Document:

Exhibit 10.1

 

T1

 

TERMINATION PROTECTION AGREEMENT

 

AGREEMENT effective
December 20, 2002, between Arena Pharmaceuticals, Inc. (the “Company”) and
[NAME] (“Executive”).

 

WHEREAS, Executive has important management responsibilities and
talents which benefit the Company and its affiliates; and

 

WHEREAS, the Company believes that its best interests are served if
Executive is encouraged to remain with the Company and the Company has
determined that Executive’s ability to perform Executive’s responsibilities and
utilize Executive’s talents for the benefit of the Company, and the Company’s
ability to retain Executive as an employee, will be significantly enhanced if
Executive is provided with fair and reasonable protection from the risks
associated with a change in ownership or control of the Company; and

 

WHEREAS, the Board has approved and authorized this Agreement at its
meeting on November 14, 2002,

 

NOW, THEREFORE, the Company and Executive hereby agree as follows:

 

1.                                       Defined
Terms.

 

Unless otherwise indicated, capitalized terms used in this Agreement
which are defined in Schedule A shall have the meanings set forth in Schedule
A.

 

2.                                       Effective
Date; Term.

 

This Agreement shall commence on December 20, 2002 (the “Effective
Date”) and shall continue in effect through December 31, 2005; provided,
however, the term of this Agreement shall automatically be extended for
one additional year beyond December 31, 2005 and for successive one year
periods thereafter, unless, not later than January 30 of each calendar year,
commencing in 2003 for the 2006 calendar year (e.g., 2004 for the 2007 calendar
year, 2005 for the 2008 calendar year, etc.), the Company shall have given
written notice that it does not wish to extend this Agreement for an additional
year, in which event this Agreement shall continue to be effective until
December 31 of the applicable calendar year; provided, further,
that, notwithstanding any such notice by the Company not to extend, if a Change
in Control shall have occurred during the original or any extended term of this
Agreement, this Agreement shall remain in effect for a period of two (2) years
after such Change in Control.

 

3.                                       Change in
Control Benefits.

 

If Executive’s employment with the Company or its affiliates is
terminated at any time within two (2) years following a Change in Control by
the Company or its affiliates without 

 

 

Cause, or by Executive for Good
Reason (the effective date of either such termination hereafter referred to as
the “Termination Date”), Executive shall be entitled to the benefits provided
hereafter in this Section 3 and as otherwise set forth in this Agreement.  If Executive’s employment is terminated
within one (1) year prior to a Change in Control, and Executive reasonably
demonstrates after such Change in Control that such termination was at the
request or suggestion of any individual or entity who or which ultimately
effects a Change in Control (an “Anticipatory Termination”), this Agreement
shall become effective upon such Change in Control involving such individual or
entity, and Executive’s Termination Date shall be deemed to have occurred
immediately following the Change in Control, and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 3 and as otherwise
set forth in this Agreement.  In the
event that Executive’s employment is terminated as a result of death or
Disability, Executive shall not be entitled to the benefits provided in this
Section 3.

 

(a)                                  Severance Benefits.  Within five business days after the
Termination Date, the Company shall pay Executive a lump sum amount, in cash,
equal to Executive’s Annual Compensation.

 

(b)                                 Continued
Health Insurance Coverage.  Until
the second anniversary of the Termination Date, the Company shall, at its
expense, provide Executive with medical and dental insurance at the highest
level provided to Executive during the period beginning immediately prior to
the Change in Control and ending on the Termination Date; provided, however,
that if Executive becomes employed by a new employer, the coverages provided by
the Company pursuant to this sentence shall become secondary to those coverages
provided by the new employer.  In
addition, Executive will be entitled to full COBRA continuation coverage commencing
on the second anniversary of the Termination Date.

 

(c)                                  Full
Vesting of All Stock Options and Restricted Shares. Notwithstanding any
provision to the contrary in any equity compensation plan of the Company (the
“Option Plan”) or any award agreement under the Option Plan, (i) any outstanding,
unexercisable stock options or unvested restricted shares shall become fully
exercisable and vested as of the Termination Date and (ii) any stock options
shall remain exercisable until the first anniversary of the Termination Date; provided,
however, that (x) in no event shall any stock option continue to be
exercisable after the expiration of the 10th anniversary of the
grant date of any such option and (y) this section shall not restrict the
Company’s ability to adjust stock options pursuant to Section 3(b) of the
Option Plan (or any successor provision under the Option Plan or any similar
provision in any other Company option plan) or to require that optionees
surrender their stock option pursuant to Section 10(b) of the Option Plan (or
any successor provision under the Option Plan or any similar provision in any
other Company option plan), so long as, in any such adjustment or surrender,
Executive is treated no less favorably than any other employee of the Company.

 

(d)                                 Other
Payments And Benefits.  Executive
shall also be entitled to receive any other payments or benefits Executive is
entitled to pursuant to the terms of any Company plans, programs or
arrangements (other than severance benefits).

 

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4.                                       Mitigation.

 

Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned from such
employment or otherwise shall not reduce the amounts otherwise payable under
this Agreement.  No amounts payable
under this Agreement shall be subject to reduction or offset in respect of any
claims which the Company (or any other person or entity) may have against
Executive.

 

5.                                       Severance
Benefit Cap.

 

In the event that any payment or benefit (the “Payments”) received or
to be received by Executive pursuant to the terms of this Agreement or in
connection with Executive’s termination of employment or contingent upon a
change in control of the Company pursuant to any plan or arrangement or other
agreement with the Company (or any affiliate) would be subject to the excise
tax (the “Excise Tax”) imposed by Section 4999 of the Code, then Executive will
receive whichever of the following provides a greater after-tax benefit to
Executive: (i) the Payments, reduced by the minimum amount necessary so as not
to be subject to the Excise Tax, or (ii) the full amount of the Payments, with
Executive liable for any Excise Tax.

 

6.                                       Employment
Status; No Effect Prior to Change in Control; Termination for Cause.

 

Executive and the Company acknowledge and agree that prior to a Change
in Control, Executive’s employment is “at will” and may be terminated at any
time, by the Company or by Executive, with or without Cause, subject to
applicable law.  In the event
Executive’s employment is terminated for any reason prior to a Change in
Control, other than in the case of an Anticipatory Termination, Executive shall
have no rights to any payments or benefits under this Agreement and after any
such termination, this Agreement shall be of no further force or effect.

 

Following a Change in Control, nothing in this Agreement shall be
construed to prevent the Company from terminating Executive’s employment for
Cause.  In the event Executive is
terminated for Cause following a Change in Control, Executive shall have no
rights to any payments or benefits under this Agreement and after such
termination, this Agreement shall be of no further force or effect.

 

7.                                       Indemnification;
Director’s and Officer’s Liability Insurance.

 

Until the sixth anniversary of the Termination Date and for so long
thereafter as any claim for indemnification asserted on or prior to such date
has not been fully adjudicated (the “Indemnification Period”), the Company
shall indemnify, defend, and hold harmless Executive against all losses,
claims, damages, costs, expenses (including attorneys’ fees) or liabilities
(including attorneys’ fees) arising out of actions or omissions or alleged
actions or omissions which have occurred on or prior to the Termination Date to
the same extent and on the same 

 

3

 

terms and conditions (including
with respect to advancement of expenses) as permitted under applicable law and
the Company’s certificate of incorporation and by-laws as in effect immediately
prior to the Change in Control.  In
addition, the Company shall maintain Director’s and Officer’s liability
insurance on behalf of Executive, at the level in effect immediately prior to the
Change in Control, for the Indemnification Period.

 

8.                                       Confidential
Information.

 

Executive acknowledges that the Proprietary Information and Inventions
Agreement previously entered into by Executive and the Company remains in full
force and effect and survives the termination of his or her employment with the
Company; provided that nothing contained in such agreement or this
Section 8 shall prevent Executive from being employed by a competitor of any of
the Company or utilizing Executive’s general skills, experience, and knowledge,
including those developed while employed by any of the Company or its
affiliates.

 

9.                                       Disputes.

 

Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in San Diego, California
or, at the option of Executive, in the county where Executive then resides, in
accordance with the Rules of the American Arbitration Association then in
effect, except that Executive may, at Executive’s option, bring that action in
a court of competent jurisdiction, even if the Company has earlier instituted
an action hereunder.  Judgment may be
entered on an arbitrator’s award relating to this Agreement in any court having
jurisdiction.

 

10.                                 Costs
of Proceedings.

 

The Company shall pay for all costs and expenses of Executive, at least
monthly, including attorneys’ fees and disbursements, in connection with any
legal proceeding (including arbitration), whether instituted by the Company or
by Executive, relating to the interpretation or enforcement of any provision of
this Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad faith, then
Executive shall be required to pay all costs and expenses of Executive,
including attorney’s fees and disbursements, and shall not be entitled to
reimbursement.  The Company shall pay
prejudgment interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of interest as reported in the
Wall Street Journal, as in effect from time to time, from the date that payment
should have been made to Executive under this Agreement.

 

11.                                 Successors And
Assigns.

 

Except as otherwise provided herein, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Company and Executive
and their respective heirs, legal representatives, successors and assigns.  If the Company shall be merged into or 

 

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consolidated with another
entity, the provisions of this Agreement shall be binding upon and inure to the
benefit of the entity surviving such merger or resulting from such
consolidation.  The Company shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. 
The provisions of this Section 11 shall continue to apply to each
subsequent employer of Executive in the event of any subsequent merger,
consolidation or transfer of assets of such subsequent employer.

 

12.                                 Withholding.

 

Notwithstanding the provisions of Sections 4 and 5 hereof, the Company
may, to the extent required by law, withhold applicable federal, state and
local income and other taxes from any payments due to Executive hereunder.

 

13.                                 Applicable Law.

 

This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts made and to be
performed therein.

 

14.                                 Entire Agreement.

 

This Agreement constitutes the entire agreement between the parties
regarding the subject matter hereof. 
This Agreement may be changed only by a written agreement executed by
the Company and Executive.

 

15.                                 Notice.  Notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered, delivered by a nationally recognized
overnight delivery service, or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses last given by
each party to the other, provided that all notices to the Company shall be
directed to the attention of the Board with a copy to the Secretary of the Company.  All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof, except that notice of change of address
shall be effective only upon receipt.

 

16.                                 Severability.  The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of the other provisions
hereof.

 

5

 

IN WITNESS WHEREOF,
the parties have executed this Agreement on the dates set forth below.

 

 

	
   

  	
  ARENA PHARMACEUTICALS, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  	
  Dated:  December 20, 2002

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Dated: 
                   ,
  200  

  
	
   

  	
  Executive

  	
   

  	
   

  	
   

  

 

6

 

Schedule A

 

CERTAIN
DEFINITIONS

 

As used in this Agreement, and unless the context requires a different
meaning, the following terms, when capitalized, have the meaning indicated:

 

“Annual Compensation” means the sum of (i) Executive’s annual
rate of base salary in effect on the date of the Change in Control or the
Termination Date, whichever is higher, and (ii) any bonus paid or payable to
Executive for the year preceding the Change in Control or the year preceding
the Termination Date, whichever is higher.

 

“Board” means the Company’s Board of Directors.

 

“Cause” shall mean Executive’s
termination of employment due to:

 

(i) the
willful and continued failure of Executive to substantially perform Executive’s
duties with the Company (other than any such failure resulting from incapacity
due to physical or mental illness), after a written demand for substantial
performance is delivered to Executive by the Board which specifically
identifies the manner in which the Board believes that Executive has not
substantially performed Executive’s duties; or

 

(ii) (A)
Executive’s conviction of, or plea of guilty or nolo contendere to, a felony or
(B) the willful engaging by Executive in gross misconduct which is materially
and demonstrably injurious to the Company.

 

In each of (i) and (ii) above, for a
termination of employment to be for Cause: (a) Executive must receive a written
notice which indicates in reasonable detail the facts and circumstances claimed
to provide a basis for the termination of Executive’s employment for Cause; (b)
Executive must be provided with an opportunity to be heard no earlier than 30
days following the receipt of such notice (during which notice period Executive
has the opportunity to cure and has failed to cure or resolve the behavior in
question); and (c) there must be a good faith determination of Cause by at
least three-quarters of the non-employee outside director members of the Board.

 

“Change in Control” shall mean any of
the following events:

 

(i) any person
or group of persons acting in concert (excluding Company benefit plans)
becoming the beneficial owner of securities of the Company having at least 30%
of the voting power of the Company’s then outstanding securities (unless the
event causing the 30% threshold to be crossed is an acquisition of voting
common securities directly from the Company); or

 

A-1

 

(ii) any
merger or other business combination of the Company, any sale or lease of the
Company’s assets or any combination of the foregoing transactions (the “Transactions”)
other than a Transaction immediately following which the shareholders of the
Company immediately prior to the Transaction own at least 60% of the voting power,
directly or indirectly, of (A) the surviving corporation in any such merger or
other business combination; (B) the purchaser or lessee of the Company’s
assets; or (C) both the surviving corporation and the purchaser or lessee in
the event of any combination of Transactions; or

 

(iii) within
any 24 month period, the persons who were directors immediately before the
beginning of such period (the “Incumbent Directors”) shall cease to
constitute at least a majority of the Board or the board of directors of a
successor to the Company.  For this
purpose, any director who was not a director at the beginning of such period
shall be deemed to be an Incumbent Director if such director was elected to the
Board by, or on the recommendation of or with the approval of, at least
three-quarters of the directors who then qualified as Incumbent Directors (so
long as such director was not nominated by a person who has expressed an intent
to effect a Change in Control or engage in a proxy or other control contest).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company” means Arena Pharmaceuticals, Inc. and its successors
and assigns.

 

“Disability” means an illness or injury which prevents Executive
from performing his or her duties, as they existed immediately prior to the
illness or injury, on a full time basis for 180 consecutive business days.

 

“Good Reason” means any of the following actions, without
Executive’s express prior written approval, other than due to Executive’s
permanent disability or death:

 

(i) 
any reduction in Executive’s annual base salary;

 

(ii) 
any material reduction in Executive’s target bonus level or bonus
opportunities;

 

(iii) 
Executive’s duties, titles or responsibilities are materially diminished
in comparison to the duties, titles and responsibilities enjoyed by Executive
immediately prior to the Change in Control;

 

(iv) 
the assignment to Executive of any duties materially inconsistent with
his position;

 

(v) 
in the event Executive is a member of the Board, any failure to elect
Executive to or Executive’s removal from the Board or, if the Company is not
publicly-

 

A-2

 

held following a Change in Control, to the board of directors of the
Company’s ultimate publicly-held parent;

 

(vi) 
any significant reduction, in the aggregate, in the employee benefit
programs made available to Executive other than a reduction in such employee
benefit programs affecting all employees of the Company substantially equally;

 

(vii) 
the relocation of Executive’s principal place of business to a location
outside the San Diego, California metropolitan area; or

 

(viii) 
the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform the Agreement, as contemplated in
Section 11 of the Agreement.

 

Executive’s continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.

 

A-3

 

Schedule 1

 

Participating Officers:

 

	
  1.

  	
  Jack
  Lief

  
	
  2.

  	
  Derek
  Chalmers

  
	
  3.

  	
  Dominic
  Behan

  
	
  4.

  	
  Robert
  Hoffman

  
	
  5.

  	
  Joseph
  Mooney

  
	
  6.

  	
  Louis
  Scotti

  
	
  7.

  	
  Steven
  Spector

  
	
  8.

  	
  Joyce
  WilliamsExhibit 10.2

 

T2

 

TERMINATION PROTECTION AGREEMENT

 

AGREEMENT effective
December 20, 2002, between Arena Pharmaceuticals, Inc. (the “Company”) and
[NAME] (“Executive”).

 

WHEREAS, Executive has important management responsibilities and
talents which benefit the Company and its affiliates; and

 

WHEREAS, the Company believes that its best interests are served if
Executive is encouraged to remain with the Company and the Company has
determined that Executive’s ability to perform Executive’s responsibilities and
utilize Executive’s talents for the benefit of the Company, and the Company’s
ability to retain Executive as an employee, will be significantly enhanced if
Executive is provided with fair and reasonable protection from the risks
associated with a change in ownership or control of the Company; and

 

WHEREAS, the Board has approved and authorized this Agreement at its
meeting on November 14, 2002,

 

NOW, THEREFORE, the Company and Executive hereby agree as follows:

 

1.                                       Defined
Terms.

 

Unless otherwise indicated, capitalized terms used in this Agreement
which are defined in Schedule A shall have the meanings set forth in Schedule
A.

 

2.                                       Effective
Date; Term.

 

This Agreement shall commence on December 20, 2002 (the “Effective
Date”) and shall continue in effect through December 31, 2005; provided,
however, the term of this Agreement shall automatically be extended for
one additional year beyond December 31, 2005 and for successive one year
periods thereafter, unless, not later than January 30 of each calendar year,
commencing in 2003 for the 2006 calendar year (e.g., 2004 for the 2007 calendar
year, 2005 for the 2008 calendar year, etc.), the Company shall have given
written notice that it does not wish to extend this Agreement for an additional
year, in which event this Agreement shall continue to be effective until
December 31 of the applicable calendar year; provided, further,
that, notwithstanding any such notice by the Company not to extend, if a Change
in Control shall have occurred during the original or any extended term of this
Agreement, this Agreement shall remain in effect for a period of two (2) years
after such Change in Control.

 

3.                                       Change
in Control Benefits.

 

If Executive’s employment with the Company or its affiliates is
terminated at any time within two (2) years following a Change in Control by
the Company or its affiliates without 

 

 

Cause, or by Executive for Good Reason (the effective date of either
such termination hereafter referred to as the “Termination Date”), Executive
shall be entitled to the benefits provided hereafter in this Section 3 and as
otherwise set forth in this Agreement. 
If Executive’s employment is terminated within one (1) year prior to a
Change in Control, and Executive reasonably demonstrates after such Change in
Control that such termination was at the request or suggestion of any
individual or entity who or which ultimately effects a Change in Control (an
“Anticipatory Termination”), this Agreement shall become effective upon such
Change in Control involving such individual or entity, and Executive’s
Termination Date shall be deemed to have occurred immediately following the
Change in Control, and therefore Executive shall be entitled to the benefits
provided hereafter in this Section 3 and as otherwise set forth in this
Agreement.  In the event that
Executive’s employment is terminated as a result of death or Disability,
Executive shall not be entitled to the benefits provided in this Section 3.

 

(a)                                  Severance
Benefits.  Within five business days
after the Termination Date, the Company shall pay Executive a lump sum amount,
in cash, equal to Executive’s Annual Compensation.

 

(b)                                 Continued
Health Insurance Coverage.  Until
the second anniversary of the Termination Date, the Company shall, at its
expense, provide Executive with medical and dental insurance at the highest
level provided to Executive during the period beginning immediately prior to
the Change in Control and ending on the Termination Date; provided, however,
that if Executive becomes employed by a new employer, the coverages provided by
the Company pursuant to this sentence shall become secondary to those coverages
provided by the new employer.  In
addition, Executive will be entitled to full COBRA continuation coverage commencing
on the second anniversary of the Termination Date.

 

(c)                                  Full
Vesting of All Stock Options and Restricted Shares. Notwithstanding any
provision to the contrary in any equity compensation plan of the Company (the
“Option Plan”) or any award agreement under the Option Plan, (i) any outstanding,
unexercisable stock options or unvested restricted shares shall become fully
exercisable and vested as of the Termination Date and (ii) any stock options
shall remain exercisable until the first anniversary of the Termination Date; provided,
however, that (x) in no event shall any stock option continue to be
exercisable after the expiration of the 10th anniversary of the
grant date of any such option and (y) this section shall not restrict the
Company’s ability to adjust stock options pursuant to Section 3(b) of the
Option Plan (or any successor provision under the Option Plan or any similar
provision in any other Company option plan) or to require that optionees
surrender their stock option pursuant to Section 10(b) of the Option Plan (or
any successor provision under the Option Plan or any similar provision in any
other Company option plan), so long as, in any such adjustment or surrender,
Executive is treated no less favorably than any other employee of the Company.

 

(d)                                 Other
Payments And Benefits.  Executive
shall also be entitled to receive any other payments or benefits Executive is
entitled to pursuant to the terms of any Company plans, programs or
arrangements (other than severance benefits).

 

2

 

4.                                       Mitigation.

 

Executive shall not be required to mitigate damages or the amount of
any payment provided for under this Agreement by seeking other employment or
otherwise, and compensation earned from such employment or otherwise shall not
reduce the amounts otherwise payable under this Agreement.  No amounts payable under this Agreement
shall be subject to reduction or offset in respect of any claims which the
Company (or any other person or entity) may have against Executive.

 

5.                                       Severance
Benefit Cap.

 

In the event that any payment or benefit (the “Payments”) received or
to be received by Executive pursuant to the terms of this Agreement or in
connection with Executive’s termination of employment or contingent upon a
change in control of the Company pursuant to any plan or arrangement or other
agreement with the Company (or any affiliate) would be subject to the excise
tax (the “Excise Tax”) imposed by Section 4999 of the Code, then Executive will
receive whichever of the following provides a greater after-tax benefit to
Executive: (i) the Payments, reduced by the minimum amount necessary so as not
to be subject to the Excise Tax, or (ii) the full amount of the Payments, with
Executive liable for any Excise Tax.

 

6.                                       Employment
Status; No Effect Prior to Change in Control; Termination for Cause.

 

Executive and the Company acknowledge and agree that prior to a Change
in Control, Executive’s employment is “at will” and may be terminated at any
time, by the Company or by Executive, with or without Cause, subject to
applicable law.  In the event
Executive’s employment is terminated for any reason prior to a Change in
Control, other than in the case of an Anticipatory Termination, Executive shall
have no rights to any payments or benefits under this Agreement and after any
such termination, this Agreement shall be of no further force or effect.

 

Following a Change in Control, nothing in this Agreement shall be
construed to prevent the Company from terminating Executive’s employment for
Cause.  In the event Executive is
terminated for Cause following a Change in Control, Executive shall have no
rights to any payments or benefits under this Agreement and after such
termination, this Agreement shall be of no further force or effect.

 

7.                                       Indemnification;
Director’s and Officer’s Liability Insurance.

 

Until the sixth anniversary of the Termination Date and for so long
thereafter as any claim for indemnification asserted on or prior to such date
has not been fully adjudicated (the “Indemnification Period”), the Company
shall indemnify, defend, and hold harmless Executive against all losses,
claims, damages, costs, expenses (including attorneys’ fees) or liabilities
(including attorneys’ fees) arising out of actions or omissions or alleged
actions or omissions which have occurred on or prior to the Termination Date to
the same extent and on the same 

 

3

 

terms and conditions (including with respect to advancement of
expenses) as permitted under applicable law and the Company’s certificate of
incorporation and by-laws as in effect immediately prior to the Change in
Control.  In addition, the Company shall
maintain Director’s and Officer’s liability insurance on behalf of Executive,
at the level in effect immediately prior to the Change in Control, for the
Indemnification Period.

 

8.                                       Confidential
Information.

 

Executive acknowledges that the Proprietary Information and Inventions
Agreement previously entered into by Executive and the Company remains in full
force and effect and survives the termination of his or her employment with the
Company; provided that nothing contained in such agreement or this
Section 8 shall prevent Executive from being employed by a competitor of any of
the Company or utilizing Executive’s general skills, experience, and knowledge,
including those developed while employed by any of the Company or its
affiliates.

 

9.                                       Disputes.

 

Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in San Diego, California
or, at the option of Executive, in the county where Executive then resides, in
accordance with the Rules of the American Arbitration Association then in
effect, except that Executive may, at Executive’s option, bring that action in
a court of competent jurisdiction, even if the Company has earlier instituted
an action hereunder.  Judgment may be
entered on an arbitrator’s award relating to this Agreement in any court having
jurisdiction.

 

10.                                 Costs
of Proceedings.

 

The Company shall pay for all costs and expenses of Executive, at least
monthly, including attorneys’ fees and disbursements, in connection with any
legal proceeding (including arbitration), whether instituted by the Company or
by Executive, relating to the interpretation or enforcement of any provision of
this Agreement, except that if Executive instituted the proceeding and the
judge, arbitrator or other individual presiding over the proceeding
affirmatively finds that Executive instituted the proceeding in bad faith, then
Executive shall be required to pay all costs and expenses of Executive,
including attorney’s fees and disbursements, and shall not be entitled to
reimbursement.  The Company shall pay
prejudgment interest on any money judgment obtained by Executive as a result of
such a proceeding, calculated at the prime rate of interest as reported in the
Wall Street Journal, as in effect from time to time, from the date that payment
should have been made to Executive under this Agreement.

 

11.                                 Successors
And Assigns.

 

Except as otherwise provided herein, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Company and Executive
and their respective heirs, legal representatives, successors and assigns.  If the Company shall be merged into or 

 

4

 

consolidated with another entity, the provisions of this Agreement
shall be binding upon and inure to the benefit of the entity surviving such
merger or resulting from such consolidation. 
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business or assets of the Company, by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.  The provisions of this Section 11 shall
continue to apply to each subsequent employer of Executive in the event of any
subsequent merger, consolidation or transfer of assets of such subsequent
employer.

 

12.                                 Withholding.

 

Notwithstanding the provisions of Sections 4 and 5 hereof, the Company
may, to the extent required by law, withhold applicable federal, state and
local income and other taxes from any payments due to Executive hereunder.

 

13.                                 Applicable
Law.

 

This Agreement shall be governed by and construed in accordance with
the laws of the State of California applicable to contracts made and to be
performed therein.

 

14.                                 Entire
Agreement.

 

This Agreement constitutes the entire agreement between the parties
regarding the subject matter hereof. 
This Agreement may be changed only by a written agreement executed by
the Company and Executive.

 

15.                                 Notice.  Notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered, delivered by a nationally recognized
overnight delivery service, or sent by certified mail, return receipt
requested, postage prepaid, addressed to the respective addresses last given by
each party to the other, provided that all notices to the Company shall be
directed to the attention of the Board with a copy to the Secretary of the Company.  All notices and communications shall be
deemed to have been received on the date of delivery thereof or on the third
business day after the mailing thereof, except that notice of change of address
shall be effective only upon receipt.

 

16.           Severability.  The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision
hereof shall not affect the validity or enforceability of the other provisions
hereof.

 

5

 

IN WITNESS WHEREOF,
the parties have executed this Agreement on the dates set forth below.

 

 

	
   

  	
  ARENA PHARMACEUTICALS, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  	
  Dated:  December 20, 2002

  
	
   

  	
  Jack Lief

  	
   

  	
   

  
	
   

  	
  President and CEO

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Dated:
                          ,
  200  

  
	
   

  	
  Executive

  	
   

  	
   

  

 

6

 

Schedule A

 

CERTAIN DEFINITIONS

 

 

As used in this Agreement, and unless the context requires a different
meaning, the following terms, when capitalized, have the meaning indicated:

 

“Annual Compensation” means the sum of (i) Executive’s annual
rate of base salary in effect on the date of the Change in Control or the
Termination Date, whichever is higher, and (ii)  any bonus paid or payable to Executive for the year preceding the
Change in Control or the year preceding the Termination Date, whichever is
higher.

 

“Board” means the Company’s Board of Directors.

 

“Cause” shall mean Executive’s termination of employment due to:

 

(i) the willful and continued failure of
Executive to substantially perform Executive’s duties with the Company (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to
Executive by the Chief Executive Officer of the Company which specifically
identifies the manner in which the Chief Executive Officer believes that
Executive has not substantially performed Executive’s duties; or

 

(ii) (A) Executive’s conviction of, or plea
of guilty or nolo contendere to, a felony or (B) the willful engaging by
Executive in gross misconduct which is materially and demonstrably injurious to
the Company.

 

“Change in Control” shall mean any of the following events:

 

(i) any person or group of persons acting in
concert (excluding Company benefit plans) becoming the beneficial owner of
securities of the Company having at least 30% of the voting power of the
Company’s then outstanding securities (unless the event causing the 30%
threshold to be crossed is an acquisition of voting common securities directly
from the Company); or

 

(ii) any merger or other business combination
of the Company, any sale or lease of the Company’s assets or any combination of
the foregoing transactions (the “Transactions”) other than a Transaction
immediately following which the shareholders of the Company immediately prior
to the Transaction own at least 60% of the voting power, directly or
indirectly, of (A) the surviving corporation in any such merger or other
business combination; (B) the purchaser or lessee of the Company’s assets; or
(C) both the surviving corporation and the purchaser or lessee in the event of
any combination of Transactions; or

 

A-1

 

(iii) within any 24 month period, the persons
who were directors immediately before the beginning of such period (the “Incumbent
Directors”) shall cease to constitute at least a majority of the Board or
the board of directors of a successor to the Company.  For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if such
director was elected to the Board by, or on the recommendation of or with the
approval of, at least three-quarters of the directors who then qualified as
Incumbent Directors (so long as such director was not nominated by a person who
has expressed an intent to effect a Change in Control or engage in a proxy or
other control contest).

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company” means Arena Pharmaceuticals, Inc. and its successors
and assigns.

 

“Disability” means an illness or injury which prevents Executive
from performing his or her duties, as they existed immediately prior to the
illness or injury, on a full time basis for 180 consecutive business days.

 

“Good Reason” means any of the following actions, without
Executive’s express prior written approval, other than due to Executive’s
permanent disability or death:

 

(i) 
any reduction in Executive’s annual base salary;

 

(ii) 
any material reduction in Executive’s target bonus level or bonus
opportunities;

 

(iii) 
Executive’s duties, titles or responsibilities are materially diminished
in comparison to the duties, titles and responsibilities enjoyed by Executive
immediately prior to the Change in Control;

 

(iv) 
the assignment to Executive of any duties materially inconsistent with
his position;

 

(v) 
in the event Executive is a member of the Board, any failure to elect
Executive to or Executive’s removal from the Board or, if the Company is not
publicly-held following a Change in Control, to the board of directors of the
Company’s ultimate publicly-held parent;

 

(vi) 
any significant reduction, in the aggregate, in the employee benefit
programs made available to Executive other than a reduction in such employee
benefit programs affecting all employees of the Company substantially equally;

 

(vii) 
the relocation of Executive’s principal place of business to a location
outside the San Diego, California metropolitan area; or

 

A-2

 

(viii) 
the failure of the Company to obtain a satisfactory agreement from any
successor to assume and agree to perform the Agreement, as contemplated in
Section 11 of this Agreement.

 

Executive’s continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstances constituting Good Reason
hereunder.

 

A-3

 

Schedule 1

 

Participating Officers:

 

	
  1.

  	
  Nigel
  Beeley

  
	
  2.

  	
  Paul
  Maffuid

  
	
  3.

  	
  Michael
  Lerner

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