactions.

      
        
           

        

        
           

           

        

        
           

        

      

    4.4 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, in which the
shareholders of the Company as of immediately prior to the transaction own less
than a majority of the outstanding stock of the surviving entity; (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 (each, 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 Company shall not effect any such Fundamental
Transaction unless prior to or simultaneously with the consummation thereof, any
successor to the Company, surviving entity or the corporation purchasing or
otherwise acquiring such assets or other appropriate corporation or entity shall
assume the obligation to deliver to the Holder, such Alternate Consideration as,
in accordance with the foregoing provisions, the Holder may be entitled to
purchase, and the other obligations under this Warrant. The provisions of this
paragraph 4.3 shall similarly apply to subsequent transactions analogous to a
Fundamental Transaction. 

     

    (a) Notwithstanding anything to the contrary, in the event
of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule
13e-3 transaction” as defined in Rule 13e-3 under the Securities Exchange Act of
1934, as amended, or (3) a Fundamental Transaction involving a person or entity
not traded on a national securities exchange, the Nasdaq Global Select Market,
the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any
successor entity shall pay at the Holder’s option, exercisable at any time
concurrently with or within 30 days after the consummation of the Fundamental
Transaction, and in lieu of any Alternate
Consideration, an amount of cash equal to
the value of this Warrant as determined in accordance with the Black Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg using (i) a
price per share of Common Stock equal to the fair market value of the Common
Stock for the Business Day immediately preceding the date of consummation of the
applicable Fundamental Transaction, (ii) a risk-free interest rate equal to the
30 day LIBOR rate on the day immediately prior to the public announcement of
such transaction, (iii) an expected volatility equal to 100% and (iv) a
remaining option time equal to the time between the date of the public
announcement of such transaction and the Expiration Date.  For the avoidance of doubt, in the event the
Holder exercises its right to receive the consideration set forth in this
Section 4.3(b), this Warrant shall terminate and be of no further force and
effect upon such Holder’s receipt of such consideration.

     

    4.5 Number of Warrant Shares.
Simultaneously with any adjustment to the Exercise Price pursuant to Section
4.1, 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 adjusted
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.

      
        
           

        

        
           

           

        

        
           

        

      

    4.6 Calculations. All calculations
under this Section 4 shall be made to the nearest 1/10th of one 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 disposition of any such shares shall be
considered an issue or sale of Common Stock.

     

    4.7 Notice of Adjustments. Upon
the occurrence of each adjustment pursuant to this Section 4, 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, the adjusted number or type of
Warrant Shares and the Distributed Property or Alternate Consideration 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.

     

    4.8 Notice of Corporate Events.
If, while this Warrant is outstanding, 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, except if such notice and the contents thereof shall be deemed to
constitute material non-public information, the Company shall deliver to the
Holder a notice describing the material terms and conditions of such transaction
at least 10 Trading 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 reasonable
steps to give Holder the practical opportunity to exercise this Warrant prior to
such time; 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.

     

    5. FRACTIONAL SHARES. No
fractional shares shall be issued upon the exercise of this Warrant as a
consequence of any adjustment pursuant hereto. All Warrant Shares (including
fractions) issuable upon exercise of this Warrant may be aggregated for purposes
of determining whether the exercise would result in the issuance of any
fractional share. If, after aggregation, the exercise would result in the
issuance of a fractional share, the Company shall, in lieu of issuance of any
fractional share, pay the Holder otherwise entitled to such fraction a sum in
cash equal to the product resulting from multiplying the then current Fair
Market Value of a Warrant Share by such fraction.

     

    6. NO STOCKHOLDER RIGHTS. This
Warrant in and of itself shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.

     

    7. REGISTRATION
AND TRANSFER.

     

    7.1 The
Company or its duly appointed agent (the “Warrant Agent”) shall register
this Warrant, upon records to be maintained by the Company or the Warrant Agent
for that purpose (the “Warrant
Register”), in the name of the record Holder of this Warrant (which shall
include the initial Holder and, as the case may be, any registered assignee to
which this Warrant is permissibly assigned hereunder).  The Company
may deem and treat the registered Holder of

      
        
           

        

        
           

           

        

        
           

        

      

    7.2 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.

     

    7.3 Subject
to the transfer restrictions set forth in Section 6.1 of the Securities Purchase
Agreement and compliance with all applicable securities laws, the Company or the
Warrant Agent shall register the transfer of all or any portion of this Warrant
in the Warrant Register, upon: (i) surrender of this Warrant, with the
Assignment Form attached hereto duly completed and signed; and (ii) if requested
by the Company: (x) delivery of an opinion of counsel reasonably satisfactory to
the Company to the effect that the transfer of such portion of this Warrant may
be made pursuant to an available exemption from the registration requirements of
the Securities Act and all applicable state securities or blue sky laws; and (y)
delivery of a written statement by the transferee certifying that such
transferee is an “accredited investor” as defined in Rule 501(a) under the
Securities Act, to the Company; provided that the
Company agrees that no such opinion of counsel shall be required in connection
with a transaction pursuant to Rule 144 of the Securities Act. 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.

     

    8.  LOST, STOLEN, MUTILATED OR
DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or
destroyed, the Company may, on such terms as to indemnity or otherwise as it may
reasonably impose (which shall, in the case of a mutilated Warrant, include the
surrender thereof), issue a new Warrant of like denomination and tenor as this
Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall
constitute an original contractual obligation of the Company, whether or not the
allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time
enforceable by anyone.

     

    9. NOTICES, ETC. All notices
required or permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed telex or facsimile if sent during normal business hours
of the recipient, if not, then on the next business day, (c) five days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (d) one day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All communications shall be sent to the Company at the address listed
on the signature page hereto and to Holder at the applicable address set forth
on the applicable signature page to the Securities Purchase Agreement or on the
Warrant Register, or at such other address as the Company or Holder may
designate by 10 days advance written notice to the other parties
hereto.

     

    10. ACCEPTANCE. Receipt of this
Warrant by the Holder shall constitute acceptance of and agreement to all of the
terms and conditions contained herein.

     

    11. SPECIFIC PERFORMANCE. The
Company hereby declares that it is impossible to measure, in money, the damages
that will accrue to the Holder by reason of the failure of the Company to
perform any of its obligations set forth in this Agreement.  The
Holder shall have the right to specific performance of such obligations, and if
the Holder shall institute any action or proceeding to enforce the provisions
hereof, the Company hereby waives the claim or defense that the party
instituting such action or proceeding has an adequate remedy at law.

      
        
           

        

        
           

           

        

        
           

        

      

    12. AMENDMENTS; WAIVERS. This
Warrant may not be amended or modified except pursuant to an instrument in
writing signed by the Company and the Holder.  No waiver of any term,
provision or condition of this Warrant, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a future or
continuing waiver of any such term, provision or condition or as a waiver of any
other term, provision or condition of this Warrant.

     

    13. GOVERNING LAW. This Warrant
shall be governed by, and construed in accordance with, the laws of the State of
New York. The Holder hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated thereby. The Holder irrevocably and unconditionally
waives any objection to the laying of venue of any suit or proceeding arising
out of or relating to this Warrant in Federal and state courts in the Borough of
Manhattan in The City of New York and irrevocably and unconditionally waives and
agrees not to plead or claim in any such court that any such suit or proceeding
in any such court has been brought in an inconvenient forum.

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

      
        
           

        

        
           

           

        

        
           

        

      

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

    

    Neurogen Corporation

    

    By:                                                                

    Name:                      Stephen
R. Davis

    Title:                      President
and Chief Executive Officer

    

    

    Address:                      Neurogen
Corporation

    35 NE Industrial Road

    Branford, CT 06405

    Fax:                                

    Attn: Chief Executive
Officer

    
      
         

      

      
         

         

      

      
         

      

    

    EXERCISE NOTICE

    

    TO:
NEUROGEN CORPORATION

    

    Ladies and Gentlemen:

    

    (1)           The
undersigned is the Holder of warrant No._____ (the “Warrant”) issued by NEUROGEN CORPORATION, a
Delaware corporation (the “Company”), which Warrant is
exercisable for up to ______________ shares of the Company’s common stock, par
value $0.025.  Capitalized terms used herein and not otherwise defined
herein have the respective meanings set forth in the Warrant.

    

    (2)           The
undersigned hereby exercises the Warrant with respect to __________ Warrant
Shares (before giving effect to the cashless exercise provisions in Section 2.2
of the Warrant, if applicable).

      

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

    

                Cash
exercise

    

                Cashless
exercise under Section 2.2 of the Warrant

    

    (4)           If
the Holder has elected a cash exercise, then the Holder shall pay the sum of
$_____________ in cash, and the Company shall deliver to the Holder
_____________ Warrant Shares, in each case in accordance with the terms of the
Warrant.

    

    (5)           If
the Holder has elected a cashless exercise, then Company shall deliver to the
Holder _____________ Warrant Shares calculated in accordance with Section 2.2 of
the Warrant, based on a Fair Market Value of $_______.

    

    (6)           If
the Holder has elected a cash exercise, the Holder hereby certifies that such
Holder is an “accredited investor” as defined in Rule 501(a) under the
Securities Act.

     

     

    Dated:_______________,
_____

     

    Name of
Holder:                                                                           

     

    By:                                                                           

     

    

     

    Name:                                                                                     

     

    

     

    Title:                                                                                     

     

    

      
        
           

        

        
           

           

        

        
           

        

      

    ASSIGNMENT FORM

    

    To assign
the foregoing Warrant, execute this form and supply required information. Do not
use this form to purchase shares.)

     

    FOR VALUE
RECEIVED, the attached Warrant and all rights evidenced thereby are hereby
assigned to:

    

    Transferee
Name:                                                                                                                                

    

    Transferee
Address:                                                                                                                                

    

    In connection with this assignment, the
undersigned Transferor hereby represents, warrants, covenants and agrees to and
with the Company that:

    

    (a)           the
assignment of the Warrant contemplated hereby is being made in compliance with
Section 4(1) of the United States Securities Act of 1933, as amended (the “Securities Act”) or another
valid exemption from the registration requirements of Section 5 of the
Securities Act and in compliance with all applicable securities laws of the
states of the United States;

    

    (b)           the
undersigned Transferor has not offered to sell the Warrant by any form of
general solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising;

    

    (c)           the
undersigned understands that the Company may condition the transfer of the
Warrant contemplated hereby upon the delivery to the Company by the undersigned
or the Transferee, as the case may be, of a written opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable securities laws of
the states of the United States; provided that no
such opinion of counsel shall be required in connection with a transaction pursuant to Rule 144 of the Securities
Act.

    

    Dated:                                                                                                

    

    Holder/Transferor
Name:                                                                                                

    

    Holder/Transferor
Address:                                                                                                

    

    Holder/Transferor
Signature:

    

    By:                                                                

    Printed Name:Title:

     

    NOTICE:  THE
SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATSOEVER. OFFICERS OF CORPORATIONS AND THOSE ACTING
IN A FIDUCIARY OR OTHER REPRESENTATIVE CAPACITY SHOULD DELIVER PROPER EVIDENCE
OF AUTHORITY TO ASSIGN THE FOREGOING WARRANT.

    

    Signature(s)
Guaranteed:                                                                                                

    
      	
               
      

            	
              THE
      SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
      (BANKS, STOCK BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
      WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
      PURSUANT TO S.E.C. RULE
17Ad-15.

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